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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
Commission file number 1-2918
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 61-0122250
1000 Ashland Drive
Russell, Kentucky 41169
Telephone Number: (606) 329-3333
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X__ No ___
At January 31, 1997, there were 65,032,263 shares of
Registrant's Common Stock outstanding. One Right to purchase
one-thousandth of a share of Series A Participating
Cumulative Preferred Stock accompanies each outstanding share
of Registrant's Common Stock.
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PART I - FINANCIAL INFORMATION
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ASHLAND INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
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Three months ended
December 31
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(In millions except per share data) 1996 1995
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REVENUES
Sales and operating revenues (including excise taxes) $ 3,427 $ 3,079
Other 19 94 (1)
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3,446 3,173
COSTS AND EXPENSES
Cost of sales and operating expenses 2,671 2,350
Excise taxes on products and merchandise 250 238
Selling, general and administrative expenses 333 309
Depreciation, depletion and amortization 104 101
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3,358 2,998
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OPERATING INCOME 88 175
OTHER INCOME (EXPENSE)
Interest expense (net of interest income) (41) (43)
Equity income 8 4
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INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 55 136
Income taxes (15) (44)
Minority interest in earnings of subsidiaries (4) (5)
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NET INCOME 36 87 (1)
Dividends on convertible preferred stock (5) (5)
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INCOME AVAILABLE TO COMMON SHARES $ 31 $ 82
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EARNINGS PER SHARE - Note E
Primary $ .47 $ 1.29 (1)
Assuming full dilution $ .47 $ 1.16
DIVIDENDS PAID PER COMMON SHARE $ .275 $ .275
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(1) Includes a gain of $73 million ($48 million or 74 cents a share after
income taxes) resulting from the settlement of Ashland Exploration's
claims in the bankruptcy reorganization of Columbia Gas Transmission
and Columbia Gas Systems.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
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ASHLAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31 September 30 December 31
(In millions) 1996 1996 1995
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ASSETS
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CURRENT ASSETS
Cash and cash equivalents $ 50 $ 77 $ 62
Accounts receivable 1,753 1,693 1,591
Allowance for doubtful accounts (27) (27) (25)
Construction completed and in progress 18 50 26
Inventories - Note B 801 736 791
Deferred income taxes 105 112 89
Other current assets 123 99 105
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2,823 2,740 2,639
INVESTMENTS AND OTHER ASSETS
Investments in and advances to unconsolidated affiliates 158 157 147
Investments of captive insurance companies 182 178 200
Cost in excess of net assets of companies acquired 137 120 106
Other noncurrent assets 348 359 392
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825 814 845
PROPERTY, PLANT AND EQUIPMENT
Cost 7,450 7,374 7,125
Accumulated depreciation, depletion and amortization (3,736) (3,659) (3,574)
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3,714 3,715 3,551
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$ 7,362 $ 7,269 $ 7,035
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
Debt due within one year $ 185 $ 203 $ 279
Trade and other payables 2,032 2,044 1,741
Income taxes 27 32 75
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2,244 2,279 2,095
NONCURRENT LIABILITIES
Long-term debt (less current portion) 1,860 1,784 1,781
Employee benefit obligations 619 613 622
Reserves of captive insurance companies 162 166 177
Deferred income taxes 74 64 41
Other long-term liabilities and deferred credits 379 375 413
Commitments and contingencies - Note C
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3,094 3,002 3,034
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES 176 174 178
STOCKHOLDERS' EQUITY
Convertible preferred stock 293 293 293
Common stockholders' equity 1,555 1,521 1,435
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1,848 1,814 1,728
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$ 7,362 $ 7,269 $ 7,035
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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ASHLAND INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY
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Loan to
leveraged
employee
stock
ownership
Common Paid-in Retained plan
(In millions) stock capital earnings (LESOP) Other Total
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BALANCE AT OCTOBER 1, 1995 $ 64 $ 256 $ 1,063 $ (11) $ (10) $ 1,362
Net income 87 87
Dividends
Preferred stock (5) (5)
Common stock (17) (17)
Issued common stock under stock
incentive plans 2 2
LESOP loan repayment 3 3
Other changes 3 3
-------- -------- --------- ----------- ------- ---------
BALANCE AT DECEMBER 31, 1995 $ 64 $ 258 $ 1,128 $ (8) $ (7) $ 1,435
======== ======== ========= =========== ======= =========
BALANCE AT OCTOBER 1, 1996 $ 64 $ 280 $ 1,185 $ - $ (8) $ 1,521
Net income 36 36
Dividends
Preferred stock (5) (5)
Common stock (18) (18)
Issued common stock under
Stock incentive plans 1 18 19
Employee savings plan 1 1
Other changes 1 1
-------- -------- --------- ----------- ------- ---------
BALANCE AT DECEMBER 31, 1996 $ 65 $ 299 $ 1,198 $ - $ (7) $ 1,555
======== ======== ========= =========== ======= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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ASHLAND INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
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Three months ended
December 31
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(In millions) 1996 1995
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CASH FLOWS FROM OPERATIONS
Net income $ 36 $ 87
Expense (income) not affecting cash
Depreciation, depletion and amortization 104 101
Deferred income taxes 14 (9)
Other noncash items 9 10
Change in operating assets and liabilities (1) (112) (27)
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51 162
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt 87 1
Proceeds from issuance of capital stock 12 1
Loan repayment from leveraged employee stock ownership plan - 3
Repayment of long-term debt (47) (16)
Increase (decrease) in short-term debt 18 (25)
Dividends paid (23) (23)
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47 (59)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (97) (74)
Purchase of operations - net of cash acquired (31) (17)
Proceeds from sale of operations - 1
Investment purchases (2) (37) (117)
Investment sales and maturities (2) 37 114
Other-net 3 -
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(125) (93)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (27) 10
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 77 52
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CASH AND CASH EQUIVALENTS - END OF PERIOD $ 50 $ 62
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(1) Excludes changes resulting from operations acquired or sold.
(2) Represents primarily investment transactions of captive insurance companies.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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ASHLAND INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE A - GENERAL
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and
Securities and Exchange Commission regulations, but are subject to
any year-end audit adjustments which may be necessary. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. These financial statements should be read in
conjunction with Ashland's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996. Results of operations for
the period ended December 31, 1996, are not necessarily indicative
of results to be expected for the year ending September 30, 1997.
NOTE B - INVENTORIES
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December 31 September 30 December 31
(In millions) 1996 1996 1995
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Crude oil $ 384 $ 336 $ 318
Petroleum products 375 323 331
Chemicals 376 342 332
Other products 151 146 173
Materials and supplies 64 63 69
Excess of replacement costs over LIFO carrying values (549) (474) (432)
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$ 801 $ 736 $ 791
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NOTE C - LITIGATION, CLAIMS AND CONTINGENCIES
Federal, state and local statutes and regulations relating to the
protection of the environment have a significant impact on the
conduct of Ashland's businesses. For information regarding
environmental expenditures and reserves, see the "Miscellaneous -
Governmental Regulation and Action - Environmental Protection"
section of Ashland's Form 10-K.
Environmental reserves are subject to considerable uncertainties
which 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. As a result, charges to income for environmental
liabilities could have a material effect on results of operations
in a particular quarter or fiscal year as assessments and
remediation efforts proceed or as new remediation sites are
identified. However, such charges are not expected to have a
material adverse effect on Ashland's consolidated financial
position.
Ashland has numerous insurance policies that provide coverage at
various levels for environmental costs. In addition, various costs
of remediation efforts related to underground storage tanks are
eligible for reimbursement from state administered funds.
During 1996, the U.S. Environmental Protection Agency (EPA)
notified Ashland that its three refineries would be subject to a
comprehensive inspection of compliance with federal environmental
laws and regulations. The third and final inspection was completed
during the quarter ended December 31, 1996. Such inspections could
result in sanctions, monetary penalties and further remedial
expenditures. Also during 1996, Ashland arranged for an
independent review of environmental compliance at its three
refineries by an outside consulting firm, self-reported to the EPA
a number of issues of non-compliance with applicable laws or
regulations, and commenced a program to address these matters.
Ashland is not in a position to determine what actions, if any,
may be instituted and is similarly
6
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ASHLAND INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE C - LITIGATION, CLAIMS AND CONTINGENCIES (continued)
uncertain at this time what additional remedial actions may be
required or costs incurred. However, this matter is not expected
to have a material adverse effect on Ashland's consolidated
financial position.
In addition to environmental matters, Ashland and its subsidiaries
are parties to numerous 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.
Although any actual liability is not determinable as of December
31, 1996, Ashland believes that any liability resulting from these
matters, after taking into consideration Ashland's insurance
coverages and amounts already provided for, should not have a
material adverse effect on Ashland's consolidated financial
position.
NOTE D - ACQUISITIONS
During the three months ended December 31, 1996, Ashland Chemical
acquired various distribution and specialty chemical businesses.
These acquisitions were accounted for as purchases and did not
have a significant effect on Ashland's consolidated financial
statements.
NOTE E - COMPUTATION OF EARNINGS PER SHARE
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Three months ended
December 31
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(In millions except per share data) 1996 1995
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PRIMARY EARNINGS PER SHARE
Income available to common shares
Net income $ 36 $ 87
Dividends on convertible preferred stock (5) (5)
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$ 31 $ 82
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Average common shares and equivalents outstanding
Average common shares outstanding 65 64
Common shares issuable upon exercise of stock options 1 -
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66 64
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Earnings per share $ .47 $ 1.29
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EARNINGS PER SHARE
ASSUMING FULL DILUTION
Income available to common shares
Net income $ 36 $ 87
Dividends on convertible preferred stock (5) -
Interest on convertible debentures (net of income taxes) - 1
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$ 31 $ 88
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Average common shares and equivalents outstanding
Average common shares outstanding 65 64
Common shares issuable upon
Exercise of stock options 1 -
Conversion of debentures - 3
Conversion of preferred stock - 9
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66 76
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Earnings per share $ .47 $ 1.16
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7
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ASHLAND INC. AND SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
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Three months ended
December 31
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(Dollars in millions except as noted) 1996 1995
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SALES AND OPERATING REVENUES
Refining and Marketing (1) $ 1,751 $ 1,444
Valvoline 263 275
Chemical 958 886
APAC 305 328
Coal 150 164
Exploration 78 56
Intersegment sales (78) (74)
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$ 3,427 $ 3,079
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OPERATING INCOME
Refining and Marketing (1) $ 14 $ 29
Valvoline 13 12
Chemical 34 38
APAC 18 23
Coal 11 17
Exploration 12 79
General corporate expenses (14) (23)
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$ 88 $ 175
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EQUITY INCOME
Arch Mineral Corporation $ 5 $ 2
Other 3 2
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$ 8 $ 4
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OPERATING INFORMATION
Refining and Marketing (1)
Refining inputs (thousand barrels per day) (2) 372.8 378.2
Value of products manufactured per barrel $ 28.82 $ 22.05
Input cost per barrel 24.76 18.00
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Refining margin per barrel $ 4.06 4.05
Refined product sales (thousand barrels per day)
Wholesale sales to
Ashland brand retail jobbers 24.2 12.7
Other wholesale customers (3) 301.9 303.9
SuperAmerica retail system 76.5 75.3
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Total refined product sales 402.6 391.9
SuperAmerica merchandise sales $ 144 $ 139
Valvoline lubricant sales (thousand barrels per day) (3) 18.1 20.3
APAC construction backlog
At end of period $ 564 $ 616
Decrease during period $ (83) $ (56)
Ashland Coal, Inc. (4)
Tons sold (millions) 5.8 6.0
Sales price per ton $ 25.63 $ 27.32
Arch Mineral Corporation (4)
Tons sold (millions) 7.8 6.9
Sales price per ton $ 25.00 $ 25.85
Exploration
Net daily production
Natural gas (million cubic feet) (3) 105.8 111.0
Nigerian crude oil (thousand barrels) 17.6 18.2
Sales price
Natural gas (per thousand cubic feet) $ 3.07 $ 2.18
Nigerian crude oil (per barrel) $ 23.23 $ 16.21
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(1) Segments formerly identified as Petroleum and SuperAmerica have been
combined effective October 1, 1996. Prior year amounts have been restated.
(2) Includes crude oil and other purchased feedstocks.
(3) Includes intersegment sales.
(4) Ashland's ownership interest is 57% in Ashland Coal and 50% in Arch
Mineral.
8
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ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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RESULTS OF OPERATIONS
Ashland recorded net income of $36 million for the quarter ended
December 31, 1996, the first quarter of its 1997 fiscal year. This
compares to net income of $87 million for the quarter a year ago,
which included operating income of $73 million ($48 million after
income taxes) from the settlement of Ashland Exploration's claims
in the bankruptcy reorganization of Columbia Gas Transmission and
Columbia Gas Systems. Excluding the non-recurring gain in the
quarter a year ago, net income declined slightly from prior-year
levels, due primarily to lower results from Refining and
Marketing, Ashland Coal and APAC.
Effective October 1, 1996, Ashland changed its methodology for
allocating corporate general and administrative (G&A) expenses.
For purposes of comparison to prior year results, segment
operating income for the current quarter (as reflected in the
table on Page 8), excluding the increased allocations, would have
amounted to: Refining and Marketing ($19 million); Valvoline ($15
million); Chemical ($36 million); APAC ($19 million); Coal ($11
million); Exploration ($13 million); and general corporate
expenses ($25 million).
Refining and Marketing
Ashland is now reporting the results of Ashland Petroleum, its
refining division, and SuperAmerica retail gasoline marketing
operations as a single industry segment to allow for better peer
group comparisons. Prior year results have been restated. Combined
results from these operations totaled $14 million for the current
quarter, compared to $29 million for the quarter a year ago. The
decline in earnings reflected reduced crude oil gathering margins
for Scurlock Permian, a 1.5(cent) per gallon decrease in retail
gasoline margins and increased corporate G&A allocations. Refining
operations showed an improvement over the prior year's quarter.
The refining margin (the difference between the value of products
manufactured and input cost) of $4.06 per barrel was essentially
flat with the margin of $4.05 per barrel for the first quarter of
fiscal 1996, even though input costs increased $6.76 per barrel.
Total inputs were down slightly from the first quarter of fiscal
1996 when throughput records were set at each of the three
refineries. Cost reduction efforts are ongoing as evidenced by a
decline in refining expenses of 16(cent) a barrel compared to last
year's quarter, despite an 11(cent) per barrel increase in the
cost of fuel consumed in the refining process.
The Ashland brand jobber program continues to expand with the
opening of 38 more units during the quarter, bringing the total
number of units to 523 at December 31, 1996, compared to 210 at
December 31, 1995. SuperAmerica continued its expansion during the
quarter also, opening 11 new or rebuilt units to bring the total
number of units to 750 at December 31, 1996, including 629
SuperAmerica stores and 121 Rich outlets. At December 31, 1995,
there were 616 SuperAmerica stores and 99 Rich outlets in
operation. The growth in operating units contributed to increased
sales volumes for both liquid products and merchandise, and the
merchandise gross profit margin remained strong during the
quarter. However, these positive trends only partially offset the
impact of the decline in retail gasoline margins and a rise in
operating expenses, associated with the growth in stores.
Valvoline
Valvoline reported operating income of $13 million for the quarter
ended December 31, 1996, compared to $12 million for the quarter
ended December 31, 1995. The U.S. lubricant business was the
leading contributor to earnings, reflecting improved motor oil
margins. Operating income from the automotive chemicals and
coolant businesses increased, reflecting higher margins, while the
antifreeze business benefited from improved volumes and margins.
First Recovery, Valvoline's used oil collection business, reported
a record quarter primarily due to higher used oil and filter
collection revenues. Valvoline International's operating income
was up on the strength of increased sales volumes.
9
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ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Chemical
Ashland Chemical was the leading earnings contributor to the
quarter, with $34 million of operating income, compared to $38
million for the same period a year ago. Both the distribution and
specialty chemical groups reported record first quarter results.
The General Polymers plastics distribution business, as well as
the electronic chemicals and specialty polymers and adhesives
businesses all reported record results for the quarter. However,
these improvements were more than offset by increased corporate
G&A allocations and a decline in petrochemicals, resulting from
escalating costs for solvents.
APAC
The APAC construction companies reported operating income of $18
million for the first quarter, compared to $23 million for the
same period last year. Adverse weather conditions in several of
APAC's operating areas led to lower volumes. Revenues were off 7%
and production of construction materials was down. In addition,
last year's results benefited from a gain on the disposal of a
shell pit in Florida, while the current year was affected by
increased corporate G&A allocations. The construction backlog at
December 31, 1996, amounted to $564 million, compared to $616
million at December 31, 1995. Although down 8% from the prior year
level, the reduction is not expected to have a significant effect
on APAC's results for the remainder of fiscal 1997.
Coal
Operating income for Ashland Coal declined from $17 million for
the first quarter of fiscal 1996 to $11 million for the first
quarter of fiscal 1997. The decline was principally due to the
expiration of certain higher priced sales contracts at the end of
December 1995. Coal sales tonnage declined slightly, while the
average sales price was down $1.69 per ton. However, these adverse
effects were partially offset by a reduction in the average cost
per ton to record-low levels, due primarily to a dragline
relocation completed in August 1996. A second dragline relocation
was completed in early January 1997 and should further reduce
mining costs.
Exploration
Ashland Exploration reported operating income of $12 million for
the December 1996 quarter, compared to $79 million for the
December 1995 quarter. Excluding the previously mentioned $73
million Columbia Gas settlement from last year's results,
operating income doubled. An 89-cent per Mcf increase in the
average natural gas price was the largest contributor to the
improvement.
Natural gas production from Vermilion 410 in the Gulf of Mexico
began December 23 and by the end of December reached 16.5 million
cubic feet a day net to Ashland's interest. Maximum production
from the complex is expected to be reached in February when four
additional wells from Vermilion 389 reach full capacity. In
addition, Ashland's board approved the development plan for the
Okwori field offshore Nigeria, as did Ashland's partner TOTAL. The
next step is to obtain approval from the Nigerian National
Petroleum Company.
Ashland and Ashland Exploration recently reached an agreement in
principle to settle a number of lawsuits alleging damages
resulting from certain discontinued operations. The settlement
will result in a $7.5 million charge to operating income during
the March 1997 quarter.
General Corporate Expenses
General corporate expenses declined from $23 million in the prior
year's quarter to $14 million for the current quarter. However,
the current quarter includes $11 million in increased G&A
allocations to the operating divisions. Excluding the impact of
the increased allocations, the increase in general corporate
expenses from $23 million to $25 million reflected higher
consulting fees and deferred compensation expenses in the current
quarter.
10
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ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Other Income (Expense)
For the three months ended December 31, 1996, interest expense
(net of interest income) totaled $41 million, compared to $43
million for the December 1995 quarter. The decline reflected a
decrease in the average outstanding debt level during the current
period.
Equity income from Arch Mineral increased from $2 million for the
December 1995 quarter to $5 million for the December 1996 quarter.
The increase resulted from favorable mining conditions at Arch of
West Virginia, increased production and sales at Arch of Illinois,
and reduced SG&A and interest costs.
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. On February 3, 1997, Moody's Investors Service
lowered the rating on Ashland's senior debt from Baa1 to Baa2, a
level equivalent to the company's BBB senior debt rating from
Standard & Poor's. Ashland has a revolving credit agreement
providing for up to $320 million in borrowings, under which no
borrowings were outstanding at December 31, 1996. At that date,
Ashland Coal also had revolving credit agreements providing for up
to $500 million in borrowings, of which $15 million was in use.
Under a shelf registration, Ashland can issue an additional $220
million in medium-term notes should future opportunities or needs
arise. Ashland and Ashland Coal also have access to various
uncommitted lines of credit and commercial paper markets, under
which short-term notes of $120 million were outstanding at
December 31, 1996.
Cash flows from operations, a major source of Ashland's liquidity,
amounted to $51 million for the three months ended December 31,
1996, compared to $162 million for the three months ended December
31, 1995. This decrease was attributed primarily to the decreased
level of earnings, including the effect of the Columbia
settlement, and increased working capital requirements.
Working capital at December 31 1996, was $579 million, compared to
$461 million at September 30, 1996, and $544 million at December
31, 1995. Liquid assets (cash, cash equivalents and accounts
receivable) amounted to 79% of current liabilities at December 31,
1996, and 76% at September 30, 1996. Ashland's working capital is
significantly affected by its use of the LIFO method of inventory
valuation, which valued inventories $549 million below their
replacement costs at December 31, 1996.
Capital Resources
For the three months ended December 31, 1996, property additions
amounted to $97 million, compared to $74 million for the same
period last year. Property additions (including exploration costs
and geophysical expenses) and cash dividends for the remainder of
fiscal 1997 are estimated at $421 million and $67 million,
respectively. Ashland anticipates meeting its remaining 1997
capital requirements for property additions and dividends from
internally generated funds. However, external financing may be
necessary to provide funds for the remaining contractual
maturities of $39 million for long-term debt or for acquisitions.
Ashland's capital employed at December 31, 1996, consisted of debt
(49%), deferred income taxes (2%), minority interest (4%),
convertible preferred stock (7%), and common stockholders' equity
(38%). Debt as a percent of capital employed was relatively
unchanged from the level at September 30, 1996. At December 31,
1996, long-term debt included $48 million of floating-rate debt,
and the interest rates on an additional $502 million of fixed-rate
debt had been converted to floating rates through interest rate
swap agreements. As a result, interest costs for the remainder of
1997 will fluctuate based on short-term interest rates on $550
million of Ashland's consolidated long-term debt, as well as on
any short-term notes and commercial paper.
11
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ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------------------------------------------
ENVIRONMENTAL MATTERS
Federal, state and local laws and regulations relating to the
protection of the environment have resulted in higher operating
costs and capital investments by the industries in which Ashland
operates. Because of the continuing trends toward greater
environmental awareness and ever increasing regulations, Ashland
believes that expenditures for environmental compliance will
continue to have a significant effect on the conduct of 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 in the petroleum, chemical
and extractive industries. For information on certain specific
environmental proceedings and investigations, see the "Legal
Proceedings" section of this Form 10-Q. For information regarding
environmental expenditures and reserves, see the "Miscellaneous -
Governmental Regulation and Action - Environmental Protection"
section of Ashland's Form 10-K.
Environmental reserves are subject to considerable uncertainties
which 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. As a result, charges to income for environmental
liabilities could have a material effect on results of operations
in a particular quarter or fiscal year as assessments and
remediation efforts proceed or as new remediation sites are
identified. However, such charges are not expected to have a
material adverse effect on Ashland's consolidated financial
position, cash flow or liquidity.
During 1996, the U.S. Environmental Protection Agency (EPA)
notified Ashland that its three refineries would be subject to a
comprehensive inspection of compliance with federal environmental
laws and regulations. The third and final inspection was completed
during the quarter ended December 31, 1996. Such inspections could
result in sanctions, monetary penalties and further remedial
expenditures. Also during 1996, Ashland arranged for an
independent review of environmental compliance at its three
refineries by an outside consulting firm, self-reported to the EPA
a number of issues of non-compliance with applicable laws or
regulations, and commenced a program to address these matters.
Ashland is not in a position to determine what actions, if any,
may be instituted and is similarly uncertain at this time what
additional remedial actions may be required or costs incurred.
However, this matter is not expected to have a material adverse
effect on Ashland's consolidated financial position.
PROFITABILITY IMPROVEMENT PLAN
On December 9, 1996, Ashland issued a press release announcing
several significant steps to improve the Company's profitability
and enhance returns to Ashland's shareholders. The press release
was attached as an exhibit to a Form 8-K filed with the Securities
and Exchange Commission on that same date. Following is an update
of the progress under each of the steps enumerated in the plan.
o ESTABLISHING A NEW PETROLEUM GROUP CONSISTING OF ASHLAND
PETROLEUM, SUPERAMERICA AND VALVOLINE. The group reports to
Group Operating Officer and Senior Vice President J. A.
"Fred" Brothers and is aggressively examining ways to improve
profits from the value-added chain.
o REDUCING CAPITAL EXPENDITURES FOR REFINING. These are being
limited to $100 million for fiscal 1997, below projected
depreciation, and totaled $21 million for the December 1996
quarter.
o AGGRESSIVELY REVIEWING OPTIONS FOR STRATEGIC ALLIANCES FOR
ASHLAND'S REFINING AND MARKETING OPERATIONS. Working with
outside advisors, a team of senior employees is continuing to
pursue this objective. It is too early to predict the outcome
of these efforts. However, Ashland remains committed to
actively pursuing this initiative to improve returns from
refining and marketing.
12
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ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------------------------------------------
PROFITABILITY IMPROVEMENT PLAN (continued)
o EVALUATING STRATEGIC ALTERNATIVES FOR ASHLAND EXPLORATION,
INC. On January 29, 1997, Ashland's Board of Directors
approved, subject to certain contingencies, the initial
public offering (IPO) of less than 20 percent of Ashland
Exploration. This transaction would likely occur in the late
spring or summer and would likely be followed by the tax-free
spin-off of Ashland's remaining ownership in Ashland
Exploration to Ashland Inc. shareholders. Ashland hopes to
complete both transactions before the end of the 1997
calendar year, subject to governmental and regulatory
approvals, tax rulings, market conditions and definitive
agreements among various parties.
o INCREASING CAPITAL EMPLOYED IN ASHLAND CHEMICAL, THE APAC
HIGHWAY CONSTRUCTION GROUP AND VALVOLINE. Ashland Chemical
closed six acquisitions during the quarter as it continues to
expand distribution and specialty chemical businesses in the
United States and abroad. Ashland Chemical also announced a
115,000-square-foot expansion of its Dublin, Ohio, technical
center to provide technical support for continued growth.
Valvoline Instant Oil Change entered a retail partnership
with Sears to set up shop in 20 Sears Auto Centers in Dallas,
Minneapolis/St. Paul and Kansas City. The three markets will
serve as tests in anticipation of opening VIOC service
centers in more than 150 Sears Auto Centers nationwide over
the next three years.
o TERMINATING A SHELF REGISTRATION STATEMENT FOR THE OFFERING
FROM TIME TO TIME OF UP TO $100 MILLION IN ASHLAND COMMON
STOCK. This has been completed; Ashland issued a total of $51
million of common stock under the registration statement in
1995.
o IMPLEMENTING A COMMON STOCK REPURCHASE PROGRAM. In December,
Ashland's board approved a plan to repurchase up to one
million shares of Ashland common stock annually to offset
dilution due to company benefit programs. No purchases have
occurred to date under this program.
o EVALUATING CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES.
These expenses are being evaluated in a two phase program.
Phase one will result in the allocation of $41 million of
expenses during fiscal 1997 to the operating divisions which
are utilizing the services of the corporate staff. These
increased allocations began in the quarter ended December 31,
1996. Phase two is aimed at determining if expenditure levels
are appropriate and identifying specific cost reduction
opportunities. This process will continue throughout 1997 and
will be revisited from time to time thereafter.
In the same press release, Ashland also indicated that it would
continue to encourage the ongoing discussions between Ashland
Coal, Inc. and Arch Mineral Corporation toward a possible business
combination. On January 27, 1997, the Boards of Directors of the
two companies jointly announced that they had approved an
agreement in principle calling for the combination of the two
companies. The exchange ratio to be used for the transaction would
result in former Ashland Coal and Arch Mineral shareholders
holding approximately 48 percent and 52 percent of the combined
company, respectively. Consummation of the transaction is
conditioned upon the negotiation and execution of definitive
agreements between the parties, all necessary governmental and
regulatory consents and approvals by the shareholders of both
corporations. If the transaction is completed as currently
envisioned, Ashland would have an approximate 54 percent ownership
interest in the combined company, which would be consolidated in
Ashland's financial statements.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. 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 in Note A to the Consolidated
13
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ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------------------------------------------
FORWARD LOOKING STATEMENTS (continued)
Financial Statements under risks and uncertainties in Ashland's
Annual Report for the fiscal year ended September 30, 1996. 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, 1996, which is on file with the Securities and
Exchange Commission.
14
PART II - OTHER INFORMATION
- -----------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
Environmental Proceedings - (1) As of December 31, 1996, Ashland
was subject to 77 notices received from the USEPA and similar state
agencies identifying Ashland as a "potentially responsible party"
("PRP") under Superfund or similar state laws for potential joint
and several liability for cleanup costs in connection with alleged
releases of hazardous substances from various waste treatment or
disposal sites. These sites are currently subject to ongoing
investigation and remedial activities, overseen by the USEPA or a
state agency in accordance with procedures established under
regulations, in which Ashland may be participating as a member of
various PRP groups. Generally, the type of relief sought includes
remediation of contaminated soil and/or groundwater, reimbursement
for the costs of site cleanup or oversight expended, and/or
long-term monitoring of environmental conditions at the sites.
Ashland carefully monitors the investigatory and remedial activity
at many of these sites. Based on its experience with site
remediation, its familiarity with current environmental laws and
regulations, its analysis of the specific hazardous substances at
issue, the existence of other financially viable PRPs and its
current estimates of investigatory, clean-up and monitoring costs
at each site, Ashland believes that its liability at these sites,
either individually or in the aggregate, after taking into account
established reserves, will not have a material adverse effect on
Ashland's consolidated financial position, cash flow or liquidity,
but could have a material adverse effect on results of operations
in a particular quarter or fiscal year. Estimated costs for these
matters are recognized in accordance with generally accepted
accounting principles governing probability and the ability to
reasonably estimate future costs. For additional information
regarding Superfund, see "Miscellaneous - Governmental Regulation
and Action-Environmental Protection."
(2) On March 19, 1996, after consultation with the USEPA, the
Kentucky Division for Air Quality issued a finding that Ashland had
not demonstrated compliance with certain air regulations regarding
volatile organic compounds at its Catlettsburg, Kentucky refinery,
and referred the matter to USEPA - Region IV for formal enforcement
action. Ashland filed a petition requesting a hearing before a
Kentucky administrative hearing officer on the merits of the
matter. The hearing is scheduled for July 1997. Separately, the
USEPA issued a Notice of Violation to Ashland regarding this
matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Ashland's Annual Meeting of Shareholders was held on January 30,
1997, at the Ashland Petroleum Executive Office Building, Ashland
Drive, Russell, Kentucky at 10:30 a.m.
(b) Ashland's shareholders at said meeting elected 6 directors:
Votes
-------
Affirmative Withheld
----------- --------
Paul W. Chellgren 56,125,726 901,515
Ralph E. Gomory 56,102,830 871,824
Patrick F. Noonan 56,137,625 866,648
Jane C. Pfeiffer 56,097,123 879,041
Michael D. Rose 56,157,026 852,740
Robert B. Stobaugh 56,139,934 868,049
Directors who continued in office: Jack S. Blanton, Thomas E.
Bolger, Samuel C. Butler, Frank C. Carlucci, James B. Farley,
Mannie L. Jackson and W. L. Rouse, Jr. John R. Hall, a director of
Ashland since 1968 and Chairman of the Board since 1981 retired at
the Annual Meeting. Edmund B. Fitzgerald and James R. Rinehart,
directors of Ashland since 1990 and 1985, respectively, also
retired at the Annual Meeting.
15
(c) Ashland's shareholders at said meeting ratified the appointment of
Ernst & Young LLP as independent auditors for fiscal year 1997 by a
vote of 55,970,001 affirmative to 807,455 negative and 219,568
abstention votes.
(d) Ashland's shareholders at said meeting approved the Ashland Inc.
1997 Stock Incentive Plan by a vote of 51,930,344 affirmative to
4,239,248 negative and 508,466 abstention votes. A copy of the Plan
is attached as Exhibit 10.
(e) The results of voting on a shareholder proposal to nominate a wage
roll employee to the Board of Directors were 48,391,472 negative to
3,008,928 affirmative and 1,142,319 abstention votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.2 Bylaws of Ashland, as amended to January 30, 1997
10.18 Copy of Ashland Inc. 1997 Stock Incentive Plan
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K dated December 9, 1996 was filed by Ashland to
disclose that Ashland issued a press release announcing several
significant steps to improve Ashland's profitability and enhance
returns to Ashland's shareholders. Ashland also announced that
Providence Capital, which had proposed nominating three directors
to Ashland's board at Ashland's annual shareholders' meeting had
agreed to withdraw its nominations.
A report on Form 8-K dated January 30, 1997 was filed to disclose
that on January 30, 1997, the Board of Directors of Ashland Inc.
announced that Ashland will proceed toward an initial public
offering of less than 20 percent of Ashland Exploration, Inc., a
wholly-owned subsidiary, subject to certain contingencies. This
transaction would likely occur in the late spring or summer. The
initial public offering would likely be followed by the tax-free
spin-off of Ashland's remaining ownership in Ashland Exploration to
Ashland Inc. shareholders once an appropriate ruling is received
from the Internal Revenue Service, subject also to any governmental
and regulatory approvals, market conditions and definitive
agreements among various parties.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ashland Inc.
------------------------------------------
(Registrant)
Date February 13, 1997 /s/ Kenneth L. Aulen
-------------------------------------------
Kenneth L. Aulen
Administrative Vice President and Controller
(Chief Accounting Officer)
Date February 13, 1997 /s/ Thomas L. Feazell
-------------------------------------------
Thomas L. Feazell
Senior Vice President,
General Counsel and Secretary
17
As Effective January 30, 1997
BY-LAWS
OF
ASHLAND INC.
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the
Corporation in the Commonwealth of Kentucky shall be at Ashland Drive, City
of Russell, Greenup County. The names of the registered agents located
thereat shall be designated by the Board from time to time by a resolution
adopted by a majority of the Board.
SECTION 2. Other Offices. The Corporation may also have offices at
other places either within or without the Commonwealth of Kentucky.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the shareholders for
the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held at the principal office
of the Corporation on the last Thursday of January, annually, at the hour
of ten thirty a.m., or at such other place (within or without the
Commonwealth of Kentucky), date and hour as shall be designated in the
notice thereof.
SECTION 2. Annual Meeting Business. To be properly brought before an
annual meeting, business must be (i) specified in the notice of the meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors or (iii) otherwise properly brought
before the meeting by a shareholder. For business to be properly brought
before an annual meeting by a shareholder, the shareholder must have given
written notice thereof, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation, not later than
90 days in advance of such meeting (provided that if the annual meeting of
shareholders is held earlier than the last Thursday in January, such notice
must be given within 10 days after the first public disclosure, which may
include any public filing with the Securities and Exchange Commission, of
the date of the annual meeting). Any such notice shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting and in the
event that such business includes a proposal to amend either the Second
Restated Articles of Incorporation or By-laws of the Corporation, the
language of the proposed amendment, (ii) the name and address of the
shareholder proposing such business, (iii) a representation that the
shareholder is a holder of record of stock of the corporation entitled to
vote at such meeting and intends to appear in person or by proxy at the
meeting to propose such business, (iv) any material interest of the
shareholder in such business, and (v) a representation as to whether or not
the shareholder will solicit proxies in support of his proposal. No
business shall be conducted at an annual meeting of shareholders except in
accordance with this paragraph and the chairman of any annual meeting of
shareholders may refuse to permit any business to be brought before an
annual meeting which fails to comply with the foregoing procedures or, in
the case of a shareholder proposal, if the shareholder fails to comply
with the representations set forth in the notice.
SECTION 3. Special Meetings. A special meeting of the shareholders
may be called by the Board of Directors, the Chairman of the Board, any
Vice Chairman of the Board or the President, at such place (within or
without the Commonwealth of Kentucky), date and hour as shall be designated
in the notice thereof. The Secretary shall call a special meeting of the
shareholders, to be held on such date as the Secretary shall determine, on
the request in writing of the holders of shares of capital stock of the
Corporation entitled to vote at such meeting which represent one-third or
more of the total votes entitled to be cast at such meeting. Such request
shall set forth: (i) the action proposed to be taken at such meeting and
the reasons for the action; (ii) the name and address of each of such
holders who intends to propose action be taken at such meeting; (iii) a
representation that each is a holder of record of stock of the Corporation
entitled to vote at such meeting and intends to appear in person or by
proxy at such meeting to propose the action specified in the request; (iv)
any material interest of any shareholder in such action; and (v) in the
event that any proposed action consists of or includes a proposal to amend
either the Second Restated Articles of Incorporation or the By-laws of the
Corporation, the language of the proposed amendment. The Secretary may
refuse to call a special meeting unless the request is made in compliance
with the foregoing procedure.
SECTION 4. Notice of Meetings. Except as otherwise expressly required
by law, notice of each meeting of the shareholders shall be given not less
than ten nor more than sixty days before the date of the meeting to each
shareholder entitled to vote at such meeting by mailing such notice,
postage prepaid, directed to the shareholder at his address as it appears
on the records of the Corporation. Every such notice shall state the place,
date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. Except as otherwise
expressly required by law, notice of any adjourned meeting of the
shareholders need not be given if the date, time and place thereof are
announced at the meeting at which the adjournment is taken, unless the
adjournment is for more than 120 days or after the adjournment a new record
date is fixed for the adjourned meeting.
SECTION 5. Record of Shareholders. It shall be the duty of the
officer or agent of the Corporation who shall have charge of its stock
transfer books to prepare and make a complete record of the shareholders
entitled to vote at any meeting of shareholders or adjournment thereof,
arranged by voting group (and within each voting group by class or series),
and showing the address of each shareholder and the number of shares
registered in the name of each shareholder. Such record shall be produced
at the time and place of the meeting and shall be open to the inspection of
any shareholder entitled to vote at such meeting or any adjournment thereof
during the whole time of such meeting or adjournment for the purposes
thereof.
SECTION 6. Quorum. At each meeting of the shareholders or adjournment
thereof, except as otherwise expressly required by law, these By-laws or
the Second Restated Articles of Incorporation, shareholders holding a
majority of the shares of the Corporation issued and outstanding and
entitled to be voted thereat shall be present in person or by proxy to
constitute a quorum for the transaction of business. The shareholders
present at a duly organized meeting can continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave
less than a quorum.
SECTION 7. Organization. At each meeting of the shareholders, one of
the following shall act as chairman of the meeting and preside thereat, in
the following order of precedence:
(a) the Chairman of the Board;
(b) a Vice Chairman of the Board in order of rank of seniority in
office;
(c) the President; or
(d) any other officer of the Corporation designated by the Board or
the Executive Committee to act as chairman of such meeting and to preside
thereat if the Chairman of the Board, each Vice Chairman of the Board and
the President shall be absent from such meeting.
The Secretary or, if he shall be absent from such meeting, the person
(who shall be the Deputy Secretary or an Assistant Secretary of the
Corporation, if one of such officers shall be present thereat) whom the
chairman of such meeting shall appoint, shall act as secretary of such
meeting and keep the minutes thereof.
SECTION 8. Order of Business. The order of business at each meeting
of the shareholders shall be determined by the chairman of such meeting,
but such order of business may be changed by a majority in voting interest
of those present in person or by proxy at such meeting and entitled to vote
thereat.
SECTION 9. Voting. Except as otherwise expressly required by law,
these By-laws, or the Second Restated Articles of Incorporation, each
shareholder entitled to vote shall, at each meeting of the shareholders,
have one vote (except that at each election for directors each such
shareholder shall have the right to cast as many votes in the aggregate as
he shall be entitled to vote under the Second Restated Articles of
Incorporation multiplied by the number of directors to be elected at such
election; and each shareholder may cast the whole number of votes for one
candidate, or distribute such votes among two or more candidates), in
person or by proxy, for each share of the Corporation held by him and
registered in his name on the books of the Corporation:
(a) on the date fixed pursuant to the provisions of Section 6 of
Article VIII of these By-laws as the record date for the determination of
shareholders who shall be entitled to receive notice of and to vote at such
meeting, or
(b) if no record date shall have been so fixed, then at the close of
business on the day on which notice of such meeting shall be given.
Shares of the Corporation's stock belonging to a majority-owned
subsidiary of the Corporation shall not be counted in determining the total
number of outstanding shares and shall neither be entitled to vote nor
counted for quorum purposes. Any vote of shares of the Corporation may be
given at any meeting of the shareholders by the shareholders entitled
thereto in person or by proxy appointed by an instrument in writing by the
shareholder or his duly authorized attorney-in-fact. The attendance at any
meeting of a shareholder who may theretofore have given a proxy shall not
have the effect of revoking the same unless he shall in writing so notify
the Secretary.
At all meetings of the shareholders each matter, except as otherwise
expressly required by law, these By-laws or the Second Restated Articles of
Incorporation, shall be approved if the votes cast in favor of such matter
exceed the votes cast opposing such matter.
Except as otherwise expressly required by law, the vote at any
meeting of the shareholders on any question need not be by ballot, unless
so directed by the chairman of the meeting. On a vote by ballot each ballot
shall be signed by the shareholder voting, or by his proxy, if there be
such proxy, and shall state the number of shares voted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by the Board of Directors.
SECTION 2. Number and Term of Office. Except as otherwise provided by
law, the number of directors which shall constitute the Board of Directors
shall be fixed from time to time by a resolution adopted by a majority of
the Board of Directors. So long as the Board of Directors shall consist of
nine or more members, the directors shall be classified with respect to the
time for which they shall severally hold office, by dividing them into
three classes, as nearly equal in number as possible. Each class shall be
elected at the annual meeting of shareholders held in 1986 for terms which
will expire as follows: one class of directors to be originally elected for
a term expiring at the annual meeting of shareholders to be held in 1987;
the second class of directors to be originally elected for a term expiring
at the annual meeting of shareholders to be held in 1988; and the third
class of directors to be originally elected for a term expiring at the
annual meeting of shareholders to be held in 1989.
At each annual meeting of shareholders beginning in 1987, successors
to the class of directors whose term then expires shall be elected to serve
for a term expiring at the annual meeting of shareholders held in the third
year following the year of their election and until their successors shall
have been elected and qualified; provided, that the successor to a director
whose term expires at such annual meeting because he was elected to fill a
vacancy on the board may, if so specified by the Board of Directors, be
elected to serve for a term expiring at the annual meeting of shareholders
held in the first or second year following the year of his election and
until his successor shall have been elected and qualified. The Board of
Directors shall increase or decrease the number of directors in one or more
classes as may be appropriate whenever it increases or decreases the number
of directors in order to ensure that the three classes remain as nearly
equal in number as possible. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 3. Nomination. Nominations for the election of directors may
be made by the Board of Directors or by any shareholder entitled to vote
for the election of directors. Any shareholder entitled to vote for the
election of directors at a meeting may nominate a person or persons for
election as directors only if written notice of such shareholder's intent
to make such nomination is given, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Corporation, not
later than (i) with respect to an election to be held at an annual meeting
of shareholders, 90 days in advance of such meeting (provided that if the
annual meeting of shareholders is held earlier than the last Thursday in
January, such notice must be given within 10 days after the first public
disclosure, which may include any public filing with the Securities and
Exchange Commission, of the date of the annual meeting) and (ii) with
respect to an election to be held at a special meeting of shareholders for
the election of directors, the close of business on the seventh day
following the date on which notice of such meeting is first given to
shareholders. Each such notice shall set forth: (a) the name and address of
the shareholder who intends to make the nomination and of the person or
persons to be nominated; (b) a representation that the shareholder is a
holder of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description
of all arrangements or understandings between the shareholder and each
nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated, or intended to be nominated, by
the Board of Directors; (e) the consent of each nominee to serve as a
director of the Corporation if so elected; and (f) a representation as to
whether or not the shareholder will solicit proxies in support of his
nominee(s). The chairman of any meeting of shareholders to elect directors
and the Board of Directors may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure or if the
shareholder fails to comply with the representations set forth in the
notice.
SECTION 4. Election. Except as otherwise expressly provided in the
Second Restated Articles of Incorporation, at each meeting of the
shareholders for the election of directors at which a quorum is present,
the persons receiving the greatest number of votes, up to the number of
directors to be elected, shall be the directors.
SECTION 5. Resignation, Removal and Vacancies. Any director may
resign at any time by giving written notice of his resignation to the
Chairman of the Board, any Vice Chairman of the Board, the President or the
Secretary. Any such resignation shall take effect at the time specified
therein, or, if the time when it shall become effective shall not be
specified therein, then it shall take effect when accepted by action of the
Board. Except as aforesaid, the acceptance of such resignation shall not be
necessary to make it effective.
Any or all directors may be removed at a meeting of the shareholders
called expressly for that purpose (i) in the case of a removal of a
director for cause, by a vote of the holders of a majority of the voting
power of the then outstanding voting stock of the Corporation, voting
together as a single class, or (ii) in the case of a removal of a director
without cause, by a vote of the holders of at least 80% of the voting power
of the then outstanding voting stock of the Corporation, voting together as
a single class. If less than all the directors are to be removed, no one of
the directors may be removed if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the
entire Board or, if there be classes of directors, at an election of the
class of directors of which he or she is a part. For purposes of this
Section 5, "cause" shall mean the willful and continuous failure of a
director to substantially perform such director's duties to the Corporation
(other than any failure resulting from incapacity due to physical or mental
illness) or the willful engaging by a director in gross misconduct
materially and demonstrably injurious to the Corporation. As used in these
By-laws, "voting stock" shall mean shares of capital stock of the
Corporation entitled to vote generally in the election of directors.
Any vacancy occurring on the Board may be filled by a majority of the
directors then in office, though less than a quorum, and the director
elected to fill such vacancy shall hold office until the next annual
meeting of shareholders at which directors are elected and until his
successor is elected and qualified.
SECTION 6. Meetings.
(A) Annual Meetings. As soon as practicable after each annual
election of directors, the Board shall meet for the purpose of organization
and the transaction of other business.
(B) Regular Meetings. Regular meetings of the Board shall be held at
such dates, times and places as the Board shall from time to time
determine.
(C) Special Meetings. Special meetings of the Board shall be held
whenever called by the Chairman of the Board, any Vice Chairman of the
Board, the President or upon the written request of a majority of the
members of the whole Board filed with the Secretary. Any and all business
may be transacted at a special meeting which may be transacted at a regular
meeting of the Board.
(D) Place of Meeting. The Board may hold its meetings at such place
or places within or without the Commonwealth of Kentucky as the Board may
from time to time by resolution determine or as shall be designated in the
respective notices or waiver of notices thereof.
(E) Notice of Meetings. Notices of regular meetings of the Board or
of any adjourned meeting need not be given.
Notices of special meetings of the Board, or of any meeting of any
committee of the Board which has not been fixed in advance as to time and
place by such committee, shall be mailed by the Secretary to each director,
or member of such committee, addressed to him at his residence or usual
place of business, at least two days before the day on which such meeting
is to be held, or shall be sent to him by telegraph, cable or other form of
recorded communication or be delivered personally or by telephone not later
than the day before the day on which such meeting is to be held. Such
notice shall include the date, time and place of such meeting, but any such
notice need not specify the business to be transacted at, or the purpose
of, any such meeting. Notice of any such meeting need not be given to any
director or member of any committee, however, if waived by him in writing,
whether before or after such meeting shall be held, or if he shall be
present at such meeting, unless the director at the beginning of the
meeting (or promptly upon his or her arrival) objects to holding the
meeting or transacting business at the meeting and does not thereafter vote
for or assent to action taken at the meeting.
(F) Quorum and Manner of Acting. A majority of the number of
directors fixed by or in the manner provided in these By-laws or in the
Second Restated Articles of Incorporation shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and the vote of a majority of those directors
present at any such meeting at which a quorum is present shall be necessary
for the passage of any resolution or act of the Board, except as otherwise
expressly required by law, these By-laws or the Second Restated Articles of
Incorporation.
(G) Action by Consent. Any action required or permitted to be taken
at any meeting of the Board, or of any committee thereof, may be taken
without a meeting if all members of the Board or committee, as the case may
be, consent thereto in writing, and such writing is filed with the minutes
of the proceedings of the Board or committee.
(H) Meeting by Telephone. Any meeting of the Board, or of any
committee thereof may be conducted through the use of any means of
communication by which all persons participating in the meeting can hear
and speak to each other, and the directors' participation in such a meeting
shall constitute presence in person at the meeting for all purposes.
(I) Organization. At each meeting of the Board, one of the following
shall act as chairman of the meeting and preside thereat, in the following
order of precedence:
(a) the Chairman of the Board;
(b) a Vice Chairman of the Board in order of rank of seniority in
office; or
(c) the President.
SECTION 7. Compensation. The Board of Directors may fix such amount
per annum and such fees to be paid by the Corporation to directors for
attendance at meetings of the Board or of any committee, or both, as the
Board shall from time to time determine. The Board may likewise provide
that the Corporation shall reimburse each director or member of a committee
for any expenses incurred by him on account of his attendance at any such
meeting. Nothing contained in this Section shall be construed to preclude
any director from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE IV
COMMITTEES
SECTION 1. Executive Committee.
(A) Designation and Membership. The Board may, by resolution passed
by a majority of the whole Board, designate an Executive Committee
consisting of the Chairman of the Board, each Vice Chairman of the Board,
the President and such additional number of directors as the Board shall
determine. Vacancies may be filled by the Board at any time and any member
of the Executive Committee shall be subject to removal, with or without
cause, at any time by resolution passed by a majority of the whole Board.
(B) Functions and Powers. The Executive Committee, subject to any
limitations prescribed by the Board, shall possess and may exercise, during
the intervals between meetings of the Board, all the powers and authority
of the Board in the management of the business and affairs of the
Corporation; provided, however, that the Executive Committee shall not have
the power or authority to approve amendments to the Second Restated
Articles of Incorporation, adopt agreements of merger or consolidation,
recommend to the shareholders the sale, lease or exchange of all or
substantially all the property and assets of the Corporation, recommend to
the shareholders the dissolution of the Corporation or the revocation of a
dissolution, amend these By-laws or to take any other action which a
committee is prohibited by law from taking.
At each meeting of the Board the Executive Committee shall make a
report of all action taken by it since its last report to the Board.
(C) Meetings and Quorum. The Executive Committee shall meet as often
as may be deemed necessary and expedient at such times and places as shall
be determined by the members of the Executive Committee. A majority of the
members of the Executive Committee shall constitute a quorum. The Chairman
of the Board shall preside at meetings thereof, and, in his absence, the
Executive Committee may appoint any other member of the Executive Committee
to preside.
SECTION 2. Audit Committee.
(A) The Board may by resolution passed by a majority of the whole
Board designate an Audit Committee consisting of three or more directors.
Vacancies may be filled by the Board at any time and any member of the
Audit Committee shall be subject to removal, with or without cause, at any
time by resolution passed by a majority of the whole Board.
(B) The Audit Committee shall review with the independent public
accountants for the Corporation the scope of their examination, receive
copies of the reports of such accountants, meet with representatives of
such accountants for the purpose of reviewing and considering questions
relating to such accountants' examination and such reports, review, either
directly or through such accountants, the internal accounting and auditing
procedures of the Corporation, report the results of the foregoing to the
Board and act upon such other matters as may be referred to it by the
Board.
At each meeting of the Board the Audit Committee shall make a report
of all action taken by it since its last report to the Board.
(C) Meetings and Quorum. The Audit Committee shall meet as often as
may be deemed necessary and expedient at such times and places as shall be
determined by the members of the Audit Committee. A majority of the members
of the Audit Committee shall constitute a quorum. The Audit Committee may
appoint any member to preside at meetings thereof.
SECTION 3. Other Committees. The Board may, by resolution passed by a
majority of the whole Board, designate other committees, each committee to
consist of two or more directors and to have such duties and functions as
shall be provided in such resolution. The Board shall have the power to
change the members of any such committee at any time, to fill vacancies and
to discharge any such committee, either with or without cause, at any time.
ARTICLE V
OFFICERS
SECTION 1. Officers and Executive Officers of the Corporation. The
officers of the Corporation shall be:
(a) a Chairman of the Board;
(b) one or more Vice Chairmen of the Board;
(c) a President;
(d) one or more Vice Presidents, one or more of whom may be
designated as Executive Vice President, one or more of whom may be
designated as Senior Vice President, and one or more of whom may be
designated as Administrative Vice President;
(e) a Secretary and, as and when designated, a Deputy Secretary and
one or more Assistant Secretaries;
(f) a Treasurer and, as and when designated, a Deputy Treasurer and
one or more Assistant Treasurers;
(g) a Controller and, as and when designated, a Deputy Controller and
one or more Assistant Controllers;
(h) an Auditor and, as and when designated, one or more Assistant
Auditors. The following officers are hereby designated the Executive
Officers of the Corporation:
Chairman of the Board;
Vice Chairmen of the Board;
President;
Executive Vice Presidents;
Senior Vice Presidents;
Administrative Vice Presidents;
Secretary;
Treasurer;
Controller;
Auditor.
SECTION 2. Election and Appointment and Term of Office. Each
Executive Officer shall be elected by the Board at its annual meeting and
hold office until the next annual meeting of the Board and until his
successor is elected or until his earlier death, resignation or removal in
the manner hereinafter provided.
The Board may elect such other officers and designate such other
Executive Officers as it deems necessary and such other officers shall have
such authority and shall perform such duties as the Board may prescribe.
The Chairman of the Board by written designation filed with the
Secretary, may appoint all officers, other than Executive Officers, of the
Corporation. Subject to the authority of the Board, the persons having
authority to appoint an officer shall also have authority to fix the salary
of such officer.
If additional officers are elected by the Board during the year, each
of them shall hold office until the next annual meeting of the Board at
which officers are regularly elected and until his successor is elected or
appointed or until his earlier death, resignation or removal in the manner
hereinafter provided.
SECTION 3. Resignation, Removal and Vacancies. Any officer may resign
at any time by giving written notice to the Chairman of the Board, any Vice
Chairman of the Board, the President or the Secretary, and such resignation
shall be effective when the notice is delivered, unless the notice
specifies a later effective date.
All officers and agents elected or appointed shall be subject to
removal at any time by the Board with or without cause. All appointed
officers may be removed at any time by the Chairman of the Board acting
jointly with any Vice Chairman of the Board or the President, by written
designation filed with the Secretary.
A vacancy in any office may be filled for the unexpired portion of
the term in the same manner as provided for election or appointment to such
office.
SECTION 4. Duties and Functions.
(A) Chairman of the Board. The Chairman of the Board, if present,
shall preside at all meetings of the shareholders and the Board. If
designated by Board resolution, he shall be Chief Executive Officer of the
Corporation, and if so designated, shall be vested with executive control
and management of the business and affairs of the Corporation and have the
direction of all other officers, agents and employees. He shall perform all
such other duties as are incident to the office or as may be properly
required of him by the Board, subject in all matters to the control of the
Board.
(B) Vice Chairmen of the Board. The Vice Chairman of the Board with
seniority of office, in the absence of the Chairman of the Board, shall
preside at all meetings of the shareholders and the Board. Each Vice
Chairman of the Board shall have such powers, authority and duties as may
be delegated to him from time to time by the Board or the Chairman of the
Board.
(C) The President. The President, in the absence of the Chairman of
the Board and all the Vice Chairmen of the Board, shall preside at all
meetings of the shareholders and the Board. If designated by Board
resolution, he shall be Chief Executive Officer of the Corporation, and if
so designated, shall be vested with executive control and management of the
business and affairs of the Corporation and have the direction of all other
officers, agents and employees. He shall have such powers, authority and
duties as may be delegated to him from time to time by the Board or the
Chairman of the Board.
(D) Executive Vice Presidents. The Executive Vice Presidents shall
have such powers, authority and duties as may be delegated or assigned to
them from time to time by the Board, the Chairman of the Board, any Vice
Chairman of the Board or the President.
(E) Senior Vice Presidents. The Senior Vice Presidents shall have
such powers, authority and duties as may be delegated or assigned to them
from time to time by the Board, the Chairman of the Board, any Vice
Chairman of the Board or the President.
(F) Administrative Vice Presidents. The Administrative Vice
Presidents shall have such powers, authority and duties as may be delegated
or assigned to them from time to time by the Board, the Chairman of the
Board, any Vice Chairman of the Board or the President.
(G) Vice Presidents. The Vice Presidents shall have such powers,
authority and duties as may be delegated or assigned to them from time to
time by the Board, the Chairman of the Board, any Vice Chairman of the
Board or the President.
(H) Secretary. The Secretary shall attend to the giving and serving
of all notices required by law or these By-laws; shall be the custodian of
the corporate seal and shall affix and attest the same to all papers
requiring it; shall have responsibility for preparing minutes of the
meetings of the Board and shareholders; and shall in general perform all
the duties incident to the office of the Secretary, subject in all matters
to the control of the Board.
(I) Treasurer. The Treasurer shall have custody and control of the
funds and securities of the Corporation and shall perform all such other
duties as are incident to his office or that may be properly required of
him by the Board, the Chairman of the Board, any Vice Chairman of the Board
or the President.
(J) Controller. The Controller shall maintain adequate records of all
assets, liabilities and transactions of the Corporation; shall see that
adequate audits thereof are currently and regularly made; shall have
general supervision of the preparation of the Corporation's balance sheets,
income accounts and other financial statements or records; and shall
perform such other duties as shall, from time to time, be assigned to him
by the Board, the Chairman of the Board, any Vice Chairman of the Board or
the President. These duties and powers shall extend to all subsidiary
corporations and so far as the Board, the Chairman of the Board, any Vice
Chairman of the Board or the President may deem practicable, to all
affiliated corporations.
(K) Auditor. The Auditor shall review the accounting, financial and
related operations of the Corporation and shall be responsible for
measuring the effectiveness of various controls established for the
Corporation. His duties shall include, without limitation, the appraisal of
procedures, verifying the extent of compliance with formal controls and the
prevention and detection of fraud or dishonesty and such other duties as
shall, from time to time, be assigned to him by the Board, the Chairman of
the Board, any Vice Chairman of the Board or the President. These duties
and powers shall extend to all subsidiary corporations and so far as the
Board, any Chairman of the Board, any Vice Chairman of the Board or the
President may deem practicable, to all affiliated corporations.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. Borrowing Authority. The Chairman of the Board, any Vice
Chairman of the Board, the President, the Senior Vice President supervising
the law function, the Treasurer and any other officer, employee, or agent
of the Corporation designated by the Board (collectively, "Designated
Officers") shall, subject to Section 3 and Section 7 hereof, have the
power, acting jointly with any officer designated by the Board as the Chief
Financial Officer or the Treasurer (collectively, the "Financial
Officers"), to authorize the establishment of borrowing facilities, the
borrowing of money, the issuance of debt obligations, or the guaranteeing
of debt obligations of others on behalf of the Corporation. Any individual
acting as the approving Financial Officer may not act as one of the
approving Designated Officers on the same authorization.
SECTION 2. Delegation of Authority. Any Financial Officer of the
Corporation acting jointly with any Designated Officer may delegate the
authority to establish borrowing facilities or to borrow money or to issue
debt obligations or to guarantee the debt obligations of others or any
combination of the foregoing to any person(s) on behalf of the Corporation,
provided each obligation to be incurred under each such authority does not
exceed the equivalent of Ten Million United States Dollars (U.S.
$10,000,000). Each delegated authority may not be redelegated. Any
individual acting as the approving Financial Officer may not act as one of
the approving Designated Officers on the same authorization.
SECTION 3. Limitation of Authority. The Finance Committee of the Board
of Directors shall, subject to Section 7 and to the last sentence of this
Section 3, retain authority for and, in its sole discretion, shall
authorize (a) any establishment of borrowing facilities, borrowing of money
or issuance of debt obligations by the Corporation which exceeds the
equivalent of Ten Million United States Dollars (U.S. $10,000,000) and
which has a maturity of one year or more from the effective date of the
issuance or borrowing and (b) any guarantee of any debt obligation of
non-affiliated entities by the Corporation which guaranty is for an amount
exceeding the equivalent of Ten Million United States Dollars (U.S.
$10,000,000) and which underlying obligation has a maturity of one year or
more from the effective date of the issuance or borrowing. The foregoing
limitations shall not apply, however, to those borrowings, debt issuances,
or guaranties of debt obligations made or delivered, under or in connection
with a borrowing facility or program previously approved by the Board of
Directors or the Finance Committee or to such types of transactions with or
on behalf of affiliated entities.
SECTION 4. Execution of Documents. The Designated Officers, the
Financial Officers, and any other officer, employee or agent of the
Corporation designated by the Board shall have power, acting alone, to
execute and deliver, in the name and on behalf of the Corporation, (a)
mortgages, bonds, debentures, notes, checks, drafts and other orders
evidencing the borrowing or guaranteeing (when so authorized as provided in
Section 1, 2, 3 or 7) or payment of money and (b) deeds, leases, contracts
and other agreements and documents. Each such named officer empowered to
execute and deliver the aforesaid documents and any such other officer,
employee or agent so designated by the Board pursuant to the first sentence
of this Section 4 may delegate such power (including authority to
redelegate) by written instrument to other officers, employees or agents of
the Corporation.
SECTION 5. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation or otherwise with such banks or other financial institutions as
may be designated by the Board, by any Designated Officer, by any Financial
Officer, or by any other officer, employee or agent of the Corporation so
designated by the Board. Each such named officer and any such other
officer, employee or agent so authorized by the Board may delegate such
power (including authority to redelegate) by written instrument to other
officers, employees or agents of the Corporation.
SECTION 6. Proxies in Respect of Shares or Other Securities of Other
Corporations. Any Designated Officer and any Financial Officer shall have
the authority (a) to appoint from time to time an agent or agents of the
Corporation to exercise in the name and on behalf of the Corporation the
powers and rights which the Corporation may have as the holder of shares or
other securities in any other corporation, (b) to vote or consent in
respect of such shares or securities and (c) to execute or cause to be
executed in the name and on behalf of the Corporation and under its
corporate seal, or otherwise, such written proxies, powers of attorney or
other instruments as he may deem necessary or proper in order that the
Corporation may exercise such powers and rights. Any Designated Officer and
any Financial Officer may instruct any person or persons appointed as
aforesaid as to the manner of exercising such powers and rights.
SECTION 7. Guaranty Authority in Respect of the Oil Pollution Act of
1990. Pursuant to the Oil Pollution Act of 1990, rules and regulations
promulgated thereunder, including without limitation those at 33 C.F.R.
Part 138, or any amendments thereto, successor legislation, rules, or
regulations, the Corporation, from time to time, may provide to agencies of
the United States of America financial guaranties for entities who
transport for the Corporation or any of its affiliates into the waters of
the United States of America. Notwithstanding anything in these By-laws to
the contrary, any person designated by the Board as a member of the "Core
Group", the Controller, the Treasurer, and any other officer, employee, or
agent designated by the Board (collectively, "Corporate Officers") shall
have the power,
acting jointly with the person designated as (a) the President of any
operating division or subsidiary of the Corporation requesting the guaranty
(the "Division"), (b) a Group Vice President of a Division, (c) an
Administrative Vice President of the Division, or (d) a Vice President of
the Division (collectively, "Divisional Officers") to authorize the
issuance of such guaranties. Any such guaranties may be approved as
provided in this Section 7 for any amount and for any term. Any individual
acting as the approving Corporate Officer may not act as an approving
Divisional Officer with respect to the same transaction.
ARTICLE VII
BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders, the
Board, the Executive Committee, the Audit Committee, and such other
committees of the Board as the Board may by resolution designate and shall
keep at its registered office or principal place of business, or at the
office of its transfer agent or registrar, a record of its shareholders,
giving the names and addresses of all shareholders, and the number and
class of the shares held by each.
ARTICLE VIII
SHARES AND THEIR TRANSFER; FIXING RECORD DATE
SECTION 1. Certificates for Shares. Every owner of shares of the
Corporation shall be entitled to have a certificate which shall set forth
upon the face or back of such certificate, or shall state that the
Corporation will furnish to any shareholder upon request and without
charge, a full statement of the designations, preferences, limitations and
relative rights of the shares of each class of shares authorized to be
issued, and the variations in the relative rights and preferences between
the shares of each series of any preferred or special class of shares, so
far as the same have been fixed and determined, and the authority of the
Board to fix and determine the relative rights and preferences of
subsequent series of such preferred or special classes of shares.
Each certificate representing shares shall state upon the face
thereof that the Corporation is organized under the laws of the
Commonwealth of Kentucky; the name of the person to whom issued; the number
and class of shares, and the designation of the series, if any, which such
certificate represents; and the par value of each share represented by such
certificate, or a statement that the shares are without par value. Such
certificate shall otherwise be in such form as the Board shall prescribe.
Each such certificate shall be signed by, or in the name of the
Corporation by, the Chairman of the Board, any Vice Chairman of the Board,
the President or a Vice President and by the Secretary, the Deputy
Secretary or an Assistant Secretary of the Corporation and shall be sealed
with the corporate seal or contain a facsimile thereof. In case any officer
who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued, it may nevertheless be issued by the Corporation with the same
effect as if he were such officer at the date of issue. Where any such
certificate is manually countersigned by a transfer agent or registrar
(other than the Corporation itself or an employee of the Corporation), any
of the other signatures on the certificate may be a facsimile.
SECTION 2. Record. A record shall be kept of the name of the person,
firm or corporation owning the shares represented by each certificate for
shares of the Corporation issued, the number of shares represented by each
such certificate, and the date thereof, and, in the case of cancellation,
the date of cancellation. Except as otherwise expressly required by law,
the person in whose name shares stand on the books of the Corporation shall
be deemed the owner thereof for all purposes as regards the Corporation.
SECTION 3. Transfer of Shares. Transfers of shares of the Corporation
shall be made only on the books of the Corporation by the registered holder
thereof, or by his attorney thereunto duly authorized by written power of
attorney duly executed and filed with the Secretary or with a transfer
agent appointed as provided in Section 4 of this Article, and on the
surrender of the certificate or certificates for such shares properly
endorsed.
SECTION 4. Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these By-laws, concerning
the issue, transfer and registration of certificates for shares of the
Corporation. The Board may appoint or authorize any officer or officers to
appoint one or more transfer agents and one or more registrars and may
require all certificates for shares to bear the signature or signatures of
any of them.
SECTION 5. Lost, Stolen, Destroyed or Mutilated Certificates. The
holder of any shares of the Corporation shall immediately notify the
Corporation of any loss, theft or mutilation of the certificate therefor.
The Corporation may issue a new certificate for shares in the place of any
certificate theretofore issued by it and alleged to have been lost, stolen,
destroyed or mutilated, and the Board, the Chairman of the Board, any Vice
Chairman of the Board, the President or the Secretary may, in its or his
discretion, require the owner of the lost, stolen, mutilated or destroyed
certificate or his legal representatives to give the Corporation a bond in
such sum, limited or unlimited, in such form and with such surety or
sureties as the Board shall in its discretion determine, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss, theft, mutilation or destruction of any such certificate or
the issuance of any such new certificate.
SECTION 6. Fixing Date for Determination of Shareholders of Record.
In order that the Corporation may determine the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment
thereof, or to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of shares or for the
purpose of any other lawful action, the Board may fix, in advance, a record
date, which shall not be more than seventy nor less than ten days before
the date of such meeting, nor more than seventy days prior to any other
action. A determination of shareholders entitled to notice of or to vote at
a meeting of the shareholders shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for
the adjourned meeting.
ARTICLE IX
SEAL
The Board shall provide a corporate seal, which shall be in the form
of a circle and shall bear the full name of the Corporation.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
October in each year.
ARTICLE XI
INDEMNIFICATION
SECTION 1. Every person who is or was an officer or employee of the
Corporation or of any other corporation or entity in which he served as a
director, officer or employee at the request of the Corporation
(hereinafter collectively referred to as a "Covered Person"), shall be
indemnified by the Corporation against any and all reasonable costs and
expenses (including but not limited to attorney's fees) and any liabilities
(including but not limited to judgments, fines, penalties and reasonable
settlements) that may be paid by or imposed against him in connection with
or resulting from any pending, threatened or completed claim, action, suit
or proceeding (whether brought by or in the right of the Corporation or
such other corporation or entity or otherwise), and whether, civil,
criminal, administrative, investigative or legislative (including any
appeal relating thereto), in which he may be involved, as a party or
witness or otherwise, by reason of his being or having been an officer or
employee of the Corporation or a director, officer or employee of such
other corporation or entity, or by reasons of any action taken or not taken
in such capacity, whether or not he continues to be such at the time such
liability or expense shall have been paid or imposed, if the Covered
Person:
(a) has been successful on the merits or otherwise with respect to
such claim, action, suit or proceeding; or
(b) acted in good faith, in what he reasonably believed to be the
best interests of the Corporation or such other corporation or entity, as
the case may be, and in addition, in any criminal action or proceeding, had
no reasonable cause to believe that his conduct was unlawful. As used in
this Article XI, the terms "expense" and "liability" shall include, but not
be limited to, counsel fees and disbursements and amounts of judgments,
fines or penalties against, and reasonable amounts paid in settlement by, a
Covered Person. The termination of any claim, action, suit or proceeding by
judgment, settlement (whether with or without court approval), conviction
or upon a plea of guilty or nolo contendere, or its equivalent, shall not
create a presumption that a Covered Person did not meet the standards of
conduct set forth in paragraph (b) of this Section 1.
SECTION 2. Indemnification under paragraph (b) of Section 1 shall be
made unless it is determined by any of the following that the Covered
Person has not met the standard of conduct set forth in paragraph (b) of
Section 1:
(a) the Board, acting by a quorum consisting of directors who were
not parties to (or who are determined to have been successful with respect
to) the claim, action, suit or proceeding;
(b) a committee of the Board established pursuant to Section 3 of
Article IV of the By-laws consisting of directors who were not parties to
(or who are determined to have been successful with respect to) the claim,
action, suit or proceeding;
(c) any officer or group of officers of the Corporation who, by
resolution adopted by the Board, has been given authority to make such
determinations;
(d) either of the following selected by the Board if a disinterested
committee of the Board (as described in paragraph (b) of this Section 2)
cannot be obtained or by the person(s) designated in paragraphs (a), (b) or
(c) of this Section 2:
(1) independent legal counsel (who may be the regular counsel of the
Corporation) who has delivered to the Corporation a written determination;
or
(2) an arbitrator or a panel of arbitrators (which panel may include
directors, officers, employees or agents of the Corporation) who has
delivered to the Corporation a written determination.
SECTION 3. Expenses incurred with respect to any claim, action, suit
or proceeding of the character described in Section 1 of this Article XI
shall be advanced to a Covered Person by the Corporation prior to the final
disposition thereof, but the Covered Person shall be obligated to repay
such advances if it is ultimately determined that he is not entitled to
indemnification. As a condition to advancing expenses hereunder, the
Corporation may require the Covered Person to sign a written instrument
acknowledging his obligation to repay any advances hereunder if it is
ultimately determined he is not entitled to indemnity.
Notwithstanding the preceding paragraph, the Corporation may refuse
to advance expenses or may discontinue advancing expenses to a Covered
Person if such advancement is determined by the Corporation, in its sole
and exclusive discretion, not to be in the best interest of the
Corporation.
SECTION 4. Notwithstanding anything in this Article XI to the
contrary, no person shall be indemnified in respect of any claim, action,
suit or proceeding initiated by such 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 an action
initiated with the approval of a majority of the Board).
SECTION 5. The rights of indemnification provided in this Article XI
shall be in addition to any other rights to which any Covered Person may
otherwise be entitled to by contract, vote of shareholders or disinterested
directors, other corporate action or otherwise; and in the event of any
such person's death, such rights shall extend to his heirs and legal
representatives.
ARTICLE XII
AMENDMENTS
Any By-law may be adopted, repealed, altered or amended by the Board
at any regular or special meeting thereof. The shareholders of the
Corporation shall have the power to amend, alter to repeal any By-law only
to the extent and in the manner provided in the Second Restated Articles of
Incorporation of the Corporation.
ASHLAND INC.
1997 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the Ashland Inc. 1997 Stock Incentive Plan is to
promote the interests of Ashland Inc. and its shareholders by providing
incentives to its directors, officers and employees. Accordingly, the
Company may grant to selected officers and employees 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 continue
service with Ashland, devote their best efforts to the Company and improve
Ashland's economic performance, 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. 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, to be entered into at the Company's discretion.
(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) "Ashland Inc. 1993 Plan" shall mean the Ashland Inc. 1993 Stock
Incentive Plan, as it now exists or as it may hereafter be amended.
(E) "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.
(F) "Board" shall mean the Board of Directors of the Company.
(G) "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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(I) "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 and an "outside
director" as defined in the regulations issued under Section 162(m) of the
Code.
(J) "Common Stock" shall mean the Common Stock of the Company ($1.00
par value), subject to adjustment pursuant to Section 13.
(K) "Company" shall mean, collectively, Ashland Inc. and its
Subsidiaries.
(L) "Employee" shall mean a regular, full-time or part-time employee
of Ashland as selected by the Committee to receive an award under the Plan.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(N) "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.
(O) "Fair Market Value" shall mean the price of the Common Stock as
reported on the Composite Tape of the New York Stock Exchange on the date
and at the time selected by the Company or as otherwise provided in the
Plan.
(P) "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.
(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) "Outside Director" shall mean a director of the Company who is not
also an Employee of the Company.
(V) "Performance Goals" means 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 relation to
other companies comparably or otherwise situated. Such performance goals
may be particular to an Employee or the division, department, branch, line
of business, subsidiary or other unit in which the Employee works and/or
may be based on the performance of Ashland generally.
(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. 1997 Stock Incentive Plan.
(BB) "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 (unless
otherwise directed by the Committee), and in the case of Outside Directors
is the period set forth in subsection (B) of Section 8.
(CC) "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, if any.
(DD) "Restricted Stock Award" shall mean an award of Restricted Stock.
(EE) "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.
(FF) "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.
(GG) "Section 16(b) Optionee" shall mean an Employee or former
Employee who is subject to Section 16(b) of the Exchange Act.
(HH) "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.
(II) "Subsidiary" shall mean any present or future subsidiary
corporations, as defined in Section 424 of the Code, of Ashland.
(JJ) "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
3,212,000 shares of Ashland Common Stock, par value $1.00 per share;
provided, however, that of such shares, only 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. During the term of the Plan (as provided in
Section 14 hereof), no Employee shall be granted more than a total of
500,000 in Options or Stock Appreciation Rights.
SECTION 4. ADMINISTRATION
The Plan shall be administered by 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. 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,
at the discretion of the Company and as directed by the Committee, 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. Every Nonqualified Stock Option shall provide for a fixed
expiration date of not later than ten years and one month from the date
such Nonqualified 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 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) 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. 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 or person 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 an
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. A "cashless exercise" of an option is a procedure by
which a broker provides the funds to an Employee to effect an option
exercise. At the direction of the Employee, the broker will either (i) sell
all of the shares received when the option is exercised and pay the
Employee the proceeds of the sale (minus the option exercise price,
withholding taxes and any fees due to the broker) or (ii) sell enough of
the shares received upon exercise of the option to cover the exercise
price, withholding taxes and any fees due the broker and deliver to the
Employee (either directly or through the Company) a stock certificate for
the remaining shares. Dispositions to a broker effecting a cashless
exercise are not exempt under Section 16 of the Exchange Act.
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 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.
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, which may, at the Company's discretion and as directed by the
Committee, be 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 a non-refundable amount equal to, or in
excess of, the par value of the shares of Restricted Stock awarded to him
or her. 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.
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 Ashland Inc. 1993 Plan shall be
granted an Award of 1,000 shares of Restricted Stock upon the fifth
anniversary of his or her prior award under the Ashland Inc. 1993 Plan; and
(ii) each person who is hereafter duly appointed or elected as an Outside
Director and who does not receive an award under the Ashland Inc. 1993 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;
provided, however, that no Outside Director shall receive an award of
Restricted Stock under this Plan if such award would be in addition to a
simultaneous award of 1,000 shares of Restricted Stock under the Ashland
Inc. 1993 Plan. 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 may 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 (C) 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) 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. Unless otherwise determined and directed
by the Committee, 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 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, 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, unless otherwise determined by the Committee, 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, unless otherwise
determined by the Committee, such Restricted Period shall not 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, if any.
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, if any. 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 which may, in the
Company's discretion and as directed by the Committee, be 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 Performance Goals and Performance Period applicable to an award of
Performance Shares shall be set forth in writing by the Committee no later
than 90 days after the commencement of the Performance Period and shall be
communicated to the Employee. The Committee shall have the discretion to
later revise the Performance Goals solely for the purpose of reducing or
eliminating the amount of compensation otherwise payable upon attainment of
the Performance Goals; provided that the Performance Goals and the amounts
payable upon attainment of the Performance Goals may be adjusted during any
Performance Period to reflect promotions, transfers or other changes in an
Employee's employment so long as such changes are consistent with the
Performance Goals established for other Employees in the same or similar
positions.
In making a Performance Share award, the Committee may take into
account an Employee's responsibility level, performance, cash compensation
level, incentive compensation awards and such other considerations as it
deems appropriate. Each Performance Share award shall be established in
shares of Common Stock and/or shares of Restricted Stock in such
proportions as the Committee shall determine. The original amount of any
Performance Share award shall not exceed 250,000 shares of Common Stock or
Restricted Stock.
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 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 prior to the end of such one year period (or such
other period determined by the Committee), the Option granted to such
Employee shall immediately terminate.
(B) Every Option shall provide that in the event the Employee dies (i)
while employed by Ashland, (ii) during the periods in which Options may be
exercised by an Employee determined to be disabled as provided in
subsection (C) of this Section 11 or (iii) after Retirement, 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 prior to the fixed
termination date set forth in the Option by such Employee for the number of
shares which the Employee could have acquired under the Option immediately
prior to the Employee's disability. 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 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
at any time or from time to time, prior to the fixed termination date set
forth in the Option for the number of shares which the Employee could have
acquired under the Option immediately prior to such Retirement.
(E) Except as provided in subsections (A), (B), (C), (D), (F) and (G)
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 thirty (30) days 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
(if any), 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) Notwithstanding any provision of this Section 11 to the contrary,
in the event the Committee determines, in its sole and absolute discretion,
that the employment of any Employee has terminated for a reason or in a
manner adversely affecting the Company (which may include, without
limitation, taking other employment or rendering service to others without
the consent of the Company), then the Committee may direct that such
Employee forfeit any and all Options that he or she could otherwise have
exercised pursuant to the terms of this Plan.
(H) 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 (or, if no Agreement is entered
into, at least one year from the date of the Award). 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.
(I) 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 earlier terminated as hereinafter
provided, no Awards shall be granted hereunder after January 30, 2002. The
Board or the Committee may at any time terminate, modify or amend the Plan
in such respects as it shall deem advisable; provided, however, that the
Board or the Committee 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 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.
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 or 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 Sections 13,
15(d) or 16(a) 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.
SECTION 16. EFFECTIVENESS OF THE PLAN
The Plan shall be submitted to the shareholders of the Company for
their approval and adoption on January 30, 1997 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.
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