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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
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
Securities Registered Pursuant to Section 12(b):
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value $1.00 per share New York Stock Exchange
and Chicago Stock Exchange
Rights to Purchase Series A Participating New York Stock Exchange
Cumulative Preferred Stock and Chicago Stock Exchange
Securities Registered Pursuant to Section 12(g): None
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. Yes [X]
No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
At November 30, 1999, based on the New York Stock Exchange closing
price, the aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $2,394,294,188. In determining this
amount, the Registrant has assumed that its directors and executive
officers are affiliates. Such assumption shall not be deemed conclusive for
any other purpose.
At November 30, 1999, there were 71,290,693 shares of Registrant's
common stock outstanding.
Documents Incorporated by Reference
Portions of Registrant's Annual Report to Shareholders for the
fiscal year ended September 30, 1999 are incorporated by reference into
Parts I and II.
Portions of Registrant's definitive Proxy Statement for its
January 27, 2000 Annual Meeting of Shareholders are incorporated by
reference into Part III.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business .................................................. 1
Corporate Developments................................. 1
APAC................................................... 2
Ashland Distribution................................... 2
Ashland Specialty Chemical............................. 3
Valvoline.............................................. 4
Refining and Marketing................................. 5
Arch Coal.............................................. 8
Miscellaneous.......................................... 10
Item 2. Properties................................................. 12
Item 3. Legal Proceedings.......................................... 12
Item 4. Submission of Matters to a
Vote of Security Holders................................. 13
Item X. Executive Officers of Ashland.............................. 13
PART II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters.................................. 14
Item 6. Selected Financial Data.................................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..15
Item 8. Financial Statements and Supplementary Data.................15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................15
PART III
Item 10. Directors and Executive Officers of the Registrant..........15
Item 11. Executive Compensation......................................15
Item 12. Security Ownership of Certain Beneficial
Owners and Management.....................................15
Item 13. Certain Relationships and Related Transactions..............15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K...............................................15
<PAGE>
PART I
ITEM 1. BUSINESS
Ashland Inc. is a Kentucky corporation, organized on October 22,
1936, with its principal executive offices located at 50 E. RiverCenter
Boulevard, Covington, Kentucky 41012 (Mailing Address: 50 E. RiverCenter
Boulevard, P.O. Box 391, Covington, Kentucky 41012-0391) (Telephone: (606)
815-3333). The terms "Ashland" and the "Company" as used herein include
Ashland Inc. and its consolidated subsidiaries, except where the context
indicates otherwise.
Ashland's businesses are grouped into six industry segments: APAC,
Ashland Distribution, Ashland Specialty Chemical, Valvoline, Refining and
Marketing and Arch Coal. Financial information about these segments for the
three fiscal years ended September 30, 1999, is set forth on Pages 52 and
53 of Ashland's Annual Report to Shareholders for the fiscal year ended
September 30, 1999 ("Annual Report").
APAC performs contract construction work, including highway paving and
repair, excavation and grading, and bridge construction, and produces
asphaltic and ready-mix concrete, crushed stone and other aggregate,
concrete block and certain specialized construction materials in the
southern and midwestern United States.
Ashland Distribution distributes industrial chemicals, solvents,
ingredients, thermoplastics and resins, fiberglass materials and fine
ingredients in North America and plastics in Europe. Ashland Specialty
Chemical manufactures and sells a wide variety of performance chemicals,
resins, products and services and certain petrochemicals. Ashland
Distribution and Ashland Specialty Chemical were formed from the division
of Ashland Chemical in March 1999.
Valvoline is a marketer of premium branded, packaged motor oil and
automotive chemicals, automotive appearance products, antifreeze, filters,
rust preventives and coolants. In addition, Valvoline is engaged in the
"fast oil change" business through outlets operating under the Valvoline
Instant Oil Change(R) name.
Marathon Ashland Petroleum LLC ("MAP"), a joint venture with Marathon
Oil Company, operates seven refineries with a total crude oil refining
capacity of 935,000 barrels per day. Refined products are distributed
through a network of independent and company-owned outlets in the Midwest,
the upper Great Plains and the southeastern United States. Marathon Oil
Company has a 62% interest in MAP, and Ashland holds a 38% interest.
Ashland accounts for its investment in MAP using the equity method.
Ashland's coal operations are conducted by Arch Coal, Inc., which is
owned 58% by Ashland and is publicly traded. Arch Coal produces,
transports, processes and markets bituminous coal produced in Central
Appalachia and the western and midwestern United States. Ashland accounts
for its investment in Arch Coal using the equity method.
At September 30, 1999, Ashland and its consolidated subsidiaries had
approximately 23,000 employees (excluding contract employees).
CORPORATE DEVELOPMENTS
In October 1999, Ashland completed its tender offer for Superfos a/s,
a Denmark based industrial company. In November 1999, in a series of
transactions, Ashland sold the businesses of Superfos, other than its U.S.
construction operations, to a unit of Industri Kapital, a European private
equity fund, for cash and a short-term note of $285 million (to be redeemed
by the end of the March 2000 quarter). Ashland's net cost for the U.S.
construction business of Superfos will be approximately $520 million.
In October 1999, Ashland announced that it was making progress on its
study to explore strategic alternatives for its investment in Arch Coal and
that a tax-free spin-off to its shareholders would seem to be its preferred
alternative. Ashland also announced that it has submitted a proposal to
Arch Coal and has begun discussions with a special committee of the Arch
Coal Board of Directors regarding such a spin-off transaction. Such a
spin-off would be subject, among other things, to a negotiated agreement
with the special committee of the Arch Coal Board of Directors, approval by
the Arch Coal shareholders, a favorable ruling from the Internal Revenue
Service and approval of Ashland's Board of Directors. There can be no
assurance that an agreement with the special committee of the Arch Coal
Board of Directors will be reached or that the necessary approvals of the
Arch Coal shareholders and the Ashland Board of Directors will be obtained
or that a favorable ruling from the Internal Revenue Service
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will be obtained. Even if an agreement were reached and such conditions
were met, Ashland anticipates that it would be several months before a
spin-off could be consummated.
APAC
The APAC group of companies performs construction work such as
paving, repairing and resurfacing highways, streets, airports, residential
and commercial developments, sidewalks and driveways; grading and base
work; and excavation and related activities in the construction of bridges
and structures, drainage facilities and underground utilities in 14
southern and midwestern states. APAC also produces and sells construction
materials, such as hot-mix asphalt and ready-mix concrete, crushed stone
and other aggregate and, in certain markets, concrete block and specialized
construction materials, such as architectural block. For information on
Ashland's acquisition of the U.S. construction operations of Superfos a/s,
see "Item 1. Corporate Developments."
To deliver its services and products, APAC utilizes extensive
aggregate-producing properties and construction equipment. It currently has
26 permanent operating quarry locations, 40 other aggregate production
facilities, 54 ready-mix concrete plants, 189 hot-mix asphalt plants and a
fleet of over 11,000 mobile equipment units, including heavy construction
equipment and transportation-related equipment.
Raw aggregate generally consists of sand, gravel, granite, limestone
and sandstone. About 26% of the raw aggregate produced by APAC is used in
APAC's own contract construction work and the production of various
processed construction materials. The remainder is sold to third parties.
APAC also purchases substantial quantities of raw aggregate from other
producers whose proximity to the job site renders it economically feasible.
Most other raw materials, such as liquid asphalt, portland cement and
reinforcing steel, are purchased from third parties. APAC is not dependent
upon any one supplier or customer.
Approximately 59% of APAC's revenues are derived directly from highway
and other public sector sources. The other 41% are derived from industrial
and commercial customers, private developers and other contractors to the
public sector. The 1998 highway funding authorization package increased
federal funding for highways by $52 billion over a six-year period. More
importantly, the states in which APAC operates should see an average
increase in annual funding of 59% or $3.3 billion, based on current
estimates.
Climate and weather significantly affect revenues in the construction
business. Due to its location, APAC tends to enjoy a relatively long
construction season. Most of APAC's operating income is generated during
the construction period of May to October.
Total backlog at September 30, 1999 was $948 million, compared to $838
million at September 30, 1998. The backlog orders at September 30, 1999 are
considered firm, and a major portion is expected to be filled during fiscal
2000.
ASHLAND DISTRIBUTION
Ashland Distribution distributes chemicals, plastics, fiber
reinforcements and fine ingredients in North America and plastics in
Europe. Ashland Distribution owns or leases approximately 100 distribution
facilities in North America and 25 distribution facilities in 17 foreign
countries. Ashland Distribution is comprised of the following business
units:
INDUSTRIAL CHEMICALS & SOLVENTS DIVISION - This division markets
specialty chemicals, additives and solvents to industrial chemical users in
major markets through distribution centers in the United States, Canada,
Mexico and Puerto Rico. It distributes approximately 7,000 chemicals,
solvents, additives and raw materials made by many of the nation's leading
chemical manufacturers and a growing number of offshore producers. It
specializes in supplying mixed truckloads and less-than-truckload
quantities to many industries, including the paint and coatings, inks,
adhesives, polymer, rubber, industrial and institutional compounding,
automotive, appliance and paper industries. It also offers customers
chemical waste collection, disposal and recycling services, working in
cooperation with major chemical waste services companies.
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GENERAL POLYMERS DIVISION - This division markets a broad range of
thermoplastic resins to injection molders, extruders, blow molders, and
rotational molders in the plastics industry through distribution locations
in the United States, Canada, Mexico and Puerto Rico. It also provides
plastic material transfer and packaging services and less-than-truckload
quantities of packaged thermoplastics. The division's basic resins group
markets bulk wide-spec and off-grade thermoplastic resins to a variety of
proprietary processors in North America.
FRP SUPPLY DIVISION - This division markets to customers in the
reinforced plastics and cultured marble industries mixed truckload and
less-than-truckload quantities of polyester resins, fiberglass and other
specialty reinforcements, catalysts and allied products from distribution
facilities located throughout North America.
FINE INGREDIENTS DIVISION - This division distributes cosmetic and
pharmaceutical specialty chemicals and food-grade and nutritional additives
and ingredients across North America.
ASHLAND PLASTICS EUROPE - This division markets a broad range of
thermoplastics to processors in Europe. Ashland Plastics Europe has
distribution centers located in Belgium, Finland, France, Germany, Ireland,
Italy, the Netherlands, Norway, Spain, Sweden and the United Kingdom and
has compounding manufacturing facilities located in Italy and Spain.
DISTRIBUTION SERVICES - This division provides warehousing and
trucking services for North American distribution businesses. It operates a
network of 95 warehouses and a fleet of 475 trucks making deliveries to
44,000 customers throughout North America.
ASHLAND SPECIALTY CHEMICAL
Ashland Specialty Chemical manufactures and supplies specialty
chemical products and services to industries including the adhesives,
automotive, composites, foundry, merchant marine, paint, paper, plastics
and semiconductor fabrication industries. Ashland Specialty Chemical owns
and operates 36 manufacturing facilities and participates in 14
manufacturing joint ventures in 20 countries. Ashland Specialty Chemical is
comprised of the following business units:
COMPOSITE POLYMERS DIVISION - This division manufactures and sells a
broad range of chemical-resistant, fire-retardant and general-purpose
grades of unsaturated polyester and vinyl ester resins for the reinforced
plastics industry. Key markets include the transportation, construction and
marine industries. It has manufacturing plants in Jacksonville, Arkansas;
Los Angeles, California; Bartow, Florida; Ashtabula, Ohio; Philadelphia,
Pennsylvania; Kelowna, British Columbia, Canada; Benicarlo, Spain; and,
through a joint venture, in Jeddah, Saudi Arabia and Sao Paolo, Brazil. In
addition, the division also manufactures products through other Ashland
Specialty Chemical facilities located in Mississauga, Ontario, Canada and
Neville Island, Pennsylvania.
FOUNDRY PRODUCTS DIVISION - This division manufactures and sells
foundry chemicals worldwide, including sand-binding resin systems,
refractory coatings, release agents, engineered sand additives, riser
sleeves and die lubricants. This division serves the global metal casting
industry from 22 locations in 18 countries. The division is currently
building a manufacturing facility in China expected to be completed in the
third quarter of calendar 2000.
DREW INDUSTRIAL DIVISION - This division supplies specialized
chemicals and consulting services for the treatment of boiler water,
cooling water, steam, fuel and waste streams. It also supplies process
chemicals and technical services to the pulp and paper and mining
industries and additives to manufacturers of latex and paint. It conducts
operations throughout North America, Europe and the Far East through
subsidiaries, joint venture companies and distributors. The division has
manufacturing plants in Kearny, New Jersey; Houston, Texas; Ajax, Ontario,
Canada; Somercotes, England; Singapore; Sydney and Perth, Australia; and
Auckland, New Zealand.
ELECTRONIC CHEMICALS DIVISION - This division manufactures and sells a
variety of ultrapure chemicals for the worldwide semiconductor industry
through various manufacturing locations and also custom blends and packages
ultrapure liquid chemicals to customer specifications. The division
operates manufacturing plants in Pueblo, Colorado; Easton, Pennsylvania;
Dallas, Texas and Milan, Italy. In addition, it enters into long-term
agreements to provide complete on-site chemical management services,
including purchasing, warehousing and delivering chemicals for in-plant
use, at major facilities of large consumers of high purity chemicals. This
division has entered into a joint venture with Union Petrochemical
Corporation of Taipei, Taiwan to build and operate an ultrapure process
chemicals manufacturing facility in Taiwan. In addition, the division
recently built a facility in Korea to manufacture specialty stripper
products for semiconductor manufacturing.
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SPECIALTY POLYMERS & ADHESIVES DIVISION - This division manufactures
and sells specialty phenolic resins for paper impregnation and friction
material bonding; acrylic polymers for pressure-sensitive adhesives;
emulsion polymer isocyanate adhesives for structural wood bonding;
polyurethane and epoxy structural adhesives for bonding fiberglass
reinforced plastics, composites, thermoplastics and metals in automotive,
recreational, and industrial applications; induction bonding systems for
thermoplastic materials; elastomeric polymer adhesives and butyl rubber
roofing tapes for commercial roofing applications; and vapor curing,
high-performance urethane coatings systems. It has manufacturing plants in
Calumet City, Illinois; Norwood and Totowa, New Jersey; and Ashland and
Columbus, Ohio.
DREW MARINE DIVISION - This division supplies specialty chemicals for
water and fuel treatment and general maintenance, as well as sealing
products, welding and refrigerant products and fire fighting and safety
services to the world's merchant marine fleet. Drew Marine currently
provides shipboard technical service for more than 10,000 vessels from more
than 100 locations serving approximately 600 ports throughout the world.
PETROCHEMICALS DIVISION - This division manufactures maleic anhydride
at Neal, West Virginia, and Neville Island, Pennsylvania. Its Energy
Services business unit provides industrial and commercial businesses with
expert management of their total energy requirements.
RESEARCH AND DEVELOPMENT - Ashland Specialty Chemical conducts
research and commercial development programs at the Technical Center in
Dublin, Ohio to identify and develop innovative technologies.
OTHER MATTERS
For information on Ashland Distribution and Ashland Specialty
Chemical and federal, state and local statutes and regulations governing
releases into, or protection of, the environment, see "Item 1.
Miscellaneous - Environmental Matters" and "Item 3. Legal Proceedings -
Environmental Proceedings."
VALVOLINE
The Valvoline Company, a division of Ashland, is a marketer of premium
branded automotive and industrial oils, automotive chemicals, automotive
appearance products and automotive services, with sales in more than 140
countries. The Valvoline(R) trademark was federally registered in 1873 and
is the oldest trademark for a lubricating oil in the United States.
Valvoline is comprised of the following business units:
NORTH AMERICAN PRODUCTS - This unit, Valvoline's largest division,
markets automotive, commercial, and industrial lubricants, automotive
chemicals and automotive appearance products to a broad network of North
American customers. This unit markets Valvoline branded motor oil, one of
the top selling brands in the U.S. private passenger car and light truck
market and premium synthetic SynPower(R) automobile chemicals for
"under-the-hood" use.
North American Products also markets Eagle One(R) premium automotive
appearance products, Zerex(R) antifreeze and Pyroil(R) automotive
chemicals. Zerex is the second leading antifreeze brand in the United
States. This division also markets R-12, an automotive refrigerant that was
phased out of production in 1995. R-12 is being replaced in the market by a
new generation of refrigerants.
The domestic commercial and specialty products group of the North
American Products unit continued its strategic alliance with Cummins Engine
Company to distribute heavy-duty lubricants to the commercial market.
EAGLE ONE - Eagle One is a brand of premium automobile appearance
chemicals for "above-the-hood" applications. Products include waxes,
polishes and wheel cleaners. Managed by Valvoline as a separate business
unit, Eagle One markets its products through Valvoline's North American
Products and Valvoline International divisions.
VALVOLINE INTERNATIONAL - Valvoline International markets Valvoline
branded products, TECTYL(R) rust preventives and Eagle One automotive
appearance products through company-owned affiliates or divisions in
Argentina, Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Great Britain, Italy, the Netherlands, Poland, South Africa, Sweden,
Switzerland and Thailand. Licensees and distributors market products in
other parts of Europe, Mexico, Central and South America, the Far East, the
Middle East and certain African countries. Joint
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ventures have been established in Ecuador, India, Thailand and Venezuela.
Packaging and blending plants and distribution centers in Australia, the
Netherlands and the United States supply international customers.
VALVOLINE INSTANT OIL CHANGE(R) ("VIOC") - VIOC is one of the largest
competitors in the expanding U.S. "fast oil change" service business,
providing Valvoline with a significant share of the installed segment of
the passenger car and light truck motor oil market. As of September 30,
1999, 377 company-owned and 207 franchised service centers were operating
in 35 states.
VIOC has continued its customer service innovation through its Maximum
Vehicle Performance program ("MVP"). MVP is a computer-based program that
maintains system-wide service records on all customer vehicles. MVP also
contains a database on all car models, which allows employees to make
service recommendations based on vehicle owner's manual recommendations.
ECOGARD, INC. - In September 1999, Valvoline sold Ecogard, Inc. to
Safety-Kleen Corp. Ecogard, Inc., through its First Recovery division,
collects used motor oil from a network of automotive aftermarket retailers
and service businesses.
REFINING AND MARKETING
Refining and Marketing operations are conducted by MAP and its
subsidiaries, including its wholly-owned subsidiaries, Speedway
SuperAmerica LLC and Marathon Ashland Pipe Line LLC. Marathon Oil Company
holds a 62% interest in MAP and Ashland holds a 38% interest in MAP.
REFINING
MAP owns and operates seven refineries with an aggregate refining
capacity of 935,000 barrels of crude oil per calendar day. The table below
sets forth the location and daily throughput capacity (measured in barrels)
of each of MAP's refineries as of September 30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Garyville, Louisiana.............................................................. 232,000
Catlettsburg, Kentucky............................................................ 222,000
Robinson, Illinois................................................................ 192,000
Detroit, Michigan................................................................ 74,000
Canton, Ohio..................................................................... 73,000
Texas City, Texas................................................................ 72,000
St. Paul Park, Minnesota......................................................... 70,000
-------
Total................................................................. 935,000
=======
</TABLE>
MAP's refineries include crude oil atmospheric and vacuum
distillation, fluid catalytic cracking, catalytic reforming,
desulfurization and sulfur recovery units. The refineries have the
capability to process a wide variety of crude oils and to produce typical
refinery products, including reformulated gasoline ("RFG"). In addition to
typical refinery products, the Catlettsburg refinery manufactures
lubricating oils and a wide range of petrochemicals. For the twelve months
ended September 30, 1999, 73% of MAP's production of lubricating oils was
purchased by Valvoline and 40% of MAP's production of petrochemicals was
purchased by Ashland Distribution.
MAP also produces asphalt cements, polymerized asphalt, asphalt
emulsions and industrial asphalts. Additionally, MAP manufactures petroleum
pitch, primarily used in the graphite electrode, clay target and refractory
industries.
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The table below sets forth MAP's refinery input and refinery
production by product group for the twelve months ended September 30, 1999
and for the nine months ended September 30, 1998.
<TABLE>
<CAPTION>
Twelve Months Ended Nine Months ended
-------------------- -----------------
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Refinery Input (In thousands of barrels per day) 1,034.0 1,023.3
------------------------------------------------
Refined Product Yields (In thousands of barrels per day)
--------------------------------------------------------
Gasoline .................................................... 565.5 539.8
Distillates.................................................... 265.6 269.2
Propane........................................................ 22.2 20.9
Feedstocks & Special Products................................. 64.9 71.7
Heavy Fuel Oils................................................ 45.1 47.4
Asphalt........................................................ 70.4 69.3
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Total.....................................1,033.7 1,018.3
======= =======
</TABLE>
MAP and Epsilon Products Company have developed facilities to produce
800 million pounds per year of polymer grade propylene and polypropylene at
the Garyville refinery. MAP owns and operates facilities to produce polymer
grade propylene, which began production in June 1999. Epsilon Products
Company owns and operates the polypropylene facilities and markets its
output.
During the second quarter of 1999, MAP sold Scurlock Permian LLC, its
crude oil gathering business, to Plains Marketing, L. P. Scurlock Permian's
crude oil gathering operations were conducted in an area reaching from the
Rocky Mountains to the Gulf Coast. In addition, Scurlock Permian was
engaged in purchasing, selling and trading crude oil, principally at
Midland, Texas; Cushing, Oklahoma and St. James, Louisiana, three of the
major distribution points for United States crude oil. MAP retained the
western Canadian operations of Marathon Ashland Petroleum Canada, Ltd.
MARKETING
MAP's principal marketing areas for gasoline, kerosene and light
oils include the Midwest, the upper Great Plains and the southeastern
United States. Gasoline, kerosene and light fuel oils are sold in 25
states. Gasoline is sold at wholesale primarily to independent marketers,
jobbers and chain retailers who resell through several thousand retail
outlets principally under their own names. MAP also supplies 3,171
jobber-dealer, open-dealer and lessee-dealer locations using the
Marathon(R) and Ashland(R) brand names.
Gasoline, kerosene, distillates and aviation products are also sold to
utilities, railroads, river towing companies, commercial fleet operators,
airlines and governmental agencies.
Retail sales of gasoline and diesel fuel are made through MAP's
wholly-owned subsidiary, Speedway SuperAmerica LLC. Speedway SuperAmerica
LLC operates 2,217 retail outlets (convenience store-gasoline stations and
truck stops) in 20 states in the Southeast and Midwest under brand names
including Speedway(R), SuperAmerica(R), Rich(R) and others. The convenience
store-gasoline locations offer consumers gasoline, diesel fuel (at selected
locations) and a broad mix of other products and services, such as tobacco,
soft drinks, health and beauty aids, groceries, fresh-baked goods,
automated teller machines, automotive accessories and a line of
private-label items. The truck stops offer diesel fuel, gasoline and a
variety of other services associated with such locations. Several truck
stop and convenience store locations also have on-premises brand-name
restaurants such as Subway and Taco Bell.
On May 24, 1999, MAP signed an agreement with Ultramar Diamond
Shamrock ("UDS") to purchase 179 UDS owned-and-operated convenience stores,
five product terminals and an assignment of supply contracts for
approximately 240 branded UDS jobber stations in Michigan. MAP anticipates
closing this transaction before the end of calendar 1999, subject to
receipt of government approvals, consents of third parties and satisfaction
of customary closing conditions.
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During the twelve months ended September 30, 1999, 59% of the revenues
(excluding excise taxes) of the Speedway SuperAmerica LLC stores were
derived from the sale of gasoline and diesel fuel and 41% of such revenues
were derived from the sale of merchandise.
The table below shows the volume of MAP's consolidated refined product
sales for the twelve months ended September 30, 1999 and the nine months
ended September 30, 1998.
<TABLE>
<CAPTION>
Twelve Months Ended Nine Months ended
------------------- -----------------
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Refined Product Sales (In thousands of barrels per day)
-------------------------------------------------------
Gasoline....................................................... 699.3 659.1
Distillates.................................................... 324.6 312.9
Propane........................................................ 22.4 20.8
Feedstocks & Special Products.................................. 65.1 68.8
Heavy Fuel Oils................................................ 44.9 48.4
Asphalt........................................................ 74.3 73.7
--------- --------
Total................................... 1,230.6 1,183.7
======= =======
Matching Buy/Sell Volumes included in above.................... 47.7 38.4
</TABLE>
MAP sells RFG in parts of its marketing territory, primarily
Chicago, Illinois; Louisville, Kentucky; Northern Kentucky; Maryland;
Virginia; and Milwaukee, Wisconsin. MAP also markets low vapor pressure
gasolines in eleven states.
SUPPLY AND TRANSPORTATION
The crude oil processed in MAP's refineries is obtained from
negotiated lease, contract and spot purchases or exchanges. For the twelve
months ended September 30, 1999, MAP's negotiated lease, contract and spot
purchases of U.S. crude oil for refinery input averaged 325,400 barrels per
day (1 barrel = 42 United States gallons) including an average of 21,800
barrels per day acquired from Marathon Oil Company. For the twelve months
ended September 30, 1999, MAP's foreign crude oil requirements were met
largely through purchases from various foreign national oil companies,
producing companies and traders. Purchases of foreign crude oil represented
64% of MAP's crude oil requirements for the twelve months ended September
30, 1999.
MAP's ownership or interest in domestic pipeline systems in its
refining and marketing areas is significant. MAP owns, leases or has an
ownership interest in 7,282 miles of active pipeline in 16 states. This
network transports crude oil and refined products to and from terminals,
refineries and other pipelines. It includes 381 miles of crude oil
gathering lines, 4,040 miles of crude oil trunk lines and 2,861 miles of
refined product lines.
MAP has a 46.7% ownership interest in LOOP LLC ("LOOP"), which is the
owner and operator of the only U.S. deepwater port facility capable of
receiving crude oil from very large crude carriers. Ashland has retained a
4% ownership interest in LOOP. MAP also owns a 49.9% ownership interest in
LOCAP INC. ("LOCAP"), which is the owner and operator of a crude oil
pipeline connecting LOOP to the Capline system. Ashland has retained an
8.6% ownership interest in LOCAP. In addition, MAP has a 37.169% ownership
interest in the Capline system. These port and pipeline systems provide MAP
with access to common carrier transportation from the Louisiana Gulf Coast
to Patoka, Illinois. At Patoka, the Capline system connects with other
common carrier pipelines owned or leased by MAP which provide
transportation to MAP's refineries in Illinois, Kentucky, Michigan and
Ohio.
MAP also has a stock interest in Minnesota Pipe Line Company, which
owns a crude oil pipeline in Minnesota. Minnesota Pipe Line Company
provides MAP with access to crude oil common carrier transportation from
Clearbrook, Minnesota to Cottage Grove, Minnesota, which is in the vicinity
of MAP's St. Paul Park, Minnesota refinery.
MAP's marine transportation operations include towboats and barges
that transport refined products on the Ohio, Mississippi and Illinois
rivers, their tributaries and the Intracoastal Waterway. In addition, MAP
leases on a long-term basis two 80,000 deadweight ton tankers, which are
"bare boat sub-chartered" to a third party operation. These tankers are not
essential for MAP to satisfy its own crude oil requirements.
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MAP leases and owns rail cars in various sizes and capacities for
movement of petroleum products and chemicals. MAP also owns or leases a
large number of tractor-trailers, tank trailers and general service trucks.
In addition, MAP owns and operates 88 terminal facilities from
which it sells a wide range of petroleum products. These facilities are
supplied by a combination of barges, pipeline, truck and rail.
OTHER MATTERS
MAP experiences normal seasonal variations in its sales and operating
results. This seasonality is due primarily to increased demand for gasoline
during the summer driving season, higher demand for distillate during the
winter heating season and increased demand for asphalt from the road paving
industry during the construction season.
For information on MAP and federal, state and local statutes and
regulations governing releases into the environment or protection of the
environment, see "Item 1. Miscellaneous - Environmental Matters."
ARCH COAL
Ashland owns approximately 58% of Arch Coal, Inc., a publicly-traded
corporation (NYSE:ACI). Arch Coal files periodic reports, including annual
reports on Form 10-K, pursuant to the Securities Exchange Act of 1934. For
information on Ashland's proposed spin-off of Arch Coal, see "Item 1.
Corporate Developments."
Arch Coal is the second largest coal producer in the United States
with annual production that accounts for almost 10% of annual U.S. coal
production. Arch Coal mines, processes and markets primarily compliance and
low-sulfur coal from 40 surface, underground and auger mines located in
western, central Appalachian and midwestern United States coal fields.
Compliance and low-sulfur coal are types of coal that, when burned, emit
1.2 pounds and 1.6 pounds or less of sulfur dioxide per million Btu,
respectively. Coal from the mines of Arch Coal's subsidiaries is
transported by rail, truck and barge to domestic customers and to Atlantic
or Pacific coast terminals for shipment to domestic and international
customers.
On June 1, 1998, Arch Coal acquired the Colorado and Utah coal
operations of Atlantic Richfield Company ("ARCO") and simultaneously
combined the acquired ARCO operations, Arch Coal's Wyoming operations and
ARCO's Wyoming operations in a new joint venture named Arch Western
Resources, LLC ("Arch Western"). Arch Western is 99% owned by Arch Coal and
1% owned by ARCO. All of the domestic coal reserves acquired from ARCO are
"compliance coal," meeting the sulfur dioxide emissions requirements of
Phase II of the Clean Air Act.
The following discussion includes pro forma combined operating data
which gives effect to the merger of Ashland Coal, Inc. and Arch Mineral
Corporation (which occurred on July 1, 1997) as if it had occurred at
October 1, 1996 and to the acquisition of ARCO's U.S. operations as of June
1, 1998. The pro forma combined operating data does not purport to
represent the operating results which would have been achieved had the
merger of Ashland Coal, Inc. and Arch Mineral Corporation actually occurred
as of October 1, 1996.
Arch Coal and its independent operating subsidiaries (which does not
include tons sold by Canyon Fuel as Arch Coal's interest therein is
accounted for using the equity method) sold approximately 109.3 million
tons of coal in the twelve months ended September 30, 1999, as compared to
67.3 and 53.7 million tons sold in the twelve months ended September 30,
1998 and 1997, respectively. Of the total tonnage sold in the twelve months
ended September 30, 1999, approximately 80.3% was sold under long term
contracts (contracts having a term greater than one year), as compared to
76.5% and 72.4% for the twelve months ended September 30, 1998 and 1997,
respectively, with the balance being sold on the spot market (contracts
having a term of one year or less). In the twelve months ended September
30, 1999, Arch Coal and its independent operating subsidiaries sold 3.9
million tons of coal in the export market (which does not include tons sold
by Canyon Fuel), compared to 3.8 and 2.7 million tons in the twelve months
ended September 30, 1998 and 1997, respectively.
During the twelve months ended September 30, 1999, Arch Coal's total
sales to American Electric Power Company, Inc. ("AEP") and Southern Company
and their respective affiliates accounted for approximately 11.3% and
11.1%, respectively, of Arch Coal's total revenues for such period. AEP,
Southern Company and/or their affiliates each currently has multiple
long-term contracts with Arch Coal. If Arch Coal experienced an immediate
loss of all of the contracts with either of these customers, the loss could
have a material adverse effect on Arch Coal.
As of September 30, 1999, Arch Coal estimates it owned or controlled
measured (proven) and indicated (probable) coal reserves of approximately
3.6 billion tons, as set forth in the following table. Reserve estimates
are
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prepared by Arch Coal's engineers and geologists and are reviewed and
updated periodically. Total reserve estimates will change from time to time
reflecting mining activities, analysis of new engineering and geological
data, changes in reserve holdings and other factors. Anticipated losses
from extraction and, where applicable, washing of the coal have been
eliminated from the estimate. Arch Coal believes that a majority of these
reserves are comprised of low-sulfur coal, and a substantial portion of
such low-sulfur coal is "compliance coal." Ashland has not made an
independent verification of the reserve estimate or sulfur content of the
estimated reserves.
RECOVERABLE COAL
<TABLE>
<CAPTION>
Region or State Measured Indicated Total
--------------- -------- --------- -----
(Thousands of Tons)
<S> <C> <C>
Central Appalachia .................................... 982,079 418,171 1,400,250
Illinois .............................................. 241,735 86,687 328,422
Colorado .............................................. 115,327 24,931 140,258
Utah .................................................. 183,330 57,420 240,750 *
Wyoming ............................................... 1,423,878 68,794 1,492,672
--------- ------- ---------
Total................................. 2,946,349 656,003 3,602,352
========= ======= =========
* Represents 100% of the reserves held by Canyon Fuel Company, LLC, in which Arch Coal holds a 65%
interest.
</TABLE>
Arch Coal's coal properties are either owned outright or controlled by
lease. As of September 30, 1999, Arch Coal's subsidiaries owned, or
controlled primarily through long-term leases, approximately 104,346,
57,571 and 14,500 acres of coal lands in Wyoming, Utah and Colorado,
respectively; 273,000, 90,500 and 2,000 acres of coal lands in West
Virginia, Eastern Kentucky, and Virginia, respectively; and 118,600 acres
of coal lands in the Illinois Basin.
Approximately 84,327 acres of Arch Coal's 660,000 acres of coal land
(which totals include 100% of the acreage held by Canyon Fuel) are leased
from the federal government with terms expiring between 1999 and 2019,
subject to readjustment and/or extension and to earlier termination for
failure to meet diligent development requirements. Additionally, private
term leases covering principal reserves under Arch Coal's current mining
plans are not scheduled to expire prior to expiration of projected mining
activities. Arch Coal's subsidiaries also control through ownership or
long-term leases approximately 5,880 acres of land which are used either
for Arch Coal's coal processing facilities or are being held for possible
future development. Royalties are paid to lessors either as a fixed price
per ton or as a percentage of the gross sales price of the mined coal. Most
of these leases run until the exhaustion of mineable and merchantable coal.
The remaining leases have primary terms ranging from one to 40 years from
the date of their execution, with most containing options to renew. Mining
plans are not necessarily indicative of the life of the mine. The extent to
which reserves will eventually be mined depends upon a variety of factors,
including future economic conditions and governmental actions affecting
both the mining and marketability of coal.
Arch Coal's Apogee Coal Company and Hobet Mining, Inc. subsidiaries
are members of the Bituminous Coal Operators Association, and each is a
signatory to a collective bargaining agreement with the United Mine Workers
of America that expires on December 31, 2002. Two other Arch Coal
subsidiaries are signatories to collective bargaining agreements with
independent employee associations. Employees of the remainder of Arch
Coal's operating subsidiaries are not represented by labor unions.
For information on federal and state statutes and regulations
governing the coal industry, see "Item 1. Miscellaneous - Environmental
Matters."
9
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MISCELLANEOUS
ENVIRONMENTAL MATTERS
Ashland has implemented a company-wide environmental policy overseen
by the Public Policy - Environmental Committee of Ashland's Board of
Directors. Ashland's Environmental, Health and Safety group has the
responsibility to ensure that Ashland's operating groups maintain
environmental compliance in accordance with applicable laws and
regulations.
Federal, state and local laws and regulations relating to the
protection of the environment have a significant impact on how Ashland
conducts its businesses. These include the Clean Air Act ("CAA") with
respect to air emissions, the Clean Water Act ("CWA") with respect to water
discharges, the Resource Conservation and Recovery Act ("RCRA") with
respect to solid and hazardous waste generation, treatment, storage and
disposal, the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") and the Superfund Amendments and Reauthorization
Act of 1986 ("SARA") with respect to releases and remediation of hazardous
substances (CERCLA and SARA are sometimes referred to collectively as
"Superfund"), the Toxic Substances Control Act ("TSCA") with respect to
chemical formulation and use, the Oil Pollution Act of 1990 ("OPA 90") with
respect to oil pollution, spill response and financial assurance
requirements for marine operations, the Surface Mining Control and
Reclamation Act of 1977 ("SMCRA") with respect to surface mining, the
Federal Occupational Safety and Health Act ("OSHA") with respect to
workplace health and safety standards, the Federal Mine Safety and Health
Act of 1977 ("MSHA") with respect to health and safety standards on mining
operations, and various other federal, state and local laws related to the
environment, health and safety. In addition, most foreign countries in
which Ashland conducts business have laws dealing with the same matters.
In connection with the formation of MAP, Marathon and Ashland each
retained responsibility for certain environmental costs arising out of
their respective prior ownership and operation of the facilities
transferred to MAP. In certain situations, various threshold provisions
apply, eliminating or reducing the financial responsibility of the
contributing party until certain levels of expenditure have been reached.
In other situations, sunset provisions gradually diminish the level of
financial responsibility of the contributing party over time.
At September 30, 1999, Ashland's reserves for environmental
assessments and remediation efforts were $166 million, reflecting Ashland's
current estimate of the costs which are most likely to be incurred over the
period during which the clean-up will be performed to remediate identified
environmental conditions for which costs are reasonably estimable.
Expenditures for investigatory and remedial efforts in future years
are subject to the uncertainties associated with environmental exposures,
including identification of new sites at which cleanup is required and
changes in laws and regulations and their application. Such expenditures,
however, are not expected to have a material adverse effect on Ashland's
consolidated financial position, cash flow or liquidity.
AIR - The CAA imposes stringent limits on air emissions, establishes a
federally mandated operating permit program, and allows for civil and
criminal enforcement actions. Additionally, it establishes air quality
attainment deadlines and control requirements based on the severity of air
pollution in a given geographical area. Various state clean air acts
implement, complement and, in some instances, add to the requirements of
the federal CAA. The requirements of the CAA and its state counterparts
have a significant impact on the daily operation of Ashland's businesses
and, in many cases, on product formulation and other long-term business
decisions. Ashland's businesses maintain numerous permits pursuant to these
clean air laws, and have implemented systems to oversee ongoing compliance
efforts.
In July 1997, the United States Environmental Protection Agency
("EPA") promulgated revisions to the National Ambient Air Quality Standards
for ground level ozone and particulate matter. These revisions, if they are
implemented by the states, could have a significant effect on certain of
Ashland's chemical manufacturing and
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distribution businesses, and on MAP. However, EPA's authority and
scientific basis to promulgate these standards were challenged by industry
and overturned by the federal Court of Appeals for the District of
Columbia. Litigation is continuing as are efforts by EPA and other
regulatory and law enforcement agencies to achieve the objectives of these
standards through other means. It is not currently possible to estimate any
potential financial impact that any revised standards may have on Ashland's
operations.
WATER - Ashland's businesses maintain numerous discharge permits as
required under the National Pollutant Discharge Elimination System of the
CWA and state programs, and have implemented systems to oversee their
compliance efforts. In addition, several of MAP's operations, in particular
its barge and terminal facilities, are regulated under OPA 90.
SOLID WASTE - Ashland's businesses are subject to RCRA, which
establishes standards for the management of solid and hazardous wastes.
Besides affecting current waste disposal practices, RCRA also addresses the
environmental effects of certain past waste disposal operations, the
recycling of wastes and the regulation of underground storage tanks
("USTs") containing regulated substances. In addition, new laws are being
enacted and regulations are being adopted by various regulatory agencies on
a continuing basis, and the costs of compliance with these new rules cannot
be estimated until the manner in which they will be implemented has been
more accurately defined.
REMEDIATION - Ashland currently or has in the past operated various
facilities where, during the normal course of operations, releases of
hazardous constituents have occurred. Federal and state laws, including but
not limited to RCRA and various remediation laws, require that
contamination caused by such releases be assessed and, if necessary,
remediated to meet applicable standards. MAP operates, and in the past has
operated, certain retail outlets where, during the normal course of
operations, releases of petroleum products from USTs have occurred. Federal
and state laws require that contamination caused by such releases at these
sites be assessed and, if necessary, remediated to meet applicable
standards.
SURFACE MINING - SMCRA was enacted to regulate the surface mining of
coal and the surface effects of underground coal mining. All states in
which Arch Coal's subsidiaries operate have similar laws and regulations
enacted pursuant to SMCRA. These laws impose environmental performance
standards, requirements to perform land and natural resource reclamation,
and funding requirements to assure that adequate financial reserves are
maintained to meet all substantive environmental obligations.
On October 20, 1999, the U.S. District Court for the Southern District
of West Virginia permanently enjoined the West Virginia Division of
Environmental Protection (the "West Virginia DEP") from issuing new permits
that authorize the construction of "valley fills" as part of coal mining
operations. The injunction stems from litigation brought by private
individuals challenging the legality of surface mining in West Virginia
which results in the construction of such valley fills. A valley fill is an
engineered work located at a lower elevation from the surface mine where
excess rock and earth is placed during mining.
The district court has granted a stay of its injunction pending the
outcome of an appeal of the court's decision filed by the West Virginia DEP
with the U.S. Court of Appeals for the Fourth Circuit. It is impossible to
predict with certainty the outcome of the appeal. If, however, the district
court's decision is not overturned or if a legislative or other solution is
not achieved, then Arch Coal and other coal producers' ability to mine coal
in West Virginia in the future would be seriously compromised.
RESEARCH
Ashland conducts a program of research and development to invent
and improve products and processes and to improve environmental controls
for its existing facilities. It maintains its primary research facilities
in Dublin, Ohio; Lexington, Kentucky; and Atlanta, Georgia. Research and
development costs are expensed as they are incurred and totaled $27 million
in fiscal 1999 ($28 million in 1998 and $29 million in 1997).
COMPETITION
In all its operations, Ashland is subject to intense competition both
from companies in the industries in which it operates and from products of
companies in other industries. The majority of the business for which APAC
competes is obtained by competitive bidding. Ashland Distribution's
chemicals and solvents distribution businesses compete with national,
regional and local companies throughout North America, while its plastics
distribution businesses compete worldwide. Ashland Specialty Chemical's
businesses compete globally in selected niche
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<PAGE>
markets, largely on the basis of technology and service, while holding
proprietary technology in virtually all its specialty chemicals businesses.
Ashland Specialty Chemical's petrochemicals business is largely a
commodities business, with pricing and quality being the most important
factors. Valvoline competes primarily with domestic oil companies and, to a
lesser extent, with international oil companies on a worldwide basis.
Valvoline's brand recognition and increasing market share in the "fast oil
change" market are important competitive factors.
MAP competes primarily with other domestic refiners and, to a lesser
extent, with imported products. MAP's refineries are located close to its
market areas, giving MAP a geographic advantage in supplying these regions.
MAP's retail operations compete with major oil companies, independent oil
companies and independent marketers. The coal industry is highly
competitive, and Arch Coal competes (principally in price, location and
quality of coal) with other coal producers.
FORWARD-LOOKING STATEMENTS
This Form 10-K and the documents incorporated by reference contain
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, including various information within the "Capital Resources,"
"Derivative Instruments," "Year 2000 Readiness" and "Outlook" sections in
Management's Discussion and Analysis in Ashland's Annual Report. Words such
as "anticipates," "believes," "estimates," "expects," "is likely,"
"predicts," and variations of such words and similar expressions are
intended to identify such forward-looking statements. Although Ashland
believes that its expectations are based on reasonable assumptions, it
cannot assure that the expectations contained in such statements will be
achieved. Important factors which could cause actual results to differ
materially from those contained in such statements are discussed under
"Risks and Uncertainties" in Note A of Notes to Consolidated Financial
Statements in Ashland's Annual Report. Other factors and risks affecting
Ashland's revenues and operations are discussed below, as well as in other
portions of this Form 10-K.
Ashland's operations are affected by domestic and international
political, legislative, regulatory and legal actions. Such actions may
include changes in the policies of OPEC or other developments affecting
oil-producing countries, changes in tax laws, and changes in environmental,
health and safety laws.
Domestic and international economic conditions, such as recessionary
trends, inflation, interest and monetary exchange rates, as well as changes
in demand for products and services, can also have a significant effect on
Ashland's operations. Although Ashland maintains reserves for anticipated
liabilities and carries various levels of insurance, Ashland could be
affected by civil, criminal, regulatory or administrative actions, claims
or proceedings. In addition, climate and weather can significantly affect
Ashland in several of its operations such as its APAC construction
activities, MAP's heating oil businesses and Arch Coal's sales and
production of coal.
ITEM 2. PROPERTIES
Ashland's corporate headquarters, which is leased, is located in
Covington, Kentucky. Principal offices of other major operations are
located in Atlanta, Georgia (APAC); Dublin, Ohio (Ashland Distribution and
Ashland Specialty Chemical); Lexington, Kentucky (Valvoline); and Russell,
Kentucky (Administrative Services), all of which are leased, except for the
Russell office, which is owned. Principal manufacturing, marketing and
other materially important physical properties of Ashland and its
subsidiaries are described under the appropriate segment under Item 1.
Additional information concerning certain leases may be found in Note H of
Notes to Consolidated Financial Statements in Ashland's Annual Report.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS - (1) As of September 30, 1999, 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 89 waste treatment or disposal sites. These
sites are currently subject to ongoing investigation and remedial
activities, overseen by the 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
12
<PAGE>
aggregate, after taking into account its insurance coverage and established
financial 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 Ashland's 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.
(2) Pursuant to a 1990 Agreed Order with the Commonwealth of
Kentucky's Natural Resources and Environmental Protection Cabinet
("NREPC"), Ashland has conducted source investigation and remedial
activities related to hydrocarbon contamination of the groundwater beneath
the Catlettsburg, Kentucky refinery, operated since 1998 by MAP. In 1999,
Ashland and the NREPC initiated negotiations for a new Agreed Order which
would identify future investigative efforts and establish timetables for
strategic remedial activities. This Order is also expected to include a
monetary penalty. In connection with the formation of MAP, Ashland agreed
to retain responsibility for this matter. Because discussions are ongoing,
Ashland is unable to predict what the final penalty amount might be.
However, the penalty amount is not expected to have a material adverse
effect on Ashland's consolidated financial position, cash flow or
liquidity.
LOCKHEED LITIGATION - Ashland was a defendant in a series of cases
involving more than 600 former workers at the Lockheed aircraft
manufacturing facility in Burbank, California. The plaintiffs alleged
personal injuries resulting from exposure to chemicals sold to Lockheed by
Ashland, and inadequate labeling of such chemicals. Ashland has reached an
agreement with plaintiffs' counsel to fully resolve and settle this matter,
subject to execution of appropriate documents by the parties and approval
by the court. Ashland believes the settlement amount, which is not material
to Ashland, will be covered by insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through
the solicitation of proxies or otherwise, during the quarter ended
September 30, 1999.
ITEM X. EXECUTIVE OFFICERS OF ASHLAND
The following is a list of Ashland's executive officers, their ages
and their positions and offices during the last five years (listed
alphabetically after the top two officers as to other Senior Vice
Presidents, Administrative Vice Presidents and other executive officers).
PAUL W. CHELLGREN* (age 56) is Chairman of the Board, Chief Executive
Officer and Director of Ashland and a Director of Arch Coal, Inc. and has
served in such capacities since 1997, 1996, 1992 and 1997, respectively.
During the past five years, he has also served as President and Chief
Operating Officer of Ashland.
JOHN A. BROTHERS* (age 59) was an Executive Vice President of
Ashland, a position he had held since 1997. During the past five years, he
also served as Senior Vice President and Group Operating Officer - The
Valvoline Company and Ashland Chemical Company. Mr. Brothers retired
effective September 30, 1999.
JAMES R. BOYD* (age 53) is Senior Vice President and Group Operating
Officer - APAC, Inc. and a Director of Arch Coal, Inc., having served in
such capacities since 1989, 1993 and 1997, respectively.
DAVID J. D'ANTONI* (age 54) is Senior Vice President and Group
Operating Officer - Ashland Distribution Company and Ashland Specialty
Chemical Company and has served in such capacities since 1998 and 1999,
respectively. During the past five years, he has also served as President
of Ashland Chemical Company.
JAMES J. O'BRIEN (age 45) is Senior Vice President of Ashland and
President of The Valvoline Company and has served in such capacities since
1997 and 1995, respectively. During the past five years, he has also served
as Vice President of Ashland and Vice President of Ashland Petroleum
Company.
CHARLES F. POTTS (age 55) is Senior Vice President of Ashland and
President of APAC, Inc. and has served in such capacities since 1992.
- ---------------
*Member of Ashland's Executive Committee
13
<PAGE>
J. MARVIN QUIN* (age 52) is Senior Vice President and Chief Financial
Officer of Ashland and a Director of Arch Coal, Inc. and has served in such
capacities since 1992 and 1997, respectively.
KENNETH L. AULEN (age 50) is Administrative Vice President and
Controller of Ashland and has served in such capacities since 1992.
PHILIP W. BLOCK* (age 52) is Administrative Vice President - Human
Resources of Ashland and a Director of Arch Coal, Inc. and has served in
such capacities since 1992 and 1999, respectively.
PETER M. BOKACH (age 53) is Vice President of Ashland and President of
Ashland Distribution Company and has served in such capacities since 1999.
During the past five years, he has also served as Group Vice President
Distribution of Ashland Chemical Company.
JAMES A. DUQUIN (age 52) is Vice President of Ashland and President of
Ashland Specialty Chemical Company and has served in such capacities since
1999. During the past five years, he has also served as Group Vice
President - Specialty Chemical Division and Vice President - IC&S Division
of Ashland Chemical Company.
DAVID L. HAUSRATH* (age 47) is Vice President and General Counsel of
Ashland and has served in such capacities since 1998 and 1999,
respectively. During the past five years, he has also served as Associate
General Counsel and Assistant General Counsel of Ashland.
J. DAN LACY* (age 52) is Vice President - Corporate Affairs of
Ashland and has served in such capacity since 1986.
RICHARD P. THOMAS* (age 53) is Vice President and Secretary of Ashland
and has served in such capacities since 1998 and 1999, respectively. During
the past five years, he has also served as Associate General Counsel of
Ashland and Administrative Vice President and General Counsel of Ashland
Petroleum Company.
LAMAR M. CHAMBERS (age 45) is Auditor of Ashland and has served in
such capacity since 1998. During the past five years, he has also served as
Vice President, Finance and Controller of MAP, Administrative Vice
President - Finance of Ashland Petroleum Company and Executive Assistant to
the Chief Executive Officer of Ashland.
Each executive officer is elected by the Board of Directors of Ashland
to a term of one year, or until his or her successor is duly elected, at
the annual meeting of the Board of Directors, except in those instances
where the officer is elected other than at an annual meeting of the Board
of Directors, in which case his or her tenure will expire at the next
annual meeting of the Board of Directors unless the officer is re-elected.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
There is hereby incorporated by reference the information appearing in
Note P of Notes to Consolidated Financial Statements in Ashland's Annual
Report.
At September 30, 1999, there were approximately 21,000 holders of
record of Ashland's Common Stock. Ashland Common Stock is listed on the New
York and Chicago stock exchanges (ticker symbol ASH) and has trading
privileges on the Boston, Cincinnati, Pacific and Philadelphia stock
exchanges.
During the quarter ended September 30, 1999, Ashland issued 790,011
shares of its Common Stock, par value $1.00 per share in connection with
the acquisition of Buster Paving Company, Inc., which closed on August 31,
1999. The shares were issued in a transaction exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, and the
regulations thereunder.
- ---------------
*Member of Ashland's Executive Committee
14
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ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information appearing
under the caption "Five-Year Selected Financial Information" on Page 54 in
Ashland's Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
There is hereby incorporated by reference the information appearing
under the caption "Management's Discussion and Analysis" on Pages 26 to 33
in Ashland's Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There is hereby incorporated by reference the information appearing
under the caption "Derivative Instruments" on Pages 31 and 32 in Ashland's
Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the consolidated financial
statements appearing on Pages 35 through 53 in Ashland's Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information to appear
under the caption "Ashland Inc.'s Board of Directors - Nominees for
Election at the 2000 Annual Meeting" and the information regarding Section
16 beneficial ownership reporting compliance in Ashland's definitive Proxy
Statement for its January 27, 2000 Annual Meeting of Shareholders, which
will be filed with the SEC within 120 days after September 30, 1999 ("Proxy
Statement"). See also the list of Ashland's executive officers and related
information under "Executive Officers of Ashland" in Part I - Item X
herein.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear
under the captions "Executive Compensation," "Compensation of Directors"
and "Miscellaneous - Personnel and Compensation Committee Interlocks and
Insider Participation" in Ashland's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information to appear
under the caption "Ashland Common Stock Ownership of Directors and Certain
Officers of Ashland" and the information regarding the ownership of
securities of Ashland in Ashland's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information to appear
under the caption "Business Relationships" in Ashland's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) and (2) Financial Statements and Financial Schedule
The consolidated financial statements and financial schedule of
Ashland presented or incorporated by reference in this report are listed in
the index on Page 20.
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(3) Exhibits
3.1 - Second Restated Articles of Incorporation of
Ashland, as amended to January 30, 1998 (filed
as Exhibit 3 to Ashland's Form 10-Q for the
quarter ended December 31, 1997 and incorporated
herein by reference).
3.2 - By-laws of Ashland, as amended to January 28,
1999 (filed as Exhibit 3.2 to Ashland's Form
10-Q for the quarter ended December 31, 1998 and
incorporated herein by reference).
4.1 - Ashland agrees to provide the SEC, upon
request, copies of instruments defining the
rights of holders of long-term debt of Ashland
and all of its subsidiaries for which
consolidated or unconsolidated financial
statements are required to be filed with the
SEC.
4.2 - Indenture, dated as of August 15, 1989, as
amended and restated as of August 15, 1990,
between Ashland and Citibank, N.A., as Trustee
(filed as Exhibit 4(a) to Ashland's Form 10-K
for the fiscal year ended September 30, 1991 and
incorporated herein by reference).
4.3 - Rights Agreement, dated as of May 16, 1996,
between Ashland Inc. and Harris Trust and
Savings Bank, together with Form of Right
Certificate (filed as Exhibits 4(a) and 4(c),
respectively, to Ashland's Form 8-A filed with
the SEC on May 16, 1996 and incorporated herein
by reference).
The following Exhibits 10.1 through 10.16 are compensatory plans or
arrangements or management contracts required to be filed as exhibits
pursuant to Item 601(b)(10)(ii)(A) of Regulation S-K.
10.1 - Amended Stock Incentive Plan for Key Employees
of Ashland Inc. and its Subsidiaries.
10.2 - Ashland Inc. Deferred Compensation Plan for
Non-Employee Directors.
10.3 - Tenth Amended and Restated Ashland Inc.
Supplemental Early Retirement Plan for Certain
Employees.
10.4 - Ashland Inc. Incentive Compensation Plan
(filed as Exhibit 10.6 to Ashland's Form 10-K
for the fiscal year ended September 30, 1993 and
incorporated herein by reference).
10.5 - Ashland Inc. Salary Continuation Plan (filed
as Exhibit 10(c).11 to Ashland's Form 10-K for
the fiscal year ended September 30, 1988 and
incorporated herein by reference).
10.6 - Form of Ashland Inc. Executive Employment
Contract between Ashland Inc. and certain
executive officers of Ashland.
10.7 - Form of Indemnification Agreement between
Ashland Inc. and each member of its Board of
Directors (filed as Exhibit 10(c).13 to
Ashland's Form 10-K for the fiscal year ended
September 30, 1990 and incorporated herein by
reference).
10.8 - Ashland Inc. Nonqualified Excess Benefit
Pension Plan (filed as Exhibit 10.11 to
Ashland's Form 10-K for the fiscal year ended
September 30, 1998 and incorporated herein by
reference).
10.9 - Ashland Inc. Long-Term Incentive Plan.
10.10 - Ashland Inc. Directors' Charitable Award
Program (filed as Exhibit 10.13 to Ashland's
Form 10-K for the fiscal year ended September
30, 1996 and incorporated herein by reference).
10.11 - Ashland Inc. 1993 Stock Incentive Plan.
10.12 - Ashland Inc. 1995 Performance Unit Plan (filed
as Exhibit 10.2 to Ashland's Form 10-Q for the
quarter ended December 31, 1998 and incorporated
herein by reference).
10.13 - Ashland Inc. Incentive Compensation Plan for
Key Executives.
10.14 - Ashland Inc. Deferred Compensation Plan.
16
<PAGE>
10.15 - Ashland Inc. 1997 Stock Incentive Plan (filed
as Exhibit 10.18 to Ashland's Form 10-K for the
fiscal year ended September 30, 1998 and
incorporated herein by reference).
10.16 - Retirement Agreement with Michael D. Rose,
director of Ashland.
10.17 - Amended and Restated Limited Liability Company
Agreement of Marathon Ashland Petroleum LLC
dated as of December 31, 1998.
10.18 - Put/Call, Registration Rights and Standstill
Agreement as amended to December 31, 1998
among Marathon Oil Company, USX Corporation,
Ashland Inc. and Marathon Ashland Petroleum LLC.
11 - Computation of Earnings Per Share (appearing
on Page 41 of Ashland's Annual Report to
Shareholders, incorporated by reference herein,
for the fiscal year ended September 30, 1999).
12 - Computation of Ratios of Earnings to Fixed
Charges and Earnings to Combined Fixed Charges
and Preferred Stock Dividends.
13 - Portions of Ashland's Annual Report to
Shareholders, incorporated by reference herein,
for the fiscal year ended September 30, 1999.
21 - List of subsidiaries.
23 - Consent of independent auditors.
24 - Power of Attorney, including resolutions of
the Board of Directors.
27 - Financial Data Schedule for the fiscal year
ended September 30, 1999.
Upon written or oral request, a copy of the above exhibits will be
furnished at cost.
(b) REPORTS ON FORM 8-K
A report on Form 8-K was filed on September 29, 1999 to announce
certain events relating to Ashland's tender offer for Superfos a/s.
A report on Form 8-K was filed on October 6, 1999 to announce that a
tax-free spin-off would be Ashland's preferred alternative for its
investment in Arch Coal. The report also noted that Ashland is reviewing
its alternatives with respect to a change in its ownership in MAP.
A report on Form 8-K was filed on October 12, 1999 to announce that
shareholders representing more than 90% of the share capital of Superfos
a/s accepted Ashland's September 27, 1999 offer and that Ashland will
implement the tender offer.
17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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)
By: /s/ Kenneth L. Aulen
--------------------------------
(Kenneth L. Aulen, Administrative
Vice President and Controller)
Date: December 7, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT, IN THE CAPACITIES INDICATED, ON DECEMBER 7, 1999.
Signatures Capacity
---------- --------
/s/ PAUL W. CHELLGREN
- ------------------------ Chairman of the Board, Chief Executive Officer
PAUL W. CHELLGREN and Director
/s/ J. MARVIN QUIN
- ------------------------ Senior Vice President and Chief Financial Officer
J. MARVIN QUIN
/s/ KENNETH L. AULEN
- ------------------------ Administrative Vice President, Controller and
KENNETH L. AULEN Principal Accounting Officer
*
- ------------------------ Director
SAMUEL C. BUTLER
*
- ------------------------ Director
FRANK C. CARLUCCI
*
- ------------------------ Director
ERNEST H. DREW
*
- ------------------------ Director
JAMES B. FARLEY
*
- ------------------------ Director
BERNADINE P. HEALY
18
<PAGE>
*
- ------------------------ Director
MANNIE L. JACKSON
*
- ------------------------ Director
PATRICK F. NOONAN
*
- ------------------------ Director
JANE C. PFEIFFER
*
- ------------------------ Director
MICHAEL D. ROSE
*
- ------------------------ Director
WILLIAM L. ROUSE , JR.
*
- ------------------------ Director
THEODORE M. SOLSO
* By: /s/ David L. Hausrath
--------------------------
David L. Hausrath
Attorney-in-Fact
Date: December 7, 1999
19
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULE
Page
----
Consolidated financial statements:
Statements of consolidated income ...............................*
Consolidated balance sheets .....................................*
Statements of consolidated stockholders' equity .................*
Statements of consolidated cash flows ...........................*
Notes to consolidated financial statements ......................*
Information by industry segment .................................*
Consolidated financial schedule:
II - Valuation and qualifying account...........................22
-----------
*The consolidated financial statements appearing on Pages 35
through 53 in Ashland's Annual Report are incorporated by reference in this
Annual Report on Form 10-K.
Schedules other than that listed above have been omitted because
of the absence of the conditions under which they are required or because
the information required is shown in the consolidated financial statements
or the notes thereto. Separate financial statements for MAP and Arch Coal
required by Rule 3-09 of Regulation S-X will be filed as an amendment to
this Form 10-K within 90 days after the end of these entities' fiscal years
ending December 31, 1999. Separate financial statements of other
unconsolidated affiliates are omitted because each company does not
constitute a significant subsidiary using the 20% tests when considered
individually. Summarized financial information for such affiliates is
disclosed in Note E of Notes to Consolidated Financial Statements in
Ashland's Annual Report.
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements and schedule of
Ashland Inc. and consolidated subsidiaries listed in the accompanying index
to financial statements and financial schedule (Item 14(a)). These
financial statements and schedule are the responsibility of Ashland's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying
index to financial statements (Item 14(a)) present fairly, in all material
respects, the consolidated financial position of Ashland Inc. and
consolidated subsidiaries at September 30, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1999, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Louisville, Kentucky
November 3, 1999
21
<PAGE>
- -------------------------------------------------------------------------------
Ashland Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(In millions) Balance at Provisions Balance
beginning charged to Reserves Other at end
Description of year earnings utilized changes of year
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1999
Reserves deducted from asset accounts
Accounts receivable $ 19 $ 12 $ (8)(1) $ - $ 23
Inventories 11 7 (3) - 15
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998
Reserves deducted from asset accounts
Accounts receivable $ 25 $ 8 $(10)(1) $ (4) $ 19
Inventories 11 2 (2) - 11
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1997
Reserves deducted from asset accounts
Accounts receivable $ 27 $ 9 $(10)(1) $ (1) $ 25
Inventories 10 2 (1) - 11
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Uncollected amounts written off, net of recoveries of $2 million in 1999, 1998 and 1997.
</TABLE>
22
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 - Amended Stock Incentive Plan for Key Employees
of Ashland Inc. and its Subsidiaries.
10.2 - Ashland Inc. Deferred Compensation Plan for
Non-Employee Directors.
10.3 - Tenth Amended and Restated Ashland Inc.
Supplemental Early Retirement Plan for Certain
Employees.
10.6 - Form of Ashland Inc. Executive Employment
Contract between Ashland Inc. and certain
executive officers of Ashland.
10.9 - Ashland Inc. Long-Term Incentive Plan.
10.11 - Ashland Inc. 1993 Stock Incentive Plan.
10.13 - Ashland Inc. Incentive Compensation Plan for
Key Executives.
10.14 - Ashland Inc. Deferred Compensation Plan.
10.16 - Retirement Agreement with Michael D. Rose,
director of Ashland.
10.17 - Amended and Restated Limited Liability Company
Agreement of Marathon Ashland Petroleum LLC
dated as of December 31, 1998.
10.18 - Put/Call, Registration Rights and Standstill
Agreement as amended to December 31, 1998
among Marathon Oil Company, USX Corporation,
Ashland Inc. and Marathon Ashland Petroleum LLC.
12 - Computation of Ratios of Earnings to Fixed
Charges and Earnings to Combined Fixed Charges
and Preferred Stock Dividends.
13 - Portions of Ashland's Annual Report to
Shareholders, incorporated by reference herein,
for the fiscal year ended September 30, 1999.
21 - List of subsidiaries.
23 - Consent of independent auditors.
24 - Power of Attorney, including resolutions of
the Board of Directors.
27 - Financial Data Schedule for the fiscal year
ended September 30, 1999.
EXHIBIT 10.1
AMENDED STOCK INCENTIVE PLAN FOR KEY EMPLOYEES
OF ASHLAND INC. AND ITS SUBSIDIARIES
(Amended as of November 6, 1997)
SECTION 1. PURPOSE
The purpose of this amended Stock Incentive Plan For Key Employees
of Ashland Inc. And Its Subsidiaries (herein called the "Plan") is to
revise the Incentive Stock Option Plan For Key Employees of Ashland Inc.
And Its Subsidiaries (1981) (such plan as it existed prior to the effective
date of the Plan hereinafter referred to as the "1981 Plan") and to promote
the interests of Ashland Inc. (herein called "Ashland") and its
shareholders by providing their officers and key employees with an
incentive to continue service with Ashland and its subsidiaries. Through
the grant of stock options, stock appreciation rights and Restricted Stock
awards (collectively referred to as "Grants"), Ashland seeks to attract and
retain in its employ individuals of training, experience and ability and to
furnish additional incentive to officers and other key employees upon whose
judgment, initiative and efforts the successful conduct of its business
largely depends.
SECTION 2. ADMINISTRATION
(a) The Plan shall be administered by the Personnel and
Compensation Committee of the Board of Directors of Ashland or its designee
(herein called the "Committee"), consisting of not less than three
directors of Ashland who shall be appointed, from time to time, by the
Board of Directors of Ashland. No person who is (or, within one year prior
to his or her appointment as a member of the Committee, was) eligible to
participate in the Plan shall be a member of the Committee. Subject to the
express provisions of the Plan, the Committee shall have plenary authority
to interpret the Plan, to prescribe, amend, and rescind from time to time
rules and regulations relating to the Plan, to determine the eligible
employees to whom Grants shall be made, to determine whether any option
hereunder shall be deemed to be an "incentive stock option" as provided by
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
(herein referred to as "incentive stock options") or an option not
qualifying as an "incentive stock option" under the Code (herein referred
to as "non-qualified options"), to determine the terms and provisions of
the respective Grants (which terms and provisions need not be the same in
each case), and to make all other determinations deemed necessary or
advisable for the administration of the Plan. In making such
determinations, the Committee may take into account the nature of the
services rendered by the respective employees, their present and potential
contributions to Ashland's success and such other factors as the Committee
in its discretion shall deem relevant. The determinations of the Committee
on the matters referred to in this Section 2 shall be conclusive.
(b) All determinations of the Committee shall be made by not less
than a majority of its members. Any decision or determination reduced to
writing and signed by all the members shall be fully as effective as if it
had been made by a majority vote at a meeting duly called and held. No
member of the Committee shall be liable, in the absence of bad faith, for
any act or omission with respect to his or her services on the Committee.
Services on the Committee shall constitute services as a Director of
Ashland so that members of the Committee shall be entitled to
indemnification and reimbursement for their services as members of the
Committee to the same extent as for services as Directors of Ashland.
SECTION 3. STOCK SUBJECT TO THE PLAN
There will be reserved for issuance upon the exercise of options
and stock appreciation rights and upon awards of Restricted Stock (as
defined in Section 13), to be granted from time to time under the Plan, an
aggregate of 2,000,000 shares of Ashland Common Stock, par value $1.00 per
share ("Common Stock") (which shares include shares heretofore provided for
under the 1981 Plan). Such shares may be in whole or in part, as the Board
of Directors of Ashland or its designee (the "Board") shall from time to
time determine, authorized and unissued shares of Common Stock or issued
shares of Common Stock which shall have been reacquired by Ashland. If any
option or stock appreciation right granted under the Plan shall expire or
terminate for any reason without having been exercised (or considered to
have been exercised as provided in Section 7) in full, the shares subject
thereto shall again be available for the purposes of the Plan.
SECTION 4. ELIGIBILITY
Options and Restricted Stock may be granted only to salaried
employees (which term shall be deemed to include officers) of Ashland and
its present and future subsidiary corporations as defined in Section 424 of
the Code ("subsidiaries"). A director of Ashland or of a subsidiary who is
not also such an employee of Ashland or of one of its subsidiaries will not
be eligible to receive any options or Restricted Stock under the Plan.
Options may be granted to employees who hold or have held options under
previous plans. An employee who has been granted an option may be granted
an additional option or options.
Notwithstanding anything to the contrary contained herein, in the
case of incentive stock options, the maximum aggregate fair market value
(determined at the time each incentive stock option is granted under the
Plan) of the shares of Common Stock for which any individual employee may
be granted incentive stock options under the Plan in any calendar year (and
under all other plans of Ashland or any subsidiary which provide for the
granting of incentive stock options) shall not exceed $100,000 plus the
amount of any unused limit carry over to such year. If $100,000 exceeds the
aggregate fair market value (determined at the time each incentive stock
option is granted) of the Common Stock for which an employee was granted
incentive stock options in any calendar year under the Plan (and under all
other plans of Ashland or any subsidiary which provides for the granting of
incentive stock options), one half of such excess shall be an unused limit
carry over to each of the three succeeding calendar years, under the rules
of Section 422A(c)(4) of the Code as it existed before December 31, 1986.
For purposes of this paragraph, fair market value of Common Stock shall be
the closing price of the Common Stock as reported on the Composite Tape on
the date of the grant of an incentive stock option under the Plan, or, if
there is no trading at the Common Stock on the date in question, then the
closing price of the Common Stock, as so reported, on the next preceding
date on which there was trading in the Common Stock.
SECTION 5. PERIOD OF PLAN AND DURATION OF OPTIONS
(a) No options or Restricted Stock awards shall be granted under
the Plan after November 7, 1994.
(b) Every incentive stock option shall provide for a fixed
expiration date of not later than ten years from the date such incentive
option is granted.
SECTION 6. OPTION DESIGNATION AND PRICE
(a) Any option granted under the Plan may be granted as an
incentive stock option or as a non-qualified stock option as shall be
designated at the time of the grant of such option.
(b) The option price per share of the Common Stock underlying each
option shall be fixed by the Committee, but shall not be less than 100% of
the fair market value of the stock at the time of the granting of the
options. Such fair market value shall be determined by the Committee which
may use any reasonable method of valuation, including the closing price of
the Common Stock as reported on the Composite Tape on the date on which the
option is granted.
SECTION 7. EXERCISE OF OPTIONS
(a) The Committee may in its discretion prescribe in the option
grant the installments, if any, in which an option granted under the Plan
shall become exercisable provided that no option shall be exercisable prior
to the first anniversary of the date of its grant except as provided in
Section 12 or as the Committee otherwise determines. In no case may an
option be exercised at any time for less than 50 shares (or the remaining
shares covered by the option if less than 50 shares) during the term of the
option. The specified number of shares will be issued upon receipt by
Ashland of (i) notice from the holder thereof of the exercise of an option
and (ii) either payment to Ashland of the option price of the number of
shares with respect to which the option is exercised or (with approval of
the Committee) a promissory note as provided in Section 8 hereof. Each such
notice and payment shall be delivered or mailed by postpaid mail, addressed
to the Treasurer of Ashland at Ashland's Executive Offices at 1000 Ashland
Drive, Russell, Kentucky, or such other place as Ashland may designate from
time to time.
(b) An incentive stock option shall not be exercisable while there
is outstanding any incentive stock option which was granted before the
granting of such option to such employee to purchase stock of Ashland or a
subsidiary (determined at the time of granting of such option) or a
predecessor of any of such corporations. An option shall be treated as
outstanding for this purpose until it is exercised in full or expires by
reason of lapse of time.
SECTION 8. PAYMENT FOR SHARES
Except as otherwise provided in this Section 8, the option price
shall be paid in full when the option is exercised. The price may be paid
in whole or in part (a) in cash or (b) in whole shares of Common Stock
evidenced by negotiable certificates, valued at their fair market value
(which shares of Common Stock must have been owned by the employee six
months or longer and not used to effect a stock option exercise within the
preceding six months, in the case of an exercise of options which were
granted after May 21, 1992, unless the Committee specifically provides
otherwise), (c) by Attestation, (d) by a combination of such methods of
payment, or (e) by such other consideration as shall be approved by the
Committee (including without limitation, effecting a "cashless exercise,"
with a broker, of the option). "Attestation" means the delivery to Ashland
of a completed Attestation Form prescribed by Ashland setting forth the
whole shares of Common Stock owned by the employee which the employee
wishes to utilize to pay the option price. In the case of an exercise of
stock options granted after May 21, 1992, the Common Stock listed on the
Attestation Form must have been owned by the employee six months or longer
and not have been used to effect a stock option exercise within the
preceding six months, unless the Committee specifically provides otherwise.
Moreover, in the case of an exercise of stock options granted prior to
May 21, 1992, an employee may request Ashland to "pyramid" his or her
shares; that is, to automatically apply the shares which he or she is
entitled to receive on the exercise of a portion of a stock option to
satisfy the exercise for additional portions of the option, thus resulting
in multiple simultaneous exercises of options by use of whole shares as
payment.
The Committee may in its discretion authorize payment of all or
any part of the option price over a period of not more than five years from
the date the option is exercised. Any unpaid balance of the option price
shall be evidenced by the employee's promissory note payable to the order
of Ashland which shall bear interest at such rate or rates as determined
from time to time by the Committee, but not less than the lower of the
prevailing base rate of interest or the most favorable rate of interest
charged to commercial borrowers as announced by any major U.S. bank on the
date the option is exercised, and shall be payable in full within not later
than five years after the date the option is exercised.
SECTION 9. GOVERNANCE OF PLANS
Notwithstanding any terms or provisions to the contrary all
incentive stock options outstanding prior to November 8, 1984, shall
continue to be governed by the terms and provisions of the 1981 Plan.
SECTION 10. GENERAL STOCK APPRECIATION RIGHTS
The Committee may grant general stock appreciation rights ("SARs")
pursuant to the provisions of this Section 10 to the holder of any option
granted under the Plan (a "related option") with respect to all or a
portion of the shares subject to the related option. An SAR may only be
granted concurrently with the grant of the related option. Subject to the
terms and provisions of this Section 10, each SAR shall be exercisable only
at the same time and to the same extent the related option is exercisable
and in no event after the termination of the related option. SARs shall be
exercisable only when the fair market value (determined as of the date of
exercise of the SARs) of each share of Common Stock with respect to which
the SARs are to be exercised shall exceed the option price per share of
Common Stock subject to the related option. SARs granted under the Plan
shall be exercisable in whole or in part by notice to Ashland. Such notice
shall state that the holder of the SARs elects to exercise the SARs and the
number of shares in respect of which the SARs are being exercised.
Subject to the terms and provisions of this Section 10, upon the
exercise of SARs, the holder thereof shall be entitled to receive from
Ashland consideration (in the form hereinafter provided) equal in value to
the excess of the fair market value (determined as of the date of exercise
of the SARs) of each share of Common Stock with respect to which such SARs
have been exercised over the option price per share of Common Stock subject
to the related option. Upon the exercise of an SAR, the holder may specify
the form of consideration to be received by such holder, which shall be in
shares of Common Stock (valued at fair market value on the date of exercise
of the SAR), or in cash, or partly in cash and partly in shares of Common
Stock, as the holder shall request; provided, however, that the Committee,
in its sole discretion, may disapprove the form of consideration requested
and instead authorize the payment of such consideration in shares of Common
Stock (valued as aforesaid), or in cash, or partly in cash and partly in
shares of Common Stock, as the Committee shall determine. For purposes of
this Section 10, (a) fair market value of a share of Common Stock shall be
the mean between the high and low sales prices thereof on the Composite
Tape on the date of exercise of an SAR or, if there is no trading of the
Common Stock on the date in question, then the closing price of the Common
Stock, as so reported, on the next preceding date on which there was
trading in the Common Stock, and (b) the date of exercise of an SAR shall
mean the date on which the Company shall have received notice from the
holder of the SAR of the exercise of such SAR.
Upon the exercise of SARs, the related option shall be considered
to have been exercised (a) to the extent of the number of shares of Common
Stock with respect to which such SARs are exercised and (b) to that extent
for purposes of determining the number of shares of Common Stock available
for the grant of options and Restricted Stock under the Plan. Upon the
exercise or termination of the related option, the SARs with respect to
such related option shall be considered to have been exercised or
terminated to the extent of the number of shares of Common Stock with
respect to which the related option was so exercised or terminated.
SECTION 11. TRANSFER OF OPTIONS, STOCK APPRECIATION RIGHTS, AND
RESTRICTED STOCK
Options and SARs granted under the Plan shall be transferable by
will, by the laws of descent and distribution, and, subject to the
discretion and direction of the Committee, may be made transferable by the
employee-holder thereof during his or her lifetime. Restricted Stock may be
made transferable at the discretion and direction of the Committee.
SECTION 12. CONTINUED EMPLOYMENT, AGREEMENT TO SERVE AND EXERCISE PERIODS
(a) Subject to the provisions of Paragraph (b), (c) and (f) of
this Section 12, every option shall provide that it may not be exercised in
whole or in part for a period of one year after the date of granting such
option and if the employment of the employee shall be terminated, for any
reason other than death or disability as determined by the Committee, prior
to the end of such one year period, the option granted to such employee
shall immediately terminate.
(b) Every option shall provide that in the event of the death of
the employee while employed by Ashland or one of its subsidiaries or death
during the period in which options may be exercised by an employee
determined to be disabled as provided in Paragraph (c) of this Section 12
or within three months after cessation of employment for any cause, it
shall be exercisable, at any time or from time to time, prior to the fixed
termination date set forth in the option, by the estate of the decedent, or
by any person who shall acquire the right to exercise such option by
bequest or by the laws of descent and distribution for the full number of
optioned shares or any part thereof, less such number as may have been
theretofore acquired under the option.
(c) Every option shall provide that in the event the employment of
any employee shall cease by reason of disability as determined by the
Committee at any time during the term of the option, it shall be
exercisable, at any time or from time to time by such employee for the full
number of optioned shares or any part thereof, less such number as may have
been theretofore acquired under the option. Options held by an employee
determined by the Committee to be disabled prior to September 19, 1996
shall be exercisable during a period of one year of continuing disability
following termination of employment by reason of such disability. Options
held by an employee determined by the Committee to be disabled on or after
September 19, 1996 shall be exercisable at any time prior to the fixed
termination date set forth in the option. As used herein, an employee will
be deemed "disabled" when he or she becomes unable to perform the functions
required by his or her regular job due to a physical or mental illness and,
in connection with the grant of an incentive stock option, shall be deemed
disabled if he or she falls within the meaning of that term as provided in
Section 22(e)(3) of the Code. The determination by the Committee of any
question involving disability shall be conclusive and binding.
(d) Every option shall provide that in the event the employment of
any employee shall cease by reason of retirement, such option may be
exercised only in respect of the number of shares which the employee could
have acquired under the option immediately prior to such retirement.
Options held by an employee who retires prior to September 19, 1996 shall
be exercisable until the earlier to occur of the fixed termination date set
forth in the option or three months after such retirement. Options held by
an employee who retires on or after September 19, 1996 shall be exercisable
until the fixed termination date set forth in the option.
(e) Except as provided in Paragraphs (a), (b), (c), (d) and (f) of
this Section 12, every option shall provide that it shall terminate on the
earlier to occur of the fixed termination date set forth in the option or
three months after cessation of the employee's employment for any cause,
and except as provided in Paragraph (f) of this Section 12, if exercised
after cessation of such employment, may be exercised only in respect of the
number of shares which the employee could have acquired under the option
immediately prior to such cessation of employment. No option may be
exercised after the fixed termination date set forth in the option.
(f) Notwithstanding any provision of this Section 12 to the
contrary, any option granted pursuant to the Plan and any related SAR may,
in the discretion of the Committee or as provided in the relevant option
agreement, become fully exercisable as to all optioned shares (i) from and
after the time the employee ceases to be an employee of Ashland or any of
its subsidiaries as a result of the sale or other disposition by Ashland of
assets or property (including shares of any subsidiary) in respect of which
the employee had theretofore been employed or as a result of which
optionee's continued employment with Ashland or any subsidiary is no longer
required and (ii) in the case of a change of control (as hereinafter
defined) of Ashland from and after the date of such change in control. For
purposes of this Paragraph (f), the term "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 Directors
of Ashland) 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, or (2) when any "person" (as defined in Section 3(a)(9) or 13(d)
of the Securities Exchange Act of 1934), other than Ashland or any
subsidiary or employee benefit plan or trust maintained by Ashland or any
of its subsidiaries, shall become the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than 15% of the Common Stock outstanding at the time,
without the approval of the Board of Directors of Ashland, or (3) at any
time during a period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Ashland
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.
(g) Each employee granted an option under this Plan shall agree by
his or her acceptance of such option to remain in the service of Ashland or
a subsidiary corporation of Ashland for a period of at least one year from
the date of the option agreement between Ashland and the employee. Such
service shall, subject to the terms of any contract between Ashland or any
such subsidiary and such employee, be at the pleasure of Ashland or such
subsidiary and at such compensation as Ashland or such subsidiary shall
reasonably determine from time to time. Nothing in the Plan or in any
option granted pursuant to the Plan shall confer on any individual any
right to continue in the employment of Ashland or any of its subsidiaries
or interfere in any way with the right of Ashland or any of its
subsidiaries to terminate his or her employment at any time.
(h) Subject to the limitations set forth in Section 422 of the
Code, the Committee may adopt, amend or rescind from time to time such
provisions as it deems appropriate with respect to the effect of leaves of
absence approved by any duly authorized officer of Ashland with respect to
any optionee.
(i) The determination by the Committee of any question involving
disability shall be conclusive and binding.
SECTION 13. RESTRICTED STOCK AWARDS
The Committee may grant to employees shares of Common Stock
subject to certain restrictions (herein referred to as "Restricted Stock").
The amount of Restricted Stock to be granted to any eligible employee and
the respective terms and conditions of such grant (which terms and
provisions need not be the same in each case) shall be determined by the
Committee at its sole discretion. As a condition to any award and the
corresponding delivery of Restricted Stock hereunder, the Committee may
require an employee to pay an amount equal to, or in excess of, the par
value of the shares of Restricted Stock awarded to him or her. Each
certificate issued in respect of shares of Restricted Stock granted to a
participant under the Plans shall be registered in the name of the
participant and shall bear the following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeitures) contained in Section 13 of the Stock
Incentive Plan for Key Employees of Ashland Inc. and Its
Subsidiaries and an Agreement entered into between the registered
owner and Ashland Inc."
Subject to Section 11 hereof, Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered during a "Restricted
Period," which shall be determined by the Committee and which shall not be
less than one year nor more than five years from the date of grant. The
Committee may reduce the Restricted Period with respect to any outstanding
shares of Restricted Stock at any time, but in no event shall the
Restricted Period be less than one year. Except for such restrictions, the
employee as the owner of the Common Stock issued as Restricted Stock shall
have all rights of a shareholder including, but not limited to, the right
to vote such Common Stock and to receive dividends thereon as and when
paid.
In the event that an employee's employment is terminated by reason
of death or disability (as defined in Paragraph (c) of Section 12 hereof),
or for such other reasons as the Committee may provide, the employee (or
his or her estate) will receive his or her Restricted Stock subject to the
terms of his or her employment agreement which agreement shall be in
accordance with the terms and provisions set forth in Paragraph (g) of
Section 12 herein. In the case of voluntary resignation or any other
termination of employment, an employee's Restricted Stock will be
forfeited; provided, however, that the Committee may limit such forfeiture
to that portion thereof which is proportional to the unelapsed portion of
the Restricted Period. Any forfeited Restricted Stock shall not again be
available for the grant of options and Restricted Stock under the Plan.
At the end of the Restricted Period all shares of Restricted Stock
shall be transferred free and clear of all restrictions to the employee.
All such shares may also be transferred free and clear of all restrictions
to the employee to the same extent provided in Paragraph (f) of Section 12
either in the discretion of the Committee or as provided in the relevant
employment agreement.
SECTION 14. WITHHOLDING TAXES
Federal, state or local law may require the withholding of taxes
applicable to gains resulting from the exercise of non-qualified stock
options granted hereunder. Unless otherwise prohibited by the Committee,
each participant may satisfy any such tax withholding obligation by any of
the means, or by a combination of such means: (i) a cash payment; or (ii)
authorizing Ashland to withhold from the shares of Ashland Common Stock
otherwise issuable to the participant as a result of the exercise of the
non-qualified stock option a number of shares having a fair market value,
as of the date the withholding tax obligation arises (the "Tax Date"),
which will satisfy the amount of the withholding tax obligation. A
participant's election to pay the withholding tax obligation by (ii) above
must be made on or before the Tax Date, is irrevocable, is subject to such
rules as the Committee may adopt, and may be disapproved by the Committee.
SECTION 15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event the market price of Common Stock shall decrease as a
result of any recapitalization, reorganization, merger, consolidation,
spinoff, separation, partial liquidation, or other transaction described in
Section 424(a) of the Code, then, in the discretion of the Committee (and
subject to any Internal Revenue Service requirements that may be
applicable) the price per share of Common Stock under each option or
Restricted Stock award granted pursuant to the Plan may be appropriately
adjusted (and the number of shares subject to option or Restricted Stock
awards may be appropriately adjusted). For purposes of the preceding
sentence, the decrease in market price of Common Stock may be determined in
any manner the Committee deems reasonable, including the comparison of such
market price immediately before and immediately after the event giving rise
to any such decrease, subject to Internal Revenue Service requirements.
Adjustments under this Section 15 shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive,
and the Committee in its discretion in making such adjustments may
disregard fractional shares.
SECTION 16. AMENDMENTS AND TERMINATIONS
Unless the Plan shall theretofore have been terminated as
hereinafter provided, the Plan shall terminate on, and no award shall be
granted after, November 7, 1994. The Plan may be terminated, modified or
amended by the shareholders of Ashland. The Board may, at any time,
terminate, modify or amend the Plan in such respects as it shall deem
advisable; provided, however, that the Board may not, without approval by
the holders of a majority of the outstanding shares of stock present and
voting at any annual or special meeting of shareholders of Ashland, (i)
increase (except as provided in Section 15) the maximum number of shares as
to which options or Restricted Stock may be granted under the Plan, (ii)
change the class of employees eligible to receive options and Restricted
Stock awards, (iii) change the manner of determining the minimum option
prices other than to change the manner of determining the fair market value
of the Common Stock as set forth in Section 6, or (iv) extend the period
during which options or Restricted Stock awards may be granted or
exercised. No termination, modification or amendment of the Plan may,
without the consent of the employee to whom any option or Restricted Stock
award shall theretofore have been granted, adversely affect the rights of
such employee under such option or Restricted Stock award.
SECTION 17. EFFECTIVENESS OF THE PLAN
The Plan shall be effective on November 8, 1984, subject to its
ratification by the holders of a majority of the shares of Ashland stock
present and voting at the Annual Meeting of Shareholders of Ashland on
January 31, 1985 or such other date fixed for the next meeting of
shareholders or any adjournment or postponement thereof. The Committee may
in its discretion authorize the granting of options and Restricted Stock
awards, the exercise of which shall be expressly subject to the conditions
that (a) the Plan shall have been approved or ratified as aforesaid by the
shareholders of Ashland, (b) the shares of Common Stock to be issued upon
the exercise of options granted under the Plan shall have been duly listed,
upon official notice of issuance, upon the New York Stock Exchange and (c)
a Registration Statement under the Securities Act of 1933, as amended, with
respect to such shares shall have become effective.
SECTION 18. TIME OF GRANTING OPTIONS AND RESTRICTED STOCK AWARDS
Nothing contained in the Plan or any resolutions adopted or to be
adopted by the Board of Directors of Ashland or the shareholders of Ashland
shall constitute the granting of any option or Restricted Stock award
hereunder. Options and Restricted Stock awards shall be granted hereunder
only by action of or pursuant to the authority of the Committee and the
date of grant shall be the date fixed in the determination thereof by the
Committee; provided, however, that no participant shall have any rights in
respect of such grant unless and until he or she shall have executed and
delivered an option or employment agreement, as the case may be, in form
and substance satisfactory to the Committee.
SECTION 19. USE OF CERTAIN TERMS
Options, SARs and Restricted Stock awards granted under the Plan
shall be binding upon Ashland, its successors and assigns. Unless the
context otherwise requires, the terms used in the Plan which correspond to
like terms defined in Sections 421 and 424, inclusive, of the Code and
regulations and revenue rulings applicable thereto shall have the meanings
attributed to them in said sections of such Code.
ASHLAND INC.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
(Amended as of January 28, 1998)
ARTICLE I. GENERAL PROVISIONS
1. PURPOSE
The purpose of this Ashland Inc. Deferred Compensation Plan For
Non-Employee Directors (the "Plan") is to provide each Director with an
opportunity to defer some or all of the Director's Fees as a means of
saving for retirement or other purposes. In addition, the Plan provides
Directors with the ability to increase their proprietary interest in the
Company's long-term prospects by permitting Directors to receive all or a
portion of their Fees in Ashland Common Stock.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) "Accounting Date" means the Business Day on which a
calculation concerning a Participant's Compensation Account is performed,
or as otherwise defined by the Committee.
(b) "Act" means the Securities Act of 1933, as amended from time
to time.
(c) "Beneficiary" means the person(s) designated by a Participant
in accordance with Article IV, Section 1.
(d) "Board" means the Board of Directors of Ashland Inc. or its
designee.
(e) "Business Day" means a day on which the New York Stock
Exchange is open for trading activity.
(f) "Change in Control" shall be deemed to occur (1) upon the
approval of the shareholders of the Company (or if such approval is not
required, upon the approval of the Board) of (A) any consolidation or
merger of the Company in which the Company 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 the Company, or (C) adoption of any
plan or proposal for the liquidation or dissolution of the Company, (2)
when any "person" (as defined in Section 3(a)(9) or 13(d) of the Exchange
Act), other than the Company or any subsidiary or employee benefit plan or
trust maintained by the Company, 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 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.
(g) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(h) "Committee on Directors" means the Committee on Directors of
the Board or its designee.
(i) "Common Stock" means the common stock, $1.00 par value, of
Ashland Inc.
(j) "Common Stock Fund" means that investment option, approved by
the Committee on Directors, in which a Participant's Retirement Account may
be deemed to be invested and may earn income based on a hypothetical
investment in Common Stock.
(k) "Company" means Ashland Inc., its divisions and subsidiaries.
(l) "Corporate Human Resources" means the Corporate Human
Resources Department of the Company.
(m) "Credit Date" means the date on which any Fees would otherwise
have been paid to the Participant or in the case of the Participant's
designation of investment option changes, within three Business Days after
the Participant's designation is received by Corporate Human Resources, or
as otherwise designated by the Committee.
(n) "Deferral Account" means the account(s) to which the
Participant's Deferred Fees are credited and from which, pursuant to
Article III, Section 5, distributions are made.
(o) "Deferred Fees" means the Fees elected by the Participant to
be deferred pursuant to the Plan.
(p) "Director" means any non-employee director of the Company.
(q) "Disability" means a Director's incapacity, due to physical or
mental illness, resulting in an inability to attend to his or her duties
and responsibilities as a member of the Board.
(r) "Election" means a Participant's delivery of a written notice
of election to the Secretary of the Company electing to defer payment of
his or her Fees or to receive such Fees in the form of Common Stock.
(s) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(t) "Fair Market Value" means the price of a share of Common
Stock, as reported on the Composite Tape for New York Stock Exchange issues
on the date and at the time designated by the Company.
(u) "Fees" mean the annual retainer and meeting fees, as well as
any per diem compensation for special assignments, earned by a Director for
his or her service as a member of the Board during a calendar year or
portion thereof.
(v) "Fiscal Year" means that annual period commencing October 1
and ending the following September 30.
(w) "Participant" means a Director who has elected to defer
payment of all or a portion of his or her Fees and/or to receive all or a
specified portion of his or her Fees in shares of Common Stock.
(x) "Payment Commencement Date" means the date payments of amounts
deferred begin pursuant to Article III, Section 6.
(y) "Personal Representative" means the person or persons who,
upon the disability or incompetence of a Director, shall have acquired on
behalf of the Director, by legal proceeding or otherwise, the right to
receive the benefits specified in this Plan.
(z) "Plan" means this Ashland Inc. Deferred Compensation Plan For
Non-Employee Directors.
(aa) "Stock Account" means an account by that name established
pursuant to Article III, Section 1.
(bb) "Stock Unit(s)" means the share equivalents credited to a
Participant's Stock Account pursuant to Article III, Section 1.
(cc) "Termination" means retirement from the Board or termination
of service as a Director for any other reason.
3. SHARES; ADJUSTMENTS IN EVENT OF CHANGES IN CAPITALIZATION
(a) SHARES AUTHORIZED FOR ISSUANCE. There shall be reserved for
issuance under the Plan 500,000 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 of the Company by reason of any stock split,
stock dividend, recapitalization, merger, consolidation, reorganization,
combination, or exchange 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 so
that the proportionate interest of the Directors shall be maintained as
before the occurrence of such event. Such adjustment shall be conclusive
and binding for all purposes of the Plan.
4. ELIGIBILITY
Any non-employee Director of the Company shall be eligible to
participate in the Plan.
5. ADMINISTRATION
Full power and authority to construe, interpret and administer the
Plan shall be vested in the Company and the Committee on Directors.
Decisions of the Company and the Committee on Directors shall be final,
conclusive and binding upon all parties. Day-to-day administration of the
Plan shall be the responsibility of Corporate Human Resources. This
Department may authorize new or modify existing forms for use under this
Plan so long as any such modified or new forms are not inconsistent with
the terms of the Plan.
ARTICLE II. COMMON STOCK PROVISION
Each Director may elect to receive all or a portion of his or her
Fees in shares of Common Stock by making an Election pursuant to Article
III, Section 4. Shares shall be issued to the Director at the end of each
quarter beginning in the quarter the Election is effective. The number of
shares of Common Stock so issued shall be equal to the amount of Fees which
otherwise would have been payable to such Director during the quarter
divided by the Fair Market Value. Only whole number of shares of Common
Stock will be issued, with any fractional shares to be paid in cash.
ARTICLE III. DEFERRED COMPENSATION
1. PARTICIPANT ACCOUNTS
(a) Upon election to participate in the Plan, there shall be
established a Deferral Account to which there shall be credited any
Deferred Fees as of each Credit Date. The Deferral Account shall be
credited (or debited) on each Accounting Date with income (or loss) based
upon a hypothetical investment in any one or more of the investment options
available under the Plan, as prescribed by the Committee on Directors,
which may include a Common Stock Fund, as elected by the Participant under
the terms of Article III, Section 4.
(b) The Stock Account of a Participant shall be credited on each
Accounting Date with Stock Units equal to the number of shares of Common
Stock (including fractions of a share) that could have been purchased with
the amount of such deferred Fees as to which a stock deferral election has
been made at the Fair Market Value on the Accounting Date. As of the date
of any dividend distribution date for the Common Stock, the Participant's
Stock Account shall be credited with additional Stock Units equal to the
number of shares of Common Stock (including fractions of a share) that
could have been purchased, at the Fair Market Value on such date, with the
amount which would have been paid as dividends on that number of shares
(including fractions of a share) of Common Stock which is equal to the
number of Stock Units then credited to the Participant's Stock Account.
2. FINANCIAL HARDSHIP
Upon the written request of a Participant or a Participant's
Personal Representative and a finding that continued deferral will result
in an unforeseeable financial hardship to the Participant, the Committee on
Directors or the Company (each in its sole discretion) may authorize (a)
the payment of all or a part of a Participant's Deferral Account in a
single installment prior to his or her ceasing to be a Director, or (b) the
acceleration of payment of any multiple installments hereof. It is intended
that the Committee's determinations as to whether the Participant has
suffered an "unforeseeable financial emergency" shall be made consistent
with the requirements under Section 457(d) of the Internal Revenue Code. If
the Participant requesting such a payment is a member of the Committee on
Directors, the Participant shall abstain from the Committee on Directors'
determination as to whether the payment shall be made.
3. ACCELERATED DISTRIBUTION
(a) AVAILABILITY OF WITHDRAWAL PRIOR TO TERMINATION. The
Participant or the Participant's Beneficiary who is receiving installment
payments under the Plan may elect, in writing, to withdraw all or a portion
of a Participant's Deferral Account at any time prior to the time such
Deferral Account otherwise becomes payable under the Plan, provided the
conditions specified in subsections (c), (d) and (e) of this Article III,
Section 3 are satisfied.
(b) ACCELERATION OF PERIODIC DISTRIBUTIONS. Upon the written
election of the Participant or the Participant's Beneficiary who is
receiving installment payments under the Plan, the Participant or
Participant's Beneficiary may elect to have all or a portion of the
remaining installments distributed in the form of an immediately payable
lump sum, provided the conditions specified in subsection (c) and (e) of
this Article III, Section 3 are satisfied.
(c) FORFEITURE PENALTY. In the event of a withdrawal pursuant to
subsection (a) of this Article III, Section 3, or an accelerated
distribution pursuant to subsection (b) of this Article III, Section 3, the
Participant shall forfeit from such Deferral Account an amount equal to 10%
of the amount of the withdrawal or accelerated distribution, as the case
may be. The forfeited amount shall be deducted from the Deferral Account
prior to giving effect to the requested withdrawal or acceleration. Neither
the Participant nor the Participant's Beneficiary shall have any right or
claim to the forfeited amount, and the Company shall have no obligation
whatsoever to the Participant, the Participant's Beneficiary or any other
person with regard to the forfeited amount.
(d) MINIMUM WITHDRAWAL. In no event shall the amount withdrawn in
accordance with subsection (a) of this Article III, Section 3 be less than
25% of the amount credited to such Participant's Deferral Account
immediately prior to the withdrawal.
(e) SUSPENSION FROM DEFERRALS. In the event of a withdrawal
pursuant to subsection (a) or (b) of this Article III, Section 3, a
Participant who is otherwise eligible to make deferrals of Fees under this
Plan shall be prohibited from making such deferrals with respect to the
remainder of the current Fiscal Year and the Fiscal Year of the Plan
immediately following the Fiscal Year of the Plan during which the
withdrawal was made, and any Election previously made by the Participant
with respect to deferrals of Fees for such Fiscal Year of the Plan shall be
void and of no effect.
4. MANNER OF ELECTION
(a) GENERAL. Any Director wishing to participate in the Plan may
elect to do so by delivering to the Secretary of the Company an Election on
a form prescribed by Corporate Human Resources designating the manner in
which such Deferred Fees are to be invested in accordance with Article III,
Section 1 and electing the timing and form of distribution. The timing of
the filing of the appropriate form with Corporate Human Resources shall be
determined by the Company or the Committee on Directors. An effective
election to defer Fees may not be revoked or modified except as otherwise
determined by the Company or the Committee on Directors or as stated
herein.
(b) INVESTMENT ALTERNATIVES - EXISTING BALANCES. A Participant may
elect to change an existing selection as to the investment alternatives in
effect with respect to existing deferred Fees (in increments prescribed by
the Committee on Directors or the Company) as often, and with such
restrictions, as determined by the Committee on Directors or by the
Company.
(c) CHANGE OF BENEFICIARY. A Participant may, at any time, elect
to change the designation of a Beneficiary in accordance with Article IV,
Section 1 hereof.
(d) INITIAL ELECTION. With respect to Directors' Fees payable for
all or any portion of a calendar year after such person's initial election
to the office of Director of the Company, any such person wishing to
participate in the Plan may file a proper Election within 30 days after
such election to office. Any such Election shall be effective upon filing
or as soon as possible thereafter with respect to such Fees.
5. DISTRIBUTION
(a) DEFERRAL ACCOUNT. In accordance with the Participant's
Election and as prescribed by the Committee on Directors, Deferred Fees
credited to a Participant's Deferral Account shall be distributed in cash
or shares of Common Stock (or a combination of both). Unless otherwise
directed by the Committee on Directors, if no Election is made by a
Participant as to the distribution or form of payment of his or her
Deferral Account, upon Termination such account shall be paid in cash in
lump sum. The entire Deferral Account must be paid out within forty years
following the date of the Participant's Termination.
(b) CHANGE OF DISTRIBUTION OF DEFERRAL ACCOUNT. A Participant will
be allowed to change the Election as to the applicable payment period for
all amounts deferred pursuant to such Election, subject to approval by the
Company or the Committee. Such change must be made by the earlier of:
(i) the date six months prior to the first day of the
month following the Participant's Termination; or
(ii) the December 31 immediately preceding the first day
of the month following the Participant's Termination.
If the Participant making such change is a member of the Committee on
Directors, such Participant shall abstain from the Committee on Directors'
decision to approve or disapprove such change.
6. PAYMENT COMMENCEMENT DATE
Payments of amounts deferred pursuant to a valid Election shall
commence after a Participant's Termination in accordance with his or her
Election. If a Participant dies prior to the first deferred payment
specified in an Election, payments shall commence to the Participant's
Beneficiary on the first payment date so specified.
7. CHANGE IN CONTROL
Notwithstanding any provision of this Plan to the contrary, in the
event of a "Change in Control" (as defined in Section 2(f) of Article I),
each Participant in the Plan shall receive an automatic lump sum cash
distribution of all amounts accrued in the Participant's Cash and/or Stock
Account(s) (including interest at the Prime Rate of Interest through the
business day immediately preceding the date of distribution) not later than
fifteen (15) days after the date of the "Change in Control." For this
purpose, the balance in the Stock Account shall be determined by
multiplying the number of Stock Units by the higher of (a) the highest
closing price of a share of Common Stock during the period commencing 30
days prior to such Change in Control or (b) if the Change in Control of the
Company occurs as a result of a tender or exchange offer or consummation of
a corporate transaction, then the highest price paid per share of Common
Stock pursuant thereto. Any consideration other than cash forming a part or
all of the consideration for Common Stock to be paid pursuant to the
applicable transaction shall be valued at the valuation price thereon
determined by the Board.
In addition, the Company shall reimburse a Director for the legal
fees and expenses incurred if the Director is required to seek to obtain or
enforce any right to distribution. In the event that it is determined that
such Director is properly entitled to a cash distribution hereunder, such
Director shall also be entitled to interest thereon at the Prime Rate of
Interest quoted by Citibank, N.A. as its prime commercial lending rate on
the subject date from the date such distribution should have been made to
and including the date it is made. Notwithstanding any provision of this
Plan to the contrary, Article I, Section 2(f) and Section 7 of this Article
may not be amended after a "Change in Control" occurs without the written
consent of a majority in number of Participants.
ARTICLE IV. MISCELLANEOUS PROVISIONS
1. BENEFICIARY DESIGNATION
A Director may designate one or more persons (including a trust)
to whom or to which payments are to be made if the Director dies before
receiving payment of all amounts due hereunder. A designation of
Beneficiary will be effective only after the signed Election is filed with
the Secretary of the Company while the Director is alive and will cancel
all designations of a Beneficiary signed and filed earlier. If the Director
fails to designate a Beneficiary as provided above or if all of a
Director's Beneficiaries predecease him or her and he or she fails to
designate a new Beneficiary, remaining unpaid amounts shall be paid in one
lump sum to the estate of such Director. If all Beneficiaries of the
Director die before the Director or before complete payment of all amounts
due hereunder, the remaining unpaid amounts shall be paid in one lump sum
to the estate of the last to die of such Beneficiaries.
2. INALIENABILITY OF BENEFITS
The interests of the Directors and their Beneficiaries under the
Plan may not in any way be voluntarily or involuntarily transferred,
alienated or assigned, nor be subject to attachment, execution, garnishment
or other such equitable or legal process.
3. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky.
4. AMENDMENTS
The Committee on Directors may amend, alter or terminate this Plan
at any time without the prior approval of the Directors; provided, however,
that the Committee on Directors may not, without approval by the
shareholders:
(a) materially increase the number of securities that may be
issued under the Plan (except as provided in Article I, Section 3),
(b) materially modify the requirements as to eligibility for
participation in the Plan, or
(c) otherwise materially increase the benefits accruing to
participants under the Plan.
5. COMPLIANCE WITH RULE 16b-3
It is the intention of the Company that the Plan comply in all
respects with Rule 16b-3 promulgated under Section 16(b) of the Exchange
Act and that Plan Participants remain non-employee directors ("Non-Employee
Directors") for purposes of administering other employee benefit plans of
the Company and having such other plans be exempt from Section 16(b) of the
Exchange Act. Therefore, if any Plan provision is found not to be in
compliance with Rule 16b-3 or if any Plan provision would disqualify Plan
participants from remaining Non-Employee Directors, that provision shall be
deemed amended so that the Plan does so comply and the Plan participants
remain Non-Employee Directors, to the extent permitted by law and deemed
advisable by the Committee on Directors, and in all events the Plan shall
be construed in favor of its meeting the requirements of Rule 16b-3.
6. EFFECTIVE DATE
The Plan was approved by the shareholders of the Company on
January 27, 1994, and originally became effective as of November 9, 1993,
and has been restated in this document effective January 28, 1998.
TENTH AMENDED AND RESTATED
ASHLAND INC.
SUPPLEMENTAL EARLY RETIREMENT PLAN
FOR CERTAIN EMPLOYEES
November 4, 1999
ARTICLE I. PURPOSE AND EFFECTIVE DATE.
1.01 PURPOSE
The purpose of the Plan is to allow designated employees to retire
prior to their sixty-fifth birthday without an immediate
substantial loss of income. This Plan is a supplemental retirement
arrangement for a select group of management.
1.02 EFFECTIVE DATE
The Tenth Amended and Restated Ashland Inc. Supplemental Early
Retirement Plan for Certain Employees is hereby amended effective
November 4, 1999. However, the rights and obligations of Employees
who were selected by the Board or approved for participation
pursuant to the eligibility requirements of the Plan to receive a
benefit under the Plan, or who were receiving benefits prior to
November 4, 1999 shall be governed by the terms of the Plan in
effect at the time of each such Employee's Effective Retirement
Date, unless otherwise determined by the Committee in its sole
discretion.
ARTICLE II. DEFINITIONS.
The following terms used herein shall have the following meanings
unless the context otherwise requires:
2.01 "Age" - means the age of an Employee as of his or her last
birthday, except as may otherwise be provided under Sections
5.01 and 5.02 in the event of a Change in Control.
2.02 "Annual Retirement Income" - means the annual income payable under
this Plan by Ashland for the lifetime of a Participant commencing
on such Participant's Effective Retirement Date and ending on his
or her date of death, subject to the provisions of Section 5.04.
2.03 "Ashland" - means Ashland Inc. and its present or future
subsidiary corporations.
2.04 "Board" - means the Board of Directors of Ashland and its
designees.
2.05 "Change in Control" - shall be deemed to occur (1) upon the
approval of the shareholders of Ashland (or if such approval is
not required, 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 Ashland
common stock would be converted into cash, securities or other
property other than a merger in which the holders of Ashland
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 Securities Exchange Act
of 1934), other than Ashland or any subsidiary or employee benefit
plan or trust maintained by Ashland or any of its subsidiaries,
shall become the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or
indirectly, of more than 15% of the Ashland 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 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.
2.06 "Committee" - means the Personnel and Compensation Committee of
the Board and its designees.
2.07 "Effective Retirement Date" - means the date upon which a
Participant retires under this Plan which shall be the first day
of the month following the Participant's 62nd birthday or, at
Ashland's discretion or as otherwise provided in Article V or VI,
any earlier age. Upon approval as provided in Sections 3.01 and
3.02, the "Effective Retirement Date" of a Participant may occur
after the Employee reaches age 62. The Effective Retirement Date
of an Employee who becomes a Participant under Section 3.03
because of a Change in Control and who is considered to be a Level
I or II participant in the Incentive Compensation Plan and who has
an Employment Agreement shall be the first day of the month
following (i) such Employee's termination for reasons other than
"Cause" or (ii) such Employee's resignation for "Good Reason." The
Effective Retirement Date of an Employee who becomes a Participant
under Section 3.03 because of a Change in Control and who is
considered to be a Level III, IV or V participant in the Incentive
Compensation Plan, or who is considered to be a Level I or II
participant in the Incentive Compensation Plan and who does not
have an Employment Agreement, shall be the first day of the month
following such Employee's termination for reasons other than
"Cause". For Employees who do not have an Employment Agreement
with Ashland, "Cause" shall have the meaning given to that word in
Section 3.05.
2.08 "Employee" - means an employee of Ashland who (i) is at least 55
years of age or such earlier age pursuant to Section 5.06(b); and
(ii) is deemed on the Effective Retirement Date to be a Level V or
above employee under the Incentive Compensation Plan.
Notwithstanding anything herein to the contrary, if, after a
Change in Control, an Employee is terminated other than for
"Cause" or, in the case of a Level I or II Employee having an
Employment Agreement, resigns for "Good Reason," the age 55
threshold in clause (i) does not apply and is inapplicable.
2.09 "Employment Agreements" - means those contractual agreements, in
effect from time to time, which are approved by the Board and
which provide an Employee with a specified period of employment
and other benefits.
2.10 "Final Average Bonus" - means the Participant's average bonus paid
under the Incentive Compensation Plan (including amounts that may
have been deferred) during the highest thirty-six (36) months out
of the final sixty-month (60) period. For these purposes, the
"bonus paid" for a particular month within a particular fiscal
year under such plan shall be equal to the amount of such bonus
actually paid (regardless of the date paid, but excluding any
adjustment for the deferral of such payment) to such Participant
on account of such fiscal year divided by the number of months
contained in such fiscal year which were used in determining the
amount of such bonus actually paid to such Participant.
2.11 "Final Average Compensation" - means the average total
compensation paid during the highest thirty-six months (36) out of
the final sixty-month (60) period. For these purposes, "total
compensation paid" is the sum of the "compensation paid" and the
"bonus paid" during a particular month. "Compensation paid" shall
be the base rate of compensation for such Participant in effect on
the first day of such calendar month. "Bonus paid" shall have the
same meaning as set forth in Section 2.10. In the event a payment
is due under the Plan after a Change in Control because the
Participant was terminated other than for "Cause" or resigned for
"Good Reason," the calculation of Final Average Compensation shall
include the amount paid under such Participant's Employment
Agreement. The amount so paid shall be divided by 36 to derive the
monthly "total compensation paid" it represents.
2.12 "Incentive Compensation Plan" - means the Ashland Inc. Incentive
Compensation Plan or the Ashland Inc. Incentive Compensation Plan
for Key Executives, as applicable, including any successor to such
plans.
2.13 "Participant" - means an Employee who has been approved for
participation in the Plan pursuant to Article III or Section 5.06.
2.14 "Plan" - means the Tenth Amended and Restated Ashland Inc.
Supplemental Early Retirement Plan for Certain Employees as set
forth herein.
2.15 "Service" - means the number of years and fractional years of
employment by Ashland of an Employee, measured from the first day
of the month coincident with or next succeeding his or her initial
date of employment up to and including such Employee's Effective
Retirement Date. For purposes of this Section 2.15, Service shall
include an Employee's employment with a subsidiary or an affiliate
of Ashland determined in accordance with rules from time to time
adopted or approved by the Board, or its delegate.
ARTICLE III. PARTICIPATION IN PLAN.
Eligibility for benefits shall be determined as follows:
3.01 EMPLOYEES WHO REQUIRE BOARD APPROVAL
Except as otherwise provided in Section 3.03, an Employee who on
the Effective Retirement Date is deemed to be a Level I or II
participant under the Incentive Compensation Plan shall require
Board approval to participate in this Plan.
3.02 EMPLOYEES WHO REQUIRE CEO OR OTHER APPROVAL
Except as otherwise provided in Section 3.03, an Employee who on
the Effective Retirement Date is deemed to be a Level III, IV, or
V participant under the Incentive Compensation Plan shall require
the approval of either (i) Ashland's Chief Executive Officer or
(ii) Ashland's Administrative Vice President, Human Resources and
either the President or the Chief Financial Officer to participate
in this Plan.
3.03 AUTOMATIC APPROVAL FOR CHANGE IN CONTROL
Subject to the provisions of Article VI, in the event of a Change
in Control (as defined in Section 2.05), an Employee who is deemed
to be a Level I, II, III, IV or V participant under the Incentive
Compensation Plan shall automatically be deemed to be approved by
the Board or by the Chief Executive Officer, as applicable, for
participation under this Plan.
3.04 OTHER APPROVALS
The Board or Chief Executive Officer, as applicable, may approve
such employees for participation in the Plan as they deem to be
appropriate, all in its or his sole discretion.
3.05 TERMINATION FOR CAUSE
Ashland reserves the right to terminate any Participant for
"Cause" prior to his or her Effective Retirement Date, with a
resulting forfeiture of the payment of benefits under the Plan.
Ashland also reserves the right to terminate any Participant's
participation in the Plan for "Cause" subsequent to his or her
Effective Retirement Date. For purposes of this Section 3.05,
"Cause" shall mean the willful and continuous failure of a
Participant to substantially perform his or her duties to Ashland
(other than any such failure resulting from incapacity due to
physical or mental illness), or the willful engaging by a
Participant in gross misconduct materially and demonstrably
injurious to Ashland, each to be determined by Ashland in its sole
discretion.
ARTICLE IV. INTERACTION WITH EMPLOYMENT AGREEMENTS.
4.01 TERMINATIONS - GENERAL
Notwithstanding any provision of this Plan to the contrary, an
Employee who has entered into an Employment Agreement with Ashland
and who is either terminated without "Cause" prior to a "change in
control of Ashland" or is terminated without "Cause" or resigns
for "Good Reason" following a "change in control of Ashland" (each
quoted term as defined in the applicable employment agreement)
shall be entitled to receive the benefits as provided pursuant to
this Plan. Benefits payable hereunder in such a situation shall be
calculated in accordance with the payment option selected by the
Employee at such time.
4.02 BENEFITS PRIOR TO "CHANGE IN CONTROL."
If the Employee's termination is without "Cause" prior to a
"change in control of Ashland," the benefits payable hereunder
shall commence no earlier than as of the first day of the calendar
month coincident with or next following the second anniversary
following the Employee's "Date of Termination" (as defined in the
applicable employment agreement); however, if the Employee elects
to receive such benefits in a lump sum as provided in Section
5.04(b)(1), such benefits shall commence and be payable as therein
specified.
4.03 BENEFITS SUBSEQUENT TO A "CHANGE IN CONTROL."
If the Employee's termination is without "Cause" or he or she
resigns for "Good Reason" following a "change in control of
Ashland," benefits payable hereunder shall begin as of the first
day of the calendar month next following the Participant's
Effective Retirement Date.
4.04 SUBSEQUENT ACTIVITY IN CONFLICT WITH ASHLAND
The provisions of this Section 4.04 shall apply to Level I, II,
III, IV and V Participants, regardless of whether such a
Participant has an Employment Agreement; except that the
provisions of this Section 4.04 shall not apply to any Participant
who was approved for participation hereunder under the provisions
of Section 3.03. If a Participant accepts, during a period of five
(5) years subsequent to his or her Effective Retirement Date, any
consulting or employment activity which is in direct and
substantial conflict with the business of Ashland at such time
(such determination regarding conflicting activity to be made in
the sole discretion of the Board), he or she shall be considered
in breach of the provisions of this Section 4.04; provided,
however, he or she shall not be restricted in any manner with
respect to any other non-conflicting activity in which he or she
is engaged.
If a Participant wishes to accept employment or consulting
activity which may be prohibited under this Section 4.04, such
Participant may submit to Ashland written notice (Attention:
Administrative Vice President, Human Resources) of his or her wish
to accept such employment or consulting activity. If within ten
(10) business days following receipt of such notice Ashland does
not notify the Participant in writing of Ashland's objection to
his or her accepting such employment or consulting activity, then
such Participant shall be free to accept such employment or
consulting activity for the period of time and upon the basis set
forth in his or her written request. In the event the provisions
of this Section 4.04 are breached by a Participant, the
Participant shall not be entitled to any additional periodic
payments hereunder and shall be liable to repay to Ashland all
amounts such Participant received prior to such breach. If a
Participant who breaches the provisions of this Section 4.04
received a lump sum distribution of his or her benefit prior to
such breach, such Participant shall be liable to repay to Ashland
the amount of such distribution. If a Participant who breaches the
provisions of this Section 4.04 deferred all or any part of a lump
sum distribution hereunder to the Ashland Inc. Deferred
Compensation Plan, the amount so deferred shall be forfeited, and
if any amount of the amount so deferred was distributed from the
Ashland Inc. Deferred Compensation Plan before the breach
occurred, the amount so distributed shall be repaid to Ashland.
Any repayment of benefits hereunder shall be assessed interest at
the rate applicable for the calculation of a lump sum payment
under Section 5.04(b) for the month in which the breach occurs,
with such interest compounded monthly from the month in which the
breach occurs to the month in which such repayment is made to
Ashland. Ashland shall have available to it all other remedies at
law and equity to remedy a breach of this Section 4.04.
ARTICLE V. ANNUAL RETIREMENT INCOME AND OTHER BENEFITS.
5.01 LEVELS I AND II.
The Annual Retirement Income of a Participant who is deemed to be
a Level I or II Participant under the Incentive Compensation Plan
shall be equal to:
(a) PRE-AGE 62 BENEFIT
A Participant who retires under this Plan, including a
Participant to whom the provisions of paragraph (d) of
this Section 5.01 apply, shall receive an Annual
Retirement Income from and after the first day of the
calendar month next following his or her Effective
Retirement Date until the end of the month in which he or
she attains age 62 equal to the greater of (1) the
amounts provided in the following schedule or (2) 50% of
Final Average Compensation. Notwithstanding the previous
sentence, in the event such Participant retired with less
than 20 years of Service, such Annual Retirement Income
shall be multiplied by a fraction (A) the numerator of
which is such Participant's years of and fractional years
of Service, and (B) the denominator of which is twenty
(20).
% OF
RETIREMENT COMPENSATION
1st - Year After Effective 75%
Retirement Date
2nd - " 70%
3rd - " 65%
4th - " 60%
5th - " 55%
6th - Year and thereafter 50%
to Age 62
For purposes of this Section 5.01(a), "% of Compensation"
shall mean the annualized average of the Participant's
base monthly compensation rates (excluding incentive
awards, bonuses, and any other form of extraordinary
compensation) in effect with respect to Ashland on the
first day of the thirty-six (36) consecutive calendar
months which will give the highest average out of the
one-hundred twenty (120) consecutive calendar month
period ending on the Participant's Effective Retirement
Date.
(b) AGE 62 BENEFIT AND THEREAFTER
From and after the first day of the calendar month next
following his or her Effective Retirement Date, or the
attainment of age 62, whichever is later, the
Participant's Annual Retirement Income shall be equal to
50% of Final Average Compensation; provided, however,
that in the event such Participant retired with less than
20 years of Service, such Annual Retirement Income shall
be 50% of Final Average Compensation multiplied by a
fraction (A) the numerator of which is such Participant's
years of and fractional years of Service, and (B) the
denominator of which is twenty (20).
(c) BENEFIT REDUCTION
The amount of benefit provided in paragraphs (a) and (b)
of this Section 5.01 shall be reduced by the sum of the
following:
(1) the Participant's benefit under the Ashland Inc.
and Affiliates Pension Plan (the "Pension Plan")
(assuming 50% of such Participant's account under
the Ashland Inc. Leveraged Employee Stock
Ownership Plan were transferred to the Pension
Plan, as allowed under the terms of each of the
said plans), determined on the basis of a single
life annuity form of benefit;
(2) the Participant's benefit under any other defined
benefit pension plan qualified under Section
401(a) of the Internal Revenue Code of 1986, as
amended which is maintained by Ashland, determined
on the basis of a single life annuity form of
benefit (said plans referred to in sub-paragraphs
(1) and (2) of this paragraph (c) are hereinafter
referred to jointly and severally as the "Affected
Plans");
(3) the Participant's benefit under the Ashland Inc.
Nonqualified Excess Benefit Pension Plan,
determined on the basis of a single life annuity
form of benefit; and
(4) the Participant's benefit under the Ashland Inc.
ERISA Forfeiture Plan attributable to amounts
which were forfeited under the Ashland Inc.
Leveraged Employee Stock Ownership Plan,
multiplied by 50%, and determined on the basis of
a single life annuity benefit.
In the event a Participant's benefit hereunder is paid as
a lump sum pursuant to an election under Section
5.04(b)(1), the reduction to such benefit shall be
calculated based upon the lump sum actuarial present
value of the benefits referred to in sub-paragraphs
(1)-(4) of this paragraph (c) to which the Participant
would be entitled at age 62, regardless of the date
payments actually commence. In the event the
Participant's benefit hereunder is paid in any form of
periodic payments, the reduction shall apply from and
after the date the Participant actually commences
payments under the plans referred to under sub-paragraphs
(1), (2) or (3) of this paragraph (c).
(d) BENEFIT AFTER A CHANGE IN CONTROL
(1) PARTICIPANTS HAVING EMPLOYMENT AGREEMENTS. A
Participant having an Employment Agreement who
either is terminated without "Cause" or
resigns for "Good Reason" after a Change in
Control shall have the benefit payable under
this Section 5.01 computed by adding 3 years
to the Participant's Age and Service at the
Participant's Effective Retirement Date. These
additions to Age and Service shall, except as
otherwise provided, apply for purposes of
computing the single life annuity payment to
the Participant. A Participant subject to this
paragraph (d)(1) whose Effective Retirement
Date occurs before attaining an actual age of
55 shall have the 3 year addition to Age apply
when converting the single life annuity amount
to any permitted optional form under this
Article V. If the Effective Retirement Date of
a Participant subject to this paragraph (d)(1)
occurs on or after the Participant attains an
actual age of 55, then the Participant's
actual age shall be used when making such a
conversion. Notwithstanding anything to the
contrary contained herein, when converting a
Participant's single life annuity to a lump
sum payment option, the Participant's actual
age shall be used without reference to the
additional 3 years. If the addition of 3 years
to the Participant's age results in an Age
less than 55 and the Participant commences the
benefit, the amount of the benefit shall be
adjusted to account for the fact it is paid
before the Participant's attainment of Age 55.
This adjustment shall be based upon the early
retirement table in Section 6.2 of the Ashland
Inc. and Affiliates Pension Plan as it existed
on September 30, 1999. When applying this
table under these circumstances, age 55 shall
be substituted for age 62 and adjustments for
ages younger than those on the table shall be
reasonably determined by an actuary or
actuarial firm who regularly performs services
in connection with the Plan.
(2) PARTICIPANTS WITHOUT EMPLOYMENT AGREEMENTS. A
Participant without an Employment Agreement
who is terminated without "Cause" after a
Change in Control shall have the benefit
payable under this Section 5.01 computed by
adding the applicable amount to the
Participant's Age and Service at the
Participant's Effective Retirement Date. For
these purposes, the applicable amount is
derived from the following table.
LENGTH OF PARTICIPANT'S SERVICE AT SEPARATION FROM NUMBER OF YEARS
EMPLOYMENT (THE APPLICABLE AMOUNT)
- -------------------------------------------------------------------------------
Up to 5 years 3 months
More than 5 and up to 10 years 6 months
More than 10 and up to 15 years 1 year
More than 15 and up to 20 years 1 year and 6 months
More than 20 years 2 years
These additions to Age and Service shall,
except as otherwise provided, apply for
purposes of computing the single life annuity
payment to the Participant. A Participant
subject to this paragraph (d)(2) whose
Effective Retirement Date occurs before
attaining an actual age of 55 shall have the
applicable amount added to such Participant's
Age apply when converting the single life
annuity amount to any permitted optional form
under this Article V. If the Effective
Retirement Date of a Participant subject to
this paragraph (d)(2) occurs on or after the
Participant attains an actual age of 55, then
the Participant's actual age shall be used
when making such a conversion. Notwithstanding
anything to the contrary contained herein,
when converting a Participant's single life
annuity to a lump sum payment option, the
Participant's actual age shall be used without
reference to the addition of the applicable
amount. If the addition of the applicable
amount to the Participant's age results in an
Age less than 55 and the Participant commences
the benefit, the amount of the benefit shall
be adjusted to account for the fact it is paid
before the Participant's attainment of Age 55.
This adjustment shall be based upon the early
retirement table in Section 6.2 of the Ashland
Inc. and Affiliates Pension Plan as it existed
on September 30, 1999. When applying this
table under these circumstances, age 55 shall
be substituted for age 62 and adjustments for
ages younger than those on the table shall be
reasonably determined by an actuary or
actuarial firm who regularly performs services
in connection with the Plan.
5.02 LEVELS III, IV AND V.
(a) GENERAL
The Annual Retirement Income of a Participant (including
a Participant to whom the provisions of paragraph (b) of
this Section 5.02 apply) who on his or her Effective
Retirement Date was deemed to be a Level III, IV, or V
Participant under the Incentive Compensation Plan shall,
from and after the first day of the calendar month next
following his or her 62nd birthday, be equal to 50% of
Participant's Final Average Bonus; provided, however,
that in the event such Participant retired with less than
20 years of Service, such Annual Retirement Income after
age 62 shall be 50% of Final Average Bonus multiplied by
a fraction (A) the numerator of which is such
Participant's years of and fractional years of Service,
and (B) the denominator of which is twenty (20). Although
a Participant may elect to commence benefits under this
Plan upon his or her Effective Retirement Date, there
shall be an actuarial adjustment (consistent with that
applied under Ashland's qualified pension plan, as from
time to time in effect) for Participants receiving
benefits under this Section 5.02 whose Effective
Retirement Date is prior to age 62.
(b) BENEFIT AFTER A CHANGE IN CONTROL
A Participant who is terminated other than for "Cause"
after a Change in Control shall have the benefit payable
under this Section 5.02 computed by adding to the
Participant's Age and Service at the Participant's
Effective Retirement Date the number of years equal to
the applicable amount for the Participant derived from
the following table.
LENGTH OF PARTICIPANT'S SERVICE AT SEPARATION FROM NUMBER OF YEARS
EMPLOYMENT (THE APPLICABLE AMOUNT)
- -------------------------------------------------------------------------------
Up to 5 years 3 months
More than 5 and up to 10 years 6 months
More than 10 and up to 15 years 1 year
More than 15 and up to 20 years 1 year and 6 months
More than 20 years 2 years
These additions to Age and Service shall, except as
otherwise provided, apply for purposes of computing the
single life annuity payment to the Participant. A
Participant subject to this paragraph (b) whose Effective
Retirement Date occurs before attaining an actual age of
62 shall have the applicable amount from the table
hereinabove added to his or her Age apply when converting
the single life annuity amount to any permitted optional
form under this Article V. If the Effective Retirement
Date of a Participant subject to this paragraph (b)
occurs on or after the Participant attains an actual age
of 62, then the Participant's actual age shall be used
when making such a conversion. Notwithstanding anything
to the contrary contained herein, when converting a
Participant's single life annuity to a lump sum payment
option, the Participant's actual age shall be used
without reference to the applicable amount derived from
the table hereinabove. If the addition of the applicable
amount from the table hereinabove to the Participant's
age results in an Age less than 62 and the Participant
commences the benefit, the amount of the benefit shall be
adjusted to account for the fact it is paid before the
Participant's attainment of Age 62. This adjustment shall
be based upon the early retirement table in Section 6.2
of the Ashland Inc. and Affiliates Pension Plan as it
existed on September 30, 1999, and adjustments for ages
younger than those on the table shall be reasonably
determined by an actuary or actuarial firm who regularly
performs services in connection with the Plan.
5.03 BENEFITS PAYABLE FOR LESS THAN 12 MONTHS
Annual Retirement Income benefits payable under Sections 5.01 and
5.02 for a period of less than 12 months due to a Participant's
attainment of age 62 or death will be payable on a pro-rata basis,
with months taken as a fraction of a year.
5.04 PAYMENT OPTIONS
(a) ELECTION
A Participant shall, subject to Sections 5.05 and 5.06,
elect the form in which such benefit shall be paid from
among those identified in this Section 5.04 and such
election shall be made at the time and in the manner
prescribed by Ashland, from time to time, provided that
the election is made before the Participant's Effective
Retirement Date. Such election, including the designation
of any contingent annuitant or alternate recipient under
Sections 5.04(b)(4) or (5), shall be irrevocable except
as otherwise set forth herein. Notwithstanding anything
in the foregoing to the contrary, any Participant
approved for participation in the Plan pursuant to
Sections 3.01, 3.02 and 3.04 who makes an election under
Section 5.04(b)(2) shall make such election by the later
of -
(1) the 60th day following such Participant's
approval to participate in this Plan; or
(2) the earlier of -
(A) the date six months prior to
Participant's Effective Retirement
Date; or
(B) the December 31 immediately preceding
the Participant's Effective Retirement
Date.
Such deferral election shall be made in the
manner prescribed by Ashland, from time to time,
and shall be irrevocable as of the applicable
time identified under Sections 5.04(a)(1) or
(2).
Until the time at which an election becomes irrevocable,
a Participant shall be able to change it.
(b) OPTIONAL FORMS OF PAYMENT
(1) LUMP SUM OPTION A Participant may elect to
receive the benefit under Article V as a lump
sum distribution.. A lump sum benefit payable
under the Plan to a Participant shall be
computed on the basis of the actuarially
equivalent present value of such Participant's
benefit under Article V based upon such
actuarial assumptions as determined by the
Committee. Such lump sum shall be payable within
thirty (30) days following the later of the
Participant's Effective Retirement Date, or at
such later date as Ashland or its delegate may
determine, in its sole discretion. The option
shall be made available to a Participant
contingent upon various considerations,
including, but not limited to, the following:
The tax status of Ashland, including without
limitation, the corporate and individual tax
rate then applicable and whether or not Ashland
has or projects a net operating loss; the
current and projected liquidity of Ashland,
including cash flow, capital expenditures and
dividends; Ashland `s borrowing requirements and
debt leverage; applicable book charges;
organizational issues, including succession
issues; security of the retirement payment(s)
with respect to the retiree; and the
Participant's preference.
(2) LUMP SUM DEFERRAL OPTION A Participant who is
eligible to receive a lump sum distribution
under 5.04(b)(1) shall be able to elect to defer
all or a portion of the receipt of the elected
lump sum (in increments of such percentage or
such amount as may be prescribed by Ashland or
its delegatee, from time to time), by having the
obligation to distribute such amount transferred
to the Ashland Inc. Deferred Compensation Plan
to be held thereunder in a notional account and
paid pursuant to the applicable provisions of
such Plan, as they may be amended from time to
time; provided, however, that the election to
defer such distribution shall be made at the
time and in the manner prescribed in Section
5.04(a)(1) and (2).
(3) SINGLE LIFE ANNUITY A Participant may elect to
have such benefit paid in the form of equal
monthly payments for and during such
Participant's life, with such payments ending at
such Participant's death. Payments under this
option shall be actuarially equivalent to the
benefit provided under Section 5.01 or 5.02,
whichever is applicable, determined on the basis
of the applicable actuarial assumptions and
other relevant provisions used for the same in
the Pension Plan.
(4) JOINT AND SURVIVOR INCOME OPTION A Participant
may elect to receive an actuarially reduced
benefit payable monthly during the Participant's
lifetime with payments to continue after his or
her death to the person he designates
(hereinafter called "contingent annuitant"), in
an amount equal to (1) 100% of such actuarially
reduced benefit, (2) 66 2/3% of such actuarially
reduced benefit, or (3) 50% of such actuarially
reduced benefit. Benefit payments under this
option shall terminate with the monthly payment
for the month in which occurred the date of
death of the later to die of the Participant and
his or her contingent annuitant. The following
additional limitations and conditions apply to
this option:
(A) The contingent annuitant shall be
designated by the Participant in
writing in such form and at such time
as Ashland may from time to time
prescribe. Before the Participant's
Effective Retirement Date, the
Participant may change the contingent
annuitant elected.
(B) In the event of the death of the
contingent annuitant prior to the date
as of which the election is
irrevocable, the Participant's
selection of this option shall be void
and the Participant may change the
contingent annuitant or change the
option elected, subject to the
applicable limitations and conditions
applied to elections for the options
described under 5.04(a)(1) and (2).
(C) Actuarial equivalence under this
sub-paragraph (4) shall be determined
on the basis of the applicable
actuarial assumptions and other
relevant provisions used for the same
in the Pension Plan.
(5) PERIOD CERTAIN INCOME OPTION A Participant may
elect to receive an actuarially reduced benefit
payable monthly during his or her lifetime and
terminating with the monthly payment for the
month in which his or her death occurs, with the
provision that not less than a total of 120
monthly payments shall be made in any event to
him or her and/or the person designated by him
or her to receive payments under this
sub-paragraph (5) in the event of his or her
death (hereinafter called "alternate
recipient"). If a Participant and his or her
alternate recipient die after the Effective
Retirement Date, but before the total specified
monthly payments have been made to such
Participant and/or his or her alternate
recipient, the commuted value of the remaining
unpaid payments shall be paid in a lump sum to
the estate of the later to die of the
Participant or his or her alternate recipient.
The following additional limitations and
conditions shall apply to this option:
(A) The alternate recipient shall be
designated in writing by the
Participant in such form and at such
time as Ashland may from time to time
prescribe. The designation of an
alternate recipient under this
sub-paragraph (5) is irrevocable after
the Effective Retirement Date,
provided, however, a Participant may
designate a new alternate recipient if
the one first designated dies before
the Participant and after the Effective
Retirement Date.
(B) In the event of the death of the
alternate recipient prior to the date
as of which the election is
irrevocable, the Participant's
selection of this option shall be void
and the Participant may change the
alternate recipient or change the
option elected, subject to the
applicable limitations and conditions
applied to elections for the options
described under 5.04(a)(1) and (2).
(C) Actuarial equivalence under this sub-paragraph (5) shall
be determined on the basis of the applicable actuarial
assumptions and other relevant provisions used for the
same in the Pension Plan.
5.05. PAYMENT OF SMALL AMOUNTS
Unless such Participant elects to receive his or her
benefit in a lump sum as provided in Section 5.04, in the
event a monthly benefit under this Plan, payable to
either a Participant or to his or her contingent
annuitant, alternate recipient or surviving spouse, is
too small (in the sole judgment of Ashland) to be paid
monthly, such benefit may be paid quarterly,
semi-annually, or annually, as determined by Ashland to
be administratively convenient.
5.06. SURVIVING BENEFITS
(a) Except as otherwise provided in Section 5.04 of
this Plan, in the event that a Participant
receiving Annual Retirement Income benefits
shall die after his or her Effective Retirement
Date, no additional benefits shall be payable by
Ashland under this Plan to such deceased
Participant's beneficiaries, survivors, or
estate.
(b) If an Employee dies while in active service with
Ashland
(1) prior to approval for participation in the
Plan and said Employee is a Level I or II
participant under the Incentive Compensation
Plan; or
(2) after approval for participation in the Plan
but prior to making an election pursuant to
Section 5.04(a) and said Employee is a Level I
-V participant under the Incentive Compensation
Plan; then such Employee shall be deemed:
(i) to be a Participant under the Plan in the
case of Section 5.06 (b)(1); (ii) to have
commenced participation one (1) day prior to the
date of the Employee's death; and (iii) to have
elected to receive his or her benefits in the
form of the 100% Joint & Survivor retirement
income option and to have designated his or her
spouse as the beneficiary thereunder.
(c) In the event an Employee is approved for
participation under the Plan and dies after
having made an election under Section 5.04(a)
but prior to his or her Effective Retirement
Date, then such Employee shall be deemed to have
commenced participation one (1) day prior to the
date of the Employee's death and payment shall
be made under this Plan in accordance with the
Employee's election.
5.07 PARTICIPATION IN OTHER BENEFITS
After a Participant's Effective Retirement Date, he or she shall
continue to participate in Ashland's Group Life Insurance, Medical
and Dental programs in the same manner and under the same terms
and conditions as provided for retirees as a class under the
provisions of such programs, as from time to time in effect.
Except as otherwise expressly provided in this Plan, a
Participant's active participation in all employee benefit
programs maintained by Ashland derived from his or her employment
status with Ashland shall be discontinued.
ARTICLE VI. CHANGE IN CONTROL.
Notwithstanding any provision of this Plan to the contrary, in the
event of a Change in Control, an Employee who is deemed to be a
Level I, II, III, IV or V participant under Ashland's Incentive
Compensation Plan, shall, in accordance with Section 3.03,
automatically be deemed approved for participation under this
Plan. Consistent with the applicable terms of Sections 5.01 and
5.02, such a Participant may, in his or her sole discretion, elect
to retire prior to Age 62. In addition, Ashland (or its successor
after the Change in Control) shall reimburse an Employee for legal
fees, fees of other experts and expenses incurred by such Employee
if he or she is required to, and is successful in, seeking to
obtain or enforce any right to payment pursuant to the Plan. In
the event that it shall be determined that such Employee is
properly entitled to the payment of benefits hereunder, such
Employee shall also be entitled to interest thereon payable in an
amount equivalent to the prime rate of interest (quoted by
Citibank, N.A. as its prime commercial lending rate on the latest
date practicable prior to the date of the actual commencement of
payments) from the date such payment(s) should have been made to
and including the date it is made. Notwithstanding any provision
of this Plan to the contrary, the provisions of this Plan or any
other plan of Ashland Inc. having a material impact on the
benefits payable under this Plan may not be amended after a Change
in Control occurs without the written consent of a majority of the
Board who were directors prior to the Change in Control.
ARTICLE VII. MISCELLANEOUS.
7.01 The obligations of Ashland hereunder constitute merely the promise
of Ashland to make the payments provided for in this Plan. No
employee, his or her spouse or the estate of either of them shall
have, by reason of this Plan, any right, title or interest of any
kind in or to any property of Ashland. To the extent any
Participant has a right to receive payments from Ashland under
this Plan, such right shall be no greater than the right of any
unsecured general creditor of Ashland.
7.02 Full power and authority to construe, interpret and administer
this Plan shall be vested in the Board or its delegate. This
includes, without limitation, the ability to make factual
determinations, construe and interpret provisions of the Plan,
reconcile any inconsistencies between provisions in the Plan or
between provisions of the Plan and any other statement concerning
the Plan, whether oral or written, supply any omissions to the
Plan or any document associated with the Plan, and to correct any
defect in the Plan or in any document associated with the Plan.
Decisions of the Board or its delegate shall be final, conclusive
and binding upon all parties, provided, however, that no such
decision may adversely affect the rights of any Participant who
has been approved for participation in the Plan under the terms of
Section 3.03 and whose benefit is determined under the terms of
Section 5.01(d) or Section 5.02(b).
7.03 This Plan shall be binding upon Ashland and any successors to the
business of Ashland and shall inure to the benefit of the
Participants and their beneficiaries, if applicable. Except as
otherwise provided in Article VI, the Board or its delegate may,
at any time, amend this Plan, retroactively or otherwise, but no
such amendment may adversely affect the rights of any Participant
who has been approved for participation in the Plan except to the
extent that such action is required by law.
7.04 Except as otherwise provided in Section 5.04, no right or interest
of the Participants under this Plan shall be subject to voluntary
or involuntary alienation, assignment or transfer of any kind.
7.05 This Plan shall be governed for all purposes by the laws of the
Commonwealth of Kentucky.
7.06 If any term or provision of this Plan is determined by a court or
other appropriate authority to be invalid, void, or unenforceable
for any reason, the remainder of the terms and provisions of this
Plan shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
(Form of Ashland Inc. Executive Employment Agreement)
Name and Address
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 shall automatically renew for successive two (2)
year periods on the first day of each month. This Agreement may be
terminated by either party provided that at least fifteen (15) 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 at which time
the Agreement shall terminate at the end of the next succeeding two (2)
year period. 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 and
second sentences 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)
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 three 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 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. The benefits in this Agreement are in addition
to all accrued and vested benefits to which you are entitled to
under any of the Company's plans and arrangements (to the extent
accrued and vested benefits are relevant under the particular plan
or arrangement), including but not limited to, the accrued vested
benefits to which you are eligible 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. For these purposes, accrued and vested
benefits shall include any extra, special or additional benefits
under such qualified and non-qualified benefit or retirement plans
that become due because of the Change in Control.
(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 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___.
- ----------------------------
Name of employee
EXHIBIT 10.9
ASHLAND INC.
LONG-TERM INCENTIVE PLAN
(Amended as of November 6, 1997)
SECTION 1. PURPOSE
The purpose of the Ashland Inc. Long-Term Incentive Plan is to
promote the interests of Ashland Inc. and its shareholders by providing its
directors, officers and employees with an incentive to continue service
with Ashland. Accordingly, the Company may grant to selected officers and
employees Stock Options, Stock Appreciation Rights, Restricted Stock and
Performance Share awards in an effort to attract and retain in its employ
qualified individuals and to provide such individuals with additional
incentive to devote their best efforts to the Company through ownership of
the Company's stock, thus enhancing the value of the Company for the
benefit of shareholders. The Plan also provides an incentive for qualified
persons, who are not officers or employees of the Company, to serve on the
Board of Directors of the Company and to continue to work for the best
interests of the Company by rewarding such persons with automatic grants of
Restricted Stock of the Company. Stock Options, Stock Appreciation Rights
and Performance Shares may not be granted to such Outside Directors under
the Plan.
SECTION 2. DEFINITIONS
(A) "Agreement" shall mean a written agreement setting forth the
terms of an Award.
(B) "Ashland" shall mean, collectively, Ashland Inc. and its
Subsidiaries.
(C) "Award" shall mean an Option (which may be a Nonqualified or
Incentive Stock Option), a Stock Appreciation Right, a Restricted Stock
Award, or a Performance Share Award, in each case granted under this Plan.
(D) "Beneficiary" shall mean the person, persons, trust or trusts
designated by an Employee or Outside Director or if no designation has been
made, the person, persons, trust, or trusts entitled by will or the laws of
descent and distribution to receive the benefits specified under this Plan
in the event of an Employee's or Outside Director's death.
(E) "Board" shall mean the Board of Directors of the Company or
its designee.
(F) "Change in Control" shall be deemed to occur (1) upon 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 or any Subsidiary
or employee benefit plan or trust maintained by Ashland, shall become the
"beneficial owner" (as defined in Rule 3(a)(9) or 13d-3 under the Exchange
Act), directly or indirectly, of more than 15% of Ashland's Common Stock
outstanding at the time, without the approval of the Board, or (3) 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.
(G) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(H) "Committee" shall mean the Personnel and Compensation
Committee of the Board, as from time to time constituted, or any successor
committee of the Board with similar functions, which shall consist of three
or more members, each of whom shall be a Non-Employee Director or its
designee.
(I) "Common Stock" shall mean the Common Stock of the Company
($1.00 par value), subject to adjustment pursuant to Section 12.
(J) "Company" shall mean, collectively, Ashland Inc. and its
Subsidiaries.
(K) "Employee" shall mean an officer or employee of the Company.
(L) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(M) "Exercise Price" shall mean, with respect to each share of
Common Stock subject to an Option, the price fixed by the Committee at
which such share may be purchased from the Company pursuant to the exercise
of such Option, which price at no time may be less than 100% of the Fair
Market Value of the Common Stock on the date the Option is granted.
(N) "Fair Market Value" shall mean the price of the Common Stock
as reported on the Composite Tape on the date and at the time designated by
the Company.
(O) "Incentive Stock Option" or "ISO" shall mean an Option that is
intended by the Committee to meet the requirements of Section 422 of the
Code or any successor provision.
(P) "Nonqualified Stock Option" or "NQSO" shall mean an Option
granted pursuant to this Plan which does not qualify as an Incentive Stock
Option.
(Q) "Non-Employee Director" shall mean a non-employee director
within the meaning of applicable regulatory requirements, including those
promulgated under Section 16 of the Exchange Act.
(R) "Option" shall mean the right to purchase Common Stock at a
price to be specified and upon terms to be designated by the Committee
pursuant to this Plan. An Option shall be designated by the Committee as a
Nonqualified Stock Option or an Incentive Stock Option.
(S) "Outside Director" shall mean a director of the Company who is
not also an Employee of the Company.
(T) "Performance Period" shall mean the period designated by the
Committee during which the performance objectives shall be measured.
(U) "Performance Share Award" shall mean an award of shares of
Common Stock, the issuance of which is contingent upon attainment of
performance objectives specified by the Committee.
(V) "Performance Shares" shall mean those shares of Common Stock
issuable pursuant to a Performance Share Award.
(W) "Personal Representative" shall mean the person or persons
who, upon the disability or incompetence of an Employee or Outside
Director, shall have acquired on behalf of the Employee or Outside Director
by legal proceeding or otherwise the right to receive the benefits
specified in this Plan.
(X) "Plan" shall mean this Ashland Inc. Long-Term Incentive Plan.
(Y) "Restricted Period" shall mean the period designated by the
Committee during which Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered, which period in the case of
Employees shall not be less than one year nor more than five years from the
date of grant, and in the case of Outside Directors is the period set forth
in subsection (B) of Section 8.
(Z) "Restricted Stock" shall mean those shares of Common Stock
issued pursuant to a Restricted Stock Award which are subject to the
restrictions, terms, and conditions set forth in the related Agreement.
(AA) "Restricted Stock Award" shall mean an award of Restricted
Stock.
(BB) "Retained Distributions" shall mean any securities or other
property (other than regular cash dividends) distributed by the Company in
respect of Restricted Stock during any Restricted Period.
(CC) "Retirement" shall mean retirement of an Employee from the
employ of the Company at any time as described in the Ashland Inc. and
Affiliates Pension Plan or in any successor pension plan, as from time to
time in effect.
(DD) "Section 16(b) Optionee" shall mean an Employee or former
Employee who is subject to Section 16(b) of the Exchange Act.
(EE) "Stock Appreciation Right" or "SAR" shall mean the right of
the holder to elect to surrender an Option or any portion thereof which is
then exercisable and receive in exchange therefor shares of Common Stock,
cash, or a combination thereof, as the case may be, with an aggregate value
equal to the excess of the Fair Market Value of one share of Common Stock
over the Exercise Price specified in such Option multiplied by the number
of shares of Common Stock covered by such Option or portion thereof which
is so surrendered. An SAR may be granted as part of an Option or as a
separate right to any holder of any Option theretofore or then being
granted under this Plan. An SAR shall be exercisable upon any additional
terms and conditions (including, without limitation, the issuance of
Restricted Stock and the imposition of restrictions upon the timing of
exercise) which may be determined as provided in the Plan.
(FF) "Subsidiary" shall mean any present or future subsidiary
corporations, as defined in Section 424 of the Code, of Ashland.
(GG) "Tax Date" shall mean the date the withholding tax obligation
arises with respect to the exercise of an Award.
SECTION 3. STOCK SUBJECT TO THE PLAN
There will be reserved for issuance under the Plan (upon the
exercise of Options and Stock Appreciation Rights, upon awards of
Restricted Stock and Performance Shares and for stock bonuses on deferred
awards of Restricted Stock and Performance Shares), an aggregate of
3,000,000 shares of Ashland Common Stock, par value $1.00 per share. Such
shares shall be authorized but unissued shares of Common Stock. Except as
provided in Sections 7 and 8, if any Award under the Plan shall expire or
terminate for any reason without having been exercised in full, or if any
Award shall be forfeited, the shares subject to the unexercised or
forfeited portion of such Award shall again be available for the purposes
of the Plan.
SECTION 4. ADMINISTRATION
The Plan shall be administered by the Committee. No person who is
(or, within one year prior to his or her appointment as a member of the
Committee, was) eligible to participate in the Plan, except as specifically
authorized under subsection (B) of Section 8 herein, or in any other stock
option or stock bonus plan of the Company, shall be a member of the
Committee. The Committee shall have no authority regarding the granting of
Restricted Stock to Outside Directors, as such grants are fixed pursuant to
subsection (B) of Section 8 of the Plan.
In addition to any implied powers and duties that may be needed to
carry out the provisions of the Plan, the Committee shall have all the
powers vested in it by the terms of the Plan, including exclusive authority
(except as to Awards of Restricted Stock granted to Outside Directors) to
select the Employees to be granted Awards under the Plan, to determine the
type, size and terms of the Awards to be made to each Employee selected, to
determine the time when Awards will be granted, and to prescribe the form
of the Agreements embodying Awards made under the Plan. Subject to the
provisions of the Plan specifically governing Awards of Restricted Stock
granted or to be granted to Outside Directors pursuant to subsection (B) of
Section 8 herein, the Committee shall be authorized to interpret the Plan
and the Awards granted under the Plan, to establish, amend and rescind any
rules and regulations relating to the Plan, to make any other
determinations which it believes necessary or advisable for the
administration of the Plan, and to correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Award in the
manner and to the extent the Committee deems desirable to carry it into
effect. Any decision of the Committee in the administration of the Plan, as
described herein, shall be final and conclusive.
The Committee may act only by a majority of its members. Any
determination of the Committee may be made, without notice, by the written
consent of the majority of the members of the Committee. In addition, the
Committee may authorize any one or more of its number or any officer of the
Company to execute and deliver documents on behalf of the Committee. No
member of the Committee shall be liable for any action taken or omitted to
be taken by him or her or by any other member of the Committee in
connection with the Plan, except for his or her own willful misconduct or
as expressly provided by statute.
The provisions of this Section 4 with respect to decisions made
by, and authority of, the Committee shall be subject to the provisions of
subsection (B) of Section 8 herein.
SECTION 5. ELIGIBILITY
Awards may only be granted (i) to individuals who are Employees of
Ashland, and (ii) as expressly provided in subsection (B) of Section 8 of
the Plan, to individuals who are duly elected Outside Directors of Ashland.
SECTION 6. STOCK OPTIONS
A. Designation and Price.
(a) Any Option granted under the Plan may be granted as an Incentive
Stock Option or as a Nonqualified Stock Option as shall be designated by
the Committee at the time of the grant of such Option. Each Option shall be
evidenced by an Agreement between the recipient and the Company, which
Agreement shall specify the designation of the Option as an ISO or a NQSO,
as the case may be, and shall contain such terms and conditions as the
Committee, in its sole discretion, may determine in accordance with the
Plan.
(b) Every Incentive Stock Option shall provide for a fixed
expiration date of not later than ten years from the date such Incentive
Stock Option is granted.
(c) The Exercise Price of Common Stock issued pursuant to each
Option shall be fixed by the Committee at the time of the granting of the
Option; provided, however, that such Exercise Price shall in no event be
less than 100% of the Fair Market Value of the Common Stock on the date
such Option is granted.
B. Exercise.
The Committee may, in its discretion, provide for Options granted
under the Plan to be exercisable in whole or in part; provided, however,
that no Option shall be exercisable prior to the first anniversary of the
date of its grant, except as provided in Section 10 or as the Committee
otherwise determines in accordance with the Plan, and in no case may an
Option be exercised at any time for fewer than 50 shares (or the total
remaining shares covered by the Option if fewer than 50 shares) during the
term of the Option. The specified number of shares will be issued upon
receipt by Ashland of (i) notice from the holder thereof of the exercise of
an Option, and (ii) either payment to Ashland (as provided in this Section
6, subsection (C) below), of the Exercise Price for the number of shares
with respect to which the Option is exercised, or with approval of the
Committee, a promissory note as hereinafter provided. Each such notice and
payment shall be delivered or mailed by postpaid mail, addressed to the
Treasurer of Ashland at Ashland Inc., 1000 Ashland Drive, Russell,
Kentucky, 41169, or such other place as Ashland may designate from time to
time.
C. Payment for Shares.
Except as otherwise provided in this Section 6, the Exercise Price
for the Common Stock shall be paid in full when the Option is exercised.
Subject to such rules as the Committee may impose, the Exercise Price may
be paid in whole or in part (i) in cash, (ii) in whole shares of Common
Stock (which shares of Common Stock must have been owned by the Employee
six months or longer, and not used to effect an Option exercise within the
preceding six months, in the case of an exercise of an Option which was
granted after May21, 1992, unless the Committee specifically provides
otherwise) evidenced by negotiable certificates, valued at their Fair
Market Value on the date of exercise, (iii) by Attestation; (iv) by a
combination of such methods of payment, or (v) by such other consideration
as shall be approved by the Committee (including without limitation, by
effecting a "cashless exercise," with a broker, of the Option).
"Attestation" means the delivery to Ashland of a completed Attestation Form
prescribed by Ashland setting forth the whole shares of Common Stock owned
by the Employee which the Employee wishes to utilize to pay the Exercise
Price. In the case of an exercise of an Option granted after May21, 1992,
the Common Stock listed on the Attestation Form must have been owned by the
Employee six months, unless the Committee specifically provides otherwise.
Moreover, in the case of an exercise of an Option granted prior to May 21,
1992, if so provided in the Agreement, and subject to such restrictions,
terms and conditions as the Committee may impose, an Employee may request
Ashland to "pyramid" his or her shares; that is, to automatically apply the
shares which he or she is entitled to receive on the exercise of a portion
of an Option to satisfy the exercise for additional portions of the Option,
thus resulting in multiple simultaneous exercises of an Option by use of
whole shares as payment.
The Committee may, in its discretion, authorize payment of all or
any part of the Exercise Price over a period of not more than five years
from the date the Option is exercised. In such instance any unpaid balance
of the Exercise Price shall be evidenced by the Employee's promissory note
payable to the order of Ashland which shall bear interest at such rate or
rates as determined from time to time by the Committee.
SECTION 7. STOCK APPRECIATION RIGHTS
The Committee may grant Stock Appreciation Rights pursuant to the
provisions of this Section 7 to any holder of any Option granted under the
Plan with respect to all or a portion of the shares subject to the related
Option. An SAR may be granted as part of an Option or as a separate right
to any holder of any Option theretofore or then being granted under this
Plan. Subject to the terms and provisions of this Section 7, each SAR shall
be exercisable only at the same time and to the same extent the related
Option is exercisable and in no event after the termination of the related
Option. An SAR shall be exercisable only when the Fair Market Value
(determined as of the date of exercise of the SAR) of each share of Common
Stock with respect to which the SAR is to be exercised shall exceed the
Exercise Price per share of Common Stock subject to the related Option. An
SAR granted under the Plan shall be exercisable in whole or in part by
notice to Ashland. Such notice shall state that the holder of the SAR
elects to exercise the SAR and the number of shares in respect of which the
SAR is being exercised. For purposes of this Section 7, the date of
exercise of an SAR shall mean the date on which the Company receives such
notice.
Subject to the terms and provisions of this Section 7, upon the
exercise of an SAR, the holder thereof shall be entitled to receive from
Ashland consideration (in the form hereinafter provided) equal in value to
the excess of the Fair Market Value (determined as of the date of exercise
of the SAR) of each share of Common Stock with respect to which such SAR
has been exercised over the Exercise Price per share of Common Stock
subject to the related Option. The Committee may stipulate in the Agreement
the form of consideration which shall be received upon the exercise of an
SAR. If no consideration is specified therein, upon the exercise of an SAR,
the holder may specify the form of consideration to be received by such
holder, which shall be in shares of Common Stock (valued at Fair Market
Value on the date of exercise of the SAR), or in cash, or partly in cash
and partly in shares of Common Stock, as the holder shall request;
provided, however, that the Committee, in its sole discretion, may
disapprove the form of consideration requested and instead authorize the
payment of such consideration in shares of Common Stock (valued as
aforesaid), or in cash, or partly in cash and partly in shares of Common
Stock.
Upon the exercise of an SAR, the related Option shall be deemed
exercised to the extent of the number of shares of Common Stock with
respect to which such SAR is exercised and to that extent for purposes of
determining the number of shares of Common Stock available for the grant of
Awards under the Plan. Upon the exercise or termination of the related
Option, the SAR with respect thereto shall be considered to have been
exercised or terminated to the extent of the number of shares of Common
Stock with respect to which the related Option was so exercised or
terminated.
SECTION 8. RESTRICTED STOCK AWARDS
A. Awards to Employees
The Committee may make an award of Restricted Stock to selected
Employees, evidenced by an Agreement which shall contain such terms and
conditions as the Committee, in its sole discretion, may determine. The
amount of each Restricted Stock Award and the respective terms and
conditions of each Award (which terms and conditions need not be the same
in each case) shall be determined by the Committee in its sole discretion.
As a condition to any Award hereunder, the Committee may require an
Employee to pay to the Company an amount equal to, or in excess of, the par
value of the shares of Restricted Stock awarded to him or her. Any such
Restricted Stock Award shall automatically expire if not purchased in
accordance with the Committee's requirements within thirty (30) days after
the date of grant. Subject to the terms and conditions of each Restricted
Stock Award, the Employee, as the owner of the Common Stock issued as
Restricted Stock, shall have all rights of a shareholder including, but not
limited to, voting rights as to such Common Stock and the right to receive
dividends thereon when, as and if paid.
In the event that a Restricted Stock Award has been made to an
Employee whose employment or service is subsequently terminated by reason
of death or disability (as defined in subsection (C) of Section 10 hereof),
or for such other reason as the Committee may provide, such Employee (or
his or her estate) will receive his or her Restricted Stock subject to the
terms of his or her Agreement with the Company, which Agreement shall be in
accordance with the terms and conditions set forth in this Section 8. In
the event that a Restricted Stock Award has been made to an Employee who
subsequently voluntarily resigns or whose employment is terminated for any
reason other than as referred to above, such Restricted Stock will be
forfeited by such Employee; provided, however, that the Committee may limit
such forfeiture to that portion thereof which is proportional to the
unelapsed portion of the Restricted Period under such Award.
Employees may be offered the opportunity to defer the receipt of
payment of vested shares of Restricted Stock, and Common Stock may be
granted as a bonus for deferral, under terms as may be established by the
Committee from time to time; however, in no event shall the Common Stock
granted as a bonus for deferral exceed 20% of the Restricted Stock so
deferred per year over a five-year period.
B. Awards to Outside Directors
Subject to the limitation of the number of shares of Common Stock
available pursuant to Section 3, effective immediately following the 1989
Annual Meeting of Shareholders of the Company, each person who at such time
shall be a duly elected Outside Director is hereby granted, effective on
such date, 1,000 shares of Restricted Stock subject to the terms and
conditions set forth in this subsection (B) and subsection (C) below.
Subsequent to the 1989 Annual Meeting of Shareholders of the Company, each
person who has received no previous Award under the Plan and who is duly
appointed or elected as an Outside Director of the Company is hereby
granted, effective on the date of his or her appointment or election to the
Board, 1,000 shares of Restricted Stock, subject to the terms and
conditions set forth in this subsection (B) and subsection (C) below.
As a condition to any Award hereunder, the Outside Director will
be required to pay to the Company a non-refundable amount equal to the par
value of the shares of Restricted Stock awarded to him or her. Upon the
granting of the Restricted Stock Award, such Outside Director shall be
entitled to all rights incident to ownership of Common Stock of the Company
with respect to his or her Restricted Stock, including, but not limited to,
the right to vote such shares of Restricted Stock and to receive dividends
thereon when, as and if paid; provided, however, that, subject to
subsection (B) of Section 14 hereof, in no case may any shares of
Restricted Stock granted to an Outside Director be sold, assigned,
transferred, pledged, or otherwise encumbered during the Restricted Period
which shall not lapse until the earlier to occur of the following: (i)
normal retirement from the Board at age 70, (ii) the death or disability of
such Outside Director, or (iii) a 50% change in the beneficial ownership of
the Company as defined in Rule 13d-3 under the Exchange Act. In the case of
voluntary resignation or other termination of service of an Outside
Director prior to the occurrence of any of the events described in (i),
(ii) or (iii) of the preceding sentence, any grant of Restricted Stock made
to him or her pursuant to this subsection (B) will be forfeited by such
Outside Director. As used herein, an Outside Director shall be
deemed"disabled" when he or she is unable to attend to his or her duties
and responsibilities as a member of the Board because of incapacity due to
physical or mental illness.
C. Transferability
Subject to subsection (B) of Section 14 hereof, Restricted Stock
may not be sold, assigned, transferred, pledged, or otherwise encumbered
during a Restricted Period, which, in the case of Employees, shall be
determined by the Committee and which shall not be less than one year nor
more than five years from the date such Restricted Stock was awarded, and,
in the case of Outside Directors, shall be determined in accordance with
subsection (B) of this Section 8. The Committee may at any time, reduce the
Restricted Period with respect to any outstanding shares of Restricted
Stock awarded under the Plan to Employees, but in no event shall such
Restricted Period be less than one year.
During the Restricted Period, certificates representing the
Restricted Stock and any Retained Distributions shall be registered in the
recipient's name and bear a restrictive legend to the effect that ownership
of such Restricted Stock (and any such Retained Distributions), and the
enjoyment of all rights appurtenant hereto are subject to the restrictions,
terms, and conditions provided in the Plan and the applicable Agreement.
Such certificates shall be deposited by the recipient with the Company,
together with stock powers or other instruments of assignment, each
endorsed in blank, which will permit transfer to the Company of all or any
portion of the Restricted Stock and any securities constituting Retained
Distributions which shall be forfeited in accordance with the Plan and the
applicable Agreement. Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. The
recipient will have the right to vote such Restricted Stock, to receive and
retain all regular cash dividends, and to exercise all other rights,
powers, and privileges of a holder of Common Stock with respect to such
Restricted Stock, with the exception that (i) the recipient will not be
entitled to delivery of the stock certificate or certificates representing
such Restricted Stock until the restrictions applicable thereto shall have
expired; (ii) the Company will retain custody of all Retained Distributions
made or declared with respect to the Restricted Stock (and such Retained
Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if
ever, as the Restricted Stock with respect to which such Retained
Distributions shall have been made, paid, or declared shall have become
vested, and such Retained Distributions shall not bear interest or be
segregated in separate accounts; (iii) the recipient may not sell, assign,
transfer, pledge, exchange, encumber, or dispose of the Restricted Stock or
any Retained Distributions during the Restricted Period; and (iv) a breach
of any restrictions, terms, or conditions provided in the Plan or
established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and
any Retained Distributions with respect thereto. Any forfeited Restricted
Stock shall not again be available for the grant of Awards under the Plan.
SECTION 9. PERFORMANCE SHARES
The Committee may make awards of Common Stock, evidenced by an
Agreement, to selected Employees on the basis of the Company's financial
performance in any given period. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Employees
who shall receive such Performance Shares, to determine the number of such
shares to be granted for each Performance Period, and to determine the
duration of each such Performance Period. There may be more than one
Performance Period in existence at any one time, and the duration of
Performance Periods may differ from each other.
The Committee shall establish performance measures for each
Performance Period on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time, in its sole discretion,
determine. Such measures may include, but shall not be limited to, return
on investments, cumulative earnings per share, or return on shareholders'
equity. The performance measures determined by the Committee shall be
established prior to the beginning of each Performance Period but may be
subject to such later revisions as the Committee shall deem appropriate.
Subject to subsection (B) of Section 14 hereof, Performance Shares may not
be sold, assigned, transferred, pledged, or otherwise encumbered, except as
herein provided and as provided in subsection (F) of Section 10 hereof,
during the Performance Period.
The Committee shall determine, in its sole discretion, the manner
of payment, which may include (i) cash, (ii) shares of Common Stock, or
(iii) shares of Restricted Stock in such proportions as the Committee shall
determine. Employees may be offered the opportunity to defer the receipt of
payment of earned Performance Shares, and Common Stock may be granted as a
bonus for deferral under terms as may be established by the Committee from
time to time; however, in no event shall the Common Stock granted as a
bonus for deferral exceed 20% of the Performance Shares so deferred per
year over a five-year period.
An Employee must be employed by the Company at the end of a
Performance Period in order to be entitled to payment of Performance Shares
in respect of such period; provided, however, that in the event of an
Employee's cessation of employment before the end of such period, or upon
the occurrence of his or her death, retirement, or disability, or other
reason approved by the Committee, the Committee may, in its discretion,
limit such forfeiture to that portion of the Performance Shares deemed not
earned.
SECTION 10. CONTINUED EMPLOYMENT, AGREEMENT TO SERVE AND EXERCISE PERIODS
(A) Subject to the provisions of subsections (B), (C) and (F) of
this Section 10, every Option and SAR shall provide that it may not be
exercised in whole or in part for a period of one year after the date of
granting such Option (unless otherwise determined by the Committee) and, if
the employment of the Employee shall be terminated, for any reason other
than death or disability as determined by the Committee, prior to the end
of such one year period, the Option granted to such Employee shall
immediately terminate.
(B) Every Option shall provide that in the event the Employee dies
while employed by Ashland; during the period in which Options may be
exercised by an Employee determined to be disabled as provided in
subsection (C) of this Section 10; or within three months after cessation
of employment for any cause, such Option shall be exercisable, at any time
or from time to time, prior to the fixed termination date set forth in the
Option, by the Beneficiaries of the decedent for the full number of
optioned shares or any part thereof, less such number as may have been
theretofore acquired under the Option.
(C) Every Option shall provide that in the event the employment of
any Employee shall cease by reason of disability as determined by the
Committee at any time during the term of the Option, such Option shall be
exercisable, at any time or from time to time by such Employee for the full
number of optioned shares or any part thereof, less such number as may have
been theretofore acquired under the Option. An Option held by an Employee
determined by the Committee to be disabled prior to September 19, 1996
shall be exercisable during a period of one year of continuing disability
following termination of employment by reason of such disability. An Option
held by an Employee determined by the Committee to be disabled on or after
September 19, 1996 shall be exercisable at any time prior to the fixed
termination date set forth in the Option. As used herein, an Employee will
be deemed "disabled" when he or she becomes unable to perform the functions
required by his or her regular job due to a physical or mental illness and,
in connection with the grant of an Incentive Stock Option, shall be deemed
disabled if he or she falls within the meaning of that term as provided in
Section 22(e)(3) of the Code. The determination by the Committee of any
question involving disability shall be conclusive and binding.
(D) Every Option shall provide that in the event the employment of
any Employee shall cease by reason of Retirement, such Option may be
exercised only in respect of the number of shares which the Employee could
have acquired under the Option immediately prior to such Retirement.
Options held by an Employee who retires prior to September 19, 1996 shall
be exercisable until the earlier to occur of the fixed termination date set
forth in the Option or three years after such Retirement. Options held by
an Employee who retires on or after September 19, 1996 shall be exercisable
until the fixed termination date set forth in the Option.
(E) Except as provided in subsections (A), (B), (C), (D) and (F)
of this Section 10, every Option shall provide that it shall terminate on
the earlier to occur of the fixed termination date set forth in the Option
or three months after cessation of the Employee's employment for any cause,
and, except as provided in subsection (F) of this Section 10, if exercised
after cessation of such employment, may be exercised only in respect of the
number of shares which the Employee could have acquired under the Option
immediately prior to such cessation of employment; provided, however, that
no Option may be exercised after the fixed termination date set forth in
the Option.
(F) Notwithstanding any provision of this Section 10 to the
contrary, any Award granted pursuant to the Plan, except a Restricted Stock
Award to Outside Directors, which is governed by Section 8, subsection (B),
may, in the discretion of the Committee or as provided in the relevant
Agreement, become exercisable, at any time or from time to time, prior to
the fixed termination date set forth in the Award for the full number of
awarded shares or any part thereof, less such numbers as may have been
theretofore acquired under the Award (i) from and after the time the
Employee ceases to be an Employee of Ashland as a result of the sale or
other disposition by Ashland of assets or property (including shares of any
subsidiary) in respect of which such Employee had theretofore been employed
or as a result of which such Employee's continued employment with Ashland
is no longer required, and (ii) in the case of a Change in Control of
Ashland, from and after the date of such Change in Control.
(G) Each Employee granted an Award under this Plan shall agree by
his or her acceptance of such Award to remain in the service of Ashland for
a period of at least one year from the date of the Agreement respecting the
Award between Ashland and the Employee. Such service shall, subject to the
terms of any contract between Ashland and such Employee, be at the pleasure
of Ashland and at such compensation as Ashland shall reasonably determine
from time to time. Nothing in the Plan, or in any Award granted pursuant to
the Plan, shall confer on any individual any right to continue in the
employment of or service to Ashland or interfere in any way with the right
of Ashland to terminate the Employee's employment at any time.
(H) Subject to the limitations set forth in Section 422 of the
Code, the Committee may adopt, amend, or rescind from time to time such
provisions as it deems appropriate with respect to the effect of leaves of
absence approved by any duly authorized officer of Ashland with respect to
any Employee.
SECTION 11. WITHHOLDING TAXES
Federal, state or local law may require the withholding of taxes
applicable to gains resulting from the exercise of an Award. Unless
otherwise prohibited by the Committee, each Employee may satisfy any such
tax withholding obligation by any of the following means, or by a
combination of such means: (i) a cash payment, (ii) authorizing Ashland to
withhold from the shares of Common Stock otherwise issuable to the Employee
pursuant to the exercise or vesting of an Award a number of shares having a
Fair Market Value, as of the Tax Date, which will satisfy the amount of the
withholding tax obligation, or (iii) by delivery to Ashland of a number of
shares of Common Stock having a Fair Market Value as of the Tax Date which
will satisfy the amount of the withholding tax obligation arising from an
exercise or vesting of an Award. An Employee's election to pay the
withholding tax obligation by (ii) or (iii) above must be made on or before
the Tax Date, is irrevocable, is subject to such rules as the Committee may
adopt, and may be disapproved by the Committee. If the amount requested is
not paid, the Committee may refuse to issue Common Stock under the Plan.
SECTION 12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the outstanding Common Stock of the
Company by reason of any stock split, stock dividend, recapitalization,
merger, consolidation, reorganization, combination, or exchange of shares,
split-up, split-off, spin-off, liquidation or other similar change in
capitalization, or any distribution to common stockholders other than cash
dividends, the number or kind of shares that may be issued under the Plan
pursuant to Section 3 and the number or kind of shares subject to, or the
price per share under any outstanding Award shall be automatically adjusted
so that the proportionate interest of the Employee or Outside Director
shall be maintained as before the occurrence of such event. Such adjustment
shall be conclusive and binding for all purposes of the Plan.
SECTION 13. AMENDMENTS AND TERMINATIONS
Unless the Plan shall have been terminated as hereinafter
provided, the Plan shall terminate on, and no Award shall be granted after,
November 3, 1993. The Plan may be terminated, modified or amended by the
shareholders of the Company. The Board may at any time terminate, modify or
amend the Plan in such respects as it shall deem advisable; provided,
however, that the Board may not, without approval by the holders of a
majority of the outstanding shares of stock present and voting at any
annual or special meeting of shareholders of Ashland: (i) increase (except
as provided in Section 12) the maximum number of shares which may be issued
pursuant to the Awards granted under the Plan, (ii) change the class of
persons eligible to receive Awards, (iii) change the manner of determining
the minimum Exercise Price of Options other than to change the manner of
determining the Fair Market Value of the Common Stock as set forth in
Section 2, (iv) extend the period during which Awards may be granted or
exercised, or (v) amend any provision of the Plan insofar as it applies
specifically to Restricted Stock Awards granted or to be granted to Outside
Directors.
SECTION 14. MISCELLANEOUS PROVISIONS
(A) Except as to Awards to Outside Directors, no Employee or other
person shall have any claim or right to be granted an Award under the Plan.
(B) An Employee's or Outside Director's rights and interest under
the Plan may not be assigned or transferred in whole or in part, either
directly or by operation of law or otherwise (except in the event of an
Employee's or Outside Director's death, by will or the laws of descent and
distribution), including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner, and no
such right or interest of any Employee or Outside Director in the Plan
shall be subject to any obligation of liability of such individual;
provided, however, that an Employee's or Outside Director's rights and
interest under the Plan may, subject to the discretion and direction of the
Committee, be made transferable by such Employee or Outside Director during
his or her lifetime. Except as specified in Section 8, the holder of an
Award shall have none of the rights of a shareholder until the shares
subject thereto shall have been registered in the name of the person or
persons exercising the Award on the transfer books of the Company.
(C) No Common Stock shall be issued hereunder unless counsel for
the Company shall be satisfied that such issuance will be in compliance
with applicable Federal, state, and other securities laws.
(D) The expenses of the Plan shall be borne by the Company.
(E) By accepting any Award under the Plan, each Employee and
Outside Director and each Personal Representative or Beneficiary claiming
under or through him or her shall be conclusively deemed to have indicated
his or her acceptance and ratification of, and consent to, any action taken
under the Plan by the Company or the Board.
(F) Awards granted under the Plan shall be binding upon Ashland,
its successors, and assigns.
(G) The appropriate officers of the Company shall cause to be
filed any reports, returns, or other information regarding Awards hereunder
or any Common Stock issued pursuant hereto as may be required by Section 13
or 15(d) of the Exchange Act, or any other applicable statute, rule, or
regulation.
(H) Nothing contained in this Plan shall prevent the Board of
Directors from adopting other or additional compensation arrangements,
subject to shareholder approval if such approval is required.
SECTION 15. EFFECTIVENESS OF THE PLAN
The Plan shall be submitted to the shareholders of the Company for
their approval and adoption on January 26, 1989 or such other date fixed
for the next meeting of shareholders or any adjournment or postponement
thereof. The Plan shall not be effective and no Award shall be made
hereunder unless and until the Plan has been so approved and adopted at a
meeting of the Company's shareholders.
SECTION 16. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky.
ASHLAND INC.
1993 STOCK INCENTIVE PLAN
(Amended as of November 6, 1997)
SECTION 1. PURPOSE
The purpose of the Ashland Inc. 1993 Stock Incentive Plan is to
promote the interests of Ashland Inc. and its shareholders by providing its
directors, officers and employees with an incentive to continue service
with Ashland. Accordingly, the Company may grant to selected officers and
employees Stock Options, Stock Appreciation Rights, Restricted Stock, Merit
Awards and Performance Share Awards in an effort to attract and retain in
its employ qualified individuals and to provide such individuals with
incentives to devote their best efforts to the Company through ownership of
the Company's stock, thus enhancing the value of the Company for the
benefit of shareholders. The Plan also provides an incentive for qualified
persons, who are not officers or employees of the Company, to serve on the
Board of Directors of the Company and to continue to work for the best
interests of the Company by rewarding such persons with automatic grants of
Restricted Stock of the Company. Stock Options, Stock Appreciation Rights,
Merit Awards and Performance Shares may not be granted to such Outside
Directors under the Plan.
SECTION 2. DEFINITIONS
(A) "Agreement" shall mean a written agreement setting forth the
terms of an Award.
(B) "Ashland" shall mean, collectively, Ashland Inc. and its
Subsidiaries.
(C) "Award" shall mean an Option, a Stock Appreciation Right, a
Restricted Stock Award, a Merit Award, or a Performance Share Award, in
each case granted under this Plan.
(D) "Beneficiary" shall mean the person, persons, trust or trusts
designated by an Employee or Outside Director or if no designation has been
made, the person, persons, trust, or trusts entitled by will or the laws of
descent and distribution to receive the benefits specified under this Plan
in the event of an Employee's or Outside Director's death.
(E) "Board" shall mean the Board of Directors of the Company or its
designee.
(F) "Change in Control" shall be deemed to occur (1) upon 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 or any Subsidiary
or employee benefit plan or trust maintained by Ashland, shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 15% of Ashland's Common Stock
outstanding at the time, without the approval of the Board, or (3) 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.
(G) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(H) "Committee" shall mean the Personnel and Compensation Committee
of the Board, as from time to time constituted, or any successor committee
of the Board with similar functions, which shall consist of three or more
members, each of whom shall be a Non-Employee Director or its designee.
(I) "Common Stock" shall mean the Common Stock of the Company ($1.00
par value), subject to adjustment pursuant to Section 13.
(J) "Company" shall mean, collectively, Ashland Inc. and its
Subsidiaries.
(K) "Employee" shall mean an officer or employee of the Company.
(L) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(M) "Exercise Price" shall mean, with respect to each share of Common
Stock subject to (i) an Option (other than a Reload Option), the price
fixed by the Committee at which such share may be purchased from the
Company pursuant to the exercise of such Option, which price at no time may
be less than 100% of the Fair Market Value of the Common Stock on the date
the Option is granted or (ii) a Reload Option, the price of which is as
fixed pursuant to Section 6 of the Plan.
(N) "Fair Market Value" shall mean the price of the Common Stock as
reported on the Composite Tape on the date and at the time selected by the
Company.
(O) "Incentive Stock Option" or "ISO" shall mean an Option that is
intended by the Committee to meet the requirements of Section 422 of the
Code or any successor provision.
(P) "Long-Term Incentive Plan" shall mean the Ashland Inc. Long-Term
Incentive Plan approved and adopted on January 26, 1989 by the shareholders
of the Company, as it now exists or as it may hereafter be amended.
(Q) "Merit Award" shall mean an award of Common Stock issued pursuant
to Section 9 of the Plan.
(R) "Non-Employee Director" shall mean a non-employee director within
the meaning of applicable regulatory requirements, including those
promulgated under Section 16 of the Exchange Act.
(S) "Nonqualified Stock Option" or "NQSO" shall mean an Option
granted pursuant to this Plan which does not qualify as an Incentive Stock
Option.
(T) "Option" shall mean the right to purchase Common Stock at a price
to be specified and upon terms to be designated by the Committee or
otherwise determined pursuant to this Plan. An Option shall be designated
by the Committee as a Nonqualified Stock Option or an Incentive Stock
Option.
(U) "Original Option" shall mean an option as defined in Subsection
(D) of Section 6 of the Plan.
(V) "Outside Director" shall mean a director of the Company who is
not also an Employee of the Company.
(W) "Performance Period" shall mean the period designated by the
Committee during which the performance objectives shall be measured.
(X) "Performance Share Award" shall mean an award of shares of Common
Stock, the issuance of which is contingent upon attainment of performance
objectives specified by the Committee.
(Y) "Performance Shares" shall mean those shares of Common Stock
issuable pursuant to a Performance Share Award.
(Z) "Personal Representative" shall mean the person or persons who,
upon the disability or incompetence of an Employee or Outside Director,
shall have acquired on behalf of the Employee or Outside Director by legal
proceeding or otherwise the right to receive the benefits specified in this
Plan.
(AA) "Plan" shall mean this Ashland Inc. 1993 Stock Incentive Plan.
(BB) "Reload Option" shall mean an option granted pursuant to
Subsection (D) of Section 6 of the Plan.
(CC) "Restricted Period" shall mean the period designated by the
Committee during which Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered, which period in the case of
Employees shall not be less than one year from the date of grant, and in
the case of Outside Directors is the period set forth in subsection (B) of
Section 8.
(DD) "Restricted Stock" shall mean those shares of Common Stock
issued pursuant to a Restricted Stock Award which are subject to the
restrictions, terms, and conditions set forth in the related Agreement.
(EE) "Restricted Stock Award" shall mean an award of Restricted
Stock.
(FF) "Retained Distributions" shall mean any securities or other
property (other than regular cash dividends) distributed by the Company in
respect of Restricted Stock during any Restricted Period.
(GG) "Retirement" shall mean retirement of an Employee from the
employ of the Company at any time as described in the Ashland Inc. and
Affiliates Pension Plan or in any successor pension plan, as from time to
time in effect.
(HH) "Section 16(b) Optionee" shall mean an Employee or former
Employee who is subject to Section 16(b) of the Exchange Act.
(II) "Stock Appreciation Right" or "SAR" shall mean the right of the
holder to elect to surrender an Option or any portion thereof which is then
exercisable and receive in exchange therefor shares of Common Stock, cash,
or a combination thereof, as the case may be, with an aggregate value equal
to the excess of the Fair Market Value of one share of Common Stock over
the Exercise Price specified in such Option multiplied by the number of
shares of Common Stock covered by such Option or portion thereof which is
so surrendered. An SAR may only be granted concurrently with the grant of
the related Option. An SAR shall be exercisable upon any additional terms
and conditions (including, without limitation, the issuance of Restricted
Stock and the imposition of restrictions upon the timing of exercise) which
may be determined as provided in the Plan.
(JJ) "Subsidiary" shall mean any present or future subsidiary
corporations, as defined in Section 424 of the Code, of Ashland.
(KK) "Tax Date" shall mean the date the withholding tax obligation
arises with respect to the exercise of an Award.
SECTION 3. STOCK SUBJECT TO THE PLAN
There will be reserved for issuance under the Plan (upon the exercise
of Options and Stock Appreciation Rights, upon awards of Restricted Stock,
Performance Shares and Merit Awards and for stock bonuses on deferred
awards of Restricted Stock and Performance Shares), an aggregate of
2,900,000 shares of Ashland Common Stock, par value $1.00 per share;
provided, however, that of such shares, only 1,500,000 shares in the
aggregate shall be available for issuance for Restricted Stock Awards and
Merit Awards. Such shares shall be authorized but unissued shares of Common
Stock. Except as provided in Sections 7 and 8, if any Award under the Plan
shall expire or terminate for any reason without having been exercised in
full, or if any Award shall be forfeited, the shares subject to the
unexercised or forfeited portion of such Award shall again be available for
the purposes of the Plan.
SECTION 4. ADMINISTRATION
The Plan shall be administered by the Committee. No person who is (or,
within one year prior to his or her appointment as a member of the
Committee, was) eligible to participate in the Plan, except as specifically
authorized under subsection (B) of Section 8 herein, or in any other stock
option or stock bonus plan of the Company, shall be a member of the
Committee. The Committee shall have no authority regarding the granting of
Restricted Stock to Outside Directors, as such grants are fixed pursuant to
subsection (B) of Section 8 of the Plan.
In addition to any implied powers and duties that may be needed to
carry out the provisions of the Plan, the Committee shall have all the
powers vested in it by the terms of the Plan, including exclusive authority
(except as to Awards of Restricted Stock granted to Outside Directors) to
select the Employees to be granted Awards under the Plan, to determine the
type, size and terms of the Awards to be made to each Employee selected, to
determine the time when Awards will be granted, and to prescribe the form
of the Agreements embodying Awards made under the Plan. Subject to the
provisions of the Plan specifically governing Awards of Restricted Stock
granted or to be granted to Outside Directors pursuant to subsection (B) of
Section 8 herein, the Committee shall be authorized to interpret the Plan
and the Awards granted under the Plan, to establish, amend and rescind any
rules and regulations relating to the Plan, to make any other
determinations which it believes necessary or advisable for the
administration of the Plan, and to correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Award in the
manner and to the extent the Committee deems desirable to carry it into
effect. Any decision of the Committee in the administration of the Plan, as
described herein, shall be final and conclusive.
The Committee may act only by a majority of its members. Any
determination of the Committee may be made, without notice, by the written
consent of the majority of the members of the Committee. In addition, the
Committee may authorize any one or more of their number or any officer of
the Company to execute and deliver documents on behalf of the Committee. No
member of the Committee shall be liable for any action taken or omitted to
be taken by him or her or by any other member of the Committee in
connection with the Plan, except for his or her own willful misconduct or
as expressly provided by statute.
The provisions of this Section 4 with respect to decisions made by,
and authority of, the Committee shall be subject to the provisions of
subsection (B) of Section 8 herein.
SECTION 5. ELIGIBILITY
Awards may only be granted (i) to individuals who are Employees of
Ashland, and (ii) as expressly provided in subsection (B) of Section 8 of
the Plan, to individuals who are duly elected Outside Directors of Ashland.
SECTION 6. STOCK OPTIONS
A. Designation and Price.
(a) Any Option granted under the Plan may be granted as an Incentive
Stock Option or as a Nonqualified Stock Option as shall be designated by
the Committee at the time of the grant of such Option. Each Option shall be
evidenced by an Agreement between the recipient and the Company, which
Agreement shall specify the designation of the Option as an ISO or a NQSO,
as the case may be, and shall contain such terms and conditions as the
Committee, in its sole discretion, may determine in accordance with the
Plan.
(b) Every Incentive Stock Option shall provide for a fixed expiration
date of not later than ten years from the date such Incentive Stock Option
is granted.
(c) The Exercise Price of Common Stock issued pursuant to each Option
(other than a Reload Option) shall be fixed by the Committee at the time of
the granting of the Option; provided, however, that such Exercise Price
shall in no event be less than 100% of the Fair Market Value of the Common
Stock on the date such Option is granted.
B. Exercise.
The Committee may, in its discretion, provide for Options granted
under the Plan to be exercisable in whole or in part; provided, however,
that no Option (other than a Reload Option) shall be exercisable prior to
the first anniversary of the date of its grant, except as provided in
Section 11 or as the Committee otherwise determines in accordance with the
Plan, and in no case may an Option be exercised at any time for fewer than
50 shares (or the total remaining shares covered by the Option if fewer
than 50 shares) during the term of the Option. The specified number of
shares will be issued upon receipt by Ashland of (i) notice from the holder
thereof of the exercise of an Option, and (ii) either payment to Ashland
(as provided in this Section 6, subsection (C) below), of the Exercise
Price for the number of shares with respect to which the Option is
exercised, or with approval of the Committee, a secured promissory note as
hereinafter provided. Each such notice and payment shall be delivered or
mailed by postpaid mail, addressed to the Treasurer of Ashland at Ashland
Inc., 1000 Ashland Drive, Russell, Kentucky, 41169, or such other place as
Ashland may designate from time to time.
C. Payment for Shares.
Except as otherwise provided in this Section 6, the Exercise Price for
the Common Stock shall be paid in full when the Option is exercised.
Subject to such rules as the Committee may impose, the Exercise Price may
be paid in whole or in part (i) in cash, (ii) in whole shares of Common
Stock owned by the Employee and evidenced by negotiable certificates,
valued at their Fair Market Value (which shares of Common Stock must have
been owned by the Employee six months or longer, and not used to effect a
stock Option exercise within the preceding six months, unless the Committee
specifically provides otherwise), (iii) by Attestation, (iv) by a
combination of such methods of payment, or (v) by such other consideration
as shall constitute lawful consideration for the issuance of Common Stock
and be approved by the Committee (including, without limitation, effecting
a "cashless exercise," with a broker, of the Option). "Attestation" means
the delivery to Ashland of a completed Attestation Form prescribed by
Ashland setting forth the whole shares of Common Stock owned by the
Employee which the Employee wishes to utilize to pay the Exercise Price.
The Common Stock listed on the Attestation Form must have been owned by the
Employee six months or longer, and not have been used to effect an Option
exercise within the preceding six months, unless the Committee specifically
provides otherwise. The Committee may, in its discretion, authorize payment
of all or any part of the Exercise Price over a period of not more than
five years from the date the Option is exercised, In such instance any
unpaid balance of the Exercise Price shall be evidenced by the Employee's
promissory note payable to the order of Ashland which shall be secured by
such collateral and shall bear interest at such rate or rates as determined
from time to time by the Committee.
D. Reload Options
The Committee shall have the authority to specify at the time of grant
that an Employee shall be granted another Stock Option (a "Reload Option")
in the event such Employee exercises all or a part of a Stock Option (an
"Original Option") by surrendering in accordance with Section 6, subsection
(C) already owned shares of Common Stock in full or partial payment of the
Exercise Price under such Original Option, subject to the availability of
shares of Common Stock under the Plan at the time of exercise. Each Reload
Option shall cover a number of shares of Common Stock equal to the number
of shares of Common Stock surrendered in payment of the Exercise Price,
shall have an Exercise Price per share of Common Stock equal to the Fair
Market Value of the Common Stock on the date of grant of such Reload Option
and shall expire on the stated expiration date of the Original Option. A
Reload Option shall be exercisable at any time and from time to time from
and after the date of grant of such Reload Option (or, as the Committee in
its sole discretion shall determine at the time of grant, at such time or
times as shall be specified in the Reload Option); provided, however, that
a Reload Option granted to a Section 16(b) Optionee shall not be
exercisable during the first six months from the date of grant of such
Reload Option. The first such Reload Option may provide for the grant, when
exercised, of one subsequent Reload Option to the extent and upon such
terms and conditions, consistent with this Section 6, subsection (D), as
the Committee in its sole discretion shall specify at or after the time of
grant of such Reload Option. A Reload Option shall contain such other terms
and conditions which may include a restriction on the transferability of
the number of shares of Common Stock received upon exercise of the Original
Option reduced by a number of shares equal in value to the tax liability
incurred upon exercise as the Committee in its sole discretion may deem
desirable which may be set forth in the Agreement evidencing the Reload
Option.
SECTION 7. STOCK APPRECIATION RIGHTS
The Committee may grant Stock Appreciation Rights pursuant to the
provisions of this Section 7 to any holder of any Option (including any
Reload Option) granted under the Plan with respect to all or a portion of
the shares subject to the related Option. An SAR may only be granted
concurrently with the grant of the related Option. Subject to the terms and
provisions of this Section 7, each SAR shall be exercisable only at the
same time and to the same extent the related Option is exercisable and in
no event after the termination of the related Option. An SAR shall be
exercisable only when the Fair Market Value (determined as of the date of
exercise of the SAR) of each share of Common Stock with respect to which
the SAR is to be exercised shall exceed the Exercise Price per share of
Common Stock subject to the related Option. An SAR granted under the Plan
shall be exercisable in whole or in part by notice to Ashland. Such notice
shall state that the holder of the SAR elects to exercise the SAR and the
number of shares in respect of which the SAR is being exercised. For
purposes of this Section 7, the date of exercise of an SAR shall mean the
date on which the Company receives such notice.
Subject to the terms and provisions of this Section 7, upon the
exercise of an SAR, the holder thereof shall be entitled to receive from
Ashland consideration (in the form hereinafter provided) equal in value to
the excess of the Fair Market Value (determined as of the date of exercise
of the SAR) of each share of Common Stock with respect to which such SAR
has been exercised over the Exercise Price per share of Common Stock
subject to the related Option. The Committee may stipulate in the Agreement
the form of consideration which shall be received upon the exercise of an
SAR. If no consideration is specified therein, upon the exercise of an SAR,
the holder may specify the form of consideration to be received by such
holder, which shall be in shares of Common Stock, or in cash, or partly in
cash and partly in shares of Common Stock (valued at Fair Market Value on
the date of exercise of the SAR) , as the holder shall request; provided,
however, that the Committee, in its sole discretion, may disapprove the
form of consideration requested and instead authorize the payment of such
consideration in shares of Common Stock (valued as aforesaid), or in cash,
or partly in cash and partly in shares of Common Stock.
Upon the exercise of an SAR, the related Option shall be deemed
exercised to the extent of the number of shares of Common Stock with
respect to which such SAR is exercised and to that extent a corresponding
number of shares of Common Stock shall not again be available for the grant
of Awards under the Plan. Upon the exercise or termination of the related
Option, the SAR with respect thereto shall be considered to have been
exercised or terminated to the extent of the number of shares of Common
Stock with respect to which the related Option was so exercised or
terminated.
SECTION 8. RESTRICTED STOCK AWARDS
A. Awards to Employees
The Committee may make an award of Restricted Stock to selected
Employees, evidenced by an Agreement which shall contain such terms and
conditions as the Committee, in its sole discretion, may determine. The
amount of each Restricted Stock Award and the respective terms and
conditions of each Award (which terms and conditions need not be the same
in each case) shall be determined by the Committee in its sole discretion.
As a condition to any Award hereunder, the Committee may require an
Employee to pay to the Company an amount equal to, or in excess of, the par
value of the shares of Restricted Stock awarded to him or her. Any such
Restricted Stock Award shall automatically expire if not purchased in
accordance with the Committee's requirements within thirty (30) days after
the date of grant. Subject to the terms and conditions of each Restricted
Stock Award, the Employee, as the owner of the Common Stock issued as
Restricted Stock, shall have all rights of a shareholder including, but not
limited to, voting rights as to such Common Stock and the right to receive
dividends thereon when, as and if paid.
In the event that a Restricted Stock Award has been made to an
Employee whose employment or service is subsequently terminated for any
reason prior to the lapse of all restrictions thereon, such Restricted
Stock will be forfeited in its entirety by such Employee; provided,
however, that the Committee may, in its sole discretion, limit such
forfeiture. Any Restricted Stock so forfeited by an Employee shall not
again be available for the grant of Awards under the Plan.
Employees may be offered the opportunity to defer the receipt of
payment of vested shares of Restricted Stock, and Common Stock may be
granted as a bonus for deferral, under terms as may be established by the
Committee from time to time; however, in no event shall the Common Stock
granted as a bonus for deferral exceed 20% of the Restricted Stock so
deferred.
B. Awards to Outside Directors
During the term of the Plan, (i) each Outside Director who was granted
an award of restricted stock under the Long-Term Incentive Plan on January
26, 1989 and who continues to serve as an Outside Director on January 31,
1994 shall be granted an Award of 1,000 shares of Restricted Stock on
January 31, 1994; (ii) each Outside Director who was granted an award of
restricted stock under such Long-Term Incentive Plan other than those
Outside Directors in (i) above shall be granted an Award of 1,000 shares of
Restricted Stock upon the fifth anniversary of his or her prior award under
the Long-Term Incentive Plan; and (iii) each person who is hereafter duly
appointed or elected as an Outside Director and who does not receive an
award under the Long-Term Incentive Plan shall be granted, effective on the
date of his or her appointment or election to the Board, an Award of 1,000
shares of Restricted Stock. All Awards under this subsection (B) are
subject to the limitation on the number of shares of Common Stock available
pursuant to Section 3 and to the terms and conditions set forth in this
subsection (B) and subsection (C) below.
As a condition to any Award hereunder, the Outside Director will be
required to pay to the Company a non-refundable amount equal to the par
value of the shares of Restricted Stock awarded to him or her. Upon the
granting of the Restricted Stock Award, such Outside Director shall be
entitled to all rights incident to ownership of Common Stock of the Company
with respect to his or her Restricted Stock, including, but not limited to,
the right to vote such shares of Restricted Stock and to receive dividends
thereon when, as and if paid; provided, however, that in no case may any
shares of Restricted Stock granted to an Outside Director be sold,
assigned, transferred, pledged, or otherwise encumbered during the
Restricted Period which shall not lapse until the earlier to occur of the
following: (i) normal retirement from the Board at age 70, (ii) the death
or disability of such Outside Director, (iii) a 50% change in the
beneficial ownership of the Company as defined in Rule 13d-3 under the
Exchange Act, or (iv) voluntary early retirement to take a position in
governmental service. In the case of voluntary resignation or other
termination of service of an Outside Director prior to the occurrence of
any of the events described in (i), (ii), (iii) or (iv) of the preceding
sentence, any grant of Restricted Stock made to him or her pursuant to this
subsection (B) will be forfeited by such Outside Director. Any Restricted
Stock so forfeited by an Outside Director shall not again be available for
the grant of Awards under the Plan. As used herein, a director shall be
deemed "disabled" when he or she is unable to attend to his or her duties
and responsibilities as a member of the Board because of incapacity due to
physical or mental illness.
C. Transferability
Subject to subsection (B) of Section 15 hereof, Restricted Stock may
not be sold, assigned, transferred, pledged, or otherwise encumbered during
a Restricted Period, which, in the case of Employees, shall be determined
by the Committee and which shall not be less than one year from the date
such Restricted Stock was awarded, and, in the case of Outside Directors,
shall be determined in accordance with subsection (B) of this Section 8.
The Committee may, at any time, reduce the Restricted Period with respect
to any outstanding shares of Restricted Stock awarded under the Plan to
Employees, but in no event shall such Restricted Period be less than one
year.
During the Restricted Period, certificates representing the Restricted
Stock and any Retained Distributions shall be registered in the recipient's
name and bear a restrictive legend to the effect that ownership of such
Restricted Stock (and any such Retained Distributions), and the enjoyment
of all rights appurtenant thereto are subject to the restrictions, terms,
and conditions provided in the Plan and the applicable Agreement. Such
certificates shall be deposited by the recipient with the Company, together
with stock powers or other instruments of assignment, each endorsed in
blank, which will permit transfer to the Company of all or any portion of
the Restricted Stock and any securities constituting Retained Distributions
which shall be forfeited in accordance with the Plan and the applicable
Agreement. Restricted Stock shall constitute issued and outstanding shares
of Common Stock for all corporate purposes. The recipient will have the
right to vote such Restricted Stock, to receive and retain all regular cash
dividends, and to exercise all other rights, powers, and privileges of a
holder of Common Stock with respect to such Restricted Stock, with the
exception that (i) the recipient will not be entitled to delivery of the
stock certificate or certificates representing such Restricted Stock until
the restrictions applicable thereto shall have expired; (ii) the Company
will retain custody of all Retained Distributions made or declared with
respect to the Restricted Stock (and such Retained Distributions will be
subject to the same restrictions, terms and conditions as are applicable to
the Restricted Stock) until such time, if ever, as the Restricted Stock
with respect to which such Retained Distributions shall have been made,
paid, or declared shall have become vested, and such Retained Distributions
shall not bear interest or be segregated in separate accounts; (iii)
subject to subsection (B) of Section 15 hereof, the recipient may not sell,
assign, transfer, pledge, exchange, encumber, or dispose of the Restricted
Stock or any Retained Distributions during the Restricted Period; and (iv)
a breach of any restrictions, terms, or conditions provided in the Plan or
established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and
any Retained Distributions with respect thereto.
SECTION 9. MERIT AWARDS
The Committee may from time to time make an award of Common Stock
under the Plan to selected Employees for such reasons and in such amounts
as the Committee, in its sole discretion, may determine. As a condition to
any such Merit Award, the Committee may require an Employee to pay to the
Company an amount equal to, or in excess of, the par value of the shares of
Common Stock awarded to him or her.
SECTION 10. PERFORMANCE SHARES
The Committee may make awards of Common Stock, evidenced by an
Agreement, to selected Employees on the basis of the Company's financial
performance in any given period. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Employees
who shall receive such Performance Shares, to determine the number of such
shares to be granted for each Performance Period, and to determine the
duration of each such Performance Period. There may be more than one
Performance Period in existence at any one time, and the duration of
Performance Periods may differ from each other.
The Committee shall establish performance measures for each
Performance Period on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time, in its sole discretion,
determine. Such measures may include, but shall not be limited to, return
on investment, earnings per share, return on shareholders' equity, or
return to shareholders. The performance measures determined by the
Committee shall be established prior to the beginning of each Performance
Period but may be subject to such later revisions as the Committee shall
deem appropriate. Performance Shares may not be sold, assigned,
transferred, pledged, or otherwise encumbered, except as herein provided
and as provided in subsection (E) of Section 11 and subject to subsection
(B) of Section 15, during the Performance Period.
The Committee shall determine, in its sole discretion, the manner of
payment, which may include (i) cash, (ii) shares of Common Stock, or (iii)
shares of Restricted Stock in such proportions as the Committee shall
determine. Employees may be offered the opportunity to defer the receipt of
payment of earned Performance Shares, and Common Stock may be granted as a
bonus for deferral under terms as may be established by the Committee from
time to time; however, in no event shall the Common Stock granted as a
bonus for deferral exceed 20% of the Performance Shares so deferred.
An Employee must be employed by the Company at the end of a
Performance Period in order to be entitled to payment of Performance Shares
in respect of such period; provided, however, that in the event of an
Employee's cessation of employment before the end of such period, or upon
the occurrence of his or her death, retirement, or disability, or other
reason approved by the Committee, the Committee may, in its sole
discretion, limit such forfeiture.
SECTION 11. CONTINUED EMPLOYMENT, AGREEMENT TO SERVE AND EXERCISE PERIODS
(A) Subject to the provisions of subsection (F) of this Section 11,
every Option (other than a Reload Option) and SAR shall provide that it may
not be exercised in whole or in part for a period of one year after the
date of granting such Option (unless otherwise determined by the Committee)
and, if the employment of the Employee shall terminate, for any reason
other than death or disability (as defined in subsection (C) of this
Section 11) as determined by the Committee, prior to the end of such one
year period or with respect to any Reload Option such other period as may
be specified by the Committee within which such Reload Option may not be
exercised, the Option granted to such Employee shall immediately terminate.
(B) Every Option shall provide that in the event the Employee dies
while employed by Ashland; during the period in which Options may be
exercised by an Employee determined to be disabled as provided in
subsection (C) of this Section 11, or within three months after cessation
of employment for any cause, such Option shall be exercisable, at any time
or from time to time, prior to the fixed termination date set forth in the
Option, by the Beneficiaries of the decedent for the number of shares which
the Employee could have acquired under the Option immediately prior to the
Employee's death.
(C) Every Option shall provide that in the event the employment of any
Employee shall cease by reason of disability, as determined by the
Committee at any time during the term of the Option, such Option shall be
exercisable, at any time or from time to time by such Employee for the
number of shares which the Employee could have acquired under the Option
immediately prior to the Employee's disability. An Option held by an
Employee determined by the Committee to be disabled prior to September 19,
1996 shall be exercisable during a period of one year of continuing
disability following termination of employment by reason of such
disability. An Option held by an Employee determined by the Committee to be
disabled on or after September 19, 1996 shall be exercisable at any time
prior to the fixed termination date set forth in the Option. As used
herein, an Employee will be deemed "disabled" when he or she becomes unable
to perform the functions required by his or her regular job due to physical
or mental illness and, in connection with the grant of an Incentive Stock
Option, shall be deemed disabled if he or she falls within the meaning of
that term as provided in Section 22(e)(3) of the Code. The determination by
the Committee of any question involving disability shall be conclusive and
binding.
(D) Every Option shall provide that in the event the employment of any
Employee shall cease by reason of Retirement, such Option may be exercised
only in respect of the number of shares which the Employee could have
acquired under the Option immediately prior to such Retirement. Options
held by an Employee who retires prior to September 19, 1996 shall be
exercisable for a period of three years after such Retirement date, which
three-year period may be extended at the discretion of the Committee.
Options held by an Employee who retires on or after September19, 1996 shall
be exercisable until the fixed termination date set forth in the Option.
(E) Except as provided in subsections (A), (B), (C) (D) and (F) of
this Section 11, every Option shall provide that it shall terminate on the
earlier to occur of the fixed termination date set forth in the Option or
three months after cessation of the Employee's employment for any cause
only in respect of the number of shares which the Employee could have
acquired under the Option immediately prior to such cessation of
employment; provided, however, that no Option may be exercised after the
fixed termination date set forth in the Option.
(F) Notwithstanding any provision of this Section 11 to the contrary,
any Award granted pursuant to the Plan, except a Restricted Stock Award to
Outside Directors, which is governed by Section 8, subsection (B), may, in
the discretion of the Committee or as provided in the relevant Agreement,
become exercisable, at any time or from time to time, prior to the fixed
termination date set forth in the Award for the full number of awarded
shares or any part thereof, less such numbers as may have been theretofore
acquired under the Award (i) from and after the time the Employee ceases to
be an Employee of Ashland as a result of the sale or other disposition by
Ashland of assets or property (including shares of any Subsidiary) in
respect of which such Employee had theretofore been employed or as a result
of which such Employee's continued employment with Ashland is no longer
required, and (ii) in the case of a Change in Control of Ashland, from and
after the date of such Change in Control.
(G) Each Employee granted an Award under this Plan shall agree by his
or her acceptance of such Award to remain in the service of Ashland for a
period of at least one year from the date of the Agreement respecting the
Award between Ashland and the Employee. Such service shall, subject to the
terms of any contract between Ashland and such Employee, be at the pleasure
of Ashland and at such compensation as Ashland shall reasonably determine
from time to time. Nothing in the Plan, or in any Award granted pursuant to
the Plan, shall confer on any individual any right to continue in the
employment of or service to Ashland or interfere in any way with the right
of Ashland to terminate the Employee's employment at any time.
(H) Subject to the limitations set forth in Section 422 of the Code,
the Committee may adopt, amend, or rescind from time to time such
provisions as it deems appropriate with respect to the effect of leaves of
absence approved by any duly authorized officer of Ashland with respect to
any Employee.
SECTION 12. WITHHOLDING TAXES
Federal, state or local law may require the withholding of taxes
applicable to gains resulting from the exercise of an Award. Unless
otherwise prohibited by the Committee, each Employee may satisfy any such
tax withholding obligation by any of the following means, or by a
combination of such means: (i) a cash payment, (ii) authorizing Ashland to
withhold from the shares of Common Stock otherwise issuable to the Employee
pursuant to the exercise or vesting of an Award a number of shares having a
Fair Market Value, as of the Tax Date, which will satisfy the amount of the
withholding tax obligation, or (iii) by delivery to Ashland of a number of
shares of Common Stock having a Fair Market Value as of the Tax Date which
will satisfy the amount of the withholding tax obligation arising from an
exercise or vesting of an Award. An Employee's election to pay the
withholding tax obligation by (ii) or (iii) above must be made on or before
the Tax Date, is irrevocable, is subject to such rules as the Committee may
adopt, and may be disapproved by the Committee. If the amount requested is
not paid, the Committee may refuse to issue Common Stock under the Plan.
SECTION 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the outstanding Common Stock of the
Company by reason of any stock split, stock dividend, recapitalization,
merger, consolidation, reorganization, combination, or exchange of shares,
split-up, split-off, spin-off, liquidation or other similar change in
capitalization, or any distribution to common stockholders other than cash
dividends, the number or kind of shares that may be issued under the Plan
pursuant to Section 3 and the number or kind of shares subject to, or the
price per share under any outstanding Award shall be automatically adjusted
so that the proportionate interest of the Employee or Outside Director
shall be maintained as before the occurrence of such event. Such adjustment
shall be conclusive and binding for all purposes of the Plan.
SECTION 14. AMENDMENTS AND TERMINATIONS
Unless the Plan shall have been terminated as hereinafter provided,
the Plan shall terminate on, and no Award (other than Reload Options
automatically granted pursuant to Section 6) shall be granted after January
26, 1998. The plan may be terminated, modified or amended by the
shareholders of the Company. The Board may at any time terminate, modify or
amend the Plan in such respects as it shall deem advisable; provided,
however, that the Board may not, without approval by the holders of a
majority of the outstanding shares of stock present and voting at any
annual or special meeting of shareholders of Ashland: (i) increase (except
as provided in Section 13) the maximum number of shares which may be issued
pursuant to the Awards granted under the Plan, (ii) change the class of
persons eligible to receive Awards, (iii) change the manner of determining
the minimum Exercise Price of Options other than to change the manner of
determining the Fair Market Value of the Common Stock as set forth in
Section 2, (iv) extend the period during which Awards may be granted or
exercised, or (v) amend any provision of the Plan insofar as it applies
specifically to Restricted Stock Awards granted or to be granted to Outside
Directors.
SECTION 15. MISCELLANEOUS PROVISIONS
(A) Except as to Awards to Outside Directors, no Employee or other
person shall have any claim or right to be granted an Award under the Plan.
(B) An Employee's or Outside Director's rights and interest under the
Plan may not be assigned or transferred in whole or in part, either
directly or by operation of law or otherwise (except in the event of an
Employee's or Outside Director's death, by will or the laws of descent and
distribution), including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner, and no
such right or interest of any Employee or Outside Director in the Plan
shall be subject to any obligation of liability of such individual;
provided, however, that an Employee's or Outside Director's rights and
interest under the plan may, subject to the discretion and direction of the
Committee, be made transferable by such Employee or Outside Director during
his or her lifetime. Except as specified in Section 8, the holder of an
Award shall have none of the rights of a shareholder until the shares
subject thereto shall have been registered in the name of the person
receiving or person or persons exercising the Award on the transfer books
of the Company.
(C) No Common Stock shall be issued hereunder unless counsel for the
Company shall be satisfied that such issuance will be in compliance with
applicable Federal, state, and other securities laws.
(D) The expenses of the Plan shall be borne by the Company.
(E) By accepting any Award under the Plan, each Employee and Outside
Director and each Personal Representative or Beneficiary claiming under or
through him or her shall be conclusively deemed to have indicated his or
her acceptance and ratification of, and consent to, any action taken under
the Plan by the Company, the Board or the Committee.
(F) Awards granted under the Plan shall be binding upon Ashland, its
successors, and assigns.
(G) The appropriate officers of the Company shall cause to be filed
any reports, returns, or other information regarding Awards hereunder or
any Common Stock issued pursuant hereto as may be required by Section 13 or
15(d) of the Exchange Act, or any other applicable statute, rule, or
regulation.
(H) Nothing contained in this Plan shall prevent the Board of
Directors from adopting other or additional compensation arrangements,
subject to shareholder approval if such approval is required.
(I) Each Employee shall be deemed to have been granted any Award on
the date the Committee took action to grant such Award under the Plan or
such later date as the Committee in its sole discretion shall determine at
the time such grant is authorized; provided, however, that a Reload Option
shall be deemed to have been granted on the date on which the Original
Option is exercised or such later date as the Committee in its sole
discretion shall determine prior to the date on which such exercise occurs
and a subsequent Reload Option shall be deemed to have been granted on the
date on which the underlying Reload Option is exercised or such later date
as the Committee in its sole discretion shall determine prior to the date
on which such exercise occurs.
SECTION 16. EFFECTIVENESS OF THE PLAN
The Plan shall be submitted to the shareholders of the Company for
their approval and adoption on January 28, 1993 or such other date fixed
for the next meeting of shareholders or any adjournment or postponement
thereof. The Plan shall not be effective and no Award shall be made
hereunder unless and until the Plan has been so approved and adopted at a
meeting of the Company's shareholders.
SECTION 17. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky.
ASHLAND INC.
INCENTIVE COMPENSATION PLAN FOR KEY EXECUTIVES
(As amended November 5, 1997)
1. PURPOSE
The principal purposes of the Ashland Inc. Incentive Compensation
Plan for Key Executives (the "Plan") are to provide to Eligible Officers
incentives to earn annual incentive compensation through the achievement of
performance goals and to assist the Company in attracting, motivating and
retaining key employees on a competitive basis.
2. DEFINITIONS
Terms not otherwise defined herein shall have the following
meanings:
(a) "Board" means the Board of Directors of Ashland Inc. or its
designee.
(b) "Change in Control" shall be deemed to occur (1) upon the
approval of the shareholders of the Company (or if such approval is not
required, upon the approval of the Board) of (A) any consolidation or
merger of the Company in which the Company 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 the Company or (C) adoption of any
plan or proposal for the liquidation or dissolution of the Company, (2)
when any "person" (as defined in Section 3(a)(9) or 13(d) of the Exchange
Act), other than the Company or any subsidiary or employee benefit plan or
trust maintained by the Company 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 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.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(d) "Committee" means the Personnel and Compensation Committee of
the Board or its designee.
(e) "Common Stock" means the common stock, $1.00 par value, of
Ashland Inc.
(f) "Company" means Ashland Inc., its divisions and subsidiaries.
(g) "Eligible Officer" means an executive officer described in
Section 4.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Executive Officer" means an executive officer as defined in
Rule 3b-7 under the Exchange Act.
(j) "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.
(k) "Hurdle" means the minimum Performance Goal(s) that must be
reached in order for the Eligible Officer to receive any Incentive Award.
(l) "Incentive Award" means the amount determined by the Committee
to be payable to a Participant upon the achievement of the Performance
Goals for the particular Performance Period.
(m) "Participant" means any Eligible Officer who receives an
Incentive Award under the Plan for a Performance Period.
(n) "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 Eligible Officer or the division,
department, branch, line of business, subsidiary or other unit in which the
Eligible Officer works and/or may be based on the performance of the
Company generally.
(o) "Performance Period" means an annual period based upon the
Company's fiscal year, except to the extent the Committee determines
otherwise.
(p) "Target" means the Performance Goal(s) that must be reached in
order for the Eligible Officer to receive the maximum Incentive Award. The
maximum Incentive Award is a fixed percentage of the midpoint of the salary
range for the position held by the Eligible Officer and is based upon the
Eligible Officer's level of employment. No Eligible Officer may receive a
maximum Incentive Award more than 150% of their salary range midpoint.
3. SHARES; ADJUSTMENTS IN THE EVENT OF CHANGES IN CAPITALIZATION
(a) SHARES AUTHORIZED FOR ISSUANCE. There shall be reserved for
issuance under the Plan 150,000 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 so
that the proportionate interest of the Eligible Officers shall be
maintained as before the occurrence of such event.
4. ELIGIBILITY
The Chief Executive Officer and the Chief Operating Officer of the
Company, plus any other Executive Officers chosen by the Committee, shall
be eligible to participate in the Plan. An individual who becomes eligible
to participate in the Plan during the Plan Year may be approved by the
Committee for a partial year of participation.
5. ADMINISTRATION
Full power and authority to construe, interpret and administer the
Plan shall be vested in the Committee. Decisions of the Committee shall be
final, conclusive and binding upon all parties.
6. AWARDS; PAYMENT
(a) No later than 90 days after the commencement of each
Performance Period, the Committee shall establish in writing one or more
Performance Goals, including the Hurdle and Target, that must be reached by
an Eligible Officer in order to receive an Incentive Award for such
Performance Period. The Committee shall have the discretion to later revise
the Performance Goals and the amount to be paid out upon the attainment of
these 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 a Participant's
employment so long as such changes are consistent with the Performance
Goals established for other Participants in the same or similar positions.
(b) The amount payable to a Participant shall be based upon the
achievement of the Performance Goals and the Participant achieving the
highest possible individual performance rating for the Performance Period.
To the extent that a Participant does not achieve the highest possible
individual performance rating for the Performance Period, the Committee
shall have the discretion to reduce the amount payable to such Participant;
provided, however, that no payment for individual performance shall be made
unless the Performance Goals are achieved.
(c) Payment of Incentive Awards shall be made on a date or dates
fixed by the Committee. Payment may be made in one or more installments and
may be made wholly in cash, wholly in shares of Common Stock or a
combination thereof as determined by the Committee.
In addition, Participants may be offered the opportunity
to defer the receipt of payment of an Incentive 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 an Incentive
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 Incentive Award so deferred or retained. Any and all payments made
under the Plan shall be subject to applicable federal, state or local taxes
required by law to be withheld.
If payment of an Incentive Award shall be made all or
partially in shares of Common Stock, the number of shares of Common Stock
to be delivered to a Participant on any payment date shall be determined by
dividing (x) the original dollar amount to be paid on the payment date (or
the part thereof determined by the Committee to be delivered in shares of
such Incentive Award) by (y) the Fair Market Value on the date the Board
approves the Committee's decision to pay an Incentive Award.
(d) An Incentive Award shall terminate for all purposes if the
Participant does not remain continuously employed and in good standing with
the Company until the date of payment of such award. In the event an
Eligible Officer's employment is terminated because of death, disability or
retirement, the Eligible Officer (or his or her beneficiaries or estate)
shall receive a pro rata portion of the payment of an Incentive Award for
which the Eligible Officer would have otherwise been eligible 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.
7. INALIENABILITY OF BENEFITS
Incentive Awards may not be assigned or transferred in whole or in
part, either directly or by operation of law or otherwise (except by will
or pursuant to the laws of descent and distribution) including, but not by
way of limitation, execution, levy, garnishment, attachment, pledge,
bankruptcy or any other manner.
8. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with laws of the Commonwealth of Kentucky.
9. AMENDMENTS
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 of
the Company:
(a) increase the amount of securities that may be issued under the
Plan (except as provided in Section 3(b));
(b) materially modify the requirements as to eligibility for
participation in the Plan; or
(c) otherwise materially increase the benefits accruing to
participants under the Plan.
10. CHANGE IN CONTROL
Upon a Change in Control, in order to maintain an Eligible
Officer's rights under the Plan, there shall be an acceleration of any
Performance Period relating to any Incentive Award, and payment of any
Incentive 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. Further,
the Company's obligation with respect to such Incentive 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 Incentive Award as may be appropriate to reflect
such Change in Control.
11. EFFECTIVE DATE; TERM OF THE PLAN
This Plan shall be submitted to the shareholders of the Company
for their approval and adoption on January 26, 1995 or such other date
fixed for the next meeting of shareholders or any adjournment or
postponement thereof. If approved and adopted by the shareholders, the Plan
will become effective as of September 14, 1994. Unless terminated sooner by
the Committee, to the extent necessary to ensure that Incentive Award
payments be deductible under the Code, the Plan shall terminate on, and no
Incentive Awards shall be granted after, the first meeting of shareholders
occurring in calendar year 2000.
ASHLAND INC.
DEFERRED COMPENSATION PLAN
(Amended and Restated as of November 5, 1997)
1. PURPOSE
The purpose of this Ashland Inc. Deferred Compensation Plan (the
"Plan"), is to provide eligible key employees of the Company with an
opportunity to defer compensation to be earned by them from the Company as
a means of saving for retirement or other future purposes.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) "Accounting Date" means the Business Day on which a
calculation concerning a Participant's Compensation Account is performed,
or as otherwise defined by the Committee.
(b) "Beneficiary" means the person(s) designated by the
Participant in accordance with Section 12, or if no person(s) is/are so
designated, the estate of a deceased Participant.
(c) "Board" means the Board of Directors of Ashland Inc. or its
designee.
(d) "Business Day" means a day on which the New York Stock
Exchange is open for trading activity.
(e) "Change in Control" shall be deemed to occur (1) upon the
approval of the shareholders of the Company (or if such approval is not
required, upon the approval of the Board) of (A) any consolidation or
merger of the Company in which the Company 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 the Company, or (C) adoption of any
plan or proposal for the liquidation or dissolution of the Company, (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 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.
(f) "Committee" means the Personnel and Compensation Committee of
the Board or its designee.
(g) "Common Stock" means the common stock, $1.00 par value, of
Ashland Inc.
(h) "Common Stock Fund" means that investment option, approved by
the Committee, in which a Participant's Compensation Account may be deemed
to be invested and may earn income based on a hypothetical investment in
Common Stock.
(i) "Company" means Ashland Inc., its divisions, subsidiaries and
affiliates.
(j) "Compensation" means any employee compensation determined by
the Committee to be properly deferrable under the Plan.
(k) "Compensation Account(s)" means the Retirement Account and/or
the In-Service Account(s).
(l) "Corporate Human Resources" means the Corporate Human
Resources Department of the Company.
(m) "Credit Date" means the date on which Compensation would
otherwise have been paid to the Participant or in the case of the
Participant's designation of investment option changes, within three
Business Days after the Participant's designation is received by Corporate
Human Resources, or as otherwise designated by the Committee.
(n) "Deferred Compensation" means the Compensation elected by the
Participant to be deferred pursuant to the Plan.
(o) "Election" means a Participant's delivery of a written notice
of election to Corporate Human Resources electing to defer payment of all
or a portion of his or her Compensation either until retirement,
Termination, death or such other time as further provided by the Committee
or the Company.
(p) "Employee" means a full-time, regular salaried employee (which
term shall be deemed to include officers) of the Company, its present and
future subsidiary corporations as defined in Section 424 of the Internal
Revenue Code of 1986, as amended or its affiliates.
(q) "Excess Payments" means payments made to a Participant
pursuant to the Plan and the Excess Plan.
(r) "Excess Plan" means the Ashland Inc. Nonqualified Excess
Benefit Pension Plan, as it now exists or as it may hereafter be amended.
(s) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(t) "Fair Market Value" means the price of a share of Common
Stock, as reported on the Composite Tape for New York Stock Exchange issues
on the date and at the time designated by the Company.
(u) "Fiscal Year" means that annual period commencing October 1
and ending the following September 30.
(v) "In-Service Account" means the account(s) to which the
Participant's Deferred Compensation is credited and from which, pursuant to
Section 10, distributions are made.
(w) "Participant" means an Employee selected by the Committee to
participate in the Plan and who has elected to defer payment of all or a
portion of his or her Compensation under the Plan.
(x) "Plan" means this Ashland Inc. Deferred Compensation Plan as
it now exists or as it may hereafter be amended.
(y) "Retirement Account" means the account(s) to which the
Participant's Deferred Compensation is credited and from which, pursuant to
Section 10, distributions are made.
(z) "SERP" means the Ninth Amended and Restated Ashland Inc.
Supplemental Early Retirement Plan for Certain Key Executive Employees, as
it now exists or as it may hereafter be amended.
(aa) "SERP Payments" means payments made to a Participant pursuant
to the Plan and the SERP.
(bb) "Stock Unit(s)" means the share equivalents credited to the
Common Stock Fund of a Participant's Compensation Account pursuant to
Section 6.
(cc) "Termination" means termination of services as an Employee
for any reason other than retirement.
3. SHARES; ADJUSTMENTS IN EVENT OF CHANGES IN CAPITALIZATION
(a) SHARES AUTHORIZED FOR ISSUANCE. There shall be reserved for
issuance under the Plan 500,000 shares of Common Stock, subject to
adjustment pursuant to subsection (c) below.
(b) UNITS AUTHORIZED FOR CREDIT. The maximum number of Stock Units
that may be credited to Participants' Compensation Accounts under the Plan
is 1,500,000, subject to adjustment pursuant to subsection (c) below.
(c) ADJUSTMENTS IN CERTAIN EVENTS. In the event of any change in
the outstanding Common Stock of the Company 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 or Stock Units that may be issued or credited
under the Plan shall be automatically adjusted so that the proportionate
interest of the Participants shall be maintained as before the occurrence
of such event. Such adjustment shall be conclusive and binding for all
purposes of the Plan.
4. ELIGIBILITY
The Committee shall have the authority to select from management
and/or highly compensated Employees those Employees who shall be eligible
to participate in the Plan; provided, however, that employees and/or
retirees who have elected to defer an amount into this Plan from another
plan sponsored or maintained by Ashland Inc., the terms of which allowed
such employee or retiree to make such a deferral election into this Plan,
shall be considered to be eligible to participate in this Plan.
5. ADMINISTRATION
Full power and authority to construe, interpret and administer the
Plan shall be vested in the Company and the Committee. This power and
authority includes, but is not limited to, selecting Compensation eligible
for deferral, establishing deferral terms and conditions and adopting
modifications, amendments and procedures as may be deemed necessary,
appropriate or convenient by the Committee. Decisions of the Company and
the Committee shall be final, conclusive and binding upon all parties.
Day-to-day administration of the Plan shall be the responsibility of
Corporate Human Resources.
6. PARTICIPANT ACCOUNTS
Upon election to participate in the Plan, there shall be
established a Retirement Account and/or In-Service Account, as designated
by the Participant to which there shall be credited any Deferred
Compensation, as of each Credit Date. Each such Compensation Account shall
be credited (or debited) on each Accounting Date with income (or loss)
based upon a hypothetical investment in any one or more of the investment
options available under the Plan, as prescribed by the Committee for the
particular compensation credited, which may include a Common Stock Fund, as
elected by the Participant under the terms of Section 9.
7. FINANCIAL HARDSHIP
Upon the written request of a Participant or a Participant's legal
representative and a finding that continued deferral will result in an
unforeseeable financial emergency to the Participant, the Committee or the
Company (each in its sole discretion) may authorize (a) the payment of all
or a part of a Participant's Compensation Account in a single installment
prior to his or her ceasing to be a Participant, or (b) the acceleration of
payment of any multiple installments thereof. It is intended that the
Committee's determinations as to whether the Participant has suffered an
"unforeseeable financial emergency" shall be made consistent with the
requirements under Section 457(d) of the Internal Revenue Code.
8. ACCELERATED DISTRIBUTION
(a) AVAILABILITY OF WITHDRAWAL PRIOR TO RETIREMENT. The
Participant or the Participant's Beneficiary who is receiving installment
payments under the Plan may elect, in writing, to withdraw all or a portion
of a Participant's Compensation Account at any time prior to the time such
Compensation Account otherwise becomes payable under the Plan, provided the
conditions specified in Sections 8(c), 8(d) and 8(e) hereof are satisfied.
(b) ACCELERATION OF PERIODIC DISTRIBUTIONS. Upon the written
election of the Participant or the Participant's Beneficiary who is
receiving installment payments under the Plan, the Participant or
Participant's Beneficiary may elect to have all or a portion of the
remaining installments distributed in the form of an immediately payable
lump sum, provided the conditions specified in Section 8(c) and 8(e) hereof
are satisfied.
(c) FORFEITURE PENALTY. In the event of a withdrawal pursuant to
Section 8(a), or an accelerated distribution pursuant to Section 8(b), the
Participant shall forfeit from such Compensation Account an amount equal to
10% of the amount of the withdrawal or accelerated distribution, as the
case may be. The forfeited amount shall be deducted from the Compensation
Account prior to giving effect to the requested withdrawal or acceleration.
Neither the Participant nor the Participant's Beneficiary shall have any
right or claim to the forfeited amount, and the Company shall have no
obligation whatsoever to the Participant, the Participant's Beneficiary or
any other person with regard to the forfeited amount.
(d) MINIMUM WITHDRAWAL. In no event shall the amount withdrawn in
accordance with Section 8(a) be less than 25% of the amount credited to
such Participant's Compensation Account immediately prior to the
withdrawal.
(e) SUSPENSION FROM DEFERRALS. In the event of a withdrawal
pursuant to Section 8(a) or 8(b), a Participant who is otherwise eligible
to make deferrals of Compensation under this Plan shall be prohibited from
making such deferrals with respect to the remainder of the current Fiscal
Year and the Fiscal Year of the Plan immediately following the Fiscal Year
of the Plan during which the withdrawal was made, and any Election
previously made by the Participant with respect to deferrals of
Compensation for such Fiscal Years of the Plan shall be void and of no
effect.
9. MANNER OF ELECTION
(a) GENERAL. Any Employee selected by the Committee to participate
in the Plan may elect to do so by delivering to Corporate Human Resources
an Election on a form prescribed by Corporate Human Resources, designating
the Compensation Account to which the Deferred Compensation is to be
credited, electing the timing and form of distribution, and setting forth
the manner in which such Deferred Compensation shall be invested in
accordance with Section 6 hereof. The timing of the filing of the
appropriate form with Corporate Human Resources shall be determined by the
Company or the Committee. An effective election to defer Compensation may
not be revoked or modified except as otherwise determined by the Company or
the Committee or as stated herein. In addition to the provisions contained
in this Plan, any deferrals of SERP Payments or Excess Payments must be in
accordance with the terms of the SERP or the Excess Plan.
(b) INVESTMENT ALTERNATIVES -- EXISTING BALANCES. A Participant
may elect to change an existing selection as to the investment alternatives
in effect with respect to an existing Compensation Account (in increments
prescribed by the Committee or the Company) as often, and with such
restrictions, as determined by the Committee or by the Company.
(c) CHANGE OF BENEFICIARY. A Participant may, at any time, elect
to change the designation of a Beneficiary in accordance with Section 11
hereof.
10. DISTRIBUTION
(a) RETIREMENT ACCOUNT. In accordance with the Participant's
Election, Deferred Compensation credited to a Participant's Retirement
Account shall be distributed in cash or shares of Common Stock (or a
combination of both). If no Election is made by a Participant as to the
distribution or form of payment of his or her Retirement Account, upon the
earlier of death or retirement such account shall be paid in cash in lump
sum. The entire Retirement Account must be paid out within forty years
following the date of the earlier of the Participant's death or retirement.
(b) IN-SERVICE ACCOUNT. In accordance with the Participant's
Election and within the guidelines established by the Committee or the
Company, Deferred Compensation credited to a Participant's In-Service
Account shall be distributed in cash. A Participant may make different
Elections with respect to the applicable distribution periods for different
deferral cycles in the In-Service Accounts.
(c) TERMINATION. Notwithstanding the foregoing, in the event of a
Participant's Termination, the Company reserves the right to distribute the
Participant's Compensation Account at such time and in such manner as
deemed appropriate.
(d) CHANGE OF DISTRIBUTION OF COMPENSATION ACCOUNT. A Participant
will be allowed to change the Election as to the distribution of Deferred
Compensation of his or her Retirement Account for all amounts previously
deferred pursuant to such Election, subject to approval by the Committee or
the Company. Such change must be made by the earlier of:
(1) the date six months prior to the first day of the
month following such Participant's retirement; or
(2) the December 31 immediately preceding the first day
of the month following such Participant's retirement.
A Participant may not change the Election as to the distribution
of Deferred Compensation in his or her In-Service Account(s) except as
otherwise set forth in Sections 7 and 8.
11. BENEFICIARY DESIGNATION
A Participant may designate one or more persons (including a
trust) to whom or to which payments are to be made if the Participant dies
before receiving distribution of all amounts due hereunder. A designation
of Beneficiary will be effective only after the signed Election is filed
with Corporate Human Resources while the Participant is alive and will
cancel all designations of Beneficiary signed and filed earlier. If the
Participant fails to designate a Beneficiary as provided above or if all of
a Participant's Beneficiaries predecease him or her and he or she fails to
designate a new Beneficiary, the remaining unpaid amounts shall be paid in
one lump sum to the estate of such Participant. If all Beneficiaries of the
Participant die after the Participant but before complete payment of all
amounts due hereunder, the remaining unpaid amounts shall be paid in one
lump sum to the estate of the last to die of such Beneficiaries.
12. CHANGE IN CONTROL
Notwithstanding any provision of this Plan to the contrary, in the
event of a Change in Control, each Participant in the Plan shall receive an
automatic lump sum cash distribution of all amounts accrued in the
Participant's Compensation Account not later than fifteen (15) days after
the date of the Change in Control. For this purpose, the balance in the
portion of a Participant's Compensation Account invested in the Common
Stock Fund shall be determined by multiplying the number of Stock Units by
the higher of (a) the highest Fair Market Value on any date within the
period commencing 30 days prior to such Change in Control, or (b) if the
Change in Control of the Company occurs as a result of a tender or exchange
offer or consummation of a corporate transaction, then the highest price
paid per share of Common Stock pursuant thereto. Any consideration other
than cash forming a part or all of the consideration for Common Stock to be
paid pursuant to the applicable transaction shall be valued at the
valuation price thereon determined by the Board.
In addition, the Company shall reimburse a Participant for the
legal fees and expenses incurred if the Participant is required to seek to
obtain or enforce any right to distribution. In the event that it is
determined that such Participant is properly entitled to a cash
distribution hereunder, such Participant shall also be entitled to interest
thereon payable in an amount equivalent to the Prime Rate of Interest
quoted by Citibank, N.A. as its prime commercial lending rate on the
subject date from the date such distribution should have been made to and
including the date it is made. Notwithstanding any provision of this Plan
to the contrary, this Section 12 may not be amended after a Change in
Control occurs without the written consent of a majority in number of
Participants.
13. INALIENABILITY OF BENEFITS
The interests of the Participants and their Beneficiaries under
the Plan may not in any way be voluntarily or involuntarily transferred,
alienated or assigned, nor subject to attachment, execution, garnishment or
other such equitable or legal process. A Participant or Beneficiary cannot
waive the provisions of this Section 13.
14. GOVERNING LAW
The provisions of this plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky, except to the
extent preempted by Federal law.
15. AMENDMENTS
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:
(a) increase the number of securities that may be issued under the
Plan (except as provided in Section 3(c));
(b) materially modify the requirements as to eligibility for
participation in the Plan; or
(c) otherwise materially increase the benefits accruing to
Participants under the Plan.
16. EFFECTIVE DATE
The Plan was approved by the shareholders of the Company on
January 26, 1995, and originally became effective as of October 1, 1994,
and has been restated in this document effective as of September 18, 1997.
(Retirement Agreement with Michael D. Rose)
ASHLAND INC. 50 E. RIVERCENTER BLVD. P.O. BOX 391 COVINGTON, KY 41012-0391
PHILIP W. BLOCK
Administrative Vice President
Human Resources
(606) 815-3759
(606) 815-5053 (FAX)
November 22, 1999
Mr. Michael D. Rose
Midaro Investments, Inc.
6305 Humphreys Blvd.
Suite 110
Memphis, TN 38120
Dear Mike:
The purpose of this letter is to confirm our discussions earlier this month
in Covington, regarding your retirement from the Board and the operation of
our various compensation and benefit programs. The Board approved our
proposals and recommendations at its meeting on November 4, 1999.
I. Your participation in the Directors' Charitable Award Program was
approved. Thus, as contemplated under the program, Ashland will
donate $1,000,000 upon your death to your designated
beneficiaries.
II. Under the shareholder-approved plan governing the restricted stock
grants you've previously received, your retirement will result in
the forfeiture of the shares. Ashland will pay to you the market
value of those shares on the date of your retirement from the
Board.
III. With respect to the stock options you've previously been granted,
you will have one year from the date of your retirement to
exercise the options. To the extent you have not exercised,
Ashland will pay to you the Black-Scholes value of the unexercised
option shares. The Black-Scholes value will be determined on the
first anniversary of your date of retirement.
IV. Your account balance under the Directors' Deferred Compensation
Plan will be paid to you in accordance with your previously filed
elections.
V. As you may recall, the Directors' Retirement and Death Benefit
Plans were terminated and benefits were converted to shares of
Ashland Common Stock under the Deferred Retirement Benefit
Account. The shares allocated to this account will be paid to you
in accordance with your previously filed elections.
A detail of your current elections and account balances under the
above-mentioned plans is enclosed with this letter. Should you have any
questions, please don't hesitate to contact me or Susan Esler, Manager of
Executive Compensation, at 606/815-3543.
Sincerely,
/s/ Phil
Philip W. Block
Enclosure
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
of
MARATHON ASHLAND PETROLEUM LLC
Dated as of December 31, 1998
<PAGE>
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TABLE OF CONTENTS
Page
ARTICLE I
Certain Definitions: Applicable GAAP
<S> <C> <C>
SECTION 1.01. Definitions ..................................................................2
SECTION 1.02. Applicable GAAP..............................................................21
ARTICLE II
General Provisions
SECTION 2.01. Formation; Effectiveness.....................................................22
SECTION 2.02. Name.........................................................................22
SECTION 2.03. Term.........................................................................22
SECTION 2.04. Registered Agent and Office..................................................23
SECTION 2.05. Purpose......................................................................23
SECTION 2.06. Powers.......................................................................24
ARTICLE III
Members
SECTION 3.01. Members; Percentage Interests................................................25
SECTION 3.02. Adjustments in Percentage Interests......................................... 26
ARTICLE IV
Capital Contributions: Assumption of Assumed Liabilities
SECTION 4.01. Contributions................................................................26
SECTION 4.02. Additional Contributions.....................................................28
SECTION 4.03. Negative Balances; Withdrawal
of Capital; Interest......................................................29
ARTICLE V
Distributions
SECTION 5.01. Distributions................................................................29
SECTION 5.02. Certain General Limitations..................................................32
SECTION 5.03. Distributions in Kind........................................................32
<PAGE>
SECTION 5.04. Distributions in the Event of an Exercise of the Marathon
Call Right, Ashland Put Right or the Special Termination Rights...........33
ARTICLE VI
Allocations and Other Tax Matters
SECTION 6.01. Maintenance of Capital Accounts..............................................33
SECTION 6.02. Allocations..................................................................34
SECTION 6.03. Tax Allocations..............................................................35
SECTION 6.04. Tax Elections................................................................35
SECTION 6.05. Fiscal Year..................................................................36
SECTION 6.06. Tax Returns..................................................................36
SECTION 6.07. Tax Matters Partner..........................................................37
SECTION 6.08. Duties of Tax Matters Partner................................................37
SECTION 6.09. Survival of Provisions.......................................................39
SECTION 6.10. Section 754 Election.........................................................39
SECTION 6.11. Qualified Income Offset,
Minimum Gain Chargeback...................................................39
SECTION 6.12. Tax Treatment of Designated Sublease
Agreements................................................................39
SECTION 6.13. Tax Treatment of Reimbursed Liability
Payments..................................................................40
SECTION 6.14. Tax Treatment of Disproportionate
Payments..................................................................40
SECTION 6.15. Allocation of Income, Gains, Losses
and Other Items from LOOP LLC and
LOCAP, Inc................................................................41
SECTION 6.16. Allocation of Income, Gain, Loss,
Deduction and Credits Attributable
to Stock-Based Compensation...............................................41
ARTICLE VII
Books and Records
SECTION 7.01. Books and Records; Examination...............................................42
SECTION 7.02. Financial Statements and Reports.............................................42
SECTION 7.03. Notice of Affiliate Transactions;
Annual List.................................................................44
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<PAGE>
ARTICLE VIII
Management of the Company
SECTION 8.01. Managing Members............................................................ 45
SECTION 8.02. Board of Managers........................................................... 45
SECTION 8.03. Responsibility of the Board of Managers..................................... 46
SECTION 8.04. Meetings.................................................................... 46
SECTION 8.05. Compensation................................................................ 48
SECTION 8.06. Quorum...................................................................... 48
SECTION 8.07. Voting...................................................................... 49
SECTION 8.08. Matters Constituting Super Majority
Decisions.................................................................. 50
SECTION 8.09. Annual Capital Budget....................................................... 56
SECTION 8.10. Business Plan............................................................... 56
SECTION 8.11. Requirements as to Affiliate
Transactions............................................................... 57
SECTION 8.12. Review of Certain Affiliate Transactions
Related to Crude Oil Purchases
and Shared Services........................................................ 59
SECTION 8.13. Adjustable Amounts.......................................................... 61
SECTION 8.14. Company Leverage Policy..................................................... 62
SECTION 8.15. Company's Investment Guidelines............................................. 62
SECTION 8.16. RequirementS as to Operating Leases . ...................................... 63
SECTION 8.17. Limitations on Actions Relating to the
Calculation of Distributable Cash............................................63
SECTION 8.18. Reliance by Third Parties....................................................63
SECTION 8.19. Integration of Retail Operations.............................................63
ARTICLE IX
Officers
SECTION 9.01. Election, Appointment and Term
of Office.................................................................. 65
SECTION 9.02. Resignation, Removal and Vacancies...........................................66
SECTION 9.03. Duties and Functions of Executive Officers..................................67
ARTICLE X
Transfers of Membership Interests
SECTION 10.01. Restrictions on Transfers....................................................67
SECTION 10.02. Conditions for Admission.....................................................71
SECTION 10.03. Allocations and Distributions................................................72
SECTION 10.04. Right of First Refusal.......................................................72
SECTION 10.05. Restriction on Resignation or Withdrawal ....................................73
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<PAGE>
ARTICLE XI
Liability. Exculpation and Indemnification
SECTION 11.01. Liability....................................................................73
SECTION 11.02. Exculpation..................................................................73
SECTION 11.03. Indemnification..............................................................74
ARTICLE XII
Fiduciary Duties
SECTION 12.01. Duties and Liabilities of Covered Persons....................................75
SECTION 12.02. Fiduciary Duties of Members of the Company and Members
of the Board of Managers..................................................76
ARTICLE XIII
Dispute Resolution Procedures
SECTION 13.01. General......................................................................76
SECTION 13.02. Dispute Notice and Response..................................................76
SECTION 13.03. Negotiation Between Senior Managers . ...................................... 77
SECTION 13.04. Negotiation Between Chief Executive
Officer and President......................................................77
SECTION 13.05. Right to Equitable Relief Preserved . ...................................... 78
ARTICLE XIV
Rights and Remedies with Respect to Monetary Disputes
SECTION 14.01. Ability of Company to Borrow to Fund Disputed Monetary Amounts...............79
SECTION 14.02. Interim Payment of Disputed Monetary Amount..................................80
SECTION 14.03. Liquidated Damages...........................................................80
SECTION 14.04. Right of Set-Off.............................................................82
SECTION 14.05. Security Interest............................................................83
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<PAGE>
ARTICLE XV
Dissolution and Termination
SECTION 15.01. Dissolution..................................................................84
SECTION 15.02. Winding Up of Company........................................................84
SECTION 15.03. Distribution of Property.....................................................85
SECTION 15.04. Time Limitation..............................................................85
SECTION 15.05. Termination of Company.......................................................85
ARTICLE XVI
Miscellaneous
SECTION 16.01. Notices..................................................................... 85
SECTION 16.02. Merger and Entire Agreement................................................. 86
SECTION 16.03. Assignment.................................................................. 87
SECTION 16.04. Parties in Interest......................................................... 87
SECTION 16.05. Counterparts................................................................ 87
SECTION 16.06. Amendment; Waiver........................................................... 87
SECTION 16.07. Severability................................................................ 87
SECTION 16.08. GOVERNING LAW............................................................... 88
SECTION 16.09. Enforcement................................................................. 88
SECTION 16.10. Creditors................................................................... 89
SECTION 16.11. No Bill for Accounting...................................................... 89
SECTION 16.12. Waiver of Partition......................................................... 89
SECTION 16.13. Table of Contents, Headings and Titles...................................... 89
SECTION 16.14. Use of Certain Terms; Rules of Construction................................. 89
SECTION 16.15. Holidays.................................................................... 89
SECTION 16.16. Third Parties............................................................... 89
SECTION 16.17. Liability for Affiliates.................................................... 89
</TABLE>
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Appendix A Certain Definitions
Appendix B Procedures for Dispute Resolution
Exhibit A Speedway SuperAmerica LLC Retail Integration Protocol
Schedule 1.01 Financed Properties
Schedule 4.01(c) Subleased Property
Schedule 4.02(a)-1 Marathon Capital Expenditures
Schedule 4.02(a)-2 Ashland Capital Expenditures
Schedule 8.01(k)(i)(A) Closing Date Affiliate Transactions
Schedule 8.14 Company Leverage Policy
Schedule 8.15 Company Investment Guidelines
Schedule A Calculations re: Normal Annual Capital Budget Amount
</TABLE>
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<PAGE>
Schedule B-1 Adjustments to Historical EBITDA (Marathon)
Schedule B-2 Adjustments to Historical EBITDA (Ashland)
Schedule C Initial Executive Officers
-vi-
<PAGE>
AMENDED AND RESTATED LIMITED LIABILITY
COMPANY AGREEMENT dated as of December 31, 1998,
of MARATHON ASHLAND PETROLEUM LLC (the
"Company"), by and between Marathon Oil Company,
an Ohio corporation ("Marathon"), and Ashland
Inc., a Kentucky corporation ("Ashland"), as
Members.
Preliminary Statement
WHEREAS, on June 11, 1997, Marathon and Emro Marketing
Company ("Emro Marketing") formed the Company (formerly known as "Emro
Supply, LLC") by filing a Certificate of Formation of the Company with the
Secretary of State of the State of Delaware and executed the Limited
Liability Company Agreement of the Company pursuant to which Marathon
received a 60% interest in the Company and Emro Marketing received a 40%
interest in the Company;
WHEREAS, on July 18, 1997, Emro Marketing assigned its
interest in the Company to Marathon and Fuelgas Company, Inc., a wholly
owned subsidiary of Marathon ("Fuelgas"), with Marathon receiving an
additional 39% interest in the Company and Fuelgas receiving a 1% interest
in the Company, which interest will be transferred to Marathon immediately
following the Closing (for purposes of this Agreement and the other
Transaction Documents, all references to Marathon's interest in the Company
shall be deemed to include the 1% interest owned by Fuelgas);
WHEREAS, on July 18, 1997, Marathon and Fuelgas executed
the First Amended and Restated Limited Liability Company Agreement of the
Company and filed an Amended and Restated Certificate of Formation of the
Company with the Secretary of State of the State of Delaware;
WHEREAS, on October 29, 1997, Marathon and Fuelgas filed
a Second Amended and Restated Certificate of Formation of the Company with
the Secretary of State of the State of Delaware to change the name of the
Company to Marathon Ashland Petroleum LLC;
WHEREAS, on December 8, 1997, Marathon and Fuelgas
executed the Second Amended and Restated Limited Liability Company
Agreement of the Company which became effective on December 10, 1997;
WHEREAS the parties hereto desire that the Company (a) be
a premier petroleum supply, refining, marketing and transportation
business, (b) create a highly efficient, cost-effective and competitive
petroleum supply, refining, marketing and transportation system, (c)
deliver to the Members the highest possible economic value added, (d) be
customer-focused and market-driven in its business strategy, (e) be a
respected and responsible member of the communities in which the Company
will operate, with a high regard for environmental responsibility and
employee safety, and (f) seek to maximize Distributable Cash to the Members
consistent with the foregoing, including capital spending levels which over
time are expected to be generally equivalent to the level of non-cash
charges; and
WHEREAS the Members entered into this Agreement on
January 1, 1998 to set forth the rights and responsibilities of each of
them with respect to the governance, financing and operation of the
Company;
WHEREAS, the Members have executed Amendment No. 1 to
this Agreement as of August 21, 1998, and have executed Amendment No. 2 to
this Agreement as of September 1, 1998; and
WHEREAS, the Members wish to make certain additional
amendments to this Agreement, and to restate this Agreement incorporating
such additional amendments as well as the amendments contained in Amendment
No. 1 and Amendment No. 2.
NOW, THEREFORE, the parties hereto hereby agree as
follows:
ARTICLE I
Certain Definitions; Applicable GAAP
SECTION 1.01. Definitions. Defined terms used in this
Agreement shall have the meanings ascribed to them by definition in this
Agreement or in Appendix A. In addition, when used herein the following
terms have the following meanings:
"Accounting Determination" has the meaning set forth in
Section 1.02.
"Acquisition Expenditures" means, in connection with any
acquisition by the Company and its subsidiaries, without duplication (i)
the purchase price paid or to be paid for the net assets or capital stock
or other equity interests in connection with such acquisition, (ii) any
Indebtedness assumed by the Company and its subsidiaries in connection with
any such acquisition, (iii) any contingent liabilities assumed or incurred
by the Company and its subsidiaries in connection with any such acquisition
to the extent that such contingent liabilities are required to be reflected
on the balance sheet of the Company and its subsidiaries in accordance with
Financial Accounting Standard Number 5 (or any successor or superseding
provision of Applicable GAAP), and (iv) all other costs and expenses
incurred or to be incurred by the Company or any of its subsidiaries in
connection with any such acquisition to the extent that such costs and
expenses would be capitalized if such acquisition were consummated.
"Adjustable Amount" has the meaning set forth in Section
8.13.
"Additional Monetary Amount" has the meaning set forth in
Section 14.03(c).
"Additional Required Cash Amount" has the meaning set
forth in Section 14.01(a).
"Adjusted DD&A" means:
(i) for the twelve-month periods ended December 31, 1995
and 1996, $348 million and $346 million, respectively;
(ii) for the twelve-month period ended December 31, 1997,
the total combined depreciation, depletion and amortization
expense of the Marathon Business and the Ashland Business during
such twelve-month period, including, without duplication, (a) any
gains (deductions from depreciation, depletion and amortization)
or losses (additions to depreciation, depletion and amortization)
on asset retirements during such period and (b) pro forma
depreciation, depletion and amortization expense related to the
Financed Properties during such period (calculated in the same
manner such pro forma depreciation, depletion and amortization
expense was calculated in Schedule A, which considers the
placed-in-service dates of the Financed Properties);
(iii) for the twelve-month period ended September 30,
1998, the sum of:
(a) the total combined depreciation, depletion
and amortization expense of the Marathon Business and the
Ashland Business during the period commencing on October
1, 1997, and ended on the date immediately preceding the
Closing Date, including, without duplication, (1) any
gains (deductions from depreciation, depletion and
amortization) or losses (additions to depreciation,
depletion and amortization) on asset retirements during
such period and (2) pro forma depreciation, depletion and
amortization expense related to the Financed Properties
during such period (calculated in the same manner such
pro forma depreciation, depletion and amortization
expense was calculated in Schedule A, which considers the
placed-in-service dates of the Financed Properties); and
(b) the total depreciation, depletion and
amortization expense of the Company and its subsidiaries
for the period commencing on the Closing Date and ended
on September 30, 1998, including (1) any gains
(deductions from depreciation, depletion and
amortization) or losses (additions to depreciation,
depletion and amortization) on asset retirements during
such period, (2) depreciation, depletion and amortization
expense related to the Garyville Propylene Upgrade
Project during such period and (3) depreciation,
depletion and amortization expense related to all
Company-funded Capital Expenditures, but excluding (4)
depreciation, depletion and amortization expense related
to Member-Funded Capital Expenditures and (5) the
increase or decrease in such depreciation, depletion and
amortization expense related to the Ashland Transferred
Assets (including pro forma depreciation, depletion and
amortization expense related to the Financed Properties)
resulting from the application of purchase accounting
treatment to the transactions contemplated by the
Transaction Documents (such purchase accounting treatment
causing an increase or decrease in the estimated useful
lives and the net book value of the Ashland Transferred
Assets); and
(iv) for the twelve-month period ended September 30,
1999, and each twelve-month period ended September 30 thereafter,
the total depreciation, depletion and amortization expense of the
Company and its subsidiaries for such twelve-month period,
including, without duplication, (a) any gains (deductions from
depreciation, depletion and amortization) or losses (additions to
depreciation, depletion and amortization) on asset retirements
during such period, (b) depreciation, depletion and amortization
expense related to the Garyville Propylene Upgrade Project during
such period and (c) depreciation, depletion and amortization
expense related to Company-funded Capital Expenditures but
excluding (d) depreciation, depletion and amortization expense
related to Member-Funded Capital Expenditures and (e) the increase
or decrease in such depreciation, depletion and amortization
expense related to the Ashland Transferred Assets (including pro
forma depreciation, depletion and amortization expense related to
the Financed Properties) resulting from the application of
purchase accounting treatment to the transactions contemplated by
the Transaction Documents (such purchase accounting treatment
causing an increase or decrease in the estimated useful lives and
the net book value of the Ashland Transferred Assets);
all as determined on a consolidated basis with respect to (x) in the case
of any period ending prior to the Closing Date, Marathon and its
subsidiaries or Ashland and its subsidiaries, as applicable, or (y) in
the case of any period ending on or after the Closing Date, the Company
and its subsidiaries, in each case in accordance with Applicable GAAP.
"Adjusted EBITDA" means:
(i) for the twelve-month periods ended December 31, 1995
and 1996, $657 million and $600 million, respectively;
(ii) for the twelve-month period ended December 31, 1997,
the sum of:
(a) Historical EBITDA for such twelve-month period,
plus
(b) $80 million, minus
(c) 38% of an amount equal to (1) the sum of the
amounts calculated pursuant to clauses (a) and (b) above
for such twelve-month period less (2) the Adjusted DD&A
for such twelve-month period.
(iii) for the twelve-month period ended September 30,
1998, the sum of:
(a) for the period commencing on October 1,
1997, and ended on the date immediately preceding the
Closing Date, the sum of:
(1) Historical EBITDA for such period, plus
(2) $20 million, minus
(3) 38% of an amount equal to (A) the sum of the
amounts calculated pursuant to clauses (1) and (2) above
with respect to such period less (B) the Adjusted DD&A
for such period; and
(b) for the period commencing on the Closing
Date and ended on September 30, 1998, the sum of:
(1) EBITDA of the Company and its subsidiaries for
such period, plus
(2) $12.4 million, minus
(3) the Tax Distribution Amounts paid or to be
paid in respect of each of the three Fiscal Quarters (or
portion thereof) included in such period; and
(iv) for the twelve-month period ended September 30, 1999
and each twelve-month period ended September 30 thereafter, the
sum of:
(a) EBITDA of the Company and its subsidiaries
for such twelve-month period, minus
(b) the Tax Distribution Amounts paid or to be
paid in respect of each of the four Fiscal Quarters
included in such twelve-month period;
all as determined on a consolidated basis with respect to (x) in the case
of any period ending prior to the Closing Date, Marathon and its
subsidiaries or Ashland and its subsidiaries, as applicable, or (y) in the
case of any period ending on or after the Closing Date, the Company and its
subsidiaries, in each case in accordance with then Current GAAP (other than
Ordinary Course Lease Expenses which shall be calculated in accordance with
Applicable GAAP).
"Advanced Amount" has the meaning set forth in Section
14.01(b).
"Affiliate Transaction" means any agreement or
transaction between the Company or any of its subsidiaries and any Member
or any Affiliate of any Member that:
(a) for purposes of Section 7.03(a)(i), will result or is
reasonably anticipated will result in expenditures, contingent or
actual liabilities or benefits to the Company and its subsidiaries
in excess of $2 million;
(b) for purposes of Section 7.03(b), is either (i)
outside the ordinary course of the Company and its subsidiaries'
business and results or will result in contingent or actual
liabilities or benefits to the Company and its subsidiaries in
excess of $100,000 in the applicable Fiscal Year or (ii) within
the ordinary course of the Company and its subsidiaries' business
and results or will result in expenditures, contingent or actual
liabilities or benefits to the Company and its subsidiaries (A) in
excess of $2 million individually in the applicable Fiscal Year or
(B) when taken together with all other agreements or transactions
entered into the same Fiscal Year as such agreement or transaction
which are either related to such agreement or transaction or are
substantially the same type of agreement or transaction as such
agreement or transaction, in excess of $2 million in the aggregate
in the applicable Fiscal Year; and
(c) for purposes of Section 8.08(k)(i), is either (i)
outside the ordinary course of the Company and its subsidiaries'
business and will result or is reasonably anticipated will result
in expenditures, contingent or actual liabilities or benefits to
the Company and its subsidiaries in excess of $2 million or (ii)
within the ordinary course of the Company and its subsidiaries'
business and will result or is reasonably anticipated will result
in expenditures, contingent or actual liabilities or benefits to
the Company and its subsidiaries in excess of $25 million.
For purposes of this definition of Affiliate Transaction,
any guarantee by a Member or any Affiliate of any Member of any obligations
of the Company or any of its subsidiaries that is provided by such Member
or such Affiliate without cost to the Company and its subsidiaries shall
not be deemed to be an Affiliate Transaction. Notwithstanding the
foregoing, the term "Affiliate Transaction" shall not include any
distributions of cash or other property to the Members pursuant to Article
V.
"Affiliate Transaction Dispute Notice" has the meaning
set forth in Section 8.11(b).
"Aggregate Tax Rate" has the meaning set forth in Section
5.01(a)(i).
"Agreed Additional Capital Contributions" has the meaning
set forth in Section 4.02(c).
"Agreement" means this Limited Liability Company
Agreement of the Company, as the same may be amended, restated,
supplemented or otherwise modified from time to time.
"Annual Capital Budget" has the meaning set forth in
Section 8.09(a).
"Applicable GAAP" has the meaning set forth in Section 1.02.
"Approved Marathon Crude Oil Purchase Program" has the
meaning set forth in Section 8.12.
"Arbitratable Dispute" has the meaning set forth in
Section 13.04(a).
"Arbitration Payment Due Date" has the meaning set forth
in Section 14.03(a).
"Arbitration Proceeding" has the meaning set forth in
Section 14.01(a).
"Arbitration Tribunal" has the meaning set forth in
Appendix B.
"Arm's-Length Transaction" has the meaning set forth in
Section 8.11(a).
"Ashland Designated Sublease Agreements" shall mean the
Ashland Sublease Agreements attached as Exhibits L-1, L-2, L-3 and L-4 to
the Asset Transfer and Contribution Agreement.
"Ashland-Funded Capital Expenditures" has the meaning set
forth in Section 4.02(a).
"Audited Financial Statements" has the meaning set forth
in Section 7.02(c).
"Average Annual DD&A" means:
(a) for Fiscal Year 1998, the average of the Adjusted
DD&A for the three twelve-month periods ended December 31, 1995,
1996 and 1997;
(b) for Fiscal Year 1999, the average of the Adjusted
DD&A (i) for the two twelve-month periods ended December 31, 1996
and 1997 and (ii) for the one twelve-month period ended September
30, 1998;
(c) for Fiscal Year 2000, the average of the Adjusted
DD&A (i) for the twelve-month period ended December 31, 1997 and
(ii) for the two twelve-month periods ending on September 30, 1998
and 1999; and
(d) for Fiscal Year 2001 and each Fiscal Year thereafter,
the average of the Adjusted DD&A for the three twelve-month
periods ending on September 30 in each of the three Fiscal Years
immediately preceding such Fiscal Year.
"Average Adjusted EBITDA" means:
(a) for Fiscal Year 1998, the average of the Adjusted
EBITDA for the three twelve-month periods ended December 31, 1995,
1996 and 1997;
(b) for Fiscal Year 1999, the average of the Adjusted
EBITDA (i) for the two twelve-month periods ended December 31,
1996 and 1997 and (ii) for the one twelve-month period ended
September 30, 1998;
(c) for Fiscal Year 2000, the average of the Adjusted
EBITDA (i) for the twelve-month period ended December 31, 1997 and
(ii) for the two twelve-month periods ending on September 30, 1998
and 1999; and
(d) for Fiscal Year 2001 and each Fiscal Year thereafter,
the average of the Adjusted EBITDA for the three twelve-month
periods ending on September 30 in each of the three Fiscal Years
immediately preceding such Fiscal Year.
"Average Annual Level" means for any twelve-month period
ending on September 30 of any calendar year, the average of the level of
the Price Index ascertained by adding the twelve monthly levels of the
Price Index during such twelve-month period and dividing the total by
twelve.
"Bareboat Charters" has the meaning set forth in Section
9.3(k) of the Asset Transfer and Contribution Agreement.
"Base Level" means 161.2.
"Base Rate" has the meaning set forth in Section 1.01 of
the Put/Call, Registration Rights and Standstill Agreement.
"Board of Managers" has the meaning set forth in Section
8.02(a).
"Bulk Motor Oil Business" has the meaning set forth in
Section 14.03(h) of the Put/Call, Registration Rights and Standstill
Agreement.
"Business Plan" has the meaning set forth in Section 8.10.
"Capital Account" has the meaning set forth in Section 6.01.
"Capital Expenditures" means, for any period, the
aggregate of all expenditures incurred by the Company and its subsidiaries
during such period that, in accordance with Applicable GAAP, are or should
be included in additions to property, plant or equipment or similar items
reflected in the consolidated statement of cash flows of the Company and
its subsidiaries; provided, however, that Capital Expenditures shall not
include (a) exchanges of such items for other items, (b) expenditures of
proceeds of insurance settlements by the Company or any of its subsidiaries
in respect of lost, destroyed or damaged assets, equipment or other
property to the extent such expenditures are made to replace or repair such
lost, destroyed or damaged assets, equipment or other property within 18
months of such loss, destruction or damage, (c) funds expended by a Member
or an Affiliate of a Member to purchase any Subleased Property that is
contributed to the Company or a subsidiary of the Company pursuant to
Section 4.01(c)(i)(A) or (d) Member-Funded Capital Expenditures; all as
determined on a consolidated basis with respect to the Company and its
subsidiaries in accordance with Applicable GAAP.
"Capital Lease" means any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination
thereof, which obligations are required to be classified and accounted for
as capital leases on a consolidated balance sheet of the Company and its
subsidiaries in accordance with Applicable GAAP.
"Closing Date Affiliate Transactions" has the meaning set
forth in Section 8.08(k)(i)(A).
"Company Independent Auditors" has the meaning set forth
in Section 7.01.
"Company Investment Guidelines" has the meaning set forth
in Section 8.15.
"Company Leverage Policy" has the meaning set forth in
Section 8.14.
"Competitive Business" has the meaning set forth in
Section 14.01(a) of the Put/Call, Registration Rights and Standstill
Agreement.
"Competitive Third Party" has the meaning set forth in
Section 14.01(d) of the Put/Call, Registration Rights and Standstill
Agreement.
"Contracting Member" has the meaning set forth in Section
8.11(b).
"Covered Person" means any Member, any Affiliate of a
Member or any officers, directors, shareholders, partners, employees,
representatives or agents of a Member or their respective Affiliates, or
any Representative, or any employee, officer or agent of the Company or its
Affiliates.
"Critical Decision" means each Primary Critical Decision
and each Other Critical Decision.
"Critical Decision Termination Date" means (a) in the
case of any Other Critical Decision, the first anniversary of the Closing
Date or (b) in the case of any Primary Critical Decision, the first
anniversary of the Closing Date or, if the Critical Decision Termination
Date shall be extended with respect to such Primary Critical Decision as
provided in Section 8.19(c), the fifteen-month anniversary of the Closing
Date.
"Crude Oil Purchases" means any purchase of crude oil by
the Company or any of its subsidiaries from Marathon or any Affiliate of
Marathon.
"Current GAAP" means, at any time, GAAP as in effect at
such time.
"Delinquent Member" has the meaning set forth in Section
14.01(a).
"Designated Sublease Agreements" means the Ashland
Designated Sublease Agreements and the Marathon Designated Sublease
Agreements.
"Designated Sublease Amount" means any obligation of a
Member to the Company or a subsidiary of the Company under Section 4.01(c)
with respect to a Subleased Property or a Designated Sublease Agreement.
"Dispute" has the meaning set forth in Section 13.01.
"Dispute Notice" has the meaning set forth in Section
13.02.
"Disputed Capital Contribution Amount" has the meaning
set forth in Section 13.04(a).
"Disputed Indemnification Amount" has the meaning set
forth in Section 14.01(a).
"Disputed Monetary Amount" has the meaning set forth in
Section 14.01(a).
"Distributable Cash" means, for each Fiscal Quarter,
without duplication:
(a) the Short-Term Investments of the Company and its
subsidiaries on the last day of such Fiscal Quarter, minus
(b) the Ordinary Course Debt of the Company and its
subsidiaries on the last day of such Fiscal Quarter, minus
(c) the Tax Distribution Amount to be paid in respect of
such Fiscal Quarter, minus
(d) funds held on the last day of such Fiscal Quarter for
financing Special Projects or Permitted Capital
Projects/Acquisitions, minus
(e) if the notional repayment of principal for Special
Project Indebtedness or Permitted Capital Project/Acquisition
Indebtedness during such Fiscal Quarter calculated using a
notional repayment schedule established and approved by the Board
of Managers in accordance with the Company Leverage Policy was
more than the amount of actual principal repayments for such
Special Project Indebtedness or Permitted Capital
Project/Acquisition Indebtedness during such Fiscal Quarter, the
amount of such excess, plus
(f) if the amount of the actual principal repayments for
Special Project Indebtedness or Permitted Capital
Project/Acquisition Indebtedness during such Fiscal Quarter was
more than the notional repayment of principal for such Special
Project Indebtedness or Permitted Capital Project/Acquisition
Indebtedness during such Fiscal Quarter (calculated in the manner
described in clause (e) above), the amount of such excess, plus or
minus
(g) any adjustments or reserves (including any
adjustments for minimum cash balance requirements, including cash
reserves for accrued or withheld Taxes not yet due) in the amounts
and for the time periods established and approved by the Board of
Managers pursuant to a vote in accordance with Section 8.07(b).
"Distribution Date" has the meaning set forth in Section
5.01(a).
"Distributions Calculation Statement" has the meaning set
forth in Section 5.01(c).
"EBITDA" means for any period:
(a) net income, plus
(b) to the extent deducted in computing such net income,
the sum of (i) estimated or actual Federal, state, local and
foreign income tax expense, (ii) interest expense, (iii)
depreciation, depletion and amortization expense, (iv) non-cash
charges resulting from the cumulative effect of changes in
accounting principles, and (v) non-cash lower of cost or market
inventory or fixed asset writedowns; minus
(c) to the extent added in computing such net income, (i)
any interest income (excluding interest income on accounts
receivable related to marketing programs), (ii) non-cash gains
resulting from the cumulative effect of changes in accounting
principles and (iii) non-cash lower of cost or market inventory or
fixed asset gains;
all as determined on a consolidated basis (x) in the case of any period
ended prior to the Closing Date, Marathon and its subsidiaries or Ashland
and its subsidiaries, as applicable, or (y) in the case of any period
ending on or after the Closing Date, with respect to the Company and its
subsidiaries, in each case in accordance with then Current GAAP. For
purposes of this definition, depreciation, depletion and amortization
expense will include any gains (deductions from depreciation, depletion and
amortization) or losses (additions to depreciation, depletion and
amortization) on asset retirements and excess purchase price amortization
adjustments. For the avoidance of doubt, EBITDA shall not include any
revenues or expenses constituting Member-Funded Capital Expenditures or
Member-Indemnified Expenditures.
"Executive Officers" has the meaning set forth in Section
9.01(a).
"Final Monetary Amount" has the meaning set forth in
Section 14.03(a).
"Financed Properties" means each of the properties listed
in Schedule 1.01.
"Fiscal Quarter" means the three-month period ended March
31, June 30, September 30 and December 31 of each Fiscal Year.
"Fiscal Year" has the meaning set forth in Section 6.05.
"Fuelgas Interest" means the 1% interest in the Company
which is owned by Fuelgas.
"GAAP" means United States generally accepted accounting
principles applied on a consistent basis.
"Garyville Propylene Upgrade Project" means the propylene
splitter with a capacity of approximately 800 million pounds per year that
is being constructed at the Garyville refinery for the production of
propylene.
"Historical EBITDA" means for any period ending prior to
the Closing Date the sum of:
(a) EBITDA of the Marathon Business for such period as
adjusted for each of the "EBIT Adjustment" items set forth in
lines 10-55 of Schedule B-1 and each of the "Depreciation
Adjustment" items set forth in lines 133 through 150 of Schedule
B-1, in each case calculated for such period in the same manner
that such adjustments were calculated in Schedule B-1, plus
(b) EBITDA of the Ashland Business for such period as
adjusted for each of the "EBIT Adjustment" items set forth in
lines 11-56 of Schedule B-2 and each of the "Depreciation
Adjustment" items set forth in lines 111-120 of Schedule B-2, in
each case calculated for such period in the same manner that such
adjustments were calculated in Schedule B-2;
all determined on a consolidated basis with respect to Marathon and its
subsidiaries or Ashland and its subsidiaries, as applicable, in accordance
with then Current GAAP.
"Initial GAAP" has the meaning set forth in Section 1.02.
"Initial Term" has the meaning set forth in Section 2.03.
"Make-Up Expense" has the meaning set forth in Section
6.02(d).
"Maralube Express Business" has the meaning set forth in
Section 14.03(d)(i) of the Put/Call, Registration Rights and Standstill
Agreement.
"Marathon Crude Oil Purchase Program" has the meaning set
forth in Section 8.12.
"Marathon Designated Sublease Agreements" shall mean the
Marathon Sublease Agreements attached as Exhibits E-1, E-2 and E-3 to the
Asset Transfer and Contribution Agreement.
"Marathon-Funded Capital Expenditures" has the meaning
set forth in Section 4.02(a).
"Material Adverse Effect" has the meaning set forth in
the Asset Transfer and Contribution Agreement.
"Member-Funded Capital Expenditures" has the meaning set
forth in Section 4.02(a).
"Member-Indemnified Expenditures" has the meaning set
forth in Section 4.02(b).
"Monetary Dispute" has the meaning set forth in Section
14.01(a).
"Non-Contracting Member" has the meaning set forth in
Section 8.11(b).
"Non-Delinquent Member" has the meaning set forth in
Section 14.01.
"Non-Terminating Member" has the meaning set forth in the
Put/Call, Registration Rights and Standstill Agreement.
"Normal Annual Capital Budget Amount" means, for each
Fiscal Year, an amount equal to the sum of:
(i) an amount equal to 130% of the Average Annual DD&A
for such Fiscal Year, plus
(ii) if, with respect to any Fiscal Year, (a) the Average
Adjusted EBITDA for such Fiscal Year less the amount calculated
pursuant to clause (i) above for such Fiscal Year exceeds (b) $240
million (such excess, the "Excess EBITDA" for such Fiscal Year),
the sum of (1) the lesser of: (x) 10% of the Average Annual DD&A
for such Fiscal Year and (y) the Excess EBITDA for such Fiscal
Year and (2) 50% of the amount by which the Excess EBITDA for such
Fiscal Year exceeds an amount equal to 10% of the Average Annual
DD&A for such Fiscal Year.
An example of the calculation of Adjusted DD&A, Adjusted EBITDA, Average
Annual DD&A, Average Adjusted EBITDA and the Normal Annual Capital Budget
Amount is shown in Schedule A. In the event of any inconsistency between
such Schedule A and the language of this definition of Normal Annual
Capital Budget Amount, neither shall control over the other.
"Offer Notice" has the meaning set forth in Section
10.04(a).
"Ordinary Course Debt" means, without duplication, the
aggregate outstanding principal amount of all loans and advances under any
committed or uncommitted credit facilities (including any commercial paper
borrowings or borrowings under the Revolving Credit Agreement, but
excluding trade payables), provided that Ordinary Course Debt shall not
include any Permitted Intercompany Debt, any Special Project Indebtedness
or any Permitted Capital Project Indebtedness.
"Ordinary Course Lease Expense" means, with respect to
any Fiscal Year, the rental or lease expense for such Fiscal Year of assets
rented or financed by operating leases (as determined in accordance with
Applicable GAAP).
"Original Lease" means the lease or charter underlying a
Marathon Designated Sublease Agreement or an Ashland Designated Sublease
Agreement in which Marathon or Ashland, as applicable, is the lessee or
charterer.
"Other Critical Decision" means each of the Level III
decisions set forth in paragraphs 2(c)(iii), (v), (vii), (viii) and (ix) of
the Retail Integration Protocol.
"Packaged Motor Oil Business" has the meaning set forth
in Section 14.03(h) of the Put/Call, Registration Rights and Standstill
Agreement.
"Percentage Interest" has the meaning set forth in
Section 3.01.
"Permitted Capital Project/Acquisition Indebtedness" has
the meaning set forth in the Company Leverage Policy.
"Permitted Intercompany Debt" has the meaning set forth
in the Company Leverage Policy.
"Price Index" means the Consumer Price Index for All
Urban Consumers of the United States Department of Labor Bureau of Labor
Statistics for all Urban Areas (on the 1982-84 equals 100 standard).
"Primary Critical Decision" means each of the Level III
decisions set forth in paragraphs 2(c)(i), (ii), (iv) and (vi) of the
Retail Integration Protocol.
"Prime Rate" means the rate of interest per annum
publicly announced from time to time by Citibank, NA, as its prime rate in
effect at its principal office in New York; each change in the Prime Rate
shall be effective on the date such change is publicly announced as being
effective.
"Private Label Packaged Motor Oil Business" has the
meaning set forth in Section 14.03(h) of the Put/Call Registration Rights
and Standstill Agreement.
"Profit and Loss", as appropriate, means, for any period,
the taxable income or tax loss of the Company and its subsidiaries under
Code Section 703(a) and Treasury Regulation Section 1.703-1 for the Fiscal
Year, adjusted as follows:
(a) All items of income, gain, loss or deduction required
to be separately stated pursuant to Code Section 703(a)(1) shall
be included;
(b) Tax exempt income as described in Code Section
705(a)(1)(B) realized by the Company during such Fiscal Year shall
be taken into account as if it were taxable income;
(c) Expenditures of the Company described in Code Section
705(a)(2)(B) for such Fiscal Year, including items treated under
Treasury Regulation Section 1.704-1(b)(2)(iv)(i) as items
described in Code Section 705(a)(2)(B), shall be taken into
account as if they were deductible items;
(d) With respect to any property (other than money) which
has been contributed to the capital of the Company, "Profit" and
"Loss" shall be computed in accordance with the provisions of
Treasury Regulation Section 1.704-1(b)(2)(iv)(g) by computing
depreciation, amortization, income, gain, loss or deduction based
upon the fair market value of such property at the date of
contribution. Book depreciation (as that term is used in Treasury
Regulation Section 1.704-(b)(2)(iv)(g)(3)) for any asset
contributed to the Company that was fully depreciated for federal
income tax purposes as of the date of its contribution shall be
based on the applicable recovery period (as determined in Code
Section 168(c)) for new assets of the same type;
(e) With respect to any property of the Company which has
been revalued as required or permitted by Treasury Regulations
under Code Section 704(b), "Profit" or "Loss" shall be determined
based upon the fair market value of such property as determined in
such revaluation; and
(f) With respect to any property of the Company which (i)
is distributed in kind to a Member, or (ii) has been revalued
under Section 6.03 upon the occurrence of any event specified in
Treasury Regulation Section 1.704-1(b)(2)(iv)(f), the difference
between the adjusted basis for federal income tax purposes and the
fair market value shall be treated as gain or loss upon the
disposition of such property.
"Qualified Candidate" has the meaning set forth in
Section 9.02(c).
"Quick Lube Business" has the meaning set forth in
Section 14.03(h) of the Put/Call, Registration Rights and Standstill
Agreement.
"Refundable Amount" has the meaning set forth in Section
14.03(d).
"Representatives" has the meaning set forth in Section
8.01
"Response" has the meaning set forth in Section 13.02.
"Retail Integration Protocol" means the Speedway
SuperAmerica LLC Retail Integration Protocol attached hereto as Exhibit A.
"Revolving Credit Agreement" has the meaning set forth in
Section 2.2(a) of the Master Formation Agreement.
"Section 8.11(b) Affiliate Transaction" has the meaning
set forth in Section 8.11(b).
"Security Interest" has the meaning set forth in Section
14.05(a).
"Selling Member" has the meaning set forth in Section
10.04(a).
"Senior Manager" has the meaning set forth in Section
13.02.
"Shared Service" means an administrative service that is
provided to the Company or its subsidiaries by Marathon, Ashland or any of
their respective Affiliates pursuant to the Shared Services Agreement or
provided to Marathon, Ashland or any of their respective Affiliates by the
Company or its subsidiaries pursuant to the Shared Services Agreement.
"Shared Services Agreement" means the Shared Services
Agreement by and among Marathon, Ashland and the Company, including the
Schedules thereto, attached as Exhibit U to the Asset Transfer and
Contribution Agreement.
"Short-Term Investments" means, without duplication,
collected or available bank cash balances, the fair market value of any
investment made by the Company or any of its subsidiaries pursuant to the
Company's Investment Guidelines and the fair market value of any investment
made by the Company or any of its subsidiaries that should have been made
pursuant to the Company's Investment Guidelines, but excluding Incidental
Cash and any cash balances that represent uncollected funds.
"Significant Shared Service" means (a) any Shared Service
related to the Treasury and Cash Management function and (b) any Shared
Service (or group of related Shared Services) that results or is reasonably
anticipated to result in the payment by or to the Company or any of its
subsidiaries of more than $2 million in any contract year in the period
during which such Shared Service will be provided. For purposes of
determining whether the $2 million threshold of this definition has been
satisfied, payments for all Shared Services in each of the following
general administrative areas shall be aggregated within each area specified
below and considered related Shared Services: Human Resources; Health,
Environment and Safety; Law; Public Affairs; Governmental Affairs; Finance
and Accounting (including Internal Audit); Administrative Services;
Information Technology Services; Procurement; Business Development;
Aviation; Engineering and Technology; Economics; and Security.
"Sole Arbitrator" has the meaning set forth in Appendix B.
"Special Project" has the meaning set forth in the
Company Leverage Policy.
"Special Project Indebtedness" has the meaning set forth
in the Company Leverage Policy.
"Special Termination Right" has the meaning set forth in
Section 2.01(a) of the Put/Call, Registration Rights and Standstill
Agreement.
"Subleased Property" has the meaning set forth in Section
4.01(c).
"Super Majority Decision" has the meaning set forth in
Section 8.08.
"Surplus Cash" has the meaning assigned to such term in
the Company Leverage Policy.
"Tax Distribution Amount" has the meaning set forth in
Section 5.01(a).
"Tax Liability" means, with respect to a Fiscal Year, a
Member's liability for Federal, state, local and foreign taxes attributable
to taxable income allocated to such Member pursuant to Section 6.03 and
Section 10.03, taking into account any Tax deduction or loss specifically
allocated to a Member pursuant to this Agreement or any other Transaction
Document.
"Term of the Company" has the meaning set forth in
Section 2.03.
"Terminating Member" has the meaning set forth in Section
2.01(a) of the Put/Call, Registration Rights and Standstill Agreement.
"Unaudited Financial Statements" has the meaning set
forth in Section 7.02(a).
"Valvoline Business" has the meaning set forth in Section
14.03(h) of the Put/Call, Registration Rights and Standstill Agreement.
SECTION 1.02. APPLICABLE GAAP. In connection with the
calculation pursuant to this Agreement of Adjusted DD&A, Capital
Expenditures or Ordinary Course Lease Expenses, the determination of
whether a lease is a Capital Lease or the determination of whether the
Company has entered into an operating lease for purposes of Section 8.16
(each such calculation or determination, an "Accounting Determination"),
the Company shall apply then Current GAAP; provided, however, that if at
any time after January 1, 1998, a change shall occur in GAAP which would
result in any Accounting Determination being different under Current GAAP
than such Accounting Determination would have been under GAAP as in effect
on January 1, 1998 ("Initial GAAP"), then (a) the Members shall negotiate
in good faith to make such amendments to the relevant provisions of this
Agreement as shall be required to preserve the economic and other results
intended by the Members as of January 1, 1998 with respect to such
Accounting Determination and (b) unless and until such time as the Members
shall in good faith mutually agree to such amendments, Initial GAAP shall
be applied to make such Accounting Determination or, if the Members shall
have previously amended the relevant provisions of this Agreement pursuant
to this Section 1.02 in response to a prior change in GAAP, then GAAP as in
effect at the time the most recent such previous amendment was made shall
be used to make such Accounting Determination (the GAAP that is actually
applied by the Company in making any such Accounting Determination pursuant
to this Agreement being the "Applicable GAAP").
ARTICLE II
General Provisions
SECTION 2.01. FORMATION; EFFECTIVENESS. The Company has
been formed as a limited liability company pursuant to the pro-visions of
the Delaware Act by the filing of the Certificate of Formation with the
Secretary of State of the State of Delaware. Pursuant to Section 18-201(d)
of the Delaware Act, the provisions of this Agreement shall be effective as
of the Closing Date. Each Member hereby adopts, confirms and ratifies the
Certificate of Formation and all acts taken in connection there-with.
Ashland shall be admitted as a member of the Company upon its execution and
delivery of this Agreement. Except as provided in this Agreement, the
rights, duties, liabilities and powers of the Members shall be as provided
in the Delaware Act.
SECTION 2.02. NAME. The name of the Company shall be
Marathon Ashland Petroleum LLC. The Board of Managers may adopt such trade
or fictitious names as it may determine.
SECTION 2.03. TERM. Subject to the provisions of Article
XV providing for early termination in certain circumstances and the
provisions of Article IX of the Put/Call, Registration Rights and
Standstill Agreement, the initial term of the Company (the "Initial Term")
began on the date the Certificate of Formation was filed with the Secretary
of State of the State of Delaware, and shall continue until the close of
business on December 31, 2022 and, thereafter, the term of the Company
shall be automatically extended for successive 10-year periods unless at
least two years prior to the end of the Initial Term or any succeeding
10-year period, as applicable, a Member notifies the Board of Managers and
the other Member in writing that it wants to terminate the term of the
Company at the end of the Initial Term or such 10-year period, in which
event, the term of the Company shall not thereafter be extended for a
successive ten-year term. The President of the Company shall notify each
Member in writing at least six months prior to each such two-year
notification date that the Term of the Company will be automatically
extended unless a Member provides a notice to the contrary pursuant to this
Section 2.03. The failure of the President of the Company to give such
notice, or any defect in any notice so given, shall not affect the Members'
rights to terminate the Term of the Company pursuant to this Section 2.03,
and shall not result in a termination of the Term of the Company unless a
Member provides a notice to the contrary pursuant to this Section 2.03. The
Initial Term, together with any such extensions, is hereinafter referred to
as the "Term of the Company". The existence of the Company as a separate
legal entity shall continue until the cancelation of the Certificate of
Formation in the manner provided in the Delaware Act.
SECTION 2.04. REGISTERED AGENT AND OFFICE. The name of
the registered agent of the Company for service of process on the Company
in the State of Delaware is The Corporation Trust Company, and the address
of the registered agent and the address of the office of the Company in the
State of Delaware is c/o The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801. The Board of Managers may change such office
and such agent from time to time in its sole discretion.
SECTION 2.05. PURPOSE. (a) The purpose of the Company is
to engage in any lawful act or activity for which a limited liability
company may be formed under the Delaware Act (either directly or indirectly
through one or more subsidiaries). It is the Members' understanding and
intent that (i) the Company will be an independent, self-funding entity,
(ii) no additional capital contributions are expected to be required by the
Members and (iii) the administrative requirements of the Company will
generally be provided by the Company's own employees. In furtherance of
this understanding and intent, and without limiting the generality of the
foregoing, unless the Members shall mutually agree otherwise, the following
administrative functions and services shall be provided substantially by
the Company and its subsidiaries' employees (or by its unaffiliated third
party contractors) under the supervision and control of the Company's
officers: Human Resources; Health, Environment and Safety; Law; Finance and
Accounting; Internal Audit; Treasury and Cash Management; and Information
Technology. For the avoidance of doubt, the Members acknowledge and agree
that the provision at any time of the specific Shared Services identified
and described in Schedule 10.2(e) to the Marathon Asset Transfer and
Contribution Agreement Disclosure Letter and Schedule 10.2(e) to the
Ashland Asset Transfer and Contribution Agreement Disclosure Letter to the
Company and its subsidiaries by the Members shall not be deemed to violate
the requirements of the immediately preceding sentence.
(b) The Company, and the President on behalf of the
Company, may enter into and perform the Transaction Documents and the
Commercial Documents to which the Company is a party without any further
act, vote or approval of the Board of Managers or the Members
notwithstanding any other provision of this Agreement, the Delaware Act or
other Applicable Law. The President of the Company is hereby authorized to
enter into such Transaction Documents and such Commercial Documents on
behalf of the Company, but such authorization shall not be deemed a
restriction on the power of the Board of Managers to enter into other
agreements on behalf of the Company.
SECTION 2.06. POWERS. In furtherance of its purposes, but
subject to all the provisions of this Agreement, the Company shall have the
power and is hereby authorized to:
(a) acquire by purchase, lease, contribution of property or
otherwise, own, operate, hold, sell, convey, transfer or dispose of
any real or personal property which may be necessary, convenient or
incidental to the accomplishment of the purpose of the Company;
(b) act as a trustee, executor, nominee, bailee, director,
officer, agent or in some other fiduciary capacity for any person
or entity and to exercise all the powers, duties, rights and
responsibilities associated therewith;
(c) take any and all actions necessary, convenient or appropriate
as trustee, executor, nominee, bailee, director, officer, agent or
other fiduciary, including the granting or approval of waivers,
consents or amend-ments of rights or powers relating thereto and
the execution of appropriate documents to evidence such waivers,
consents or amendments;
(d) borrow money and issue evidences of indebtedness in
furtherance of any or all of the purposes of the Company, and
secure the same by mortgage, pledge or other lien on the assets of
the Company;
(e) invest any funds of the Company pending distribution or
payment of the same pursuant to the provisions of this Agreement;
(f) prepay in whole or in part, refinance, recast, increase,
modify or extend any Indebtedness of the Company and, in connection
therewith, execute any extensions, renewals or modifications of any
mortgage or security agreement securing such Indebtedness;
(g) enter into, perform and carry out contracts of any kind,
including, without limitation, contracts with any person or entity
affiliated with any of the Members, necessary to, in connection
with, convenient to, or incidental to the accomplishment of the
purposes of the Company;
(h) employ or otherwise engage employees, managers, contractors,
advisors, attorneys and consultants and pay reasonable compensation
for such services;
(i) enter into partnerships, limited liability companies, trusts,
associations, corporations or other ventures with other persons or
entities in furtherance of the purposes of the Company; and
(j) do such other things and engage in such other activities
related to the foregoing as may be necessary, convenient or
incidental to the conduct of the business of the Company, and have
and exercise all of the powers and rights conferred upon limited
liability companies formed pursuant to the Delaware Act.
ARTICLE III
Members
SECTION 3.01. MEMBERS; PERCENTAGE INTERESTS. The names
and addresses of the Members and their respective percentage interests in
the Company ("Percentage Interests") are as follows:
Percentage
Members Interests
Marathon Oil Company 62%
5555 San Felipe
P.O. Box 3128
Houston, TX 77056-2723
Ashland Inc. 38%
50 East RiverCenter Boulevard
P.O. Box 391
Covington, KY 41012-0391
Marathon's Percentage Interest shall be deemed to include the Fuelgas
Interest. Promptly after the Closing, Marathon will cause Fuelgas to merge
with and into Marathon.
SECTION 3.02. ADJUSTMENTS IN PERCENTAGE INTERESTS.
Marathon's and Ashland's Percentage Interests, and the Percentage Interests
of each other Member, if any, shall be adjusted (a) at the time of any
Transfer of such Member's Membership Interests pursuant to Section 10.02
and (b) at the time of the admission of each new Member pursuant to such
terms and conditions as the Board of Managers from time to time shall
determine pursuant to a vote in accordance with Section 8.07(b), in each
case to take into account such Transfer or admission of a new Member.
ARTICLE IV
Capital Contributions; Assumption of Assumed Liabilities
SECTION 4.01. CONTRIBUTIONS. (a) On or before the Closing
Date, Marathon shall contribute, convey, transfer, assign and deliver to
the Company or shall have contributed, conveyed, transferred, assigned and
delivered to the Company, the Marathon Transferred Assets, and Ashland
shall contribute, convey, transfer, assign and deliver to the Company or
shall have contributed, conveyed, transferred, assigned and delivered to
the Company, the Ashland Transferred Assets, in each case pursuant to terms
and conditions of the Asset Transfer and Contribution Agreement. In
addition, any additional assets that Marathon or Ashland are required to
contribute, convey, transfer, assign and deliver to the Company at a later
date pursuant to the terms and conditions of the Asset Transfer and
Contribution Agreement shall be so contributed at such later date.
(b) The Company shall assume, as of the Closing Date, the
Assumed Liabilities pursuant to the terms of the Asset Transfer and
Contribution Agreement.
(c) PAYMENTS OR DAMAGES UNDER DESIGNATED SUBLEASE
AGREEMENTS AS CONTRIBUTIONS. (i) Each Member has agreed, pursuant to the
Designated Sublease Agreements to which it is a party, to sublease to the
Company or one of its subsidiaries the assets or property listed on
Schedule 4.01(c) ("Subleased Property") for a nominal consideration in lieu
of transferring such property to the Company or such subsidiary, free of
any Liens, other than Permitted Encumbrances, as a capital contribution.
(A) If at any time after January 1, 1998 a Member in its
capacity as a sublessor shall become the owner of any Subleased
Property, such Member shall promptly contribute, convey, transfer,
assign and deliver to the Company (or, if the Company so directs,
to one of its subsidiaries) at no cost to the Company or such
subsidiary, and the Company hereby agrees to accept, or to cause
such subsidiary to accept, such Subleased Property and the related
Designated Sublease Agreement shall be terminated with respect to
such Subleased Property, all as more specifically set forth in
such Designated Sublease Agreement. In addition, if at any time
after January 1, 1998 a Member assigns to the Company (or a
subsidiary of the Company) a purchase option with respect to a
Subleased Property pursuant to a Designated Sublease Agreement and
the Company or such subsidiary exercises such purchase option and
pays all or a portion of the purchase price therefor, such Member
shall promptly reimburse the Company or such subsidiary such
amount so paid and, if not so reimbursed, such amount shall be
subject to set-off pursuant to Section 14.04. Any such payment by
the Company shall be treated as a distribution to the appropriate
Member for capital account purposes, and any such amount paid to
the Company or such subsidiary by a Member in connection with such
reimbursement obligation, or to the extent of a set-off applied
pursuant to Section 14.04 as a result of such failure to so
reimburse, shall be treated as a capital contribution to the
Company.
(B) Any amount paid by the Company or any of its
subsidiaries under a Designated Sublease Agreement to cure or
prevent a payment default by the sublessor Member under the
underlying Original Lease shall be reimbursed to the Company or
such subsidiary by such Member, and if not so reimbursed, shall be
subject to set-off pursuant to Section 14.04. Any such payment by
the Company shall be treated as a distribution to the appropriate
Member for capital account purposes, and any such amount paid to
the Company or such subsidiary by a Member in connection with a
default of its payment obligations under its respective Designated
Sublease Agreements, or to the extent of a set-off applied
pursuant to Section 14.04 as a result of such default, shall be
treated as a capital contribution to the Company.
(C) None of the capital contributions pursuant to (A) and
(B) above shall result in any adjustment to the Members'
respective Percentage Interests in the Company.
(ii) If (A) a Member commences a voluntary case under any
applicable bankruptcy, insolvency, liquidation, receivership,
reorganization or other similar law now in effect, or an order for
relief is entered against such Member in an involuntary case under
any such law and (B) a trustee of such Member rejects a Designated
Sublease Agreement of such Member, then (1) the Member shall be
obligated to reimburse the Company for the Loss to the Company as
a result of such rejected Designated Sublease Agreement, which
Loss, if not so reimbursed, shall be subject to set-off pursuant
to Section 14.04 prior to the interest of such Member in any
distributions hereunder and (2) the amount of such Loss shall be
deemed to be the loss of use of such Subleased Property for the
economic life thereof rather than any other period.
SECTION 4.02. ADDITIONAL CONTRIBUTIONS. (a) Member-Funded
Capital Expenditures. For each Capital Expenditure project identified on
Schedule 4.02(a)-1, Marathon shall contribute to the Company the amount of
funds necessary to comply with its obligations under Section 7.1(j) of the
Asset Transfer and Contribution Agreement with respect to such Capital
Expenditure project as, when and if the Company actually incurs Capital
Expenditures related to such Capital Expenditure project (such Capital
Expenditures, as, when and if they are funded by Marathon, are referred to
herein as the "Marathon-Funded Capital Expenditures"). For each Capital
Expenditure project identified on Schedule 4.02(a)-2, Ashland shall
contribute to the Company the amount of funds necessary to comply with its
obligations under Section 7.2(k) of the Asset Transfer and Contribution
Agreement with respect to such Capital Expenditure project as, when and if
the Company actually incurs Capital Expenditures related to such Capital
Expenditure project (such Capital Expenditures, as, when and if they are
funded by Ashland, are referred to herein as the "Ashland-Funded Capital
Expenditures", and together with the Marathon-Funded Capital Expenditures,
the "Member-Funded Capital Expenditures"). Each Member-Funded Capital
Expenditure shall be treated as a capital contribution to the Company, but
shall not result in any adjustment to the Members' respective Percentage
Interests in the Company. To the extent permitted by applicable Tax law,
any Tax deduction by the Company of a Member-Funded Capital Expenditure
shall be specially allocated so that each Member will have the Tax benefit
of its Member-Funded Capital Expenditures.
(b) INDEMNIFICATION PAYMENTS AS CONTRIBUTIONS. Any
indemnity amount paid by Marathon or Ashland to the Company under Article
IX of the Asset Transfer and Contribution Agreement (each a
"Member-Indemnified Expenditure") shall be treated as a capital
contribution to the Company, but shall not result in any adjustment to the
Members' respective Percentage Interests in the Company. A determination of
whether the associated Loss will be deducted or capitalized by the Company
for Tax purposes shall be made by the Company at the direction of the
Indemnifying Party. Any Tax deduction or loss claimed by the Company with
respect to the indemnified amount shall be specially allocated to the
Indemnifying Party.
(c) OTHER ADDITIONAL CAPITAL CONTRIBUTIONS. The Members
shall make other additional capital contributions ("Agreed Additional
Capital Contributions") pro rata based on their respective Percentage
Interests if and to the extent such capital contributions are approved by
the Board of Managers pursuant to a vote in accordance with Section
8.07(b).
(d) NO THIRD-PARTY BENEFICIARIES. The provisions of this
Agreement, including without limitation, this Section 4.02, are intended
solely to benefit the Members and, to the fullest extent permitted by
Applicable Law, shall not be construed as conferring any benefit upon any
creditor of the Company other than the Members, and no such creditor of the
Company other than the Members shall be a third-party beneficiary of this
Agreement, and no Member or member of the Board of Managers shall have any
duty or obligation to any creditor of the Company to issue any call for
capital pursuant to this Agreement.
SECTION 4.03. NEGATIVE BALANCES; WITHDRAWAL OF CAPITAL;
INTEREST. Neither of the Members shall have any obligation to the Company
or to the other Member to restore any neg-ative balance in its Capital
Account. Neither Member may withdraw capital or receive any distributions
from the Company except as specifically provided herein. No interest shall
be paid by the Company on any capital contributions.
ARTICLE V
Distributions
SECTION 5.01. DISTRIBUTIONS. (a) Within 45 days after the
end of each Fiscal Quarter during each Fiscal Year, the Company shall
distribute to the Members (the date of such distribution being a
"Distribution Date") an amount in cash (the "Tax Distribution Amount")
determined as follows:
(i) The maximum Tax Liability of each Member with respect
to its allocable portion (as provided in Section 6.03) of the
Company's estimated taxable income for the portion of such Fiscal
Year ending on the last day of such Fiscal Quarter shall be
determined, based upon the highest aggregate marginal statutory
Federal, state and local income tax rate (determined taking into
account the deductibility, to the extent allowed, of income-based
taxes paid to governmental entities) to which any Member may be
subject for the related Fiscal Year (and excluding any deferred
taxes) (the "Aggregate Tax Rate").
(ii) If the Tax Liability determined in clause (i) is
positive with respect to either Member, there shall be a cash
distribution to each of the Members, in accordance with their
Percentage Interests, of an aggregate amount such that neither
Member shall have received distributions under this clause and
subsection (b) below for such portion of such Fiscal Year in an
amount less than its Tax Liability for such portion of such Fiscal
Year.
(iii) Following a determination by the Company of the
Company's actual net taxable income with respect to a Fiscal Year,
the maximum Tax Liability of each Member with respect to its
allocable portion (as provided in Section 6.03) of the Company's
net taxable income for such Fiscal Year shall be determined, based
upon the Aggregate Tax Rate. If the maximum Tax Liability of any
Member for the Fiscal Year is in excess of the cash distributions
previously made to the Member for such Fiscal Year under clause
(ii) above and subsection (b) below, the Company shall make a cash
distribution to all the Members, in accordance with their
Percentage Interests, of an aggregate amount such that the excess
is eliminated for all the Members. Such distribution shall be made
within 45 days of the date the Company's actual net taxable income
is determined.
(iv) In the event that the Company Independent Auditors
determine pursuant to Section 7.02(d) that the Company's actual
net taxable income with respect to a Fiscal Year is greater than
the amount determined by the Company pursuant to clause (iii)
above, the Company shall make a determination of the amount of
cash, if any, required to be distributed to the Members, in
accordance with their Percentage Interests, such that, after
taking into account cash distributions previously made to a Member
under clauses (ii) and (iii) above and subsection (b) below, no
Member shall receive less than its Tax Liability for such Fiscal
Year based on such higher net taxable income amount. The Company
shall, within 15 days after the determination is made, distribute
such additional amount of cash to the Members, in accordance with
their Percentage Interests.
(v) In the event that the Company Independent Auditors
determine pursuant to Section 7.02(d) that the Company's actual
net taxable income with respect to a Fiscal Year is less than the
amount determined by the Company pursuant to clause (iii) above, a
determina-tion shall be made of the excess Tax Distribution Amount
that was distributed to the Members in respect of such Fiscal Year
based on the Company's determina-tion of its actual net taxable
income and the Company shall deduct from the next Tax Distribution
Amount payable to the Members pursuant to this Section 5.01, the
amount of such excess distribution.
(b) In addition to the distributions pursuant to Section
5.01(a), on each Distribution Date, the Company shall distribute to the
Members all Distributable Cash for the Fiscal Quarter to which such
Distribution Date relates provided, however, that the distribution of (i)
Distributable Cash pursuant to this paragraph 5.01(b) or (ii) cash pursuant
to Section 5.01(a) above, in each case with respect to any Fiscal Quarter
may be made in such other manner and in such other amount as the Members
shall agree with respect to such Fiscal Quarter; provided, further,
however, that any agreement by any Member with respect to the distribution
of either Distributable Cash pursuant to this paragraph 5.01(b) or cash
pursuant to Section 5.01(a) for any Fiscal Quarter pursuant to the
preceding proviso shall not alter or waive any of the rights of either
Member under this Agreement with respect to distributions of Distributable
Cash pursuant to this paragraph 5.01(b) or cash pursuant to Section 5.01(a)
with respect to any subsequent Fiscal Quarter. Subject to Section 5.02(b),
each such distribution shall be allocated between the Members pro rata
based upon their respective Percentage Interests.
(c) The Company shall prepare and distribute to each
Member within 45 days after the end of each Fiscal Quarter a statement (a
"Distributions Calculation Statement") setting forth the calculations (in
reasonable detail) used by the Company for purposes of distributions
pursuant to this Section 5.01 of (i) the Tax Distribution Amount for each
Member for such Fiscal Quarter, (ii) the amount of Distributable Cash for
such Fiscal Quarter and (iii) the allocation of such Distributable Cash
between the Members.
(d) Notwithstanding anything to the contrary in this
Agreement, any agreement reached between the Members to distribute any
amount of cash different from the amounts which would be calculated in
accordance with the methodology set forth in Section 5.01(a) and Section
5.01(b) above shall not alter or waive in any manner the obligations of the
Company to prepare and deliver the Distributions Calculation Statement as
set forth in Section 5.01(c) above, and after any such agreement has been
reached the Company shall continue to prepare and deliver such Distribution
Calculation Statement with respect to each Fiscal Quarter as if no such
agreement had been reached.
SECTION 5.02. CERTAIN GENERAL LIMITATIONS. (a)
Notwithstanding any provision to the contrary contained in this Agreement,
the Company, and the Board of Managers on behalf of the Company, shall not
be required to make a distribution to either Member with respect to such
Member's Membership Interests if such distribution would violate Section
18-607 of the Delaware Act or other applicable law.
(b) Notwithstanding any other provision of this Article
V, all amounts distributed to the Members in connection with a dissolution
of the Company or the sale or other disposition of all or substantially all
the assets of the Company that results in a dissolution of the Company
shall be distributed to the Members in accordance with their respective
Capital Account balances, as adjusted pursuant to Article VI for all
Company operations up to and including the date of such distribution.
SECTION 5.03. DISTRIBUTIONS IN KIND. The Company shall
not distribute to the Members any assets in kind unless approved by the
Board of Managers pursuant to a vote in accordance with Section 8.07(b). If
cash and property in kind are to be distributed simultaneously, the Company
shall distribute such cash and property in kind in the same proportion to
each Member, unless otherwise approved by the Board of Managers pursuant to
a vote in accordance with Section 8.07(b). For purposes of determining
amounts distributable to Members under Section 5.01, for purposes of
determining Profit and Loss under Section 1.01, for purposes of making
adjustments to Capital Accounts under Article VI and for purposes of
allocations under Article VI, any property to be distributed in kind shall
have the value assigned to such property by the Board of Managers pursuant
to a vote in accordance with Section 8.07(b) and such value shall be deemed
to be part of and included in Distributable Cash for purposes of
determining distributions to the Members under this Agreement.
SECTION 5.04. DISTRIBUTIONS IN THE EVENT OF AN EXERCISE
OF THE MARATHON CALL RIGHT, ASHLAND PUT RIGHT OR THE SPECIAL TERMINATION
RIGHTS. In the event of an exercise by Marathon of its Marathon Call Right
or its Special Termination Right or the exercise by Ashland of its Ashland
Put Right or its Special Termination Right pursuant to the Put/Call,
Registration Rights and Standstill Agreement, certain distributions to
Ashland or Marathon, as applicable, will be suspended in accordance with
the provisions of Section 5.01 thereof.
ARTICLE VI
Allocations and Other Tax Matters
SECTION 6.01. MAINTENANCE OF CAPITAL ACCOUNTS.
An account (a "Capital Account") shall be established and maintained in the
Company's books for each Member in accordance with Treasury Regulation
Section 1.704-1(b)(2)(iv) and to which the following provisions apply to
the extent not inconsistent with such Regulation:
(a) There shall be credited to each Member's Capital
Account (i) the amount of money contributed by such Member to the Company
(including liabilities of the Company assumed by such Member as provided in
Treasury Regulation Section 1.704-1(b)(2)(iv)(c)), (ii) the fair market
value of any property contributed by the Member to the Company (net of
liabilities secured by such contributed property that the Company is
considered to assume or take subject to under Code Section 752), and (iii)
such Member's share of the Company's Profit;
(b) There shall be debited from each Member's Capital
Account (i) the amount of money distributed to such Member by the Company
(including liabilities of such Member assumed by the Company as provided in
Treasury Regulation Section 1.704-1(b)(2)(iv)(c)) other than amounts which
are in repayment of debt obligations of the Company to such Member, (ii)
the fair market value of property distributed to such Member (net of
liabilities secured by such property that such Member is considered to
assume or take subject to under Code Section 752), and (iii) such Member's
share of the Company's Loss;
(c) To each Member's Capital Account there shall be
credited, in the case of an increase, or debited, in the case of a
decrease, such Member's share of any adjustment to the adjusted basis of
Company assets pursuant to Code Section 734(b) or Code Section 743(b) to
the extent provided by Treasury Regulation Section 1.704-(b)(2)(iv)(m); and
(d) Upon the transfer of all or any part of the
Membership Interests of a Member, the Capital Account of the transferee
Member shall include the portion of the Capital Account of the transferor
Member attributable to such transferred Membership Interest (or portion
thereof).
SECTION 6.02. ALLOCATIONS. (a) Except as provided in
Section 6.02(b), 6.02(c), 6.02(d) and 6.02(e), Profit or Loss for any
Fiscal Year shall be allocated between the Members in proportion to their
respective Percentage Interests.
(b) To the extent any Tax deduction or loss is
specifically allocated to a Member pursuant to this Agreement (other than
pursuant to Section 6.03) or any other Transaction Document, including any
deduction or loss indemnified by a Member, any Member-Funded Capital
Expenditure, any Member-Indemnified Expenditure and any special allocations
pursuant to Sections 6.12, 6.13, 6.14, 6.15 and 6.16 the associated Profit
and Loss shall be allocated to the same Member.
(c) Depreciation and amortization with respect to any
asset contributed by a Member to the Company shall be allocated solely to
such Member.
(d) If any asset contributed by a Member is sold or
otherwise disposed of prior to the time such asset has been completely
depreciated or amortized for Federal income tax purposes, the Member
contributing such property shall be allocated an expense ("Make-Up
Expense") equal to (i) the remaining tax basis of the asset at the time of
the sale or other disposition, multiplied by (ii) the other Member's
Percentage Interest at the time of such sale or other disposition. The
contributing Member shall be allocated Make-Up Expense over the remaining
tax life of the asset at the time of sale or other disposition at the same
rate as depreciation or amortization would have been allocated to such
Member if the sale or other disposition had not occurred. Make-Up Expense
allocated to a Member shall be taken from and reduce the amount of expenses
allocated to the other Member. The purpose for this provision is to
allocate to a Member, with respect to depreciable or amortizable assets
contributed by such Member, a total amount of deductions and cost recovery
allowances equal to 100% of the basis of such assets at the time of
contribution.
(e) In the event that the Company sells or otherwise
disposes of all or substantially all its assets or engages in any other
transaction that will lead to a liquidation of the Company, then,
notwithstanding the foregoing provisions of this Section 6.02, (i) any
Profit or Loss realized by the Company in such transaction and (ii), to the
extent necessary, any other Profit or Loss in the Fiscal Year such
transaction occurs or thereafter (and, in each case, to the extent
necessary, constituent items of income, gain, loss, deduction and credit)
shall be specially allocated as between the Members as required so as to
cause in so far as possible each Member's Capital Account balance to be
proportionate to its Percentage Interest.
SECTION 6.03. TAX ALLOCATIONS. (a) For income tax
purposes only, each item of income, gain, loss, deduction and credit of the
Company as determined for income tax purposes shall be allocated between
the Members in accordance with the corresponding allocation in Section
6.02, subject to the requirements of Section 704(c) of the Code.
(b) The Members acknowledge and agree that Section 704(c)
shall be applied using the so-called "traditional method with curative
allocations" set forth in Treasury Regulation Section 1.704-3(c). Curative
allocations of income, gain, loss or deduction shall, to the extent
possible, have substantially the same effect on each Member's Federal
income tax liability as the item of income, gain, loss or deduction for
which allocation is limited.
(c) By reason of the special allocation of book
depreciation and amortization with respect to the assets contributed by the
Members pursuant to Section 6.02(c), tax depreciation and amortiza-tion
with respect to each such asset shall be allocated solely to the
contributing Member.
(d) Items described in this Section 6.03 shall neither be
credited nor charged to the Members' Capital Accounts.
SECTION 6.04. TAX ELECTIONS. (a) The Members intend that
the Company be treated as a partnership for Federal income tax purposes.
Accordingly, neither the Tax Matters Partner nor either Member shall file
any election or return on its own behalf or on behalf of the Company that
is inconsistent with that intent.
(b) Any elections or other decisions relating to tax
matters that are not expressly provided for herein, including the
determination of the fair market value of contributed property and the
decision to adjust the Capital Accounts to reflect the fair market value of
the Company's assets upon the occurrence of any event specified in Treasury
Regulation Section 1.704-1(b)(2)(iv)(f), shall be made jointly by the
Members in any manner that reasonably reflects the purpose and intention of
this Agreement.
SECTION 6.05. FISCAL YEAR. The fiscal year (the "Fiscal
Year") of the Company for tax and accounting purposes shall be the 12-month
(or shorter) period ending on the last day of December of each year.
SECTION 6.06. TAX RETURNS. (a) The Company shall cause to
be prepared and timely filed all Federal, state, local and foreign income
tax returns and reports required to be filed by the Company and its
subsidiaries. The Company shall provide copies of all the Company's
Federal, state, local and foreign tax returns (and any schedules or other
required filings related to such returns) that reflect items of income,
gain, deduction, loss or credit that flow to separate Member returns, to
the Members for their review and comment prior to filing, except as
otherwise agreed by the Members. The Members agree in good faith to resolve
any difference in the tax treatment of any item affecting such returns and
schedules. However, if the Members are unable to resolve the dispute, the
position of the Tax Matters Partner shall be followed if nationally
recognized tax counsel acceptable to both Members provides an opinion that
substantial authority exists for such position. Substantial authority shall
be given the meaning ascribed to it in Code Section 6662. If the Members
are unable to resolve the dispute prior to the due date for filing the
return, including approved extensions, the position of the Tax Matters
Partner shall be followed, and amended returns shall be filed if necessary
at such time the dispute is resolved. The costs of the dispute shall be
borne by the Company. The Members agree to file their separate Federal
income tax returns in a manner consistent with the Company's return, the
provisions of this Agreement and in accordance with applicable Federal
income tax law.
(b) The Company shall elect the most rapid method of
depreciation and amortization allowed under Applicable Law, unless the
Members agree otherwise. The failure of either Member to agree that the
Company should elect a less rapid method of depreciation or amortization is
not subject to any dispute resolution provisions.
(c) The Members shall provide each other with copies of
all correspondence or summaries of other communications with the Internal
Revenue Service or any state, local or foreign taxing authority (other than
routine correspondence and communications) regarding the tax treatment of
the Company's operations. No Member shall enter into settlement
negotiations with the Internal Revenue Service or any state, local or
foreign taxing authority with respect to any issue concerning the Company's
income, gains, losses, deductions or credits if the tax adjustment
attributable to such issue (assuming the then current Aggregate Tax Rate)
would be $2 million or greater, without first giving reasonable advance
notice of such intended action to the other Member.
SECTION 6.07. TAX MATTERS PARTNER. (a) Initially,
Marathon shall be the "Tax Matters Partner" of the Company within the
meaning of Section 6231(a)(7) of the Code, and shall act in any similar
capacity under state, local or foreign law, but only with respect to
returns for which items of income, gain, loss, deduction or credit flow to
the separate returns of the Members. In the event of a transfer of any
Member's interest in the Company, the Tax Matters Partner shall be the
Member with the largest Percentage Interest following such transfer.
(b) The Tax Matters Partner shall incur no liability
(except as a result of the gross negligence or willful misconduct of the
Tax Matters Partner) to the other Member including, but not limited to,
liability for any additional taxes, interest or penalties owed by the other
Member due to adjustments of Company items of income, gain, loss, deduction
or credit at the Company level.
SECTION 6.08. DUTIES OF TAX MATTERS PARTNER. (a) Except
as provided in Section 6.08(b), the Tax Matters Partner shall cooperate
with the other Member and shall promptly provide the other Member with
copies of notices or other materials from, and inform the other Member of
discussions engaged in with, the Internal Revenue Service or any state,
local or foreign taxing authority and shall provide the other Member with
notice of all scheduled administrative proceedings, including meetings with
agents of the Internal Revenue Service or any state, local or foreign
taxing authority, technical advice conferences, appellate hearings, and
similar conferences and hearings, as soon as possible after receiving
notice of the scheduling of such proceedings, but in any case prior to the
date of such scheduled proceedings.
(b) The duties of the Tax Matters Partner under Section
6.08(a) shall not apply with respect to notices, materials, discussions,
proceedings, meetings, conferences, or hearings involving any issue
concerning the Company's income, gains, losses, deductions or credits if
the tax adjustment attributable to such issue (assuming the then current
Aggregate Tax Rate) would be less than $2 million except as otherwise
required under Applicable Law.
(c) The Tax Matters Partner shall not extend the period
of limitations or assessments without the consent of the other Member,
which consent shall not be unreasonably withheld.
(d) The Tax Matters Partner shall not file a petition or
complaint in any court, or file any claim, amended return or request for an
administrative adjustment with respect to partnership items, after any
return has been filed, with respect to any issue concerning the Company's
income, gains, losses, deductions or credits if the tax adjustment
attributable to such issue (assuming the then current Aggregate Tax Rate)
would be $2 million or greater, unless agreed by the other Member. If the
other Member does not agree, the position of the Tax Matters Partner shall
be followed if nationally recognized tax counsel acceptable to both Members
issues an opinion that a reasonable basis exists for such position.
Reasonable basis shall be given the meaning ascribed to it for purposes of
applying Code Section 6662. The costs of the dispute shall be borne by the
Company.
(e) The Tax Matters Partner shall not enter into any
settlement agreement with the Internal Revenue Service or any state, local
or foreign taxing authority, either before or after any audit of the
applicable return is completed, with respect to any issue concerning the
Company's income, gains, losses, deductions or credits, unless any of the
following apply:
(i) both Members agree to the settlement;
(ii) the tax effect of the issue if resolved adversely
would be, and the tax effect of settling the issue is,
proportionately the same for both Members (assuming each otherwise
has substantial taxable income);
(iii) the Tax Matters Partner determines that the
settlement of the issue is fair to both Members and the amount of
the tax adjustment attributable to such issue (assuming the then
current Aggregate Tax Rate) would be less than $2 million; or
(iv) nationally recognized tax counsel acceptable to both
Members determines that the settlement is fair to both Members and
is one it would recommend to the Company if both Members were
owned by the same person and each had substantial taxable income.
In all events, the costs incurred by the Tax Matters Partner in performing
its duties hereunder shall be borne by the Company in accordance with the
Shared Services Agreement.
(f) The Tax Matters Partner may request extensions to
file any tax return or statement without the written consent of, but shall
so inform, the other Member.
SECTION 6.09. SURVIVAL OF PROVISIONS. The provisions of
this Agreement regarding the Company's tax returns and Tax Matters Partner
shall survive the termination of the Company and the transfer of any
Member's interest in the Company and shall remain in effect for the period
of time necessary to resolve any and all matters regarding the federal,
state, local and foreign taxation of the Company and items of Company
income, gain, loss, deduction and credit.
SECTION 6.10. SECTION 754 ELECTION. In the event that a
Member purchases the Membership Interests of a Selling Member pursuant to
Section 10.04, the purchasing Member shall have the right to direct the Tax
Matters Partner to make an election under Section 754 of the Code. The
purchasing Member shall pay all costs incurred by the Company in connection
with such election, including any costs borne by the Company to maintain
records required as a result of such election. The purchasing Member, at
its option and expense, may maintain on behalf of the Company any records
required as a result of such election.
SECTION 6.11. QUALIFIED INCOME OFFSET, MINIMUM GAIN
CHARGEBACK. Notwithstanding anything to the contrary in this Agreement,
there is hereby incorporated a qualified income offset provision which
complies with Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and minimum
gain chargeback and partner minimum gain chargeback provisions which comply
with the requirements of Treasury Regulation Section 1.704-2 and such
provisions shall apply to the allocation of Profits and Losses.
SECTION 6.12. TAX TREATMENT OF DESIGNATED SUBLEASE
AGREEMENTS. (a) For purposes of Article VI, Ashland or Marathon, as the
case may be, shall be treated as transferring to the Company all of its
interest in Subleased Property pursuant to an Ashland Designated Sublease
Agreement or a Marathon Designated Sublease Agreement, as if the leasehold
interest in such Subleased Property was an Ashland Transferred Asset or a
Marathon Transferred Asset.
(b) Payments under the Original Lease made by Ashland or
Marathon, as the case may be, after the effective date of the Ashland
Designated Sublease Agreement or Marathon Designated Sublease Agreement, as
the case may be, shall be treated as made by the Company or its
subsidiaries, and then immediately reimbursed by Ashland or Marathon, as
the case may be.
(c) All items of loss, deduction and credit attributable
to payments under the Original Lease made by Ashland or Marathon, as the
case may be, including payments by the Company or any of its subsidiaries
that are charged to Ashland or Marathon by set-off or other means, shall be
allocated entirely to the Member incurring such payments.
(d) Depreciation and amortization deductions, if any, as
well as any deductions or offsets to taxable income or gain, attributable
to property described in the Ashland Designated Sublease Agreements or the
Marathon Designated Sublease Agreements, as the case may be, shall be
allocated entirely to Ashland or Marathon, as the case may be, except to
the extent such deductions or offsets are attributable to amounts paid by
the Company or any of its subsidiaries and not reimbursed by Ashland or
Marathon, as the case may be, either directly or indirectly.
SECTION 6.13. TAX TREATMENT OF REIMBURSED LIABILITY
PAYMENTS. Any tax deduction or loss attributable to payments by the Company
or any of its subsidiaries of Assumed Liabilities, as described in
Schedules 2.3(d) and 3.3(d) to the Asset Transfer and Contribution
Agreement, that are reimbursed by a Member either directly or indirectly,
shall be allocated entirely to such Member.
SECTION 6.14. TAX TREATMENT OF DISPROPORTIONATE PAYMENTS.
Except as otherwise provided in this Agreement or in any other Transaction
Document, any Tax deduction or loss reflected on a Tax return, report or
other Tax filing by the Company, attributable to (i) payments made or costs
incurred by a Member, (ii) payments made or costs incurred by the Company
and reimbursed or to be reimbursed by a Member and (iii) payments made or
costs incurred by the Company and not shared among the Members based on
their Percentage Interests, shall be allocated among the Members to take
into account the amounts paid, incurred, reimbursed or shared by each.
SECTION 6.15. ALLOCATION OF INCOME, GAINS, LOSSES AND
OTHER ITEMS FROM LOOP LLC AND LOCAP, INC. (a) Income, gains, losses,
deductions, credits, adjustments, tax preferences and other distributive
share items with respect to the Company's interest in LOOP LLC, a tax
partnership, for periods beginning on or after the Closing, shall be
allocated between the Members in such a manner so that, when such items are
included with the same items allocated to Ashland with respect to the
Ashland LOOP/LOCAP Interest, each Member is allocated all such items in
proportion to its respective Percentage Interest in the Company.
(b) In determining the Capital Account for each Member,
(i) Ashland shall be treated as contributing the Ashland LOOP/LOCAP
Interest to the Company, (ii) Profit and Loss shall be treated as including
taxable income, gain, loss and distributions arising from Ashland's 4%
interest in LOOP LLC and (iii) dividends and distributions that Ashland
receives from LOOP LLC or LOCAP, Inc. in respect of the Ashland LOOP/LOCAP
Interest and paid to the Company pursuant to Section 7.2(i) of the Asset
Transfer and Contribution Agreement shall be treated as being received
directly by the Company.
SECTION 6.16. ALLOCATION OF INCOME, GAIN, LOSS, DEDUCTION
AND CREDITS ATTRIBUTABLE TO STOCK-BASED COMPENSATION. Each item of income,
gain, loss, deduction (excluding deductions for administrative costs
incurred by the Company) and credit attributable to the grant to, or the
exercise by or on behalf of, an employee or retired employee of the Company
of a stock option, stock appreciation right, or other stock-based incentive
compensation involving the stock of a Member or an Affiliate of a Member
shall be allocated to the Member whose stock or whose Affiliate's stock is
involved. Any exercise price paid by or on behalf of the employee or
retired employee to the Company shall be paid over to the Member whose
stock (or whose Affiliate's stock) is involved. A Member's Capital Account
shall be (i) increased by the fair market value of its (or its Affiliate's)
stock delivered to or on behalf of an employee or retired employee as
aforesaid (without duplication to the extent such stock is first
contributed to the Company), (ii) decreased (pursuant to Section
6.01(a)(iii) or (b)(iii)) by the deduction allocated to such Member as
aforesaid and (iii) decreased by the amount of the exercise price so paid
over by the Company or deemed to be paid over by the Company under
principles analogous to those in Treasury Regulation Section 1.83-6(d)(1).
ARTICLE VII
Books and Records
SECTION 7.01. BOOKS AND RECORDS; EXAMINATION. The Board
of Managers shall keep or cause to be kept such books of account and
records with respect to the Company's business as they may deem
appropriate. Each Member and its duly authorized representa-tives shall
have the right at any time to examine, or to appoint independent certified
public accountants (the fees of which shall be paid by such Member) to
examine, the books, records and accounts of the Company and its
subsidiaries, their operations and all other matters that such Member may
wish to examine, including, without limitation, all documentation relating
to actual or proposed transactions with either Member or any Affiliate of
either Member. The Company, and the Board of Managers, shall not have the
right to keep confidential from the Members any information that the Board
of Managers would otherwise be permitted to keep confidential from the
Members pursuant to Section 18-305(c) of the Delaware Act. The Company's
books of account shall be kept using the method of accounting determined by
the Board of Managers. The Company Independent Auditors (the "Company
Independent Auditors") shall be an independent public accounting firm
selected by the Board of Managers pursuant to a vote in accordance with
Section 8.07(b) or Section 8.07(c), as applicable, and shall initially be
Price Waterhouse LLP.
SECTION 7.02. FINANCIAL STATEMENTS AND REPORTS. (a)
Unaudited Monthly Financial Statements. (i) The Company shall prepare and
send to each Member (at the same time) promptly, but in no event later than
noon on the 15th Business Day after the last day of each month, the
following unaudited financial statements with respect to the Company and
its subsidiaries: a balance sheet, a statement of operations, a statement
of cash flows and a statement of changes in capital (collectively,
"Unaudited Financial Statements") as at the end of and for such month.
(ii) The Company shall prepare and send to each Member
promptly, but in no event later than noon on the 20th Business Day
after the last day of each month, an unaudited financial summary
booklet containing a breakdown of such operating and financial
information by major department or division of the Company and its
subsidiaries as at the end of and for such month as either Member
shall reasonably request; provided that each Member shall be
provided with the same information at the same time as the other
Member.
(b) Unaudited Quarterly Financial Statements. The Company
shall prepare and send to each Member (at the same time) promptly, but in
no event later than the 30th day after the last day of each Fiscal Quarter,
(i) Unaudited Financial Statements as at the end of and for such Fiscal
Quarter; (ii) a management's discussion and analysis of financial condition
and results of operations section prepared in accordance with Rule 303 of
Regulation S-K of the Securities Act with respect to such Fiscal Quarter;
and (iii) an unaudited statement of changes in the Members' capital
accounts as at the end of and for such Fiscal Quarter.
(c) Audited Annual Financial Statements. Within 75 days
after the end of each Fiscal Year, the Board of Managers shall cause (i) an
examination to be made, at the expense of the Company, by the Company
Independent Auditors, covering (A) the assets, liabilities and capital of
the Company and its subsidiaries, and the Company's and its subsidiaries'
operations during such Fiscal Year, (B) an examination of the Distributions
Calculation Statement for such Fiscal Year, and (C) all other matters
customarily included in such examinations and (ii) to be delivered to each
Member (at the same time) a copy of the report of such examination, stating
that such examina-tion has been performed in accordance with generally
accepted auditing standards, together with (1) the following financial
statements with respect to the Company and its subsidiaries certified by
such accountants as having been prepared in accordance with GAAP: a balance
sheet, a statement of operations, a statement of cash flows and a statement
of changes in capital as at the end of and for such Fiscal Year
(collectively, the "Audited Financial Statements") and (2) a management's
discussion and analysis of financial condition and results of operations
section prepared in accordance with Rule 303 of Regulation S-K of the
Securities Act with respect to such Fiscal Year. The Company shall prepare
the Audited Financial Statements in such manner and form as is necessary to
enable Ashland to file such Audited Financial Statements with the
Commission in accordance with Item 3-09 of Regulation S-X under the
Exchange Act.
(d) Schedule of Members' Capital Accounts. (i)
Preliminary Annual Capital Account Schedule. The Company shall prepare and
send to each Member (at the same time) promptly, but in no event later than
the 75th day after the last day of each Fiscal Year, a schedule showing the
respective Capital Accounts of the Members based on the Company's estimated
taxable income for such Fiscal Year.
(ii) Examination. Unless otherwise agreed by the Members,
within 15 days after the date the Company determines its net
taxable income with respect to any Fiscal Year, but in no event
later than 7 months after the end of such Fiscal Year, the Board
of Managers shall cause (i) an examination to be made, at the
expense of the Company, by the Company Independent Auditors,
covering (A) the determination of the Company's taxable income
with respect to such Fiscal Year and (B) the respective Capital
Accounts of the Members based on the Company's taxable income for
such Fiscal Year and (ii) to be delivered to each Member (at the
same time) a copy of the report of such examination, stating that
such examina-tion has been performed in accordance with generally
accepted auditing standards.
(iii) Final Annual Capital Account Schedule. The Company
shall prepare and send to each Member (at the same time) promptly,
but in no event later than the 15th day after the date the Company
files its federal income tax return with respect to each Fiscal
Year, a schedule showing the respective Capital Accounts of the
Members based on the Company's actual taxable income for such
Fiscal Year.
(e) Other Financial Information. The Company shall
prepare and send to each Member (at the same time) promptly such other
financial information as a Member shall from time to time reasonably
request.
SECTION 7.03. NOTICE OF AFFILIATE TRANSACTIONS; ANNUAL
LIST. (a) (i) The Company shall notify each Member of any Affiliate
Transaction (other than an Affiliate Transaction that is a Significant
Shared Service) that the Company or any of its subsidiaries is considering
entering into or renewing or extending the term thereof (whether pursuant
to contractual provisions thereof or otherwise), which notice shall be
given, to the extent reasonably possible, sufficiently in advance of the
time that the Company intends to enter into, renew or extend the term of
such Affiliate Transaction so as to provide the Members with a reasonable
opportunity to examine the documentation related to such Affiliate
Transaction.
(ii) The Company shall notify each Member of any
Affiliate Transaction that is a Significant Shared Service that
the Company or any of its subsidiaries is considering entering
into or renewing or extending the term thereof (whether pursuant
to contractual provisions thereof or otherwise), which notice
shall be given, to the extent reasonably possible, sufficiently in
advance of the time that the Company intends to enter into, renew
or extend the term of such Affiliate Transaction so as to provide
the Members with a reasonable opportunity to examine the
documentation related to such Affiliate Transaction.
(b) Within 60 days after the end of each Fiscal Year, the
Company shall prepare and distribute to each Member a list setting forth a
description of each Affiliate Transaction entered into by the Company or
any of its subsidiaries during such Fiscal Year and identifying all of the
parties to such Affiliate Transactions; provided that if two or more
Affiliate Transactions either (i) constitute a series of related
transactions or agreements or (ii) are substantially the same type of
transaction or agreement, the Company need not separately describe each
such Affiliate Transaction but instead can describe such related or similar
Affiliated Transactions as a group.
ARTICLE VIII
Management of the Company
SECTION 8.01. MANAGING MEMBERS. The business and affairs
of the Company shall be managed by the Members acting through their
respective representatives on the Board of Managers ("Representatives").
The President and the Representatives shall be deemed "managers" of the
Company within the meaning of the Delaware Act. Except for such matters as
may be delegated to a Member from time to time by the Board of Managers
pursuant to a vote in accordance with Section 8.07(b), and subject to the
provisions of Sections 6.07 and 6.08, no Member shall act unilaterally on
behalf of the Company or any of its subsidiaries without the approval of
the other Member and no Member shall have the power unilaterally to bind
the Company or any of its subsidiaries.
SECTION 8.02. BOARD OF MANAGERS. (a) The Members shall
exercise their management authority through a board of managers (the "Board
of Managers") consisting of (i) the President of the Company, who shall not
be deemed a Representative hereunder and who shall not be entitled to vote
on any matter coming before the Board of Managers, and (ii) eight
Representatives, each of whom shall be entitled to vote, five of whom shall
be designated by Marathon and three of whom shall be designated by Ashland.
In the event of a Transfer by a Member of its Membership Interests pursuant
to Article X, effective at the time of such Transfer, (i) such Member's
Representatives shall automatically be removed from the Board of Managers
and (ii) the transferee of such Membership Interests shall be permitted to
designate the number of Representatives to the Board of Managers as is
equal to the number previously designated by the transferor of such
Membership Interests. Such transferee shall promptly notify the other
Member as to the names of the persons who such transferee has designated as
its Representatives on the Board of Managers.
(b) Each Representative may be removed and replaced, with
or without cause, at any time by the Member designating him or her, but,
except as provided in Section 8.02(a), may not be removed or replaced by
any other means. A Member who removes one or more of its Representatives
from the Board of Managers shall promptly notify the other Member as to the
names of its replacement Representatives.
SECTION 8.03. RESPONSIBILITY OF THE BOARD OF MANAGERS.
The Board of Managers shall be responsible for overseeing the operations of
the Company and shall, in particular, have sole jurisdiction to approve
each of the following matters:
(i) hiring senior executives of the Company, evaluating
their performance and planning for their succession;
(ii) reviewing and approving Company strategies, Business
Plans and Annual Capital Budgets;
(iii) reviewing and approving significant external
business opportunities for the Company, including acquisitions,
mergers and divestitures;
(iv) reviewing and approving policies of the Company that
maintain high standards in areas of environmental responsibility,
employee safety and health, community, government, employee and
customer relations;
(v) reviewing external and internal audits and management
responses thereto; and
(vi) establishing compensation and benefits policies for
employees of the Company.
SECTION 8.04. MEETINGS. (a) Except as set forth in
Section 8.04(h), all actions of the Board of Managers shall be taken at
meetings of the Board of Managers in accordance with this Section 8.04.
(b) As soon as practicable after the appointment of the
Representatives, the Board of Managers shall meet for the purpose of
organization and the transaction of other business.
(c) Regular meetings of the Board of Managers shall be
held at such times as the Board of Managers shall from time to time
determine, but no less frequently than once each Fiscal Quarter; provided
that an annual meeting of the Board of Managers (which annual meeting shall
count as one of the regular quarterly meetings) shall be held no later than
June 30 of each Fiscal Year.
(d) Special meetings of the Board of Managers shall be
held whenever called by any Member. Any and all business may be transacted
at a special meeting that may be transacted at a regular meeting of the
Board of Managers.
(e) The Board of Managers may hold its meetings at such
place or places as the Board of Managers may from time to time by
resolution determine or as shall be designated in the respective notices or
waivers of notice thereof; however, the Board of Managers shall consider
holding meetings from time to time at each of the Member's corporate
headquarters and at the operational sites of the Company.
(f) Notices of regular meetings of the Board of Managers
or of any adjourned meeting shall be given at least two weeks prior to such
meeting, unless otherwise agreed by each Member. Notices of special
meetings of the Board of Managers shall be mailed by the Secretary or an
Assistant Secretary to each member of the Board of Managers addressed to
him or her at his or her residence or usual place of business, so as to be
received at least two Business Days before the day on which such meeting is
to be held, or shall be sent to him or her by telegraph, cable, facsimile
or other form of recorded communication or be delivered personally, by
overnight courier or by telephone so as to be received not later than two
Business Days before the day on which such meeting is to be held. Such
notice shall include the purpose, time and place of such meeting and shall
set forth in reasonable detail the matters to be considered at such
meeting. However, notice of any such meeting need not be given to any
member of the Board of Managers if such notice is waived by him or her in
writing or by telegraph, cable, facsimile or other form of recorded
communication, whether before or after such meeting shall be held, or if he
or she shall be present at such meeting.
(g) Action by Communication Equipment. The members of the
Board of Managers may participate in a meeting of the Board of Managers by
means of video or telephonic conferencing or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and such participation shall constitute presence in person
at such meeting.
(h) Unanimous Action by Written Consent. Any action
required or permitted to be taken at any meeting of the Board of Managers
may be taken without a meeting if all the Representatives consent thereto
in writing and such writing is filed with the minutes of the proceedings of
the Board of Managers.
(i) Organization. Meetings of the Board of Managers shall
be presided over by a chair, who will be a member of the Board of Managers
selected by a majority of the Board of Managers. The Secretary of the
Company or, in the case of his or her absence, any person whom the person
presiding over the meeting shall appoint, shall act as secretary of such
meeting and keep the minutes thereof.
SECTION 8.05. COMPENSATION. Unless the Members otherwise
agree, no person shall be entitled to any compensation from the Company in
connection with his or her services as a Representative.
SECTION 8.06. QUORUM. (a) Quorum for Super Majority
Decisions. Subject to Section 14.01(e) of the Put/Call, Registration Rights
and Standstill Agreement and Sections 14.01 and 14.05 and Section 5 of
Schedule 8.14, at all meetings of the Board of Managers, the quorum
required for the transaction of any business that constitutes a Super
Majority Decision shall be the presence, either in person or by proxy, of
(i) at least one Representative of each Member and (ii) a majority of all
the Representatives on the Board of Managers (which may include the
Representatives referred to in the preceding clause (i)).
(b) Quorum for Other Decisions. Subject to Sections 14.01
and 14.05 and Section 5 of Schedule 8.14, at all meetings of the Board of
Managers, the quorum required for the transaction of any business that does
not constitute a Super Majority Decision shall be (i) in the case of all
matters that were described in the notice in reasonable detail for such
meeting delivered to the members of the Board of Managers pursuant to
Section 8.04(f), the presence, either in person or by proxy, of a majority
of all the Representatives on the Board of Managers and (ii) in the case of
all matters that were not described in the notice in reasonable detail for
such meeting delivered to the members of the Board of Managers pursuant to
Section 8.04(f), the presence, either in person or by proxy, of (A) at
least one Representative of each Member and (B) a majority of all the
Representatives on the Board of Managers (which may include the
Representatives referred to in the preceding clause (A)).
(c) Rescheduled Meetings. The Company shall use its
reasonable best efforts to schedule the time and place of each meeting of
the Board of Managers so as to ensure that a quorum will be present at each
such meeting and that at least one Representative of each Member will be
present at each such meeting. In the absence of a quorum at any such
meeting or any adjournment or adjourn-ments thereof, a majority in voting
interest of those present in person or by proxy and entitled to vote
thereat may reschedule such meeting from time to time until the
Representatives requisite for a quorum, as aforesaid, be present in person
or by proxy. At any such rescheduled meeting at which a quorum is present,
any business may be transacted that might have been transacted at the
meeting as originally called.
SECTION 8.07. VOTING. (a) General. Each Representative
shall be entitled to cast one vote on all matters coming before the Board
of Managers. In exercising their voting rights under this Agreement, the
Representatives may act by proxy.
(b) Super Majority Decisions. Subject to Section 14.01(e)
of the Put/Call, Registration Rights and Standstill Agreement and Sections
14.01 and 14.05 and Section 5 of Schedule 8.14, all Super Majority
Decisions to be decided by the Board of Managers shall be approved by the
unanimous affirmative vote of the votes cast by the Representatives who are
present, either in person or by proxy, at a duly called meeting of the
Board of Managers at which a quorum is present. The parties acknowledge and
agree that all references in this Agreement, any other Transaction Document
and any appendices, exhibits or schedules hereto or thereto to any
determination, decision, approval or other form of authorization by the
Board of Managers pursuant to a vote in accordance with Section 8.07(b)
shall be deemed to mean that such determination, decision, approval or
other form of authorization shall constitute a Super Majority Decision
which requires the approval of the Board of Managers in accordance with
this Section 8.07(b).
(c) Other Decisions. Subject to Sections 14.01 and 14.05
and Section 5 of Schedule 8.14, all matters other than Super Majority
Decisions to be decided by the Board of Managers shall be approved by the
affirmative vote of a majority of the votes cast by the Representatives who
are present, either in person or by proxy, at a duly called meeting of the
Board of Managers at which a quorum is present, unless the vote of a
greater number of Representatives is required by Applicable Law or this
Agreement.
SECTION 8.08. MATTERS CONSTITUTING SUPER MAJORITY
DECISIONS. Subject to the provisions of Section 8.07(b), each of the
following matters, and only the following matters, shall constitute a
"Super Majority Decision" which requires the approval of the Board of
Managers pursuant to Section 8.07(b):
(a) (i) the purchase or investment by the Company or any
of its subsidiaries of or in any assets or securities, or any
group of assets or securities, that have an aggregate purchase
price or cost of more than $20 million, if the purpose or effect
of such purchase or investment is to enable the Company to enter
into a line of business other than (A) the Company's Business as
such Business is conducted on the Closing Date or (B) any other
line of business that is approved after the Closing Date by the
Board of Managers as a Super Majority Decision under this Section
8.08(a)(i) pursuant to a vote in accordance with Section 8.07(b),
provided that any such purchase or investment by the Company or
any of its subsidiaries shall not require a Super Majority
Decision under this Section 8.08(a) if and to the extent such
purchase or investment is being made to enable the Company to
enter into the Bulk Motor Oil Business, the Packaged Motor Oil
Business, the Private Label Packaged Motor Oil Business and/or the
Quick Lube Business and, at the time of such purchase or
investment, (1) the Company and its subsidiaries are permitted to
engage in such business under Section 14.03(b) of the Put/Call,
Registration Rights and Standstill Agreement and (2) Ashland and
its Affiliates shall own (beneficially or otherwise) 20% or more
of the Valvoline Business (it being understood and agreed that
this proviso shall not limit or constitute an exception to any
other provision of Section 8.08); and
(ii) the determination of whether any new line of
business approved by the Board of Managers as a Super Majority
Decision under Section 8.08(a)(i) should constitute a "Competitive
Business" for purposes of Section 14.01 of the Put/Call,
Registration Rights and Standstill Agreement;
(b) (i) any reorganization, merger, consolidation or
similar transaction between the Company and any person (other than
a direct or indirect Wholly Owned Subsidiary of the Company) or
any sale or lease of all or substantially all of the Company's
assets to any person (other than a direct or indirect Wholly Owned
Subsidiary of the Company);
(ii) any (A) reorganization, merger, consolidation or
similar transaction or series of transactions between any of the
Company's subsidiaries and any person (other than the Company or a
direct or indirect Wholly Owned Subsidiary of the Company) or (B)
sale or lease of all or substantially all of any of the Company's
subsidiaries' assets to any person (other than the Company or a
direct or indirect Wholly Owned Subsidiary of the Company) which
in either case involves an aggregate consideration of over
$50,000,000;
(c) the admission of a new Member (other than as a result
of a Transfer of an existing Member's Membership Interests
pursuant to Article X) or the issuance of any additional
Membership Interests or other equity interests to any person,
including any existing Member;
(d) except as expressly provided in Sections 4.01(c),
4.02(a) and 4.02(b), the acceptance or requirement of any
additional capital contributions to the Company by either Member;
(e) the initial hiring of the following officers of the
Company: the President; the Executive Vice President; the officers
principally in charge of (i) refining, (ii) wholesale and branded
marketing, (iii) retail marketing (two initially), (iv) supply and
transportation and (v) environmental health and safety and human
resources; the Senior Vice President-Finance and Commercial
Services of the Company; and the general counsel of the Company;
(f) (i) the approval of Acquisition Expenditures, Capital
Expenditures and such other expenditures of the type to be
included in the Annual Capital Budget for any Fiscal Year (other
than (A) Ordinary Course Lease Expenses, (B) up to $100 million in
the aggregate for all periods in Capital Expenditures of the
Company and its subsidiaries directly associated with the
Garyville Propylene Upgrade Project, (C) Member-Funded Capital
Expenditures, (D) Member-Indemnified Expenditures and (E)
Acquisition Expenditures or Capital Expenditures of the Company
and its subsidiaries directly associated with Permitted Capital
Projects/Acquisitions that are funded with Permitted Capital
Project/Acquisition Indebtedness) that when taken together with
(x) the other expenditures already approved as part of the Annual
Capital Budget for such Fiscal Year and (y) all other expenditures
already made in such Fiscal Year, would reasonably be expected to
exceed the Normal Annual Capital Budget Amount for such Fiscal
Year; and
(ii) the incurrence of rentals or operating leases which
result in aggregate Ordinary Course Lease Expenses (other than
Ordinary Course Lease Expenses incurred under the Bareboat
Charters) for any Fiscal Year that exceed $80 million; provided,
however, in the event the Company or one of its subsidiaries shall
make any acquisition or divestiture, the Members shall negotiate
in good faith to adjust the dollar amount set forth in this
Section 8.08(f)(ii) to take into account the effect of such
acquisition or divestiture;
(g) (i) except for any acquisition or capital project
related to the Bulk Motor Oil Business, the Packaged Motor Oil
Business, the Private Label Motor Oil Business and/or the Quick
Lube Business, any acquisition, divestiture or individual capital
project (other than (i) Ordinary Course Lease Expenses, (ii) up to
$100 million in the aggregate for all periods in Capital
Expenditures of the Company and its subsidiaries directly
associated with the Garyville Propylene Upgrade Project, (iii)
Member-Funded Capital Expenditures, (iv) Member-Funded Indemnified
Expenditures and (v) Acquisition Expenditures or Capital
Expenditures of the Company and its subsidiaries directly
associated with Permitted Capital Projects/Acquisitions that are
funded with Permitted Capital Project/Acquisition Indebtedness)
where the liability or consideration involved is more than $50
million in the aggregate (including contingent liabilities only to
the extent required to be reflected on the balance sheet of the
Company in accordance with Financial Accounting Standard Number 5
(or any successor or superseding provision of Current GAAP));
(ii) any acquisitions or individual capital projects
related to the Bulk Motor Oil Business, the Packaged Motor Oil
Business, the Private Label Motor Oil Business and/or the Quick
Lube Business during any Fiscal Year where the liability or
consideration involved is more than $50 million in the aggregate
in such Fiscal Year (including contingent liabilities only to the
extent required to be reflected on the balance sheet of the
Company in accordance with Financial Accounting Standard Number 5
(or any successor or superseding provision of Current GAAP));
provided that nothing in this Section 8.08(g)(ii) shall be deemed
or interpreted to permit the Company or any of its subsidiaries to
engage in any of such businesses except as and to the extent
expressly permitted under Section 14.03 of the Put/Call,
Registration Rights and Standstill Agreement;
(iii) for the avoidance of doubt, acquisitions or
individual capital projects related to the Maralube Express
Business shall be subject to clause (i) of this Section 8.08(g)
and not clause (ii) of this Section 8.08(g);
(h) the initiation or settlement of any action, suit,
claim or proceeding involving (i) an amount in excess of $50
million (with respect to initiation) or $25 million (with respect
to settlement), (ii) material non-monetary relief (including,
without limitation, entering into any consent decree that has or
could reasonably be expected to (A) impose any material obligation
on Ashland or any of its Affiliates or the Company or any of its
subsidiaries or (B) have a material adverse effect on the
business, operations, assets, liabilities, results of operations,
cash flows, condition (financial or otherwise) or prospects of
Ashland or any of its Affiliates or the Company or any of its
subsidiaries) or (iii) the initiation or settlement of any
criminal action, suit, claim or proceeding (other than a
misdemeanor) if such criminal action, suit or proceeding has or
could reasonably be expected to (A) impose any material obligation
on Ashland or any of its Affiliates or (B) have a material adverse
effect on the business, operations, assets, liabilities, results
of operations, cash flows, condition (financial or otherwise) or
prospects of Ashland or any of its Affiliates;
(i) any change in the Company Independent Auditors unless
the new firm is one of the "Big Six" accounting firms (or any
successor thereto) or a firm of comparable stature in Ashland's
opinion;
(j) any modification, alteration, amendment or
termination of any Transaction Document to which the Company or
any of its subsidiaries is a party and all Members are not a
party;
(k) (i) in the case of any Affiliate Transaction that is
not a Crude Oil Purchase, a Significant Shared Service or a
Designated Sublease Agreement, (A) any Affiliate Transaction
(other than the Affiliate Transactions listed on Schedule
8.08(k)(i)(A) (the "Closing Date Affiliate Transactions")), (B)
any material amendment to or change in the terms or provisions of
any Affiliate Transaction that was either a Closing Date Affiliate
Transaction or previously approved by the Board of Managers
pursuant to Section 8.08(k)(i)(A) (it being understood that a
renewal or extension of the term of an Affiliate Transaction
pursuant to contractual provisions that were previously approved
by the Board of Managers pursuant to this Section 8.08(k)(i) or
that were included in a Closing Date Affiliate Transaction on the
Closing Date shall be deemed for purposes of this Agreement not to
constitute a new Affiliate Transaction or a material amendment to
or change in an Affiliate Transaction) or (C) any amendment or
change in the terms or provisions of any agreement or transaction
between the Company or any of its subsidiaries and any Member or
any Affiliate of any Member which causes such agreement or
transaction to become an Affiliate Transaction;
(ii) in the case of Crude Oil Purchases, the approval of
such Crude Oil Purchases in accordance with Section 8.12(a);
(iii) in the case of any Significant Shared Service, (A)
any agreement or transaction constituting a Significant Shared
Service (other than the specific Significant Shared Services
identified and described in Schedule 10.2(e) to the Asset Transfer
and Contribution Agreement), (B) any material amendment to or
change in the terms and provisions of any Significant Shared
Service identified and described in Schedule 10.2(e) to the Asset
Transfer and Contribution Agreement or thereafter approved by the
Board of Managers in accordance with this Section 8.08(k)(iii),
(C) subject to the provisions of Section 8.11(b) and except as
expressly provided in Section 8.12(b), any cancelation or failure
by the Company or any of its subsidiaries to renew any Significant
Shared Service provided by Ashland or any Affiliate of Ashland to
the Company or any of its subsidiaries or provided by the Company
or any of its subsidiaries to Ashland or any Affiliate of Ashland
and (D) the periodic review and approval of Significant Shared
Services in accordance with Section 8.12(b); and
(iv) any material amendment to or change in the terms or
provisions of, cancelation, termination or failure to renew, any
Designated Sublease Agreement or any election by the Company to
refuse or reject the contribution of any Subleased Property to the
Company or any of its subsidiaries;
(l) the commencement of a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent to the entry of an order for
relief in an involuntary case under any such law, or the consent
to the appointment of or the taking possession by a receiver,
liquidator, assignee, custodian, trustee or sequestrator (or
similar official) of the Company or any of its subsidiaries or for
any substantial part of the Company's or any of its subsidiaries'
property, or the making of any general assignment for the benefit
of creditors;
(m) (i) the modification, alteration or amendment of the
amount, timing, frequency or method of calculation of
distributions to the Members from that provided in Article V or
(ii) an adjustment to the amount of Distributable Cash pursuant to
clause (g) of the definition of "Distributable Cash" in Section
1.01;
(n) (i) the modification, alteration or amendment of the
Company Leverage Policy, or (ii) the approval of any matter which
the Company Leverage Policy provides is to be approved by the
Board of Managers as a Super Majority Decision;
(o) (i) the approval of any distribution by the Company
to the Members of any assets in kind, (ii) the approval of any
distribution by the Company to the Members of cash and property in
kind on a non-pro rata basis, and (iii) the determination of the
value assigned to such assets in kind;
(p) each Critical Decision or material amendment thereto
made on or prior to the Critical Decision Termination Date for
such Critical Decision; and
(q) the delegation to a Member of the power to
unilaterally bind the Company or any of its subsidiaries with
respect to any matter.
SECTION 8.09. ANNUAL CAPITAL BUDGET. (a) In Fiscal Year
1999 and in each Fiscal Year thereafter, the Executive Officers of the
Company shall timely prepare or cause to be prepared a draft capital budget
(the "Draft Annual Capital Budget") for such Fiscal Year, which shall set
forth in reasonable line item detail the proposed Acquisition Expenditures,
Capital Expenditures and the Ordinary Course Lease Expenditures of the
Company and its subsidiaries for such Fiscal Year, including all Ordinary
Course Lease Expenditures and all Capital Expenditures of the Company and
its subsidiaries directly associated with the Garyville Propylene Upgrade
Project. In addition, to the extent that information can reasonably be
obtained on the nature of assets rented or financed by operating leases,
such information shall be presented along with the Annual Capital Budget.
Copies of the Draft Annual Capital Budget shall be provided to each Member
(at the same time) and to the Board of Managers. No later than the last
regular meeting of the Board of Managers for a Fiscal Year, the Executive
Officers shall present to the Board of Managers the Draft Annual Capital
Budget for the following Fiscal Year for the Board of Managers' review,
consideration and approval, with such additions, deletions and changes
thereto as the Board of Managers shall deem necessary. Upon its approval by
the Board of Managers (and taking into account any additions, deletions or
other changes deemed necessary by the Board of Managers) the Draft Annual
Capital Budget for a Fiscal Year shall become the "Annual Capital Budget"
for such Fiscal Year.
(b) If the Board of Managers shall fail to approve an
Annual Capital Budget for any Fiscal Year, the total expenditures provided
for in the Annual Capital Budget for such Fiscal Year shall be in an amount
equal to the Normal Annual Capital Budget Amount for such Fiscal Year.
(c) No later than August 30 of each Fiscal Year, the
Board of Managers shall review the Annual Capital Budget for such Fiscal
Year and shall make such additions, deletions and changes thereto as the
Board of Managers shall deem necessary.
SECTION 8.10. BUSINESS PLAN. In Fiscal Year 1999 and in
each Fiscal Year thereafter, the Executive Officers of the Company shall
timely prepare or cause to be prepared a draft business plan (the "Draft
Business Plan") for the next three Fiscal Years. Copies of the Draft
Business Plan shall be provided to each Member (at the same time) and to
the Board of Managers. No later than the last regular meeting of the Board
of Managers for a Fiscal Year, the Executive Officers shall present to the
Board of Managers the Business Plan for their review, consideration and
approval, with such additions, deletions and changes thereto as the Board
of Managers shall deem necessary. Upon its approval by the Board of
Managers (and taking into account any such additions, deletions or other
changes deemed necessary by the Board of Managers), the Draft Business Plan
for a Fiscal Year shall become the "Business Plan" for such Fiscal Year.
SECTION 8.11. REQUIREMENTS AS TO AFFILIATE TRANSACTIONS.
(a) The Company and its subsidiaries shall only be permitted to enter into
or renew or extend the term thereof (whether pursuant to contractual
provisions thereof or otherwise) an agreement or a transaction with a
Member or an Affiliate of a Member (which, solely for purposes of this
Section 8.11, shall be deemed to include any entity more than 10% of the
voting stock or other ownership interests of, or economic interest in,
which is owned by a Member (other than the Company or any of its
subsidiaries)) on the same terms or on terms no less favorable to the
Company or such subsidiary than could be obtained from a third party on an
arm's-length basis (an "Arm's-Length Transaction").
(b) (i) If (A) the Company or any subsidiary of the
Company enters into, renews or extends the term of (pursuant to
contractual provisions thereof that were previously approved by
the Board of Managers or otherwise) or materially amends or
changes the terms or provisions of, any agreement or transaction
between the Company or any of its subsidiaries and any Member or
any Affiliate of any Member (a "Section 8.11(b) Affiliate
Transaction") or proposes to do any of the foregoing and (ii) not
later than 90 days after receiving written notice thereof from the
Company pursuant to Section 7.03 or otherwise (which notice
describes the material terms and conditions of such transaction in
reasonable detail), the Member that is not (or whose Affiliate is
not) a party to such Section 8.11(b) Affiliate Transaction (the
"Non-Contracting Member") notifies the Company and the Member that
is (or whose Affiliate is) a party to such Section 8.11(b)
Affiliate Transaction (the "Contracting Member") in writing that
the Non-Contracting Member believes in good faith that either such
Affiliate Transaction is not an Arm's-Length Transaction or that
the quality of the service being provided or to be provided by the
Contracting Member is inferior to that which the Company and its
subsidiaries could otherwise obtain on comparable terms and
conditions, then the Company shall promptly (and, in any event
within 30 days) provide the Non-Contracting Member with a
reasonably detailed explanation of the basis for the Company's
determination that such new, renewed or extended Affiliate
Transaction is an Arm's-Length Transaction or the quality of the
service being provided or to be provided to the Company and its
subsidiaries is not inferior.
(ii) If following receipt of such evidence, the
Non-Contracting Member is not reasonably satisfied that such
Affiliate Transaction is an Arm's-Length Transaction or the
quality of the service being provided or to be provided to the
Company and its subsidiaries is not inferior, then, at the written
request of the Non-Contracting Member (such written request being
an "Affiliate Transaction Dispute Notice"), the Company shall (A)
modify the terms of such Affiliate Transaction so that it becomes
an Arm's-Length Transaction, (B) if the Company had given the
Members written notice pursuant to Section 7.03(a) prior to
entering into, renewing or extending such Affiliate Transaction,
not enter into, renew or extend such Affiliate Transaction or (C)
if the Company had given the Members written notice pursuant to
Section 7.03(a) prior to entering into, renewing or extending such
Affiliate Transaction, enter into, renew or extend such Affiliate
Transaction in which event the determination of whether such
Affiliate Transaction is an Arm's Length Transaction and/or
whether the quality of the service being provided is inferior
shall be in accordance with the Dispute Resolution Procedures set
forth in Article XIII or (D) if the Company shall not have given
the Members written notice pursuant to Section 7.03(a) prior to
entering into, renewing or extending such Affiliate Transaction,
commence the dispute resolution procedures set forth in Article
XIII.
(iii) For purposes of Article XIII, a Non-Contracting
Member's delivery of an Affiliate Transaction Dispute Notice to
the Company shall constitute delivery of a Dispute Notice
thereunder, and the Company shall be required to deliver a
Response to the Non-Contracting Member within 30 days thereafter.
If it is finally determined pursuant to such Dispute Resolution
Procedures that such Affiliate Transaction is an Arm's-Length
Transaction and, if disputed, that the quality of service being so
provided is not inferior, then the Company shall be permitted to
enter into, renew or extend such Affiliate Transaction. If it is
finally determined pursuant to such Dispute Resolution Procedures
that such Affiliate Transaction is not an Arm's-Length Transaction
or that the quality of service being so provided is inferior, then
the Company shall either modify the terms of such Affiliate
Transaction so that it becomes an Arm's-Length Transaction and, if
disputed, with an adequate level of quality of service or not
enter into, renew or extend such Affiliate Transaction. In the
event that such Affiliate Transaction has already been entered
into, renewed or extended, then (A) the Company and the
Contracting Member shall make such modifications to the terms of
such Affiliate Transaction as are necessary so that such Affiliate
Transaction becomes an Arm's-Length Transaction and, if disputed,
with an adequate level of quality of service and (B) the
Contracting Member shall pay the Company an amount equal to the
difference between (I) the costs incurred by the Company under
such Affiliate Transaction since the time of such entering into,
renewal or extension and (II) the costs that the Company would
have incurred under such Affiliate Transaction during such time
period had such Affiliate Transaction been an Arm's-Length
Transaction and, if disputed, with an adequate level of quality of
service at the time of such initial agreement, renewal or
extension.
SECTION 8.12. REVIEW OF CERTAIN AFFILIATE TRANSACTIONS
RELATED TO CRUDE OIL PURCHASES AND SHARED SERVICES. (a) (i) Not less than
30 days prior to the regular meeting of the Board of Managers during the
fourth Fiscal Quarter of each Fiscal Year (or, if no regular meeting of the
Board of Managers is scheduled during such Fiscal Quarter, at a special
meeting of the Board of Managers during such Fiscal Quarter), the Company
shall submit to the Board of Managers a reasonably detailed description of
any proposed transactions or agreements related to crude oil purchases by
the Company and its subsidiaries from Marathon or any Affiliate of Marathon
that are intended to remain in effect or to be put into effect during such
next Fiscal Year (collectively, the "Marathon Crude Oil Purchase Program").
Following such submission, the Company shall provide the Board of Managers
promptly with such information with respect to such Marathon Crude Oil
Purchase Program and the Company's other proposed crude oil purchases and
policies for such next Fiscal Year as any Representative shall reasonably
request. At each such regular or special meeting during the fourth Fiscal
Quarter of each Fiscal Year, the Board of Managers shall review such
Marathon Crude Oil Purchase Program. During such next Fiscal Year, the
Company and its subsidiaries shall be permitted to purchase crude oil from
Marathon or any Affiliate of Marathon only on the terms and conditions of
the proposed transactions and agreements submitted to and approved by the
Board of Managers at such regular or special meeting pursuant to a vote in
accordance with Section 8.07(b) (the "Approved Marathon Crude Oil Purchase
Program"). Any purchase (or group of related purchases) of crude oil by the
Company or any of its subsidiaries from Marathon or any Affiliate of
Marathon during such Fiscal Year that is an Affiliate Transaction for
purposes of Section 8.08(k) and is not made under or in accordance with the
Approved Marathon Crude Oil Purchase Program and any material amendment to
or change in the Approved Marathon Crude Oil Purchase Program during such
Fiscal Year shall be made only with the prior approval of the Board of
Managers pursuant to a vote in accordance with Section 8.07(b).
(ii) The Company shall prepare and send to each Member
(at the same time) promptly, but in no event later than the 30th
day after the last day of each Fiscal Quarter, (A) a summary of
all Crude Oil Purchases during such Fiscal Quarter, (B) a
description of any amendments to, changes in or deviations from
the Approved Marathon Crude Oil Purchase Program in effect during
such Fiscal Quarter, (C) a description of any then known proposed
amendments to, changes in or deviations from the Approved Marathon
Crude Oil Purchase Program in effect during the remaining balance
of the Fiscal Year and (D) such other information with respect to
purchases of crude oil by the Company and its subsidiaries as
either Member shall reasonably request.
(b)(i) All administrative services that Marathon, Ashland
and each of their respective Affiliates provide to the Company or
any of its subsidiaries, and that the Company and its subsidiaries
provide to Marathon, Ashland or any of their respective
Affiliates, shall be pursuant to the Shared Services Agreement. To
the extent that there is a conflict between the Shared Services
Agreement, Schedule 10.2(e) to the Marathon Asset Transfer and
Contribution Agreement Disclosure Letter or Schedule 10.2(e) to
the Ashland Asset Transfer and Contribution Agreement Disclosure
Letter, on the one hand, and this Agreement, on the other hand,
this Agreement shall control.
(ii) Not less than 90 days prior to each of the annual
meetings of the Board of Managers held in 2000, 2003 and every
three years thereafter, the Company shall submit to the Board of
Managers the provisions of the Shared Services Agreement that
relate to each Significant Shared Service then in effect or that
is proposed to be put into effect. Following such submission, the
Company shall provide the Board of Managers promptly with such
information with respect to such Significant Shared Services and
with respect to any other Shared Services then being provided or
proposed to be provided as any Representative shall reasonably
request. At each such annual meeting, unless all the
Representatives otherwise agree, the Board of Managers shall
review each such Significant Shared Service and shall determine
pursuant to a vote in accordance with Section 8.07(b) whether such
Significant Shared Service should be continued (or, in the case of
any proposed Significant Shared Service, put into effect). Unless
the Board of Managers approves pursuant to a vote in accordance
with Section 8.07(b) the continuation or effectiveness of a
Significant Shared Service, the Shared Service Agreement to the
extent it relates to such Significant Shared Service shall be
terminated effective 90 days after such annual meeting or at such
later date as the Board of Managers shall specify pursuant to a
vote in accordance with Section 8.07(b) and the Company shall be
deemed at the time of such annual meeting to have given notice to
the Member providing or receiving (or whose Affiliate is providing
or receiving) such Significant Shared Service that the Company is
terminating the Shared Service Agreement with respect to such
Significant Shared Service.
SECTION 8.13. ADJUSTABLE AMOUNTS. Within 30 days
following the date on which the United States Department of Labor Bureau of
Labor Statistics for all Urban Areas publishes the Price Index for the
month of September of each Fiscal Year commencing September, 1998, the
Company shall determine whether the Average Annual Level for the
immediately preceding twelve-month period exceeds the Base Level. If the
Company determines that the Average Annual Level for such twelve-month
period exceeds the Base Level, then the Company shall increase or decrease
each of the dollar amounts set forth in this Agreement (other than the $348
million and $346 million amounts set forth in the definition of Adjusted
DD&A, the $657 million, $600 million, $80 million, $20 million and $12.4
million amounts set forth in the definition of Adjusted EBITDA, the $240
million amount set forth in the definition of "Normal Annual Capital Budget
Amount" in Section 1.01, the $100 million amount set forth in Section
8.08(f)(i) and any dollar amount set forth in any Appendix, Exhibit or
Schedule to this Agreement, including Schedule 8.14) (each dollar amount
that is adjusted pursuant to this Section 8.13 being an "Adjustable
Amount"), including, without limitation, the following amounts, to an
amount calculated by multiplying the relevant Adjustable Amount by a
fraction whose numerator is the Average Annual Level for such twelve-month
period and whose denominator is the Base Level: (i) the $100,000, $2
million and $25 million amounts set forth in the definition of "Affiliate
Transaction" and the $2 million amount set forth in the definition of
"Significant Shared Service" in each case in Section 1.01; (ii) the $2
million amount set forth in Section 6.06(c); (iii) the $2 million amounts
set forth in Sections 6.08(b), (d) and (e); (iv) the $20 million amount set
forth in Section 8.08(a)(i); (v) the $80 million amount set forth on
Section 8.08(f)(ii) (or such other dollar amount as shall be agreed
pursuant to the proviso to Section 8.08(f)(ii)); (vi) the $50 million
amount set forth in Section 8.08(g); (vii) the $50 million and $25 million
amounts set forth in Section 8.08(h)(i); and (viii) each $7.5 million
amount set forth in Section 14.01(a); provided that in no event shall any
Adjustable Amount be decreased below the initial amount thereof set forth
herein. Within five Business Days after making such determinations, the
Company shall distribute to each Member a notice setting forth: (A) the
amount by which the Average Annual Level for such Fiscal Year exceeded the
Base Level and (B) the calculations of any adjustments made to the
Adjustable Amounts pursuant to this Section 8.13. Any adjustment made to
the Adjustable Amounts pursuant to this Section 8.13 shall be effective as
of January 1st of the next Fiscal Year.
SECTION 8.14. COMPANY LEVERAGE POLICY. The leverage
policy for the Company shall be the leverage policy set forth on Schedule
8.14, with such modifications, alterations or amendments thereto as the
Board of Managers shall from time to time approve pursuant to a vote in
accordance with Section 8.07(b) (such leverage policy, as so modified,
altered or amended, is referred to herein as the "Company Leverage
Policy").
SECTION 8.15. COMPANY'S INVESTMENT GUIDELINES.
The Company's Senior Vice President-Finance and Commercial Services, Vice
President-Finance and Controller and Treasurer (or Treasury Manager) shall
constitute an Investment Policy Committee of the Company and shall
establish investment guidelines for the Company and its subsidiaries (such
investment guidelines, as they may be modified, altered or amended by such
Investment Policy Committee from time to time, are referred to herein as
the "Company Investment Guidelines"). The initial Company Investment
Guidelines is set forth on Schedule 8.15. The Company and its subsidiaries
shall only make investments that are permitted under the Company Investment
Guidelines at the time of such investments. In addition, the Company and
its subsidiaries shall invest all Surplus Cash (after meeting daily cash
requirements) in accordance with the Company Investment Guidelines.
SECTION 8.16. REQUIREMENTS AS TO OPERATING LEASES. The
Company and its subsidiaries shall not enter into any operating lease (as
determined in accordance with Applicable GAAP) if the purpose or intent of
entering into such operating lease is to circumvent the Company Leverage
Policy or the super majority voting requirement for Capital Expenditures of
the Company set forth in Section 8.08(f). The lease by the Company and its
subsidiaries of vehicles, railcars and computers in accordance with the
historical practices of the Ashland Business and the Marathon Business
shall not be deemed to violate this Section 8.16, provided, for the
avoidance of doubt, that all Ordinary Course Lease Expenses related to any
such leases shall be considered Ordinary Course Lease Expenses for the
purposes of Section 8.08(f)(ii).
SECTION 8.17. LIMITATIONS ON ACTIONS RELATING TO THE
CALCULATION OF DISTRIBUTABLE CASH. Notwithstanding anything to the contrary
contained in this Agreement, the Company shall not, and shall cause its
subsidiaries not to (a) modify, alter or amend the Company Investment
Guidelines, (b) accelerate the payment of the Company's and its
subsidiaries' accounts payable, (c) delay the collection of the Company's
and its subsidiaries' accounts receivable or (d) take any other action, if
the purpose or intent of such action is to reduce the amount of
Distributable Cash in a manner that is inconsistent with the intent of the
Members to maximize the amount of Distributable Cash distributions to the
Members.
SECTION 8.18. RELIANCE BY THIRD PARTIES. Persons dealing
with the Company are entitled to rely conclusively upon the power and
authority of the Board of Managers herein set forth. Except as provided in
this Agreement, neither the President, nor a Representative, nor any Member
shall have any authority to bind the Company or any of its subsidiaries.
SECTION 8.19. INTEGRATION OF RETAIL OPERATIONS. (a) Until
the Critical Decision is made regarding the location of the Company's
retail operations' headquarters, the Company's retail operations' business
shall have headquarters in both Enon, Ohio and Lexington, Kentucky.
(b) (i) The Company shall make a formal recommendation to
the Board of Managers with respect to each Critical Decision not
later than the ten-month anniversary of the Closing Date.
Following receipt of a formal recommendation with respect to any
Critical Decision, Marathon and Ashland shall negotiate in good
faith to reach an agreement with respect to such Critical Decision
not later than the first anniversary of the Closing Date.
(ii) Each formal recommendation with respect to any
Critical Decision shall be accompanied by a report on the business
and economic analyses used by the Company to arrive at such
recommendation, including but not limited to, a reasonably
detailed description of the risks and benefits of the recommended
decision and the anticipated impact of the recommended decision on
the Speedway and SuperAmerica brand images and business models.
(iii) Following receipt of any formal recommendation with
respect to any Critical Decision, each Member may request, and the
Company shall promptly provide to both Members, such additional
information and analyses (including studies by outside
consultants) as such Member may reasonably request; provided,
however, any additional information request shall not extend the
Critical Decision Termination Date.
(c) If any Primary Critical Decision shall not have been
agreed by the Board of Managers pursuant to a vote in accordance with
Section 8.07(b) prior to the first anniversary of the Closing Date, the
Critical Decision Termination Date with respect to such Primary Critical
Decision shall be automatically, and without any further action required by
either Member, the Company or the Board of Managers, extended until the
fifteen-month anniversary of the Closing Date. During the period of such
extension, the Company shall provide promptly to each Member such
additional information or analyses (including studies by outside
consultants) as either Member shall reasonably request. Not later than 30
days prior to the fifteen-month anniversary of the Closing Date, the
Company shall, if requested by either Member, again make a formal
recommendation to the Board of Managers with respect to such Primary
Critical Decision. Such formal recommendation shall include a report on the
supporting business and economic analyses described in Section 8.19(b)(ii).
Any request for additional information shall not extend the Critical
Decision Termination Date.
(d) Until such time as the implementation of any Critical
Decision shall have been completed in all material respects, the President
of the Company shall report to the Board of Managers at each regular
meeting of the Board of Managers on the implementation of such Critical
Decision and on any material modifications or changes to such Critical
Decision.
(e) To the extent there is any conflict between the terms
and provisions of this Agreement and the terms and provisions of the Retail
Integration Protocol, the terms and provisions of this Agreement shall
control.
ARTICLE IX
Officers
SECTION 9.01. (a) ELECTION, APPOINTMENT AND TERM OF
OFFICE. The executive officers of the Company (the "Executive Officers")
shall consist solely of: a President; an Executive Vice President; an
officer principally in charge of refining; an officer principally in charge
of wholesale and branded marketing; the officer or officers (two initially)
principally in charge of retail marketing; an officer principally in charge
of supply and transportation; an officer who shall be the Senior Vice
President-Finance and Commercial Services of the Company; and an officer
who shall be the general counsel of the Company; provided, however, that
Marathon and Ashland may make additions or deletions to the positions which
shall be considered executive officers of the Company by mutual agreement.
Schedule C sets forth a list of (i) the persons who Marathon and Ashland
have chosen to serve initially as the Executive Officers of the Company,
(ii) the executive office for which each such person is to serve and (iii)
whether each such person was designated by Marathon or Ashland. Marathon
and Ashland agree that the composition of the initial Executive Officers is
intended to reflect their respective Percentage Interests in the Company.
Accordingly, if any person identified on Schedule C is for any reason
unable or unwilling to serve as an Executive Officer at the Closing Date,
the Member who designated such person shall have the right to designate a
substitute person, subject to the right of the other Member to consent to
such substitute nominee (which consent shall not be unreasonably withheld).
Marathon and Ashland shall cause their respective Representatives to
promptly approve the appointment of each person listed on Schedule C to the
related executive office position listed on Schedule C.
(b) Except as otherwise determined by the Board of
Managers, each Executive Officer shall hold office until his or her death
or until his or her earlier resignation or removal in the manner
hereinafter provided. Except as otherwise expressly provided herein, the
Executive Officers shall have such powers and duties in the management of
the Company as generally pertain to their respective offices as if the
Company were a corporation governed by the General Corporation Law of the
State of Delaware.
(c) The Board of Managers may elect or appoint such other
officers to assist and report to the Executive Officers as it deems
necessary. Subject to the preceding sentence, each such officer shall have
such authority and shall perform such duties as may be provided herein or
as the Board of Managers may prescribe. The Board of Managers may delegate
to any Executive Officer the power to choose such other officers and to
prescribe their respective duties and powers.
(d) Except as otherwise determined by the Board of
Managers, if additional officers are elected or appointed during the year
pursuant to Section 9.01(c), each such officer shall hold office until his
or her death or until his or her earlier resignation or removal in the
manner hereinafter provided.
SECTION 9.02. RESIGNATION, REMOVAL AND VACANCIES. (a) Any
officer may resign at any time by giving written notice to the President or
the Secretary of the Company, and such resignation shall take effect at the
time specified therein or, if the time when it shall become effective shall
not be specified therein, when accepted by action of the Board of Managers.
Except as aforesaid, the acceptance of such resignation shall not be
necessary to make it effective.
(b) All officers and agents elected or appointed by the
Board of Managers shall be subject to removal at any time by the Board of
Managers with or without cause.
(c) Vacancies in all Executive Officer positions may only
be filled by the majority vote of the Representa-tives on the Board of
Managers. In each instance where a vacant Executive Officer position is to
be filled, Marathon, after consultation with the Company, shall first send
Ashland a notice which discloses the name and details of the candidate for
the vacant Executive Officer position that the Representatives of Marathon
will nominate and vote in favor of for such position. Ashland shall
thereafter have the right, by notice to the Company and Marathon within ten
days after receipt of such notice from Marathon, to veto such candidate.
Each candidate that Marathon proposes for a vacant Executive Officer
position shall be a bona fide candidate who is willing and able to serve
and who Marathon in good faith believes is qualified to fill such vacant
Executive Officer position (a "Qualified Candidate"). In the event Ashland
exercises its veto with respect to a Qualified Candidate, the vacancy will
be filled by the majority vote of the Representatives on the Board of
Managers.
SECTION 9.03. DUTIES AND FUNCTIONS OF EXECUTIVE OFFICERS.
(a) President. The President of the Company, who shall be a non-voting
member of the Board of Managers, shall be in charge of the day-to-day
operations of the Company and shall preside at all meetings of the Board of
Managers and shall perform such other duties and exercise such powers, as
may from time to time be prescribed by the Board of Managers.
(b) Executive Vice President. The Executive Vice
President of the Company initially shall report to the President and be the
officer principally in charge of all supply, refining, marketing and
transportation operations of the Company other than the Company's retail
operations.
(c) Other Executive Officers. The Executive Officers of
the Company other than the President and the Executive Vice President shall
perform such duties and exercise such powers, as may from time to time be
prescribed by the President or the Board of Managers.
ARTICLE X
Transfers of Membership Interests
SECTION 10.01. RESTRICTIONS ON TRANSFERS. (a) General.
Except as expressly provided by this Article X, neither Member shall
Transfer all or any part of its Membership Interests to any person without
first obtaining the written approval of the other Member, which approval
may be granted or withheld in its sole discretion. Notwithstanding anything
to the contrary contained in this Agreement, no Transfer by a Member of its
Membership Interests to any person shall be made except to a permitted
assignee under Article XV of the Put/Call, Registration Rights and
Standstill Agreement.
(b) Transfer by Operation of Law. In the event a Member
shall be party to a merger, consolidation or similar business combination
transaction with a third party or sell all or substantially all its assets
to a third party, such Member may Transfer all (but not part) of its
Membership Interests to such third party; provided, however, that such
Member shall not be permitted to Transfer its Membership Interests to such
third party as aforesaid if the purpose or intent of such merger,
consolidation, similar business combination transaction or sale is to
circumvent or avoid the application of Sections 10.01(c) and 10.04 to the
Transfer of such Member's Membership Interests to such third party.
(c) Transfer by Sale to Third Party. At any time after
December 31, 2002, a Member may sell all (but not part) of its Membership
Interests (and, in the case of Ashland, the Ashland LOOP/LOCAP Interest) to
any person (other than a Transfer by operation of law pursuant to Section
10.01(b), a Transfer to a Wholly Owned Subsidiary pursuant to Section
10.01(d) or a Transfer by Ashland to Marathon pursuant to Section 10.01(e))
if (i) it shall first have offered the other Member the opportunity to
purchase such Membership Interests (and, in the case of Ashland, the
Ashland LOOP/LOCAP Interest) pursuant to the right of first refusal
procedures set forth in Section 10.04, (ii) such sale is completed within
the time periods specified in Section 10.04, (iii) the other Member shall
have approved the purchaser of such Membership Interests (and, in the case
of Ashland, the Ashland LOOP/LOCAP Interest), which approval shall not be
unreasonably withheld or delayed and (iv) it shall use its commercially
reasonable best efforts to (A) terminate the outstanding Original Lease
underlying each of its Designated Sublease Agreements on or prior to the
date of such Transfer and (B) contribute the related Subleased Property to
the Company or one of its subsidiaries at no cost to the Company or such
subsidiary on or prior to the date of such Transfer; provided, however,
that (i) such Member shall not be obligated to pay more than a reasonable
amount as consideration therefor to, or make more than a reasonable
financial accommodation in favor of, or commence litigation against, a
third party lessor with respect to any such underlying Original Lease in
order to obtain any consent required from such lessor and (ii) any
additional cost associated with exercising an option under the Original
Lease to purchase Subleased Property or to terminate the Original Lease
shall be deemed not to constitute an obligation to pay more than a
reasonable amount. In the event that such Member is unable to terminate an
outstanding Original Lease in accordance with this Section 10.02(b), then
(i) the Company shall be entitled to continue to sublease the Subleased
Property pursuant to the related Designated Sublease Agreement until the
term of the Original Lease expires, (ii) the Member shall continue to use
its commercially reasonable best efforts to terminate the Original Lease
and contribute the Subleased Property to the Company as provided above;
provided, however that (A) such Member shall not be obligated to pay more
than a reasonable amount as consideration therefor to, or make more than a
reasonable financial accommodation in favor of, or commence litigation
against, a third party lessor with respect to any such Original Lease in
order to obtain any consent required from such lessor and (b) any
additional cost associated with exercising an option under the Original
Lease to purchase Subleased Property or to terminate the Original Lease
shall be deemed not to constitute an obligation to pay more than a
reasonable amount and (iii) if such Member subsequently acquires fee title
to the Subleased Property, such Member shall contribute such Subleased
Property to the Company or one of its subsidiaries at no cost to the
Company or such subsidiary at such time. It is expressly understood and
agreed that, in determining whether to reasonably withhold its approval of
a proposed purchaser of Marathon's Membership Interests pursuant to this
Section 10.01(c), Ashland shall be entitled to consider the
creditworthiness of such proposed purchaser, including whether such
proposed purchaser is likely to be able to perform all of Marathon's and
USX's respective obligations under the Put/Call, Registration Rights and
Standstill Agreement.
(d) Transfer to Wholly Owned Subsidiary. A Member may
Transfer all (but not part) of its Membership Interests at any time to a
Wholly Owned Subsidiary of such Member if (i) such Member shall have
received an opinion from nationally recognized tax counsel acceptable to
both Members that such Transfer will not result in a termination of the
status of the Company as a partnership for Federal income tax purposes and
(ii) the transferring Member enters into an agreement with the other Member
providing that so long as such Wholly Owned Subsidiary holds such
transferring Member's Membership Interests, such Wholly Owned Subsidiary
shall remain a Wholly Owned Subsidiary of such transferring Member.
(e) Transfer Pursuant to Put/Call, Registration Rights
and Standstill Agreement. Ashland may Transfer all of its Membership
Interests to Marathon in connection with the exercise by Marathon of its
Marathon Call Right or its Special Termination Right or the exercise by
Ashland of its Ashland Put Right. In addition, Marathon may Transfer all of
its Membership Interests to Ashland in connection with the exercise by
Ashland of its Special Termination Right.
(f) Consequences of Permitted Transfers. (i) In
connection with any Transfer by a Member to a third party transferee
pursuant to Section 10.01(b), (A) such third party transferee shall at the
time of such Transfer become subject to all of such transferring Member's
obligations hereunder and shall succeed to all of such transferring
Member's rights hereunder and (B) such transferring Member shall be
relieved of all of its obligations hereunder other than with respect to any
default hereunder by such transferring Member or any of its Affiliates
hereunder that occurred prior to the time of such Transfer.
(ii) In connection with any Transfer by a Member to a
third party transferee or to the other Member pursuant to Section
10.01(c), (A) such third party transferee or such other Member
shall at the time of such Transfer become subject to all of such
transferring Member's obligations hereunder and shall succeed to
all of such transferring Member's rights hereunder and (B) such
transferring Member shall at the time of such Transfer be relieved
of all of its obligations hereunder other than with respect to any
default hereunder by such transferring Member or any of its
Affiliates that occurred prior to the time of such Transfer.
(iii) In connection with any Transfer by a Member to a
Wholly Owned Subsidiary of such Member pursuant to Section
10.01(d), (A) such Wholly Owned Subsidiary shall at the time of
such Transfer become subject to all of such Member's obligations
hereunder and shall succeed to all of such Member's rights
hereunder and (B) such Member shall not be relieved of its
obligations hereunder without the prior written consent of the
other Member, which consent shall not be unreasonably withheld or
delayed.
(iv) In connection with any Transfer by Ashland to
Marathon pursuant to Section 10.01(e), (A) Marathon shall at the
time of such Transfer become subject to all of Ashland's
obligations hereunder and shall succeed to all of Ashland's rights
hereunder and (B) Ashland shall at the time of such Transfer be
relieved of all of its obligations hereunder other than with
respect to any default hereunder by Ashland or any of its
Affiliates that occurred prior to the Exercise Date (as such term
is defined in the Put/Call, Registration Rights and Standstill
Agreement).
(v) In connection with any Transfer by Marathon to
Ashland pursuant to Section 10.01(e), (A) Ashland shall at the
time of such Transfer become subject to all of Marathon's
obligations hereunder and shall succeed to all of Marathon's
rights hereunder and (B) Marathon shall at the time of such
Transfer be relieved of all of its obligations hereunder other
than with respect to any default hereunder by Marathon or any of
its Affiliates that occurred prior to the Special Termination
Exercise Date (as such term is defined in the Put/Call,
Registration Rights and Standstill Agreement).
(vi) In connection with any Transfer by Ashland to a
third party transferee pursuant to Section 10.01(b), 10.01(c) or
10.01(d), such third party transferee shall at the time of such
Transfer succeed to all of Ashland's veto rights under Section
9.02(c); provided, that if Ashland Transfers its Membership
Interests to a third party transferee pursuant to Section
10.01(c), such third party transferee shall not thereafter be
permitted to transfer its veto rights under Section 9.02(c) to
another third party transferee pursuant to Section 10.01(c).
(vii) In connection with any Transfer by a Member to a
third party transferee pursuant to this Article X, such
transferring Member shall retain all of the rights granted to a
Member under Article VII to examine the books and records of the
Company and to receive financial statements and reports prepared
by the Company until such time following such Transfer as such
transferring Member ceases to have any liability under Article IX
of the Asset Transfer and Contribution Agreement.
(g) Consequences of an Unpermitted Transfer. Any Transfer
of a Member's Membership Interests made in violation of the applicable
provisions of this Agreement shall be void and without legal effect.
SECTION 10.02. CONDITIONS FOR ADMISSION. No transferee of
all of the Membership Interests of any Member shall be admitted as a Member
hereunder unless (a) such Membership Interests are Transferred to a person
in compliance with the applicable provisions of this Agreement, (b) such
transferee shall have executed and delivered to the Company such
instruments as the Board of Managers deems necessary or desirable in its
reasonable discretion to effectuate the admission of such transferee as a
Member and to confirm the agreement of such transferee or recipient to be
bound by all the terms and provisions of this Agreement with respect to the
Membership Interests acquired by such transferee and (c) such transferee
shall have executed and delivered an assignment and assumption agreement
pursuant to Section 15.04 of the Put/Call, Registration Rights and
Standstill Agreement.
SECTION 10.03. ALLOCATIONS AND DISTRIBUTIONS. Subject to
applicable Treasury Regulations, upon the Transfer of all the Membership
Interests of a Member as herein provided, the Profit or Loss of the Company
attributable to the Membership Interests so transferred for the Fiscal Year
during which such Transfer occurs shall be allocated between the transferor
and transferee as of the date set forth on the written assignment, and such
allocation shall be based upon any permissible method agreed to by the
Members that is provided for in Code Section 706 and the Treasury
Regulations issued thereunder. Except as otherwise expressly provided in
Section 5.01 of the Put/Call, Registration Rights and Standstill Agreement,
distributions shall be made to the holder of record of the Membership
Interests on the date of distribution.
SECTION 10.04. RIGHT OF FIRST REFUSAL. (a) If a Member
(the "Selling Member") shall desire to sell all (but not part) of its
Membership Interests (which, for purposes of this Section 10.04, shall be
deemed to include, in the case of Ashland, the Ashland LOOP/LOCAP Interest)
pursuant to Section 10.01(c), then the Selling Member shall give notice
(the "Offer Notice") to the other Member, identifying the proposed
purchaser from whom it has received a bona fide offer and setting forth the
proposed sale price (which shall be payable only in cash or purchase money
obligations secured solely by the Membership Interests being sold) and the
other material terms and conditions upon which the Selling Member is
proposing to sell such Membership Interests to such proposed purchaser. No
such sale shall encompass or be conditioned upon the sale or purchase of
any property other than such Membership Interests (other than, in the case
of Ashland, the Ashland LOOP/LOCAP Interest). The other Member shall have
30 days from receipt of the Offer Notice to elect, by notice to the Selling
Member, to purchase the Membership Interests offered for sale on the terms
and conditions set forth in the Offer Notice.
(b) If a Member makes such election, the notice of
election shall state a closing date not later than 60 days after the date
of the Offer Notice. If such Member breaches its obligation to purchase the
Membership Interests of the Selling Member on the same terms and conditions
as those contained in the Offer Notice after giving notice of its election
to make such purchase (other than where such breach is due to circumstances
beyond such Member's reasonable control), then, in addition to all other
remedies available, the Selling Member may, at any time for a period of 270
days after such default, sell such Membership Interests to any person at
any price and upon any other terms without further compliance with the
procedures set forth in Section 10.04.
(c) If the other Member gives notice within the 30-day
period following the Offer Notice from the Selling Member that it elects
not to purchase the Membership Interests, the Selling Member may, within
120 days after the end of such 30-day period (or 270 days in the case where
such parties have received a second request under HSR), sell such
Membership Interests to the identified purchaser (subject to clause (iii)
of Section 10.01(c)) on terms and conditions no less favorable to the
Selling Member than the terms and conditions set forth in such Offer
Notice. In the event the Selling Member shall desire to offer the
Membership Interests for sale on terms and conditions less favorable to it
than those previously set forth in an Offer Notice, the procedures set
forth in this Section 10.04 must again be initiated and applied with
respect to the terms and conditions as modified.
SECTION 10.05. RESTRICTION ON RESIGNATION OR WITHDRAWAL.
Except in connection with a Transfer permitted pursuant to Section 10.01,
neither Member shall resign or withdraw from the Company without the
consent of the other Member. Any purported resignation or withdrawal from
the Company in violation of this Section 10.05 shall be null and void and
of no force or effect.
ARTICLE XI
Liability, Exculpation and Indemnification
SECTION 11.01. LIABILITY. Except as otherwise provided by
the Delaware Act, the debts, obligations and liabilities of the Company,
whether arising in contract, tort or otherwise, shall be solely the debts,
obligations and liabilities of the Company, and no Covered Person shall be
obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a Covered Person.
SECTION 11.02. EXCULPATION. (a) No Covered Person shall
be liable to the Company or any other Covered Person for any cost, expense,
loss, damage, claim or liability incurred by reason of any act or omission
performed or omitted by such Covered Person in such capacity, whether or
not such person continues to be a Covered Person at the time of such cost,
expense, loss, damage, claim or liability is incurred or imposed, if the
Covered Person acted in good faith and in a manner the Covered Person
reasonably believed to be in or not opposed to the best interests of the
Company, and if, with respect to any criminal action or proceeding, such
Covered Person had no reasonable cause to believe its conduct was unlawful,
except that a Covered Person shall be liable for any such cost, expense,
loss, damage, claim or liability incurred by reason of such Covered
Person's breach of Section 12.02.
(b) A Covered Person shall be fully protected in relying
in good faith upon the records of the Company and upon such information,
opinions, reports or statements presented to the Company by any person as
to any matters the Covered Person reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Company, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence
and amount of assets from which distributions to Members might properly be
paid.
SECTION 11.03. INDEMNIFICATION. (a) To the fullest extent
permitted by Applicable Law, a Covered Person shall be entitled to
indemnification from the Company for any reasonable cost and expense, loss,
damage, claim or liability incurred by such Covered Person in connection
with any pending, threatened or completed claim, action, suit or proceeding
by reason of being a Covered Person or by reason of any act or omission
performed or omitted by such Covered Person in such capacity, whether or
not such person continues to be a Covered Person at the time such cost,
expense, loss, damage, claim or liability is incurred or imposed, if the
Covered Person (i) has been successful on the merits or otherwise with
respect to such claim, action, suit or proceeding, or (ii) acted in good
faith and in a manner the Covered Person reasonably believed to be in or
not opposed to the best interests of the Company, and if, with respect to
any criminal action or proceeding, such Covered Person had no reasonable
cause to believe its conduct was unlawful, except that no Covered Person
shall be entitled to be indemnified in respect of any such cost, expense,
loss, damage, claim or liability incurred by such Covered Person by reason
of such Covered Person's breach of Section 12.02 with respect to such acts
or omissions; provided, however, that any indemnity under this Section
11.03 shall be provided out of and to the extent of Company assets only,
and no Covered Person shall have any personal liability on account of such
indemnification of any other Covered Person, and provided further that, in
the case of officers, employees and agents of the Company, such right to
indemnification shall be subject to any further limitations or requirements
that may be adopted by the Board of Managers, provided such limitations or
requirements were adopted prior to the events that gave rise to the claim
for indemnification.
(b) Expenses incurred with respect to any claim, action,
suit or proceeding of the character described in Section 11.03(a) shall be
advanced to a Covered Person by the Company 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 under Section 11.03(a). As a condition to advancing
expenses hereunder, the Company may require the Covered Person to sign a
written instrument acknowledging his obligation to repay any advances
hereunder if it is ultimately determined he is not entitled to such
indemnity.
(c) Notwithstanding anything in this Section 11.03 to the
contrary, no Covered Person shall be indemnified in respect of any claim,
action, suit or proceeding initiated by such Covered Person or his personal
or legal representative, or which involved the voluntary solicitation or
intervention of such person or his personal or legal representative (other
than an action to enforce indemnification rights hereunder or any action
initiated with the approval of a majority of the Board of Managers).
(d) The rights of indemnification provided in this
Section 11.03 shall be in addition to any other rights to which any Covered
Person may otherwise be entitled to by contract or otherwise; and in the
event of any Covered Person's death, such rights shall extend to such
Covered Person's heirs and personal representatives.
ARTICLE XII
Fiduciary Duties
SECTION 12.01. DUTIES AND LIABILITIES OF COVERED PERSONS.
To the extent that, at law or in equity, a Covered Person has duties
(including fiduciary duties) and liabilities relating thereto to the
Company or to any other Covered Person, a Covered Person acting under this
Agreement shall not be liable to the Company or to any other Covered Person
for its good faith reliance on the provisions of this Agreement. The
provisions of this Agreement, to the extent that they expand or restrict
the duties and liabilities of a Covered Person otherwise existing at law or
in equity, are agreed by the parties hereto to replace such other duties
and liabilities of such Covered Person.
SECTION 12.02. FIDUCIARY DUTIES OF MEMBERS OF THE COMPANY
AND MEMBERS OF THE BOARD OF MANAGERS. Each Member and each member of the
Board of Managers shall have the fiduciary duties of loyalty and care
(similar to the fiduciary duties of loyalty and care of directors of a
business corporation governed by the General Corporation Law of the State
of Delaware) to the Company and all of the Members. Not-with-standing any
provision of this Agreement to the contrary, each Member and each member of
the Board of Managers agrees to and shall exercise good faith, fairness and
loyalty to the Company and to all of the Members, and shall make all
decisions in a manner that such Member or such member of the Board of
Managers reasonably believes to be in the best interest of the Company and
all of the Members. Notwithstanding the foregoing, this Section 12.02 is
not intended to limit a Member's ability to exercise or enforce any of its
rights and remedies under this Agreement and the other Transaction
Documents in good faith, including, without limitation, Article IX of the
Asset Transfer and Contribution Agreement.
ARTICLE XIII
Dispute Resolution Procedures
SECTION 13.01. GENERAL. All controversies, claims or
disputes between the Members or between the Company and either Member that
arise out of or relate to this Agreement or the construction,
interpretation, performance, breach, termination, enforceability or
validity of this Agreement, or the commercial, economic or other
relationship of the parties hereto, whether such claim is based on rights,
privileges or interests recognized by or based upon statute, contract,
tort, common law or otherwise and whether such claim existed prior to or
arises on or after January 1, 1998 (a "Dispute") shall be resolved in
accordance with the provisions of this Article XIII (except as otherwise
expressly provided in Sections 6.06 and 6.08). Notwithstanding anything to
the contrary contained in this Article XIII, nothing in this Article XIII
shall limit the ability of the directors and officers of either Member from
communicating directly with the directors and officers of the other Member.
SECTION 13.02. DISPUTE NOTICE AND RESPONSE. Either Member
may give the other Member written notice (a "Dispute Notice") of any
Dispute which has not been resolved in the normal course of business.
Within fifteen Business Days after delivery of the Dispute Notice, the
receiving Member shall submit to the other Member a written response (the
"Response"). The Dispute Notice and the Response shall each include (i) a
statement setting forth the position of the Member giving such notice, a
summary of the arguments supporting such position and, if applicable, the
relief sought and (ii) the name and title of a senior manager of such
Member who has authority to settle the Dispute and will be responsible for
the negotiations related to the settlement of the Dispute (the "Senior
Manager").
SECTION 13.03. NEGOTIATION BETWEEN SENIOR MANAGERS. (a)
Within 10 days after delivery of the Response provided for in Section
13.02, the Senior Managers of both Members shall meet or communicate by
telephone at a mutually acceptable time and place, and thereafter as often
as they reasonably deem necessary, and shall negotiate in good faith to
attempt to resolve the Dispute that is the subject of such Dispute Notice.
If such Dispute has not been resolved within 45 days after delivery of the
Dispute Notice, then the Members shall attempt to settle the Dispute
pursuant to Section 13.04.
(b) All negotiations between the Senior Managers pursuant
to this Section 13.03 shall be treated as compromise and settlement
negotiations. Nothing said or disclosed, nor any document produced, in the
course of such negotiations which is not otherwise independently
discoverable shall be offered or received as evidence or used for
impeachment or for any other purpose in any current or future arbitration
or litigation.
SECTION 13.04. NEGOTIATION BETWEEN CHIEF EXECUTIVE
OFFICER AND PRESIDENT. (a) If the Dispute has not been resolved by
negotiation between the Senior Managers pursuant to Section 13.03, then
within 10 Business Days after the expiration of the 45 day period provided
in Section 13.03, the Chief Executive Officer of Ashland and the President
of Marathon shall meet or communicate by telephone at a mutually acceptable
time and place, and thereafter as often as they reasonably deem necessary,
and shall negotiate in good faith to attempt to resolve the Dispute that is
the subject of such Dispute Notice. If such Dispute has not been resolved
within 20 Business Days after the expiration of the 45 day period provided
in Section 13.03, then (i) if the Dispute relates solely to (A) a claim by
a Member or the Board of Managers that the other Member has failed to pay
the Company a Designated Sublease Amount or an amount in respect of a
Member-Funded Capital Expenditure, a Member-Funded Indemnity Expenditure or
an Agreed Additional Capital Contribution required to be made by it
pursuant to Section 4.02 (a "Disputed Capital Contribution Amount"), (B)
the determination of any of the following amounts with respect to any
period: distributions pursuant to Article V; the Aggregate Tax Rate;
Adjusted DD&A; Adjusted EBITDA; EBITDA; Distributable Cash; the Average
Annual Level and adjustments to Adjustable Amounts; the Normal Annual
Capital Budget Amount; Ordinary Course Lease Expenses; Profit and Loss; the
Tax Distribution Amount; the Tax Liability of any Member; and the
determination of fair market value of property distributed in kind under
Section 15.03, (C) the resolution of any dispute arising under Section
8.11(b) with respect to Affiliate Transactions or (D) the resolution of any
dispute arising under Section 8.12 with respect to certain Affiliate
Transactions related to Crude Oil Purchases and Shared Services (any
Dispute relating to any of the matters set forth in clause (A), (B), (C) or
(D) above being referred to herein as an "Arbitratable Dispute"), such
Dispute shall be settled pursuant to the arbitration procedures set forth
in Appendix B and (ii) if the Dispute does not relate primarily to an
Arbitratable Dispute, each party hereto shall be permitted to take such
actions at law or in equity as it is otherwise permitted to take or as may
be available under Applicable Law.
(b) All negotiations between the Chief Executive Officer
of Ashland and the President of Marathon pursuant to this Section 13.04
shall be treated as compromise and settlement negotiations. Nothing said or
disclosed, nor any document produced, in the course of such negotiations
which is not otherwise independently discoverable shall be offered or
received as evidence or used for impeachment or for any other purpose in
any current or future arbitration or litigation.
SECTION 13.05. RIGHT TO EQUITABLE RELIEF PRESERVED.
Notwithstanding anything in this Agreement or Appendix B to the contrary,
either Member or the Company may at any time seek from any court of the
United States located in the State of Delaware or from any Delaware state
court, any interim, provisional or injunctive relief that may be necessary
to protect the rights or property of such party or maintain the status quo
before, during or after the pendency of the negotiation process or the
arbitration proceeding or any other proceeding contemplated by Section
13.03 or 13.04.
ARTICLE XIV
Rights and Remedies with Respect to Monetary Disputes
SECTION 14.01. ABILITY OF COMPANY TO BORROW TO FUND
DISPUTED MONETARY AMOUNTS. (a) If the Company or a Member on behalf of the
Company (a "Non-Delinquent Member") claims that the other Member (a
"Delinquent Member") owes the Company a monetary amount in respect of
either (i) a Disputed Capital Contribution Amount or (ii) an
indemnification obligation under Article IX of the Asset Transfer and
Contribution Agreement that the Company or the Non-Delinquent Member claims
the Delinquent Member owes the Company and is either (A) past due or (B) in
dispute (a "Disputed Indemnification Amount") (each such claim described in
clauses (i) and (ii) above being a "Monetary Dispute", and each such
claimed amount being a "Disputed Monetary Amount"), and if (1) the Disputed
Monetary Amount itself, or when added together all other Disputed Monetary
Amounts, exceeds $7.5 million; (2) the Board of Managers (by vote of a
majority of the Representatives of the Non-Delinquent Member at a special
or regular meeting of the Board of Managers (which majority shall
constitute a quorum for purposes of the transaction of such business)) has
determined that an out-of-pocket disbursement of such Disputed Monetary
Amount or any portion thereof by the Company or one of its subsidiaries
within the next twelve months is reasonably necessary for the operation and
conduct of the Company's Business and, accordingly, that such amount should
be paid within the next twelve months; (3) the aggregate amount of all
Disputed Monetary Amounts (or portions thereof) that the Board of Managers
shall have determined pursuant to clause (2) above should be paid within
the next twelve months (such aggregate amount being the "Additional
Required Cash Amount") exceeds $7.5 million; (4) postponement by the
Company or such subsidiary of such disbursement until such time as the
Monetary Dispute is reasonably likely to be finally resolved pursuant to an
arbitration proceeding in accordance with Appendix B to this Agreement or
Appendix B to the Asset Transfer and Contribution Agreement, as applicable
(an "Arbitration Proceeding"), would have, or would reasonably be expected
to have, a Material Adverse Effect on the Company's Business; and (5) the
Delinquent Member has not paid the Company the Disputed Monetary Amount
pursuant to Section 14.02 or otherwise, then the Board of Managers (by vote
of a majority of the Representatives of the Non-Delinquent Member at a
special or regular meeting of the Board of Managers (which majority shall
constitute a quorum for purposes of the transaction of such business))
shall be permitted to cause the Company to incur an amount of Indebtedness
equal to such Additional Required Cash Amount, which Indebtedness may be
borrowed from a third party or the Non-Delinquent Member.
(b) If the Non-Delinquent Member lends the Company the
Additional Required Cash Amount pursuant to Section 14.01(a), then (i) the
amount actually lent by the Non-Delinquent Member (the "Advanced Amount")
and all accrued interest thereon shall be due and payable on the
Arbitration Payment Due Date (provided that the Company shall be permitted
to prepay the Advanced Amount in whole or in part at any time prior to such
date); and (ii) the Advanced Amount shall bear interest at the Base Rate
from the date on which such advance is made until the date that the
Advanced Amount, together with all interest accrued thereon, is repaid to
the Non-Delinquent Member.
SECTION 14.02. INTERIM PAYMENT OF DISPUTED MONETARY
AMOUNT. In order to reduce the amount of liquidated damages that a
Delinquent Member would be required to pay to the Company pursuant to
Section 14.03 in the event that such Delinquent Member loses in an
Arbitration Proceeding with respect to a Monetary Dispute, the Delinquent
Member shall be permitted to pay the Company the related Disputed Monetary
Amount prior to the commencement of such Arbitration Proceeding. The
Arbitration Tribunal or Sole Arbitrator, as applicable, shall not take into
consideration in determining the liability of the Delinquent Member, a
decision by such Delinquent Member to pay the Disputed Monetary Amount
prior to the commencement of the Arbitration Proceeding.
SECTION 14.03. LIQUIDATED DAMAGES. (a) No Interim Payment
of Disputed Monetary Amount--Delinquent Member is Found Liable for Final
Monetary Amount. If (i) it is finally determined in an Arbitration
Proceeding that a Delinquent Member owes the Company a monetary amount in
respect of (A) a Disputed Capital Contribution Amount or (B) a Disputed
Indemnification Amount (each such finally determined amount being a "Final
Monetary Amount") and (ii) the Delinquent Member had not paid the Company
the Disputed Monetary Amount prior to the commencement of such Arbitration
Proceeding pursuant to Section 14.02, then the Delinquent Member shall
promptly, and in any event on or before the tenth Business Day following
the date on which the Arbitration Tribunal or Sole Arbitrator makes its
final determination (such tenth Business Day being the "Arbitration Payment
Due Date"), pay to the Company (A) the Final Monetary Amount, together with
interest, accrued from the commencement of the Arbitration Proceeding to
the date that the Delinquent Member pays the Final Monetary Amount to the
Company, on the Final Monetary Amount, at a rate per annum equal to (1)
during the period from the commencement of the Arbitration Proceeding to
the Arbitration Payment Due Date, the Prime Rate and (2) at any time
thereafter, 150% of the Prime Rate, in each case, with daily accrual of
interest, plus (B) an amount equal to 25% of the Final Monetary Amount.
(b) Interim Payment of Disputed Monetary Amount--Delinquent
Member is Found Liable for the Same Amount. If (i) it is finally determined
in an Arbitration Proceeding that a Delinquent Member owes the Company a
Final Monetary Amount, (ii) the Final Monetary Amount is equal to the
Disputed Monetary Amount and (iii) the Delinquent Member had paid the
Company the Disputed Monetary Amount prior to the commencement of such
Arbitration Proceeding pursuant to Section 14.02, then if the Final
Monetary Amount is equal to the Disputed Monetary Amount, the Delinquent
Member shall not owe the Company any other amount in respect of the
Monetary Dispute.
(c) Interim Payment of Disputed Monetary Amount--Delinquent
Member is Found Liable for a Greater Amount. If (i) it is finally
determined in an Arbitration Proceeding that a Delinquent Member owes the
Company a Final Monetary Amount, (ii) the Final Monetary Amount is greater
than the Disputed Monetary Amount and (iii) the Delinquent Member had paid
the Company the Disputed Monetary Amount prior to the commencement of such
Arbitration Proceeding pursuant to Section 14.02, then the Delinquent
Member shall promptly, and in any event on or before the Arbitration
Payment Due Date, pay to the Company an amount (an "Additional Monetary
Amount") equal to (A) the Final Monetary Amount less (B) the Disputed
Monetary Amount, together with interest, accrued from the commencement of
the Arbitration Proceeding to the date that the Delinquent Member pays the
Additional Monetary Amount to the Company, on the Additional Monetary
Amount, at a rate per annum equal to (1) during for the period from the
commencement of the Arbitration Proceeding to the Arbitration Payment Due
Date, the Prime Rate and (2) at any time thereafter, 150% of the Prime
Rate, in each case, with daily accrual of interest.
(d) Interim Payment of Disputed Monetary
Amount--Delinquent Member is Found Liable for a Lesser Amount. If (i) it is
finally determined in an Arbitration Proceeding that a Delinquent Member
owes the Company a Final Monetary Amount, (ii) the Final Monetary Amount is
less than the Disputed Monetary Amount and (iii) the Delinquent Member had
paid the Company the Disputed Monetary Amount prior to the commencement of
such Arbitration Proceeding, then the Company shall promptly, and in any
event on or before the Arbitration Payment Due Date, repay to the
Delinquent Member an amount (a "Refundable Amount") equal to (A) the
Disputed Monetary Amount less (B) the Final Monetary Amount, together with
interest, accrued from the commencement of the Arbitration Proceeding to
the date that the Company repays the Refundable Amount to the Delinquent
Member, on the Refundable Amount, at a rate per annum equal to (1) during
the period from the commencement of the Arbitration Proceeding to the
Arbitration Payment Due Date, the Prime Rate and (2) at any time
thereafter, 150% of the Prime Rate, in each case, with daily accrual of
interest.
(e) Interim Payment of Disputed Monetary
Amount--Delinquent Member is Found Not Liable for Disputed Monetary Amount.
If (i) it is finally determined in an Arbitration Proceeding that a
Delinquent Member does not owe the Company the related Disputed Monetary
Amount and (ii) the Delinquent Member had paid the Company the Disputed
Monetary Amount prior to the commencement of such Arbitration Proceeding,
then the Company shall promptly, and in any event on or before the
Arbitration Payment Due Date, repay to the Delinquent Member an amount
equal to the Disputed Monetary Amount, together with interest, accrued from
the commencement of the Arbitration Proceeding to the date that the Company
repays the Disputed Monetary Amount to the Delinquent Member, on the
Disputed Monetary Amount, at a rate per annum equal to (A) during the
period from the commencement of the Arbitration Proceeding to the
Arbitration Payment Due Date, the Prime Rate and (B) at any time
thereafter, 150% of the Prime Rate, in each case, with daily accrual of
interest.
SECTION 14.04. RIGHT OF SET-OFF. Notwithstanding any
provision to the contrary contained in this Agreement, if at the time of a
Distribution Date a Delinquent Member has failed to pay the Company an
amount that it was required pursuant to Section 14.03 to pay to the Company
on or before such Distribution Date, then on such Distribution Date, the
Company shall be permitted to set off from the distribution that it would
otherwise be required to make to such Delinquent Member pursuant to Section
5.01 on such Distribution Date, an amount equal to such unpaid amount. If
the amount of the distribution that such Delinquent Member was otherwise
entitled to receive pursuant to Section 5.01 on such Distribution Date is
less than the aggregate amount that such Delinquent Member owes to the
Company pursuant to Section 14.03, then the Company shall be permitted to
set off from subsequent distributions that it would otherwise make to such
Delinquent Member pursuant to Section 5.01 the remaining unpaid amount
until such time as such remaining unpaid amount shall have been paid in
full. A Delinquent Member's interest in distributions to be made to such
Delinquent Member pursuant to Section 5.01 shall be reduced by any amount
set off by the Company against such distributions pursuant to this Section
14.04(a).
SECTION 14.05. SECURITY INTEREST. (a) Each Member hereby
agrees that if (i) it has failed to pay the Company an amount that it was
required to pay to the Company pursuant to Section 14.03 on or prior to the
related Arbitration Payment Due Date, and (ii) the Board of Managers (by
vote of a majority of the Representatives of the other Member at a special
or regular meeting of the Board of Managers (which majority shall
constitute a quorum for purposes of the transaction of such business) so
requests, such Member shall (A) on the Business Day next following such
Arbitration Payment Due Date, grant to the Company, as security for the
performance of its obligation to pay the Company such amount owed (but for
no other amount), a first priority security interest in its Membership
Interests and the proceeds thereof (a "Security Interest"), all under the
Uniform Commercial Code of the State of Delaware and (ii) promptly
thereafter, execute and deliver to the Company all financing statements and
other instruments that the Board of Managers (by vote of a majority of the
Representatives of the other Member at a special or regular meeting of the
Board of Managers (which majority shall constitute a quorum for purposes of
the transaction of such business)) may request to effectuate and carry out
the preceding provisions of this Section 14.05(a). The Company shall be
entitled to all the rights and remedies of a secured party under the
Uniform Commercial Code of the State of Delaware with respect to any
Security Interest granted by such Member. At the option of the Company,
this Agreement or a carbon, photographic, or other copy hereof may serve as
a financing statement with respect to any such Security Interest. For
purposes of perfecting a Security Interest, a Member's Membership Interests
shall be deemed to be a "security" governed by Chapter 8 of the Delaware
Uniform Commercial Code and as such term is therein defined in Section
8-102(c) thereunder.
(b) If the Company incurs Indebtedness pursuant to
Section 14.01 by borrowing from a Non-Delinquent Member, the Company shall
be permitted to assign all its rights with respect to a Security Interest
granted to it pursuant to Section 14.05(a) to such Non-Delinquent Member as
security for such Indebtedness; provided that such Non-Delinquent Member
shall not be permitted to assign such Security Interest to a third party.
ARTICLE XV
Dissolution and Termination
SECTION 15.01. DISSOLUTION. The Company shall be
dissolved and its business and affairs wound up upon the earliest to occur
of any one of the following events:
(a) the expiration of the Term of the Company;
(b) the sale or other disposition of all or substantially
all the property of the Company;
(c) the written consent of both Members;
(d) the unanimous agreement of all Representatives on the
Board of Managers;
(e) the bankruptcy, involuntary liquidation or
dissolution of either Member; or
(f) the entry of a decree of judicial dissolution
pursuant to Section 18-802 of the Delaware Act.
The bankruptcy, involuntary liquidation of dissolution of a Member shall
cause a Member to cease to be a member of the Company. Notwithstanding the
foregoing, the Company shall not be dissolved and its business and affairs
shall not be wound up upon the occurrence of any event specified in (i)
clause (e) above if within 90 days after the date on which such event
occurs, the remaining Member elects in writing to continue the business of
the Company or (ii) clause (a) above if a Non-Terminating Member purchases
the Membership Interests of the Terminating Member pursuant to its Special
Termination Right. Except as provided in this paragraph and Section
15.01(e), and to the fullest extent permitted by the Delaware Act, the
occurrence of an event that causes a Member to cease to be a member of the
Company shall not cause the Company to be dissolved or its business or
affairs to be wound up, and upon the occurrence of such an event, the
business of the Company shall continue without dissolution.
SECTION 15.02. WINDING UP OF COMPANY. Upon dissolution,
the Company's business shall be liquidated in an orderly manner. The Board
of Managers shall act as the liquidating trustee (unless the Board of
Managers elects to appoint a liquidating trustee) to wind up the affairs of
the Company pursuant to this Agreement. In performing its duties, the
liquidating trustee is authorized to sell, distribute, exchange or
otherwise dispose of the assets of the Company in accordance with the
Delaware Act and in any reasonable manner that the liquidating trustee
shall determine to be in the best interest of the Members or their
successors-in-interest.
SECTION 15.03. DISTRIBUTION OF PROPERTY. In the event the
Board of Managers determines that it is necessary in connection with the
liquidation of the Company to make a distribution of property in kind, such
property shall be transferred and conveyed to the Members so as to vest in
each of them as a tenant in common an undivided interest in the whole of
such property equal to their interests in the property based upon the
amount of cash that would be distributed to each of the Members in
accordance with Article V if such property were sold for an amount of cash
equal to the fair market value of such property, as determined and approved
by the Board of Managers pursuant to a vote in accordance with Section
8.07(b).
SECTION 15.04. TIME LIMITATION. Any liquidating
distribution pursuant to this Article XV shall be made no later than the
later of (a) the end of the taxable year during which such liquidation
occurs and (b) 90 days after the date of such liquidation.
SECTION 15.05. TERMINATION OF COMPANY. The Company shall
terminate when all assets of the Company, after payment of or due provision
for all debts, liabilities and obligations of the Company, shall have been
distributed to the Members in the manner provided for in this Agreement,
and the Certificate of Formation shall have been canceled in the manner
provided by the Delaware Act.
ARTICLE XVI
Miscellaneous
SECTION 16.01. NOTICES. Any notice, consent or approval
to be given under this Agreement shall be in writing and shall be deemed to
have been given if delivered: (i) personally by a reputable courier service
that requires a signature upon delivery; (ii) by mailing the same via
registered or certified first-class mail, postage prepaid, return receipt
requested; or (iii) by telecopying the same with receipt confirmation
(followed by a first-class mailing of the same) to the intended recipient.
Any such writing will be deemed to have been given: (a) as of the date of
personal delivery via courier as described above; (b) as of the third
calendar day after depositing the same into the custody of the postal
service as evidenced by the date-stamped receipt issued upon deposit of the
same into the mails as described above; and (c) as of the date and time
electronically transmitted in the case of telecopy delivery as described
above, in each case addressed to the intended party at the address set
forth below:
To the Board of Managers:
Marathon Ashland Petroleum LLC
539 South Main Street
Findlay, Ohio 45840
Attn: General Counsel
Phone: (419) 422-2121
Fax: (419) 421-4115
To Marathon:
Marathon Oil Company
5555 San Felipe
P.O. Box 3128
Houston, TX 77056-2723
Attn: General Counsel
Phone: (713) 296-4137
Fax: (713) 296-4171
To Ashland:
Ashland Inc.
50 E. RiverCenter Boulevard
P.O. Box 391
Covington, KY 41012-0391
Attn: General Counsel
Phone: (606) 815-4711
Fax: (606) 815-3823
Any party may designate different addresses or telecopy numbers by notice
to the other parties.
SECTION 16.02. MERGER AND ENTIRE AGREEMENT. This
Agreement (including the Exhibits, Schedules and Appendices attached
hereto), together with the other Transaction Documents (including the
exhibits, schedules and appendices thereto) and certain other agreements
executed contemporaneously with the Master Formation Agreement constitutes
the entire Agreement of the parties hereto and supersedes any prior
understandings, agreements, or representations by or among the parties
hereto, written or oral, to the extent they relate in any way to the
subject matter hereof.
SECTION 16.03. ASSIGNMENT. A party hereto shall not
assign all or any of its rights, obligations or benefits under this
Agreement to any third party otherwise than (i) in connection with a
Transfer of its Membership Interests pursuant to Article X, (ii) with the
prior written consent of the other party hereto, which consent may be
withheld in such party's sole discretion, (iii) the granting by a Member of
a Security Interest to the Company pursuant to Section 14.05 or (iv)
pursuant to Article V of the Put/Call, Registration Rights and Standstill
Agreement, and any attempted assignment not in compliance with this Section
16.03 shall be void ab initio.
SECTION 16.04. PARTIES IN INTEREST. This Agreement shall
inure to the benefit of, and be binding upon, the parties hereto and their
respective successors, legal representatives and permitted assigns.
SECTION 16.05. COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
SECTION 16.06. AMENDMENT; Waiver. This Agreement may not
be amended except in a written instrument signed by each of the parties
hereto and expressly stating it is an amendment to this Agreement. Any
failure or delay on the part of any party hereto in exercising any power or
right hereunder shall not operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power preclude any other or
further exercise thereof or the exercise of any other right or power
hereunder or otherwise available at law or in equity.
SECTION 16.07. SEVERABILITY. If any term, provision,
covenant, or restriction of this Agreement or the application thereof to
any person or circumstance, at any time or to any extent, is held by a
court of competent jurisdiction or other Governmental Authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement (or the application of such
provision in other jurisdictions or to persons or circumstances other than
those to which it was held invalid or unenforceable) shall in no way be
affected, impaired or invalidated, and to the extent permitted by
Applicable Law, any such term, provision, covenant or restriction shall be
restricted in applicability or reformed to the minimum extent required for
such to be enforceable. This provision shall be interpreted and enforced to
give effect to the original written intent of the parties hereto prior to
the determination of such invalidity or unenforceability.
SECTION 16.08. GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH SECTION
18-1101 OF THE DELAWARE ACT. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY
CLAIM OR PROCEEDING RELATED TO OR ARISING OUT OF THIS AGREEMENT, OR ANY
TRANSACTION OR CONDUCT IN CONNECTION HEREWITH, IS WAIVED.
SECTION 16.09. ENFORCEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties
hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in the Delaware Chancery Court; provided that
if the Delaware Chancery Court does not have jurisdiction with respect to
such matter, the parties hereto shall be entitled to enforce specifically
the terms and provisions of this Agreement in any court of the United
States located in the State of Delaware or in Delaware state court, this
being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (i) consents to submit
itself to the personal jurisdiction of the Delaware Chancery Court in the
event that any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement; provided that if the Delaware
Chancery Court does not have jurisdiction with respect to any such dispute,
such party consents to submit itself to the personal jurisdiction of any
Federal court located in the State of Delaware or any Delaware state court,
(ii) agrees to appoint and maintain an agent in the State of Delaware for
service of legal process, (iii) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from
any such court, (iv) agrees that it will not plead or claim in any such
court that any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any such court has been brought in an
inconvenient forum and (v) agrees that it will not initiate any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than (1) the Delaware Chancery Court, or (2)
if the Delaware Chancery Court does not have jurisdiction with respect to
such action, a Federal court sitting in the State of Delaware or a Delaware
state court.
SECTION 16.10. CREDITORS. None of the provisions of this
Agreement shall be for the benefit of or enforceable by any creditor of the
Company or of any Member.
SECTION 16.11. NO BILL FOR ACCOUNTING. In no event shall
either Member have any right to file a bill for an accounting or any
similar proceeding.
SECTION 16.12. WAIVER OF PARTITION. Each Member hereby
waives any right to partition of the Company property.
SECTION 16.13. TABLE OF CONTENTS, HEADINGS AND TITLES.
The table of contents and section headings of this Agreement and titles
given to Exhibits and Schedules to this Agreement are for reference
purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
SECTION 16.14. USE OF CERTAIN TERMS; RULES OF
CONSTRUCTION. As used in this Agreement, the words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular paragraph, subparagraph, section,
subsection or other subdivision. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and
verbs shall include the plural and vice versa. Each party hereto agrees
that any rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the
interpretation or construction of this Agreement or any Transaction
Document.
SECTION 16.15. HOLIDAYS. Notwithstanding any deadline for
payment, performance, notice or election under this Agreement, if such
deadline falls on a date that is not a Business Day, then the deadline for
such payment, perform-ance, notice or election will be extended to the next
succeeding Business Day.
SECTION 16.16. THIRD PARTIES. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person
and their respective successors, legal representatives and permitted
assigns any rights, remedies or basis for reliance upon, under or by reason
of this Agreement.
SECTION 16.17. LIABILITY FOR AFFILIATES. Except where and
to the extent that a contrary intention otherwise appears, where a Member
undertakes to cause its Affiliates to take or abstain from taking any
action, such undertaking shall mean (i) in the case of any Affiliate that
is controlled by such Member, that such Member shall cause such Affiliate
to take or abstain from taking such action and (ii) in the case of an
Affiliate that controls or is under common control with such Member, that
such Member shall use its commercially reasonable best efforts to cause
such Affiliates to take or abstain from taking such action; provided,
however, that such Member shall not be required to violate, or cause any
director of such Affiliate to violate, any fiduciary duty to minority
shareholders of such Affiliate.
IN WITNESS WHEREOF, this Agreement has been duly executed
by the Members as of the day and year first above written.
MARATHON OIL COMPANY
By:
Name: Victor G. Beghini
Title: President
ASHLAND INC.
By:
Name: Paul W. Chellgren
Title: Chairman of the Board and Chief Executive
Officer
=====================================================================
PUT/CALL, REGISTRATION RIGHTS
AND
STANDSTILL AGREEMENT
Dated as of January 1, 1998
among
MARATHON OIL COMPANY,
USX CORPORATION,
ASHLAND INC.
and
MARATHON ASHLAND PETROLEUM LLC
=====================================================================
<PAGE>
Contents, p. 1
TABLE OF CONTENTS
Page
ARTICLE I
Certain Definitions; Adjustable Amounts;Representations and Warranties
SECTION 1.01. Definitions........................................2
SECTION 1.02. Adjustable Amounts................................17
SECTION 1.03. Representations and Warranties....................18
ARTICLE II
Special Termination Right
SECTION 2.01. Special Termination Right.........................20
SECTION 2.02. Special Termination Price.........................20
SECTION 2.03. Method of Exercise................................21
ARTICLE III
Marathon Call Right
SECTION 3.01. Marathon Call Right...............................21
SECTION 3.02. Marathon Call Price...............................21
SECTION 3.03. Method of Exercise................................22
SECTION 3.04. Limitation on Marathon's Ability To Exercise
its Marathon Call Right..........................22
ARTICLE IV
Ashland Put Right
SECTION 4.01. Ashland Put Right.................................22
SECTION 4.02. Ashland Put Price.................................23
SECTION 4.03. Method of Exercise................................26
SECTION 4.04. Ashland Put Price Election Notice.................26
SECTION 4.05. Limitation on Ashland's Ability To Exercise
its Ashland Put Right............................27
<PAGE>
Contents, p. 2
ARTICLE V
Termination of Certain Distributions; Revocable Proxies
SECTION 5.01. Termination of Certain Distributions..............27
SECTION 5.02. Revocable Proxies.................................30
ARTICLE VI
Determination of the Appraised Value of the Company
SECTION 6.01. Determination of Appraised Value of the
Company..........................................31
ARTICLE VII
Determination of the Fair Market Value of Securities
SECTION 7.01. General...........................................35
SECTION 7.02. Determination of Fair Market Value of
Marathon Debt Securities.........................35
SECTION 7.03. Determination of Fair Market Value of
Actively Traded Marathon Equity Securities.......35
SECTION 7.04. Determination of Fair Market Value of Non-
Actively Traded Marathon Equity Securities.......39
ARTICLE VIII
Certain Matters Relating to Securities
SECTION 8.01. Certain Requirements with Respect to
Marathon Debt Securities.........................42
SECTION 8.02. Procedures with Respect to the Issuance of
Securities.......................................42
SECTION 8.03. Holding Period....................................45
SECTION 8.04. Manner of Sale of Marathon Equity
Securities.......................................45
ARTICLE IX
Closing; Conditions to Closing; Consequences of Delay
SECTION 9.01. Closing...........................................46
SECTION 9.02. Conditions to Closing.............................49
SECTION 9.03. Consequences of a Delayed Closing of the
Marathon Call Right or the Ashland Put Right
Where Ashland Is at Fault........................54
<PAGE>
Contents, p. 3
SECTION 9.04. Consequences of a Delayed Closing of the
Marathon Call Right or the Ashland Put Right
Where Marathon or USX Is at Fault................55
SECTION 9.05. Consequences of a Delayed Closing of the
Marathon Call Right or the Ashland Put Right
Where No Party Is at Fault.......................57
SECTION 9.06. Consequences of Delayed Second or Third
Scheduled Installment Payment....................58
SECTION 9.07. Consequences of a Delayed Closing of the
Special Termination Right Where Terminating
Member Is at Fault...............................58
SECTION 9.08. Consequences of a Delayed Closing of the
Special Termination Right Where Non-
Terminating Member Is at Fault...................60
SECTION 9.09. Consequences of Delayed Closing of Special
Termination Right Where No Party Is at
Fault............................................62
ARTICLE X
Registration Rights
SECTION 10.01. Registration upon Request........................63
SECTION 10.02. Covenants of the Issuer..........................67
SECTION 10.03. Fees and Expenses................................72
SECTION 10.04. Indemnification and Contribution.................73
SECTION 10.05. Underwriting Agreement; Purchase
Agreement.......................................77
SECTION 10.06. Undertaking To File Reports......................78
ARTICLE XI
Covenants
SECTION 11.01. Cooperation; Commercially Reasonable Best
Efforts.........................................78
SECTION 11.02. Antitrust Notification; FTC or DOJ
Investigation...................................78
SECTION 11.03. Governmental Filings re: Ashland LOOP/LOCAP
Interest........................................80
SECTION 11.04. Designated Sublease Agreements...................81
<PAGE>
Contents, p. 4
<PAGE>
ARTICLE XII
Standstill Agreement
SECTION 12.01. Restrictions of Certain Actions by Marathon
and USX.........................................83
SECTION 12.02. Restrictions of Certain Actions by
Ashland.........................................86
ARTICLE XIII
Indemnification
SECTION 13.01. Indemnification re: Ashland Representatives'
Revocable Proxies and the Ashland LOOP/LOCAP
Revocable Proxy.................................88
SECTION 13.02. Indemnification re: Marathon Representatives
Revocable Proxies...............................89
SECTION 13.03. Indemnification re: Transfer of Economic
Interests in the Ashland LOOP/LOCAP Interest
to Marathon, the Company or a Person
Designated by Marathon..........................89
SECTION 13.04. Procedures Relating to Indemnification Under
This Article XIII...............................90
ARTICLE XIV
Company Competitive Businesses; Detrimental Activities; Limitations on the
Company Entering into Valvoline's Business
SECTION 14.01. Competitive Businesses...........................90
SECTION 14.02. Detrimental Activities...........................94
SECTION 14.03. Limitations on the Company Entering into the
Valvoline Business..............................96
SECTION 14.04. Purchase Price of Competitive Business
Assets.........................................103
<PAGE>
Contents, p. 5
ARTICLE XV
Survival; Assignment
SECTION 15.01. Survival and Assignment re: Marathon and
USX...........................................106
SECTION 15.02. Survival and Assignment re: Ashland...........107
SECTION 15.03. Survival and Assignment re: the
Company.......................................109
SECTION 15.04. Assignment and Assumption Agreements...........109
SECTION 15.05. Consequences of Unpermitted Assignments........110
ARTICLE XVI
Dispute Resolution Procedures
SECTION 16.01. General........................................110
SECTION 16.02. Dispute Notice and Response....................110
SECTION 16.03. Negotiation Between Chief Executive
Officers......................................110
SECTION 16.04. Right to Equitable Relief Preserved............111
ARTICLE XVII
Miscellaneous
SECTION 17.01. Notices........................................111
SECTION 17.02. Merger and Entire Agreement....................113
SECTION 17.03. Parties in Interest............................113
SECTION 17.04. Counterparts...................................113
SECTION 17.05. Amendment; Waiver..............................113
SECTION 17.06. Severability...................................113
SECTION 17.07. GOVERNING LAW..................................114
SECTION 17.08. Enforcement....................................114
SECTION 17.09. Table of Contents, Headings and Titles.........115
SECTION 17.10. Use of Certain Terms; Rules of Construction....115
SECTION 17.11. Holidays.......................................115
SECTION 17.12. Third Parties..................................115
SECTION 17.13. Liability for Affiliates.......................115
SECTION 17.14. Schedules......................................116
<PAGE>
Contents, p. 6
APPENDIX A Certain Definitions
SCHEDULE 1.03(c) Conflicts
SCHEDULE 1.03(d) Consents
SCHEDULE 14.01(a) Competitive Businesses
<PAGE>
PUT/CALL, REGISTRATION RIGHTS AND STANDSTILL
AGREEMENT dated as of January 1, 1998 by
and among MARATHON OIL COMPANY, an Ohio
corporation ("Marathon"), USX CORPORATION, a
Delaware corporation ("USX"), ASHLAND INC., a
Kentucky corporation ("Ashland"), and MARATHON
ASHLAND PETROLEUM LLC, a Delaware limited
liability company (the "Company").
Preliminary Statement
WHEREAS Marathon and Ashland have previously entered into
a Master Formation Agreement dated as of December 12, 1997, relating to the
formation of the Company, which will own and operate certain of Marathon's
and Ashland's respective petroleum supply, refining, marketing, and
transportation businesses;
WHEREAS Marathon and Ashland have previously entered into
an Asset Transfer and Contribution Agreement dated as of December 12, 1997,
pursuant to which, among other things, Marathon and Ashland will transfer
their respective Businesses (as defined below) to the Company;
WHEREAS Marathon, USX and Ashland have previously entered
into a Parent Agreement dated as of December 12, 1997;
WHEREAS Marathon and Ashland have entered into an LLC
Agreement dated as of the date hereof in order to establish the rights and
responsibilities of each of them with respect to the governance, financing
and operation of the Company;
WHEREAS Marathon and Ashland have agreed that under
certain circumstances, Ashland will sell to Marathon and Marathon will
purchase from Ashland all of Ashland's Membership Interests and the Ashland
LOOP/LOCAP Interest (each as defined below), upon the terms and subject to
the conditions set forth herein;
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2
WHEREAS Marathon and Ashland have agreed that if Marathon
or Ashland elects to terminate the Term of the Company pursuant to Section
2.03 of the LLC Agreement, then the non-terminating Member shall have the
right to purchase from the terminating Member all of the terminating
Member's Membership Interests, upon the terms and subject to the conditions
set forth herein;
WHEREAS Marathon and USX have agreed that Marathon and
USX will grant Ashland certain registration rights with respect to any
Securities (as defined below) that Marathon or USX issues to Ashland
pursuant to this Agreement in connection with the purchase by Marathon of
Ashland's Membership Interests and the Ashland LOOP/LOCAP Interest, upon
the terms and subject to the conditions set forth herein;
WHEREAS Marathon and USX have agreed to certain
restrictions with respect to actions relating to Ashland Voting Securities
(as defined below), upon the terms and subject to the conditions set forth
herein;
WHEREAS Ashland has agreed to certain restrictions with
respect to actions relating to USX Voting Securities (as defined below),
upon the terms and subject to the conditions set forth herein; and
WHEREAS Marathon, USX and Ashland have agreed to certain
restrictions with respect to certain of their business activities, upon the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as
follows:
ARTICLE I
Certain Definitions; Adjustable Amounts;
Representations and Warranties
SECTION 1.01. Definitions. Defined terms used in this
Agreement shall have the meanings ascribed to them by definition in this
Agreement or in Appendix A. In addition,
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3
when used herein the following terms have the following meanings:
"Actively Traded Marathon Equity Securities" means
Marathon Equity Securities for which there is an active trading market on
the National Market System of the NASDAQ or on a National Securities
Exchange during the period commencing 30 days prior to the Closing Date or
applicable Installment Payment Date and ending on the Closing Date or such
Installment Payment Date.
"Adjustable Amount" has the meaning set forth in Section 1.02.
"Adjustable Amounts Notice" has the meaning set forth in
Section 1.02.
"Adjustment Year" has the meaning set forth in Section 1.02.
"Agreement" means this Put/Call, Registration Rights, and
Standstill Agreement, as the same may be amended, restated, supplemented or
otherwise modified from time to time.
"Appraised Value Determination Date" has the meaning set
forth in Section 6.01(c).
"Appraised Value of the Company" has the meaning set
forth in Section 6.01(c).
"Ashland Designated Sublease Agreements" means the
Ashland Sublease Agreements attached as Exhibits L-1, L-2, L-3 and L-4 to
the Asset Transfer and Contribution Agreement.
"Ashland Exercise Period Distributions" has the meaning
set forth in Section 5.01(a)(i).
"Ashland LOOP/LOCAP Interest" means (i) the 4.0% interest
in LOOP LLC owned by Ashland on the date hereof pursuant to the limited
liability company agreement of LOOP LLC dated as of October 18, 1996, among
Ashland, Marathon Pipe Line Company, Murphy Oil Corporation, Shell Oil
Company and Texaco Inc. and (ii) the 86.20 shares of common stock of LOCAP,
Inc. owned by Ashland, which shares on the date hereof represent an 8.6%
interest in LOCAP, Inc.; provided
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4
that in the event there is a reclassification of the LOOP, LLC membership
interests or the common stock of LOCAP, Inc. into one or more different
types or classes of securities, the "Ashland LOOP/LOCAP Interest" shall
instead include such different types or classes of securities.
"Ashland LOOP/LOCAP Irrevocable Proxy" has the meaning
set forth in Section 9.02(e).
"Ashland LOOP/LOCAP Revocable Proxy" has the meaning set
forth in Section 5.02(c).
"Ashland Material Adverse Effect" means, for purposes of
Section 1.03, either (i) a material adverse effect on the ability of
Ashland to perform its obligations under this Agreement or (ii) an effect
on the business, operations, assets, liabilities, results of operations,
cash flows, condition (financial or otherwise) or prospects of Ashland's
Business which results in a Loss of two million dollars ($2,000,000) or
more, or, if such Loss is not susceptible to being measured in monetary
terms, is otherwise materially adverse to Ashland's Business; provided that
any such effect relating to or resulting from any change in the price of
petroleum or petroleum byproducts, general economic conditions or local,
regional, national or international industry conditions (including changes
in financial or market conditions) shall be deemed not to constitute an
Ashland Material Adverse Effect.
"Ashland Membership Interests" means the initial
Membership Interests of Ashland on the date hereof, together with any
additional Membership Interests that Ashland may hereafter acquire.
"Ashland Put Exercise Date" has the meaning set forth in
Section 4.03.
"Ashland Put Exercise Notice" has the meaning set forth
in Section 4.03.
"Ashland Put Price" has the meaning set forth in Section
4.01.
"Ashland Put Price Election Date" has the meaning set
forth in Section 4.04(b).
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5
"Ashland Put Price Election Notice" has the meaning set
forth in Section 4.04(a).
"Ashland Put Right" has the meaning set forth in Section
4.01.
"Ashland Representatives Revocable Proxies" has the
meaning set forth in Section 5.02(a).
"Ashland Special Termination Right" means the Special
Termination Right granted to Ashland pursuant to Section 2.01.
"Ashland Voting Securities" means the securities of
Ashland (i) having the power under ordinary circumstances to elect at least
a majority of the board of directors of Ashland (whether or not any senior
class of stock has voting power by reason of any contingency) or (ii)
convertible into or exchangeable for securities of Ashland having the power
under ordinary circumstances to elect at least a majority of the board of
directors of Ashland (whether or not any senior class of stock has voting
power by reason of any contingency).
"Average Annual Level" means for any twelve-month period
ending on December 31 of any calendar year, the average of the level of the
Price Index ascertained by adding the twelve monthly levels of the Price
Index during such twelve-month period and dividing the total by twelve.
"Base Level" has the meaning set forth in the LLC Agreement.
"Base Rate" means a rate of interest closely
approximating that of comparable term senior debt securities or debt
obligations priced to trade at par issued by USX or issued by Marathon and
fully guaranteed by USX, or issued by a firm of comparable credit standing.
"Blackout Period" has the meaning set forth in Section
10.01(b).
"Bulge Bracket Investment Banking Firm" means an
investment banking firm that is listed as one of the top 10 investment
banking firms for all domestic equity issues in terms of the aggregate
dollar amount of such issues (with full credit given to the lead manager)
as reported in the
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6
latest issue of Investment Dealers' Digest or a publication (or otherwise)
of similar national repute which provides rankings of investment banking
firms by size of domestic issues.
"Bulk Motor Oil Business" has the meaning set forth in
Section 14.03(h).
"Cash" means United States dollars or immediately
available funds in United States dollars.
"Closing" has the meaning set forth in Section 9.01(a).
"Closing Date" has the meaning set forth in Section 9.01(a).
"Commission" means the Securities and Exchange Commission
or any successor agency having jurisdiction under the Securities Act.
"Company Competitive Business" has the meaning set forth
in Section 14.01(a).
"Company Competitive Business Assets" has the meaning set
forth in Section 14.01(d).
"Company Competitive Third Party" has the meaning set
forth in Section 14.01(d).
"Company Material Adverse Effect" means, for purposes of
Section 1.03, an effect on the business, operations, assets, liabilities,
results of operations, cash flows, condition (financial or otherwise) or
prospects of the Company's Business which results in a Loss of two million
dollars ($2,000,000) or more, or, if such Loss is not susceptible to being
measured in monetary terms, is otherwise materially adverse to the
Company's Business; provided that any such effect relating to or resulting
from any change in the price of petroleum or petroleum byproducts, general
economic conditions or local, regional, national or international industry
conditions (including changes in financial or market conditions) shall be
deemed not to constitute a Company Material Adverse Effect.
"Competitive Business Purchase Price" has the meaning set
forth in Section 14.04.
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7
"Confidential Information" has the meaning set
forth in Section 14.02(b).
"Confidentiality Agreement" has the meaning set forth in
Section 14.02(b).
"Delayed Closing Date" has the meaning set forth in
Section 9.03(b).
"Delayed Closing Date Interest Period" has the meaning
set forth in Section 9.03(b).
"Delayed Installment Payment Date" has the meaning set
forth in Section 9.06.
"Delayed Installment Payment Date Interest Period" has
the meaning set forth in Section 9.06.
"Demand Registration" has the meaning set forth in
Section 10.01(a).
"Designated Sublease Agreements" means the Ashland
Designated Sublease Agreements and the
Marathon Designated Sublease Agreements.
"Disclosing Party" has the meaning set forth in Section
14.02(b).
"Dispute" has the meaning set forth in Section 16.01.
"Dispute Notice" has the meaning set forth in Section 16.02.
"Distributable Cash" has the meaning set forth in the LLC
Agreement.
"Escrow Account" has the meaning set forth in Section
5.01(a)(ii)(B).
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Exercise Date" means the Special Termination Exercise
Date, the Marathon Call Exercise Date or the Ashland Put Exercise Date, as
applicable.
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8
"Exercise Period Distributions" means Ashland Exercise
Period Distributions or Marathon Exercise Period Distributions, as
applicable.
"Fair Market Value" has the meaning set forth in Section
7.01.
"14.01(d) Presentation Meeting" has the meaning set forth
in Section 14.01(d).
"14.01(d) Scheduled Closing Date" has the meaning set
forth in Section 14.01(d).
"14.03(d) Offer Notice" has the meaning set forth in
Section 14.03(d).
"14.03(d) Purchase Election Notice" has the meaning set
forth on Section 14.03(d).
"14.03(d) Scheduled Closing Date" has the meaning set
forth in Section 14.03(d).
"14.03(f) Offer Notice" has the meaning set forth in
Section 14.03(f)(i).
"14.03(f) Purchase Election Notice" has the meaning set
forth in Section 14.03(f)(i).
"14.04 Appraisal Process Commencement Date" has the
meaning set forth in Section 14.04.
"14.04 Appraisal Report" has the meaning set forth in
Section 14.04.
"14.04 Initial Opinion Values" has the meaning set forth
in Section 14.04.
"14.04 Subsequent Appraisal Process Commencement Date"
has the meaning set forth in Section 14.04.
"14.04 Third Opinion Value" has the meaning set forth in
Section 14.04.
"Fully Distributed Sale" has the meaning set forth in
Section 8.04.
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9
"Holding Period" has the meaning set forth in Section 8.03.
"Installment Payment" has the meaning set forth in
Section 4.02(b).
"Installment Payment Date" means a Scheduled Installment
Payment Date or a Delayed Installment Payment Date, as applicable.
"Investment Grade Rating" means a rating of BBB- or
higher by S&P or Baa3 or higher by Moody's or the equivalent of such rating
by S&P and Moody's.
"Issuer" has the meaning set forth in Section 10.01(a).
"Issuer Material Adverse Effect" means either (i) a
material adverse effect on the ability of the Issuer to perform its
obligations under this Agreement or (ii) a material adverse effect on the
business, operations, assets, liabilities, results of operations, cash
flows, condition (financial or otherwise) or prospects of the Issuer and
its subsidiaries, taken as a whole; provided, however, that any such effect
relating to or resulting from any change in the price of petroleum or
petroleum byproducts, general economic conditions or local, regional,
national or international industry conditions (including changes in
financial or market conditions) or any change in applicable tax laws or
regulations shall be deemed not to constitute an Issuer Material Adverse
Effect.
"LIBOR Rate" means, for any one-month period or portion
thereof, the per annum rate (rounded to the nearest 1/10,000 of 1%) for
U.S. dollar deposits for such one-month period which appears on Bloomberg
Page DG522a Equity GPGX as of 11:00 a.m. London time on the second London
business day preceding the first day of such one-month period. "Bloomberg
Page DG522a Equity GPGX" means the display page designated "DG522a Equity
GPGX" on the Bloomberg, L.P. quotation service (or replacement page or
successor service for displaying comparable rates).
"Losses" has the meaning set forth in Section 10.04.
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10
"Long Term Debt" means Indebtedness with a maturity of
one year or longer.
"Maralube Express Business" has the meaning set forth in
Section 14.03(d)(i).
"Marathon Call Exercise Date" has the meaning set forth
in Section 3.03.
"Marathon Call Exercise Notice" has the meaning set forth
in Section 3.03.
"Marathon Call Price" has the meaning set forth in
Section 3.01.
"Marathon Call Right" has the meaning set forth in
Section 3.01.
"Marathon Debt Securities" has the meaning set forth in
Section 8.01.
"Marathon Designated Sublease Agreements" means the
Marathon Sublease Agreements attached as Exhibits E-1, E-2 and E-3 to the
Asset Transfer and Contribution Agreement.
"Marathon Equity Securities" means any of (i) the class
of common stock of USX designated as USX-Marathon Group Common Stock, par
value $1.00 per share, (ii) the class of common equity securities of
Marathon or, if USX has transferred all of the assets and liabilities of
the Marathon Group to a Marathon Group Subsidiary (as such term is defined
in the Certificate of Incorporation of USX) pursuant to Section 2(a) of
Division I of Article Fourth of the Certificate of Incorporation of USX and
the Board of Directors of USX has declared that all of the outstanding
shares of USX-Marathon Group Common Stock be exchanged for shares of common
stock of the Marathon Group Subsidiary, the Marathon Group Subsidiary;
provided, that so long as Marathon shall be a subsidiary of USX, such
common equity securities shall constitute Marathon Equity Securities only
if such class accounts for USX's primary ownership interest in Marathon, or
(iii) the common equity securities of USX (but only if a single class of
common equity securities of USX exists), in each case (1) registered
pursuant to Section 12 of the Exchange Act and (2) issued to Ashland
pursuant to Section 4.02(c); provided that in the event there is a
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11
reclassification of any of the foregoing classes of common stock into one
or more different types or classes of securities, "Marathon Equity
Securities" shall instead include such different types or classes of
securities.
"Marathon Exercise Period Distributions" has the meanings
set forth in Section 5.01(b)(i).
"Marathon Material Adverse Effect" means, for purposes of
Section 1.03, either (i) a material adverse effect on the ability of
Marathon to perform its obligations under this Agreement or (ii) an effect
on the business, operations, assets, liabilities, results of operations,
cash flows, condition (financial or otherwise) or prospects of Marathon's
Business which results in a Loss of two million dollars ($2,000,000) or
more, or, if such Loss is not susceptible to being measured in monetary
terms, is otherwise materially adverse to Marathon's Business; provided
that any such effect relating to or resulting from any change in the price
of petroleum or petroleum byproducts, general economic conditions or local,
regional, national or international industry conditions (including changes
in financial or market conditions) shall be deemed not to constitute a
Marathon Material Adverse Effect.
"Marathon Membership Interests" means the initial
Membership Interests of Marathon on the date hereof, together with any
additional Membership Interests that Marathon may hereafter acquire.
"Marathon Representatives Revocable Proxies" has the
meaning set forth in Section 5.02(b).
"Marathon Special Termination Right" means the Special
Termination Right granted to Marathon pursuant to Section 2.01.
"Market Value of the Company" has the meaning set forth
in Section 6.01(c).
"Maximum Offering Size" has the meaning set forth in
Section 10.01(e).
"Mid-Level Employee" has the meaning set forth in Section
14.02(a)(ii).
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12
"Minimum Lube Oil Purchase Amount" has the meaning set
forth in Section 14.03(h).
"Moody's" means Moody's Investors Service Inc. and any
successor thereto.
"National Securities Exchange" means a securities
exchange registered as a national securities exchange under Section 6 of
the Exchange Act.
"9.04(b) Post-Scheduled Closing Date Distribution Amount"
has the meaning set forth in Section 9.04(b).
"9.08(b) Post-Scheduled Closing Date Distribution Amount"
has the meaning set forth in Section 9.08(b).
"Non-Terminating Member" has the meaning set forth in
Section 2.01(a).
"Offering Memorandum" means any offering memorandum
prepared in connection with a sale of Securities effected in accordance
with Section 4(2) or Rule 144A under the Securities Act, including all
amendments and supplements to such offering memorandum, all exhibits
thereto and all materials incorporated by reference in such offering
memorandum.
"Other Holders" has the meaning set forth in Section
10.01(e).
"Packaged Motor Oil Business" has the meaning set forth
in Section 14.03(h).
"Percentage Interest" has the meaning set forth in the
LLC Agreement.
"Permitted Investments" means any of the following: (i)
any investment in direct obligations of the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or
any agency thereof; (ii) investments in time deposit accounts, certificates
of deposit and money market deposits maturing within 180 days of the date
of acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any state thereof or any
foreign country recognized by the United States of America having capital,
surplus and undivided profits
<PAGE>
13
aggregating in excess of $250,000,000 (or the foreign currency equivalent
thereof) and whose Long Term debt is rated "A" (or higher) by Moody's or
S&P; (iii) repurchase agreements having terms of not more than 30 days that
are (A) collateralized by underlying securities of the types described in
clause (i) above having a fair market value at the time the Company enters
into such repurchase agreements of at least 102% of the principal amount of
such repurchase agreements and (B) entered into with a bank meeting the
qualifications described in clause (ii) above; (iv) investments in
commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of any of the
parties hereto) organized and in existence under the laws of the United
States of America, any state thereof or any foreign country recognized by
the United States of America with a rating at the time as of which any
investment therein is made of both "P-1" (or higher) according to Moody's
and "A-1" (or higher) according to S&P; and (v) investments in securities
with maturities of six months or less from the date of acquisition issued
or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority
thereof, and rated at least "A" by S&P or "A" by Moody's.
"Price Index" has the meaning set forth in the LLC Agreement.
"Private Label Packaged Motor Oil Business" has the
meaning set forth in Section 14.03(h).
"Qualifying Public Offering" has the meaning set forth in
Section 8.04.
"Quick Lube Business" has the meaning set forth in
Section 14.03(h).
"Registration Statement" means any registration statement
under the Securities Act which permits the public offering of Securities,
including the prospectus included therein, all amendments and supplements
to such registration statement or prospectus, including post-effective
amendments, all exhibits thereto and all materials incorporated by
reference in such registration statement.
"Representatives" has the meaning set forth in Section
14.02(b).
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14
"Response" has the meaning set forth in Section 16.02.
"Required Disclosure" has the meaning set forth in
Section 7.03(a).
"Required Disclosure Date" has the meaning set forth in
Section 7.03(a).
"Scheduled Closing Date" has the meaning set forth in
Section 9.01(a).
"Scheduled Installment Payment Date" has the meaning set
forth in Section 4.02(b).
"Securities" means Marathon Debt Securities and/or
Marathon Equity Securities.
"Securities Act" means the Securities Act of 1933.
"Securities Document" has the meaning set forth in
Section 8.02.
"Senior Employee" has the meaning set forth in Section
14.02(a)(ii).
"S&P" means Standard & Poor's Corporation and any
successor thereto.
"7.03(b) Appraisal Process Commencement Date" has the
meaning set forth in Section 7.03(b).
"7.03(b) Appraisal Report" has the meaning set forth in
Section 7.03(b).
"7.03(b) Discount Amount" has the meaning set forth in
Section 7.03(b).
"7.03(b) Initial Opinion Values" has the meaning set
forth in Section 7.03(b).
"7.03(b) Subsequent Appraisal Process Commencement Date"
has the meaning set forth in Section 7.03(b).
"7.03(b) Third Opinion Value" has the meaning set forth
in Section 7.03(b).
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15
"7.04 Appraisal Process Commencement Date" has the
meaning set forth in Section 7.04(b).
"7.04 Appraisal Report" has the meaning set forth in
Section 7.04(b).
"7.04 Discount Amount" has the meaning set forth in
Section 7.04(b).
"7.04 Initial Opinion Values" has the meaning set forth
in Section 7.04(b).
"7.04 Subsequent Appraisal Process Commencement Date" has
the meaning set forth in Section 7.04(b).
"7.04 Third Opinion Value" has the meaning set forth in
Section 7.04(b).
"6.01 Appraisal Process Commencement Date" has the
meaning set forth in Section 6.01(b).
"6.01 Appraisal Report" has the meaning set forth in
Section 6.01(b).
"6.01 Initial Opinion Values" has the meaning set forth
in Section 6.01(b).
"6.01 Subsequent Appraisal Process Commencement Date" has
the meaning set forth in Section 6.01(b).
"6.01 Third Opinion Value" has the meaning set forth in
Section 6.01(b).
"Special Termination Exercise Date" has the meaning set
forth in Section 2.03.
"Special Termination Exercise Notice" has the meaning set
forth in Section 2.03.
"Special Termination Price" has the meaning set forth in
Section 2.01(a).
"Special Termination Right" has the meaning set forth in
Section 2.01(a).
"Tax Liability" has the meaning set forth in the LLC
Agreement.
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16
"Tax Liability Distributions" means the cash
distributions to which a Member is entitled pursuant to Section 5.01(a) of
the LLC Agreement.
"Terminating Member" has the meaning set forth in Section
2.01(a).
"Terminating Member's Membership Interests" means, if
Ashland is the Terminating Member, the Ashland Membership Interests and, if
Marathon is the Terminating Member, the Marathon Membership Interests.
"Terminating Member's Percentage Interest" means, if
Ashland is the Terminating Member, the Ashland Percentage Interest and, if
Marathon is the Terminating Member, the Marathon Percentage Interest.
"Termination Notice" has the meaning set forth in Section
2.01(a).
"Trading Day" means any day on which the New York Stock
Exchange is open for business.
"Underwritten Public Offering" means an underwritten
public offering of Securities pursuant to an effective Registration
Statement under the Securities Act.
"USX Material Adverse Effect" means, for purposes of
Section 1.03, a material adverse effect on the ability of USX to perform
its obligations under this Agreement.
"USX Voting Securities" means the securities of USX (i)
having the power under ordinary circumstances to elect at least a majority
of the board of directors of USX (whether or not any senior class of stock
has voting power by reason of any contingency) or (ii) convertible into or
exchangeable for securities of USX having the power under ordinary
circumstances to elect at least a majority of the board of directors of USX
(whether or not any senior class of stock has voting power by reason of any
contingency); provided, that each class of common equity securities of USX,
and any securities of USX convertible into or exchangeable for any such
class, shall constitute USX Voting Securities regardless of whether such
class has the power under ordinary circumstances to elect at least a
majority of the board of directors of USX.
<PAGE>
17
"Valvoline" has the meaning set forth in Section 14.03(h).
"Valvoline Business" has the meaning set forth in Section
14.03(h).
"Valvoline Competitive Business Assets" has the meaning
set forth in Section 14.03(d).
"Valvoline Competitive Third Party" has the meaning set
forth in Section 14.03(d).
"Weighted Average Price" has the meaning set forth in
Section 7.03(a).
SECTION 1.02. Adjustable Amounts. Within 30 days
following the date on which the United States Department of Labor Bureau of
Labor Statistics for all Urban Areas publishes the Price Index for (a) the
month of December, 2002 and (b) thereafter, the month of December in each
five year anniversary of the year 2002 (the year 2002 and each such five
year anniversary being an "Adjustment Year"), the Company shall determine
whether the Average Annual Level for the applicable Adjustment Year exceeds
the Base Level. If the Company determines that the Average Annual Level for
such Adjustment Year exceeds the Base Level, then the Company shall
increase or decrease each of the following amounts (each, an "Adjustable
Amount") to an amount calculated by multiplying the relevant Adjustable
Amount by a fraction whose numerator is the Average Annual Level for such
Adjustment Year and whose denominator is the Base Level: (i) the two
million dollars ($2,000,000) amount set forth in the definition of "Ashland
Material Adverse Effect"; (ii) the two million dollars ($2,000,000) amount
set forth in the definition of "Company Material Adverse Effect"; (iii) the
two million dollars ($2,000,000) amount set forth in the definition of
"Marathon Material Adverse Effect"; (iv) the $250 million amount set forth
in clause (ii) of the definition of "Permitted Investments" in Section
1.01; and (v) the $100 million and $25 million amounts set forth in Section
10.01(a); provided that in no event shall any Adjustable Amount be
decreased below the initial amount thereof set forth herein. Within five
Business Days after making such determinations, the Company shall
distribute to each Member a notice (an "Adjustable Amounts Notice") setting
forth: (A) the amount by which the Average Annual Level for such Adjustment
Year exceeded the
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18
Base Level and (B) the calculations of any adjustments made to the
Adjustable Amounts pursuant to this Section 1.02. Any adjustment made to
the Adjustable Amounts pursuant to this Section 1.02 shall be effective as
of the date on which the Company delivers to the Members the related
Adjustable Amounts Notice.
SECTION 1.03. Representations and Warranties. Each of
Marathon and USX represents and warrants to Ashland, and Ashland represents
and warrants to each of Marathon and USX, in each case as of the date
hereof and will be required to represent and warrant as of any Closing
Date, as follows:
(a) Due Organization, Good Standing and Power. It is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation with the
power and authority to own, lease and operate its assets and to
conduct the business now being or to be conducted by it. It is
duly authorized, qualified or licensed to do business as a foreign
corporation or other organization in good standing in each of the
jurisdictions in which its right, title or interest in or to any
of the assets held by it or the business conducted by it requires
such authorization, qualification or licensing, except where the
failure to be so authorized, qualified, licensed or in good
standing would not have and would not reasonably be expected to
have, individually or in the aggregate, a Marathon Material
Adverse Effect, a USX Material Adverse Effect or an Ashland
Material Adverse Effect, as the case may be. It has all requisite
power and authority to enter into this Agreement and to perform
its obligations hereunder.
(b) Authorization and Validity of Agreements. The
execution and delivery by it of this Agreement and the
consummation by it of the transactions contemplated hereby have
been duly authorized and approved by all necessary corporate or
other action on its part. This Agreement has been duly executed
and delivered by it. This Agreement is its legal, valid and
binding obligation, enforceable against it in accordance with its
terms.
(c) Lack of Conflicts. Except as set forth on Schedule
1.03(c) to the Marathon, USX or Ashland Put/Call, Registration
Rights and Standstill Disclosure
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19
Letter, as applicable, neither the execution and delivery by it of
this Agreement nor the consummation by it of the transactions
contemplated hereby does or will (i) conflict with, or result in
the breach of any provision of, its charter or by-laws or similar
governing or organizational documents or any of its subsidiaries,
(ii) violate any Applicable Law or any permit, order, award,
injunction, decree or judgment of any Governmental Authority
applicable to or binding upon it or any of its subsidiaries or to
which any of their respective properties or assets is subject,
(iii) violate, conflict with or result in the breach or
termination of, or otherwise give any other person the right to
terminate, or constitute a default, an event of default or an
event which with notice, lapse of time or both, would constitute a
default or an event of default under the terms of, any mortgage,
indenture, deed of trust or lease or other agreement or instrument
to which it or any of its subsidiaries is a party or by which any
of their respective properties or assets is subject, except, in
the case of clauses (ii) or (iii), for such violations, conflicts,
breaches, terminations and defaults which would not have and would
not reasonably be expected to have, individually, a Company
Material Adverse Effect.
(d) No Consents. Except as set forth on Schedule 1.03(d)
to the Marathon, USX or Ashland Put/Call, Registration Rights and
Standstill Disclosure Letter, as applicable, no Governmental
Approval or other consent is required by it for the execution and
delivery by it of this Agreement or for the consummation of the
transactions contemplated hereby except (a) for such Governmental
Approvals or other consents as have been obtained or are
contemplated hereby to be obtained after Closing or (b) where the
failure to obtain such Governmental Approvals or other consents
would not have and would not reasonably be expected to have,
individually, a Company Material Adverse Effect.
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ARTICLE II
Special Termination Right
SECTION 2.01. Special Termination Right. (a) If Ashland
or Marathon (the "Terminating Member") notifies the Board of Managers of
the Company and the other Member (the "Non-Terminating Member") in writing
pursuant to Section 2.03 of the LLC Agreement that it wants to terminate
the term of the Company at the end of the Initial Term or any succeeding
10-year period (any such notice being a "Termination Notice"), then,
subject to Section 2.01(b), the Non-Terminating Member shall have the
right, exercisable at any time during the 180-day period following its
receipt from the Terminating Member of a Termination Notice, to purchase
from the Terminating Member on the Scheduled Closing Date (the "Special
Termination Right"), and the Terminating Member shall thereupon be required
to sell to the Non-Terminating Member on the Scheduled Closing Date, all of
its Membership Interests and, in the circumstance where Ashland is the
Terminating Member, the Ashland LOOP/LOCAP Interest, for an aggregate
amount equal to the purchase price (the "Special Termination Price") set
forth in Section 2.02(a), plus interest on the Special Termination Price at
a rate per annum equal to the Base Rate, with daily accrual of interest,
for the period commencing on the Special Termination Exercise Date and
ending on the Scheduled Closing Date. The Special Termination Right shall
automatically terminate at the close of business on the 180th day following
the Non-Terminating Member's receipt of a Termination Notice, unless
previously exercised by the Non-Terminating Member in accordance with the
provisions of Section 2.03.
(b) Notwithstanding anything to the contrary contained in
Section 2.01(a), if Marathon and Ashland each deliver a Terminating Notice
to the Board of Managers of the Company and the other Member, then neither
Marathon nor Ashland shall have a Special Termination Right.
SECTION 2.02. Special Termination Price. (a) Amount. The
Special Termination Price shall be an amount equal to the product of (i)
100% of the Appraised Value of the Company multiplied by (ii) the
Terminating Member's Percentage Interest.
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(b) Timing of Payment. The Non-Terminating Member shall
pay the entire Special Termination Price, together with accrued interest
calculated as set forth in Section 2.01, on the Scheduled Closing Date.
(c) Form of Consideration. The Non-Terminating Member
shall pay the Special Termination Price, and all accrued interest, in Cash.
SECTION 2.03. Method of Exercise. The Non-Terminating
Member shall exercise its Special Termination Right by delivering to the
Terminating Member a notice of such exercise (the "Special Termination
Exercise Notice"). The date of the Terminating Member's receipt of the
Special Termination Exercise Notice shall be deemed to be the date of the
Non-Terminating Member's exercise of its Special Termination Right (the
"Special Termination Exercise Date") and, except as expressly provided in
Sections 9.08(a) and 9.09, the Non-Terminating Member's exercise of its
Special Termination Right shall thereafter be irrevocable.
ARTICLE III
Marathon Call Right
SECTION 3.01. Marathon Call Right. Subject to Section
3.04, at any time on and after December 31, 2004, Marathon shall have the
right to purchase from Ashland on the Scheduled Closing Date (the "Marathon
Call Right"), and Ashland shall thereupon be required to sell to Marathon
on the Scheduled Closing Date, all of Ashland's Membership Interests and
the Ashland LOOP/LOCAP Interest, for an aggregate amount equal to the
purchase price (the "Marathon Call Price") set forth in Section 3.02(a),
plus interest on the Marathon Call Price at a rate per annum equal to the
Base Rate, with daily accrual of interest, for the period commencing on the
Marathon Call Exercise Date and ending on the Scheduled Closing Date.
SECTION 3.02. Marathon Call Price. (a) Amount. The
Marathon Call Price shall be an amount equal to the product of (i) 115% of
the Appraised Value of the Company multiplied by (ii) Ashland's Percentage
Interest.
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(b) Timing of Payment. Marathon shall pay the entire
Marathon Call Price, together with accrued interest calculated as set forth
in Section 3.01, on the Scheduled Closing Date.
(c) Form of Consideration. Marathon shall pay the
Marathon Call Price, and all accrued interest, in Cash.
SECTION 3.03. Method of Exercise. Marathon shall exercise
its Marathon Call Right by delivering to Ashland a notice of such exercise
(the "Marathon Call Exercise Notice"). The date of Ashland's receipt of the
Marathon Call Exercise Notice shall be deemed to be the date of Marathon's
exercise of its Marathon Call Right (the "Marathon Call Exercise Date")
and, except as expressly provided in Sections 9.03(a), 9.04(a) and 9.05,
Marathon's exercise of its Marathon Call Right shall thereafter be
irrevocable.
SECTION 3.04. Limitation on Marathon's Ability To
Exercise its Marathon Call Right. If prior to the Marathon Call Exercise
Date, Ashland elects to Transfer its Membership Interests to a third party
pursuant to Section 10.01(c) of the LLC Agreement, and in connection
therewith delivers to Marathon the requisite Offer Notice pursuant to
Section 10.04 of the LLC Agreement, Marathon shall not be permitted to
exercise its Marathon Call Right for a period commencing on the date of
Marathon's receipt of such Offer Notice and ending on the earliest of (i)
120 days (or 270 days if a second request has been made under HSR)
following such receipt, (ii) the closing of such Transfer, and (iii) the
date such proposed Transfer by Ashland shall have been finally abandoned.
After such period, Marathon shall be entitled to exercise its Marathon Call
Right.
ARTICLE IV
Ashland Put Right
SECTION 4.01. Ashland Put Right. Subject to Section 4.05,
at any time after December 31, 2004, Ashland shall have the right to sell
to Marathon on the Scheduled Closing Date (the "Ashland Put Right"), and
Marathon shall thereupon be required to purchase from Ashland on the
Scheduled Closing Date, all of Ashland's Membership Interests and the
Ashland LOOP/LOCAP Interest, for an
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23
aggregate amount equal to the purchase price (the "Ashland Put Price") set
forth in Section 4.02, plus interest on the Ashland Put Price (or, in the
event that Marathon elects to pay the Ashland Put Price in installments,
any unpaid portion of the Ashland Put Price) at a rate per annum equal to
the Base Rate, with daily accrual of interest, for the period commencing on
the Ashland Put Exercise Date and ending on the Scheduled Closing Date (or,
in the event that Marathon elects to pay the Ashland Put Price in
installments, on the applicable Scheduled Installment Payment Date).
SECTION 4.02. Ashland Put Price. (a) Amount. The Ashland
Put Price shall be an amount equal to the sum of (i) for that portion of
the Ashland Put Price to be paid to Ashland in Cash or in Marathon Debt
Securities, an amount equal to the product of (x) 85% of the Appraised
Value of the Company multiplied by (y) Ashland's Percentage Interest
multiplied by (z) the percentage of the Ashland Put Price to be paid to
Ashland in Cash and/or in Marathon Debt Securities, plus (ii) for that
portion of the Ashland Put Price to be paid to Ashland in Marathon Equity
Securities, an amount equal to the product of (x) 90% of the Appraised
Value of the Company multiplied by (y) Ashland's Percentage Interest
multiplied by (z) the percentage of the Ashland Put Price to be paid to
Ashland in Marathon Equity Securities.
(b) Timing of Payment. Subject to Section 4.02(d),
Marathon shall have the right to elect, by specifying in the Ashland Put
Price Election Notice, to (i) pay the entire Ashland Put Price on the
Scheduled Closing Date or (ii) pay the Ashland Put Price in three equal
installments (each an "Installment Payment"), in either case, together with
accrued interest calculated as set forth in Section 4.01. If Marathon
elects to pay the Ashland Put Price in installments, Marathon shall pay
Ashland (x) the first Installment Payment on the Scheduled Closing Date;
(y) the second Installment Payment on the first anniversary of the
Scheduled Closing Date; and (z) the third Installment Payment on the second
anniversary of the Scheduled Closing Date (each such date being a
"Scheduled Installment Payment Date"), in each case, together with accrued
interest calculated as set forth in Section 4.01.
(c) Form of Consideration. Subject to Section 4.02(d),
Marathon shall have the right to elect, by specifying in an Ashland Put
Price Election Notice, to pay
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the Ashland Put Price (i) entirely in Cash or (ii) in a combination of Cash
and Securities; provided that at least 50% of the Ashland Put Price (and at
least 50% of each Installment Payment if Marathon elects to pay in
installments) shall consist of Cash; provided further, that the sum of (x)
the Fair Market Value of any Securities issued to Ashland on the Closing
Date (or on any Installment Payment Date) plus (y) the amount of Cash paid
to Ashland on the Closing Date (or on such Installment Payment Date) in
respect of the Ashland Put Price, in each case exclusive of any interest
paid thereon, shall equal the Ashland Put Price (or the applicable
Installment Payment); and provided further, that in no event shall Marathon
or USX issue to Ashland an amount of Marathon Equity Securities that would
cause Ashland to own, directly or indirectly, at the Closing or on any
Scheduled Installment Payment Date in the aggregate 10% or more of the
number of shares of such class of Marathon Equity Securities that are
outstanding on the Closing Date and are publicly held (it being understood
and agreed that for purposes of this Section 4.02(c), any shares of such
class of Marathon Equity Securities that are either held by Marathon or any
of its Affiliates or subject to restrictions on transfer shall not be
considered publicly held). Marathon shall pay all accrued interest in Cash.
(d) Consequences of Failure to Make Certain Elections.
Notwithstanding anything to the contrary in this Agreement:
(i) if Marathon fails to deliver to Ashland an Ashland
Put Price Election Notice within the requisite time period set
forth in Section 4.04(a) or if Marathon delivers to Ashland an
Ashland Put Price Election Notice that states that the entire
Ashland Put Price will be paid at Closing but does not state
whether any portion of the Ashland Put Price will be paid in
Securities, Marathon shall thereafter be required to pay Ashland
the entire Ashland Put Price in Cash on the Closing Date;
(ii) if Marathon delivers to Ashland an Ashland Put Price
Election Notice pursuant to Section 4.04(a) that does not indicate
whether it is electing to pay the Ashland Put Price in
installments, Marathon shall thereafter be required to pay Ashland
the entire Ashland Put Price on the Closing Date;
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(iii) if Marathon delivers to Ashland an Ashland Put
Price Election Notice pursuant to Section 4.04(a) that does not
indicate the form of consideration regarding the Ashland Put Price
(or, if such Ashland Put Price Election Notice states that
Marathon has elected to pay the Ashland Put Price in installments,
the first Installment Payment), Marathon shall thereafter be
required to pay Ashland the entire Ashland Put Price (or first
Installment Payment) in Cash on the Closing Date;
(iv) if Marathon has elected in its Ashland Put Price
Election Notice delivered pursuant to Section 4.04(b) to pay the
Ashland Put Price in installments and thereafter if Marathon fails
to deliver to Ashland an Ashland Put Price Election Notice within
the requisite time period set forth in Section 4.04(b) for any
Scheduled Installment Payment Date, Marathon shall thereafter be
required to pay Ashland the entire Installment Payment in Cash on
the applicable Installment Payment Date;
(v) if Marathon elects in any Ashland Put Price Election
Notice to issue (or to have USX issue) to Ashland Actively Traded
Marathon Equity Securities on the Closing Date (or applicable
Installment Payment Date) and at any time prior to the Closing
Date (or such Installment Payment Date), such Securities cease for
whatever reason to be Actively Traded Marathon Equity Securities,
Marathon shall thereafter be required to pay Ashland the entire
Ashland Put Price (or the applicable Installment Payment) in Cash
on the Closing Date (or applicable Installment Payment Date); and
(vi) if Marathon elects in any Ashland Put Price Election
Notice to issue (or to have USX issue) to Ashland Actively Traded
Marathon Equity Securities on the Closing Date (or applicable
Installment Payment Date) and Marathon fails to give the related
Required Disclosure on the applicable Required Disclosure Date,
Marathon shall thereafter be required to pay to Ashland the entire
Ashland Put Price (or the applicable Installment Payment) in Cash
on the Closing Date (or on such Installment Payment Date).
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26
SECTION 4.03. Method of Exercise. Ashland may exercise
its Ashland Put Right by delivering to Marathon a notice of such exercise
(the "Ashland Put Exercise Notice"). The date of Marathon's receipt of the
Ashland Put Exercise Notice shall be deemed to be the date of Ashland's
exercise of its Ashland Put Right (the "Ashland Put Exercise Date") and,
except as expressly provided in Sections 9.03(a), 9.04(a) and 9.05,
Ashland's exercise of its Ashland Put Right shall thereafter be
irrevocable.
SECTION 4.04. Ashland Put Price Election Notice. (a)
Notice re: Closing. Within five Business Days after the Appraised Value
Determination Date, Marathon shall notify Ashland (a "Ashland Put Price
Election Notice") as to (i) whether it elects to pay the Ashland Put Price
(A) entirely at Closing or (B) in three equal installments and (ii) whether
Marathon elects to pay part of the Ashland Put Price or first Installment
Payment, as applicable, at Closing in Securities, and, if so, (A) the name
of the issuer of such Securities, (B) the type of such Securities, (C) the
portion of the Ashland Put Price or first Installment Payment, as
applicable, which will be comprised of such Securities, (D) whether it
elects to impose a Holding Period with respect to any of such Securities
and (E) the length of any such Holding Period.
(b) Notices re: Second and Third Scheduled Installment
Payment Dates. Within 45 days prior to each of the second and third
Scheduled Installment Payment Dates, if applicable, Marathon shall deliver
to Ashland an Ashland Put Price Election Notice as to whether Marathon
elects to pay part of the applicable Installment Payment in Securities,
and, if so, (i) the name of the issuer of such Securities, (ii) the type of
Securities, (iii) the portion of the applicable Installment Payment which
will be comprised of such Securities, (iv) whether it elects to impose a
Holding Period with respect to any of such Securities and (v) the length of
any such Holding Period. The date of Ashland's receipt of any Ashland Put
Price Election Notice is referred to herein as the "Ashland Put Price
Election Date" with respect to such Ashland Put Price Election Notice.
(c) Additional Information With Respect to Securities. If
Marathon elects to pay any part of the Ashland Put Price in Securities,
then in addition to the information provided to Ashland in the Ashland Put
Price Election Notice pursuant to Section 4.04(a) or 4.04(b),
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27
Marathon shall provide Ashland and its advisors with any other information
concerning such Securities that Ashland or its advisors may reasonably
request.
(d) Irrevocability of Elections. Marathon's elections as
set forth in an Ashland Put Price Election Notice shall be irrevocable upon
Ashland's receipt of such Ashland Put Price Election Notice; provided that
at any time prior to the date that is ten Business Days prior to the
Closing Date (or applicable Installment Payment Date) Marathon shall have
the right to change a previous election to pay part of the Ashland Put
Price (or applicable Installment Payment) in Securities to an election to
pay a greater portion of or the entire Ashland Put Price (or applicable
Installment Payment) in Cash, or to change a previous election to pay the
Ashland Put Price in installments to an election to pay the entire or
remaining Ashland Put Price on the Closing Date (or applicable Installment
Payment Date).
SECTION 4.05. Limitation on Ashland's Ability To Exercise
its Ashland Put Right. If prior to the Ashland Put Exercise Date, Marathon
elects to Transfer all of its Membership Interests to a third party
pursuant to Section 10.01(c) of the LLC Agreement, and in connection
therewith delivers to Ashland the requisite Offer Notice pursuant to
Section 10.04 of the LLC Agreement, Ashland shall not be permitted to
exercise its Ashland Put Right for a period commencing on the date of
Ashland's receipt of such Offer Notice and ending on the earlier of (i) 120
days (270 days if a second request has been made under HSR) following such
receipt, (ii) the closing of such Transfer, and (iii) the date such
proposed Transfer by Marathon shall have been finally abandoned. After such
period, Ashland shall be entitled to exercise its Ashland Put Right.
ARTICLE V
Termination of Certain Distributions; Revocable Proxies
SECTION 5.01. Termination of Certain Distributions. (a)
Distributions to Ashland. (i) Subject to Sections 9.04(a), 9.05, 9.08(a)
and 9.09, in the event that Marathon exercises its Marathon Call Right or
its Special Termination Right, or in the event that Ashland exercises its
Ashland Put Right, then on the relevant
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28
Exercise Date, Ashland shall cause each of its Representatives to authorize
Marathon's Representatives to cause the Company to withhold from Ashland
all distributions of Distributable Cash and all Tax Liability Distributions
that Ashland would otherwise be entitled to receive pursuant to Article V
of the LLC Agreement during the period from the relevant Exercise Date to
the Closing Date, other than (i) all distributions of Distributable Cash
and Tax Liability Distributions that are attributable to any Fiscal Quarter
that ends on or prior to the close of business on the relevant Exercise
Date, (ii) a pro rata portion of all distributions of Distributable Cash
and Tax Liability Distributions that are attributable to the portion of a
Fiscal Quarter that begins prior to the relevant Exercise Date and that
ends after such Exercise Date and (iii) all Tax Liability Distributions
that are attributable to the period from the relevant Exercise Date to the
Closing Date to the extent that Ashland has any Tax Liability during such
period ("Ashland Exercise Period Distributions").
(ii) Any Ashland Exercise Period Distributions withheld
from Ashland pursuant to Section 5.01(a)(i) shall be distributed by the
Company as follows:
(A) if at the time such distribution is so withheld,
either (1) USX's Long Term Debt has an Investment Grade Rating and
USX has agreed in writing to guarantee (which guarantee shall be a
guarantee of payment) Marathon's obligations to pay to Ashland in
the circumstances set forth in Sections 9.04(a) and 9.05 (pursuant
to a guarantee agreement in form and substance reasonably
satisfactory to Ashland and its counsel) or (2) Marathon's Long
Term Debt has an Investment Grade Rating, then the Company shall
pay such Ashland Exercise Period Distributions directly to
Marathon; and
(B) if at the time such distribution is so withheld, (1)
Marathon's Long Term Debt does not have an Investment Grade Rating
and (2) either (x) USX's Long Term Debt does not have an
Investment Grade Rating or (y) USX's Long Term Debt has an
Investment Grade Rating but USX has not agreed in writing to
guarantee Marathon's payment obligations described in clause (2)
of subparagraph (A) above, then Marathon's Representatives shall
cause the Company to, and the Company shall, deposit all Ashland
Exercise Period
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29
Distributions into an escrow account to be established by the
Company (the "Escrow Account") and to release such deposits from
the Escrow Account only in accordance with this Agreement. All
amounts in the Escrow Account shall be invested only in Permitted
Investments.
(b) Distributions to Marathon. (i) Subject to Sections
9.08(a) and 9.09, in the event that Ashland exercises its Special
Termination Right in accordance with the terms hereof, then on the Special
Termination Exercise Date, Marathon shall cause each of its Representatives
to authorize Ashland's Representatives to cause the Company to withhold
from Marathon all distributions of Distributable Cash and all Tax Liability
Distributions that Marathon would otherwise be entitled to receive pursuant
to Article V of the LLC Agreement during the period from the Special
Termination Exercise Date to the Closing Date, other than (A) all
distributions of Distributable Cash and Tax Liability Distributions that
are attributable to any Fiscal Quarter that ends on or prior to the close
of business on the Special Termination Exercise Date, (B) a pro rata
portion of all distributions of Distributable Cash and Tax Liability
Distributions that are attributable to the portion of a Fiscal Quarter that
begins prior to the Special Termination Exercise Date and that ends after
the Special Termination Exercise Date and (C) all Tax Liability
Distributions that are attributable to the period from the Special
Termination Exercise Date to the Closing Date to the extent that Marathon
has any Tax Liability during such period ("Marathon Exercise Period
Distributions").
(ii) Any Marathon Exercise Period Distributions withheld
from Ashland pursuant to Section 5.01(a) shall be distributed by the
Company as follows:
(A) if at the time such distribution is so withheld,
Ashland's Long Term Debt has an Investment Grade Rating, then the
Company shall pay such Marathon Exercise Period Distributions
directly to Ashland; and
(B) if at the time such distribution is so withheld,
Ashland's Long Term Debt does not have an Investment Grade Rating,
then Ashland's Representatives shall cause the Company to, and the
Company shall, deposit all Marathon Exercise Period Distributions
into an Escrow Account and to release such deposits from the
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Escrow Account only in accordance with this Agreement. All amounts
in the Escrow Account shall be invested only in Permitted
Investments.
SECTION 5.02. Revocable Proxies. (a) Ashland
Representatives Revocable Proxies. Subject to Sections 9.04(a), 9.05,
9.08(a) and 9.09, in the event that Marathon exercises its Marathon Call
Right or its Special Termination Right, or in the event that Ashland
exercises its Ashland Put Right, then on the relevant Exercise Date,
Ashland shall cause each of its Representatives to grant to Marathon's
Representatives a proxy (the "Ashland Representatives Revocable Proxies")
which shall authorize Marathon's Representatives to cast each Ashland
Representative's vote at a Board of Managers' meeting (but not by written
consent in lieu of a meeting in accordance with Section 8.04(h) of the LLC
Agreement unless Marathon shall have given Ashland prior written notice of
the specific action to be taken by such written consent) in favor of or
against any of the Super Majority Decisions described in Sections 8.08 of
the LLC Agreement, as Marathon's Representatives shall, in their sole
discretion, determine, other than any vote with respect to a Super Majority
Decision described in Sections 8.08(c) (admission of a new Member; issuance
of additional Membership Interests), 8.08(d) (additional capital
contributions), 8.08(i) (change in Company's independent auditors), 8.08(j)
(amendments to LLC Agreement or other Transaction Documents to which
Company or its subsidiaries is a party), 8.08(l) (bankruptcy), 8.08(m)
(modification of provisions re: distributions of Distributable Cash) or
8.08(q) (delegation to a Member of power to unilaterally bind the Company),
with respect to which Ashland's Representatives shall retain all of their
rights and authority to vote; provided that Marathon shall not, and shall
cause each of its Representatives not to, take any action through the
exercise of the Ashland Representatives Revocable Proxies to cause the
Company's status as a partnership for Federal income tax purposes to
terminate prior to the Closing Date.
(b) Marathon Representative Revocable Proxy. Subject to
Sections 9.08(a) and 9.09, in the event that Ashland exercises its Special
Termination Right, then on the Special Exercise Date, Marathon shall cause
each of its Representatives to grant to Ashland's Representatives a proxy
(the "Marathon Representatives Revocable Proxies") which shall authorize
Ashland's Representatives to cast each
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Marathon Representative's vote at a Board of Managers' meeting (but not by
written consent in lieu of a meeting in accordance with Section 8.04(h) of
the LLC Agreement unless Ashland shall have given Marathon prior written
notice of the specific action to be taken by such written consent) in favor
of or against any of the Super Majority Decisions described in Sections
8.08 of the LLC Agreement, as Ashland's Representatives shall, in their
sole discretion, determine, other than any vote with respect to a Super
Majority Decision described in Section 8.08(c), 8.08(d), 8.08(i), 8.08(j),
8.08(l), 8.08(m) or 8.08(q) (except as expressly provided in Section 5.01),
with respect to which Marathon's Representatives shall retain all of their
rights and authority to vote; provided that Ashland shall not, and shall
cause each of its Representatives not to, take any action through the
exercise of the Marathon Representatives Revocable Proxies to cause the
Company's status as a partnership for Federal income tax purposes to
terminate prior to the Closing Date.
(c) Ashland LOOP/LOCAP Revocable Proxy. Subject to
Sections 9.04(a), 9.05, 9.08(a) and 9.09, in the event that Marathon
exercises its Marathon Call Right or its Special Termination Right, or in
the event that Ashland exercises its Ashland Put Right, then on the
relevant Exercise Date, Ashland shall grant to Marathon, or such other
person as Marathon shall designate, a proxy (the "Ashland LOOP/LOCAP
Revocable Proxy") which shall authorize Marathon and its Representatives
(or such other person) to exercise on Ashland's behalf, all of Ashland's
voting rights with respect to the Ashland LOOP/LOCAP Interest.
ARTICLE VI
Determination of the Appraised Value of the Company
SECTION 6.01. Determination of Appraised Value of the
Company. (a) Negotiation Period. If Marathon exercises its Special
Termination Right or its Marathon Call Right or if Ashland exercises its
Special Termination Right or its Ashland Put Right, then for a period of 60
days following the relevant Exercise Date, Marathon and Ashland shall
negotiate in good faith to seek to reach agreement as to the Market Value
of the Company. If Marathon and Ashland reach such an agreement, then the
Market Value of the Company shall be deemed to be the amount so agreed upon
by Marathon and Ashland.
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(b) Appraisal Process. In the event Marathon and Ashland
are unable to reach an agreement as to the Market Value of the Company
within the 60-day period referred to in Section 6.01(a), then within five
Business Days after the expiration of such 60-day period (such fifth
Business Day being referred to herein as the "6.01 Appraisal Process
Commencement Date"), Marathon and Ashland each shall select a nationally
recognized investment banking firm to (i) prepare a report which (A) sets
forth such investment banking firm's determination of the Market Value of
the Company (which shall be a single amount as opposed to a range) and (B)
includes work papers which indicate the basis for and calculation of the
Market Value of the Company (a "6.01 Appraisal Report") and (ii) deliver to
Marathon or Ashland, as the case may be, an oral and written opinion
addressed to such party as to the Market Value of the Company. The fees and
expenses of each investment banking firm shall be paid by the party
selecting such investment banking firm. Each of Marathon and Ashland shall
instruct its respective investment banking firm to (i) not consult with the
other investment banking firm with respect to its view as to the Market
Value of the Company prior to the time that both investment banking firms
have delivered their respective opinions to Marathon or Ashland, as
applicable, (ii) determine the Market Value of the Company in accordance
with Section 6.01(c), (iii) deliver their respective 6.01 Appraisal
Reports, together with their oral and written opinions as to the Market
Value of the Company (the "6.01 Initial Opinion Values"), within 60 days
after the 6.01 Appraisal Process Commencement Date, and (iv) deliver a copy
of its written opinion and its 6.01 Appraisal Report to the Company, the
other party and the other party's investment banking firm at the time it
delivers its oral and written opinion to Marathon or Ashland, as
applicable.
If the 6.01 Initial Opinion Values differ and the lesser
6.01 Initial Opinion Value equals or exceeds 90% of the greater 6.01
Initial Opinion Value, the Market Value of the Company shall be deemed to
be an amount equal to (i) the sum of the 6.01 Initial Opinion Values
divided by (ii) two.
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If the 6.01 Initial Opinion Values differ and the lesser
6.01 Initial Opinion Value is less than 90% of the greater 6.01 Initial
Opinion Value, then:
(i) within two Business Days after both investment
banking firms have delivered their respective opinions to Marathon
or Ashland, as applicable, each investment banking firm shall, at
a single meeting at which Marathon, Ashland, the Company and the
other investment banking firm are present, make a presentation
with respect to its 6.01 Initial Opinion Value. At such
presentation, Marathon, Ashland, the Company and the other
investment banking firm shall be entitled to ask questions as to
the basis for and the calculation of such investment banking
firm's 6.01 Initial Opinion Value; and
(ii) Marathon and Ashland shall, within five Business
Days after the date Marathon and Ashland receive the 6.01 Initial
Opinion Values (such fifth Business Day being referred to herein
as the "6.01 Subsequent Appraisal Process Commencement Date"),
jointly select a third nationally recognized investment banking
firm to (A) prepare a 6.01 Appraisal Report and (B) deliver an
oral and written opinion addressed to Marathon and Ashland as to
the Market Value of the Company. The fees and expenses of such
third investment banking firm shall be paid 50% by Marathon and
50% by Ashland. Such third investment banking firm shall not be
provided with the 6.01 Initial Opinion Values and shall not
consult with the initial investment banking firms with respect
thereto. During such five-Business Day period, Marathon and
Ashland shall negotiate in good faith to independently reach an
agreement as to the Market Value of the Company. If Marathon and
Ashland reach such an agreement, then the Market Value of the
Company shall be deemed to be the amount so agreed upon by
Marathon and Ashland. If Marathon and Ashland are unable to reach
such an agreement, then Marathon and Ashland shall instruct such
third investment banking firm to (A) determine the Market Value of
the Company in accordance with Section 6.01(c) and (B) deliver its
6.01 Appraisal Report, together with its oral and written opinion
(the "6.01 Third Opinion Value"), within 60 days after the 6.01
Subsequent Appraisal Process Commencement Date. The Market Value
of the Company in such circumstance shall
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34
be deemed to be an amount equal to (A) the sum of (x) the 6.01
Third Opinion Value plus (y) whichever of the two 6.01 Initial
Opinion Values is closer to the 6.01 Third Opinion Value (or, if
the 6.01 Third Opinion Value is exactly halfway between the two
6.01 Initial Opinion Values, the 6.01 Third Opinion Value),
divided by (B) two.
(c) Definition of Market Value of the Company. For
purposes of this Agreement, the Market Value of the Company (the "Market
Value of the Company") means the fair market value of the combined common
equity of the Company as of the relevant Exercise Date, (including, in the
circumstance where Marathon has exercised its Marathon Call Right or its
Special Termination Right or Ashland has exercised its Ashland Put Right,
the Ashland LOOP/LOCAP Interest) assuming the consummation of a transaction
designed to achieve the highest value of such combined common equity. In
determining the Market Value of the Company, (i) consideration should be
given as to (A) all possible transaction participants (other than Marathon
or Ashland or their respective Affiliates) and categories of possible
transactions; (B) a range of analytical methodologies, potentially
including, but not limited to, the following: comparable trading analysis,
comparable transaction analysis, discounted cash flow analysis, leveraged
buyout analysis and break-up analysis; and (C) the value to the Company of
all indemnification obligations of Marathon, USX and Ashland in favor of
the Company pursuant to any Transaction Document (including, without
limitation, Article IX of the Asset Transfer and Contribution Agreement),
to the extent such indemnification obligations remain in effect after the
Closing and (ii) no separate incremental value will be attributed to the
Ashland LOOP/LOCAP Interest. In determining the Market Value of the
Company, no consideration should be given to the values that are initially
assigned to assets of the Company for purchase accounting or tax accounting
purposes. The Market Value of the Company as determined pursuant to this
Section 6.01 is referred to herein as the "Appraised Value of the Company",
and the date on which the Market Value of the Company is so determined is
referred to herein as the "Appraised Value Determination Date".
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35
ARTICLE VII
Determination of the Fair Market Value of Securities
SECTION 7.01. General. The fair market value of any
Securities to be issued to Ashland on the Closing Date and on any
subsequent Installment Payment Date, shall be determined pursuant to the
following procedures (the fair market value of such Securities as so
determined being the "Fair Market Value" of such Securities).
SECTION 7.02. Determination of Fair Market Value of
Marathon Debt Securities. The Fair Market Value of any Marathon Debt
Securities shall be deemed to be an amount equal to the aggregate stated
principal amount of such Marathon Debt Securities.
SECTION 7.03. Determination of Fair Market Value of
Actively Traded Marathon Equity Securities. (a) Fair Market Value Where
There is No Holding Period. The Fair Market Value of any Actively Traded
Marathon Equity Securities to be issued to Ashland on the Closing Date or
applicable Installment Payment Date for which Marathon has not elected a
Holding Period shall be deemed to be an amount equal to the product of (i)
the aggregate number of such Actively Traded Marathon Equity Securities to
be issued to Ashland multiplied by (ii) the Weighted Average Price (as
defined below) of such Actively Traded Marathon Equity Securities on the
National Market System of the NASDAQ or the relevant National Securities
Exchange, as reported by The Wall Street Journal or, if not reported
thereby, as reported by any other authoritative source, for the ten full
Trading Days immediately preceding the Business Day immediately preceding
the Closing Date or applicable Installment Payment Date; provided that at
least five Trading Days prior to the commencement of such ten full Trading
Day period (the "Required Disclosure Date"), Marathon shall have made
appropriate public disclosure (including by issuing a press release and
filing a copy of such press release with the Commission) of (A) the
existence of the Transaction, (B) the Ashland Put Price and (C) the
information required to be included in the Ashland Put Price Election
Notice (each such public disclosure being a "Required Disclosure").
Marathon shall provide Ashland with a copy of each Required Disclosure
prior to Marathon making such disclosure public. Any such Required
Disclosure shall be in form and substance reasonably satisfactory to
Ashland
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36
and its counsel. For purposes of this Section 7.03(a), the "Weighted
Average Price" means the quotient of (1) the product of (x) the number of
shares in each trade in such Actively Traded Marathon Equity Securities
that occurred during such ten full Trading Day period multiplied by (y) the
price at which each such trade occurred, divided by (2) the total number of
shares traded in such Actively Traded Marathon Equity Securities that
occurred during such ten full Trading Day period. In the event of (i) any
split, combination or reclassification of the class of Actively Traded
Marathon Equity Securities to be issued to Ashland on the Closing Date or
applicable Installment Payment Date, (ii) any issuance or the authorization
of any issuance of any other securities in exchange or in substitution for
the shares of such class of Actively Traded Marathon Equity Securities or
(iii) any issuance or declaration of cash or stock dividends or other
distributions with respect to such class of Actively Traded Marathon Equity
Securities, in each case at any time during the ten full Trading Day period
referred to above, Marathon and Ashland shall make such adjustment to the
Fair Market Value of such Actively Traded Equity Securities determined
pursuant to this Section 7.03(a) as Marathon and Ashland shall mutually
agree so as to preserve the economic benefits to Ashland expected on the
date of this Agreement as a result of the issuance to it of such Actively
Traded Marathon Equity Securities as part of the Ashland Put Price.
(b) Fair Market Value Where There is a Holding Period. In
the event that Marathon elects pursuant to Section 4.04(a) or 4.04(b) to
impose a Holding Period on any Actively Traded Marathon Equity Securities,
the Fair Market Value of such Actively Traded Marathon Equity Securities
shall be deemed to be an amount equal to (i) the Fair Market Value of such
Actively Traded Marathon Equity Securities as determined pursuant to
Section 7.03(a), minus (ii) a discount factor that takes into account such
limitation on Ashland's ability to freely trade such Actively Traded
Marathon Equity Securities (a "7.03(b) Discount Amount"). The 7.03(b)
Discount Amount with respect to the Fair Market Value of such Actively
Traded Marathon Equity Securities shall be determined pursuant to the
following procedures:
(i) Negotiation Period. For a period of 15 days following
the applicable Ashland Put Price Election Date, Marathon and
Ashland will negotiate in good faith to seek to reach an agreement
as to the 7.03(b) Discount Amount. If Marathon and Ashland reach
such an agreement, then the 7.03(b)
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37
Discount Amount shall be deemed to be the amount so agreed upon by
Marathon and Ashland.
(ii) Appraisal Process. In the event Marathon and Ashland
are unable to reach an agreement as to the 7.03(b) Discount Amount
within the 15-day period referred to in clause (i) above, then
within five Business Days after the expiration of such 15-day
period (such fifth Business Day being referred to herein as the
"7.03(b) Appraisal Process Commencement Date"), Marathon and
Ashland each shall select a nationally recognized investment
banking firm to (A) prepare a report which (1) sets forth such
investment banking firm's determination of the 7.03(b) Discount
Amount (which shall be a single amount as opposed to a range) and
(2) includes work papers which indicate the basis for and the
calculation of the 7.03(b) Discount Amount (a "7.03(b) Appraisal
Report") and (B) deliver to Marathon or Ashland, as the case may
be, an oral and written opinion addressed to such party as to the
7.03(b) Discount Amount. The fees and expenses of each investment
banking firm shall be paid by the party selecting such investment
banking firm. Each of Marathon and Ashland shall instruct its
respective investment banking firm to (i) not consult with the
other investment banking firm with respect to its view as to the
7.03(b) Discount Amount prior to the time that both investment
banking firms have delivered their respective opinions to Marathon
and Ashland, as applicable, (ii) deliver their respective 7.03(b)
Appraisal Reports, together with their oral and written opinions
as to the 7.03(b) Discount Amount (the "7.03(b) Initial Opinion
Values"), within 15 days after the 7.03(b) Appraisal Process
Commencement Date, and (iii) deliver a copy of its written opinion
and its 7.03(b) Appraisal Report to the Company, the other party
and the other party's investment banking firm at the time it
delivers its oral and written opinion to Marathon or Ashland, as
applicable.
If the 7.03(b) Initial Opinion Values differ and
the lesser 7.03(b) Initial Opinion Value equals or exceeds 90% of
the greater 7.03(b) Initial Opinion Value, the 7.03(b) Discount
Amount shall be deemed to
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38
be an amount equal to (1) the sum of the 7.03(b) Initial Opinion
Values divided by (2) two.
If the 7.03(b) Initial Opinion Values differ and
the lesser 7.03(b) Initial Opinion Value is less than 90% of the
greater 7.03(b) Initial Opinion Value, then:
(i) within two Business Days after both investment
banking firms have delivered their respective opinions to Marathon
or Ashland, as applicable, each investment banking firm shall, at
a single meeting at which Marathon, Ashland, the Company and the
other investment banking firm are present, make a presentation
with respect to its 7.03(b) Initial Opinion Value. At such
presentation, Marathon, Ashland, the Company and the other
investment banking firm shall be entitled to ask questions as to
the basis for and the calculation of such investment banking
firm's 7.03(b) Initial Opinion Value; and
(ii) Marathon and Ashland shall, within five Business
Days after the date Marathon and Ashland receive the 7.03(b)
Initial Opinion Values (such fifth Business Day being referred to
herein as the "7.03(b) Subsequent Appraisal Process Commencement
Date"), jointly select a third nationally recognized investment
banking firm to (i) prepare a 7.03(b) Appraisal Report and (ii)
deliver an oral and written opinion addressed to Marathon and
Ashland as to the 7.03(b) Discount Amount. The fees and expenses
of such third investment banking firm shall be paid 50% by
Marathon and 50% by Ashland. Such third investment banking firm
shall not be provided with the 7.03(b) Initial Opinion Values and
shall not consult with the initial investment banking firms with
respect thereto. During such five-Business Day period, Marathon
and Ashland shall negotiate in good faith to independently reach
an agreement as to the 7.03(b) Discount Amount. If Marathon and
Ashland reach such an agreement, then the 7.03(b) Discount Amount
shall be deemed to be the amount so agreed upon by Marathon and
Ashland. If Marathon and Ashland are unable to reach such an
agreement, then Marathon and Ashland shall instruct such third
investment banking firm to deliver its 7.03(b) Appraisal Report,
together with its oral and written opinion as to the 7.03(b)
Discount Amount (the "7.03(b) Third Opinion Value"),
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39
within 15 days after the 7.03(b) Subsequent Appraisal Process
Commencement Date. The 7.03(b) Discount Amount in such
circumstance shall be deemed to be an amount equal to (1) the sum
of (x) the 7.03(b) Third Opinion Value plus (y) whichever of the
two 7.03(b) Initial Opinion Values is closer to the 7.03(b) Third
Opinion Value (or, if the 7.03(b) Third Opinion Value is exactly
halfway between the two 7.03(b) Initial Opinion Values, the
7.03(b) Third Opinion Value), divided by (2) two.
SECTION 7.04. Determination of Fair Market Value of
Non-Actively Traded Marathon Equity Securities. (a) Negotiation Period. If
Marathon proposes to issue (or to have issued) to Ashland Marathon Equity
Securities that are not Actively Traded Marathon Equity Securities, then
for a period of 15 days following the applicable Ashland Put Price Election
Date, Marathon and Ashland will negotiate in good faith to seek to reach an
agreement as to the Fair Market Value of such Marathon Equity Securities,
taking into account, if there is a Holding Period, a discount factor that
takes into account such limitation on Ashland's ability to freely trade
such Marathon Equity Securities (a "7.04 Discount Amount"). If Marathon and
Ashland reach such an agreement, then the Fair Market Value of such
Marathon Equity Securities shall be deemed to be the amount so agreed upon
by Marathon and Ashland.
(b) Appraisal Process. In the event Marathon and Ashland
are unable to reach an agreement as to such Fair Market Value of Marathon
Equity Securities and such 7.04 Discount Amount, if any, within the 15-day
period referred to in clause (a) above, then within five Business Days
after the expiration of such 15-day period (such fifth Business Day being
referred to herein as the "7.04 Appraisal Process Commencement Date"),
Marathon and Ashland each shall select a nationally recognized investment
banking firm to (i) prepare a report which (1) sets forth such investment
banking firm's determination of the Fair Market Value of such Marathon
Equity Securities (which shall be a single amount as opposed to a range),
taking into account, if there is a Holding Period, a 7.04 Discount Amount,
which is determined by such investment banking firm, and (2) includes work
papers which separately indicate the basis for and the calculation of the
Fair Market Value of such Marathon Equity Securities and, if there is a
Holding Period, the basis for and the calculation of the 7.04 Discount
Amount (a "7.04
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40
Appraisal Report") and (ii) deliver to Marathon or Ashland, as the case may
be, an oral and written opinion addressed to such party as to the Fair
Market Value of such Marathon Equity Securities (which opinion shall take
into account a 7.04 Discount Amount if there is a Holding Period with
respect to such Marathon Equity Securities). The fees and expenses of each
investment banking firm shall be paid by the party selecting such
investment banking firm. Each of Marathon and Ashland shall instruct its
respective investment banking firm to (i) not consult with the other
investment banking firm with respect to its view as to the Fair Market
Value of such Marathon Equity Securities and the 7.04 Discount Amount prior
to the time that both investment banking firms have delivered their
respective opinions to Marathon and Ashland, as applicable, (ii) deliver
their respective 7.04 Appraisal Reports, together with their oral and
written opinions as to the Fair Market Value of such Marathon Equity
Securities (the "7.04 Initial Opinion Values"), within 15 days after the
7.04 Appraisal Process Commencement Date, and (iii) deliver a copy of its
written opinion and its 7.04 Appraisal Report to the Company, the other
party and the other party's investment banking firm at the time it delivers
its oral and written opinion to Marathon or Ashland, as applicable.
If the 7.04 Initial Opinion Values differ and the lesser
7.04 Initial Opinion Value equals or exceeds 90% of the greater 7.04
Initial Opinion Value, the Fair Market Value of such Marathon Equity
Securities shall be deemed to be an amount equal to (1) the sum of the 7.04
Initial Opinion Values divided by (2) two.
If the 7.04 Initial Opinion Values differ and the lesser
7.04 Initial Opinion Value is less than 90% of the greater 7.04 Initial
Opinion Value, then:
(i) within two Business Days after both investment
banking firms have delivered their respective opinions to Marathon
or Ashland, as applicable, each investment banking firm shall, at
a single meeting at which Marathon, Ashland, the Company and the
other investment banking firm are present, make a presentation
with respect to its 7.04 Initial Opinion Value. At such
presentation, Marathon, Ashland, the Company and the other
investment banking firm shall be entitled to ask questions as to
the basis for and the calculation of
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41
such investment banking firm's 7.04 Initial Opinion Value; and
(ii) Marathon and Ashland shall, within five Business
Days after the date Marathon and Ashland receive the 7.04 Initial
Opinion Values (such fifth Business Day being referred to herein
as the "7.04 Subsequent Appraisal Process Commencement Date"),
jointly select a third nationally recognized investment banking
firm to (i) prepare a 7.04 Appraisal Report and (ii) deliver an
oral and written opinion addressed to Marathon and Ashland as to
the Fair Market Value of such Marathon Equity Securities (which
opinion shall take into account a 7.04 Discount Amount if there is
a Holding Period with respect to such Marathon Equity Securities).
The fees and expenses of such third investment banking firm shall
be paid 50% by Marathon and 50% by Ashland. Such third investment
banking firm shall not be provided with the 7.04 Initial Opinion
Values and shall not consult with the initial investment banking
firms with respect thereto. During such five-Business Day period,
Marathon and Ashland shall negotiate in good faith to
independently reach an agreement as to the Fair Market Value of
such Marathon Equity Securities. If Marathon and Ashland reach
such an agreement, then the Fair Market Value of such Marathon
Equity Securities shall be deemed to be the amount so agreed upon
by Marathon and Ashland. If Marathon and Ashland are unable to
reach such an agreement, then Marathon and Ashland shall instruct
such third investment banking firm to deliver its 7.04 Appraisal
Report, together with its oral and written opinion as to the Fair
Market Value of such Marathon Equity Securities (the "7.04 Third
Opinion Value"), within 15 days after the 7.04 Subsequent
Appraisal Process Commencement Date. The Fair Market Value of such
Marathon Equity Securities in such circumstance shall be deemed to
be an amount equal to (i) the sum of (x) the 7.04 Third Opinion
Value plus (y) whichever of the two 7.04 Initial Opinion Values is
closer to the 7.04 Third Opinion Value (or, if the 7.04 Third
Opinion Value is exactly halfway between the two 7.04 Initial
Opinion Values, the 7.04 Third Opinion Value), divided by (ii)
two.
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42
ARTICLE VIII
Certain Matters Relating to Securities
SECTION 8.01. Certain Requirements with Respect to
Marathon Debt Securities. All debt securities issued to Ashland pursuant to
Section 4.02(c) shall (i) be unsecured senior public fixed income debt
securities of (a) USX or (b) Marathon and fully guaranteed as to
performance by USX; (ii) have maturities of 5 to 7 years; (iii) have yields
which are comparable to those of 5 to 7 year public debt instruments issued
by companies whose Long Term Debt at the time of the issuance of such debt
securities to Ashland is rated by S&P and Moody's at least equal to the
respective ratings by S&P and Moody's of USX's Long Term Debt; (iv) be
priced to trade at par initially; and (v) have covenants substantially the
same as those included in other outstanding senior publicly traded debt
instruments of USX, including a negative pledge providing for pari passu
security rights and usual and customary successorship provisions concerning
changes in USX's ownership (all such debt securities are referred to herein
as "Marathon Debt Securities").
SECTION 8.02. Procedures with Respect to the Issuance of
Securities. All Securities to be issued hereunder shall be accompanied on
the Closing Date or applicable Installment Payment Date by (i) a
certificate from an authorized officer of the Issuer and (ii) an opinion
from such Issuer's counsel, in each case as to such matters as Ashland may
reasonably request, including, but not limited to the matters substantially
as follows (which shall be made as of the Closing Date or applicable
Installment Payment Date):
(i) the Issuer is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation with the power and authority to own, lease
and operate its assets and to conduct the business now being or to
be conducted by it. The Issuer is duly authorized, qualified or
licensed to do business as a foreign corporation or other
organization in good standing in each of the jurisdictions in
which its right, title or interest in or to any of the assets held
by it or the business conducted by it requires such authorization,
qualification or licensing, except where the failure to
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43
be so authorized, qualified, licensed or in good standing would
not, individually or in the aggregate, result in an Issuer
Material Adverse Effect;
(ii) the Issuer's authorized capitalization is as set
forth in its Exchange Act filings (or, in the circumstance where
Ashland has made a Demand Registration, as set forth in the
Registration Statement or Offering Memorandum, as applicable, with
respect to such Securities). All of the outstanding equity
securities of the Issuer are duly and validly authorized and
issued, are fully paid and nonassessable and were not issued in
violation of or subject to any preemptive rights or other
contractual rights to purchase securities;
(iii) if such Securities are Marathon Equity Securities,
such Securities are duly authorized, validly issued and
outstanding, are fully paid and nonassessable, and were not issued
in violation of or subject to any preemptive rights or other
contractual rights to purchase securities;
(iv) if such Securities are Marathon Debt Securities,
such Securities have been duly authorized and validly issued by
the Issuer and constitute legal, valid and binding obligations of
the Issuer enforceable against the Issuer in accordance with their
terms, except as such enforcement is subject to the effect of any
applicable bankruptcy, insolvency, reorganization or other law
relating to or affecting creditors' rights generally and general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law);
(v) such Securities conform in all material respects to
the description thereof contained in the Issuer's Exchange Act
filings (or, in the circumstance where Ashland has made a Demand
Registration, to the description thereof contained in the
Registration Statement or Offering Memorandum, as applicable, with
respect to such Securities) and the certificates evidencing such
Securities will be, upon issuance, in due and proper form;
(vi) if such Securities are Marathon Equity Securities,
such Securities have been authorized
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44
conditionally for listing on each national securities exchange on
which the other securities of the Issuer of the same class are
listed at the time of the Closing Date or Installment Payment
Date, subject to issuance and certain other conditions that are
not material;
(vii) if such Securities are Marathon Debt Securities,
the execution and delivery by the Issuer of each agreement
pursuant to which such Securities have been issued or which relate
to such Securities (each, a "Securities Document") and the
consummation by it of the transactions contemplated thereby have
been duly authorized and approved by all necessary corporate or
other action on the part of the Issuer. Each Securities Document
has been duly executed and delivered by the Issuer and constitutes
its legal, valid and binding obligation, enforceable against it in
accordance with its terms, except as such enforcement is subject
to the effect of any applicable bankruptcy, insolvency,
reorganization or other law relating to or affecting creditors'
rights generally and general principles of equity (regardless of
whether such enforceability is considered in a proceeding in
equity or at law);
(viii) neither the execution and delivery by the Issuer
of the Securities Documents (in the case of Marathon Debt
Securities), nor the issuance of the Securities pursuant to this
Agreement and/or such Securities Documents will (a) conflict with,
or results in the breach of any provision of, the charter or
by-laws or similar governing or organizational documents of the
Issuer or any of its subsidiaries, (b) violate any Applicable Law
or any permit, order, award, injunction, decree or judgment of any
Governmental Authority applicable to or binding upon the Issuer or
any of its subsidiaries or to which any of their respective
properties is subject or (c) violate, conflict with or result in
the breach or termination of, or otherwise give any other person
the right to terminate, or constitute a default, event of default
or an event which with notice, lapse of time or both, would
constitute a default or event of default under the terms of, any
mortgage, indenture, deed of trust or lease or other agreement or
instrument to which the Issuer or any of its subsidiaries is a
party or by which any of their respective properties or
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45
assets is subject, except, in the case of clauses (b) and (c) for
such violations, conflicts, breaches, terminations and defaults
which would not, individually or in the aggregate, result in an
Issuer Material Adverse Effect; and
(ix) except as set forth on a schedule to such
certificate or opinion, no Governmental Approval or other consent
is required by the Issuer for the execution and delivery by it of
the Securities Documents (in the case of Marathon Debt Securities)
or the issuance of the Securities pursuant to this Agreement
and/or such Securities Documents, except (a) for such Governmental
Approvals or other consents as have been obtained or (b) where the
failure to obtain such Governmental Approvals or other consents
would not, individually or in the aggregate, result in an Issuer
Material Adverse Effect.
If any Securities are issued by Marathon and guaranteed by USX, each of
Marathon and USX shall provide Ashland with a certificate and an opinion of
counsel in accordance with this Section 8.02.
SECTION 8.03. Holding Period. If Marathon elects (by so
notifying Ashland in the Ashland Put Price Election Notice) to impose a
Holding Period with respect to sales by Ashland of Marathon Equity
Securities issued to Ashland on the Closing Date or on an Installment
Payment Date, as applicable, then Ashland shall not be permitted to sell
such Marathon Equity Securities during such Holding Period. The term
"Holding Period", with respect to any Marathon Equity Securities, means the
period commencing on the Closing Date or applicable Installment Payment
Date and ending on such later date as Marathon shall state in the Ashland
Put Price Election Notice; provided that the length of a Holding Period
with respect to any Marathon Equity Securities shall in no event exceed 30
days.
SECTION 8.04. Manner of Sale of Marathon Equity
Securities. Ashland agrees to sell all Marathon Equity Securities (i)
pursuant to a bona fide Underwritten Public Offering managed by one or more
Bulge Bracket Investment Banking Firms selected by Ashland, or by one or
more other investment banking firms selected by Ashland and to which
Marathon or USX shall not have reasonably objected, in a manner reasonably
designed to effect a broad distribution of
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46
such Marathon Equity Securities (a "Qualifying Public Offering"), (ii) to
any person, provided that after giving effect to such sale such person
beneficially owns, together with such person's Affiliates, no more than 5%
of the Marathon Equity Securities of the relevant issuer then outstanding
on a fully diluted basis (a "Fully Distributed Sale") or (iii) to a broker
or underwriter selected by Ashland who agrees to effect any subsequent
transfer by it of such Marathon Equity Securities in a Qualifying Public
Offering or a Fully Distributed Sale.
ARTICLE IX
Closing; Conditions to Closing; Consequences of Delay
SECTION 9.01. Closing. (a) Closing Date. The closing (the
"Closing") of (i) the purchase and sale of Ashland's Membership Interests
and the Ashland LOOP/LOCAP Interest pursuant to Marathon's exercise of its
Special Termination Right or Marathon Call Right or Ashland's exercise of
its Ashland Put Right or (ii) the purchase and sale of Marathon's
Membership Interests pursuant to Ashland's exercise of its Special
Termination Right, shall be held at the offices of Marathon, at 10:00 a.m.
on the later of (x) the 60th day after the Appraised Value Determination
Date (or at such other place or at such other time or such other date as
Marathon and Ashland shall mutually agree) (the "Scheduled Closing Date")
and (y) the fifth Business Day following the satisfaction or waiver of all
conditions to the obligations of Marathon and Ashland set forth in Section
9.02. The date on which the Closing actually occurs is referred to herein
as the "Closing Date".
(b) Purchase Procedures in the Event of the Exercise by
Marathon of its Special Termination Right or its Marathon Call Right. In
the event that Marathon exercises its Special Termination Right or Marathon
Call Right, at the Closing:
(i) Marathon shall deliver to Ashland, in Cash or by wire
transfer to a bank account designated in writing by Ashland,
immediately available funds in an amount equal to the sum of (x)
the Special Termination Price or Marathon Call Price, as
applicable, plus (y) the amount of interest payable pursuant to
Section 3.01, plus (z) the amount of interest, if any,
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payable pursuant to Section 9.04(b), 9.05, 9.08(b) or 9.09;
(ii) Ashland shall Transfer to Marathon (or, if Marathon
so elects by written notice to Ashland, a Wholly Owned Subsidiary
of Marathon or USX) in accordance with Article X of the LLC
Agreement, all of Ashland's Membership Interests;
(iii) Ashland shall Transfer to Marathon or, if Marathon
so elects by written notice to Ashland, to the Company or such
other person as Marathon shall direct, the Ashland LOOP/LOCAP
Interest; and
(iv) the Company shall release to Marathon any amounts
held in the Escrow Account, including any income earned thereon.
(c) Purchase Procedures in the Event of the Exercise by
Ashland of its Ashland Put Right. In the event that Ashland exercises its
Ashland Put Right, at the Closing:
(i) Marathon shall deliver to Ashland, in Cash or by wire
transfer to a bank account designated in writing by Ashland,
immediately available funds in an amount equal to the sum of (x)
the Cash portion of the Ashland Put Price or first Installment
Payment, as applicable, plus (y) the amount of interest payable
pursuant to Section 4.01, plus (z) the amount of interest, if any,
payable pursuant to Section 9.04(b), 9.05, 9.08(b) or 9.09;
(ii) Marathon and/or USX, as applicable, shall issue the
Securities to be issued on the Closing Date, if any, which
Securities shall be accompanied by the certificate(s) and
opinion(s) referred to in Section 8.02;
(iii) Ashland shall Transfer to Marathon or, if Marathon
so elects by written notice to Ashland, a Wholly Owned Subsidiary
of Marathon or USX in accordance with Article X of the LLC
Agreement, all of Ashland's Membership Interests;
(iv) Ashland shall Transfer to Marathon or, if Marathon
so elects by written notice to Ashland, to the
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48
Company or such other person as Marathon shall direct, the Ashland
LOOP/LOCAP Interest; and
(v) the Company shall release to Marathon any amounts
held in the Escrow Account, including any income earned thereon.
In addition, on each of two remaining Scheduled Installment Payment Dates,
if any, (i) Marathon shall deliver to Ashland, in Cash or by wire transfer
to a bank account (which bank account has been designated in writing by
Ashland at least two Business Days prior to the applicable Installment
Payment Date), immediately available funds in an amount equal to the sum of
(x) the Cash portion of the second and third Installment Payments,
respectively, plus (y) the amount of interest payable pursuant to Section
4.01, plus (z) the amount of interest, if any, payable pursuant to Section
9.04(b) or 9.05; and (ii) Marathon and/or USX, as applicable, shall issue
the Securities to be issued on such Installment Payment Dates, if any,
which Securities shall be accompanied by the certificate(s) and opinion(s)
referred to in Section 8.02.
(d) Purchase Procedures in the Event of the Exercise by
Ashland of its Special Termination Right. In the event that Ashland
exercises its Special Termination Right at the Closing:
(i) Ashland shall deliver to Marathon, in Cash or by wire
transfer to a bank account designated in writing by Marathon,
immediately available funds in an amount equal to the sum of (x)
the Special Termination Price plus (y) the amount of interest
payable pursuant to Section 2.01, plus (z) the amount of interest,
if any, payable pursuant to Section 9.08(b) or 9.09;
(ii) Marathon shall Transfer to Ashland (or, if Ashland
so elects by written notice to Marathon, a Wholly Owned Subsidiary
of Ashland) in accordance with Article X of the LLC Agreement, all
of Marathon's Membership Interests; and
(iii) the Company shall release to Ashland any amounts
held in the Escrow Account, including any income earned thereon.
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49
SECTION 9.02. Conditions to Closing. (a) Marathon's
Obligation in the Event of an Exercise by Marathon of its Special
Termination Right or its Marathon Call Right or an Exercise by Ashland of
its Ashland Put Right. Marathon's obligation to purchase and pay for
Ashland's Membership Interests and the Ashland LOOP/LOCAP Interest pursuant
to this Agreement in the event of an exercise by Marathon of its Special
Termination Right or its Marathon Call Right or in the event of an exercise
by Ashland of its Ashland Put Right is subject in each case to the
satisfaction (or waiver by Marathon) as of the Closing of the following
conditions:
(i) As of the Closing Date, there shall be no (i)
injunction or restraining order of any nature issued by any
Governmental Authority which directs, or which has the effect of
directing, that the Closing shall not be consummated as herein
provided or (ii) investigation, action or other proceeding that
shall have been brought by any Governmental Authority and be
pending on the Closing Date, or that shall have been threatened by
any Governmental Authority, in any such case against Marathon or
Ashland in connection with the consummation of the transactions
contemplated by this Agreement which is reasonably likely to
result in an injunction or restraining order which directs, or
which has the effect of directing, that the Closing shall not be
consummated as herein provided;
(ii) the waiting period under the HSR Act, if applicable
to the purchase and sale of Ashland's Membership Interests
pursuant to this Agreement shall have expired or been terminated;
and
(iii) Ashland shall have Transferred to Marathon (or, if
Marathon shall have so elected by written notice to Ashland, a
Wholly Owned Subsidiary of Marathon or USX) all of its Membership
Interests on the Closing Date free and clear of all Liens.
It is understood and agreed that a breach by Ashland of any of its
representations or warranties in this Agreement shall not constitute a
condition to Marathon's obligation to purchase and pay for Ashland's
Membership Interests and the Ashland LOOP/LOCAP Interest pursuant to this
Agreement in the circumstances set forth above; provided that Marathon
shall not be deemed to have waived any right to make a Claim
<PAGE>
50
against Ashland with respect to any Loss that Marathon suffers as a result
of any such breach.
(b) Ashland's Obligation in the Event of an Exercise by
Marathon of its Special Termination Right or its Marathon Call Right or an
Exercise by Ashland of its Ashland Put Right. Ashland's obligation to sell
its Membership Interests and the Ashland LOOP/LOCAP Interest to Marathon
pursuant to this Agreement in the event of an exercise by Marathon of its
Special Termination Right or its Marathon Call Right or in the event of an
exercise by Ashland of its Ashland Put Right is subject in each case to the
satisfaction (or waiver by Ashland) as of the Closing of the following
conditions:
(i) As of the Closing Date, there shall be no (i)
injunction or restraining order of any nature issued by any
Governmental Authority which directs, or which has the effect of
directing, that the Closing shall not be consummated as herein
provided or (ii) investigation, action or other proceeding that
shall have been brought by any Governmental Authority and be
pending on the Closing Date, or threatened by any Governmental
Authority, in any such case against Marathon or Ashland in
connection with the consummation of the transactions contemplated
by this Agreement which is reasonably likely to result in an
injunction or restraining order which directs, or which has the
effect of directing, that the Closing shall not be consummated as
herein provided;
(ii) the waiting period under HSR Act, if applicable to
the purchase and sale of Ashland's Membership Interests pursuant
to this Agreement shall have expired or been terminated;
(iii) Marathon shall have delivered to Ashland, in Cash
or by wire transfer to a bank account designated in writing by
Ashland, immediately available funds in an amount equal to (x) the
Special Termination Price or Marathon Call Price, as applicable,
or the Cash portion of the Ashland Put Price or applicable
Installment Payment, plus (y) the amount of interest payable
pursuant to Section 3.01 or 4.01, as applicable, plus (z) the
amount of interest, if any, payable pursuant to Section 9.04(b) or
9.05; and
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51
(iv) Marathon or USX, as applicable, shall have issued
the Securities to be issued on the Closing Date, if any,
accompanied by the certificate(s) and opinion(s) referred to in
Section 8.02.
It is understood and agreed that a breach by Marathon or USX of any of its
respective representations or warranties in this Agreement shall not
constitute a condition to Ashland's obligation to sell its Membership
Interests and the Ashland LOOP/LOCAP Interest to Marathon pursuant to this
Agreement in the circumstances set forth above; provided that Ashland shall
not be deemed to have waived any right to make a Claim against Marathon or
USX with respect to any Loss that Ashland suffers as a result of any such
breach.
(c) Ashland's Obligation in the Event of an Exercise by
Ashland of its Special Termination Right. Ashland's obligation to purchase
and pay for Marathon's Membership Interests pursuant to this Agreement in
the event of an exercise by Ashland of its Special Termination Right is
subject to the satisfaction (or waiver by Ashland) as of the Closing of the
following conditions:
(i) As of the Closing Date, there shall be no (i)
injunction or restraining order of any nature issued by any
Governmental Authority which directs, or which has the effect of
directing, that the Closing shall not be consummated as herein
provided or (ii) investigation, action or other proceeding that
shall have been brought by any Governmental Authority and be
pending on the Closing Date, or that shall have been threatened by
any Governmental Authority, in any such case against Marathon or
Ashland in connection with the consummation of the transactions
contemplated by this Agreement which is reasonably likely to
result in an injunction or restraining order which directs, or
which has the effect of directing, that the Closing shall not be
consummated as herein provided;
(ii) the waiting period under the HSR Act, if applicable
to the purchase and sale of Marathon's Membership Interests
pursuant to this Agreement shall have expired or been terminated;
and
(iii) Marathon shall have Transferred to Ashland (or, if
Ashland shall have so elected by written notice to Marathon, a
Wholly Owned Subsidiary of Ashland) all
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52
of its Membership Interests on the Closing Date free and clear of
all Liens.
It is understood and agreed that a breach by Marathon or USX of any of its
respective representations or warranties in this Agreement shall not
constitute a condition to Ashland's obligation to purchase and pay for
Marathon's Membership Interests pursuant to this Agreement in the
circumstances set forth above; provided that Ashland shall not be deemed to
have waived any right to make a Claim against Marathon or USX with respect
to any Loss that Ashland suffers as a result of any such breach.
(d) Marathon's Obligation in the Event of an Exercise by
Ashland of its Special Termination Right. Marathon's obligation to sell its
Membership Interests to Ashland pursuant to this Agreement in the event of
an exercise by Ashland of its Special Termination Right is subject to the
satisfaction (or waiver by Marathon) as of the Closing of the following
conditions:
(i) As of the Closing Date, there shall be no (i)
injunction or restraining order of any nature issued by any
Governmental Authority which directs, or which has the effect of
directing, that the Closing shall not be consummated as herein
provided or (ii) investigation, action or other proceeding that
shall have been brought by any Governmental Authority and be
pending on the Closing Date, or threatened by any Governmental
Authority, in any such case against Marathon or Ashland in
connection with the consummation of the transactions contemplated
by this Agreement which is reasonably likely to result in an
injunction or restraining order which directs, or which has the
effect of directing, that the Closing shall not be consummated as
herein provided;
(ii) the waiting period under HSR Act, if applicable to
the purchase and sale of Marathon's Membership Interests pursuant
to this Agreement shall have expired or been terminated; and
(iii) Ashland shall have delivered to Marathon, in Cash
or by wire transfer to a bank account designated in writing by
Marathon, immediately available funds in an amount equal to (x)
the Special Termination Price plus (y) the amount of interest
payable pursuant to
<PAGE>
53
Section 2.01 plus (z) the amount of interest, if any, payable
pursuant to Section 9.08(b) or 9.09.
It is understood and agreed that a breach by Ashland of any of its
representations or warranties in this Agreement shall not constitute a
condition to Marathon's obligation to sell its Membership Interests to
Ashland pursuant to this Agreement in the circumstances set forth above;
provided that Marathon shall not be deemed to have waived any right to make
a Claim against Ashland with respect to any Loss that Marathon suffers as a
result of any such breach.
(e) Consequences of Inability To Transfer the Ashland
LOOP/LOCAP Interest on the Closing Date. It shall not be a condition to the
Closing of the Marathon Call Right, the Ashland Put Right or the Marathon
Special Termination Right, as applicable, that Ashland shall have
Transferred the Ashland LOOP/LOCAP Interest to Marathon, the Company or
such other person as Marathon shall direct. In the event that any consents
or approvals required for such Transfer are not obtained prior to the
Closing of the Marathon Call Right, the Ashland Put Right or the Marathon
Special Termination Right, as applicable, and as a consequence Ashland is
not able to Transfer the Ashland LOOP/LOCAP Interest to Marathon, the
Company or such other person as Marathon shall direct, as applicable, on
the Closing Date, the parties hereto shall use their commercially
reasonable best efforts to achieve any lawful and reasonable (including
with respect to the costs and expenses to be borne by Ashland) arrangement
proposed by Marathon under which Marathon or the Company, as applicable,
shall obtain the economic claims, rights and benefits under the Ashland
LOOP/LOCAP Interest. Such reasonable arrangement may include (i) Ashland
subcontracting, sublicensing or subleasing to Marathon, the Company or such
other person as Marathon shall direct, as applicable, any and all of
Ashland's rights, and delegating all of Ashland's obligations, under the
Ashland LOOP/LOCAP Interest, and (ii) Ashland granting to Marathon, the
Company or such other person as Marathon shall direct, as applicable, a
proxy (the "Ashland LOOP/LOCAP Irrevocable Proxy") which shall authorize
such party to exercise on Ashland's behalf, all of Ashland's voting rights
with respect to the Ashland LOOP/LOCAP Interest. The costs and expenses
incurred in connection with any such arrangements shall be borne 62% by
Marathon and 38% by Ashland.
<PAGE>
54
SECTION 9.03. Consequences of a Delayed Closing of the
Marathon Call Right or the Ashland Put Right Where Ashland Is at Fault. (a)
Right to Revoke Ashland Put Exercise Notice or Marathon Call Exercise
Notice. If the Closing of the Marathon Call Right or the Ashland Put Right
shall not have occurred on or prior to the date that is 180 days after the
Scheduled Closing Date, and (i) the delay is due to (x) a failure by
Ashland to timely perform in any material respect any of its covenants and
agreements contained herein or (y) the fact that any of Ashland's
representations and warranties contained herein have ceased to be true and
correct in any material respect, and (ii) neither Marathon nor USX shall
have (x) failed to timely perform in any material respect any of its
covenants and agreements contained herein or (y) breached any of its
representations and warranties contained herein in any material respect,
then Marathon shall thereafter have the right, exercisable at any time
prior to the Closing by written notice to Ashland, to revoke Ashland's
Ashland Put Exercise Notice or its Marathon Call Exercise Notice, as
applicable.
(b) Adjustment to Ashland Put Price or Marathon Call
Price. If the Closing of the Marathon Call Right or the Ashland Put Right
does not occur on the Scheduled Closing Date, and (i) the delay is due to
(x) a failure by Ashland to timely perform in any material respect any of
its covenants and agreements contained herein or (y) the fact that any of
Ashland's representations and warranties contained herein have ceased to be
true and correct in any material respect, and (ii) neither Marathon nor USX
shall have (x) failed to timely perform in any material respect any of its
covenants and agreements contained herein or (y) breached any of its
representations and warranties contained herein in any material respect,
then on such later date on which the Closing actually takes place (such
later date being the "Delayed Closing Date") Marathon shall deduct from the
Marathon Call Price or the Ashland Put Price (or the first Installment
Payment, as applicable) payable to Ashland on the Delayed Closing Date, an
amount equal to the amount of interest accrued during the period commencing
at 12:01 a.m. on the day immediately following the Scheduled Closing Date
and ending on and including the Delayed Closing Date (the "Delayed Closing
Date Interest Period") on the Marathon Call Price, or the Ashland Put Price
(or the first Installment Payment thereof, as applicable), at a rate per
<PAGE>
55
annum equal to the 30-day LIBOR Rate multiplied by 1.5, with daily accrual
of interest.
(c) Other Consequences. In the event that Marathon
revokes Ashland's Ashland Put Exercise Notice or its Marathon Call Exercise
Notice pursuant to Section 9.03(a), each of Marathon and Ashland shall
thereafter have the right to exercise their respective Marathon Call Right
and Ashland Put Right in accordance with the terms of this Agreement. Any
such revocation shall not operate as a release of Ashland from any
liability it may have to Marathon for any breach of its obligations under
this Agreement and such revocation shall not in any way preclude Marathon
from exercising any right or power hereunder or otherwise available to it
at law or in equity as a result of any such breach.
SECTION 9.04. Consequences of a Delayed Closing of the
Marathon Call Right or the Ashland Put Right Where Marathon or USX Is at
Fault. (a) Revocation of Proxies; Payment of Distributions to Ashland;
Right To Revoke Ashland Put Exercise Notice or Marathon Call Exercise
Notice. If the Closing of the Marathon Call Right or the Ashland Put Right
does not occur on the Scheduled Closing Date, and (i) the delay is due to
(x) a failure by Marathon or USX to timely perform in any material respect
any of its respective covenants and agreements contained herein or (y) the
fact that any of Marathon's or USX's respective representations and
warranties contained herein (or in any certificate required to be delivered
to Ashland pursuant to Section 9.02(b)(iv)) have ceased to be true and
correct in any material respect, and (ii) Ashland shall not have (x) failed
to timely perform in any material respect any of its covenants and
agreements contained herein or (y) breached any of its representations and
warranties contained herein in any material respect, then (i) effective as
of 12:01 a.m. on the day immediately following the Scheduled Closing Date,
all Ashland Representatives Revocable Proxies and the Ashland LOOP/LOCAP
Revocable Proxy shall automatically be revoked; (ii) Marathon shall, and
shall cause each of its Representatives to, promptly take all such actions
as are necessary to provide that the Company shall thereupon resume making
distributions of Distributable Cash and Tax Liability Distributions
directly to Ashland pursuant to Article V of the LLC Agreement; (iii)
Marathon shall immediately pay to Ashland an amount equal to all Exercise
Period Distributions received by
<PAGE>
56
Marathon from the Company in accordance with the provisions of Section
5.01(a)(ii), together with interest on each such Exercise Period
Distribution at a rate per annum equal to the Base Rate, with daily accrual
of interest, from (but excluding) the date such amount was otherwise
payable to Ashland (or, if earlier, the date such amount was paid to
Marathon) to (and including) the date such amount is paid to Ashland in
accordance with the provisions of this clause (iii); (iv) the Company shall
immediately release to Ashland all amounts then held in the Escrow Account,
including any income earned thereon; and (v) if the Closing shall not have
occurred on or prior to the date that is 180 days after the Scheduled
Closing Date, Ashland thereafter shall have the right, exercisable at any
time prior to the Closing by written notice to Marathon, to revoke its
Ashland Put Exercise Notice or Marathon's Marathon Call Exercise Notice, as
applicable.
(b) Adjustments to Ashland Put Price or Marathon Call
Price. In addition, if the Closing of the Marathon Call Right or the
Ashland Put Right does not occur on the Scheduled Closing Date, and (i) the
delay is due to (x) a failure by Marathon or USX to timely perform in any
material respect any of its respective covenants and agreements contained
herein or (y) the fact that any of Marathon's or USX's respective
representations and warranties contained herein have ceased to be true and
correct in any material respect, and (ii) Ashland shall not have (x) failed
to timely perform in any material respect any of its covenants and
agreements contained herein or (y) breached any of its representations and
warranties contained herein in any material respect, then Marathon shall be
entitled to deduct from the Marathon Call Price or from the Ashland Put
Price (or the first Installment Payment, as applicable) payable to Ashland
on the Delayed Closing Date, an amount (the "9.04(b) Post-Scheduled Closing
Date Distribution Amount") equal to the amount of any Ashland Exercise
Period Distributions that Ashland shall have received from the Company in
Cash during the Delayed Closing Date Interest Period and, on the Delayed
Closing Date, Marathon shall pay to Ashland in addition to the Marathon
Call Price or the Ashland Put Price (or the first Installment Payment, as
applicable) and related accrued interest payable pursuant to Section 3.01
or 4.01, as applicable, an amount in Cash equal to the amount of interest
accrued during the Delayed Closing Interest Period on an amount equal to
(1) the Marathon Call Price or the Ashland Put Price (or the first
Installment Payment thereof,
<PAGE>
57
as applicable) minus (2) the 9.04(b) Post-Scheduled Closing Date
Distribution Amount, at a rate per annum equal to the 30-day LIBOR Rate
multiplied by 1.5, with daily accrual of interest.
(c) Other Consequences. In the event that Ashland revokes
its Ashland Put Exercise Notice or Marathon's Marathon Call Exercise Notice
pursuant to clause (v) of Section 9.03(a), each of Ashland and Marathon
shall thereafter have the right to exercise their respective Ashland Put
Right and Marathon Call Right in accordance with the terms of this
Agreement. Any such revocation shall not operate as a release of Marathon
or USX from any liability it may have to Ashland for any breach of its
obligations under this Agreement and such revocation shall not in any way
preclude Ashland from exercising any right or power hereunder or otherwise
available to it at law or in equity as a result of any such breach.
SECTION 9.05. Consequences of a Delayed Closing of the
Marathon Call Right or the Ashland Put Right Where No Party Is at Fault. If
the Closing of the Marathon Call Right or the Ashland Put Right does not
occur on the Scheduled Closing Date, and the delay is not due to a failure
by any party hereto to timely perform in any material respect any of its
respective covenants and agreements contained herein or to the fact that
any party's representations and warranties contained herein have ceased to
be true and correct in any material respect, then Marathon shall pay to
Ashland on the Delayed Closing Date, in addition to the Marathon Call Price
or the Ashland Put Price (or the first Installment Payment, as applicable)
and related accrued interest payable pursuant to Section 3.01 or 4.01, as
applicable, an amount in Cash equal to the amount of interest accrued
during the Delayed Closing Interest Period on the Marathon Call Price or
the Ashland Put Price (or the first Installment Payment, as applicable), at
a rate per annum equal to the Base Rate, with daily accrual of interest. If
the Delayed Closing Date does not occur on or prior to the date that is 180
days after the Scheduled Closing Date and the delay is not due to an action
or failure to act by any of Marathon, USX or Ashland, then (i) effective as
of 12:01 a.m. on the day immediately following the last day of such 180-day
period, all Ashland Representatives Revocable Proxies and the Ashland
LOOP/LOCAP Revocable Proxy shall automatically be revoked; (ii) Marathon
shall, and shall cause each of its
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58
Representatives to, promptly take all such actions as are necessary to
provide that the Company shall resume making distributions of Distributable
Cash and Tax Liability Distributions directly to Ashland pursuant to
Article V of the LLC Agreement; (iii) Marathon shall immediately pay to
Ashland an amount equal to all Exercise Period Distributions received by
Marathon from the Company in accordance with the provisions of Section
5.01(a)(ii), together with interest on each such Exercise Period
Distribution at a rate per annum equal to the Base Rate, with daily accrual
of interest, from (but excluding) the date such amount was otherwise
payable to Ashland (or, if earlier, the date such amount was paid to
Marathon) to (and including) the date such amount is paid to Ashland in
accordance with the provisions of this clause (iii); (iv) the Company shall
immediately release to Ashland all amounts then held in the Escrow Account,
including any income earned thereon; and (v) the parties shall be restored
to their rights as though the Ashland Put Right or the Marathon Call Right
had never been exercised, without liability to any party and without any
effect on the ability of Ashland to exercise its Ashland Put Right or
Marathon to exercise its Marathon Call Right in accordance with the terms
of this Agreement in the future.
SECTION 9.06. Consequences of Delayed Second or Third
Scheduled Installment Payment. If Marathon shall fail to make an
Installment Payment on the second or third Scheduled Installment Payment
Date, if applicable, then on such later date on which the applicable
Installment Payment is actually made (such later date being a "Delayed
Installment Payment Date"), Marathon shall pay to Ashland, in addition to
the applicable Installment Payment and related accrued interest payable
pursuant to Section 3.01 or 4.01, as applicable, an amount in Cash equal to
the amount of interest accrued during the period commencing on the day
immediately following the Scheduled Installment Payment Date and ending on
and including the date of the payment of the relevant Installment Payment
(the "Delayed Installment Payment Date Interest Period") on the applicable
Installment Payment, at a rate per annum equal to the 30 day LIBOR Rate
multiplied by 1.5, with daily accrual of interest.
SECTION 9.07. Consequences of a Delayed Closing of the
Special Termination Right Where Terminating Member Is at Fault. (a)
Continuation of Term of the Company; Right to Specific Performance. If the
Closing of the Special Termination Right shall not have occurred on or
prior to the
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59
Scheduled Closing Date, and (i) the delay is due to (x) a failure by the
Terminating Member (or, if Marathon is the Terminating Member, Marathon or
USX) to timely perform in any material respect any of its covenants and
agreements contained herein or (y) the fact that any of the Terminating
Member's (or, if Marathon is the Terminating Member, Marathon's or USX's)
representations and warranties contained herein have ceased to be true and
correct in any material respect, and (ii) the Non-Terminating Member (or,
if Marathon is the Non-Terminating Member, Marathon or USX) shall not have
(x) failed to timely perform in any material respect any of its covenants
and agreements contained herein or (y) breached any of its representations
and warranties contained herein in any material respect, then the
Non-Terminating Member shall have the right to elect, by written notice to
the Company and the Terminating Member, to either (i) terminate the Term of
the Company at the end of the Initial Term or the then-current 10-year
extension thereof, as applicable (in which case the Term of the Company
shall automatically terminate upon the expiration of the Initial Term or
the then-current 10-year extension thereof), or (ii) extend the Term of the
Company for two additional years following the expiration of the Initial
Term or the then-current 10-year extension thereof, as applicable (in which
case the Term of the Company shall automatically be extended for such
additional two-year period).
(b) Adjustment to Special Termination Price. If the
Closing of the Special Termination Right does not occur on the Scheduled
Closing Date, and (i) the delay is due to (x) a failure by the Terminating
Member (or, if Marathon is the Terminating Member, Marathon or USX) to
timely perform in any material respect any of its covenants and agreements
contained herein or (y) the fact that any of the Terminating Member's (or,
if Marathon is the Terminating Member, Marathon's or USX's) representations
and warranties contained herein have ceased to be true and correct in any
material respect, and (ii) the Non-Terminating Member (or, if Marathon is
the Terminating Member, Marathon or USX) shall not have (x) failed to
timely perform in any material respect any of its covenants and agreements
contained herein or (y) breached any of its representations and warranties
contained herein in any material respect, then on the Delayed Closing Date
the Non-Terminating Member shall deduct from the Special Termination Price
payable to the Terminating Member on the Delayed Closing Date, an amount
equal to the amount of interest accrued during the Delayed
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60
Closing Date Interest Period on the Special Termination Price, at a rate
per annum equal to the 30-day LIBOR Rate multiplied by 1.5, with daily
accrual of interest.
SECTION 9.08. Consequences of a Delayed Closing of the
Special Termination Right Where Non-Terminating Member Is at Fault. (a)
Revocation of Proxies; Payment of Distributions to Terminating Member;
Right to Revoke Special Termination Exercise Notice. If the Closing of the
Special Termination Right does not occur on the Scheduled Closing Date, and
(i) the delay is due to a failure by the Non-Terminating Member (or, if
Marathon is the Non-Terminating Member, Marathon or USX) to timely perform
in any material respect any of its covenants and agreements contained
herein or (y) the fact that any of the Non-Terminating Member's (or, if
Marathon is the Non-Terminating Member, Marathon's or USX's)
representations and warranties contained herein have ceased to be true and
correct in any material respect, and (ii) the Terminating Member (or, if
Marathon is the Terminating Member, Marathon or USX) shall not have (x)
failed to timely perform in any material respect any of its covenants and
agreements contained herein or (y) breached any of its representations and
warranties contained herein in any material respect, then (i) effective as
of 12:01 a.m. on the day immediately following the Scheduled Closing Date,
all Marathon Representative Revocable Proxies (in the circumstance where
Marathon is the Terminating Member) or all Ashland Representative Revocable
Proxies and the Ashland LOOP/LOCAP Revocable Proxy (in the circumstance
where Ashland is the Terminating Member) shall automatically be revoked;
(ii) the Non-Terminating Member shall, and shall cause each of its
Representatives to, promptly take all such actions as are necessary to
provide that the Company shall thereupon resume making distributions of
Distributable Cash and Tax Liability Distributions directly to the
Terminating Member pursuant to Article V of the LLC Agreement; (iii) the
Non-Terminating Member shall immediately pay to the Terminating Member an
amount equal to all Exercise Period Distributions received by the
Non-Terminating Member from the Company in accordance with the provisions
of Section 5.01(a)(ii) or Section 5.01(b)(ii), as applicable, together with
interest on each such Exercise Period Distribution at a rate per annum
equal to the Base Rate, with daily accrual of interest, from (but
excluding) the date such amount was otherwise payable to the Terminating
Member (or, if earlier, the date such amount was paid to the
Non-Terminating Member) to (and including) the
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61
date such amount is paid to the Terminating Member in accordance with the
provisions of this clause (iii); (iv) the Company shall immediately release
to the Terminating Member all amounts then held in the Escrow Account,
including any income earned thereon; and (v) if the Closing shall not have
occurred on or prior to the date that is 120 days before the expiration of
the Initial Term or the then-current 10-year extension thereof, each of the
Terminating Member and the Non-Terminating Member thereafter shall have the
right, exercisable at any time prior to the Closing by written notice to
the other party, to revoke the Non-Terminating Member's Special Termination
Exercise Notice, in which event the Term of the Company shall automatically
terminate upon the expiration of the Initial Term or the then-current
10-year extension thereof.
(b) Adjustments to Special Termination Price. In
addition, if the Closing of the Special Termination Right does not occur on
the Scheduled Closing Date, and (i) the delay is due to (x) a failure by
the Non-Terminating Member (or, if Marathon is the Non-Terminating Member,
Marathon or USX) to timely perform in any material respect any of its
covenants and agreements contained herein or (y) the fact that any of the
Non-Terminating Member's (or, if Marathon is the Non-Terminating Member,
Marathon's or USX's) representations and warranties contained herein have
ceased to be true and correct in any material respect, and (ii) the
Terminating Member (or, if Marathon is the Terminating Member, Marathon or
USX) shall not have (x) failed to timely perform in any material respect
any of its covenants and agreements contained herein or (y) breached any of
its representations and warranties contained herein in any material
respect, then the Non-Terminating Member shall be entitled to deduct from
the Special Termination Price payable to the Terminating Member on the
Delayed Closing Date, an amount (the "9.08(b) Post-Scheduled Closing Date
Distribution Amount") equal to the amount of any Exercise Period
Distributions that the Terminating Member shall have received from the
Company in Cash during the Delayed Closing Date Interest Period and, on the
Delayed Closing Date, the Non-Terminating Member shall pay to the
Terminating Member in addition to the Special Termination Price and related
accrued interest payable pursuant to Section 2.01, an amount in Cash equal
to the amount of interest accrued during the Delayed Closing Interest
Period on an amount equal to (1) the Special Termination Price minus (2)
the 9.08(b) Post-Scheduled Closing Date Distribution Amount, at a rate
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per annum equal to the 30-day LIBOR Rate multiplied by 1.5, with daily
accrual of interest.
(c) Other Consequences. In the event that the Terminating
Member revokes the Non-Terminating Member's Special Termination Exercise
Notice, then the Non-Terminating Member shall not thereafter have the right
to exercise its Special Termination Right. Any such revocation shall not
operate as a release of the Non-Terminating Member from any liability it
may have to the Terminating Member for any breach of its obligations under
this Agreement and such revocation shall not in any way preclude the
Terminating Member from exercising any right or power hereunder or
otherwise available to it at law or in equity as a result of any such
breach.
SECTION 9.09. Consequences of Delayed Closing of Special
Termination Right Where No Party Is at Fault. If the Closing of the Special
Termination Right does not occur on the Scheduled Closing Date, and the
delay is not due to a failure by any party hereto to timely perform in any
material respect any of its respective covenants and agreements contained
herein or to the fact that any party's representations and warranties
contained herein have ceased to be true and correct in any material
respect, then the Non-Terminating Member shall pay to the Terminating
Member on the Delayed Closing Date, in addition to the Special Termination
Price and related accrued interest payable pursuant to Section 2.01, an
amount in Cash equal to the amount of interest accrued during the Delayed
Closing Interest Period on the Special Termination Price, at a rate per
annum equal to the Base Rate, with daily accrual of interest. If the
Delayed Closing Date does not occur on or prior to the date that is 120
days before the expiration of the Initial Term or the then-current 10-year
extension thereof and the delay is not due to an action or failure to act
by the Terminating Member or the Non-Terminating Member, then (i) effective
as of 12:01 a.m. on the day immediately following such 120th day before the
expiration of the Initial Term or the then-current 10-year extension
thereof, all Marathon Representative Revocable Proxies (in the circumstance
where Marathon is the Terminating Member) or all Ashland Representative
Revocable Proxies and the Ashland LOOP/LOCAP Revocable Proxy (in the
circumstance where Ashland is the Terminating Member) shall be revoked;
(ii) the Non-Terminating Member shall, and shall cause each of its
Representatives to, promptly take all such actions
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as are necessary to provide that the Company shall resume making
distributions of Distributable Cash and Tax Liability Distributions
directly to the Terminating Member pursuant to Article V of the LLC
Agreement; (iii) the Non-Terminating Member shall immediately pay to the
Terminating Member an amount equal to all Exercise Period Distributions
received by the Non-Terminating Member from the Company in accordance with
the provisions of Section 5.01(a)(ii) or Section 5.01(b)(ii), as
applicable, together with interest on each such Exercise Period
Distribution at a rate per annum equal to the Base Rate, with daily accrual
of interest, from (but excluding) the date such amount was otherwise
payable to the Terminating Member (or, if earlier, the date such amount was
paid to the Non-Terminating Member) to (and including) the date such amount
is paid to the Terminating Member in accordance with the provisions of this
clause (iii); (iv) the Company shall immediately release to the Terminating
Member all amounts then held in the Escrow Account, including any income
earned thereon; and (v) the Term of the Company shall automatically
terminate upon the expiration of the Initial Term or the then-current
10-year extension thereof.
ARTICLE X
Registration Rights
SECTION 10.01. Registration upon Request. (a) Ashland
shall have the right to make a written demand upon the issuer or, in the
case of any Marathon Debt Securities issued by Marathon and guaranteed by
USX, issuers of any class of Securities delivered or to be delivered to
Ashland as payment of any portion of the Ashland Put Price (both parties
hereinafter referred to collectively as the "Issuer"), on not more than six
separate occasions (subject to the provisions of this Section 10.01), to
either, at Ashland's option, (i) register under the Securities Act all or a
portion of such Securities for purposes of a public offering by Ashland of
such Securities or (ii) prepare an Offering Memorandum that covers all or a
portion of such Securities for purposes of a private placement by Ashland
of such Securities (either of such requests being referred to herein as a
"Demand Registration") that were not registered under the Securities Act at
the time of issuance thereof to Ashland on the Closing Date or Installment
Payment Date, as the case may be, and the Issuer shall use its best efforts
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to file a Registration Statement and cause such Securities to be registered
under the Securities Act (in the case of a Demand Registration for a public
offering) or to prepare a final Offering Memorandum (in the case of a
Demand Registration for a private placement) (i) in the case of any
Securities to be delivered to Ashland on the Closing Date or any
Installment Payment Date, not later than the Scheduled Closing Date or
applicable Scheduled Installment Payment Date or (ii) in the case of any
Securities that have been delivered to Ashland on the Closing Date or any
Installment Payment Date, in each case not later than 60 days after such
written demand by Ashland; provided that each Demand Registration shall
cover Securities having an aggregate fair market value (based on the
then-current market value of such Securities or, if such market value
cannot be determined, based on the expected offering price of such
Securities) equal to (i) in the case of a public offering, $100 million or
more, unless Ashland shall hold less than $100 million of Securities, in
which event, the remaining Securities held by Ashland and (ii) in the case
of a private placement, $25 million or more, unless Ashland shall hold less
than $25 million of Securities, in which event, the remaining Securities
held by Ashland.
(b) Notwithstanding the provisions of Section 10.01(a),
the Issuer (i) shall not be obligated to prepare or file more than one
Registration Statement pursuant to this Section 10.01 during any six month
period (measured from the effective date (or, in the case of a private
placement, the closing date) of the most recently requested Demand
Registration to the date of the demand by Ashland for a subsequent Demand
Registration) and (ii) shall be entitled to postpone the filing of any
Registration Statement otherwise required to be prepared and filed by it
pursuant to Section 10.01(a), and to prevent Ashland from initially
distributing any Offering Memorandum required to be prepared by the Issuer
pursuant to Section 10.01(a), in each case (x) if the Issuer is actively
pursuing an Underwritten Public Offering, for a period of up to 90 days
following the closing of any Underwritten Public Offering; provided that
the Issuer is advised by its managing underwriter or underwriters in
writing (with a copy to Ashland), that the price at which securities would
be offered in such offering would, in its or in their opinion, be
materially adversely affected by the registration or the initial
dissemination of the Offering Memorandum so requested, or (y) for a period
of up to 90 days if the
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Issuer determines in its reasonable judgment and in good faith that the
registration and distribution of such Securities (or the private placement
thereof, in the case of a sale by Ashland of such securities pursuant to
Section 4(2) or Rule 144A of the Securities Act) would materially adversely
impair or interfere with in any material respect any contemplated material
financing, acquisition, disposition, corporate reorganization or other
similar transaction involving the Issuer or any of its subsidiaries or
Affiliates ((x) or (y) being hereinafter referred to as a "Blackout
Period"), provided, however, that the aggregate number of days included in
all Blackout Periods during any consecutive 12 months shall not exceed 180
days, and; provided further, however, that a period of at least 30 days
shall elapse between the termination of any Blackout Period and the
commencement of the immediately succeeding Blackout Period. In the event of
such postponement, Ashland shall have the right to withdraw such request
for registration or request for preparation of an Offering Memorandum by
giving written notice to the Issuer within 20 days after receipt of notice
of postponement and, in the event of such withdrawal, such request shall
not be counted for purposes of determining the number of Demand
Registrations to which Ashland is entitled pursuant to Section 10.01(a).
(c) A registration requested pursuant to this Section
10.01 shall not be deemed to have been effected unless the Registration
Statement relating thereto (i) has become effective under the Securities
Act and (ii) has remained effective for a period of at least 90 days (or
such shorter period in which all Securities included in such registration
have actually been sold thereunder); provided, however, that if after any
Registration Statement requested pursuant to this Section 10.01 becomes
effective such Registration Statement is interfered with by any stop order,
injunction or other order or requirement of the Commission or other
Governmental Authority solely due to the actions or omissions to act of the
Issuer prior to being effective for 90 days and less than 75% of the
Securities have been sold thereunder, such Registration Statement shall be
at the sole expense of the Issuer and shall not constitute a Demand
Registration. In addition, a request for the preparation of an Offering
Memorandum pursuant to this Section 10.01 shall not be deemed to have been
effected unless the information contained in such Offering Memorandum has
remained "reasonably current" (as such term is defined in Rule 144A
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66
under the Securities Act) for a period of at least 90 days (or such shorter
period in which all Securities covered by such Offering Memorandum have
actually been sold thereunder); provided, however, that if such Offering
Memorandum is interfered with by any stop order, injunction or other order
or requirement of the Commission or other Governmental Authority solely due
to the actions or omissions to act of the Issuer prior to such Offering
Memorandum being made available to Ashland for 90 days and less than 75% of
the Securities have been sold pursuant thereto, such Offering Memorandum
shall be at the sole expense of the Issuer and shall not constitute a
Demand Registration.
(d) On or after the date hereof, the Issuer shall not
grant to any other holder of its securities, whether currently outstanding
or issued in the future, any incidental or "piggy-back" registration rights
with respect to any Registration Statement filed or Offering Memorandum
prepared pursuant to a Demand Registration under this Section 10.01 and,
without the prior consent of Ashland, will not permit any holder of its
securities to participate in any offering or private placement made
pursuant to a Demand Registration under this Section 10.01.
(e) If a Demand Registration involves an Underwritten
Public Offering and the managing underwriter or underwriters shall advise
the Issuer and Ashland in writing that, in its view, the number of
securities requested to be included in such registration (including,
without limitation, Securities requested to be included by Ashland,
securities which the Issuer proposes to be included, and securities
proposed to be included by other holders of securities entitled to include
securities in such registration pursuant to incidental or "piggy-back"
registration rights other than those pursuant to this Article X (the "Other
Holders")) exceeds the largest number of shares of securities which can be
sold without having an adverse effect on such offering, including the price
at which such securities can be sold (the "Maximum Offering Size"), the
Issuer shall include in such registration, in the priority listed below, up
to the Maximum Offering Size:
(i) first, all Securities requested to be registered by
Ashland;
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(ii) second, all securities requested to be included in
such registration by any Other Holder (allocated, if necessary,
for the offering not to exceed the Maximum Offering Size, pro rata
among such Other Holders on the basis of the relative number of
securities requested to be included in such registration); and
(iii) third, any securities proposed to be registered by
the Issuer or by any Other Holders pursuant to incidental or
"piggy-back" registration rights.
(f) Ashland may, at any time, prior to the effective date
of the Registration Statement or the initial distribution of the Offering
Memorandum relating to such request, revoke such request by providing a
written notice to the Issuer, in which case such request, as so revoked,
shall not constitute a Demand Registration.
SECTION 10.02. Covenants of the Issuer. (a) Registration
Statement Covenants. In the event that any Securities are to be registered
pursuant to Section 10.01, the Issuer covenants and agrees that it shall
(i) use its best efforts to effect the registration, (ii) cooperate in the
sale of the Securities and (iii) as expeditiously as possible:
(1) prepare and file with the Commission a Registration
Statement with respect to such Securities on Form S-3, if
permitted, or otherwise on any form for which the Issuer then
qualifies or which counsel for the Issuer shall deem appropriate,
and which form shall be available for the sale of the Securities
in accordance with the intended methods of distribution thereof,
and use its best efforts to cause such Registration Statement to
become and remain effective;
(2) prepare and file with the Commission amendments and
supplements to such Registration Statement and prospectus used in
connection therewith as may be necessary to maintain the
effectiveness of such registration and to comply with the
provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement until the
earlier of (i) such time as all of such securities have been
disposed of in accordance with the
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intended methods of disposition by Ashland set forth in such
Registration Statement and (ii) the expiration of 90 days after
the date such Registration Statement becomes effective; provided
that before filing a Registration Statement or prospectus, or any
amendments or supplements thereto, the Issuer shall furnish to
Ashland and its counsel, copies of all documents proposed to be
filed;
(3) furnish to Ashland such number of copies of such
Registration Statement and of each amendment and supplement
thereto (in each case including all exhibits), such number of
copies of the prospectus and prospectus supplement, as applicable,
in conformity with the requirements of the Securities Act, and
such other documents as Ashland may reasonably request in order to
facilitate the disposition of the Securities by Ashland;
(4) use its best efforts to register or qualify such
Securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as Ashland shall
reasonably request, and do any and all other acts and things which
may be reasonably necessary or advisable to enable Ashland to
consummate the disposition in such jurisdictions of the Securities
owned by Ashland, except that the Issuer shall not for any such
purpose be required to (i) qualify generally to do business as a
foreign corporation in any jurisdiction where, but for the
requirements of this Section 10.04(a)(4), it would not be
obligated to be so qualified, (ii) subject itself to taxation in
any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(5) use its best efforts to cause such Securities covered
by such Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be
necessary to enable Ashland to consummate the disposition of such
Securities;
(6) notify Ashland at any time when a prospectus relating
to a Registration Statement is required to be delivered under the
Securities Act within the appropriate period mentioned in Section
10.02(a)(2), of the happening of any event as a result of which
such Registration Statement contains an untrue statement of a
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material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and at the
request of Ashland, prepare and furnish to Ashland a reasonable
number of copies of an amended or supplemental prospectus as may
be necessary so that, as thereafter delivered to the purchasers of
such Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then
existing;
(7) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
available to Ashland, as soon as reasonably practicable (but not
more than eighteen months) after the effective date of the
Registration Statement, an earnings statement which shall satisfy
the provisions of Section 11(a) of the Securities Act and the
rules and regulations promulgated thereunder;
(8) use its best efforts to cause all such Securities
that are Marathon Equity Securities to be listed on any securities
exchange on which the securities of the Issuer are then listed, if
such Securities are not already so listed and if such listing is
then permitted under the rules of such exchange, and to provide a
transfer agent and registrar for such Securities covered by such
Registration Statement no later than the effective date of such
Registration Statement;
(9) use its best efforts to obtain a "cold comfort"
letter or letters from the Issuer's independent public accountants
in customary form; and
(10) cooperate with Ashland and the managing underwriter
or underwriters, if any, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends)
representing the Securities to be sold under such Registration
Statement, and enable such Securities to be in such denominations
and registered in such names as the managing underwriter or
underwriters, if any, or Ashland may request.
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(b) Offering Memorandum Covenants. In the event that any
Securities are to be sold by Ashland by means of an Offering Memorandum
prepared by the Issuer pursuant to Sections 10.01, the Issuer covenants and
agrees that it shall (i) cooperate in the sale of the Securities and (ii)
as expeditiously as possible:
(1) prepare the Offering Memorandum;
(2) prepare amendments and supplements to such Offering
Memorandum as may be necessary to keep the information in such
Offering Memorandum "reasonably current" (as such term is defined
in Rule 144A under the Securities Act) and to comply with the
provisions of the Securities Act with respect to the disposition
of all securities covered by such Offering Memorandum until the
earlier of (i) such time as all of such securities have been
disposed of in accordance with the intended methods of disposition
by Ashland set forth in such Offering Memorandum and (ii) the
expiration of 90 days after the date such Offering Memorandum (in
definitive form) is circulated to the initial purchasers; provided
that before making any amendments or supplements thereto, the
Issuer shall furnish to Ashland and its counsel, copies of all
proposed amendments or supplements;
(3) furnish to Ashland such number of copies of such
Offering Memorandum and of each amendment and supplement thereto
(in each case including all exhibits), and such other documents as
Ashland may reasonably request in order to facilitate the
disposition of the Securities by Ashland;
(4) use its best efforts to register or qualify such
Securities covered by such Offering Memorandum under such other
securities or blue sky laws of such jurisdictions as Ashland shall
reasonably request, and do any and all other acts and things which
may be reasonably necessary or advisable to enable Ashland to
consummate the disposition in such jurisdictions of the Securities
owned by Ashland, except that the Issuer shall not for any such
purpose be required to (i) qualify generally to do business as a
foreign corporation in any jurisdiction where, but for the
requirements of this Section 10.02(b)(4), it would not be
obligated to be so qualified, (ii) subject itself to
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taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction);
(5) use its best efforts to cause such Securities covered
by such Offering Memorandum to be registered with or approved by
such other governmental agencies or authorities as may be
necessary to enable Ashland to consummate the disposition of such
Securities;
(6) notify Ashland at any time prior to the completion of
the sale of the Securities by Ashland that are covered by the
Offering Memorandum, of the happening of any event as a result of
which such Offering Memorandum contains an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and at the
request of Ashland, prepare and furnish to Ashland a reasonable
number of copies of an amended or supplemental Offering Memorandum
as may be necessary so that, as thereafter delivered to the
purchasers of such Securities, such Offering Memorandum shall not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the
circumstances then existing;
(7) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission;
(8) use its best efforts to cause all such Securities
that are Marathon Equity Securities to be listed on any securities
exchange on which the securities of the Issuer are then listed, if
such Securities are not already so listed and if such listing is
then permitted under the rules of such exchange, and to provide a
transfer agent and registrar for such Securities covered by such
Offering Memorandum no later than the effective date of such
Offering Memorandum;
(9) use its best efforts to obtain a "cold comfort"
letter or letters from the Issuer's independent public accountants
in customary form; and
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(10) cooperate with Ashland and the initial purchasers,
if any, to facilitate the timely preparation and delivery of
certificates representing the Securities to be sold under such
Offering Memorandum, and enable such Securities to be in such
denominations and registered in such names as the initial
purchasers, if any, or Ashland may request.
The Issuer may require Ashland to furnish the Issuer with
such information regarding Ashland and pertinent to the disclosure
requirements relating to the registration and/or the distribution of such
Securities pursuant to this Article X as the Issuer may from time to time
reasonably request in writing.
Ashland agrees that, upon receipt of any notice from the
Issuer of the happening of any event of the kind described in Section
10.02(a)(6) or 10.02(b)(6), or of the imposition by the Issuer of a
Blackout Period of the type described in clause (y) of 10.01(b)(ii),
Ashland shall forthwith discontinue such disposition of such Securities
pursuant to the Registration Statement or Offering Memorandum covering such
Securities until Ashland's receipt of the copies of the supplemented or
amended prospectus or Offering Memorandum contemplated by Section
10.02(a)(6) and 10.02(b)(6), respectively, or the expiration of such
Blackout Period, as applicable, and, if so directed by the Issuer, Ashland
shall deliver to the Issuer (at the Issuer's expense) all copies, other
than permanent file copies then in Ashland's possession, of the prospectus
or Offering Memorandum covering such Securities current at the time of
receipt of such notice. In the event the Issuer shall give any such notice,
the period mentioned in Section 10.02(a)(2) or 10.02(b)(2), as applicable,
shall be extended by the number of days during the period from the date of
the giving of such notice pursuant to Section 10.02(a)(6) or 10.02(b)(6),
as applicable, and through the date when Ashland shall have received the
copies of the supplemented or amended prospectus or Offering Memorandum
contemplated by Section 10.02(a)(6) or 10.02(b)(6), respectively, or the
expiration of such Blackout Period, as applicable.
SECTION 10.03. Fees and Expenses. In connection with any
registration pursuant to this Article X or the preparation of any Offering
Memorandum pursuant to this Article X, (i) Ashland shall pay all agent fees
and commissions and underwriting discounts and commissions
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related to the Securities being sold by Ashland and the fees and
disbursements of its counsel and accountants and (ii) the Issuer shall pay
all fees and disbursements of its counsel and accountants and the expenses,
including fees incurred in the preparation of a cold comfort letter
requested by Ashland pursuant to Section 10.02(a)(9) or 10.02(b)(9), as
applicable. All others fees and expenses in connection with any
Registration Statement or Offering Memorandum (including, without
limitation, all registration and filing fees, all printing costs, all fees
and expenses of complying with securities or blue sky laws) shall be borne
by Ashland; provided that Ashland shall not pay any expenses relating to
work that would otherwise be incurred by the Issuer including, but not
limited to, the preparation and filing of periodic reports with the
Commission.
SECTION 10.04. Indemnification and Contribution. In the
case of any offering registered pursuant to this Article X or any private
placement pursuant to an Offering Memorandum prepared by the Issuer
pursuant to this Article X, the Issuer agrees to indemnify and hold
Ashland, each underwriter or initial purchaser, if any, of the Securities
under such registration or covered by such Offering Memorandum and each
person who controls any of the foregoing within the meaning of Section 15
of the Securities Act, and any director, officer, employee, stockholder,
partner, agent or representative, of the foregoing, harmless against any
and all losses, claims, damages or liabilities (including reasonable legal
fees and other reasonable expenses incurred in the investigation and
defense thereof) (collectively "Losses") to which they or any of them may
become subject under the Securities Act or otherwise, insofar as any such
Losses shall arise out of or shall be based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement (as amended if the Issuer shall have filed with the
Commission any amendment thereof) or Offering Memorandum (as amended if the
Issuer shall have prepared and delivered to Ashland for private
distribution any amendment to such Offering Memorandum), or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
prospectus relating to the sale of such Securities (as amended or
supplemented if the Issuer shall have filed with the Commission any
amendment
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thereof or supplement thereto), or the omission or alleged omission to
state therein a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided that the indemnification contained in this Section
10.04 shall not apply to such Losses which shall arise out of or shall be
based upon any such untrue statement or alleged untrue statement, or any
such omission or alleged omission, which shall have been made in reliance
upon and in conformity with information furnished in writing to the Issuer
by Ashland or such underwriter or initial purchaser, as the case may be,
specifically for use in connection with the preparation of the Registration
Statement, the prospectus contained in the Registration Statement or the
Offering Memorandum, as applicable, or any such amendment thereof or
supplement therein.
Notwithstanding the foregoing provisions of this Section
10.04, the Issuer shall not be liable to Ashland, any person who
participates as an underwriter in the offering or sale of such Securities,
any person who participates as an initial purchaser in the private
placement of such Securities or any other person, if any, who controls
Ashland or any underwriter or initial purchaser (within the meaning of the
Securities Act), under the indemnity agreement in this Section 10.04 for
any such Losses that arise out of Ashland's or such other person's failure
to send or give a copy of the final prospectus or final Offering Memorandum
to the person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the
sale of the Securities to such person if such statement or omission was
corrected in such final prospectus or final Offering Memorandum and the
Issuer has previously furnished copies thereof in accordance with this
Agreement.
In the case of each offering registered pursuant to this
Article X and each private placement pursuant to this Article X, Ashland
shall agree, and each underwriter or initial purchaser, if any,
participating therein shall agree, substantially in the same manner and to
the same extent as set forth in the preceding paragraph, severally to
indemnify and hold harmless the Issuer and each person who controls the
Issuer within the meaning of Section 15 of the Securities Act, and any
director, officer, employee, stockholder, partner, agent or representative
of the Issuer, with respect to any statement in or omission from such
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Registration Statement (as amended or as supplemented, if amended or
supplemented as aforesaid) or Offering Memorandum (as amended or as
supplemented, if amended or supplemented as aforesaid), as applicable, if
such statement or omission shall have been made in reliance upon and in
conformity with information furnished in writing to the Issuer by Ashland
or such underwriter or initial purchaser, as the case may be, specifically
for use in connection with the Registration Statement, the prospectus
contained in such Registration Statement or the Offering Memorandum, as
applicable, or any such amendment thereof or supplement thereto.
Each party indemnified under this Section 10.04 shall,
promptly after receipt of notice of the commencement of any claim against
any such indemnified party in respect of which indemnity may be sought
hereunder, notify the indemnifying party in writing of the commencement
thereof. The failure of any indemnified party to so notify an indemnifying
party of any action shall not relieve the indemnifying party from any
liability in respect of such action which it may have to such indemnified
party on account of the indemnity contained in this Section 10.04, unless
(and only to the extent) the indemnifying party was prejudiced by such
failure, and in no event shall such failure relieve the indemnifying party
from any other liability which it may have to such indemnified party. In
case any action in respect of which indemnification may be sought hereunder
shall be brought against any indemnified party and it shall notify an
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it may
desire, jointly with any other indemnifying party similarly notified, to
assume the defense thereof through counsel reasonably satisfactory to the
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under this
Section 10.04 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable costs of investigation (unless (i) such indemnified party
reasonably objects to such assumption on the grounds that there may be
defenses available to it which are different from or in addition to those
available to such indemnifying party, (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such
counsel or (iii) in the reasonable opinion
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of such indemnified party representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding, in which
case the indemnified party shall be reimbursed by the indemnifying party
for the reasonable expenses incurred in connection with retaining one firm
of separate legal counsel; provided that (i) in circumstances where Ashland
or an underwriter or initial purchaser is the indemnifying party, the
indemnifying party shall not be liable for more than one firm of legal
counsel for all indemnified parties and (ii) in circumstances where the
Issuer is the indemnifying party, the indemnifying party shall not be
liable for more than (A) one firm of legal counsel for Ashland, each person
who controls Ashland within the meaning of Section 15 of the Securities
Act, and any director, officer, employee, stockholder, partner, agent or
representative of Ashland, and (B) one firm of legal counsel for the
underwriters or initial purchasers, if any, indemnified under this Section
10.04, each person who controls such underwriters or initial purchasers
within the meaning of Section 15 of the Securities Act, and any director,
officer, employee, stockholder, partner, agent or representative of such
underwriters or initial purchasers). No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement
of any claim or pending or threatened proceeding in respect of which the
indemnified party is or could have been a party and indemnity could have
been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all
liability arising out of such claim or proceeding. If an indemnifying party
shall have expressly acknowledged its indemnification obligations with
respect to a claim or pending or threatened proceeding, then the
indemnified party with respect to such claim or pending or threatened
proceeding shall not, without the prior written consent of the indemnifying
party, effect any settlement of such claim or pending or threatened
proceeding.
If the indemnification provided for in this Section 10.04
is unavailable to an indemnified party or is insufficient to hold such
indemnified party harmless from any Losses in respect of which this Section
10.04 would otherwise apply by its terms (other than by reason of
exceptions provide herein), then each applicable
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indemnifying party, in lieu of indemnifying such indemnified party, shall
have a joint and several obligation to contribute to the amount paid or
payable by such indemnified party as a result of such Losses, in such
proportion as is appropriate to reflect the relative benefits received by
and fault of the indemnifying party, on the one hand, and such indemnified
party, on the other hand, in connection with the offering or private
placement to which such contribution relates as well as any other relevant
equitable considerations. The relative benefit shall be determined by
reference to, among other things, the amount of proceeds received by each
party from the offering or private placement to which such contribution
relates. The relative fault shall be determined by reference to, among
other things, each party's relative knowledge and access to information
concerning the matter with respect to which the claim was asserted, and the
opportunity to correct and prevent any statement or omission. The amount
paid or payable by a party as a result of any Losses shall be deemed to
include any legal or other fees or expenses incurred by such party in
connection with any investigation or proceeding, to the extent such party
would have been indemnified for such expenses if the indemnification
provided for in this Section 10.04 was available to such party.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 10.04 were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
SECTION 10.05. Underwriting Agreement; Purchase
Agreement. In connection with any underwritten offering or private
placement of Securities pursuant to a Demand Registration under Section
10.01, the Issuer and Ashland shall enter into an underwriting agreement
with the underwriters for such offering or a purchase agreement with the
initial purchasers for such private placement, such underwriting agreement
or purchase agreement to contain such representations and warranties by the
Issuer and Ashland and such other terms and provisions as are customarily
contained
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in underwriting agreements with respect to secondary distributions or
purchase agreements with respect to private placements, including, without
limitation, indemnities and contribution to the effect and to the extent
provided in Section 10.04 (and customary provisions with respect to
indemnities and contribution by such underwriters or initial purchasers).
SECTION 10.06. Undertaking To File Reports. For as long
as Ashland holds Securities, the Issuer shall use its best efforts to file,
on a timely basis, all annual, quarterly and other reports required to be
filed by it under Sections 13 and 15(d) of the Exchange Act and the rules
and regulations of the Commission thereunder, as amended from time to time,
or any successor statute or provisions.
ARTICLE XI
Covenants
SECTION 11.01. Cooperation; Commercially Reasonable Best
Efforts. Each of the parties hereto shall cooperate with each other in good
faith, and shall cause their respective officers, employees, agents,
auditors and representatives to cooperate with each other in good faith, to
cause the Closing to occur. In addition, each of the parties hereto shall
use its commercially reasonable best efforts to cause the Closing to occur.
SECTION 11.02. Antitrust Notification; FTC or DOJ
Investigation. (a) Each of Marathon, USX and Ashland shall as promptly as
practicable, but in no event later than 30 days following the relevant
Exercise Date, file with the FTC and the DOJ the notification and report
form, if any, required for the transactions contemplated hereby and any
supplemental information requested in connection therewith pursuant to the
HSR Act. Any such notification and report form and supplemental information
shall be in substantial compliance with the requirements of the HSR Act.
Each of Marathon, USX and Ashland shall furnish to the other such necessary
information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission which is
necessary under the HSR Act. Each of Marathon, USX and Ashland shall keep
each other apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC and the
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DOJ and shall comply promptly with any such inquiry or request.
(b) In the event that Marathon, USX and Ashland are not
required to file with the FTC and the DOJ any notification and report form
pursuant to the HSR Act, but the FTC or the DOJ nevertheless commences an
investigation with respect to the transactions contemplated hereby, each of
Marathon, USX and Ashland shall comply promptly with any inquiry or request
made by the DOJ or the FTC in connection with such investigation.
(c) In the event that Marathon, USX and Ashland file
notification and report forms with the FTC and the DOJ pursuant to Section
11.02(a) or the FTC or the DOJ commences an investigation with respect to
the transactions contemplated hereby, then, in addition to the obligations
of Marathon, USX and Ashland set forth in Section 11.02(a) and 11.02(b), as
applicable, Marathon, USX and Ashland agree as follows:
(i) In the case of Marathon's exercise of its Marathon
Call Right, each of Marathon and USX shall take all such actions
as are necessary to obtain any clearance required under the HSR
Act or from the FTC or DOJ in connection with any such
investigation, as applicable, for the purchase and sale of
Ashland's Membership Interests and the Ashland LOOP/LOCAP Interest
pursuant to this Agreement, including divesting or holding
separate any assets or commencing or defending litigation;
provided, however, that neither Marathon nor USX shall be required
to take any action proposed by the FTC or the DOJ that would or
would reasonably be expected to have a material adverse effect on
the business, operations, assets, liabilities, results of
operations, cash flows, condition (financial or otherwise) or
prospects of the Company and its subsidiaries, taken as a whole.
(ii) In the case of (A) Ashland's exercise of its Ashland
Put Right or (B) Marathon's exercise of its Special Termination
Right, each of Marathon and USX shall take all such actions as are
necessary to obtain any clearance required under the HSR Act or
from the FTC or DOJ in connection with any such investigation, as
applicable, for the purchase and sale of Ashland's Membership
Interests and the Ashland LOOP/LOCAP
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Interest pursuant to this Agreement, including divesting or
holding separate any assets or commencing or defending litigation;
provided, however, that neither Marathon nor USX shall be required
to take any action proposed by the FTC or the DOJ that would or
would reasonably be expected to have a material adverse effect on
the business, operations, assets, liabilities, results of
operations, cash flows, condition (financial or otherwise) or
prospects of (A) the Company and its subsidiaries, taken as a
whole, (B) Marathon and its subsidiaries, taken as a whole, or (C)
USX and its subsidiaries, taken as a whole.
(iii) In the case of Ashland's exercise of its Special
Termination Right, Ashland shall take all such actions as are
necessary to obtain any clearance required under the HSR Act or
from the FTC or DOJ in connection with any such investigation, as
applicable, for the purchase and sale of Marathon's Membership
Interests pursuant to this Agreement, including divesting or
holding separate any assets or commencing or defending litigation;
provided, however, that Ashland shall not be required to take any
action proposed by the FTC or the DOJ that would or would
reasonably be expected to have a material adverse effect on the
business, operations, assets, liabilities, results of operations,
cash flows, condition (financial or otherwise) or prospects of (A)
the Company and its subsidiaries, taken as a whole or (B) Ashland
and its subsidiaries, taken as a whole.
SECTION 11.03. Governmental Filings re: Ashland
LOOP/LOCAP Interest. (a) Each of the parties hereto shall as promptly as
practical, but in no event later than five Business Days following the
relevant Exercise Date, file all documentation with all relevant
Governmental Entities that is required to be filed with such Governmental
Entities in connection with the purchase and sale of the Ashland LOOP/LOCAP
Interest on the Scheduled Closing Date. Each of the parties hereto shall
keep the other apprised of the status of any communications with, and any
inquiries or requests for additional information from, such Governmental
Entities and shall comply promptly with any such inquiry or request.
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(b) In addition to the obligations of the parties hereto
set forth in Section 11.03(a), Marathon and USX agree as follows:
(i) In the case of Marathon's exercise of its Marathon
Call Right, each of Marathon and USX shall take all such actions
as are necessary to obtain any requisite approvals from such
Governmental Entities as are required in connection with the
purchase and sale of the Ashland LOOP/LOCAP Interest pursuant to
this Agreement, including commencing or defending litigation;
provided, however, that neither Marathon nor USX shall be required
to take any such action that would or would reasonably be expected
to have a material adverse effect on the business, operations,
assets, liabilities, results of operations, cash flows, condition
(financial or otherwise) or prospects of the Company and its
subsidiaries, taken as a whole.
(ii) In the case of Marathon's exercise of its Special
Termination Right or Ashland's exercise of its Ashland Put Right,
each of Marathon and USX shall take all such actions as are
necessary to obtain any requisite approvals from such Governmental
Entities as are required in connection with the purchase and sale
of the Ashland LOOP/LOCAP Interest pursuant to this Agreement,
including commencing or defending litigation; provided, however,
that neither Marathon nor USX shall be required to take any such
action that would or would reasonably be expected to have a
material adverse effect on the business, operations, assets,
liabilities, results of operations, cash flows, condition
(financial or otherwise) or prospects of (A) the Company and its
subsidiaries, taken as a whole, (B) Marathon and its subsidiaries,
taken as a whole, or (C) USX and its subsidiaries, taken as a
whole.
SECTION 11.04. Designated Sublease Agreements. (a)
Ashland Designated Sublease Agreements. In the event of (i) Marathon's
exercise of its Marathon Call Right, (ii) Ashland's exercise of its Ashland
Put Right or (iii) Marathon's exercise of its Special Termination Right,
Ashland shall use its commercially reasonable best efforts to (A) terminate
the outstanding Original Lease underlying each Ashland Designated Sublease
Agreement on or prior to Closing and (B) contribute the related Subleased
Property to the Company or one of its subsidiaries at no cost to the
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Company or such subsidiary on or prior to Closing; provided, however, that
(i) Ashland shall not be obligated to pay more than a reasonable amount as
consideration therefor to, or make more than a reasonable financial
accommodation in favor of, or commence litigation against, a third party
lessor with respect to any such underlying Original Lease in order to
obtain any consent required from such lessor and (ii) any additional cost
associated with exercising an option under the Original Lease to purchase
Subleased Property shall be deemed not to constitute an obligation to pay
more than a reasonable amount. In the event that Ashland is unable to
terminate an outstanding Original Lease in accordance with this Section
11.04(a), then (i) the Company shall be entitled to continue to sublease
the Subleased Property pursuant to the related Ashland Designated Sublease
Agreement until the term of the Original Lease expires, (ii) Ashland shall
continue to use its commercially reasonable best efforts to terminate the
Original Lease and contribute the Subleased Property to the Company as
provided above; provided, however, that (A) Ashland shall not be obligated
to pay more than a reasonable amount as consideration therefor to, or make
more than a reasonable financial accommodation in favor of, or commence
litigation against, a third party lessor with respect to any such
underlying Original Lease in order to obtain any consent required from such
lessor and (B) any additional cost associated with exercising an option
under the Original Lease to purchase Subleased Property shall be deemed not
to constitute an obligation to pay more than a reasonable amount and (iii)
if Ashland subsequently acquires fee title to the Subleased Property,
Ashland shall contribute such Subleased Property to the Company or one of
its subsidiaries at no cost to the Company or such subsidiary at such time.
(b) Marathon Designated Sublease Agreements. In the event
of Ashland's exercise of its Special Termination Right, Marathon shall use
its commercially reasonable best efforts to (A) terminate the outstanding
Original Lease underlying each Marathon Designated Sublease Agreement on or
prior to Closing and (B) contribute the related Subleased Property to the
Company or one of its subsidiaries at no cost to the Company or such
subsidiary on or prior to Closing; provided, however, that (i) Marathon
shall not be obligated to pay more than a reasonable amount as
consideration therefor to, or make more than a reasonable financial
accommodation in favor of, or commence litigation against, a third party
lessor with respect to any such
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underlying Original Lease in order to obtain any consent required from such
lessor and (ii) any additional cost associated with exercising an option
under the Original Lease to purchase Subleased Property shall be deemed not
to constitute an obligation to pay more than a reasonable amount. In the
event that Marathon is unable to terminate an outstanding Original Lease in
accordance with this Section 11.04(b), then (i) the Company shall be
entitled to continue to sublease the Subleased Property pursuant to the
related Marathon Designated Sublease Agreement until the term of the
Original Lease expires, (ii) Marathon shall continue to use its
commercially reasonable best efforts to terminate the Original Lease and
contribute the Subleased Property to the Company as provided above;
provided, however, that (A) Marathon shall not be obligated to pay more
than a reasonable amount as consideration therefor to, or make more than a
reasonable financial accommodation in favor of, or commence litigation
against, a third party lessor with respect to any such underlying Original
Lease in order to obtain any consent required from such lessor and (B) any
additional cost associated with exercising an option under the Original
Lease to purchase Subleased Property shall be deemed not to constitute an
obligation to pay more than a reasonable amount and (iii) if Marathon
subsequently acquires fee title to the Subleased Property, Marathon shall
contribute such Subleased Property to the Company or one of its
subsidiaries at no cost to the Company or such subsidiary at such time.
ARTICLE XII
Standstill Agreement
SECTION 12.01. Restrictions of Certain Actions by
Marathon and USX. Each of Marathon and USX covenants and agrees that, from
the date hereof through the six-month anniversary of the earlier to occur
of (a) the date that Ashland and its Affiliates do not own any Membership
Interests, and (b) the date that Marathon and its Affiliates do not own any
Membership Interests, it shall not, and it shall cause each of its
Affiliates (including, for the avoidance of doubt, Employee Benefit Plans
of USX, Marathon and their respective Affiliates) not to, singly or as part
of a partnership, limited partnership, syndicate or other group
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(as those terms are defined in Section 13(d)(3) of the Exchange Act),
directly or indirectly:
(i) acquire, offer to acquire, or agree to acquire, by
purchase, gift or otherwise, more than 1% of any class of any
Ashland Voting Securities, except (A) pursuant to a stock split,
stock dividend, rights offering, recapitalization,
reclassification or similar transaction, (B) in connection with
the transfer of Ashland Voting Securities to a Marathon or USX
Employee Benefit Plan as contemplated by Section 3.1(v) of the
Asset Transfer and Contribution Agreement or (C) the ownership by
any Employee Benefit Plan of USX, Marathon or any of their
respective Affiliates of any interest in any diversified index,
mutual or pension fund managed by an independent investment
advisor, which fund in turn holds, directly or indirectly, Ashland
Voting Securities; provided that not more than 5% of such fund's
assets are comprised of Ashland Voting Securities;
(ii) make, or in any way participate in any
"solicitation" of "proxies" to vote (as such terms are defined in
Rule 14a-1 under the Exchange Act), solicit any consent or
communicate with or seek to advise or influence any person or
entity with respect to the voting of any Ashland Voting Securities
or become a "participant" in any "election contest" (as such terms
are defined or used in Rule 14a-11 under the Exchange Act) with
respect to Ashland;
(iii) form, join, encourage or in any way participate in
the formation of, any "person" within the meaning of Section
13(d)(3) of the Exchange Act with respect to any Ashland Voting
Securities;
(iv) deposit any Ashland Voting Securities into a voting
trust or subject any such Ashland Voting Securities to any
arrangement or agreement with respect to the voting thereof;
(v) initiate, propose or otherwise solicit shareholders
for the approval of one or more shareholder proposals with respect
to Ashland as described in Rule 14a-8 under the Exchange Act, or
induce or attempt to induce any other person to initiate any
shareholder proposal;
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(vi) seek election to or seek to place a representative
on the Board of Directors of Ashland or seek the removal of any
member of the Board of Directors of Ashland;
(vii) except with the approval of management of Ashland,
call or seek to have called any meeting of the shareholders of Ashland;
(viii) otherwise act to seek to control, disrupt or
influence the management, business, operations, policies or affairs of
Ashland;
(ix) (A) solicit, seek to effect, negotiate with or
provide any information to any other person with respect to, (B)
make any statement or proposal, whether written or oral, to the
Board of Directors of Ashland or any director or officer of
Ashland with respect to, or (C) otherwise make any public
announcement or proposal whatsoever with respect to, any form of
business combination transaction involving Ashland (other than the
Transaction), including, without limitation, a merger, exchange
offer, or liquidation of Ashland's assets, or any restructuring,
recapitalization or similar transaction with respect to Ashland;
(x) seek to have Ashland waive, amend or modify any of
the provisions contained in this Section 12.01;
(xi) disclose or announce any intention, plan or
arrangement inconsistent with the foregoing; or
(xii) advise, assist, instigate or encourage any third
party to do any of the foregoing.
If either Marathon or USX or any of their respective
Affiliates owns or acquires any Ashland Voting Securities in violation of
this Section 12.01, such Ashland Voting Securities shall immediately be
disposed of to persons who (i) are not Marathon or USX or Affiliates
thereof and (ii) do not own, individually or as part of a "group" (within
the meaning of Section 13(d)(3) of the Exchange Act), more than 5% of the
then outstanding Ashland Voting Securities; provided that Ashland may also
pursue any other available remedy to which it may be entitled as a result
of such violation.
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SECTION 12.02. Restrictions of Certain Actions by
Ashland. Ashland covenants and agrees that, from the date hereof through
the later to occur of (a) the six-month anniversary of the earlier to occur
of (i) the date that Marathon and its Affiliates do not own any Membership
Interests and (ii) the date that Ashland and its Affiliates do not own any
Membership Interests and (b) in the event that Ashland or its Affiliates
acquires USX Voting Securities pursuant to the Closing of the Ashland Put
Right, the date on which Ashland and its Affiliates do not own more than 5%
of the then outstanding USX Voting Securities, it shall not, and it shall
cause each of its Affiliates (including, for the avoidance of doubt,
Employee Benefit Plans of Ashland and its Affiliates) not to, singly or as
part of a partnership, limited partnership, syndicate or other group (as
those terms are defined in Section 13(d)(3) of the Exchange Act), directly
or indirectly:
(i) acquire, offer to acquire, or agree to acquire, by
purchase, gift or otherwise, more than 1% of any class of USX
Voting Securities, except (A) pursuant to a stock split, stock
dividend, rights offering, recapitalization, reclassification or
similar transaction and except for any issuance of USX Voting
Securities to Ashland as payment of any portion of the Ashland Put
Price in accordance with the provisions of this Agreement or (B)
the ownership by any Employee Benefit Plan of Ashland or any of
its Affiliates of any interest in any diversified index, mutual or
pension fund managed by an independent investment advisor, which
fund in turn holds, directly or indirectly, USX Voting Securities;
provided that not more than 5% of such fund's assets are comprised
of USX Voting Securities;
(ii) make, or in any way participate in any
"solicitation" of "proxies" to vote (as such terms are defined in
Rule 14a-1 under the Exchange Act), solicit any consent or
communicate with or seek to advise or influence any person or
entity with respect to the voting of any USX Voting Securities or
become a "participant" in any "election contest" (as such terms
are defined or used in Rule 14a-11 under the Exchange Act) with
respect to USX;
(iii) form, join, encourage or in any way participate in
the formation of, any "person" within
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the meaning of Section 13(d)(3) of the Exchange Act with respect
to any USX Voting Securities;
(iv) deposit any USX Voting Securities into a voting
trust or subject any such USX Voting Securities to any arrangement
or agreement with respect to the voting thereof;
(v) initiate, propose or otherwise solicit shareholders
for the approval of one or more shareholder proposals with respect
to USX as described in Rule 14a-8 under the Exchange Act, or
induce or attempt to induce any other person to initiate any
shareholder proposal;
(vi) seek election to or seek to place a representative
on the Board of Directors of USX or seek the removal of any member
of the Board of Directors of USX or seek the removal of any member
of the Board of Directors of USX;
(vii) except with the approval of management of USX, call
or seek to have called any meeting of the shareholders of USX;
(viii) otherwise act to seek to control, disrupt or
influence the management, business, operations, policies or
affairs of USX;
(ix) (A) solicit, seek to effect, negotiate with or
provide any information to any other person with respect to, (B)
make any statement or proposal, whether written or oral, to the
Board of Directors of USX or any director or officer of USX with
respect to, or (C) otherwise make any public announcement or
proposal whatsoever with respect to, any form of business
combination transaction involving USX (other than the
Transaction), including, without limitation, a merger, exchange
offer, or liquidation of USX's assets, or any restructuring,
recapitalization or similar transaction with respect to USX;
(x) seek to have USX waive, amend or modify any of the
provisions contained in this Section 12.02;
(xi) disclose or announce any intention, plan or
arrangement inconsistent with the foregoing; or
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(xii) advise, assist, instigate or encourage any third
party to do any of the foregoing.
If Ashland or any of its Affiliates owns or acquires any
USX Voting Securities in violation of this Section 12.02, such USX Voting
Securities shall immediately be disposed of to persons who (i) are not
Ashland or Affiliates thereof and (ii) do not own, individually or as part
of a "group" (within the meaning of Section 13(d)(3) of the Exchange Act),
more than 5% of the then outstanding USX Voting Securities; provided that
USX may also pursue any other available remedy to which it may be entitled
as a result of such violation.
ARTICLE XIII
Indemnification
SECTION 13.01. Indemnification re: Ashland
Representatives' Revocable Proxies and the Ashland LOOP/LOCAP Revocable
Proxy. In the event that Ashland's Representatives grant Marathon's
Representatives the Ashland Representatives Revocable Proxies pursuant to
Section 5.02(a) and Ashland grants to Marathon or a person designated by
Marathon, as applicable, the Ashland LOOP/LOCAP Revocable Proxy pursuant to
Section 5.02(c), each of Marathon, USX and the Company agree to indemnify
and hold Ashland, its Representatives, their respective Affiliates and any
director, officer, employee, stockholder, partner, agent or representative
of Ashland or its Affiliates harmless against any and all Losses to which
they or any of them may become subject, insofar as any such Losses shall
arise out of, are based upon or relate to any obligations or liabilities of
whatever kind and nature, primary or secondary, direct or indirect,
absolute or contingent, known or unknown, whether or not accrued, which
arise on or after the relevant Exercise Date and which are attributable to
(i) in the event that the Closing occurs, (A) the Company and its
subsidiaries or LOOP, LLC or LOCAP, Inc., (B) Ashland's ownership interest
in the Company or the Ashland LOOP/LOCAP Interest, (C) actions taken by
Marathon's Representatives pursuant to the Ashland Representatives
Revocable Proxies or (D) actions taken by Marathon or the Company, as
applicable, pursuant to the Ashland LOOP/LOCAP Revocable Proxy, and (ii) in
the event that Ashland or Marathon revokes Ashland's Ashland Put Exercise
Notice or Marathon's Marathon Call
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Exercise Notice pursuant to Section 9.03(a), 9.04(a), 9.05, 9.08(a) or
9.09, or Ashland revokes Marathon's Special Termination Exercise Notice
pursuant to Section 9.08(a) or 9.09 (A) actions taken by Marathon's
Representatives pursuant to the Ashland Representatives Revocable Proxies
or (B) actions taken by Marathon or the Company, as applicable, pursuant to
the Ashland LOOP/LOCAP Revocable Proxy.
SECTION 13.02. Indemnification re: Marathon
Representatives Revocable Proxies. In the event that Marathon's
Representatives grant Ashland's Representatives the Marathon
Representatives Revocable Proxies pursuant to Section 5.02(b), each of
Ashland and the Company agree to indemnify and hold Marathon, its
Representatives, their respective Affiliates and any director, officer,
employee, stockholder, partner, agent or representative of Marathon or its
Affiliates harmless against any and all Losses to which they or any of them
may become subject, insofar as any such Losses shall arise out of, are
based upon or relate to any obligations or liabilities of whatever kind and
nature, primary or secondary, direct or indirect, absolute or contingent,
known or unknown, whether or not accrued, which arise on or after the
Special Termination Exercise Date and which are attributable to (i) in the
event that the Closing occurs, (A) the Company and its subsidiaries or (B)
actions taken by Ashland's Representatives pursuant to the Marathon
Representatives Revocable Proxies and (ii) in the event that Marathon
revokes Ashland's Special Termination Exercise Notice pursuant to Section
9.08(a) or 9.09, actions taken by Ashland's Representatives pursuant to the
Marathon Representatives Revocable Proxies.
SECTION 13.03. Indemnification re: Transfer of Economic
Interests in the Ashland LOOP/LOCAP Interest to Marathon, the Company or a
Person Designated by Marathon. To the extent that Ashland is unable to
Transfer the Ashland LOOP/LOCAP Interest to Marathon, the Company or a
person designated by Marathon, as applicable, at Closing, and as a result
thereof, Ashland enters into any arrangement under which Marathon, the
Company or such other person shall obtain the economic claims, rights and
benefits under the Ashland LOOP/LOCAP interest, including a grant to
Marathon, the Company or such other person, as applicable, of the Ashland
LOOP/LOCAP Irrevocable Proxy, each of Marathon, USX and the Company agree
to indemnify and hold Ashland, its Representatives, their respective
Affiliates and any director, officer, employee, stockholder, partner, agent
or
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representative of Ashland or its Affiliates harmless against any and all
Losses to which they or any of them may become subject, insofar as any such
Losses shall arise out of, be based upon or relate to any obligations or
liabilities of whatever kind and nature, primary or secondary, direct or
indirect, absolute or contingent, known or unknown, whether or not accrued,
which arise on or after the relevant Exercise Date and which are
attributable to (i) LOOP, LLC, (ii) LOCAP, Inc., (iii) Ashland's ownership
interest in LOOP, LLC and LOCAP, Inc., (iv) any such arrangements between
Ashland and Marathon, the Company or such other person or (v) actions taken
by Marathon, the Company or such other person, as applicable, pursuant to
the Ashland LOOP/LOCAP Irrevocable Proxies.
SECTION 13.04. Procedures Relating to Indemnification
Under This Article XIII. The procedures for Indemnification under this
Article XIII shall be the procedures for indemnification set forth in
Section 9.7 of the Asset Transfer and Contribution Agreement.
ARTICLE XIV
Company Competitive Businesses;
Detrimental Activities; Limitations on the
Company Entering into Valvoline's Business
SECTION 14.01. Competitive Businesses. (a) Subject to
Sections 14.01(b), 14.01(d) and 14.03(c), and except to the extent
otherwise provided in Schedule 14.01(a), each of Marathon, USX and Ashland
hereby agrees that during the Term of the Company, it shall not, and it
shall cause its Affiliates not to, engage in any business within North
America which is substantially in competition with (i) the Company's
Business conducted on the date hereof or (ii) any new line of business of
the Company that the Board of Managers has approved in accordance with
Section 8.07(b) of the LLC Agreement (but only if and to the extent that
the Board of Managers specifically determined pursuant to Section 8.07(b)
of the LLC Agreement that such new line of business should also constitute
a Company Competitive Business) (each such business in clauses (i) and
(ii), a "Company Competitive Business"); provided, however, that nothing in
this Section 14.01 shall be deemed or interpreted to prohibit Ashland or
any of its Affiliates from engaging in the Valvoline Business.
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(b) Notwithstanding any limitation contained in Section
14.01(a), Marathon, USX and Ashland and their respective Affiliates shall
be permitted to engage in a Company Competitive Business if: (i) Marathon
or Ashland, as applicable, shall have first presented the Company, at a
meeting of the Board of Managers at which at least one of the
Representatives of the other Member was present, with the opportunity to
pursue or engage in such Company Competitive Business and (ii) one or more
of the Representatives of the other Member on the Board of Managers shall
have voted against the Company pursuing such Company Competitive Business.
(c) If Marathon, USX or Ashland or any of their
respective Affiliates is permitted pursuant to Section 14.01(b) to engage
in a Company Competitive Business and, in connection therewith, wishes to
use any of the properties, facilities or other assets of the Company or any
of its subsidiaries, Marathon or Ashland and their respective
Representatives will negotiate in good faith with the Company to reach a
reasonable agreement as to the nature and scope of any agreement between
the Company or any such subsidiary and such Member with respect to the use
of such property, facility or other assets. Any transaction relating to
such property, facility or assets shall be deemed for purposes of the LLC
Agreement to constitute an Affiliate Transaction that was entered into
outside the ordinary course of the Company's business.
(d) Notwithstanding any limitation contained in Section
14.01(a), Marathon, USX and Ashland and their respective Affiliates shall
be permitted to purchase: (i) less than an aggregate of 10% of any class of
stock of a person engaged, directly or indirectly, in one or more
Competitive Businesses (a "Company Competitive Third Party"); provided that
such stock is listed on a national securities exchange or is quoted on the
National Market System of NASDAQ; (ii) less than 10% in value of any
instrument of Indebtedness of a Company Competitive Third Party; (iii) a
Company Competitive Third Party (whether by merger or purchase of all or
substantially all of such Company Competitive Third Party's assets) which
engages, directly or indirectly, in one or more Company Competitive
Businesses which accounted for less than 20% of such Company Competitive
Third Party's consolidated revenues for the most recently completed fiscal
quarter; and (iv) a Company Competitive Third Party (whether by merger or
purchase of
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all or substantially all of such Company Competitive Third Party's assets
or otherwise) which engages, directly or indirectly, in one or more Company
Competitive Businesses which accounted for greater than 20% of such Company
Competitive Third Party's consolidated revenues for the most recently
completed fiscal quarter; provided that a purchase by Marathon, USX or
Ashland or any of their respective Affiliates of a Company Competitive
Third Party pursuant to this clause (iv) shall only be permitted if within
30 Business Days after the earlier to occur of (A) the execution of
definitive agreements with respect to such purchase or (B) the closing of
such purchase, Marathon, USX, Ashland or such Affiliate, as applicable,
shall present the Company with the opportunity to purchase the portion of
such Company Competitive Third Party's business that is in substantial
competition with the Company in North America (the "Company Competitive
Business Assets") at a purchase price determined in accordance with Section
14.04, at a special or regular meeting of the Board of Managers (such
meeting, a "14.01(d) Presentation Meeting").
(e) If the Board of Managers determines at the 14.01(d)
Presentation Meeting (by a vote of a majority of the Representatives of the
Member not purchasing such Company Competitive Third Party's business at a
special or regular meeting of the Board of Managers (which majority shall
constitute a quorum for purposes of the transaction of business)) to
purchase the Company Competitive Business Assets, the closing date with
respect to such purchase shall not be later than 60 days after the date of
the determination of the Purchase Price pursuant to Section 14.04 or, if
later, 30 days after the Company has received any antitrust clearance or
other Governmental Approval required in connection with such purchase (the
"14.01(d) Scheduled Closing Date"). If the Company breaches its obligation
to purchase the Company Competitive Business Assets on the 14.01(d)
Scheduled Closing Date after the Board of Managers shall have determined to
make such purchase as provided in the immediately preceding sentence (other
than where such breach is due to circumstances beyond the Company's
reasonable control), then Marathon, USX, Ashland or such Affiliate, as
applicable, shall be permitted to retain such Company Competitive Business
Assets and the Company shall cease to have the right to purchase such
Company Competitive Business Assets. If the Company breaches its obligation
to purchase the Company Competitive Business Assets on the 14.01(d)
Scheduled Closing Date after
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the Board of Managers shall have determined to make such purchase as
provided in the first sentence of this Section 14.01(e)and such breach is
due to circumstances beyond the Company's reasonable control, then, if the
closing of the purchase by the Company of the Company Competitive Business
Assets does not occur within 270 days after the Scheduled Closing Date,
Marathon, USX, Ashland or such Affiliate, as applicable, shall be permitted
to retain such Company Competitive Business Assets and the Company shall
cease to have the right to purchase such Company Competitive Business
Assets. If the Board of Managers determines at the 14.01(d) Presentation
Meeting not to purchase such Company Competitive Business Assets, then
Marathon, USX, Ashland or such Affiliate, as applicable, shall be permitted
to retain such Company Competitive Business Assets and the Company shall
cease to have the right to purchase such Company Competitive Business
Assets.
(f) It is the intention of each of the parties hereto
that if any of the restrictions or covenants contained in this Section
14.01 is held by a court of competent jurisdiction to cover a geographic
area or to be for a length of time that is not permitted by Applicable Law,
or is in any way construed by a court of competent jurisdiction to be too
broad or to any extent invalid, such provision shall not be construed to be
null, void and of no effect, but to the extent such provision would be
valid or enforceable under Applicable Law, a court of competent
jurisdiction shall construe and interpret or reform this Section 14.01 to
provide for a covenant having the maximum enforceable geographic area, time
period and other provisions (not greater than those contained in this
Section 14.01) as shall be valid and enforceable under such Applicable Law.
Each of the parties hereto acknowledges that any breach of the terms,
conditions or covenants set forth in this Section 14.01 shall be
competitively unfair and may cause irreparable damage to the Company
because of the special, unique, unusual, extraordinary and intellectual
character of the Company's business, and the Company's recovery of damages
at law will not be an adequate remedy. Accordingly, each of the parties
hereto agrees that for any breach of the terms, covenants or agreements of
this Section 14.01, a restraining order or an injunction or both may be
issued against such person, in addition to any other rights or remedies the
Company or the other parties hereto may have.
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SECTION 14.02. Detrimental Activities. (a) Solicitation,
Recruiting or Hiring of Employees. Each of Marathon, USX and Ashland hereby
agrees that during the Term of the Company, without the consent of each of
the Members, it shall not, and it shall cause its Affiliates not to,
solicit, recruit or hire any employee of the Company or any of its
subsidiaries (other than solicitations that are directed at the public in
general in publications available to the public in general) if:
(i) such employee is an Executive Officer or the officer
principally in charge of environmental health and safety and human
resources, unless, subject to clauses (iii) and (iv) below, such
solicitation, recruitment or hiring is consented to in advance by
Ashland (in the case of a solicitation, recruitment or hiring by
Marathon, USX or any of their respective Affiliates) or by
Marathon (in the case of a solicitation, recruitment or hiring by
Ashland or any of its Affiliates), which consent shall not be
unreasonably withheld;
(ii) such employee reports directly to (A) an Executive
Officer or the officer principally in charge of environmental
health and safety and human resources(a "Senior Employee") or (B)
a Senior Employee (a "Mid-Level Employee"), unless, subject to
clauses (iii) and (iv) below, at the time of such solicitation,
recruitment or hiring, the total number of Senior Employees and
Mid-Level Employees that have been hired by Marathon, USX, Ashland
and their respective Affiliates during the then preceding
twenty-four months is less than 10% of the total number of Senior
Employees and Mid-Level Employees employed by the Company at the
time Marathon, USX, Ashland or an Affiliate thereof wishes to
solicit, recruit or hire such Senior Employee or Mid-Level
Employee (based on the average number of Senior Employees and
Mid-Level Employees employed by the Company during such
twenty-four-month period);
(iii) the hiring of such employee, when considered
together with all other employees hired by Marathon, USX, Ashland
and their respective Affiliates during the then preceding
twenty-four months, would have or would reasonably be expected to
have, a significant
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detrimental impact on the department of the Company in which such
employee is then working; or
(iv) such employee is being solicited, recruited or hired
for a position in a Competitive Business of such person or such
person's Affiliates.
Notwithstanding the foregoing, the employees of the Company shall not be
required to accept any job offer by Marathon, USX, Ashland or any of their
respective Affiliates and a refusal to accept such a job offer shall not
negatively affect an employee's career opportunities at the Company.
(b) Disclosure of Confidential Information. Each of
Marathon, USX and Ashland (each, a "Disclosing Party") hereby agrees that
during the Term of the Company, it shall not, and it shall cause its
Affiliates not to, disclose or furnish to anyone any confidential
information relating to the Company and its subsidiaries ("Confidential
Information") except pursuant to a confidentiality agreement in form and
substance reasonably satisfactory to the other parties hereto which
expressly provides that the other parties hereto shall be a beneficiary
thereof (a "Confidentiality Agreement"). The foregoing restriction on
disclosure of Confidential Information shall not apply to (i) information
which is or becomes part of the public domain through no fault or breach of
the Disclosing Party; (ii) information which at the time of disclosure is
already in the possession of the Disclosing Party in written form and was
not received directly or indirectly from the Company or any of its
subsidiaries under a requirement of confidentiality; (iii) information
received by the Disclosing Party from a third party; provided that the
Disclosing Party, after reasonable inquiry, has no reason to believe that
the third party obtained the information directly or indirectly from the
Company or any of its subsidiaries under a requirement of confidentiality;
(iv) information required to be disclosed under subpoena or other mandatory
legal process; provided, that the Disclosing Party shall give the Company
timely notice of the service of the subpoena or other process so that the
Company may seek a protective order or other legal remedy to prevent such
disclosure; (v) information which has been subsequently and independently
acquired or developed by the Disclosing Party without violating any of its
obligations under this Section 14.02(b) or under any Confidentiality
Agreement; and (vi) information which is required or advisable to be
disclosed
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under the Securities Act or the Exchange Act. Notwithstanding the
foregoing, a Disclosing Party shall be permitted to disclose Confidential
Information to its directors, officers, employees, auditors, agents,
advisors and representatives (such persons being collectively referred as
its "Representatives") if the Disclosing Party informs its Representatives
of the confidential nature of the Confidential Information and obtains
their agreement to be bound by this Section 14.02(b) and not to disclose
such Confidential Information to any other person. Each Disclosing Party
shall be responsible for any breach of this Section 14.02 by its
Representatives.
SECTION 14.03. Limitations on the Company Entering into
the Valvoline Business. (a) Subject to Sections 14.03(b) and 14.03(d), the
Company hereby agrees that it shall not, and it shall cause its Affiliates
(other than Marathon, Ashland and their respective subsidiaries (other than
the Company and its subsidiaries)) not to, engage in any business worldwide
which is substantially in competition with the Valvoline Business.
Notwithstanding the foregoing, the provisions of this Section 14.03(a)
shall terminate on the first date on which Ashland and its Affiliates shall
own (beneficially or otherwise) less than 20% of the Valvoline Business.
(b)(i) Notwithstanding any limitation contained in
Section 14.03(a), if in any two consecutive calendar years, (A)
Valvoline shall not have purchased from the Company and its
subsidiaries a quantity of lube oil at least equal to the Minimum
Lube Oil Purchase Amount and (B)(1) such failure to purchase was
due to the fact that the Company and Valvoline could not in good
faith agree to mutually acceptable terms and conditions for the
sale by the Company and its subsidiaries to Valvoline of at least
such quantity of lube oil and (2) such failure was not due, in
whole or in part, to the failure of the Company and its
subsidiaries to produce and offer for sale to Valvoline the
Minimum Lube Oil Purchase Amount during either such calendar year,
the failure of the Company and its subsidiaries to produce and
offer for sale to Valvoline lube oil satisfying contractual
specifications or any other failure of the Company or its
subsidiaries to satisfy in any material respect any of its then
existing material contractual obligations to Valvoline, then the
Company and its subsidiaries shall be permitted to
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engage in a business which is substantially in competition with
Valvoline's Bulk Motor Oil Business and/or Valvoline's Packaged
Motor Oil Business (but, except as expressly permitted in Section
14.03(a), no other business that constitutes part of the Valvoline
Business); provided that, notwithstanding the foregoing, the
Company and its subsidiaries shall not be permitted to enter into
or engage in any such business if the Company and its subsidiaries
shall have substantially ceased production at the Catlettsburg,
Kentucky refinery of lube oil for sale to third parties (other
than due to a force majeure or an inability to find a willing
buyer for its lube oil) for any period of 90 consecutive days or
more prior to the time the Company and its subsidiaries shall
first enter or propose to enter into such business.
(ii) Notwithstanding any limitation contained in Section
14.03(a), if in each of the four calendar years following the
consecutive two-year period provided for in Section 14.03(b)(i),
(A) Valvoline shall not have purchased from the Company and its
subsidiaries a quantity of lube oil at least equal to the Minimum
Lube Oil Purchase Amount and (B)(1) such failure to purchase was
due to the fact that the Company and Valvoline could not in good
faith agree to mutually acceptable terms and conditions for the
sale by the Company and its subsidiaries to Valvoline of at least
such quantity of lube oil and (2) such failure was not due, in
whole or in part, to the failure of the Company and its
subsidiaries to produce and offer for sale to Valvoline the
Minimum Lube Oil Purchase Amount during any such calendar year,
the failure of the Company and its subsidiaries to produce and
offer for sale to Valvoline lube oil satisfying contractual
specifications or any other failure of the Company or its
subsidiaries to satisfy in any material respect any of its
existing material contractual obligations to Valvoline, then at
any time after the conclusion of such consecutive four-year
period, the Company and its subsidiaries shall be permitted to
engage in a business which is substantially in competition with
Valvoline's Private Label Packaged Motor Oil Business and/or
Valvoline's Quick Lube Business; provided that, notwithstanding
the foregoing, the Company and its subsidiaries shall not be
permitted to enter into or engage in any such business if the
Company and its subsidiaries shall have
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98
substantially ceased production at the Catlettsburg, Kentucky
refinery of lube oil for sale to third parties (other than due to
a force majeure or an inability to find a willing buyer for its
lube oil) for any period of 90 consecutive days or more prior to
the time the Company and its subsidiaries shall first enter or
propose to enter into such business.
(iii) The provisions set forth in this Section 14.03(b)
permitting the Company and its subsidiaries to engage in a new
business in competition with the Valvoline Business if certain
conditions are satisfied shall be an exception only to the super
majority vote requirement in Section 8.08(a) of the LLC Agreement,
and shall not be an exception to any other supermajority vote
requirements of Section 8.08 of the LLC Agreement.
(c) Notwithstanding any limitation contained in Section
14.01(a), if at any time the Company or any of its subsidiaries enters
into, other than as expressly permitted in Section 14.03(d), either the
Bulk Motor Oil Business, the Packaged Motor Oil Business, the Private Label
Packaged Motor Oil Business or the Quick Lube Business, Ashland and its
subsidiaries thereafter shall be permitted to enter into a business which
is substantially in competition with the Company's lube oil production
business.
(d) Notwithstanding any limitation contained in Section
14.03(a), subject to Section 8.08 of the LLC Agreement, the Company and its
subsidiaries shall be permitted to (i) engage, directly or through its own
dealers, jobbers or jobber dealers, in the business currently conducted
under the brand name "Maralube Express" (the "Maralube Express Business");
(ii) engage, directly or through its own dealers, jobbers or jobber
dealers, in the truck stop oil change business; (iii) engage, directly or
through its own dealers, jobbers, or jobber dealers, in the oil,
lubricants, antifreeze and other, in each case automotive fluid change
business and auto and light truck maintenance service, in each case
incidental to operating their service stations or other retail units; (iv)
engage, directly or through its own dealers, jobbers, or jobber dealers, in
the sale of lubricants to farm, government, school and other similar
commercial accounts; (v) engage, directly or through its own dealers,
jobbers, or jobber dealers, in the sale of car care products and chemicals,
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antifreeze and rust preventatives in service stations or similar retail
units that are owned or operated by them, in each case incidental to
operating their service stations or other retail units; (vi) engage,
directly or through its own dealers, jobbers, or jobber dealers, in the
collection of used lubricants at service stations or similar retail units
that are owned or operated by them, in each case incidental to operating
their service stations or other retail units; (vii) enter into contractual
agreements with Valvoline or other third party packagers with respect to
the packaging by Valvoline or such other third party packagers of lube oil
products for sale (A) in service stations or similar retail units that are
owned or operated by the Company and its subsidiaries or its dealers,
jobbers or jobber dealers or to farm, government, school or other similar
commercial accounts pursuant to clause (iv) above and (B) solely under the
brandnames or trademarks of such service stations; and (viii) purchase a
Person (whether by merger or purchase of all or substantially all the
assets or otherwise) which engages, directly or indirectly, in a business
that is substantially in competition with the Valvoline Business (a
"Valvoline Competitive Third Party") provided that less than 33% of such
Valvoline Competitive Third Party's consolidated revenues for the most
recently completed fiscal quarter are derived from businesses which are
substantially in competition with Valvoline's Business; provided further
that a purchase by the Company or one of its subsidiaries of a Valvoline
Competitive Third Party shall be permitted only if within 30 Business Days
after the earlier to occur of (A) the execution of definitive agreements
with respect to such purchase or (B) the closing of such purchase, the
Company shall give notice (a "14.03(d) Offer Notice") to Ashland,
identifying the portion of such Valvoline Competitive Third Party's
business that is substantially in competition with the Valvoline Business
(the "Valvoline Competitive Business Assets") and offering to sell to
Ashland such Valvoline Competitive Business Assets at a purchase price
determined in accordance with Section 14.04.
(e) Ashland shall have 90 days from receipt of the
14.03(d) Offer Notice to elect, by notice to the Company (a "14.3(d)
Purchase Election Notice"), to purchase such Valvoline Competitive Business
Assets. If Ashland makes such election, the notice of election shall state
a closing date not later than 60 days after the date of the Section
14.03(d) Purchase Election Notice or, if later, 30 days after Ashland has
received any antitrust clearance or other
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Governmental Approval required in connection with such purchase (a
"14.03(d) Scheduled Closing Date"). If Ashland breaches its obligation to
purchase the Valvoline Competitive Business Assets on the 14.03(d)
Scheduled Closing Date after giving notice of its election to make such
purchase (other than where such breach is due to circumstances beyond
Ashland's reasonable control), then the Company shall be permitted to
retain such Valvoline Competitive Business Assets. If Ashland breaches its
obligation to purchase the Valvoline Competitive Business Assets on the
14.03(d) Scheduled Closing Date after giving notice of its election to make
such purchase and such breach is due to circumstances beyond Ashland's
reasonable control, then, if the closing of the purchase by Ashland of the
Valvoline Competitive Business Assets does not occur within 270 days after
the Scheduled Closing Date, the Company shall be permitted to retain such
Valvoline Competitive Business Assets. If Ashland elects not to purchase
such Valvoline Competitive Business Assets, then the Company shall be
permitted to retain such Valvoline Competitive Business Assets.
(f) (i) If the Company and its subsidiaries are permitted
under Section 14.03(d) to retain any Valvoline Competitive Business Assets
and, at any time thereafter, the Company or any such subsidiary shall
determine to sell such Valvoline Competitive Business Assets (or any
portion thereof), then the Company shall give notice (a "14.03(f) Valvoline
Offer Notice") to Ashland, identifying the proposed purchaser from whom it
has received a bona fide offer and setting forth the proposed sale price
(which shall be payable only in cash or purchase money obligations secured
solely by such Valvoline Competitive Business Assets (or portion thereof)
being sold) and the other material terms and conditions upon which the
Company is proposing to sell such Valvoline Competitive Business Assets to
such identified purchaser (or portion thereof). No such sale shall
encompass or be conditioned upon the sale or purchase of any property other
than such Valvoline Competitive Business Assets (or portion thereof).
Ashland shall have 90 days from receipt of the Valvoline Offer Notice to
elect, by notice to the Company (a "14.03(f) Valvoline Purchase Election
Notice"), to purchase such Valvoline Competitive Business Assets (or
portion thereof) on the terms and conditions set forth in the 14.03(f)
Valvoline Offer Notice.
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(ii) If Ashland makes such election, the notice of election
shall state a closing date not later than 60 days after the date of the
14.03(f) Valvoline Purchase Election Notice. If Ashland breaches its
obligation to purchase such Valvoline Competitive Business Assets (or
portion thereof) on the same terms and conditions as those contained in the
14.03(f) Valvoline Offer Notice after giving notice of its election to make
such purchase (other than where such breach is due to circumstances beyond
Ashland's reasonable control), then the Company may, at any time for a
period of 270 days after such default, sell such Valvoline Competitive
Business Assets (or portion thereof) to any person at any price and upon
any other terms without further compliance with the procedures set forth in
this Section 14.03(f).
(iii) If Ashland gives notice within the 90-day period
following the 14.03(f) Valvoline Offer Notice from the Company that it
elects not to purchase such Valvoline Competitive Business Assets (or
portion thereof), the Company may, within 120 days after the end of such
90-day period (or 270 days in the case where such parties have received a
second request under HSR), sell such Valvoline Competitive Business Assets
to the identified purchaser on terms and conditions no less favorable to
the Company than the terms and conditions set forth in such 14.03(f)
Valvoline Offer Notice. In the event the Company shall desire to offer such
Valvoline Competitive Business Assets (or portion thereof) for sale to such
identified purchaser or to any other person on terms and conditions less
favorable to it than those previously set forth in a 14.03(f) Valvoline
Offer Notice, the procedures set forth in this Section 14.03(f) must again
be initiated and applied with respect to the terms and conditions as
modified.
(g) It is the intention of each of the parties hereto
that if any of the restrictions or covenants contained in this Section
14.03 is held by a court of competent jurisdiction to cover a geographic
area or to be for a length of time that is not permitted by Applicable Law,
or is in any way construed by a court of competent jurisdiction to be too
broad or to any extent invalid, such provision shall not be construed to be
null, void and of no effect, but to the extent such provision would be
valid or enforceable under Applicable Law, a court of competent
jurisdiction shall construe and interpret or reform this Section 14.03 to
provide for a covenant having the maximum enforceable geographic area, time
period and other
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provisions (not greater than those contained in this Section 14.03) as
shall be valid and enforceable under such Applicable Law. Each of the
parties hereto acknowledges that any breach of the terms, conditions or
covenants set forth in this Section 14.03 shall be competitively unfair and
may cause irreparable damage because of the special, unique, unusual,
extraordinary and intellectual character of the applicable business, and
recovery of damages at law will not be an adequate remedy. Accordingly,
each of the parties hereto agrees that for any breach of the terms,
covenants or agreements of this Section 14.03, a restraining order or an
injunction or both may be issued against such person, in addition to any
other rights or remedies the aggrieved party may have.
(h) For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "Bulk Motor Oil Business" means sales of blended
(finished) motor oil in tanker truck, barge and tanker railcar
quantities.
(ii) "Minimum Lube Oil Purchase Amount" means a quantity
of lube oil at least equal to 70% of the quantity of lube oil that
Valvoline purchased from the Catlettsburg, Kentucky refinery in
the 1997 calendar year.
(iii) "Packaged Motor Oil Business" means the ownership,
use and/or operation (including toll processing through a third
party's plant) of packaging facilities for the sale of packaged
motor oil under third party brandnames or trademarks.
(iv) "Private Label Packaged Motor Oil Business" means
the sale of packaged motor oil under third party and/or the
Company's brand names or trademarks.
(v) "Quick Lube Business" means the provision of services
for changing oil, lubricants, antifreeze and other automotive
fluids for passenger car and light commercial trucks and the
provision of maintenance checks and related services.
(vi) "Valvoline" means the Valvoline division of Ashland.
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(vii) "Valvoline Business" means the business currently
engaged in by Valvoline, including (A) the production and
marketing of automotive and industrial oils, automotive car care
products and chemicals, antifreeze, rust preventives, (B)
automotive services and (C) environmental recycling services
(including collection of used oil, filters and related items). For
the avoidance of doubt, the Valvoline Business includes the Bulk
Motor Oil Business, the Packaged Motor Oil Business, the Private
Label Packaged Motor Oil Business and the Quick Lube Business.
SECTION 14.04. Purchase Price of Competitive Business
Assets. In the event that (x) the Company elects to purchase any Company
Competitive Business Assets pursuant to the proviso to Section 14.01(d)(iv)
or (y) Ashland elects to purchase any Valvoline Competitive Business Assets
pursuant to the second proviso to Section 14.03(d)(viii), the purchase
price of such Company Competitive Business Assets or Valvoline Competitive
Business Assets (the "Competitive Business Purchase Price") shall be
determined pursuant to the following procedures:
(a) Negotiation Period. For a period of 15 days following
the date the Board of Managers approves such purchase, Marathon
and Ashland will negotiate in good faith to seek to reach an
agreement as to the Competitive Business Purchase Price. If
Marathon and Ashland reach such an agreement, then the Competitive
Business Purchase Price shall be deemed to be the amount so agreed
upon by Marathon and Ashland.
(b) Appraisal Process. (i) In the event Marathon and
Ashland are unable to reach an agreement as to the Competitive
Business Purchase Price within the 15 day period referred to in
clause (a) above, then within five Business Days after the
expiration of such 15-day period (such fifth Business Day being
referred to herein as the "14.04 Appraisal Process Commencement
Date"), Marathon and Ashland each shall select a nationally
recognized investment banking firm to (A) prepare a report which
(1) sets forth such investment banking firm's determination of the
Competitive Business Purchase Price (which shall be a single
amount as opposed to a range) and (2) includes work papers which
indicate the basis for the calculations of the Competitive
Business Purchase Price
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(a "14.04 Appraisal Report") and (B) deliver to Marathon or
Ashland, as the case may be, an oral and written opinion addressed
to such party as to the Competitive Business Purchase Price.
(ii) The fees and expenses of each investment banking
firm shall be paid by the party selecting such investment banking
firm.
(iii) Each of Marathon and Ashland shall instruct its
respective investment banking firm to (A) not consult with the
other investment banking firm with respect to its view as to the
Competitive Business Purchase Price prior to the time that both
investment banking firms have delivered their respective opinions
to Marathon and Ashland, as applicable, (B) deliver their
respective 14.04 Appraisal Reports, together with their oral and
written opinions as to the Competitive Business Purchase Price
(the "14.04 Initial Opinion Values"), within 15 days after the
14.04 Appraisal Process Commencement Date, and (C) deliver a copy
of its written opinion and its 14.04 Appraisal Report to the
Company, the other party and the other party's investment banking
firm at the time it delivers its oral and written opinion to
Marathon or Ashland, as applicable.
(iv) If the 14.04 Initial Opinion Values differ and the
lesser 14.04 Initial Opinion Value equals or exceeds 90% of the
greater 14.04 Initial Opinion Value, the Competitive Business
Purchase Price shall be deemed to be an amount equal to (A) the
sum of the 14.04 Initial Opinion Values divided by (B) two.
(v) If the 14.04 Initial Opinion Values differ and the
lesser 14.04 Initial Opinion Value is less than 90% of the greater
14.04 Initial Opinion Value then:
(A) within two Business Days after both
investment banking firms have delivered their respective
opinions to Marathon or Ashland, as applicable, each
investment banking firm shall, at a single meeting at
which Marathon, Ashland, the Company and the other
investment banking firm are present, make a presentation
with respect to its 14.04 Initial Opinion Value. At such
presentation, Marathon, Ashland, the Company and the
other
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105
investment banking firm shall be entitled to ask
questions as to the basis for and the calculation of such
investment banking firm's 14.04 Initial Opinion Value;
and
(B) Marathon and Ashland shall, within five
Business Days after the date Marathon and Ashland receive
the 14.04 Initial Opinion Values (such fifth Business Day
being referred to herein as the "14.04 Subsequent
Appraisal Process Commencement Date"), jointly select a
third nationally recognized investment banking firm to
(1) prepare a 14.04 Appraisal Report and (2) deliver an
oral and written opinion addressed to Marathon and
Ashland as to the Competitive Business Purchase Price.
The fees and expenses of such third investment banking
firm shall be paid 50% by Marathon and 50% by Ashland.
Such third investment banking firm shall not be provided
with the 14.04 Initial Opinion Values and shall not
consult with the initial investment banking firms with
respect thereto. During such five-Business Day period,
Marathon and Ashland shall negotiate in good faith to
independently reach an agreement as to the Competitive
Business Purchase Price. If Marathon and Ashland reach
such an agreement, then the Competitive Business Purchase
Price shall be deemed to be the amount so agreed upon by
Marathon and Ashland. If Marathon and Ashland are unable
to reach such an agreement, then Marathon and Ashland
shall instruct such third investment banking firm to
deliver its 14.04 Appraisal Report, together with its
oral and written opinion as to the Competitive Business
Purchase Price (the "14.04 Third Opinion Value"), within
15 days after the 14.04 Subsequent Appraisal Process
Commencement Date. The Competitive Business Purchase
Price in such circumstances shall be deemed to be an
amount equal to (I) the sum of (x) the 14.04 Third
Opinion Value plus (y) whichever of the two 14.04 Initial
Opinion Values is closer to the 14.04 Third Opinion Value
(or, if the 14.04 Third Opinion Value is exactly halfway
between the two 14.04 Initial Opinion Values, the 14.04
Third Opinion Value), divided by (II) two.
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106
ARTICLE XV
Survival; Assignment
SECTION 15.01. Survival and Assignment re: Marathon and
USX. (a) General. Except as expressly permitted by this Section 15.01,
neither Marathon nor USX shall assign all or any part of its rights and
obligations hereunder to any person without first obtaining the written
approval of each of the other parties hereto, which approval may be granted
or withheld in such parties' sole discretion.
(b) Merger or Sale of Substantially All of Marathon's or
USX's Assets. In the event that Marathon or USX shall be a party to a
merger, consolidation or other similar business combination transaction
with a third party or sell all or substantially all its assets to a third
party, Marathon's or USX's, as the case may be, rights and obligations
hereunder shall be assignable to such third party in connection with such
transaction; provided, however, that Marathon or USX shall not be permitted
to assign its rights and obligations hereunder to such third party as
aforesaid if the purpose or intent of such merger, consolidation, similar
business combination transaction or sale is to circumvent or avoid the
application of Sections 10.01(c) and 10.04 of the LLC Agreement to the
related Transfer of Marathon's Membership Interests to such third party.
(c) Transfer of Marathon's Membership Interests Pursuant
to Section 10.01(c) of the LLC Agreement. In the event that Marathon
Transfers all of its Membership Interests to a third party pursuant to
Section 10.01(c) of the LLC Agreement, then:
(i) such third party shall at the time of such Transfer
become subject to all of Marathon's and USX's respective
obligations hereunder and shall succeed to all of Marathon's and
USX's respective rights hereunder;
(ii) such third party and its ultimate parent, if any,
shall each become subject to the same standstill obligations that
apply to Marathon and USX under Section 12.01, which standstill
provisions shall remain in effect with respect to such third party
and its ultimate parent, if any, through the six-month
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107
anniversary of the earlier to occur of (a) the date that Ashland
and its Affiliates do not own any Membership Interests and (b) the
date that such third party and its Affiliates do not own any
Membership Interests;
(iii) such third party and its ultimate parent, if any,
shall each become subject to the same non-compete covenants that
apply to Marathon and USX under Article XIV; and
(iv) Marathon and USX shall each be relieved of all of
its obligations hereunder other than (1) any default hereunder by
Marathon or USX or any of their respective Affiliates that
occurred prior to the time of such Transfer; (2) Marathon's and
USX's respective obligations under Section 12.01 (which are in
addition to, and not in lieu of such third party's obligations
under Section 12.01); (3) Marathon's and USX's respective
obligations under Article X with respect to any Securities that
Marathon and/or USX issued to Ashland pursuant to Section 4.02(c)
prior to such Transfer or that Marathon and/or USX intends to
issue to Ashland pursuant to Section 4.02(c) after such Transfer;
and (4) Marathon's and USX's respective obligations under Article
XIV (which shall survive for six months from the date of such
Transfer and which are in addition to, and not in lieu of such
third party's obligations under Article XIV).
(d) Assignment of Marathon's Marathon Call Right and
Special Termination Right. In the event of an assignment by Marathon of its
rights and obligations under this Agreement to a third party pursuant to
this Section 15.01, Marathon's rights and obligations related to its
Marathon Call Right and its Special Termination Right shall also be
assigned to such third party; provided, that such third party shall not be
permitted to exercise the Marathon Call Right until the third anniversary
of the date of such assignment.
SECTION 15.02. Survival and Assignment re: Ashland. (a)
General. Except as expressly permitted by this Section 15.02, Ashland shall
not assign all or any part of its rights and obligations hereunder to any
person without first obtaining the prior written approval of each
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108
of the other parties hereto, which approval may be granted in such parties'
sole discretion.
(b) Merger or Sale of Substantially all of Ashland's
Assets. In the event that Ashland shall be a party to a merger,
consolidation or other similar business combination transaction with a
third party or sell all or substantially all of its assets to a third
party, Ashland's rights and obligations hereunder shall be assignable to
such third party in connection with such transaction; provided, however,
that Ashland shall not be permitted to assign its rights and obligations
hereunder to such third party as aforesaid if the purpose or intent of such
merger, consolidation, similar business combination transaction or sale is
to circumvent or avoid the application of Sections 10.01(c) and 10.04 of
the LLC Agreement to the related Transfer of Ashland's Membership Interests
to such third party.
(c) Transfer of Membership Interests Pursuant to Section
10.01(c) of the LLC Agreement. In the event that Ashland Transfers all of
its Membership Interests to a third party pursuant to Section 10.01(c) of
the LLC Agreement, then:
(i) such third party shall at the time of such Transfer
become subject to all of Ashland's obligations hereunder and shall
succeed to all of Ashland's rights hereunder;
(ii) such third party and its ultimate parent, if any,
shall each become subject to the same standstill obligations that
apply to Ashland under Section 12.02, which standstill provisions
shall remain in effect with respect to such third party and its
ultimate parent, if any, through the later to occur of (i) the
six-month anniversary of the earlier to occur of (A) the date that
Marathon and its Affiliates do not own any Membership Interests
and (B) the date that such third party and its Affiliates do not
own any Membership Interests and (ii) in the event that such third
party or its Affiliates acquires USX Voting Securities pursuant to
the Closing of the Ashland Put Right, the date on which such third
party and its Affiliates do not own more than 5% of the then
outstanding USX Voting Securities;
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109
(iii) such third party and its ultimate parent, if any,
shall each become subject to the same non-compete covenants that
apply to Ashland under Article XIV;
(iv) Ashland shall be relieved of all of its obligations
hereunder other than (1) any default hereunder by Ashland or any
of its Affiliates that occurred prior to the time of such
Transfer; (2) Ashland's obligations under Section 12.02 (which are
in addition to, and not in lieu of such third party's obligations
under Section 12.02); and (3) Ashland's obligations under Article
XIV (which shall survive for six months from the date of such
Transfer and which are in addition to, and not in lieu of such
third party's obligations under Article XIV); and
(v) Ashland shall retain all of its rights under Article
X with respect to any Securities that are issued to Ashland
pursuant to Section 4.02(c) prior to or after the date of such
Transfer (which rights shall be in addition to and not in lieu of
the rights that the third party of Ashland's Membership Interests
is entitled to under Article X).
(d) Assignment of Ashland's Ashland Put Right and Special
Termination Right. In the event of an assignment by Ashland of its rights
and obligations under this Agreement to a third party pursuant to this
Section 15.02, Ashland's rights and obligations related to its Ashland Put
Right and its Special Termination Right shall also be assigned to such
third party; provided that such third party shall not be permitted to
exercise the Ashland Put Right until the third anniversary of the date of
such assignment.
SECTION 15.03. Survival and Assignment re: the Company.
The Company shall not be permitted to assign its rights and obligations
hereunder without the prior written consent of each of the other parties
hereto, which consent shall not be unreasonably withheld.
SECTION 15.04. Assignment and Assumption Agreements. Any
assignment of Marathon's, USX's, Ashland's or the Company's respective
rights and obligations hereunder pursuant to this Article XV shall be
pursuant to an assignment and assumption agreement by and among the third
party, such third party's ultimate parent, if any, and each of the parties
hereto, in such form as the parties hereto shall reasonably approve.
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110
SECTION 15.05. Consequences of Unpermitted Assignments.
Any attempted assignment in violation of this Article XV shall be void and
without legal effect.
ARTICLE XVI
Dispute Resolution Procedures
SECTION 16.01. General. All controversies, claims or
disputes that arise out of or relate to the Agreement or the construction,
interpretation, performance, breach, termination, enforceability or
validity of the Agreement, or the commercial economic or other relationship
of the parties thereto, whether such claim is based on rights, privileges
or interests recognized by or based upon statute, contract, tort, common
law or otherwise and whether such claim existed prior to or arises on or
after the date of the Agreement (a "Dispute") shall be resolved in
accordance with the provisions of this Article XVI. Notwithstanding
anything to the contrary contained in this Article XVI, nothing in this
Article XVI shall limit the ability of the directors and officers of a
party hereto from communicating directly with the directors and officers of
any other party hereto.
SECTION 16.02. Dispute Notice and Response. A party
hereto may give another party hereto written notice (a "Dispute Notice") of
any Dispute which has not been resolved in the normal course of business.
Within fifteen Business Days after delivery of the Dispute Notice, the
receiving party shall submit to the other party a written response (the
"Response"). The Dispute Notice and the Response shall each include a
statement setting forth the position of the party giving such notice, a
summary of the arguments supporting such position and, if applicable, the
relief sought.
SECTION 16.03. Negotiation Between Chief Executive
Officers. (a) If a Dispute Notice is delivered prior to the Closing, within
10 Business Days after delivery of the Response provided for in Section
16.02, the Chief Executive Officer (in the case of Ashland and USX) and/or
the President (in the case of Marathon and the Company) of
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111
each party to such Dispute shall meet or communicate by telephone at a
mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary, and shall negotiate in good faith to attempt to
resolve the Dispute that is the subject of such Dispute Notice. If such
Dispute has not been resolved within 20 Business Days after the delivery of
the Response as provided for in Section 16.02, then each party shall be
permitted to take such actions at law or in equity as it is otherwise
permitted to take or as may be available under Applicable Law.
(b) All negotiations between the Chief Executive
Officer(s) and/or the President(s) pursuant to this Section 16.03 shall be
treated as compromise and settlement negotiations. Nothing said or
disclosed, nor any document produced, in the course of such negotiations
which is not otherwise independently discoverable shall be offered or
received as evidence or used for impeachment or for any other purpose in
any current or future arbitration or litigation.
SECTION 16.04. Right to Equitable Relief Preserved.
Notwithstanding anything in this Agreement to the contrary, any party
hereto may at any time seek from any court of the United States located in
the State of Delaware or from any Delaware state court, any interim,
provisional or injunctive relief that may be necessary to protect the
rights or property of such party or maintain the status quo before, during
or after the pendency of the negotiation process or any other proceeding
contemplated by Section 16.03.
ARTICLE XVII
Miscellaneous
SECTION 17.01. Notices. Any notice, consent or approval
to be given under this Agreement shall be in writing and shall be deemed to
have been given if delivered: (i) personally by a reputable courier service
that requires a signature upon delivery; (ii) by mailing the same via
registered or certified first-class mail, postage prepaid, return receipt
requested; or (iii) by telecopying the same with receipt confirmation
(followed by a first-class mailing of the same) to the intended recipient.
Any such writing will be deemed to have been given: (a) as of the date of
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112
personal delivery via courier as described above; (b) as of the third
calendar day after depositing the same into the custody of the postal
service as evidenced by the date-stamped receipt issued upon deposit of the
same into the mails as described above; and (c) as of the date and time
electronically transmitted in the case of telecopy delivery as described
above, in each case addressed to the intended party at the address set
forth below:
To Marathon:
Marathon Oil Company
5555 San Felipe
P.O. Box 3128
Houston, TX 77056
Attn: General Counsel
Phone: (713) 296-4137
Fax: (713) 296-4171
To USX:
USX Corporation
600 Grant Street
Pittsburgh, PA, 15219-4776
Attn: General Counsel
Phone: (412) 433-1121
Fax: (412) 433-2015
To Ashland:
Ashland Inc.
1000 Ashland Drive
Russell, KY 41169
Attn: General Counsel
Phone: (606) 329-3333
Fax: (606) 329-3823
To the Company:
Marathon Ashland Petroleum LLC
539 South Main Street
Findlay, Ohio 45840
Attn: General Counsel
Phone: (419) 421-4115
Fax: (419) 422-2121
<PAGE>
113
Any party may designate different addresses or telecopy numbers by notice
to the other parties.
SECTION 17.02. Merger and Entire Agreement. This
Agreement (including the Schedules and Appendices attached hereto),
together with the other Transaction Documents (including the exhibits,
schedules and appendices thereto) and certain other agreements executed
contemporaneously with the Master Formation Agreement constitutes the
entire Agreement of the parties hereto and supersedes any prior
understandings, agreements, or representations by or among the parties
hereto, written or oral, to the extent they relate in any way to the
subject matter hereof.
SECTION 17.03. Parties in Interest. This Agreement shall
inure to the benefit of, and be binding upon, the parties hereto and their
respective successors, legal representatives and permitted assigns.
SECTION 17.04. Counterparts. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
SECTION 17.05. Amendment; Waiver. This Agreement may not
be amended except in a written instrument signed by each of the parties
hereto and expressly stating it is an amendment to this Agreement. Any
failure or delay on the part of any party hereto in exercising any power or
right hereunder shall not operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power preclude any other or
further exercise thereof or the exercise of any other right or power
hereunder or otherwise available at law or in equity.
SECTION 17.06. Severability. If any term, provision,
covenant, or restriction of this Agreement or the application thereof to
any Person or circumstance, at any time or to any extent, is held by a
court of competent jurisdiction or other Governmental Authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement (or the application of such
provision in other jurisdictions or to Persons or circumstances other than
those to which it was held invalid or unenforceable) shall in no way be
affected, impaired or invalidated, and to the extent permitted by
Applicable Law, any such term, provision, covenant or
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114
restriction shall be restricted in applicability or reformed to the minimum
extent required for such to be enforceable. This provision shall be
interpreted and enforced to give effect to the original written intent of
the parties hereto prior to the determination of such invalidity or
unenforceability.
SECTION 17.07. GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR PROCEEDING
RELATED TO OR ARISING OUT OF THIS AGREEMENT, OR ANY TRANSACTION OR CONDUCT
IN CONNECTION HEREWITH, IS WAIVED.
SECTION 17.08. Enforcement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties
hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in the Delaware Chancery Court; provided that
if the Delaware Chancery Court does not have jurisdiction with respect to
such matter, the parties hereto shall be entitled to enforce specifically
the terms and provisions of this Agreement in any court of the United
States located in the State of Delaware or in Delaware state court, this
being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (i) consents to submit
itself to the personal jurisdiction of the Delaware Chancery Court in the
event that any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement; provided that if the Delaware
Chancery Court does not have jurisdiction with respect to any such dispute,
such party consents to submit itself to the personal jurisdiction of any
Federal court located in the State of Delaware or any Delaware state court,
(ii) agrees to appoint and maintain an agent in the State of Delaware for
service of legal process, (iii) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from
any such court, (iv) agrees that it will not plead or claim in any such
court that any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any such court has been brought in an
inconvenient forum and (v) agrees that it will not initiate
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115
any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than (1) the Delaware
Chancery Court, or (2) if the Delaware Chancery Court does not have
jurisdiction with respect to such action, a Federal court sitting in the
State of Delaware or a Delaware state court.
SECTION 17.09. Table of Contents, Headings and Titles.
The table of contents and section headings of this Agreement and titles
given to Schedules and Appendices to this Agreement are for reference
purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
SECTION 17.10. Use of Certain Terms; Rules of
Construction. As used in this Agreement, the words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular paragraph, subparagraph, section,
subsection or other subdivision. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and
verbs shall include the plural and vice versa. Each party hereto agrees
that any rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the
interpretation or construction of this Agreement or any Transaction
Document.
SECTION 17.11. Holidays. Notwithstanding any deadline for
payment, performance, notice or election under this Agreement, if such
deadline falls on a date that is not a Business Day, then the deadline for
such payment, performance, notice or election will be extended to the next
succeeding Business Day.
SECTION 17.12. Third Parties. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person
and their respective successors, legal representatives and permitted
assigns any rights, remedies or basis for reliance upon, under or by reason
of this Agreement.
SECTION 17.13. Liability for Affiliates. Except where and
to the extent that a contrary intention otherwise appears, where any party
hereto undertakes to cause its Affiliates to take or abstain from taking
any action, such undertaking shall mean (i) in the case of an Affiliate
that is controlled by such party, that such party shall cause such
Affiliate to take or abstain from taking such
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116
action and (ii) in the case of an Affiliate that controls or is under
common control with such party, that such party shall use its commercially
reasonable best efforts to cause such Affiliates to take or abstain from
taking such action; provided, however, that such party shall not be
required to violate, or cause any director of an Affiliate to violate, any
fiduciary duty to minority shareholders of such Affiliate.
SECTION 17.14. Schedules. No representation or warranty
hereunder shall be deemed to be inaccurate if the actual situation is
disclosed pursuant to another representation or warranty herein or in a
schedule to a Put/Call, Registration Rights and Standstill Agreement
Disclosure Letter or in any other Transaction Document or any exhibit,
schedule or appendix thereto, whether or not an explicit cross-reference
appears. Neither the specification of any dollar amount in any
representation, warranty or covenant contained in this Agreement nor the
inclusion of any specific item in a schedule to a Put/Call, Registration
Rights and Standstill Agreement Disclosure Letter is intended to imply that
such amount, or higher or lower amounts, or the item so included or other
items, are or are not material, and neither party shall use the fact of the
setting forth of any such amount or the inclusion of any such item in any
dispute or controversy involving the parties as to whether any obligation,
item or matter not described herein or included in a schedule to a
Put/Call,
<PAGE>
Registration Rights and Standstill Agreement Disclosure Letter is or is not
material for purposes of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed
by the parties as of the day and year first above written.
MARATHON OIL COMPANY
by /s/ Victor G. Beghini
--------------------------
Name: Victor G. Beghini
Title: President
USX CORPORATION
by /s/ Thomas J. Usher
--------------------------
Name: Thomas J. Usher
Title: Chairman of the Board
and Chief Executive Officer
ASHLAND INC.
by /s/ Paul W. Chellgren
--------------------------
Name: Paul W. Chellgren
Title: Chairman of the Board
and Chief Executive Officer
MARATHON ASHLAND PETROLEUM LLC
by /s/ J. L. Frank
--------------------------
Name: J. L. Frank
Title: President
[85257.5]
<PAGE>
AMENDMENT NO. 1, dated as of December 31, 1998 (this "Amendment")
to the PUT/CALL, REGISTRATION RIGHTS AND STANDSTILL AGREEMENT dated as of
January 1, 1998 (the "Agreement") among MARATHON OIL COMPANY, an Ohio
corporation, USX CORPORATION, a Delaware corporation, ASHLAND INC., a
Kentucky corporation and MARATHON ASHLAND PETROLEUM LLC, a Delaware limited
liability company (collectively, the "Parties")
WHEREAS, the Parties have heretofore entered into the Agreement
(capitalized terms used in this Amendment and not defined herein shall have
the meanings given such terms in the Agreement); and
WHEREAS, the Parties wish to amend the Agreement to reflect
certain changes to the prices set forth therein.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the Parties agree as follows:
Section 1. Amendments:
(a) Section 1.01 of the Agreement is amended to insert the
following definition after the definition of "Price Index" and prior to the
definition of "Private Label Packaged Motor Oil Business":
" 'Price Reduction' shall have the meaning set forth in
Section 2.02(b) of the Put/Call, Registration Rights and
Standstill Agreement."
(b) Section 2.02(a) of the Agreement is amended to read in its
entirety as follows:
"(a) Amount. The Special Termination Price shall be an
amount equal to (i) the product of (x) 100% of the Appraised Value
of the Company multiplied by (y) the Terminating Member's
Percentage Interest, less (ii) if the Terminating Member is
Ashland, the Price Reduction."
(c) Sections 2.02(b) and 2.02(c) as numbered in the Agreement are
numbered Sections 2.02(c) and 2.02(d) respectively and a new Section
2.02(b) of the Agreement is added to read in its entirety as follows:
"(b) Price Reduction. Price Reduction means an amount
equal to the excess of (i) $14,139,519, which is the agreed
present value at January 1, 1998, of the tax cost to Ashland
("Present Value Tax Cost') of allocating to it depreciation
deductions as shown in Chart A in Schedule 2.02(b) (1) ("Chart A
Depreciation") , as compared to allocating to Ashland depreciation
deductions as shown in Chart B in Schedule 2.02(b) (1) ("Chart B
Depreciation"), over (ii) the present value at January 1, 1998, of
the tax cost to Ashland of allocating to it Chart A Depreciation
as compared to Chart B Depreciation, taking into account Ashland's
decreased taxable gain or increased taxable loss on the sale of
all of its Membership Interest in the Company when Chart A
Depreciation as compared to Chart B Depreciation is allocated to
it ("Present Value Tax Cost on Sale").
"Chart A Depreciation represents the agreed depreciation
deductions with respect to property contributed by Ashland on the
Closing of the Asset Transfer and Contribution Agreement allocated
to it through the depreciable life of such property as set forth
in Section 6.03 of the LLC Agreement as amended and restated as of
December 31, 1998. Chart B Depreciation represents the agreed
depreciation deductions with respect to property contributed by
Ashland on the Closing of the Asset Transfer and Contribution
Agreement allocated to it through the depreciable life of such
property as set forth in Sections 6.03, 6.12 and 4.01(c) of such
agreement as in effect prior to such restatement as if it were in
effect through such depreciable life, but treating the assets
comprising the Merrill Lynch Master Lease Program as Subleased
Property listed on Schedule 4.01(c) for purposes of Sections
4.01(c) and 6.12. Chart A Depreciation and Chart B Depreciation
shall not be revised to reflect the actual amount of depreciation
deductions with respect to property contributed by Ashland on the
Closing of the Asset Transfer and Contribution Agreement allocated
to Ashland, or to take into account the sale or other disposition
by the Company of any of the property contributed by Ashland on
the Closing of the Asset Transfer and Contribution Agreement.
"Solely for purposes of determining the Present Value Tax
Cost and the Present Value Tax Cost on Sale, the following factors
and assumptions have been and will be used: (i) discount rate of
9% per annum, (ii) combined Federal/State income tax rate of 39%,
<PAGE>
(iii) the cash flow impact of a reduction in Ashland's
income taxes for a year as the result of Chart A or Chart B
Depreciation is realized on the last day of that year and (iv) the
cash flow impact of Ashland's income tax expense or benefit
arising from a sale of all of its membership interest in the
Company is incurred or realized on the last day of the year of
sale.
"Schedule 2.02(b) (2) reflects, for purposes of
illustration, the Present Value Tax Cost on Sale if Ashland sells
all of its 38% membership interest in the Company on January 1,
2005. The Present Value Tax Cost on Sale with respect to Ashland's
sale of all of its interest in the Company at a date different
than January 1, 2005, shall be computed in the same manner as the
Present Value Tax Cost on Sale illustrated in Schedule 2.02(b)
(2).
"Consistent with the foregoing principle, if Ashland
sells all or part of its Membership Interest to Marathon in a
transaction not otherwise described in this Agreement, the price
paid by or on behalf of Marathon for such interest shall be
appropriately reduced."
(d) Attached new Schedules 2.02(b) (1) and 2.02(b) (2) are
inserted between Schedule 1.03(d) and Schedule 14.01 (a)
(e) Section 3.02(a) of the Agreement is amended to read in its
entirety as follows:
"(a) Amount. The Marathon Call Price shall be an amount
equal to (i) the product of (x) 115% of the Appraised Value of the
Company multiplied by (y) Ashland's Percentage Interest, less (ii)
the Price Reduction."
(f) Section 4.02(a) of the Agreement is amended to read in its
entirety as follows:
"(a) Amount. The Ashland Put Price shall be an amount
equal to the sum of (i) for that portion of the Ashland Put Price
to be paid to Ashland in Cash or in Marathon Debt Securities, an
amount equal to the product of (1) the excess of (x) the product
of (A) 85% of the Appraised Value of the Company multiplied by (B)
Ashland's Percentage Interest over (y) the Price Reduction,
multiplied by (2) the percentage of the Ashland Put Price to be
paid to Ashland in Cash and/or
<PAGE>
in Marathon Debt Securities, plus (ii) for that portion of the
Ashland Put Price to be paid to Ashland in Marathon Equity
Securities the same as above but substituting 90% for 85% in
Clause (A) and substituting Marathon Equity Securities for Cash
and/or Marathon Debt Securities in clause (2) ."
Section 2. Parties in Interest. This Amendment shall inure to the
benefit of, and be binding upon, the Parties hereto and their respective
successors, legal representatives and permitted assigns.
Section 3. Counterparts. This Amendment may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. ANY RIGHT TO
TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR PROCEEDING RELATED TO OR ARISING
OUT OF THIS AMENDMENT, OR ANY TRANSACTION OR CONDUCT IN CONNECTION
HEREWITH, IS WAIVED.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the day and year first above written.
MARATHON OIL COMPANY ASHLAND INC.
By: /s/ V. G. Beghini By: /s/ Paul Chellgren
------------------------------ --------------------------
Name: V. G. Beghini Name: Paul W. Chellgren
Title: President Title: Chairman of the Board and Chief
Executive Office
USX CORPORATION MARATHON ASHLAND PETROLEUM,
LLC
By: /s/ Thomas J. Usher By: /s/ J. L. Frank
------------------------------- ---------------------------
Name: Thomas J. Usher Name: J. L. Frank
Title: Chairman of the Board Title: President
and Chief Executive Officer
EXHIBIT 12
ASHLAND INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(In millions)
<TABLE>
<CAPTION>
Years Ended September 30
-------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
EARNINGS
Income from continuing operations $ 14 $ 136 $ 192 $ 203 $ 290
Income taxes (1) 72 127 114 192
Interest expense 153 154 148 133 141
Interest portion of rental expense 35 44 48 40 35
Amortization of deferred debt expense 1 1 1 1 1
Undistributed earnings of unconsolidated affiliates (8) (21) (19) (77) -
Amounts related to significant affiliates*
Earnings 49 57 47 59 41
Dividends (9) (5) (12) (10) (10)
---------- ---------- ---------- ---------- ----------
$ 234 $ 438 $ 532 $ 463 $ 690
========== ========== ========== ========== ==========
FIXED CHARGES
Interest expense $ 153 $ 154 $ 148 $ 133 $ 141
Interest portion of rental expense 35 44 48 40 35
Amortization of deferred debt expense 1 1 1 1 1
Capitalized interest - - 1 - -
Fixed charges of significant affiliates* 32 29 25 29 61
---------- ---------- ---------- ---------- ----------
$ 221 $ 228 $ 223 $ 203 $ 238
========== ========== ========== ========== ==========
COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
Preferred dividend requirements $ 19 $ 19 $ 9 $ - $ -
Ratio of pretax to net income** .90 1.53 1.66 - -
---------- ---------- ---------- ---------- ----------
Preferred dividends on a pretax basis 17 29 16 - -
Fixed charges 221 228 223 203 238
---------- ---------- ---------- ---------- ----------
$ 238 $ 257 $ 239 $ 203 $ 238
========== ========== ========== ========== ==========
RATIO OF EARNINGS TO FIXED CHARGES 1.06 1.92 2.39 2.28 2.90
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
*** 1.70 2.23 2.28 2.90
</TABLE>
* Significant affiliates are companies accounted for on the equity
method that are 50% or greater owned or whose indebtedness has been
directly or indirectly guaranteed by Ashland or its consolidated
subsidiaries.
** Computed as income from continuing operations before income taxes
divided by income from continuing operations, which adjusts dividends
on preferred stock to a pretax basis.
*** Combined fixed charges and preferred stock dividends exceeded
earnings (as defined) by $4 million.
26
Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
Years Ended September 30
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
============================================================================================================
<S> <C> <C> <C>
SALES AND OPERATING REVENUES
APAC $1,678 $1,444 $ 1,257
Ashland Distribution 2,925 2,941 2,818
Ashland Specialty Chemical 1,263 1,244 1,205
Valvoline 1,059 1,023 1,053
Refining and Marketing - - 6,828
Intersegment sales (124) (118) (328)
- ------------------------------------------------------------------------------------------------------------
$6,801 $6,534 $12,833
============================================================================================================
OPERATING INCOME(1)
APAC $ 108 $ 90 $ 82
Ashland Distribution 37 57 48
Ashland Specialty Chemical 107 101 92
Valvoline 74 53 65
Refining and Marketing(2) 323 239 209
Arch Coal (3) 25 25
Corporate (24) (118) (60)
- ------------------------------------------------------------------------------------------------------------
$ 622 $ 447 $ 461
============================================================================================================
OPERATING INFORMATION
APAC
Construction backlog at September 30 (millions) $ 948 $ 838 $ 693
Hot mix asphalt production (million tons) 25.8 23.1 20.3
Aggregate production (million tons) 20.7 20.3 17.0
Valvoline lubricant sales (thousand barrels per day) 16.7 16.7 15.8
Refining and Marketing(3)
Refined products sold (thousand barrels per day) 1,231 1,184
Crude oil refined (thousand barrels per day) 898 905
Arch Coal(3)
Tons sold (millions) 109.3 67.3 53.7
Tons produced (millions) 105.7 61.8 50.0
============================================================================================================
</TABLE>
(1) See Page 27 for a discussion of unusual items.
(2) Effective January 1, 1998, includes Ashland's equity income from
Marathon Ashland Petroleum LLC (MAP), amortization of Ashland's
excess investment in MAP, and certain retained refining and
marketing activities.
(3) Amounts represent 100% of the volumes of MAP or Arch Coal. MAP
commenced operations January 1, 1998.
<PAGE>
27
BASIS OF PRESENTATION
During 1998, Ashland and Marathon Oil Company formed Marathon Ashland
Petroleum LLC (MAP), combining the major elements of the refining,
marketing and transportation operations of the two companies. Ashland holds
a 38% interest in MAP, which is accounted for using the equity method. For
comparison purposes, Ashland changed its method of accounting for the
businesses conveyed to MAP to the equity method as of the beginning of
fiscal 1998. Since restatements for prior years are not permitted under
generally accepted accounting principles, Ashland's consolidated financial
statements for 1999 and 1998 are not comparable with those for 1997. While
the change had no effect on Ashland's net income or common stockholders'
equity, it significantly reduced Ashland's revenues, costs, assets and
liabilities, and changed certain components of its cash flow.
RESULTS OF OPERATIONS
Ashland's net income amounted to $290 million in 1999, $203 million in 1998
and $279 million in 1997. Such earnings include various unusual items that
significantly affected the comparability of year-to-year results. The
following table shows the effects of unusual items on Ashland's operating
and net income for each of the last three years.
<TABLE>
<CAPTION>
Operating income Net income
----------------------------------- --------------------------------
(In millions) 1999 1998 1997 1999 1998 1997
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Income before unusual items $493 $541 $489 $216 $263 $245
Gain on sale of Blazer Energy - - - - - 71
Costs related to coal merger - - (13) - - (13)
Environmental reserves - (38) - - (23) -
Severance and relocation charges (10) (5) - (6) (3) -
G&A restructuring and headquarters move - (50) - - (31) -
Adjustments to inventory market valuation
reserve 117 (15) - 71 (9) -
Environmental recoveries 43 - - 26 - -
Asset impairment write-downs (21) - (26) (17) - (22)
Gain on sale of Melamine Chemicals - 14 - - 6 -
Inventory liquidation gains - - 11 - - 7
Extraordinary loss on debt prepayment - - - - - (9)
- ----------------------------------------------------------------------------------------------------------------------------------
Income as reported $622 $447 $461 $290 $203 $279
==================================================================================================================================
</TABLE>
UNUSUAL ITEMS
In December 1996, Ashland announced a major profitability improvement plan
including initiatives to restructure its assets to emphasize its highest
return businesses and cost efficiency. Many of the unusual items reported
during the last three years have been directly associated with these
initiatives as indicated below.
o Blazer Energy (Ashland's oil and gas exploration subsidiary)
was sold in July 1997, resulting in an after tax gain of $71
million. Ashland subsequently completed its withdrawal from
the exploration business in 1998 through the sale of its
Nigerian operations with no significant gain or loss.
o Ashland Coal and Arch Mineral merged to form Arch Coal, Inc.
in July 1997. Arch Coal recognized an after tax charge of
$13 million to write off duplicate facilities previously
owned by Arch Mineral and to provide for severance and other
costs related to the merger.
o Ashland and Marathon Oil Company formed MAP in January 1998.
Under the formation agreements, Ashland was contractually
committed to complete certain voluntary environmental
remediation efforts in progress at various operating
locations conveyed to MAP, as well as retain the costs
associated with issues addressed in a multi-media inspection
of the former Ashland refineries by the Environmental
Protection Agency. Ashland also decided to close a landfill
near the refinery at Catlettsburg, Kentucky. Charges
associated with these environmental matters amounted to $38
million. An additional $15 million ($5 million in 1998 and
$10 million in 1999) was provided for severance and other
costs associated with the formation of MAP and the
consolidation of its retail marketing headquarters.
o Ashland restructured its corporate general and
administrative functions and decided to move its
headquarters in 1998. Costs associated with these actions
amounted to $50 million.
When it was formed, MAP recognized an inventory market valuation reserve to
reduce the costs of its crude oil and petroleum product inventories to
their net realizable values. MAP adjusts this reserve regularly for changes
in the values of refined products, and Ashland's share of those adjustments
resulted in income of $117 million in 1999, compared to a charge of $15
million in 1998.
In addition to the items discussed above, Ashland recognized impairment
charges of $21 million in 1999 principally related to the goodwill of its
European plastics distribution operations. Similar charges amounting to $26
million were recognized in 1997 related to the goodwill of certain European
operations of Ashland Distribution, Ashland Specialty Chemical and
Valvoline. Results from these
<PAGE>
28
Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
operations had consistently been well below the levels that were expected
when they were acquired, necessitating the impairment review and resulting
write-downs.
Other unusual items recognized during the three years ended September 30,
1999, included the following.
o Settlements were reached in 1999 with certain of Ashland's
insurance carriers related to the coverage provided under
historical policies with respect to environmental
remediation liabilities, resulting in a gain of $43 million.
o Ashland sold its 23% interest in Melamine Chemicals in 1998
at a gain of $14 million.
o During 1997, Ashland liquidated certain crude oil and
petroleum product inventories of Refining and Marketing that
were accounted for using the last-in, first-out (LIFO)
method. Under that method, cost of sales includes the LIFO
costs of these inventories in the years they were acquired.
Since those LIFO costs were significantly below current
replacement costs, their sale produced a gain of $11
million.
o Ashland's prepayment of certain long-term debt resulted in
an after tax loss of $9 million in 1997.
The following table compares operating income before unusual items by
segment for the three years ended September 30, 1999.
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
APAC $108 $ 90 $ 82
Ashland Distribution 58 57 59
Ashland Specialty Chemical 107 87 97
Valvoline 74 53 75
Refining and Marketing 216 297 198
Arch Coal (3) 25 38
Corporate (67) (68) (60)
- ------------------------------------------------------------------------------------------------------------
$493 $541 $489
============================================================================================================
</TABLE>
APAC
The APAC construction companies achieved record results in 1999 for the
second straight year with operating income of $108 million, compared to $90
million in 1998. Net construction revenue (total revenue less subcontract
work) increased 17% with improvements coming from all geographic regions.
In addition, APAC's production of construction materials continued to
expand with increases in asphalt (up 12%), crushed aggregate (up 2%) and
ready-mix concrete (up 23%).
APAC's construction backlog amounted to a record $948 million at September
30, 1999. Such backlog includes increases in both the public and private
sectors, and is expected to contain margins comparable to those included in
last year's backlog.
Operating income from APAC amounted to $90 million in 1998, compared to $82
million in 1997. Reflecting newly acquired operations, net revenue was up
17%, while production of asphalt was up 13%, crushed aggregate was up 19%
and ready-mix concrete was up 9%. In addition, liquid asphalt costs per ton
were down about 7%, enhancing margins.
ASHLAND DISTRIBUTION
Excluding unusual items, operating income of Ashland Distribution for 1999
was comparable to last year's results. The North American thermoplastics
and fiber-reinforced plastics distribution businesses achieved record
earnings as a result of stronger fundamentals in end-use markets, and the
chemical distribution business was also up. However, the favorable effects
were largely offset by profit declines within the fine ingredients and
European thermoplastics distribution businesses, which have been adversely
affected by price deflation and weak markets.
Ashland Distribution's operating income before unusual items declined
slightly from $59 million in 1997 to $57 million in 1998, reflecting
reduced sales volumes of industrial chemicals and solvents.
ASHLAND SPECIALTY CHEMICAL
Operating income from Ashland Specialty Chemical increased 24% to $107
million in 1999, compared to $87 million in 1998, excluding the gain on the
sale of Melamine Chemicals. Robust market conditions, including volume
increases in businesses related to construction and transportation, led to
improved results from the Composite Polymers and Specialty Polymers &
Adhesives divisions. Results for Petrochemicals also increased due to
higher sales volumes and margins for maleic anhydride. In addition,
operating income from the Electronic Chemicals division was up slightly as
it continued to recover from the depths of the worldwide semiconductor
recession late last year. Such improvements were partially offset by lower
earnings from Drew Marine where sales reflect the global reduction in
marine traffic.
<PAGE>
29
Operating income excluding unusual items declined from $97 million in 1997
to $87 million in 1998. Reduced earnings from electronic chemicals and
foundry products more than offset the favorable effects of cost reductions
by marine chemicals. Electronic chemicals felt the adverse effects of the
worldwide semiconductor recession, as well as start-up costs associated
with its new manufacturing plant in Pueblo, Colorado. Foundry products were
adversely affected by the strike at General Motors and unfavorable
translation effects from the strong U.S. dollar on the earnings from its
foreign operations. Results from petrochemicals were down $3 million,
reflecting very weak methanol markets.
VALVOLINE
Valvoline's operating income increased 40% to $74 million in 1999, compared
to $53 million in 1998. Contributing to the improved results were stronger
volumes for branded lubricants, R-12 automotive refrigerant and automotive
chemicals, as well as improved antifreeze results and record earnings from
Valvoline Instant Oil Change (VIOC). These improvements were partially
offset by lower earnings from Valvoline International, reflecting reduced
sales volumes and margins in Europe and higher expenses in Latin America.
VIOC's operating income reflected better car counts, higher revenues per
car serviced and gains on the sale of certain company-owned units. At
September 30, 1999, VIOC operated 377 company-owned units, compared to 391
units in 1998 and 382 units in 1997. The VIOC franchising program continues
to expand, with 207 units open in 1999, compared to 183 in 1998 and 137 in
1997. VIOC's future growth will focus principally on expanding the number
of franchised rather than company-owned units.
Operating income from Valvoline was $53 million in 1998, compared to $75
million in 1997 before unusual items. The decline reflected a $24 million
reduction in gross profit from R-12 automotive refrigerant. Ample inventory
of R-12 at the distributor and retail levels reduced the demand during
1998. Valvoline's earnings decline also reflected lower antifreeze margins,
as well as increased advertising and promotional expenses related to the
introduction of Valvoline's Synpower premium automotive chemical line and
Eagle One appearance products. In addition, the used oil collection
business felt the adverse effects of soft used oil fuel prices and costs
associated with new collection programs. On the positive side, earnings
from Valvoline's core lubricant and international operations improved
significantly, reflecting higher sales volumes and better domestic product
mix. Earnings from VIOC were also up slightly, reflecting higher revenues
per car serviced.
REFINING AND MARKETING
Excluding unusual items, operating income from Refining and Marketing
amounted to $216 million in 1999, compared to $297 million in 1998.
Comparisons between these periods are difficult because of the differing
mix of operations and other changes resulting from the formation of MAP.
However, the reduction in earnings resulted principally from depressed
refining margins during most of fiscal 1999. Crude prices escalated rapidly
during the year as average posted prices for West Texas Intermediate crude
oil increased from a low of $8.65 a barrel in December 1998 to a high of
$20.94 a barrel in September 1999. Wholesale refined product prices were
not only slow to respond, but also failed to keep pace overall with the
increased crude prices. The adverse effects were partially offset by strong
retail gasoline margins in the December 1998 quarter and improved
merchandise sales volumes.
Operating income before unusual items from Refining and Marketing was $297
million in 1998, up from $198 million in 1997. Results for 1998 included
the operating income of Ashland Petroleum and SuperAmerica for the December
1997 quarter prior to the formation of MAP, Ashland's 38% share of MAP's
earnings for the nine months ended September 30, 1998 (including the
amortization of Ashland's excess investment in MAP), and results of certain
retained refining and marketing activities. Earnings from Ashland's former
refining and marketing businesses in the December 1997 quarter were up $20
million from the prior year's quarter, reflecting higher refining margins,
combined with a 3.2 cent-a-gallon improvement in retail margins. In
addition, results for the nine months ended September 30, 1998, reflect a
$79 million improvement from the results achieved by Ashland Petroleum and
SuperAmerica for that period in 1997. While this improvement resulted
principally from more favorable industry conditions, a different mix of
operations and captured synergies were also factors in the year-to-year
improvement. Results during the March 1997 quarter were also adversely
affected by heavy flooding in the Ohio Valley which limited product
shipments on the river systems.
ARCH COAL
During 1999, Ashland incurred an operating loss of $3 million from its
investment in Arch Coal, compared to income in 1998 of $25 million,
including an after-tax gain of $6 million on the sale of certain inactive
mining assets in eastern Kentucky. However, since Arch acquired the U.S.
coal operations of Atlantic Richfield Company effective June 1, 1998, its
results for 1999 are not directly comparable with 1998. Arch's operations
were adversely affected in 1999 by numerous factors. Arch experienced
adverse market conditions in all of its coal markets caused by mild winter
weather. Losses were also incurred at its Dal-Tex complex as operations
wound down for a temporary shutdown in July 1999. The shutdown was due to
a delay in obtaining mining permits because of a legal action in the U.S.
District Court for the Southern District of West Virginia challenging the
legality of surface mining in West Virginia. As a result of the shutdown,
Arch recorded a charge that reduced Ashland's income by $2 million,
comprised principally of severance costs, obligations for non-cancelable
lease payments and a change in the reclamation liability due to the
temporary shutdown. Arch also experienced production shortfalls at its
Black Thunder Mine in Wyoming due primarily to water drainage and
sequencing difficulties. At various times during the year, Arch's
operations were also hindered by rail difficulties caused by consolidation
within the rail industry. These negative results were partially offset by
income of $2 million associated with the sale of a dragline and settlements
with certain suppliers.
<PAGE>
30
Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
Ashland's operating income from Arch Coal amounted to $25 million in 1998,
compared to $38 million before unusual items in 1997. Eastern coal sales
declined 14% in 1998, and margins were down reflecting costs associated
with the closing of certain mines, the scheduled expiration of a favorable
long-term supply contract, and costs related to extensive maintenance
projects undertaken during the summer shutdown for miners' vacations. In
addition, Arch incurred significantly higher interest costs related to the
debt incurred to acquire the western operations. The effects of these
shortfalls, however, were partially offset by a gain on the sale of certain
inactive mining assets in eastern Kentucky, which increased Ashland's
income by $6 million.
CORPORATE
Excluding unusual items, Corporate expenses were $67 million in 1999, $68
million in 1998 and $60 million in 1997. Although expenses were down
slightly in 1998, amounts allocated to divisions declined $11 million
principally due to the formation of MAP. The remaining changes over the
three-year period result principally from fluctuations in incentive and
deferred compensation costs.
INTEREST EXPENSE
Interest expense (net of interest income) amounted to $140 million in 1999,
$130 million in 1998 and $142 million in 1997. The reduction in interest
expense from 1997 to 1998 resulted principally from the redemption of
certain high interest rate debt using the proceeds from the sale of Blazer
Energy during 1997. The increased interest expense for 1999 reflects higher
debt levels.
DISCONTINUED OPERATIONS
Ashland sold its oil and gas subsidiary, Blazer Energy, in 1997. Net income
from Blazer in 1997 prior to the sale amounted to $25 million, and a gain
of $71 million was realized from the sale.
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 two
revolving credit agreements providing for up to $400 million in borrowings,
neither of which was in use at September 30, 1999. Under a shelf
registration, Ashland can also issue an additional $450 million in debt and
equity securities should future opportunities or needs arise. Furthermore,
Ashland has access to various uncommitted lines of credit and commercial
paper markets, under which short-term notes of $182 million were
outstanding at September 30, 1999. While the revolving credit agreements
contain a covenant limiting new borrowings, Ashland could have increased
its indebtedness (including any borrowings under these agreements) by up to
$1.5 billion at September 30, 1999.
Cash flows from continuing operations, a major source of Ashland's
liquidity, amounted to $390 million in 1999, $366 million in 1998 and $565
million in 1997. The reduction in cash flows from operations after 1997
reflects changes resulting from the formation of MAP and increased working
capital requirements across Ashland's operating divisions. Since MAP is
accounted for on the equity method, Ashland's share of MAP's capital
expenditures are now reported as a reduction of cash flows from operations
(i.e., such expenditures reduce distributions from equity affiliates). Cash
flows from operations exceeded Ashland's capital requirements for net
property additions and dividends since 1996 by over $250 million, providing
additional funds for debt repayment and acquisitions.
Property additions amounted to $878 million during the last three years and
are summarized in the Information by Industry Segment on Page 53. APAC and
Ashland Specialty Chemical accounted for over 70% of the capital
expenditures (excluding Refining and Marketing and Corporate), with Ashland
Distribution and Valvoline sharing the remainder about equally. Capital
used for acquisitions (including assumed debt and companies acquired
through the issuance of common stock) amounted to $504 million during the
last three years, of which $316 million was invested in APAC, $90 million
in Ashland Specialty Chemical, $54 million in Ashland Distribution and $26
million in Valvoline. A summary of the capital employed in Ashland's
operations at the end of the last three fiscal years follows.
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WHOLLY OWNED OPERATIONS
APAC $ 663 $ 452 $ 273
Ashland Distribution 527 477 412
Ashland Specialty Chemical 566 557 492
Valvoline 346 357 339
EQUITY INVESTMENTS
Refining and Marketing 1,646 1,729 1,515
Arch Coal 370 373 353
- ------------------------------------------------------------------------------------------------------------
$4,118 $3,945 $3,384
============================================================================================================
</TABLE>
<PAGE>
31
Capital employed in APAC and Ashland Specialty Chemical increased
considerably since 1996, as the majority of Ashland's property additions
and acquisitions were focused in these areas. Capital employed in Refining
and Marketing increased in 1998, reflecting the purchase of leased assets
associated with the formation of MAP. Despite that one-time capital
infusion, however, capital employed in Ashland's wholly owned operations
still increased from 44% of total capital employed at the end of fiscal
1996 to 51% at September 30, 1999.
Long-term borrowings provided cash flows of $387 million during the last
three years, including the issuance of $237 million of medium-term notes
and $150 million in senior notes. The proceeds from these long-term
borrowings were used in part to retire $507 million of long-term debt
(scheduled maturities as well as refundings to reduce interest costs). Cash
flows were supplemented as necessary by the issuance of short-term notes
and commercial paper.
At September 30, 1999, working capital (excluding debt due within one year)
amounted to $882 million, compared to $592 million at the end of fiscal
1998. Liquid assets (cash, cash equivalents and accounts receivable)
amounted to 95% of current liabilities at September 30, 1999, compared to
84% at the end of fiscal 1998. Ashland's working capital is affected by its
use of the LIFO method of inventory valuation, which valued inventories $54
million below their replacement costs at September 30, 1999.
CAPITAL RESOURCES
Ashland's Board of Directors has authorized the purchase of 9.4 million
shares of Ashland common stock. Under this authorization, Ashland had
repurchased 6.2 million shares at a cost of $274 million through September
30, 1999. The number of shares ultimately purchased and the prices Ashland
will pay for its stock are subject to periodic review by management.
At September 30, 1999, Ashland's debt level amounted to $1.8 billion,
compared to $1.6 billion at the end of fiscal 1998. The increase reflects
an active acquisition program during 1999, as well as the share repurchase
program. Common stockholders' equity increased by $63 million during 1999
to $2.2 billion, principally due to the net effects of earnings of $209
million retained in the business, issuances of $79 million in stock for
acquired companies, and share repurchases. Debt as a percent of capital
employed amounted to 46% at September 30, 1999, compared to 43% at the end
of fiscal 1998.
In October 1999, Ashland acquired Superfos a/s, an industrial company in
Copenhagen, Denmark, at a cost of approximately $950 million, including
assumed debt. Ashland has also reached an agreement to sell the businesses
of Superfos other than its U.S. construction operations to Industri
Kapital, a European private equity fund, for a short-term note for $285
million and cash. After that sale during the December 1999 quarter,
Ashland's net cost for the U.S. construction business of Superfos is
expected to be about $525 million. Since the acquisition was funded with
debt using new credit facilities, Ashland's debt is expected to initially
increase to around 56% of capital employed, declining to about 52% once the
sale is completed and the note is redeemed in the March 2000 quarter.
During fiscal 2000, Ashland anticipates capital expenditures of
approximately $300 million. Ashland anticipates meeting its capital
requirements in 2000 for property additions, dividends and scheduled debt
repayments of $37 million from internally generated funds. However,
external financing may be necessary to provide funds for acquisitions or
purchases of common stock.
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.
Environmental reserves are subject to numerous inherent 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. Reserves are regularly adjusted as environmental
assessments and remediation efforts proceed.
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.
DERIVATIVE INSTRUMENTS
Ashland is exposed to various market risks, including changes in certain
commodity prices, foreign currency rates and interest rates. To manage
these natural business exposures, Ashland enters into various derivative
transactions in accordance with its established policies. Ashland does not
enter into derivative instruments for trading purposes.
From time to time, Ashland uses commodity futures contracts or derivatives
to manage its exposure to price fluctuations for natural gas used by
Ashland's manufacturing facilities. These financial products are also used
to hedge fixed-price natural gas purchase or
<PAGE>
32
Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
sales contracts entered into under Ashland's energy management program for
its suppliers and customers. Ashland also uses forward exchange contracts
to hedge foreign currency transaction exposures of its operations. However,
the potential loss from a hypothetical 10% adverse change in commodity
prices or foreign currency rates on Ashland's open commodity futures and
foreign exchange contracts at September 30, 1999, would not significantly
affect Ashland's consolidated financial position, results of operations or
cash flows.
Ashland selectively uses unleveraged interest rate swap agreements to
obtain greater access to the lower borrowing costs normally available on
floating-rate debt, while minimizing refunding risk through the issuance of
long-term, fixed-rate debt. However, Ashland liquidated all but one of its
outstanding swap agreements during 1999, since management believed that the
potential benefits of floating rate debt no longer outweighed the risks of
future interest rate increases. The final reset on the remaining $25
million floating-rate swap agreement was set in July 1999, with Ashland due
to receive the final settlement payment in January 2000.
Ashland's long-term debt included $38 million of floating-rate debt at
September 30, 1999. As a result, Ashland's annual interest costs in 2000
will fluctuate based on short-term interest rates on that portion of its
long-term debt outstanding at September 30, 1999, as well as on any
short-term notes and commercial paper.
OUTLOOK
Ashland will continue its primary focus on the basic industrial markets
currently served, where it can provide high-performance, value-added
products and services that are differentiated from competitors on the basis
of superior technology, capability, quality and reputation. The major
emphasis will continue to be on the growing markets related to
transportation and construction where Ashland already has market-leading
positions and strong product and service offerings.
Transportation and construction markets offer strong potential for sales
growth. No matter how e-commerce affects product marketing, trucks, cars
and other means of transportation will still be necessary. Passenger
transportation will continue to rise along with population and increased
mobility. In addition, current federal funding for highway projects in
states in which APAC does business is forecast to rise by 59% over the next
four years. Because of the Superfos acquisition and others, APAC is better
positioned than ever to take advantage of this increased funding.
All four of Ashland's wholly owned businesses are key providers of
materials and services to make and maintain the world's vehicles. Such
involvement ranges from plastics and paint additives handled by Ashland
Distribution and microchips made using our electronic chemicals, to
highways paved by APAC and Valvoline car-care products. In addition, three
of Ashland's wholly owned businesses provide materials and services from
the ground up in construction-related markets. In addition to APAC's
highway paving and production of construction materials, end uses of
products and services provided by Ashland Distribution and Ashland
Specialty Chemical include a vast array of residential, commercial and
industrial applications, such as structural supports, interior and exterior
walls, roofing, flooring, paints and stains, tanks, pipes and fittings,
stacks and scrubbers.
MAP enjoys an excellent market position as the fourth largest refiner in
the United States and a leading marketer in eight states in the Midwest.
This Midwest focus provides the benefits not only of a strong gasoline
market, but also typically stronger crack spreads compared to the Gulf
Coast and New York Harbor. Ashland expects a stronger year from MAP in 2000
based on its operational improvements.
Ashland acquired the U.S. road construction business of Superfos in October
1999. Since those operations provide the same products and services as APAC
and strengthens its market position in five states, the acquisition is an
excellent strategic fit. Although Superfos should contribute to APAC's
operating income in fiscal 2000, it is not expected to be accretive to
Ashland's net income until fiscal 2001.
Ashland has been exploring strategic alternatives with respect to its
investment in Arch Coal. After a careful evaluation of identified
alternatives, a proposal was made to Arch's Board of Directors that would
result in a tax-free spin-off of this investment to Ashland's shareholders.
Arch has formed a special board committee to evaluate Ashland's proposal.
The proposal is subject to, among other things, a negotiated agreement with
the special board committee, approval by the Arch shareholders, a favorable
ruling from the Internal Revenue Service and approval of Ashland's Board of
Directors. Even if an agreement is reached and such conditions are met,
Ashland anticipates that it will be several months before a spin-off could
be consummated.
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 have been responsible for coordinating the assessment, remediation
and testing of the necessary modifications to Ashland's computer
applications, including both its 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 has been regularly
monitored by Ashland's senior management and periodically reported to the
Audit Committee of Ashland's Board of Directors.
<PAGE>
33
Ashland has resolved identified issues with respect to its internal
information systems through system modifications or replacement. In
addition, Ashland engaged the services of an independent third party to
perform a verification of its code remediation efforts. Although testing
will continue, Ashland believes that its critical systems are currently
Year 2000 ready.
Ashland has assessed the embedded systems that operate such items as its
manufacturing systems, laboratory processes, security systems and heating
and air conditioning. Ashland believes that it has completed the necessary
steps to make the major embedded systems Year 2000 ready.
Formal communications have been conducted 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, natural
gas, 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 adequately addressing their Year 2000
issues.
Ashland has developed contingency plans related to the Year 2000 issue,
addressing various scenarios and alternatives. Among other things, such
plans include replacing electronic applications with manual processes,
identifying alternate vendors, adjusting staffing requirements, and
increasing raw material inventory levels, as deemed necessary. Contingency
plans will be regularly updated as current issues develop or new issues are
identified.
Ashland estimates that its remaining costs related to Year 2000 issues will
be minimal. 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 its significant Year 2000 issues have been adequately
resolved. However, certain exposures are outside Ashland's direct control.
If Ashland was unsuccessful in identifying or remediating Year 2000 issues
in its critical systems, is affected by major vendors not being Year 2000
ready, 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 latest Annual Report on Form 10-K and Quarterly
Report on Form 10-Q. MAP's program is covered in the Management's
Discussion and Analysis section for the Marathon Group in USX Corporation's
latest Annual Report on Form 10-K and Quarterly Report on Form 10-Q. These
documents are on file with the Securities and Exchange Commission.
EFFECTS OF INFLATION AND CHANGING PRICES
Ashland's financial statements are prepared on the historical cost method
of accounting and, as a result, do not reflect changes in the dollar's
purchasing power. Although annual inflation rates have been low in recent
years, Ashland's results are still affected by the cumulative inflationary
trend from prior years.
In the capital-intensive industries in which Ashland operates, replacement
costs for its properties would generally exceed their historical costs.
Accordingly, depreciation, depletion and amortization expense would be
greater if it were based on current replacement costs. However, since
replacement facilities would reflect technological improvements and changes
in business strategies, such facilities would be expected to be more
productive than existing facilities, mitigating part of the increased
expense.
Ashland uses the last-in, first-out (LIFO) method to value a substantial
portion of its inventories to provide a better matching of revenues with
current costs. However, LIFO values such inventories below their
replacement costs.
Monetary assets (such as cash, cash equivalents and accounts receivable)
lose purchasing power as a result of inflation, while monetary liabilities
(such as accounts payable and indebtedness) result in a gain, because they
can be settled with dollars of diminished purchasing power. Ashland's
monetary liabilities exceed its monetary assets, which results in net
purchasing power gains and provides a hedge against the effects of future
inflation.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis 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, including various information
within the Capital Resources, Derivative Instruments, Outlook and Year 2000
Readiness sections. Although Ashland believes that its expectations are
based on reasonable assumptions, it cannot assure that the expectations
contained in such statements will be achieved. Important factors that could
cause actual results to differ materially from those contained in such
statements are discussed under Risks and Uncertainties in Note A to the
Consolidated Financial Statements. Other factors and risks affecting
Ashland's revenues and operations are contained in Ashland's Form 10-K for
the fiscal year ended September 30, 1999, which is on file with the
Securities and Exchange Commission.
<PAGE>
35
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
Years Ended September 30
<TABLE>
<CAPTION>
(In millions except per share data) 1999 1998 1997
=========================================================================================================================
<S> <C> <C> <C>
REVENUES
Sales and operating revenues (including excise taxes) $6,801 $6,534 $12,833
Equity income - Note E 349 329 39
Other income 101 70 89
- -------------------------------------------------------------------------------------------------------------------------
7,251 6,933 12,961
COSTS AND EXPENSES
Cost of sales and operating expenses 5,346 5,299 9,810
Excise taxes on products and merchandise - - 992
Selling, general and administrative expenses 1,055 1,006 1,350
Depreciation, depletion and amortization 228 181 348
- -------------------------------------------------------------------------------------------------------------------------
6,629 6,486 12,500
- -------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 622 447 461
Interest expense (net of interest income) (140) (130) (142)
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 482 317 319
Income taxes - Note D (192) (114) (127)
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 290 203 192
Income from discontinued operations (net of income
taxes) - Note B - - 25
Gain on sale of discontinued operations (net of
income taxes) - Note B - - 71
- -------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS 290 203 288
Extraordinary loss on early retirement of debt (net of
income taxes) - Note F - - (9)
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 290 $ 203 $ 279
=========================================================================================================================
EARNINGS PER SHARE - NOTE A
Basic
Income from continuing operations $ 3.94 $ 2.68 $ 2.61
Income from discontinued operations - - .36
Gain on sale of discontinued operations - - 1.02
Extraordinary loss - - (.13)
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 3.94 $ 2.68 $ 3.86
Diluted
Income from continuing operations $ 3.89 $ 2.63 $ 2.51
Income from discontinued operations - - .33
Gain on sale of discontinued operations - - .92
Extraordinary loss - - (.12)
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 3.89 $ 2.63 $ 3.64
=========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
36
Ashland Inc. and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30
<TABLE>
<CAPTION>
(In millions) 1999 1998
============================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 110 $ 34
Accounts receivable (less allowances for doubtful accounts of
$23 million in 1999 and $19 million in 1998) 1,219 1,110
Inventories - Note A 464 440
Deferred income taxes - Note D 107 104
Other current assets 159 140
- ------------------------------------------------------------------------------------------------------------
2,059 1,828
INVESTMENTS AND OTHER ASSETS
Investment in MAP - Note E 2,172 2,102
Investment in Arch Coal - Note E 417 422
Cost in excess of net assets of companies acquired (less accumulated
amortization of $98 million in 1999 and $65 million in 1998) 220 207
Other noncurrent assets 264 362
- ------------------------------------------------------------------------------------------------------------
3,073 3,093
PROPERTY, PLANT AND EQUIPMENT
Cost
APAC 990 809
Ashland Distribution 352 332
Ashland Specialty Chemical 768 717
Valvoline 348 354
Corporate 191 201
- ------------------------------------------------------------------------------------------------------------
2,649 2,413
Accumulated depreciation, depletion and amortization (1,357) (1,252)
- ------------------------------------------------------------------------------------------------------------
1,292 1,161
- ------------------------------------------------------------------------------------------------------------
$6,424 $6,082
============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
37
<TABLE>
<CAPTION>
(In millions) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year
Notes payable to financial institutions $ 182 $ 84
Current portion of long-term debt 37 41
Trade and other payables 1,135 1,199
Income taxes 42 37
- -------------------------------------------------------------------------------------------------------------------
1,396 1,361
NONCURRENT LIABILITIES
Long-term debt (less current portion) - Notes F and G 1,627 1,507
Employee benefit obligations - Note N 418 458
Deferred income taxes - Note D 226 120
Reserves of captive insurance companies 175 165
Other long-term liabilities and deferred credits 382 334
Commitments and contingencies - Notes H and K
- -------------------------------------------------------------------------------------------------------------------
2,828 2,584
STOCKHOLDERS' EQUITY - Notes F, I and J
Preferred stock, no par value, 30 million shares authorized
Common stockholders' equity
Common stock, par value $1.00 per share
Authorized - 300 million shares
Issued - 72 million shares in 1999 and 76 million shares in 1998 72 76
Paid-in capital 464 602
Retained earnings 1,710 1,501
Accumulated other comprehensive loss (46) (42)
- -------------------------------------------------------------------------------------------------------------------
2,200 2,137
- -------------------------------------------------------------------------------------------------------------------
$6,424 $6,082
===================================================================================================================
</TABLE>
<PAGE>
38
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
other
Preferred Common Paid-in Retained comprehensive
(In millions) stock stock capital earnings loss Total
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1996 $293 $64 $280 $1,186 $ (9) $1,814
Total comprehensive income(1) 279 (26) 253
Preferred stock cash dividends (9) (9)
Common stock cash dividends, $1.10 a share (77) (77)
Issued common stock under
Preferred stock conversion (290) 9 281 -
Stock incentive plans 2 44 46
Employee savings plan 1 1
Preferred stock redemption (3) (3)
Other changes (1) (1)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 - 75 605 1,379 (35) 2,024
Total comprehensive income(1) 203 (7) 196
Common stock cash dividends, $1.10 a share (84) (84)
Issued common stock under
Stock incentive plans 1 15 16
Acquisitions of other companies 1 29 3 33
Repurchase of common stock (1) (45) (46)
Other changes (2) (2)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 - 76 602 1,501 (42) 2,137
Total comprehensive income(1) 290 (4) 286
Common stock cash dividends, $1.10 a share (81) (81)
Issued common stock under
Stock incentive plans 7 7
Acquisitions of other companies 2 77 79
Repurchase of common stock (6) (222) (228)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999 $ - $72 $464 $1,710 $(46) $2,200
=================================================================================================================================
(1) Reconciliations of net income to total comprehensive income follow.
(In millions) 1999 1998 1997
=================================================================================================================================
NET INCOME $290 $203 $279
Minimum pension liability adjustment 13 (6) (4)
Related tax benefit (expense) (5) 2 2
Unrealized translation adjustments (11) (7) (27)
Related tax benefit 3 1 -
Unrealized gains (losses) on securities (6) 8 5
Related tax benefit (expense) 2 (3) (2)
Losses (gains) on securities included in net income - (3) -
Related tax expense - 1 -
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $286 $196 $253
=================================================================================================================================
</TABLE>
At September 30, 1999, the accumulated other comprehensive loss of $46
million was comprised of net unrealized translation losses of $36 million
and a minimum pension liability of $10 million.
See Notes to Consolidated Financial Statements.
<PAGE>
39
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years Ended September 30
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS
Income from continuing operations $ 290 $203 $192
Expense (income) not affecting cash
Depreciation, depletion and amortization 228 181 348
Deferred income taxes 101 60 33
Equity income from affiliates (349) (329) (39)
Distributions from equity affiliates 349 252 20
Other items (2) (6) -
Change in operating assets and liabilities(1) (227) 5 11
- ----------------------------------------------------------------------------------------------------------------------------
390 366 565
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt 150 150 87
Proceeds from issuance of capital stock 4 10 35
Repayment of long-term debt (59) (53) (395)
Repurchase of capital stock (228) (46) (3)
Increase (decrease) in short-term debt 98 81 (68)
Dividends paid (81) (84) (86)
- ----------------------------------------------------------------------------------------------------------------------------
(116) 58 (430)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (248) (274) (356)
Purchase of leased assets associated with the
formation of MAP - (254) -
Purchase of operations - net of cash acquired (72) (194) (79)
Investment purchases(2) (235) (215) (248)
Investment sales and maturities(2) 311 308 216
Other - net 46 44 27
- ----------------------------------------------------------------------------------------------------------------------------
(198) (585) (440)
- ----------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY CONTINUING OPERATIONS 76 (161) (305)
Cash provided (used) by discontinued operations - Note B - (55) 485
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 76 (216) 180
Cash and cash equivalents - beginning of year 34 250 70
- ----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 110 $ 34 $250
============================================================================================================================
DECREASE (INCREASE) IN OPERATING ASSETS(1)
Accounts receivable $ (90) $(54) $(16)
Inventories (26) (21) 30
Deferred income taxes 1 (16) -
Other current assets (21) (36) 6
Investments and other assets (54) (19) (5)
INCREASE (DECREASE) IN OPERATING LIABILITIES(1)
Trade and other payables (79) 33 (117)
Income taxes 2 (2) 31
Noncurrent liabilities 40 120 82
- ----------------------------------------------------------------------------------------------------------------------------
CHANGE IN OPERATING ASSETS AND LIABILITIES $(227) $ 5 $ 11
============================================================================================================================
(1) Excludes changes resulting from operations acquired or sold.
(2) Represents primarily investment transactions of captive insurance companies.
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
40
Ashland Inc. and Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Ashland and
its majority owned subsidiaries, except Arch Coal, Inc. Investments in
joint ventures, 20% to 50% owned affiliates and Arch Coal are accounted for
on the equity method. Ashland does not consolidate its 58% ownership
interest in Arch Coal because supermajority provisions in its bylaws grant
significant participating and veto rights to the minority shareholders.
Effective January 1, 1998, Ashland and Marathon Oil Company formed Marathon
Ashland Petroleum LLC (MAP), combining the major elements of the refining,
marketing and transportation operations of the two companies. Ashland holds
a 38% interest in MAP, which is accounted for using the equity method. For
comparison purposes, Ashland changed its method of accounting for the
businesses conveyed to MAP to the equity method as of the beginning of
fiscal 1998. Since restatements for prior years are not permitted under
generally accepted accounting principles, Ashland's consolidated financial
statements for 1999 and 1998 are not comparable with those for 1997. While
the change had no effect on Ashland's net income or common stockholders'
equity, it significantly reduced Ashland's revenues, costs, assets and
liabilities, and changed certain components of its cash flow.
RISKS AND UNCERTAINTIES
The preparation of Ashland's consolidated financial statements in
conformity with generally accepted accounting principles requires Ashland's
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and the disclosures
of contingent assets and liabilities. Significant items subject to such
estimates and assumptions include the carrying value of long-lived and
intangible assets, inventory and receivable valuation allowances,
environmental reserves, employee benefit obligations, income recognized
under construction contracts, and the ultimate realization of deferred tax
assets. Actual results could differ from the estimates and assumptions
used.
Ashland's results, including those of MAP and Arch Coal, are affected by
domestic and international economic, political, legislative, regulatory and
legal actions, as well as weather conditions. Economic conditions, such as
recessionary trends, inflation, interest and monetary exchange rates, and
changes in the prices of crude oil, petroleum products and petrochemicals,
can have a significant effect on operations. Political actions may include
changes in the policies of the Organization of Petroleum Exporting
Countries or other developments involving or affecting oil-producing
countries, including military conflict, embargoes, internal instability or
actions or reactions of the United States government in anticipation of, or
in response to, such actions. While Ashland maintains reserves for
anticipated liabilities and carries various levels of insurance, Ashland
could be affected by civil, criminal, regulatory or administrative actions,
claims or proceedings relating to the environment or other matters. In
addition, climate and weather can significantly affect Ashland's results
from several of its operations, such as its construction activities, MAP's
heating oil business and coal sales and production of Arch Coal.
<TABLE>
<CAPTION>
INVENTORIES
(In millions) 1999 1998
============================================================================================================================
<S> <C> <C>
Chemicals and plastics $358 $352
Petroleum products 45 48
Construction materials 55 39
Other products 55 49
Supplies 5 9
Excess of replacement costs over LIFO carrying values (54) (57)
- ----------------------------------------------------------------------------------------------------------------------------
$464 $440
============================================================================================================================
</TABLE>
Chemicals, plastics, petroleum products and supplies with a replacement
cost of $302 million at September 30, 1999, and $285 million at September
30, 1998, are valued using the last-in, first-out (LIFO) method. The
remaining inventories are stated generally at the lower of cost (using the
first-in, first-out [FIFO] or average cost method) or market.
Ashland decreased certain LIFO inventories in 1997 for operating reasons.
Cost of sales and operating expenses include costs for these inventories
based on prior years' LIFO carrying values which were less than current
replacement costs. As a result of LIFO inventory liquidations, net income
was increased by $7 million (9 cents per share) in 1997. The effects of
LIFO inventory liquidations during 1998 and 1999 were not significant.
<PAGE>
41
LONG-LIVED AND INTANGIBLE ASSETS
The cost of plant and equipment is principally depreciated by the
straight-line method over the estimated useful lives of the assets. Costs
in excess of net assets of companies acquired are amortized by the
straight-line method over periods generally ranging from 15 to 40 years,
with an average remaining life of 13 years. Long-lived and intangible
assets are periodically reviewed for recoverability when impairment
indicators are present. Recorded values that are not expected to be
recovered through undiscounted future cash flows are written down to
current fair value, which is generally determined from estimated discounted
future net cash flows (assets held for use) or net realizable value (assets
held for sale).
Goodwill amortization amounted to $34 million in 1999, $14 million in 1998
and $38 million in 1997. These amounts included unusual charges of $19
million in 1999 and $26 million in 1997 for goodwill write-downs related to
certain European operations. Results from these operations had consistently
been well below the levels that were expected when they were acquired,
necessitating the impairment review and resulting write-downs. In addition
to these amounts, equity income includes the amortization of the excess of
Ashland's investment over its underlying equity in the net assets of MAP
and Arch Coal. At September 30, 1999, such excess amounted to $399 million
for MAP and $72 million for Arch Coal. Such amounts are being amortized on
a straight-line basis for MAP ($27 million in 1999 and $21 million in 1998)
and on the basis of tons of coal produced for Arch Coal ($3 million in 1999
and 1998 and $2 million in 1997).
ENVIRONMENTAL COSTS
Accruals for environmental costs are recognized when it is probable that a
liability has been incurred and the amount of that liability can be
reasonably estimated. Such costs are charged to expense if they relate to
the remediation of conditions caused by past operations or are not expected
to mitigate or prevent contamination from future operations. Accruals are
recorded at undiscounted amounts based on experience, assessments and
current technology, without regard to any third-party recoveries and are
regularly adjusted as environmental assessments and remediation efforts
proceed.
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (EPS) from continuing operations.
<TABLE>
<CAPTION>
(In millions except per share data) 1999 1998 1997
==================================================================================================================================
<S> <C> <C> <C>
NUMERATOR
Income from continuing operations $ 290 $ 203 $ 192
Preferred stock dividends - - (9)
- ----------------------------------------------------------------------------------------------------------------------------------
Numerator for basic EPS - Income available to common shares 290 203 183
Effect of dilutive securities
Dividends on convertible preferred stock - - 9
Interest on convertible debentures (net of income taxes) - - 4
- ----------------------------------------------------------------------------------------------------------------------------------
Numerator for diluted EPS - Income available
to common shares after assumed conversions $ 290 $ 203 $ 196
==================================================================================================================================
DENOMINATOR
Denominator for basic EPS - Weighted average
common shares outstanding 74 76 70
Common shares issuable upon
Exercise of stock options 1 1 2
Conversion of debentures - - 2
Conversion of preferred stock - - 4
- ----------------------------------------------------------------------------------------------------------------------------------
Denominator for diluted EPS - Adjusted weighted
average shares and assumed conversions 75 77 78
==================================================================================================================================
BASIC EPS FROM CONTINUING OPERATIONS $3.94 $2.68 $2.61
DILUTED EPS FROM CONTINUING OPERATIONS $3.89 $2.63 $2.51
==================================================================================================================================
</TABLE>
DERIVATIVE INSTRUMENTS
From time to time, Ashland uses commodity futures contracts or derivatives
to manage its exposure to price fluctuations for natural gas used by
Ashland's manufacturing facilities. These financial products are also used
to hedge fixed price natural gas purchase or sales contracts entered into
under Ashland's energy management program for its suppliers and customers.
Realized gains and losses on these contracts are included in cost of sales
in the delivery month, with amounts paid or received on early terminations
deferred on the balance sheet in other current assets or trade and other
payables (the deferral method).
<PAGE>
42
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE INSTRUMENTS (CONTINUED)
Ashland uses forward exchange contracts to hedge foreign currency
transaction exposures of its operations. These contracts are
marked-to-market each month and included in trade and other payables, with
the offsetting gain or loss included in other income (the fair value
method).
Ashland selectively uses interest rate swap agreements to obtain greater
access to the lower borrowing costs normally available on floating-rate
debt, while minimizing refunding risk through the issuance of long-term,
fixed-rate debt. Each interest rate swap agreement is designated with all
or a portion of the principal balance and term of a specific debt
obligation. These agreements involve the exchange of amounts based on a
fixed interest rate for amounts based on variable interest rates over the
life of the agreement, without an exchange of the notional amount upon
which the payments are based. The differential to be paid or received as
interest rates change is accrued and recognized as an adjustment of
interest expense (the accrual method). The related amount payable to or
receivable from counterparties is included in trade and other payables. The
fair values of the swap agreements are not recognized in the financial
statements. Gains and losses on early terminations of interest rate swap
agreements are deferred on the balance sheet (in other long-term
liabilities) and amortized as an adjustment to interest expense over the
remaining term of the original contract life of the terminated swap
agreement.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 (FAS 133), "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted in years beginning after June
15, 2000. Because of Ashland's minimal use of derivatives, management does
not anticipate that its adoption of FAS 133 will have a significant effect
on Ashland's earnings or financial position.
STOCK INCENTIVE PLANS
Ashland accounts for its stock options using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees," and related Interpretations.
The disclosure requirements of Financial Accounting Standards Board
Statement No. 123 (FAS 123), "Accounting for Stock-Based Compensation," are
included in Note J.
OTHER
Cash equivalents include highly liquid investments maturing within three
months after purchase.
Income related to construction contracts is generally recognized by the
units-of-production method, which is a variation of the
percentage-of-completion method. Any anticipated losses on such contracts
are charged against operations as soon as such losses are estimable.
Research and development costs are expensed as incurred ($27 million in
1999, $28 million in 1998 and $29 million in 1997).
Certain prior year amounts have been reclassified in the consolidated
financial statements and accompanying notes to conform with 1999
classifications.
NOTE B - DISCONTINUED OPERATIONS
On July 1, 1997, Ashland sold the domestic exploration and production
operations of Blazer Energy Corporation, realizing cash proceeds of $566
million. The sale resulted in a pretax gain of $138 million which, net of
$67 million of income taxes, produced a gain on sale of discontinued
operations of $71 million. On May 6, 1998, Ashland completed its withdrawal
from the exploration business through the sale of its exploration and
production operations in Nigeria with no significant gain or loss.
Components of amounts reflected in income and cash flow related to these
discontinued operations are presented in the following table.
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
============================================================================================================
<S> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ - $ - $240
Costs and expenses - - (215)
- ------------------------------------------------------------------------------------------------------------
Operating income - - 25
Income tax expense - - -
- ------------------------------------------------------------------------------------------------------------
Income from discontinued operations $ - $ - $ 25
============================================================================================================
CASH FLOW DATA
Cash flows from operations $ - $ (81) $(41)
Cash flows from investment (including sales proceeds) - 26 526
- ------------------------------------------------------------------------------------------------------------
Cash provided (used) by discontinued operations $ - $ (55) $485
============================================================================================================
</TABLE>
<PAGE>
43
NOTE C - INFORMATION BY INDUSTRY SEGMENT
Ashland's operations are conducted primarily in the United States and are
managed along industry segments, which include APAC, Ashland Distribution,
Ashland Specialty Chemical, Valvoline, Refining and Marketing, and Arch
Coal. Ashland Distribution and Ashland Specialty Chemical were formed in
1999, in an effort to provide greater market focus and definition for the
former Ashland Chemical segment. Information by industry segment shown on
Pages 52 and 53 has been restated to reflect the change.
The APAC group of companies performs contract construction work, such as
paving, repairing and resurfacing highways, streets, airports, residential
and commercial developments, sidewalks, and driveways; grading and base
work; and excavation and related activities in the construction of bridges
and structures, drainage facilities and underground utilities in 14
southern and midwestern states. APAC also produces and sells construction
materials, such as hot-mix asphalt and ready-mix concrete, crushed stone
and other aggregate and, in certain markets, concrete block and specialized
construction materials, such as architectural block.
Ashland Distribution distributes chemicals, plastics, fiber reinforcements
and fine ingredients in North America and plastics in Europe.
Ashland Specialty Chemical manufactures and supplies specialty chemical
products and services to industries including the adhesives, automotive,
composites, foundry, merchant marine, paint, paper, plastics and
semiconductor fabrication industries.
Valvoline is a marketer of automotive oils, chemicals, appearance products
and services, with sales in more than 140 countries. Valvoline is engaged
in the "fast oil change" business through owned and franchised outlets
operating under the Valvoline Instant Oil Change name.
The Refining and Marketing segment includes Ashland's 38% ownership
interest in Marathon Ashland Petroleum LLC (MAP) and certain retained
refining and marketing activities. MAP was formed January 1, 1998,
combining the major elements of the refining, marketing and transportation
operations of Ashland and Marathon Oil Company. MAP has seven refineries
with a combined crude oil refining capacity of 935,000 barrels per day, 88
light products and asphalt terminals in the Midwest and Southeast United
States, more than 5,400 retail marketing outlets in 21 states and
significant pipeline holdings. Ashland accounts for its interest in MAP
using the equity method. As a result, the segment information for 1998 and
1999 is not comparable to 1997, when Ashland's 100% ownership interest in
its former Refining and Marketing operations (Ashland Petroleum and
SuperAmerica) was consolidated.
Arch Coal, Inc. is a publicly traded company which was created July 1,
1997, as a result of the merger of Ashland Coal, Inc. and Arch Mineral
Corporation. Ashland holds a 58% ownership interest in Arch Coal, which it
accounts for under the equity method as described in Note A. Arch Coal is
the nation's second largest coal producer with subsidiary operations in
West Virginia, Kentucky, Virginia, Illinois, Wyoming, Colorado and Utah.
Through these operations, Arch Coal provides the fuel for approximately 6%
of the electricity generated in the United States.
Ashland has been exploring strategic alternatives with respect to its
investment in Arch Coal. After a careful evaluation of identified
alternatives, a proposal was made to Arch's Board of Directors that would
result in a tax-free spin-off of this investment to Ashland's shareholders.
Arch has formed a special board committee to evaluate Ashland's proposal.
The proposal is subject to, among other things, a negotiated agreement with
the special board committee, approval by the Arch shareholders, a favorable
ruling from the Internal Revenue Service and approval of Ashland's Board of
Directors. Even if an agreement is reached and such conditions are met,
Ashland anticipates that it will be several months before a spin-off could
be consummated.
Information about Ashland's domestic and foreign operations follows.
Ashland has no material operations in any individual foreign country.
<TABLE>
<CAPTION>
Revenues from external customers(1) Long-lived assets
---------------------------------------------------- -------------------------
(In millions) 1999 1998 1997 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States $6,183 $5,880 $11,821 $1,181 $1,068
Foreign 1,068 1,053 1,140 111 93
- -----------------------------------------------------------------------------------------------------------------------------------
$7,251 $6,933 $12,961 $1,292 $1,161
===================================================================================================================================
</TABLE>
(1) Prior to the formation of MAP, sales of gasoline accounted for 19% of
Ashland's 1997 consolidated revenues from external customers,
excluding excise taxes.
<PAGE>
44
NOTE D - INCOME TAXES
A summary of the provision for income taxes related to continuing
operations follows.
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
=============================================================================================================================
<S> <C> <C> <C>
Current(1)
Federal $ 63 $ 42 $ 72
State 17 (1) 5
Foreign 11 13 17
- -----------------------------------------------------------------------------------------------------------------------------
91 54 94
Deferred 101 60 33
- -----------------------------------------------------------------------------------------------------------------------------
$ 192 $ 114 $ 127
=============================================================================================================================
</TABLE>
(1) Income tax payments amounted to $142 million in 1999, $109 million in
1998 and $51 million in 1997.
Deferred income taxes are provided for income and expense items recognized
in different years for tax and financial reporting purposes. Temporary
differences that give rise to significant deferred tax assets and
liabilities follow.
<TABLE>
<CAPTION>
(In millions) 1999 1998
=============================================================================================================================
<S> <C> <C>
Employee benefit obligations $ 174 $ 182
Environmental, insurance and litigation reserves 123 119
Compensation accruals 44 49
Uncollectible accounts receivable 11 16
Other items 76 63
- -----------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 428 429
- -----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 95 83
Investment in unconsolidated affiliates 452 362
- -----------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 547 445
- -----------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ (119) $ (16)
=============================================================================================================================
</TABLE>
The U.S. and foreign components of income from continuing operations before
income taxes and a reconciliation of the statutory federal income tax with
the provision for income taxes follow.
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
=============================================================================================================================
<S> <C> <C> <C>
Income from continuing operations before income taxes
United States $ 458 $ 274 $ 298
Foreign 24 43 21
- -----------------------------------------------------------------------------------------------------------------------------
$ 482 $ 317 $ 319
=============================================================================================================================
Income taxes computed at U.S. statutory rates $ 169 $ 111 $ 112
Increase (decrease) in amount computed resulting from
Equity income (2) (10) (10)
State income taxes 16 5 6
Net impact of foreign results 6 5 10
Other items 3 3 9
- -----------------------------------------------------------------------------------------------------------------------------
Income taxes $ 192 $ 114 $ 127
=============================================================================================================================
</TABLE>
Note E - UNCONSOLIDATED AFFILIATES
Affiliated companies accounted for on the equity method include Marathon
Ashland Petroleum LLC (MAP), Arch Coal, Inc. and various other companies.
See Notes A and C for a description of MAP and Arch Coal, as well as a
discussion of the use of the equity method for these two investees.
Summarized financial information reported by these affiliates and a summary
of the amounts recorded in Ashland's consolidated financial statements
follow. 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 incurred by its parents. At September 30, 1999,
Ashland's retained earnings include $257 million of undistributed earnings
from unconsolidated affiliates accounted for on the equity method.
<PAGE>
45
<TABLE>
<CAPTION>
(In millions) MAP Arch Coal Other Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1999
Financial position
Current assets $ 3,220 $ 331 $ 84
Current liabilities (1,895) (365) (46)
---------------------------------------------------------
Working capital 1,325 (34) 38
Noncurrent assets 3,611 2,313 72
Noncurrent liabilities (271) (1,685) (19)
---------------------------------------------------------
Stockholders' equity $ 4,665 $ 594 $ 91
=========================================================
Results of operations
Sales and operating revenues $18,965 $1,548 $ 163
Income from operations 976 61 23
Net income 977 2 13
Amounts recorded by Ashland
Investments and advances 2,172(1) 417(1)(2) 49 $2,638
Equity income 345 (2) 6 349
Distributions received 333 10 6 349
===========================================================================================================================
SEPTEMBER 30, 1998
Financial position
Current assets $ 3,190 $ 362 $ 74
Current liabilities (1,915) (384) (34)
---------------------------------------------------------
Working capital 1,275 (22) 40
Noncurrent assets 3,588 2,470 63
Noncurrent liabilities (320) (1,826) (15)
---------------------------------------------------------
Stockholders' equity $ 4,543 $ 622 $ 88
=========================================================
Results of operations
Sales and operating revenues $14,588(3) $1,363 $ 165
Income from operations 729(3) 103 45
Net income 742(3) 51 13
Amounts recorded by Ashland
Investments and advances 2,102 422 45 $2,569
Equity income 298(4) 25 6 329
Distributions received 233(4) 10 9 252
===========================================================================================================================
SEPTEMBER 30, 1997
Results of operations
Sales and operating revenues $1,367 $1,117
Income from operations 71 278
Net income 50 65
Amounts recorded by Ashland
Equity income 25 14 $ 39
Distributions received 12 8 20
===========================================================================================================================
</TABLE>
(1) At September 30, 1999, Ashland's investment exceeded its
underlying equity in net assets by $399 million for MAP and $72
million for Arch Coal. Such excess was being amortized against
equity income on a straight-line basis for MAP ($27 million in
1999 and $21 million in 1998) and on the basis of tons of coal
produced for Arch Coal ($3 million in 1999, $3 million in 1998 and
$2 million in 1997).
(2) At September 30, 1999, the market value of Ashland's investment in
Arch Coal's common stock amounted to $272 million.
(3) Amounts represent results of operations for MAP for the nine
months ended September 30, 1998, since MAP was formed on January
1, 1998.
(4) Includes $36 million of equity income and $61 million in cash flow
from Ashland's former Refining and Marketing operations for the
quarter ended December 31, 1997.
<PAGE>
46
NOTE F - LONG-TERM DEBT
<TABLE>
<CAPTION>
(In millions) 1999 1998
===================================================================================================
<S> <C> <C>
Medium-term notes, due 2000-2025, interest at a weighted average rate
of 8.7% at September 30, 1999 (6.8% to 10.4%) $ 999 $ 888
8.80% debentures, due 2012 250 250
Pollution control and industrial revenue bonds, due
2003-2022, interest at a weighted average rate of 6.5%
at September 30, 1999 (3.7% to 7.4%) 217 217
6.625% senior notes, due 2008 150 150
Other 48 43
- ----------------------------------------------------------------------------------------------------
1,664 1,548
Current portion of long-term debt (37) (41)
- ----------------------------------------------------------------------------------------------------
$1,627 $1,507
====================================================================================================
</TABLE>
Aggregate maturities of long-term debt are $37 million in 2000, $75 million
in 2001, $83 million in 2002, $89 million in 2003 and $57 million in 2004.
Excluded from such maturities are $38 million of floating-rate pollution
control and industrial revenue bonds, due between 2003 and 2009. These
bonds are subject to early redemptions at the holders' option, but not
before October 1, 2000.
Ashland has two revolving credit agreements providing for up to $400
million in borrowings, neither of which was in use at September 30, 1999.
The agreement providing for $250 million in borrowings expires on June 2,
2004. The agreement providing for $150 million in borrowings expires on May
31, 2000. The agreements contain a covenant limiting new borrowings. Based
on Ashland's financial position at September 30, 1999, borrowings
(including any borrowings under these agreements) could be increased by up
to $1.5 billion. Additional permissible borrowings are reduced by 150% of
any reductions in stockholders' equity.
Interest payments on all indebtedness amounted to $136 million in 1999,
$132 million in 1998 and $161 million in 1997. The weighted average
interest rate on short-term borrowings outstanding was 5.7% at September
30, 1999, and 6.0% at September 30, 1998.
EXTRAORDINARY LOSS
On June 3, 1997, Ashland called its outstanding 6.75% Convertible
Subordinated Debentures. On July 3, 1997, $123 million of the Debentures
were redeemed for 101.35% of the principal amount, plus accrued interest,
thereby eliminating an associated 2.4 million shares of Ashland Common
Stock that had been reserved for conversion. On September 3, 1997, Ashland
announced that its 11.125% Sinking Fund Debentures would be redeemed on
October 15, 1997. The principal amount outstanding of $200 million had a
redemption price of 105.562%, plus accrued interest to the redemption date.
On September 23, 1997, Ashland delivered to the trustee U.S. Treasury
securities maturing on October 15, 1997, sufficient to cover the redemption
price and accrued interest in accordance with the indenture agreement,
thereby relieving Ashland of any further obligations under the Debentures.
The redemption premium and writeoff of unamortized deferred debt issuance
expenses related to these two transactions resulted in pretax charges
totaling $15 million which, net of income tax benefits of $6 million,
resulted in an extraordinary loss of $9 million on the early retirement of
debt.
NOTE G - FINANCIAL INSTRUMENTS
COMMODITY AND FOREIGN CURRENCY HEDGES
Ashland uses commodity futures contracts and forward exchange contracts to
reduce its exposure to certain risks inherent within its businesses as
described in Note A. The fair value of open commodity and foreign exchange
contracts was not significant at September 30, 1999, and 1998.
INTEREST RATE SWAPS
Ashland selectively uses interest rate swap agreements to obtain greater
access to the lower borrowing costs normally available on floating-rate
debt, while minimizing refunding risk through the issuance of long-term,
fixed-rate debt. 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. The
final reset on the remaining $25 million floating-rate swap agreement was
set on July 6, 1999, with Ashland due to receive the final settlement
payment on January 6, 2000.
<PAGE>
47
FAIR VALUES
The carrying amounts and fair values of Ashland's significant financial
instruments at September 30, 1999, and 1998, are shown below. The fair
values of cash and cash equivalents, investments of captive insurance
companies and notes payable to financial institutions approximate their
carrying amounts. The fair values of long-term debt are based on quoted
market prices or, if market prices are not available, the present values of
the underlying cash flows discounted at Ashland's incremental borrowing
rates. The fair values of interest rate swaps are based on quoted market
prices, which reflect the present values of the differences between
estimated future variable-rate payments and future fixed-rate receipts.
<TABLE>
<CAPTION>
1999 1998
--------------------------------- ------------------------------
Carrying Fair Carrying Fair
(In millions) amount value amount value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 110 $ 110 $ 34 $ 34
Investments of captive insurance companies(1) 16 16 98 98
Interest rate swaps - - - 8
Liabilities
Notes payable to financial institutions 182 182 84 84
Long-term debt (including current portion) 1,664 1,732 1,548 1,775
===================================================================================================================================
</TABLE>
(1) Included in other noncurrent assets in the Consolidated Balance Sheets.
NOTE H - LEASES AND OTHER COMMITMENTS
LEASES
Ashland and its subsidiaries are lessees in noncancelable leasing
agreements for office buildings, warehouses, transportation equipment,
storage facilities, retail outlets, manufacturing facilities and other
equipment and properties which expire at various dates. Capitalized lease
obligations are not significant and are included in long-term debt. Future
minimum rental payments at September 30, 1999, and rental expense under
operating leases follow. During 1998, Ashland purchased $254 million in
formerly leased assets in connection with the formation of Marathon Ashland
Petroleum LLC (MAP), resulting in reduced rental expense.
<TABLE>
<CAPTION>
(In millions)
- -----------------------------------------------------------------------------------------------------------
Future minimum rental payments Rental expense 1999 1998 1997
- ------------------------------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 $ 44
2001 38 Minimum rentals
2002 30 (including rentals under
2003 26 short-term leases) $103 $119 $144
2004 22 Contingent rentals 5 8 13
Later years 130 Sublease rental income (3) (6) (13)
- ------------------------------- ---------------------------------------------------------------------------
$290 $105 $121 $144
============================================================================================================
</TABLE>
OTHER COMMITMENTS
To obtain mining permits, Arch Coal must post surety bonds guaranteeing
that it will perform any required reclamation upon closure of a mine. Such
bonds are currently included in Ashland's corporate surety bond program
which includes its wholly owned subsidiaries, primarily the APAC group of
construction companies. Since Ashland has indemnity agreements with its
surety companies, Ashland was guarantor for reclamation and various other
bonds posted by Arch Coal totaling $635 million at September 30, 1999.
Ashland and Marathon (collectively the Lenders) have entered into a
revolving credit agreement providing for loans up to $500 million to MAP.
Loans will be funded by the Lenders based on their respective ownership
interests. At September 30, 1999, no loans were outstanding under this
agreement.
<PAGE>
48
NOTE I - CAPITAL STOCK
Ashland's Board of Directors has authorized the purchase of 9.4 million
shares of Ashland common stock in the open market. Through September 30,
1999, Ashland had repurchased 6.2 million shares at a cost of $274 million.
In March 1997, Ashland called the 6 million outstanding shares of its
$3.125 Cumulative Convertible Preferred Stock. Each preferred share was
convertible into 1.546 shares of Ashland common stock, plus cash for
fractional shares. Almost 99% of the series was submitted for conversion to
common stock by the March 31 deadline. The remaining preferred shares were
redeemed at a price of $51.88 per share plus 19.1 cents per share of
accrued and unpaid dividends.
Under Ashland's Shareholder Rights Plan, each common share is accompanied
by one right to purchase one-thousandth share of preferred stock for $140.
Each one-thousandth share of preferred stock will be entitled to dividends
and to vote on an equivalent basis with one common share. The rights are
neither exercisable nor separately transferable from the common shares
unless a party acquires or tenders for more than 15% of Ashland's common
stock. If any party acquires more than 15% of Ashland's common stock or
acquires Ashland in a business combination, each right (other than those
held by the acquiring party) will entitle the holder to purchase preferred
stock of Ashland or the acquiring company at a substantial discount. The
rights expire on May 16, 2006, and Ashland's Board of Directors can amend
certain provisions of the Plan or redeem the rights at any time prior to
their becoming exercisable.
At September 30, 1999, 500,000 shares of cumulative preferred stock are
reserved for potential issuance under the Shareholder Rights Plan and 6.4
million common shares are reserved for issuance under outstanding stock
options.
NOTE J - STOCK INCENTIVE PLANS
Ashland has stock incentive plans under which key employees or directors
can purchase shares of common stock under stock options or restricted stock
awards. Stock options are granted to employees at a price equal to the fair
market value of the stock on the date of grant and become exercisable over
periods of one to four years. Unexercised options lapse 10 years after the
date of grant. Restricted stock awards entitle employees or directors to
purchase shares at a nominal cost, to vote such shares and to receive any
dividends thereon. However, such shares are subject to forfeiture upon
termination of service before the restriction period ends.
As discussed in Note A, Ashland accounts for its stock incentive plans in
accordance with APB 25. Ashland has not recognized compensation expense for
stock options, because the exercise price of the options equals the market
price of the underlying stock on the date of grant, which is the
measurement date. If the alternative method of accounting for stock
incentive plans prescribed by FAS 123 had been followed, Ashland's net
income and earnings per share would have been reduced to the pro forma
amounts shown in the following table. The weighted average fair value of
options granted was determined using the Black-Scholes option pricing model
with the indicated assumptions.
<TABLE>
<CAPTION>
1999 1998 1997
======================================================================================================================
<S> <C> <C> <C>
Pro forma
Net income (in millions) $ 286 $ 199 $ 277
Basic earnings per share 3.88 2.63 3.83
Diluted earnings per share 3.84 2.58 3.61
- ----------------------------------------------------------------------------------------------------------------------
Weighted average fair value per share of options
granted $7.97 $11.45 $11.28
- ----------------------------------------------------------------------------------------------------------------------
Assumptions (weighted average)
Risk-free interest rate 6.0% 4.7% 4.6%
Expected dividend yield 3.0% 2.0% 2.5%
Expected volatility 21.0% 23.8% 22.5%
Expected life (in years) 5.0 5.0 5.0
======================================================================================================================
</TABLE>
A progression of activity and various other information relative to stock
options is presented in the following table.
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ---------------------- -------------------------
Weighted Weighted Weighted
average average average
Common option price Common option price Common option price
(In thousands except per share data) shares per share shares per share shares per share
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year(1) 4,965 $38.82 4,718 $37.52 5,247 $33.97
Granted 1,590 36.97 580 48.07 814 53.22
Exercised (120) 34.55 (282) 34.85 (1,271) 32.94
Canceled (54) 49.75 (51) 45.78 (72) 37.29
- --------------------------------------------------------------------------------------------------------------------------
Outstanding - end of year(1) 6,381 $38.34 4,965 $38.82 4,718 $37.52
==========================================================================================================================
Exercisable - end of year 4,348 $37.65 3,836 $35.93 3,373 $33.78
==========================================================================================================================
</TABLE>
(1) Shares of common stock available for future grants of options or
awards amounted to 3,670,000 at September 30, 1999, and 5,134,000
at September 30, 1998. Exercise prices per share for options
outstanding at September 30, 1999, ranged from $23.88 to $33.88
for 1,978,000 shares, from $35.88 to $43.13 for 3,054,000 shares,
and from $48.00 to $53.38 for 1,349,000 shares. The weighted
average remaining contractual life of the options was 6.6 years.
<PAGE>
49
NOTE K - 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
Marathon Ashland Petroleum LLC (MAP), previously owned or operated
facilities, and Superfund or other waste sites. During 1998, Ashland
provided additional environmental reserves of $38 million associated
principally with the completion of certain voluntary efforts in progress at
various operating facilities conveyed to MAP and the closing of a landfill
near Ashland's former Catlettsburg, Kentucky refinery. Consistent with its
accounting policy for environmental costs, Ashland's reserves for
environmental assessments and remediation efforts amounted to $166 million
at September 30, 1999, and $172 million at September 30, 1998. Such amounts
reflect Ashland's estimates of the most likely costs which will be incurred
over an extended period to remediate identified environmental conditions
for which the costs are reasonably estimable, without regard to any
third-party recoveries.
Environmental reserves are subject to numerous inherent 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. Reserves are regularly adjusted as environmental
assessments and remediation efforts proceed.
During 1999, as part of a comprehensive environmental insurance recovery
project, Ashland entered into settlement agreements with certain of its
insurance carriers in exchange for releases of their present and future
liabilities to Ashland under its historical liability policies. As a result
of these agreements, Ashland recorded pretax income of $43 million.
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 of approximately $80 million (approximately $75 million of which is
punitive damages). The damage awards have been appealed and Ashland
believes that there is a substantial probability that the 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 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 L - ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
During 1999, APAC acquired 14 construction businesses, six of which
included the issuance of $79 million in Ashland common stock. During 1998,
APAC acquired 10 Missouri-based companies known as the Masters-Jackson
group, strengthening APAC's capabilities in asphalt production and paving,
concrete paving, aggregate production and bridge-building, and also
acquired several smaller construction businesses. Also in 1998, Ashland
Distribution and Ashland Specialty Chemical acquired Gwil Industries'
Plastics Division and made several smaller acquisitions. In addition,
Valvoline acquired the Eagle One brand of premium automotive appearance
products. Eagle One and four of the smaller APAC acquisitions were acquired
by the issuance of a total of $61 million in Ashland common stock, certain
of which were accounted for as poolings of interests. Prior periods were
not restated, since the effects would have been insignificant. The other
acquisitions, as well as several smaller acquisitions completed during the
last three years, were accounted for as purchases and did not have a
significant effect on Ashland's consolidated financial statements.
DIVESTITURES
During 1998, Ashland sold its 23% interest in Melamine Chemicals for $26
million, resulting in a pretax gain of $14 million ($6 million after tax).
In 1997, Ashland sold the domestic exploration and production operations of
Blazer Energy Corporation. In 1998, Ashland completed its withdrawal from
the business through the sale of its exploration and production operations
in Nigeria. See Note B for a description of these transactions and their
impact on Ashland's consolidated financial statements.
NOTE M - RELATED PARTY TRANSACTIONS
Ashland sells chemicals and lubricants to Marathon Ashland Petroleum LLC
(MAP) and purchases petroleum products from MAP. Such transactions are in
the ordinary course of business at negotiated prices comparable to those of
transactions with other customers and suppliers. In addition, Ashland
leases certain facilities to MAP, and provides certain computer, treasury,
accounting, internal auditing and legal services to MAP. For the year ended
September 30, 1999, Ashland's sales to MAP amounted to $14 million, its
purchases from MAP amounted to $181 million, and its costs charged to MAP
amounted to $17 million. Comparable amounts for the nine months ended
September 30, 1998, were $14 million, $147 million, and $21 million.
Ashland's transactions with other affiliates and related parties were not
significant.
<PAGE>
50
NOTE N - EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT PLANS
Ashland and its subsidiaries sponsor noncontributory, defined benefit
pension plans that cover substantially all employees. Benefits under these
plans are generally based on employees' years of service and compensation
during the years immediately preceding their retirement. For certain plans,
50% of employees' leveraged employee stock ownership plan (LESOP) accounts
are coordinated with and used to fund their pension benefits. Ashland
determines the level of contributions to its pension plans annually and
contributes amounts within the limitations imposed by Internal Revenue
Service regulations.
Ashland and its subsidiaries also sponsor unfunded postretirement benefit
plans, which provide health care and life insurance benefits for eligible
employees who retire or are disabled. Retiree contributions to Ashland's
health care plans are adjusted periodically, and the plans contain other
cost-sharing features, such as deductibles and coinsurance. Life insurance
plans are generally noncontributory. Ashland funds the costs of benefits as
they are paid.
Summaries of the changes in the benefit obligations and plan assets
(primarily listed stocks and debt securities) and of the funded status of
the plans follow.
<TABLE>
<CAPTION>
Pension benefits
-------------------------------------------------------
1999 1998 Other postretirement
---------------------------- ----------------------- benefits
Qualified Nonqualified Qualified Nonqualified ------------------------
(In millions) plans plans plans plans 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations at October 1 $505 $98 $539 $96 $262 $308
Service cost 33 1 26 2 8 8
Interest cost 35 6 27 7 18 16
Retiree contributions - - - - 4 4
Benefits paid (17) (3) (17) (10) (23) (21)
Obligations assumed by MAP - - (144) (9) - (66)
Other-primarily actuarial (gain) loss (27) (14) 75 11 (7) 13
- ------------------------------------------------------------------------------------------------------------------------------
Benefit obligations at September 30 $529 $88 $506 $97 $262 $262
==============================================================================================================================
CHANGE IN PLAN ASSETS
Value of plan assets at October 1 $369 $ - $435 $ - $ - $ -
Actual return on plan assets 31 - 19 - - -
Employer contributions 42 - 4 - 19 17
Retiree contributions - - - - 4 4
Benefits paid (17) - (17) - (23) (21)
Assets transferred to MAP 4 - (72) - - -
- ------------------------------------------------------------------------------------------------------------------------------
Value of plan assets at September 30 $429 $ - $369 $ - $ - $ -
==============================================================================================================================
FUNDED STATUS OF THE PLANS
Under (over) funded accumulated obligation(1) $(14) $73 $ 20 $83 $262 $262
Provision for future salary increases 114 15 117 14 - -
- ------------------------------------------------------------------------------------------------------------------------------
Excess of obligations over plan assets(1) 100 88 137 97 262 262
Unrecognized actuarial loss (36) (26) (66) (40) (7) (12)
Unrecognized transition gain (loss) - (1) 1 (1) - -
Unrecognized prior service credit (cost) (5) - (6) - 39 48
- ------------------------------------------------------------------------------------------------------------------------------
Net liability recognized $ 59 $61 $ 66 $56 $294 $298
==============================================================================================================================
BALANCE SHEET LIABILITIES (ASSETS)
Prepaid benefit costs $ (2) $ (2) $ - $ -
Accrued benefit liabilities 139 156 294 298
Intangible assets (1) (3) - -
Accumulated other comprehensive loss (16) (29) - -
- ------------------------------------------------------------------------------------------------------------------------------
Net liability recognized $120 $122 $294 $298
==============================================================================================================================
ASSUMPTIONS AS OF SEPTEMBER 30
Discount rate 7.75% 7.00% 7.75% 7.00%
Rate of compensation increase 5.00 5.00 - -
Expected return on plan assets 9.00 9.00 - -
==============================================================================================================================
</TABLE>
(1) The projected benefit obligations, accumulated benefit obligations
and plan assets for qualified pension plans with accumulated
benefit obligations in excess of plan assets were $506 million,
$389 million and $369 million as of September 30, 1998.
<PAGE>
51
The following table details the components of pension and other
postretirement benefit costs.
<TABLE>
<CAPTION>
Pension benefits Other postretirement benefits
------------------------------------- ------------------------------
(In millions) 1999 1998 1997 1999 1998 1997
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Service cost $34 $28 $36 $ 8 $ 8 $11
Interest cost 41 34 42 18 16 21
Expected return on plan assets (34) (30) (31) - - -
Other amortization and deferral 5 8 1 (7) (10) (16)
- -------------------------------------------------------------------------------------------------------------------------
$46 $40 $48 $ 19 $14 $16
=========================================================================================================================
</TABLE>
Ashland amended nearly all of its retiree health care plans in 1992 to
place a cap on its contributions and to adopt a cost-sharing method based
upon years of service. The cap limits Ashland's contributions to base year
per capita costs, plus annual increases of up to 4.5% per year. These
amendments reduced Ashland's obligations under its retiree health care
plans at that time by $197 million, which was being amortized to income
over approximately 12 years. During 1998, Marathon Ashland Petroleum LLC
(MAP) assumed certain of Ashland's postretirement benefit obligations, and
$38 million of the unrecognized credit from this plan amendment was applied
against the carrying value of Ashland's investment in MAP. The remaining
credit at September 30, 1999, amounted to $41 million, and will be
amortized over approximately five years in declining amounts from $10
million in 2000 to $6 million in 2004.
OTHER PLANS
Ashland sponsors a savings plan to assist eligible employees in providing
for retirement or other future needs. Under that plan, Ashland contributes
up to 4.2% of a participating employee's earnings. Company contributions
amounted to $15 million in 1999, $15 million in 1998 and $21 million in
1997.
NOTE O - SUBSEQUENT EVENT
In October 1999, Ashland acquired Superfos a/s, an industrial company in
Copenhagen, Denmark, at a cost of approximately $950 million, including
assumed debt. Ashland has also reached an agreement to sell the businesses
of Superfos other than its U.S. construction operations to Industri
Kapital, a European private equity fund, for a short-term note for $285
million and cash. After that sale during the December 1999 quarter,
Ashland's net cost for the U.S. construction business of Superfos is
expected to be about $525 million. Since the acquisition was funded with
debt using new credit facilities, Ashland's debt is expected to initially
increase to around 56% of capital employed, declining to about 52% once the
sale is completed and the note is redeemed in the March 2000 quarter.
NOTE P - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents quarterly financial information and per share
data relative to Ashland's common stock.
<TABLE>
<CAPTION>
Quarters ended December 31 March 31 June 30 September 30
- ------------------------------------------------------- ----------------- -------------- ------------------
(In millions except per share data) 1998 1997 1999 1998 1999 1998 1999 1998
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and operating revenues $1,646 $1,598 $1,503 $1,473 $1,796 $1,705 $1,856 $1,757
Operating income 16 114 176 80 197 226 233 26
Net income (loss) (11) 52 87 28 100 123 114 -
Basic earnings (loss) per share (.14) .69 1.17 .37 1.36 1.61 1.58 -
Diluted earnings (loss) per share (.14) .68 1.16 .37 1.35 1.59 1.57 -
Excluding unusual items(1)
Operating income 109 100 44 77 173 225 168 139
Net income 46 46 6 26 85 122 79 69
Basic earnings per share .62 .61 .08 .35 1.16 1.60 1.09 .91
Diluted earnings per share .62 .60 .08 .34 1.15 1.58 1.08 .91
Common dividends per share .275 .275 .275 .275 .275 .275 .275 .275
Market price per common share
High 52 55 50-5/8 57-15/16 44-1/2 56-3/16 43-1/4 56-5/16
Low 42-9/16 44-1/8 40-15/16 49-1/2 39-7/16 48 33-5/8 45-5/16
===================================================================================================================================
</TABLE>
(1) See Management's Discussion and Analysis and Information by Industry
Segment for a discussion of unusual items.
<PAGE>
52
Ashland Inc. and Consolidated Subsidiaries
INFORMATION BY INDUSTRY SEGMENT
Years Ended September 30
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
==============================================================================================================
<S> <C> <C> <C>
REVENUES
Sales and operating revenues
APAC $1,678 $1,444 $1,257
Ashland Distribution 2,925 2,941 2,818
Ashland Specialty Chemical 1,263 1,244 1,205
Valvoline 1,059 1,023 1,053
Refining and Marketing - - 6,828
Intersegment sales(1)
Ashland Distribution (35) (27) (29)
Ashland Specialty Chemical (84) (80) (78)
Valvoline (5) (11) (12)
Refining and Marketing - - (209)
- --------------------------------------------------------------------------------------------------------------
6,801 6,534 12,833
Equity income
Ashland Specialty Chemical 5 6 9
Valvoline 1 - -
Refining and Marketing 345 298 5
Arch Coal (2) 25 25
- --------------------------------------------------------------------------------------------------------------
349 329 39
Other income
APAC 12 8 6
Ashland Distribution 6 6 5
Ashland Specialty Chemical 19 37 21
Valvoline 6 6 8
Refining and Marketing 8 4 31
Corporate 50 9 18
- --------------------------------------------------------------------------------------------------------------
101 70 89
- --------------------------------------------------------------------------------------------------------------
$7,251 $6,933 $12,961
==============================================================================================================
OPERATING INCOME
APAC $ 108 $ 90 $ 82
Ashland Distribution 37(2) 57 48(3)
Ashland Specialty Chemical 107 101(4) 92(3)
Valvoline 74 53 65(3)
Refining and Marketing(5) 206(6) 254(7) 209(8)
Inventory valuation adjustments(9) 117 (15) -
Arch Coal (3) 25 25(10)
Corporate (24)(11) (118)(12) (60)
- --------------------------------------------------------------------------------------------------------------
$ 622 $ 447 $ 461
==============================================================================================================
ASSETS
APAC $ 996 $ 757 $ 531
Ashland Distribution 917 915 834
Ashland Specialty Chemical 878 861 749
Valvoline 561 581 550
Refining and Marketing 2,229 2,189 2,726
Arch Coal 417 422 403
Corporate(13) 426 357 669
- --------------------------------------------------------------------------------------------------------------
$6,424 $6,082 $6,462
==============================================================================================================
</TABLE>
<PAGE>
53
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT IN EQUITY AFFILIATES
APAC $ 10 $ 10 $ -
Ashland Specialty Chemical 33 30 40
Valvoline 6 5 6
Refining and Marketing 2,172 2,102 37
Arch Coal 417 422 403
Corporate - - 3
- ---------------------------------------------------------------------------------------------------------------
$2,638 $2,569 $489
===============================================================================================================
EXPENSE (INCOME) NOT AFFECTING CASH
Depreciation, depletion and amortization
APAC $ 89 $ 64 $ 49
Ashland Distribution 44(14) 27 37(3)
Ashland Specialty Chemical 53 52 57(3)
Valvoline 26 24 32(3)
Refining and Marketing - - 160
Corporate 16 14 13
- ---------------------------------------------------------------------------------------------------------------
228 181 348
Other noncash items(15)
APAC 1 3 9
Ashland Distribution (6) (2) 2
Ashland Specialty Chemical 8 (2) -
Valvoline (1) (1) (4)
Refining and Marketing 93 36 22
Arch Coal 9 (15) (11)
Corporate (5) (42) (4)
- ---------------------------------------------------------------------------------------------------------------
99 (23) 14
- ---------------------------------------------------------------------------------------------------------------
$ 327 $ 158 $362
===============================================================================================================
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
APAC $ 104 $ 81 $ 62
Ashland Distribution 30 47 27
Ashland Specialty Chemical 70 94 73
Valvoline 26 32 29
Refining and Marketing - - 150
Corporate 18 20 15
- ---------------------------------------------------------------------------------------------------------------
$ 248 $ 274 $356
===============================================================================================================
</TABLE>
(1) Intersegment sales are accounted for at prices that approximate
market value.
(2) Includes a $21 million charge for asset impairment related to
European plastics distribution operations.
(3) Includes charges of $11 million for Ashland Distribution, $5
million for Ashland Specialty Chemical and $10 million for
Valvoline to write down goodwill related to certain European
operations.
(4) Includes a gain of $14 million on the sale of Ashland's 23%
interest in Melamine Chemicals, Inc.
(5) 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.
(6) Includes a $10 million charge for severence and other costs related
to the formation of MAP.
(7) Includes charges of $43 million for reserves for retained
environmental issues associated with properties contributed to MAP
and for certain severance costs.
(8) Includes a gain of $11 million resulting from LIFO inventory
liquidations.
(9) Represents Ashland's share of inventory adjustments associated with
the formation of MAP and 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.
(10) Includes charges of $13 million for duplicate facility write-offs,
severance and other costs resulting from the merger of Ashland Coal
and Arch Mineral into Arch Coal, Inc.
(11) Includes $43 million in environmental insurance recoveries.
(12) Includes charges of $50 million related to a restructuring of
corporate G&A functions and the move of Ashland's headquarters. The
charge includes severance costs to be paid to terminated employees,
reserves for excess leased real estate, and contributions of cash
and other real estate committed to be conveyed to Ashland-area
charitable and economic development organizations.
(13) Includes principally cash, cash equivalents and investments of
captive insurance companies.
(14) Includes a charge of $19 million to write down goodwill related to
European plastics distribution operations.
(15) Includes deferred taxes, equity income from affiliates net of
distributions, and other items not affecting cash.
<PAGE>
54
Ashland Inc. and Consolidated Subsidiaries
FIVE-YEAR SELECTED FINANCIAL INFORMATION
Years Ended September 30
<TABLE>
<CAPTION>
(In millions except per share data) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues
Sales and operating revenues (including excise taxes) $6,801 $6,534 $12,833 $12,313 $11,361
Equity income 349 329 39 33 25
Other income 101 70 89 66 54
Costs and expenses
Cost of sales and operating expenses (5,346) (5,299) (9,810) (9,512) (8,664)
Excise taxes on products and merchandise - - (992) (985) (988)
Selling, general and administrative expenses (1,055) (1,006) (1,350) (1,257) (1,252)
Depreciation, depletion and amortization (228) (181) (348) (299) (374)
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income 622 447 461 359 162
Interest expense (net of interest income) (140) (130) (142) (151) (149)
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 482 317 319 208 13
Income taxes (192) (114) (127) (72) 1
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 290 203 192 136 14
Income from discontinued operations - - 25 75 10
Gain on sale of discontinued operations - - 71 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss 290 203 288 211 24
Extraordinary loss on early retirement of debt - - (9) - -
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 290 $ 203 $ 279 $ 211 $ 24
=================================================================================================================================
BALANCE SHEET INFORMATION
Working capital
Current assets $2,059 $1,828 $ 2,720 $ 2,539 $ 2,405
Current liabilities 1,396 1,361 2,028 2,067 1,908
- ---------------------------------------------------------------------------------------------------------------------------------
$ 663 $ 467 $ 692 $ 472 $ 497
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $6,424 $6,082 $ 6,462 $ 6,496 $ 6,225
- ---------------------------------------------------------------------------------------------------------------------------------
Capital employed
Debt due within one year $ 219 $ 125 $ 49 $ 127 $ 200
Long-term debt (less current portion) 1,627 1,507 1,356 1,653 1,672
Convertible preferred stock - - - 293 293
Common stockholders' equity 2,200 2,137 2,024 1,521 1,362
- ---------------------------------------------------------------------------------------------------------------------------------
$4,046 $3,769 $ 3,429 $ 3,594 $ 3,527
=================================================================================================================================
CASH FLOW INFORMATION
Cash flows from continuing operations $ 390 $ 366 $ 565 $ 544 $ 322
Additions to property, plant and equipment 248 274 356 372 341
Dividends 81 84 86 89 87
=================================================================================================================================
COMMON STOCK INFORMATION
Diluted earnings per share
Income (loss) from continuing operations $ 3.89 $ 2.63 $ 2.51 $ 1.80 $ (.08)
Net income 3.89 2.63 3.64 2.96 .08
Dividends per share 1.10 1.10 1.10 1.10 1.10
=================================================================================================================================
</TABLE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Subsidiaries of Ashland Inc. ("AI") at September 30, 1999, included
the companies listed below. Ashland has numerous unconsolidated affiliates,
which are primarily accounted for on the equity method, and majority-owned
consolidated subsidiaries in addition to the companies listed below. Such
affiliates and subsidiaries are not listed below since they would not
constitute a significant subsidiary considered in the aggregate as a single
entity.
<TABLE>
<CAPTION>
Jurisdiction of Immediate
Company Incorporation Parent*
<S> <C> <C>
APAC-Alabama, Inc.................................................... Delaware AHI
APAC-Arkansas, Inc................................................... Delaware AHI
APAC-Carolina, Inc................................................... Delaware AHI
APAC-Florida, Inc.................................................... Delaware AHI
APAC-Georgia, Inc.................................................... Georgia AHI
APAC Holdings, Inc. ("AHI").......................................... Delaware AI
APAC-Kansas, Inc..................................................... Delaware AHI
APAC-Mississippi, Inc................................................ Delaware AHI
APAC-Missouri, Inc................................................... Delaware AHI
APAC-Oklahoma, Inc................................................... Delaware AHI
APAC-Tennessee, Inc.................................................. Delaware AHI
APAC-Texas, Inc...................................................... Delaware AHI
APAC-Virginia, Inc................................................... Delaware AHI
Arch Coal, Inc....................................................... Delaware AI 57.93%
Ashland Canada Inc................................................... Ontario, Canada AIHI
Ashland Chemical Hispania, S.A....................................... Spain AI
Ashland France S.A................................................... France AIHI 85% - AI 15%
Ashland International Holdings, Inc. ("AIHI")........................ Delaware AI
Ashland Italia S.p.A................................................. Italy AIHI 43.50% - AI 56.50%
Ashland Nederland B.V................................................ Netherlands AIHI
Ashland UK Limited................................................... United Kingdom AIHI
Ash Property, Inc.................................................... Ohio AI
Ashmont Insurance Company, Inc. ..................................... Vermont AI
Marathon Ashland Petroleum LLC....................................... Delaware AI 38%
Valvoline (Australia) Pty. Ltd....................................... Australia AIHI
- ---------------
*100% of the voting securities are owned by the immediate parent except as otherwise indicated.
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-52125) pertaining to the Ashland Inc. Deferred
Compensation and Stock Incentive Plan for Non-Employee Directors, in the
Registration Statement (Form S-8 No. 2-95022) pertaining to the Ashland
Inc. Amended Stock Incentive Plan for Key Employees, in the Registration
Statement (Form S-8 No. 33-7501) pertaining to the Ashland Inc. Employee
Savings Plan, in the Registration Statement (Form S-8 No. 33-26101)
pertaining to the Ashland Inc. Long-Term Incentive Plan, in the
Registration Statement (Form S-8 No. 33-55922) pertaining to the Ashland
Inc. 1993 Stock Incentive Plan, in the Registration Statement (Form S-8 No.
33-49907) pertaining to the Ashland Inc. Leveraged Employee Stock Ownership
Plan, in the Registration Statement (Form S-8 No. 33-62901) pertaining to
the Ashland Inc. Deferred Compensation Plan, in the Registration Statement
(Form S-8 No. 333-33617) pertaining to the Ashland Inc. 1997 Stock
Incentive Plan, in the Registration Statement (Form S-3 No. 333-78675)
pertaining to the registration of 68,925 shares of Ashland Inc. Common
Stock, and in the Registration Statement (Form S-3 No. 333-70657) and the
related Prospectus pertaining to the offering of $600,000,000 of Debt
Securities, Preferred Stock, Depository Shares, Common Stock and/or
Warrants of Ashland Inc., of our report dated November 3, 1999, with
respect to the consolidated financial statements and schedule of Ashland
Inc. and consolidated subsidiaries included in this Annual Report (Form
10-K) for the year ended September 30, 1999.
/s/ Ernst & Young
November 30, 1999
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors and
Officers of ASHLAND INC., a Kentucky corporation, which is about to file an
Annual Report on Form 10-K with the Securities and Exchange Commission
under the provisions of the Securities Exchange Act of 1934, as amended,
hereby constitutes and appoints PAUL W. CHELLGREN, DAVID L. HAUSRATH and
LINDA L. FOSS, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power to act without the others to
sign and file such Annual Report and the exhibits thereto and any and all
other documents in connection therewith with the Securities and Exchange
Commission, and to do and perform any and all acts and things requisite and
necessary to be done in connection with the foregoing as fully as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to
be done by virtue hereof.
Dated: November 4, 1999
<TABLE>
<CAPTION>
<S> <C>
/s/ Paul W. Chellgren /s/ Bernadine P. Healy
- --------------------------------------- ---------------------------------
Paul W. Chellgren, Chairman of the Board Bernadine P. Healy, Director
and Chief Executive Officer
/s/ J. Marvin Quin /s/ Mannie L. Jackson
- --------------------------------------- ---------------------------------
J. Marvin Quin, Senior Vice President and Mannie L. Jackson, Director
Chief Financial Officer
/s/ Kenneth L. Aulen /s/ Patrick F. Noonan
- --------------------------------------- ---------------------------------
Kenneth L. Aulen, Administrative Vice President, Patrick F. Noonan, Director
Controller and Principal Accounting Officer
/s/ Samuel C. Butler /s/ Jane C. Pfeiffer
- --------------------------------------- ---------------------------------
Samuel C. Butler, Director Jane C. Pfeiffer, Director
/s/ Frank C. Carlucci /s/ Michael D. Rose
- --------------------------------------- ---------------------------------
Frank C. Carlucci, Director Michael D. Rose, Director
/s/ Ernest H. Drew /s/ William L. Rouse, Jr.
- --------------------------------------- ---------------------------------
Ernest H. Drew, Director William L. Rouse, Jr., Director
/s/ James B. Farley /s/ Theodore M. Solso, Director
- --------------------------------------- ---------------------------------
James B. Farley, Director Theodore M. Solso, Director
- ---------------------------------------
Ralph E. Gomory, Director
</TABLE>
<PAGE>
ASHLAND INC.
Certificate of Assistant Secretary
The undersigned hereby certifies that he is an Assistant Secretary
of Ashland Inc., a Kentucky corporation (the "Corporation"), and that, as
such, he is authorized to execute this Certificate on behalf of the
Corporation and further certifies that:
(a) Attached hereto as Exhibit A is a true and correct copy
of an excerpt from the minutes of the meeting of the
Board of Directors of the Corporation held on November 4,
1999, setting forth certain actions taken at such
meeting, and the powers and authorities granted pursuant
to such actions have at all times been in effect without
amendment, waiver, rescission or modification since
November 4, 1999.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
seal of the Corporation on this 11th day of November, 1999.
/s/ T. C. Wales
---------------------------------
T. C. Wales
Assistant Secretary
[SEAL]
<PAGE>
Exhibit A
Annual Report on Form 10-K
RESOLVED, that the Corporation's Annual Report to the Securities and
Exchange Commission (the "SEC") on Form 10-K (the "Form 10-K") in the form
previously circulated to the Board in preparation for the meeting be, and
it hereby is, approved with such changes as the Chairman of the Board, any
Vice President, the Secretary or the Corporation's counsel ("Authorized
Persons") shall approve, the execution and filing of the Form 10-K with the
SEC to be conclusive evidence of such approval; provided, however, that
without derogating from the binding effect of the above, it is understood
that an Authorized Person shall cause the distribution prior to the filing
with the SEC, of a copy of such Form 10-K to the directors in substantially
that form which is to be filed with the SEC and that each director shall
have the opportunity to review with and comment to an Authorized person
prior to such filing;
FURTHER RESOLVED, that the Authorized Persons be, and each of them hereby
is, authorized to file with the SEC the Form 10-K and any amendments
thereto on Form 10-K/A and/or any other applicable form; and
FURTHER RESOLVED, that the Authorized Persons be, and each of them hereby
is, authorized to take all such further actions as in their judgment may be
necessary or advisable to accomplish the purposes of the foregoing
resolutions.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ASHLAND INC.'S ANNUAL
REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 110
<SECURITIES> 0
<RECEIVABLES> 1,242
<ALLOWANCES> 23
<INVENTORY> 464
<CURRENT-ASSETS> 2,059
<PP&E> 2,649
<DEPRECIATION> 1,357
<TOTAL-ASSETS> 6,424
<CURRENT-LIABILITIES> 1,396
<BONDS> 1,627
<COMMON> 72
0
0
<OTHER-SE> 2,128
<TOTAL-LIABILITY-AND-EQUITY> 6,424
<SALES> 6,801
<TOTAL-REVENUES> 7,251
<CGS> 5,574
<TOTAL-COSTS> 5,574
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> 482
<INCOME-TAX> 192
<INCOME-CONTINUING> 290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 290
<EPS-BASIC> 3.94
<EPS-DILUTED> 3.89
</TABLE>
