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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002
Commission file number 1-2918
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 61-0122250
50 E. RiverCenter Boulevard
P.O. Box 391
Covington, Kentucky 41012-0391
Telephone Number: (859) 815-3333
Securities Registered Pursuant to Section 12(b):
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, par value $1.00 per share New York Stock Exchange
and Chicago Stock Exchange
Rights to Purchase Series A Participating New York Stock Exchange
Cumulative Preferred Stock and Chicago Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G): NONE
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
At October 31, 2002, based on the New York Stock Exchange closing
price, the aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $1,780,870,376. In determining this
amount, the Registrant has assumed that its directors and executive
officers are affiliates. Such assumption shall not be deemed conclusive for
any other purpose.
At October 31, 2002, there were 68,242,197 shares of Registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the fiscal
year ended September 30, 2002 are incorporated by reference into Parts I,
II and IV.
Portions of Registrant's definitive Proxy Statement for its January
30, 2003 Annual Meeting of Shareholders are incorporated by reference into
Part III.
TABLE OF CONTENTS
PART I Page
Item 1. Business........................................................ 1
APAC ......................................................... 1
Ashland Distribution............................................ 2
Ashland Specialty Chemical...................................... 2
Valvoline....................................................... 3
Refining and Marketing.......................................... 4
Miscellaneous................................................... 7
Item 2. Properties...................................................... 10
Item 3. Legal Proceedings............................................... 10
Item 4. Submission of Matters to a
Vote of Security Holders........................................ 12
Item X. Executive Officers of Ashland................................... 12
PART II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters....................................... 13
Item 6. Selected Financial Data......................................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 13
Item 8. Financial Statements and Supplementary Data..................... 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................... 13
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 13
Item 11. Executive Compensation.......................................... 14
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Shareholder Matters.......... 14
Item 13. Certain Relationships and Related Transactions.................. 14
Item 14. Controls and Procedures......................................... 14
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................... 15
PART I
ITEM 1. BUSINESS
Ashland Inc. is a Kentucky corporation, organized on October 22, 1936,
with its principal executive offices located at 50 E. RiverCenter
Boulevard, Covington, Kentucky 41011 (Mailing Address: 50 E. RiverCenter
Boulevard, P.O. Box 391, Covington, Kentucky 41012-0391) (Telephone: (859)
815-3333). The terms "Ashland" and the "Company" as used herein include
Ashland Inc. and its consolidated subsidiaries, except where the context
indicates otherwise.
Ashland's businesses are grouped into five industry segments: APAC,
Ashland Distribution, Ashland Specialty Chemical, Valvoline and Refining
and Marketing. Financial information about these segments for the three
fiscal years ended September 30, 2002 is set forth on pages 60 and 61 of
Ashland's Annual Report to Shareholders for the fiscal year ended September
30, 2002 ("Annual Report").
APAC performs asphalt and concrete contract construction work,
including highway paving and repair, excavation and grading, and bridge
construction, and produces asphaltic and ready-mix concrete, crushed stone
and other aggregate in the southern and midwestern United States.
Ashland Distribution distributes industrial chemicals and solvents,
plastics, composite materials and fine ingredients in North America and
plastics in Europe. Ashland Distribution also provides environmental and
energy management services. Ashland Specialty Chemical manufactures
composites, adhesives, and casting binder chemicals for use in the
transportation and construction industries. Ashland Specialty Chemical also
manufactures water treatment chemicals for use in the general industrial
and merchant marine markets. In addition, Ashland Specialty Chemical
manufactures high purity chemicals and provides services to the
microelectronics industry.
Valvoline is a producer and marketer of premium packaged motor oil and
automotive chemicals, including appearance products, antifreeze, filters,
rust preventives and coolants. In addition, Valvoline is engaged in the
"fast oil change" business through outlets operating under the Valvoline
Instant Oil Change(R) name.
Marathon Ashland Petroleum LLC ("MAP"), a joint venture with Marathon
Oil Company, operates seven refineries with a total crude oil refining
capacity of 935,000 barrels per day. Refined products are distributed
through a network of independent and company-owned outlets in the Midwest,
the upper Great Plains and the southeastern United States. Marathon Oil
Company holds a 62% interest in MAP, and Ashland holds a 38% interest in
MAP. Ashland accounts for its investment in MAP using the equity method.
At September 30, 2002, Ashland and its consolidated subsidiaries had
approximately 24,300 employees (excluding contract employees).
APAC
The APAC group of companies is the nation's largest asphalt and
concrete paving company and is a major supplier of construction materials.
APAC performs construction work, such as paving, repairing and resurfacing
highways, streets, airports, residential and commercial developments,
sidewalks and driveways, and grading and base work. In addition, it
performs a number of construction services such as excavation and related
activities in the construction of bridges and structures, drainage
facilities and underground utilities. APAC conducts its business through 25
market focused business units operating in 14 southern and midwestern
states. Distinguished by their local identities, these business units
provide construction services, technologies and materials throughout the
regions in which they operate. These market focused business units are
supported by management and administrative staff in Atlanta, Georgia.
To deliver its services and products, APAC utilizes extensive
aggregate-producing properties and construction equipment. It currently has
36 permanent operating quarry locations, 61 other aggregate production
facilities, 67 ready-mix concrete plants, 242 hot-mix asphalt plants and a
fleet of over 16,500 mobile equipment units, including heavy construction
equipment and transportation-related equipment. In certain market areas,
APAC is vertically integrated with asphalt, aggregate and ready-mix
operations, all complementing one another.
Raw aggregate generally consists of sand, gravel, granite, limestone
and sandstone. About 30% of the raw aggregate produced by APAC is used in
APAC's own contract construction work and the production of various
processed construction materials. The remainder is sold to third parties.
APAC also purchases substantial quantities of raw aggregate from other
producers whose proximity to the job site renders it economically
attractive. Most other raw materials, such as liquid asphalt, portland
cement and reinforcing steel, are purchased from third parties.
Approximately 79% of APAC's sales and operating revenues are
construction revenues, with the remaining 21% coming from sales of
construction materials. Approximately 83% of APAC's construction revenues
are derived
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directly from highway and other public sector sources, with the remaining
17% coming from industrial and commercial customers and private developers.
Climate and weather significantly affect revenues and margins in the
construction business. Due to its location, APAC tends to enjoy a
relatively long construction season. Most of APAC's operating income is
generated during the construction period of May to October.
Total backlog at September 30, 2002 was $1,691 million (including
APAC's $130 million proportionate share of work related to an
unconsolidated equity joint venture), compared to $1,629 million at
September 30, 2001. APAC includes a construction project in its backlog
when a contract is awarded or a firm letter of commitment is obtained and
funding is in place. The backlog at September 30, 2002 is considered firm,
and a major portion is expected to be completed during fiscal 2003.
ASHLAND DISTRIBUTION
Ashland Distribution Company ("Ashland Distribution") distributes
chemicals, plastics, reinforcements and resins, and fine ingredients in
North America and plastics in Europe. Suppliers include many of the
nation's leading chemical manufacturers and a growing number of offshore
producers. Ashland Distribution specializes in providing mixed truckloads
and less-than-truckload quantities to customers in a wide range of
industries. Deliveries are facilitated through a network of owned or leased
facilities including approximately 70 locations in North America and 25
locations in 18 foreign countries. Ashland Distribution operates in the
following major market segments:
CHEMICALS - Ashland Distribution distributes specialty and industrial
chemicals, additives and solvents to industrial users through distribution
centers in the United States, Canada, Mexico and Puerto Rico, as well as
some export operations. Markets served include the paint and coatings,
inks, adhesives, polymer, rubber, industrial and institutional compounding,
automotive, appliance and paper industries.
PLASTICS - Ashland Distribution sells a broad range of branded
thermoplastic resins to injection molders, extruders, blow molders, and
rotational molders in the plastics industry through distribution locations
in the United States, Canada, Mexico and Puerto Rico. It also provides
plastic material transfer and packaging services and less-than-truckload
quantities of packaged thermoplastics. Additionally, Ashland Distribution
markets a broad range of thermoplastics to processors in Europe via
distribution centers located in Belgium, England, Finland, France, Germany,
Ireland, Italy, the Netherlands, Norway, Poland, Portugal, Spain and
Sweden.
COMPOSITES - Ashland Distribution supplies mixed truckload and
less-than-truckload quantities of polyester thermosetting resins,
fiberglass and other specialty reinforcements, catalysts and allied
products to customers in the reinforced plastics and cultured marble
industries through distribution facilities located throughout North
America.
INGREDIENTS - Ashland Distribution markets food-grade and nutritional
additives and ingredients to customers in North America. It also
distributes cosmetic and pharmaceutical specialty chemicals.
SERVICES - Ashland Distribution also provides energy and environmental
management services. Energy services include customized management of
energy purchasing, supply and transportation. Environmental services,
working in cooperation with chemical waste service companies, provide
customers with chemical waste collection, disposal and recycling services.
ASHLAND SPECIALTY CHEMICAL
Ashland Specialty Chemical Company ("Ashland Specialty Chemical")
manufactures composites, adhesives, and casting binder chemicals for use in
the transportation and construction industries. Ashland Specialty Chemical
also manufactures water treatment chemicals for use in the general
industrial and merchant marine markets. In addition, it manufactures high
purity chemicals and provides services to the microelectronics industry.
Ashland Specialty Chemical owns and operates 33 manufacturing facilities
and participates in 14 manufacturing joint ventures in 18 countries.
Ashland Specialty Chemical is comprised of the following business units:
COMPOSITE POLYMERS - This business unit manufactures and sells a broad
range of chemical-resistant, fire-retardant, general-purpose and
high-performance marine grades of unsaturated polyester and vinyl ester
resins and gelcoats for the reinforced plastics industry. Key markets
include the transportation, construction and marine industries. This
business unit has manufacturing plants in Jacksonville and Fort Smith,
Arkansas; Los Angeles, California; Bartow, Florida; McMinnville, Oregon;
Philadelphia, Pennsylvania; Johnson Creek, Wisconsin; Kelowna, British
Columbia, Canada; Kunshan, China; Porvoo and Lahti, Finland; Sauveterre,
France; Miszewo, Poland; Benicarlo, Spain; and, through separate joint
ventures has manufacturing plants in Sao Paolo, Brazil, and Jeddah, Saudi
Arabia. In addition, this business unit also manufactures products through
other Ashland Specialty Chemical facilities located in Neville Island,
Pennsylvania, and Mississauga, Ontario, Canada. Effective September 2002,
the former Petrochemicals business unit became a group within the Composite
Polymers business unit. The
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Petrochemical business manufactures maleic anhydride at Neal, West Virginia
and also markets maleic anhydride in North America.
CASTING SOLUTIONS (FORMERLY FOUNDRY PRODUCTS) - This business unit
manufactures and sells foundry chemicals worldwide, including sand-binding
resin systems, refractory coatings, release agents, engineered sand
additives and riser sleeves. This business unit serves the global metal
casting industry from 24 manufacturing locations in 18 countries. This
business unit changed its name to Casting Solutions business unit in 2002.
DREW INDUSTRIAL - This business unit supplies specialized chemicals
and consulting services for the treatment of boiler water, cooling water,
steam, fuel and waste streams. It also supplies process chemicals and
technical services to the pulp and paper and mining industries and
additives to manufacturers of latex and paint. It conducts operations
throughout North America, Europe and the Far East through subsidiaries,
joint venture companies and distributors. This business unit has
manufacturing plants in Kearny, New Jersey; Houston, Texas; Sydney and
Perth, Australia; Singapore; Ajax, Ontario, Canada; Somercotes, England;
and Auckland, New Zealand.
ELECTRONIC CHEMICALS - This business unit manufactures and sells a
variety of ultrapure chemicals for the worldwide semiconductor industry
through various manufacturing locations and also custom blends and packages
ultrapure liquid chemicals to customer specifications. This business unit
operates manufacturing plants in Pueblo, Colorado; Easton, Pennsylvania;
Dallas, Texas; Pyongtaek-Shi, Kyonggi-Do, Korea; Milan, Italy; and through
a joint venture with Union Petrochemical Corporation, an ultrapure-process
chemicals manufacturing facility in Taiwan. In addition, it enters into
long-term agreements to provide complete on-site chemical management
services, including purchasing, warehousing and delivering chemicals for
in-plant use of high purity chemicals at major facilities of large
consumers. This business unit's Fab Services business provides full-service
equipment parts-cleaning, refurbishment and management services to the
semiconductor manufacturing industry from facilities in Chandler and Tempe,
Arizona; and Austin and Carrollton, Texas.
SPECIALTY POLYMERS & ADHESIVES - This business unit manufactures and
sells specialty phenolic resins for paper impregnation and friction
material bonding; acrylic polymers for pressure-sensitive adhesives;
emulsion polymer isocyanate adhesives for structural wood bonding;
polyurethane and epoxy structural adhesives for bonding fiberglass
reinforced plastics, composites, thermoplastics and metals in automotive,
recreational, and industrial applications; induction bonding systems for
thermoplastic materials; elastomeric polymer adhesives and butyl rubber
roofing tapes for commercial roofing applications; and vapor-curing,
high-performance urethane coatings systems. It has manufacturing plants in
Calumet City, Illinois; Norwood and Totowa, New Jersey; Ashland and
Columbus, Ohio; White City, Oregon; and Kidderminster, England.
DREW MARINE - This business unit supplies specialty chemicals for
water and fuel treatment and general maintenance, as well as sealing
products, welding and refrigerant products and fire fighting and safety
services to the world's merchant marine fleet. It also provides shipboard
technical service for vessels serving ports throughout the world.
OTHER MATTERS
For information on Ashland Distribution and Ashland Specialty Chemical
and federal, state and local statutes and regulations governing releases
into, or protection of, the environment, see "Item 1. Business -
Miscellaneous - Environmental Matters" and "Item 3. Legal Proceedings -
Environmental Proceedings" in this Form 10-K.
VALVOLINE
The Valvoline Company, a division of Ashland, is a marketer of
premium-branded automotive and commercial oils, automotive chemicals,
automotive appearance products and automotive services, with sales in more
than 140 countries. The Valvoline(R) trademark was federally registered in
1873 and is the oldest trademark for a lubricating oil in the United
States. Valvoline is comprised of the following business units:
NORTH AMERICAN: DO IT YOURSELF ("DIY") & DO IT FOR ME ("DIFM") - In
the United States and Canada, Valvoline markets its array of premium
automotive lubricants and chemicals to the U.S. private passenger car and
light truck market through two large business units based on the consumer
segments of the market, "Do-It-Yourself" and "Do-It-For-Me." These two
business units market Valvoline(R) motor oil, one of the top selling brands
in the United States; synthetic SynPower(R) automobile chemicals for
"under-the-hood" use; Eagle One(R) automotive appearance products; Zerex(R)
antifreeze; and Pyroil(R) automotive chemicals. The DIY business unit sells
the Valvoline family of brands to consumers who perform their own auto
maintenance, through retail auto parts stores, mass merchandisers, and
warehouse distributors and their affiliated jobber stores such as NAPA and
Carquest. The DIFM business unit sells Valvoline products to consumers who
use auto service businesses, such as car dealers and
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quick lubes, through a network of independent distributors and five
company-owned and operated "direct market" operations.
The domestic Commercial and Specialty Products Group, operated within
the DIFM business unit, has a strategic alliance with Cummins Engine
Company, Inc. to distribute heavy-duty lubricants to the commercial market.
This business unit also markets R-12, an automotive refrigerant that
was phased out of production in 1995. R-12 is being replaced in the market
by a new generation of refrigerants. Valvoline expects to deplete its
inventory of R-12 in fiscal 2003.
EAGLE ONE - Eagle One is a brand of premium automobile appearance
chemicals for "above-the-hood" applications. Products include waxes,
polishes and wheel cleaners. Managed by Valvoline as a separate business
unit, Eagle One markets its products through Valvoline's DIY and DIFM
business units in North America and through the Valvoline International
business unit. During fiscal 2002, Eagle One successfully introduced
Wax-As-U-Dry automobile wax. Wax-As-U-Dry is a first-of-its-kind product
designed to be applied to the automobile during the hand-drying process
following the washing of the automobile.
VALVOLINE INTERNATIONAL - Valvoline International markets Valvoline
branded products and Eagle One automotive appearance products through
company-owned affiliates or business units in Australia, Austria, Belgium,
Brazil, Denmark, Finland, Germany, Great Britain, Italy, the Netherlands,
Poland, South Africa, Sweden and Switzerland. TECTYL(R) rust preventives
are marketed in Europe. Licensees and distributors market certain products
in other parts of Europe, Mexico, Central and South America, the Far East,
the Middle East and certain African countries. Joint ventures have been
established in China, Ecuador, India, Thailand and Venezuela. Packaging and
blending plants and distribution centers in Australia, Canada, the
Netherlands and the United States supply international customers.
VALVOLINE INSTANT OIL CHANGE(R) ("VIOC") - VIOC is one of the largest
competitors in the expanding U.S. "fast oil change" service business,
providing Valvoline with a significant share of the installed segment of
the passenger car and light truck motor oil market. As of September 30,
2002, 363 company-owned and 335 franchised service centers were operating
in 40 states.
VIOC has continued its customer service innovation through its
upgraded and enhanced Maximum Vehicle Performance program ("MVP"). MVP is a
computer-based program that maintains system-wide service records on all
customer vehicles. MVP also contains a database on all car models, which
allows employees to make service recommendations based on a vehicle owner's
manual recommendations.
REFINING AND MARKETING
Refining and Marketing operations are conducted by MAP and its
subsidiaries, including its wholly-owned subsidiaries, Speedway
SuperAmerica LLC and Marathon Ashland Pipe Line LLC. Marathon Oil Company
("Marathon") holds a 62% interest in MAP and Ashland holds a 38% interest
in MAP.
REFINING
MAP owns and operates seven refineries with an aggregate refining
capacity of 935,000 barrels of crude oil per calendar day (1 barrel = 42
United States gallons). The table below sets forth the location and daily
crude oil throughput capacity (measured in barrels) of each of MAP's
refineries as of September 30, 2002:
Garyville, Louisiana...................................232,000
Catlettsburg, Kentucky.................................222,000
Robinson, Illinois.....................................192,000
Detroit, Michigan...................................... 74,000
Canton, Ohio........................................... 73,000
Texas City, Texas...................................... 72,000
St. Paul Park, Minnesota............................... 70,000
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Total ............................................935,000
=======
MAP's refineries include crude oil atmospheric and vacuum
distillation, fluid catalytic cracking, catalytic reforming,
desulfurization and sulfur recovery units. The refineries have the
capability to process a wide variety of crude oils and to produce typical
refinery products, including reformulated gasoline ("RFG"). In addition to
typical refinery products, the Catlettsburg refinery, an ISO-9000 certified
facility, manufactures lubricating oils and a wide range of petrochemicals.
For the twelve months ended September 30, 2002, 74% of MAP's production of
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lubricating oils was purchased by Valvoline and 39% of MAP's production of
petrochemicals was purchased by Ashland Distribution.
MAP also produces a wide range of asphalt products, petroleum pitch
(primarily used in the graphite electrode, clay target and refractory
industries), aromatics, aliphatic hydrocarbons, cumene, base lube oil,
slack wax and polymer grade propylene.
The table below sets forth MAP's refinery total input and refinery
production by product group for the twelve months ended September 30, 2002,
2001 and 2000. Refinery total inputs include crude oil and other
feedstocks.
Twelve Months Ended September 30
----------------------------------------------------
2002 2001 2000
---- ---- ----
Refinery Input
(in thousands of barrels per day) 1,080.9 1,051.0 1,033.4
---------------------------------
Refined Product Yields
(in thousands of barrels per day)
Gasoline............................... 594.0 560.5 559.0
Distillates............................ 292.9 278.7 271.5
Propane................................ 21.7 21.2 21.0
Feedstocks & Special Products.......... 83.5 69.9 68.9
Heavy Fuel Oils........................ 21.3 44.7 41.2
Asphalt................................ 73.3 74.5 73.3
------- ------- -------
Total................... 1,086.7 1,049.5 1,034.9
======= ======= =======
Planned maintenance activities requiring temporary shutdown of certain
refinery operating units are periodically performed at each refinery. MAP
had a major turnaround at the St. Paul Park refinery in the twelve months
ended September 30, 2002.
The Garyville, Louisiana coker unit project achieved mechanical
completion in October 2001 and was operating at full production by
mid-December 2001. To supply this new unit, MAP entered into a multi-year
contract with P.M.I. Comercio Internacional, S.A. de C.V., an affiliate of
Petroleos Mexicanos, to purchase approximately 90,000 barrels per day of
heavy Mayan crude oil. The contract was increased to approximately 100,000
barrels per day in July 2002.
At its Catlettsburg, Kentucky refinery, MAP has initiated a multi-year
integrated investment program to upgrade product yield realizations and
reduce fixed and variable manufacturing expenses. This program involves the
expansion, conversion and retirement of certain refinery processing units
which, in addition to improving profitability, will reduce the refinery's
total gasoline pool sulfur below 30 parts per million, thereby eliminating
the need for low sulfur gasoline compliance investments at the refinery.
The project is expected to be completed in late 2003.
MARKETING
MAP's principal marketing areas for gasoline and distillates include
the Midwest, the upper Great Plains and the southeastern United States.
Gasoline and distillates are sold in 21 states. Gasoline is sold at
wholesale primarily to independent marketers, jobbers and chain retailers
who resell these products through several thousand retail outlets. MAP also
supplies approximately 3,800 jobber-dealer, open-dealer and lessee-dealer
locations using the Marathon(R) and Ashland(R) brand names.
Gasoline, distillates and aviation products are also sold to
utilities, railroads, river towing companies, commercial fleet operators,
airlines and governmental agencies. About half of MAP's propane is sold
into the home heating markets and the balance is purchased by industrial
consumers. Propylene, cumene, aromatics, aliphatics, and sulfur are
marketed to customers in the chemical industry. Base lube oils and slack
wax are sold throughout the United States. Pitch is also sold domestically,
but approximately 10% of pitch products are exported into growing markets
in Canada, Mexico, India, and South America.
MAP markets asphalt through owned and leased terminals located
throughout the Midwest and Southeast. The MAP customer base includes
approximately 900 asphalt paving contractors, government entities (states,
counties, cities and townships) and asphalt roofing shingle manufacturers.
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Retail sales of gasoline and diesel fuel are made through MAP's
wholly-owned subsidiary, Speedway SuperAmerica LLC ("SSA"). As of September
30, 2002, SSA had 2,063 retail outlets in 13 states in the Midwest and
Southeast which sell petroleum products and convenience store merchandise
primarily under the brand names Speedway(R) and SuperAmerica(R). The retail
locations sell a variety of food, merchandise, cigarettes, candy and
beverages. Several locations also have on-premises brand-name restaurants
such as Subway(R) and Taco Bell(R).
During the twelve months ended September 30, 2002, 57% of SSA's
revenues (excluding excise taxes) were derived from the sale of gasoline
and diesel fuel, and the remainder were derived from the sale of
merchandise.
Pilot Travel Centers LLC ("PTC"), a joint venture with Pilot
Corporation ("Pilot"), is the largest operator of travel centers in the
United States with approximately 230 locations in 35 states. The travel
centers offer diesel fuel, gasoline and a variety of other services
associated with such locations, including on-premises brand-name
restaurants. Pilot and MAP each own a 50% interest in PTC.
The table below shows the volume of MAP's consolidated refined product
sales for the twelve months ended September 30, 2002, 2001 and 2000.
Twelve Months Ended September 30
---------------------------------------------------------
2002 2001 2000
---- ---- ----
Refined Product Sales
(in thousands of barrels per day)
---------------------------------
Gasoline.......................... 774.3 741.0 752.1
Distillates....................... 345.7 349.6 351.2
Propane........................... 22.7 21.5 21.6
Feedstocks & Special Products .... 80.3 68.1 67.6
Heavy Fuel Oils................... 22.0 46.3 40.9
Asphalt........................... 76.2 75.8 75.1
------- ------- -------
Total......... 1,321.2 1,302.3 1,308.5
======= ======= =======
Matching Buy/Sell Volumes
included in above..................... 69.3 43.7 41.4
MAP sells RFG in parts of its marketing territory, primarily Chicago,
Illinois; Louisville, Kentucky; Northern Kentucky; and Milwaukee,
Wisconsin. MAP also markets low-vapor-pressure gasolines in nine states.
SUPPLY AND TRANSPORTATION
The crude oil processed in MAP's refineries is obtained from
negotiated contract and spot purchases or exchanges. For the twelve months
ended September 30, 2002, MAP's negotiated contract and spot purchases for
refinery input of crude oil produced in the U.S. averaged 454,800 barrels
per day, including an average of 46,900 net barrels per day acquired from
Marathon. For the twelve months ended September 30, 2002, MAP's foreign
crude oil requirements were met largely through purchases from various
foreign national oil companies, producing companies and traders. Purchases
of foreign crude oil represented 51% of MAP's crude oil requirements for
the twelve months ended September 30, 2002.
MAP's ownership or interest in domestic pipeline systems in its
refining and marketing areas is significant. MAP owns, leases or has an
ownership interest in 7,160 miles of pipelines in 12 states. This network
transports crude oil and refined products to and from terminals, refineries
and other pipelines. It includes 10 miles of crude oil gathering lines,
3,410 miles of crude oil trunk lines and 3,740 miles of refined product
lines.
MAP has a 46.7% ownership interest in LOOP LLC ("LOOP"), which is the
owner and operator of the only U.S. deepwater port facility capable of
receiving crude oil from very large crude carriers. Ashland has retained a
4% ownership interest in LOOP. MAP also owns a 49.9% ownership interest in
LOCAP INC. ("LOCAP"), which is the owner and operator of a crude oil
pipeline connecting LOOP to the Capline system. Ashland has retained an
8.6% ownership interest in LOCAP. In addition, MAP has a 37.2% ownership
interest in the Capline system. These port and pipeline systems provide MAP
with access to common carrier transportation from the Louisiana Gulf Coast
to Patoka, Illinois. At Patoka, the Capline system connects with other
common carrier pipelines owned by MAP that provide transportation to MAP's
refineries in Illinois, Kentucky, Michigan, Minnesota and Ohio.
Ohio River Pipe Line LLC ("ORPL"), a subsidiary of MAP, is building a
pipeline from Kenova, West Virginia to Columbus, Ohio. ORPL is a common
carrier pipeline company and the pipeline will be an interstate common
carrier pipeline. The pipeline is currently known as Cardinal Products Pipe
Line and is expected to initially move about 50,000 barrels per day of
refined petroleum into the central Ohio region. ORPL has secured all of the
rights-
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of-way required to build the pipeline, and the final permits required to
build the pipeline have been approved. Construction on the pipeline began
in August 2002, with start-up of the pipeline expected in the first half of
2003.
MAP has been designated operator of the Centennial Pipeline, owned
jointly by Panhandle Eastern Pipe Line Company, a subsidiary of CMS Energy
Corporation, MAP, and TE Products Pipe Line Company, Limited Partnership.
The new pipeline system, which connects the Gulf Coast refiners with the
Midwest market, has the initial capacity to transport approximately 210,000
barrels per day of refined petroleum products and began deliveries of
refined products in April 2002.
MAP also has a 33.3% ownership interest in Minnesota Pipe Line
Company, which operates a crude oil pipeline in Minnesota. Minnesota Pipe
Line Company provides MAP with access to crude oil common carrier
transportation from Clearbrook, Minnesota, to Cottage Grove, Minnesota,
which is in the vicinity of MAP's St. Paul Park, Minnesota refinery.
MAP's marine transportation operations include towboats and barges
that transport refined products on the Ohio, Mississippi and Illinois
rivers, their tributaries and the Intracoastal Waterway. MAP also leases
and owns railcars in various sizes and capacities for movement and storage
of petroleum products and a large number of tractors, tank trailers and
general service trucks.
In addition, MAP owns and operates 88 terminal facilities from which
it sells a wide range of petroleum products. These facilities are supplied
by a combination of barges, pipeline, truck and/or rail.
OTHER MATTERS
For information on MAP and federal, state and local statutes and
regulations governing releases into the environment or protection of the
environment, see "Item 1. Business - Miscellaneous - Environmental Matters"
in this Form 10-K.
MISCELLANEOUS
ENVIRONMENTAL MATTERS
Ashland has implemented a company-wide environmental policy overseen
by the Public Policy - Environmental Committee of Ashland's Board of
Directors. Ashland's Environmental, Health and Safety ("EH&S") department
has the responsibility to ensure that Ashland's operating groups maintain
environmental compliance in accordance with applicable laws and
regulations. This responsibility is carried out via training; widespread
communication of EH&S policies, information and regulatory updates;
formulation of relevant policies, procedures and work practices; design and
implementation of EH&S management systems; internal auditing by an
independent auditing group within the EH&S department; monitoring of
regulatory developments that may affect Ashland's operations; assistance to
the operating divisions in identifying compliance issues and opportunities
for voluntary actions that go beyond compliance; and incident response
planning and implementation.
Federal, state and local laws and regulations relating to the
protection of the environment have a significant impact on how Ashland
conducts its businesses. New laws are being enacted and regulations are
being adopted by various regulatory agencies on a continuing basis, and the
costs of compliance with these new rules cannot be estimated until the
manner in which they will be implemented has been more accurately defined.
In addition, most foreign countries in which Ashland conducts business have
laws dealing with similar matters.
At September 30, 2002, Ashland's reserves for environmental
remediation amounted to $169 million, reflecting Ashland's estimates of the
most likely costs that will be incurred over an extended period to
remediate identified conditions for which the costs are reasonably
estimable, without regard to any third-party recoveries. Environmental
remediation reserves are subject to numerous inherent uncertainties that
affect Ashland's ability to estimate its share of the costs. Such
uncertainties involve the nature and extent of contamination at each site,
the extent of required cleanup efforts under existing environmental
regulations, widely varying costs of alternate cleanup methods, changes in
environmental regulations, the potential effect of continuing improvements
in remediation technology, and the number and financial strength of other
potentially responsible parties at multiparty sites. Ashland regularly
adjusts its reserves as environmental remediation continues. None of the
remediation locations is individually material to Ashland as its largest
reserve for any site is less than $10 million. As a result, Ashland's
exposure to adverse developments with respect to any individual site is not
expected to be material, and these sites are in various stages of ongoing
remediation. Although environmental remediation could have a material
effect on results of operations if a series of adverse developments occurs
in a particular quarter or fiscal year, Ashland believes that the chance of
such developments occurring in the same quarter or fiscal year is remote.
In connection with the formation of MAP, Marathon and Ashland each
retained responsibility for certain environmental costs arising out of
their respective prior ownership and operation of the facilities
transferred to MAP.
7
In certain situations, various threshold provisions apply, eliminating or
reducing the financial responsibility of the contributing party until
certain levels of expenditure have been reached. In other situations,
sunset provisions gradually diminish the level of financial responsibility
of the contributing party over time.
AIR - The Clean Air Act (the "CAA") imposes stringent limits on air
emissions, establishes a federally mandated operating permit program, and
allows for civil and criminal enforcement actions. Additionally, it
establishes air quality attainment deadlines and control requirements based
on the severity of air pollution in a given geographical area. Various
state clean air acts implement, complement and, in some instances, add to
the requirements of the federal CAA. The requirements of the CAA and its
state counterparts have a significant impact on the daily operation of
Ashland's businesses and, in many cases, on product formulation and other
long-term business decisions. Ashland's businesses maintain numerous
permits pursuant to these clean air laws and have implemented systems to
oversee ongoing compliance efforts.
In July 1997, the United States Environmental Protection Agency
("EPA") promulgated revisions to the National Ambient Air Quality Standards
("NAAQS") for ground level ozone and particulate matter. As written, the
revisions could have a significant effect on certain of Ashland's chemical
manufacturing and distribution businesses, and on MAP. In 2001, the U.S.
Supreme Court upheld the EPA's authority to set NAAQS without considering
the costs related to compliance. In early 2002, the Washington, D.C.
District Court of Appeals upheld EPA's proposed revisions to the NAAQS. EPA
has begun to implement the new ozone and particulate matters standards,
which could result in areas of the country, where Ashland and MAP conduct
operations, being designated as not in compliance with the NAAQS. Until
these revisions have been more fully implemented, it is not currently
possible to estimate any potential financial impact that the revised
standards may have on Ashland's or MAP's operations.
WATER - Ashland's businesses maintain numerous discharge permits, as
the National Pollutant Discharge Elimination System of the Clean Water Act
("CWA") and state programs require, and have implemented systems to oversee
their compliance efforts. In addition, several of MAP's operations, in
particular its barge and terminal facilities, are regulated under the Oil
Pollution Act of 1990.
SOLID WASTE - Ashland's businesses are subject to the Resource
Conservation and Recovery Act ("RCRA"), which establishes standards for the
management of solid and hazardous wastes. Besides affecting current waste
disposal practices, RCRA also addresses the environmental effects of
certain past waste disposal operations, the recycling of wastes and the
storage of regulated substances in underground tanks.
REMEDIATION - Ashland currently operates, and in the past has
operated, various facilities where, during the normal course of business
releases of hazardous substances have occurred. Federal and state laws,
including but not limited to RCRA and various remediation laws, require
that contamination caused by such releases be assessed and, if necessary,
remediated to meet applicable standards. MAP operates, and in the past has
operated, certain retail outlets where, during the normal course of
business releases of petroleum products from underground storage tanks have
occurred. Federal and state laws require that contamination caused by such
releases at these sites be assessed and, if necessary, remediated to meet
applicable standards.
RESEARCH
Ashland conducts a program of research and development to invent and
improve products and processes and to improve environmental controls for
its existing facilities. It maintains its research facilities in Dublin,
Ohio; Lexington, Kentucky; and Atlanta, Georgia. Research and development
costs are expensed as they are incurred and totaled $38 million in fiscal
2002 ($36 million in 2001 and $33 million in 2000).
COMPETITION
In all its operations, Ashland is subject to intense competition both
from companies in the industries in which it operates and from products of
companies in other industries.
The majority of the business for which APAC competes is obtained by
competitive bidding. There are a substantial number of competitors in the
markets in which APAC operates and, as a result, all of APAC's goods and
services are marketed under highly competitive conditions. Factors which
influence APAC's competitiveness are price, reputation for quality, the
availability of aggregate materials, machinery and equipment, knowledge of
local markets and conditions and estimating abilities.
Each of Ashland Distribution's businesses, except for the plastics
distribution businesses, compete with national, regional and local
companies throughout North America. The plastics distribution businesses
compete in both North America and Europe. Competition in these businesses
is based primarily on price and reliability of supply. Ashland Specialty
Chemical's businesses compete globally in selected niche markets, largely
on the basis of technology and service. The number of competitors in the
specialty chemical business varies from product to product, and it is not
8
practical to identify such competitors because of the broad range of
products and markets served by those products. However, many of Ashland
Specialty Chemical's businesses hold proprietary technology, and Ashland
believes it has a leading or strong market position in most of its
specialty chemical products. Ashland Specialty Chemical's petrochemicals
business is largely a commodities business, with pricing and quality being
the most important factors.
Valvoline competes in the highly competitive lubricants business
principally through product and service quality, distribution capability, a
focused "master" brand strategy, advertising and sales promotion. Some of
the major brands of motor oils and lubricants Valvoline competes with
internationally are Havoline(R), Castrol(R), Pennzoil(R) and Quaker
State(R). The highly competitive consumer products car care business is
primarily composed of maintenance chemicals, appearance products and tire
cleaners. Valvoline competes primarily in this market through specific
product performance benefits, distribution capability and advertising and
sales promotion. In the highly competitive "fast oil change" business,
Valvoline competes with other leading independent fast lube chains on a
national, regional or local basis, as well as automobile dealers and
service stations. Valvoline's brand recognition, service offering and
increasing market presence in the U.S. "fast oil change" market, as well as
quality of service, speed, location, convenience and sales promotion, are
important competitive factors.
MAP competes with a large number of companies to acquire crude oil for
refinery processing and in the distribution and marketing of a full array
of petroleum products. MAP believes it ranks among the top ten U.S.
petroleum companies on the basis of crude oil refining capacity as of
September 30, 2002. MAP competes in four distinct markets for the sale of
refined products - wholesale, spot, branded and retail distribution. MAP
believes it competes with approximately 40 companies in the wholesale
distribution of petroleum products to private brand marketers and large
commercial and industrial consumers; approximately 80 companies in the sale
of petroleum products in the spot market; approximately 10
refiner/marketers in the supply of branded petroleum products to dealers
and jobbers; and approximately 600 petroleum product retailers in the
retail sale of petroleum products. MAP also competes in the convenience
store industry through SSA's retail outlets and in the travel center
industry through their ownership in PTC. The retail outlets offer consumers
gasoline, diesel fuel (at selected locations) and a variety of food,
merchandise, cigarettes, candy and beverages.
FORWARD-LOOKING STATEMENTS
This Form 10-K and the documents incorporated by reference contain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including various information within the "Capital Resources,"
"Application of Critical Accounting Policies," "Derivative Instruments" and
"Outlook" sections in Management's Discussion and Analysis in Ashland's
Annual Report. Words such as "anticipates," "believes," "estimates,"
"expects," "is likely," "predicts," and variations of such words and
similar expressions are intended to identify such forward-looking
statements. Although Ashland believes that its expectations are based on
reasonable assumptions, it cannot assure that the expectations contained in
such statements will be achieved. Important factors which could cause
actual results to differ materially from those contained in such statements
are discussed under "Risks and Uncertainties" in Note A of Notes to
Consolidated Financial Statements in Ashland's Annual Report. For a
discussion of other factors and risks affecting Ashland's revenues and
operations see "Item 1. Business - Miscellaneous - Marketing Conditions"
below.
MARKETING CONDITIONS
Domestic and international political, legislative, regulatory and
legal changes may adversely affect Ashland's results of operations.
Political actions may include changes in the policies of the Organization
of Petroleum Exporting Countries or other developments involving or
affecting oil-producing countries, including military conflict, embargoes,
internal instability or actions or reactions of the U.S. government in
anticipation of, or in response to, such actions. Profitability of MAP
depends largely on the margin between the cost of crude oil and other
feedstocks refined and the selling prices of refined products. MAP is a
purchaser of crude oil in order to satisfy its refinery throughput
requirements. As a result, MAP's overall profitability could be adversely
affected by increases in crude oil and other feedstock prices that are not
recovered in the market place through higher prices. Reference should be
made to the Refining and Marketing section of the Management's Discussion
and Analysis section in Ashland's Annual Report for a discussion of the
impact of crude oil costs on MAP's operating performance. While Ashland
maintains reserves for anticipated liabilities and carries various levels
of insurance, Ashland could be affected by civil, criminal, regulatory or
administrative proceedings and claims relating to asbestos, environmental
remediation and other matters.
Ashland's operations are subject to various U.S. and foreign laws and
regulations relating to environmental protection and worker health and
safety. These laws and regulations regulate discharges of pollutants into
the air and water, the management and disposal of hazardous substances, and
the cleanup of contaminated properties. The costs
9
of complying with these laws and regulations can be substantial and may
increase as applicable requirements become more stringent and new rules are
implemented. If violation of these laws and regulations occur, Ashland may
be forced to pay substantial fines, to complete additional costly projects,
or to modify or curtail its operations to limit contaminant emissions.
The profitability of Ashland's businesses are particularly susceptible
to downturns in the economy, particularly downturns in the segments of the
U.S. economy related to the purchase and sale of durable goods, including
housing, construction, automotive, marine and semiconductor. Both overall
demand for Ashland's products and its profit margins may decline as a
direct result of an economic recession, inflation, changes in the prices of
hydrocarbons and other raw materials (e.g., crude oil and petroleum and
chemical products), consumer confidence, interest rates or governmental
fiscal policies. In addition, Ashland's profitability may experience
significant changes as a result of variations in sales, changes in product
mix or pricing competition.
In addition, changes in climate and weather can significantly affect
the performance of several of Ashland's operations. Extreme variations from
normal climatic conditions could have a significant effect on the operating
results of APAC's construction operations. In particular, unfavorable
weather conditions will delay the completion of construction projects, and
may require the use of additional resources. In addition, most of the
refined products sold by MAP are seasonal in nature, and thus demand for
those products may decline due to significant changes in prevailing climate
and weather conditions. MAP's production or distribution operations are
also subject to disruption by extreme weather conditions such as floods,
frozen rivers or hurricanes.
ITEM 2. PROPERTIES
Ashland's corporate headquarters, which is leased, is located in
Covington, Kentucky. Principal offices of other major operations are
located in Atlanta, Georgia (APAC); Dublin, Ohio (Ashland Distribution and
Ashland Specialty Chemical); Lexington, Kentucky (Valvoline); and Russell,
Kentucky (Administrative Services). All of these offices are leased, except
for the Russell office, which is owned. Principal manufacturing, marketing
and other materially important physical properties of Ashland and its
subsidiaries are described under the appropriate segment under Item 1 in
this Form 10-K. Additional information concerning certain leases may be
found in Note F of Notes to Consolidated Financial Statements in Ashland's
Annual Report.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS - As of September 30, 2002, Ashland has been
identified as a "potentially responsible party" ("PRP") under Superfund or
similar state laws for potential joint and several liability for clean-up
costs in connection with alleged releases of hazardous substances
associated with 97 waste treatment or disposal sites. These sites are
currently subject to ongoing investigation and remedial activities,
overseen by the EPA or a state agency, in which Ashland is typically
participating as a member of a PRP group. Generally, the type of relief
sought includes remediation of contaminated soil and/or groundwater,
reimbursement for past costs of site clean-up and administrative oversight,
and/or long-term monitoring of environmental conditions at the sites. The
ultimate costs are not predictable with assurance and could be material.
However, based on its experience with site remediation, 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 does not believe that any liability
at these sites, either individually or in the aggregate, will have a
material adverse effect on Ashland's consolidated financial position, cash
flows or liquidity. For information regarding environmental matters and
Ashland's reserves for environmental remediation, see "Management's
Discussion and Analysis - Application of Critical Accounting Policies -
Environmental Remediation" and Note M of Notes to Consolidated Financial
Statements in Ashland's Annual Report and "Item 1. Business - Miscellaneous
- - Environmental Matters" in this Form 10-K.
ASBESTOS-RELATED LITIGATION - Ashland is subject to liabilities from
claims alleging personal injury caused by exposure to asbestos. Those
claims result primarily from indemnification obligations undertaken in 1990
in connection with the sale of Riley Stoker Corporation ("Riley"), a former
subsidiary. Although Riley was neither a producer nor a manufacturer of
asbestos, its industrial boilers contained some asbestos-containing
components produced by other companies.
10
A summary of asbestos claims activity follows. Because claims are
frequently filed and settled in large groups, the amount and timing of
settlements, and the number of open claims, can fluctuate significantly
from period to period. Over the last 17 years, Riley has been dismissed as
a defendant in 55% of the resolved claims.
2002 2001 2000
---- ---- ----
(In thousands)
Open claims - beginning of year....... 167 118 93
New claims filed...................... 45 52 37
Claims settled........................ (15) (2) (9)
Claims dismissed...................... (37) (1) (3)
---- ---- ----
Open claims - end of year............ 160 167 118
==== ==== ====
Amounts spent on litigation defense and claim settlements totaled $38
million in 2002, $15 million in 2001 and $11 million in 2000. Insurance
provides reimbursements for most of these costs, and coverage-in-place
agreements exist with the insurance carriers that provide substantially all
of the coverage that is currently being accessed. The amounts not
recoverable are generally due from insurers that are insolvent, rather than
as a result of uninsured claims or the exhaustion of the insurance
coverage.
In previous years, Ashland recognized a net reserve for the estimated
litigation defense and claim settlement costs to settle open claims that
would not be recovered from insolvent insurance carriers. However, the
reserve and related receivable are now presented on a gross basis in
Ashland's consolidated balance sheet at September 30, 2001, to conform to
the 2002 presentation. This change did not result from an increase in
expected asbestos exposure, and had no effect on net income or
stockholders' equity. Under this presentation, the reserve for asbestos
claims amounted to $202 million at September 30, 2002, and $199 million at
September 30, 2001. Such reserve reflects the estimated costs on an
undiscounted basis that will be incurred over an extended period to resolve
open claims. In addition, the receivable for recoveries of litigation
defense and claim settlement costs from insurers amounted to $196 million
at September 30, 2002, and $178 million at September 30, 2001.
The reserve for asbestos claims is based on assumptions and estimates
derived from currently known facts. However, projecting future events, such
as the average cost of resolving the open claims, is subject to numerous
variables that are extremely difficult to predict. These variables include
the type and severity of the disease alleged by each claimant, dismissal
rates, future costs of medical treatment, the impact of bankruptcies of
other companies that are co-defendants in claims, uncertainties surrounding
the litigation process from jurisdiction to jurisdiction and from case to
case, and the impact of potential changes in legislative or judicial
standards.
Ashland believes that insurance will cover the majority of the costs
that will be incurred on open and future asbestos claims. Equitas Limited
("Equitas") and other London companies currently provide about 59% of the
insurance coverage, and this percentage could decline over time to around
44% if higher layers of coverage provided by other carriers have to be
accessed. The remaining 41% of the coverage is currently provided by five
companies, all of which are rated A or higher by A. M. Best Company.
Depending upon the level of costs that are ultimately incurred, the
non-London coverage could ultimately expand to about 25 insurance companies
or groups. Companies or groups that provide about 90% of this coverage are
also rated A or higher.
Ashland has not recognized a reserve for future asbestos claims that
may be asserted. Although additional claim filings are expected, Ashland
does not have sufficient information to make a reasonable estimate of the
number of new claims that might be filed. Furthermore, any predictions
about the other variables discussed previously are subject to even greater
uncertainty as the projection period lengthens. Ashland has retained the
services of professional advisors to assist management in the estimation of
projected liabilities and probable insurance recoveries for future asbestos
claims. Results of that effort are expected to be available during the
quarter ending March 31, 2003.
Although coverage limits are resolved in the coverage-in-place
agreement with Equitas and the other London companies, there is a
disagreement with these companies over the timing of recoveries. Depending
upon the assumptions made with respect to the projected payments to settle
future claims, an unfavorable resolution of this disagreement could
materially affect the present value of additional insurance recoveries from
those companies. Until such time as this disagreement is resolved, Ashland
will use the less favorable interpretation of this agreement in estimating
such insurance recoveries.
SHAREHOLDER DERIVATIVE LITIGATION - On August 16, 2002, Central
Laborers' Pension Fund, derivatively as a shareholder of Ashland,
instituted an action in the Circuit Court of Kentucky in Kenton County
against Ashland's then-serving Board of Directors. On motion of Ashland and
the other defendants, the case was removed to the
11
United States District Court, Eastern District of Kentucky, Covington
Division. Plaintiff has moved to remand the case to the state court. The
action is purportedly filed on behalf of Ashland, and asserts the following
causes of action against the Directors: breach of fiduciary duty, abuse of
control, gross mismanagement, and waste of corporate assets. The suit also
names Paul W. Chellgren, the then-serving Chief Executive Officer and
Chairman of the Board, and James R. Boyd, former Senior Vice President and
Group Operating Officer, as individual defendants, and it seeks to recover
an unstated sum from them individually alleging unjust enrichment from
various transactions completed during their tenure with Ashland. The suit
further seeks an unspecified sum from Mr. Chellgren individually based upon
alleged usurpation of corporate opportunities. The suit also names Mr. J.
Marvin Quin, Ashland's Chief Financial Officer, as well as three former
employees of Ashland's wholly-owned subsidiary, APAC, as individual
defendants and alleges that they participated in the preparation and filing
of false financial statements during fiscal years 1999 - 2001. The suit
further names Ernst & Young LLP ("E&Y"), as a defendant, alleging
professional accounting malpractice and negligence in the conduct of its
audit of Ashland's 1999 and 2000 financial statements, respectively, as
well as alleging that E&Y aided and abetted the individual defendants in
their alleged breach of duties. The complaint seeks to recover, jointly and
severally, from defendants an unstated sum of compensatory and punitive
damages. The complaint seeks equitable and/or injunctive relief to avoid
continuing harm from alleged ongoing illegal acts, and seeks a disgorgement
of defendants' alleged insider-trading gains, in addition to the reasonable
cost and expenses incurred in bringing the complaint, including attorneys'
and experts' fees.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September
30, 2002.
ITEM X. EXECUTIVE OFFICERS OF ASHLAND
The following is a list of Ashland's executive officers, their ages
and their positions and offices during the last five years (listed
alphabetically after the Chief Executive Officer as to other Senior Vice
Presidents, Administrative Vice Presidents and other executive officers).
JAMES J. O'BRIEN (age 48) is Chairman of the Board, Chief Executive
Officer and Director of Ashland and has served in such capacities since
November 15, 2002, October 1, 2002 and August 13, 2002, respectively.
During the past five years, he has also served as President, Chief
Operating Officer, Senior Vice President and Group Operating Officer of
Ashland and President of The Valvoline Company.
PAUL W. CHELLGREN (age 59) was Ashland's Chairman of the Board, Chief
Executive Officer and a Director of Ashland - positions he had held since
1997, 1996 and 1992, respectively. Mr. Chellgren retired as Chief Executive
Officer on October 1, 2002, and as Chairman of the Board and Director on
November 15, 2002.
DAVID J. D'ANTONI (age 57) is Senior Vice President and Group
Operating Officer of Ashland and has served in such capacities since 1988
and 1999, respectively. During the past five years, he has also served as
President of Ashland Chemical Company.
CHARLES F. POTTS (age 58) is Senior Vice President of Ashland and
President of APAC, Inc. and has served in such capacities since 1992.
J. MARVIN QUIN (age 55) is Senior Vice President and Chief Financial
Officer of Ashland and has served in such capacities since 1992.
KENNETH L. AULEN (age 53) is Administrative Vice President and
Controller of Ashland and has served in such capacities since 1992.
GARY A. CAPPELINE (age 53) is Vice President of Ashland and President
of Ashland Specialty Chemical Company effective December 4, 2002. During
the last five years, he has also served as a chemical industry partner at
Bear Stearns Merchant Bank, President of AlliedSignal Specialty Chemicals
and Group Vice President, Pigments and Additives of Engelhard Corp.
JAMES A. DUQUIN (age 55) was Vice President of Ashland and President
of Ashland Specialty Chemical Company - positions he had held since 1999.
During the past five years, he also served as Group Vice President -
Specialty Chemical Division of Ashland Chemical Company. Mr. DuQuin
resigned as Vice President of Ashland and President of Ashland Specialty
Chemical Company on November 25, 2002 and will retire from Ashland on
December 31, 2002.
12
DAVID L. HAUSRATH (age 50) is Vice President and General Counsel of
Ashland and has served in such capacities since 1998 and 1999,
respectively. During the past five years, he has also served as Associate
General Counsel of Ashland.
J. DAN LACY (age 55) is Vice President - Corporate Affairs of Ashland
and has served in such capacity since 1986.
SAMUEL J. MITCHELL (age 41) is Vice President of Ashland and President
of The Valvoline Company and has served in such capacities since January
2002. During the past five years, he has also served as Vice President -
Retail Business, Vice President of Marketing and Director of Marketing -
The Valvoline Company.
RICHARD P. THOMAS (age 56) is Vice President and Secretary of Ashland
and has served in such capacities since 1998 and 1999, respectively.
FRANK L. WATERS (age 41) is Vice President of Ashland and President of
Ashland Distribution Company and has served in such capacities since
January 2002. During the past five years, he has also served as Vice
President of Ashland Plastics - Europe, Director of Sales for Ashland
Distribution's Fine Ingredients Division and an Executive Assistant of
Ashland.
Each executive officer is elected by the Board of Directors of Ashland
to a term of one year, or until his successor is duly elected, at the
annual meeting of the Board of Directors, except in those instances where
the officer is elected other than at an annual meeting of the Board of
Directors, in which case his tenure will expire at the next annual meeting
of the Board of Directors unless the officer is re-elected.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
There is hereby incorporated by reference the information appearing in
Note P of Notes to Consolidated Financial Statements in Ashland's Annual
Report.
At September 30, 2002, there were approximately 17,700 holders of
record of Ashland's Common Stock. Ashland Common Stock is listed on the New
York and Chicago stock exchanges (ticker symbol ASH) and has trading
privileges on the Boston, Cincinnati, Pacific and Philadelphia stock
exchanges.
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information appearing
under the caption "Five-Year Selected Financial Information" on page 62 in
Ashland's Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
There is hereby incorporated by reference the information appearing
under the caption "Management's Discussion and Analysis" on pages 32 to 41
in Ashland's Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There is hereby incorporated by reference the information appearing
under the caption "Derivative Instruments" on page 40 in Ashland's Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the consolidated financial
statements appearing on pages 43 through 61 in Ashland's Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information to appear
under the caption "Ashland Inc.'s Board of Directors - Nominees for
Election at the 2003 Annual Meeting" and the information regarding Section
16 beneficial ownership reporting compliance in Ashland's definitive Proxy
Statement for its January 30, 2003 Annual Meeting of Shareholders, which
will be filed with the SEC within 120 days after September 30, 2002 ("Proxy
Statement"). See also the list of Ashland's executive officers and related
information under "Executive Officers of Ashland" in Part I - Item X in
this Form 10-K.
13
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear
under the captions "Executive Compensation," "Compensation of Directors"
and "Miscellaneous - Personnel and Compensation Committee Interlocks and
Insider Participation" in Ashland's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
There is hereby incorporated by reference the information to appear
under the caption "Ashland Common Stock Ownership of Directors and Certain
Officers of Ashland" and the information regarding the ownership of
securities of Ashland in Ashland's Proxy Statement.
The following table summarizes the equity compensation plans under
which Ashland Common Stock may be issued as of September 30, 2002. Except
as disclosed in the narrative to the table, all plans were approved by
shareholders of Ashland.
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
PLAN CATEGORY NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER
------------- BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING EQUITY COMPENSATION PLANS
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS (EXCLUDING SECURITIES
WARRANTS AND RIGHTS AND RIGHTS REFLECTED IN COLUMN (a))
------------------- ---------- ----------------------
(a) (b) (c)
Equity compensation plans
approved by security 6,636,877 $37.72 3,727,439
holders.....................
Equity compensation plans
not approved by security
holders (1)................. 845,392 $33.88 0
--------- ------ ---------
Total............... 7,482,269 $37.28 3,727,439
========= ====== =========
(1) The Ashland Inc. Stock Option Plan for Employees of Joint Ventures
is the only equity compensation plan of Ashland not approved by
Ashland's shareholders. This plan was approved by Ashland's Board
of Directors on September 17, 1998 and is specifically designed to
grant stock options to employees of joint ventures in which
Ashland has an interest. There are currently no shares reserved
for future issuance under this plan. The Board of Directors
authorizes the issuance of the shares at the time the stock
options are granted. A recipient of such stock options will have
the right to purchase Ashland Common Stock at a price and on terms
specified by the Personnel and Compensation Committee of Ashland's
Board of Directors. The stock options listed in the table above
have been granted to certain MAP employees and were registered
with the SEC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information to appear
under the caption "Miscellaneous - Business Relationships" in Ashland's
Proxy Statement.
ITEM 14. CONTROLS AND PROCEDURES
(a) Ashland's Chief Executive Officer and its Chief Financial Officer,
after evaluating the effectiveness of Ashland's disclosure
controls and procedures as of a date within 90 days of the filing
date of this Form 10-K, have concluded that the disclosure
controls and procedures were effective to ensure that material
information relating to Ashland and its consolidated subsidiaries
was made known to them by others within those entities.
(b) There were no significant changes in Ashland's internal controls
or in other factors that could significantly affect these controls
or procedures subsequent to the date of Ashland's evaluation, nor
were there any significant deficiencies or material weaknesses in
Ashland's internal controls. As a result, no corrective actions
were required or undertaken.
14
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report
(1) and (2) Financial Statements and Financial Schedule
The consolidated financial statements and financial schedule of
Ashland presented or incorporated by reference in this report are listed in
the index on page 20.
(3) Exhibits
3.1 Third Restated Articles of Incorporation of Ashland (filed as
Exhibit 3 to Ashland's Form 10-Q for the quarter ended June 30,
2002 and incorporated herein by reference).
3.2 By-laws of Ashland, effective as of November 15, 2002.
4.1 Ashland agrees to provide the SEC, upon request, copies of
instruments defining the rights of holders of long-term debt of
Ashland and all of its subsidiaries for which consolidated or
unconsolidated financial statements are required to be filed with
the SEC.
4.2 Indenture, dated as of August 15, 1989, as amended and restated as
of August 15, 1990, between Ashland and Citibank, N.A., as Trustee
(filed as Exhibit 4.2 to Ashland's Form 10-K for the fiscal year
ended September 30, 2001 and incorporated herein by reference).
4.3 Indenture, dated as of September 7, 2001, between Ashland and U.S.
Bank National Association, as Trustee (filed as Exhibit 4.3 to
Ashland's Form 10-K for the fiscal year ended September 30, 2001
and incorporated herein by reference).
4.4 Rights Agreement, dated as of May 16, 1996, between Ashland Inc.
and the Rights Agent, together with Form of Right Certificate
(filed as Exhibit 4.4 to Ashland's Form 10-K for the fiscal year
ended September 30, 2001 and incorporated herein by reference).
The following Exhibits 10.1 through 10.15 are compensatory plans or
arrangements or management contracts required to be filed as exhibits
pursuant to Item 601(b)(10)(ii)(A) of Regulation S-K.
10.1 Amended Stock Incentive Plan for Key Employees of Ashland Inc. and
its Subsidiaries (filed as Exhibit 10.1 to Ashland's Form 10-K for
the fiscal year ended September 30, 1999 and incorporated herein
by reference).
10.2 Ashland Inc. Deferred Compensation Plan for Non-Employee
Directors.
10.3 Ashland Inc. Deferred Compensation Plan.
10.4 Tenth Amended and Restated Ashland Inc. Supplemental Early
Retirement Plan for Certain Employees, as amended.
10.5 Ashland Inc. Salary Continuation Plan.
10.6 Form of Ashland Inc. Executive Employment Contract between Ashland
Inc. and certain executives of Ashland.
10.7 Form of Separation Agreement and General Release between Ashland
Inc. and Paul W. Chellgren, former Chief Executive Officer of
Ashland.
10.8 Form of Indemnification Agreement between Ashland Inc. and each
member of its Board of Directors (filed as Exhibit 10.8 to
Ashland's Form 10-K for the fiscal year ended September 30, 2001
and incorporated herein by reference).
10.9 Ashland Inc. Nonqualified Excess Benefit Pension Plan.
10.10 Ashland Inc. Long-Term Incentive Plan (filed as Exhibit 10.9 to
Ashland's Form 10-K for the fiscal year ended September 30, 2000
and incorporated herein by reference).
10.11 Ashland Inc. Directors' Charitable Award Program.
10.12 Ashland Inc. 1993 Stock Incentive Plan (filed as Exhibit 10.11 to
Ashland's Form 10-K for the fiscal year ended September 30, 2000
and incorporated herein by reference).
15
10.13 Ashland Inc. 1995 Performance Unit Plan (filed as Exhibit 10.12 to
Ashland's Form 10-K for the fiscal year ended September 30, 2000
and incorporated herein by reference).
10.14 Ashland Inc. 1997 Stock Incentive Plan.
10.15 Amended and Restated Ashland Inc. Incentive Plan.
10.16 Amended and Restated Limited Liability Company Agreement of
Marathon Ashland Petroleum LLC dated as of December 31, 1998
(filed as Exhibit 10.17 to Ashland's Form 10-K for the fiscal year
ended September 30, 1999 and incorporated herein by reference).
10.17 Put/Call, Registration Rights and Standstill Agreement as amended
to December 31, 1998 among Marathon Oil Company, USX Corporation,
Ashland Inc. and Marathon Ashland Petroleum (filed as Exhibit
10.18 to Ashland's Form 10-K for the fiscal year ended September
30, 1999 and incorporated herein by reference).
11 Computation of Earnings Per Share (appearing on page 48 of
Ashland's Annual Report to Shareholders, incorporated by reference
herein, for the fiscal year ended September 30, 2002).
12 Computation of Ratio of Earnings to Fixed Charges.
13 Portions of Ashland's Annual Report to Shareholders, incorporated
by reference herein, for the fiscal year ended September 30, 2002.
21 List of subsidiaries.
23.1 Consent of independent auditors.
24 Power of Attorney, including resolutions of the Board of
Directors.
99.1 Certificate of Chief Executive Officer of Ashland pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.
99.2 Certificate of Chief Financial Officer of Ashland pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.
Upon written or oral request, a copy of the above exhibits will be
furnished at cost.
(b) Reports on Form 8-K
A report on Form 8-K was filed August 2, 2002, to report that Paul W.
Chellgren, Chairman and Chief Executive Officer of Ashland, announced his
plans to retire effective November 15, 2002.
A report on Form 8-K was filed on August 7, 2002 to report that
Ashland had submitted to the SEC the Statements under Oath of the Principal
Executive Officer and the Principal Financial Officer pursuant to the SEC's
June 27, 2002 Order requiring the filing of such statements.
A report on Form 8-K was filed on August 13, 2002 to report that James
J. O'Brien had been named President and Chief Operating Officer and was
elected to Ashland's Board of Directors. O'Brien would become Chairman of
the Board and Chief Executive Officer of Ashland effective November 15,
2002 when Paul W. Chellgren, the then current Chairman and Chief Executive
Officer retired.
A report on Form 8-K was filed on September 19, 2002 to report that
James J. O'Brien would become Chief Executive Officer of Ashland effective
October 1, 2002 and Chairman of the Board effective November 15, 2002.
16
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ASHLAND INC.
(Registrant)
By:
/s/ J. Marvin Quin
-----------------------------------
J. Marvin Quin
Senior Vice President and Chief
Financial Officer
Date: December 3, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant, in the capacities indicated, on December 3, 2002.
SIGNATURES CAPACITY
---------- --------
/S/ JAMES J. O'BRIEN Chairman of the Board, Chief Executive Officer
- --------------------------- and Director
JAMES J. O'BRIEN
/S/ J. MARVIN QUIN Senior Vice President and Chief
- --------------------------- Financial Officer
J. MARVIN QUIN
/S/ KENNETH L. AULEN Administrative Vice President, Controller and
- --------------------------- Principal Accounting Officer
KENNETH L. AULEN
* Director
- ---------------------------
SAMUEL C. BUTLER
* Director
- ---------------------------
FRANK C. CARLUCCI
* Director
- ---------------------------
ERNEST H. DREW
* Director
- ---------------------------
JAMES B. FARLEY
* Director
- ---------------------------
ROGER W. HALE
* Director
- ---------------------------
BERNADINE P. HEALY
* Director
- ---------------------------
MANNIE L. JACKSON
* Director
- ---------------------------
PATRICK F. NOONAN
17
* Director
- ---------------------------
JANE C. PFEIFFER
* Director
- ---------------------------
WILLIAM L. ROUSE, JR.
* Director
- ---------------------------
THEODORE M. SOLSO
* Director
- ---------------------------
MICHAEL J. WARD
*By: /s/ David L. Hausrath
---------------------
David L. Hausrath
Attorney-in-Fact
Date: December 3, 2002
CERTIFICATION
-------------
Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Chief Executive Officer Regarding Facts and Circumstances Relating to
Exchange Act Filings.
I, James J. O'Brien, Chief Executive Officer of Ashland Inc., certify
that:
1. I have reviewed this annual report on Form 10-K of Ashland Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
18
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 3, 2002
/s/ James J. O'Brien
-----------------------
Chief Executive Officer
CERTIFICATION
-------------
Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Chief Financial Officer Regarding Facts and Circumstances Relating to
Exchange Act Filings.
I, J. Marvin Quin, Chief Financial Officer of Ashland Inc., certify
that:
1. I have reviewed this annual report on Form 10-K of Ashland Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 3, 2002
/s/ J. Marvin Quin
------------------------
Chief Financial Officer
19
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULE
Page
----
Consolidated financial statements:
Statements of consolidated income ................................*
Consolidated balance sheets ......................................*
Statements of consolidated stockholders' equity ..................*
Statements of consolidated cash flows ............................*
Notes to consolidated financial statements .......................*
Information by industry segment ..................................*
Report of independent auditors....................................21
Consolidated financial schedule:
Schedule II - Valuation and qualifying accounts...................22
*The consolidated financial statements appearing on pages 43 through
61 in Ashland's Annual Report are incorporated by reference in this Annual
Report on Form 10-K.
Schedules other than that listed above have been omitted because of
the absence of the conditions under which they are required or because the
information required is shown in the consolidated financial statements or
the notes thereto. Separate financial statements for MAP required by Rule
3-09 of Regulation S-X will be filed as an amendment to this Form 10-K
within 90 days after the end of MAP's fiscal year ending December 31, 2002.
Separate financial statements of other unconsolidated affiliates are
omitted because each company does not constitute a significant subsidiary
using the 20% tests when considered individually. Summarized financial
information for such affiliates is disclosed in Note D of Notes to
Consolidated Financial Statements in Ashland's Annual Report.
20
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements and schedule of
Ashland Inc. and consolidated subsidiaries listed in the accompanying index
to financial statements and financial schedule (Item 15(a)). These
financial statements and schedule are the responsibility of Ashland's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying
index to financial statements (Item 15(a)) present fairly, in all material
respects, the consolidated financial position of Ashland Inc. and
consolidated subsidiaries at September 30, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 2002, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
As discussed in Note A to the financial statements, in 2002 the
Company changed its method of accounting for goodwill and other intangible
assets. Additionally, as discussed in Note A to the financial statements,
in 2001 the Company and its unconsolidated affiliate, Marathon Ashland
Petroleum LLC, changed their method of accounting for derivatives.
/s/ Ernst & Young LLP
Cincinnati, Ohio
November 6, 2002
21
- -----------------------------------------------------------------------------------------------------------------------------------
Ashland Inc. and Consolidated Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------------------------------------------------------------------------------------------
(In millions) Balance at Provisions Balance
beginning charged to Reserves Other at end
Description of year earnings utilized changes of year
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2002
Reserves deducted from asset accounts
Accounts receivable $ 34 $ 24 $ (23)(1) $ - $ 35
Inventories 15 7 (6) - 16
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2001
Reserves deducted from asset accounts
Accounts receivable $ 25 $ 34 $ (25)(1) $ - $ 34
Inventories 13 5 (3) - 15
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2000
Reserves deducted from asset accounts
Accounts receivable $ 23 $ 15 $( 12)(1) $(1) $ 25
Inventories 15 3 (5) - 13
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Uncollected amounts written off, net of recoveries which were not
significant in 2002, $1 million in 2001 and $1 million in 2000.
22
Exhibit Index
Exhibit No. Description
3.2 By-laws of Ashland, effective as of November 15, 2002.
10.2 Ashland Inc. Deferred Compensation Plan for Non-Employee
Directors.
10.3 Ashland Inc. Deferred Compensation Plan.
10.4 Tenth Amended and Restated Ashland Inc. Supplemental Early
Retirement Plan for Certain Employees, as amended.
10.5 Ashland Inc. Salary Continuation Plan.
10.6 Form of Ashland Inc. Executive Employment Contract between Ashland
Inc. and certain executives of Ashland.
10.7 Form of Separation Agreement and General Release between Ashland
Inc. and Paul W. Chellgren, former Chief Executive Officer of
Ashland.
10.9 Ashland Inc. Nonqualified Excess Benefit Pension Plan.
10.11 Ashland Inc. Directors' Charitable Award Program.
10.14 Ashland Inc. 1997 Stock Incentive Plan.
10.15 Amended and Restated Ashland Inc. Incentive Plan.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Portions of Ashland's Annual Report to Shareholders, incorporated
by reference herein, for the fiscal year ended September 30, 2002.
21 List of subsidiaries.
23.1 Consent of independent auditors.
24 Power of Attorney, including resolutions of the Board of
Directors.
99.1 Certificate of Chief Executive Officer of Ashland pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.
99.2 Certificate of Chief Financial Officer of Ashland pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.
BY-LAWS
OF
ASHLAND INC.
ARTICLE I
OFFICES
The principal office of the Corporation in the Commonwealth of
Kentucky shall be at 50 E. RiverCenter Boulevard, City of Covington, County
of Kenton. The Corporation may also have offices at other places either
within or without the Commonwealth of Kentucky as may be useful in the
business of the Corporation.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the shareholders for
the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held at the principal office
of the Corporation on the last Thursday of January, annually, at the hour
of 10:30 a.m., or at such other place (within or without the Commonwealth
of Kentucky), date and hour as shall be designated in the notice thereof.
SECTION 2. Annual Meeting Business. To be properly brought before an
annual meeting, business must be (i) specified in the notice of the meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors of the Corporation (the "Board"); (ii) otherwise properly brought
before the meeting by or at the direction of the Board; or (iii) otherwise
properly brought before the meeting by a shareholder. For business to be
properly brought before an annual meeting by a shareholder, the shareholder
must have given written notice thereof, either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the Corporation,
not later than ninety days in advance of such meeting (provided that if the
annual meeting of shareholders is held earlier than the last Thursday in
January, such notice must be given within ten days after the first public
disclosure, which may include any public filing with the Securities and
Exchange Commission, of the date of the annual meeting). Any such notice
shall set forth as to each matter the shareholder proposes to bring before
the annual meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at
the meeting and in the event that such business includes a proposal to
amend either the articles of incorporation or By-laws of the Corporation,
the language of the proposed amendment; (ii) the name and address of the
shareholder proposing such business; (iii) a representation that the
shareholder is a holder of record of stock of the Corporation entitled to
vote at such meeting and
intends to appear in person or by proxy at the meeting to propose such
business; (iv) any material interest of the shareholder in such business;
and (v) a representation as to whether or not the shareholder will solicit
proxies in support of the proposal. No business shall be conducted at an
annual meeting of shareholders except in accordance with this paragraph and
the chairman of any annual meeting of shareholders may refuse to permit any
business to be brought before an annual meeting which fails to comply with
the foregoing procedures or, in the case of a shareholder proposal, if the
shareholder fails to comply with the representations set forth in the
notice.
SECTION 3. Special Meetings. A special meeting of the shareholders may
be called by a majority of the members of the Board, the Chairman of the
Board or the President, at such place (within or without the Commonwealth
of Kentucky), date and hour as shall be designated in the notice thereof.
A special meeting of the shareholders shall be called by the Secretary
on the written request of the holders of not less than one-third of all the
shares entitled to vote at such meeting. Such request shall set forth: (i)
the action proposed to be taken at such meeting and the reasons for the
action; (ii) the name and address of each of such holders who intends to
propose action be taken at such meeting; (iii) a representation that each
is a holder of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at such meeting to
propose the action specified in the request; (iv) any material interest of
any shareholder in such action; and (v) in the event that any proposed
action consists of or includes a proposal to amend either the articles of
incorporation or the By-laws of the Corporation, the language of the
proposed amendment. The Secretary shall determine the place (within or
without the Commonwealth of Kentucky), date and hour of such meeting. The
Secretary may refuse to call a special meeting unless the request is made
in compliance with the foregoing procedure.
SECTION 4. Notice of Meetings. Notice stating the place, date and hour
of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given to each
shareholder entitled to vote at such meeting not less than ten nor more
then sixty days before the date of the meeting by any form of notice
permitted by Kentucky law. Except as otherwise expressly required by law,
notice of any adjourned meeting of the shareholders need not be given if
the date, hour and place thereof are announced at the meeting at which the
adjournment is taken, unless the adjournment is for more than 120 days or,
unless after the adjournment a new record date is fixed for the adjourned
meeting.
SECTION 5. Record of Shareholders. It shall be the duty of the officer
or agent of the Corporation who shall have charge of its stock transfer
books to prepare and make a complete record of the shareholders entitled to
vote at any meeting of shareholders or adjournment thereof, arranged by
voting group (and
within each voting group by class or series), and showing the address of
each shareholder and the number of shares registered in the name of each
shareholder. Such record shall be produced at the time and place of the
meeting and shall be open to the inspection of any shareholder entitled to
vote at such meeting or any adjournment thereof during the whole time of
such meeting or adjournment for the purposes thereof.
SECTION 6. Fixing Date for Determination of Shareholders of Record. In
order that the Corporation may determine the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment
thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of shares or for the
purpose of any other lawful action, the Board may fix, in advance, a record
date, which shall not be less than ten days before the date of such
meeting, nor more than seventy days prior to any other action. A
determination of shareholders entitled to notice of or to vote at a meeting
of the shareholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the
adjourned meeting if the meeting is adjourned to a date 120 days or less
after the date fixed for the original meeting. The Board shall fix a new
record date if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.
SECTION 7. Quorum. At each meeting of the shareholders or adjournment
thereof, except as otherwise expressly required by law, these By-laws or
the articles of incorporation, shareholders holding a majority of the
shares of the Corporation issued and outstanding and entitled to be voted
thereat shall be present in person or by proxy to constitute a quorum for
the transaction of business. The shareholders present at a duly organized
meeting can continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
SECTION 8. Organization. At each meeting of the shareholders, one of
the following shall act as chairman of the meeting and preside thereat, in
the following order of precedence:
(a) the Chairman of the Board;
(b) the President; or
(c) any other officer of the Corporation designated by the Board or
the executive committee of the Board to act as chairman of such meeting and
to preside thereat if the Chairman of the Board and the President shall be
absent from such meeting.
The Secretary or, if the Secretary shall be absent from such meeting,
the person (who shall be an Assistant Secretary of the Corporation, if one
of such officers shall be present thereat) whom the chairman of such
meeting shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 9. Order of Business. The chairman of any meeting of
shareholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of
such chairman, are appropriate for the proper conduct of the meeting.
Unless and to the extent determined by the Board or the chairman of the
meeting, meetings of shareholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
SECTION 10. Voting. Except as otherwise expressly required by law,
these By-laws, or the articles of incorporation, each shareholder entitled
to vote shall, at each meeting of the shareholders, have one vote, in
person or by proxy, for each share of the Corporation held by the
shareholder and registered in the shareholder's name on the books of the
Corporation:
(a) on the date fixed pursuant to the provisions of these By-laws as
the record date for the determination of shareholders who shall be entitled
to receive notice of and to vote at such meeting, or
(b) if no record date shall have been so fixed, then at the close of
business on the day on which notice of such meeting shall be given.
Any vote of shares of the Corporation may be given at any meeting of
the shareholders by the shareholders entitled thereto in person or by proxy
appointed by the shareholder. The attendance at any meeting of a
shareholder shall not have the effect of revoking a previously given proxy
unless the shareholder shall give the Secretary written notice of the
revocation.
At all meetings of the shareholders each matter, except as otherwise
expressly required by law, these By-laws or the articles of incorporation,
shall be approved if the votes cast in favor of such matter exceed the
votes cast opposing such matter.
Except as otherwise expressly required by law, the vote at any meeting
of the shareholders on any question need not be by ballot, unless so
directed by the chairman of the meeting. On a vote by ballot, each ballot
shall be signed by the shareholder voting, or by the shareholder's proxy,
if there be such proxy, and shall state the number of shares voted. Except
as otherwise expressly required by law, the vote at any meeting of the
shareholders on any question need not be by ballot, unless so directed by
the chairman of the meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board.
SECTION 2. Number and Term of Office. Except as otherwise provided by
law, the number of directors which shall constitute the Board shall be
fixed from time to time by a resolution adopted by a majority of the Board;
provided, however, that a vote of the shareholders is required to increase
or decrease by more than 30% the number of directors from that number last
fixed by the shareholders. So long as the Board shall consist of nine or
more members, the directors shall be classified with respect to the time
for which they shall severally hold office, by dividing them into three
classes, as nearly equal in number as possible.
At each annual meeting, successors to the class of directors whose term
then expires shall be elected to serve for a term expiring at the annual meeting
of shareholders held in the third year following the year of their election and
until their successors shall have been elected and qualified. The Board shall
increase or decrease the number of directors in one or more classes as may be
appropriate whenever it increases or decreases the number of directors in order
to ensure that the three classes remain as nearly equal in number as possible.
No decrease in the number of directors constituting the Board shall shorten the
term of any incumbent director.
SECTION 3. Nomination. Nominations for the election of directors may
be made by the Board or by any shareholder entitled to vote for the
election of directors. Any shareholder entitled to vote for the election of
directors at a meeting may nominate a person or persons for election as
directors only if written notice of such shareholder's intent to make such
nomination is given, either by personal delivery or by United States mail,
postage prepaid, to the Secretary, not later than (i) with respect to an
election to be held at an annual meeting of shareholders, ninety days in
advance of such meeting (provided that if the annual meeting of
shareholders is held earlier than the last Thursday in January, such notice
must be given within ten days after the first public disclosure, which may
include any public filing with the Securities and Exchange Commission, of
the date of the annual meeting) and (ii) with respect to an election to be
held at a special meeting of shareholders for the election of directors,
the close of business on the seventh day following the date on which notice
of such meeting is first given to shareholders. Each such notice shall set
forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a
representation that the shareholder is a shareholder of record of the
Corporation
entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to
be made by the shareholder; (d) such other information regarding each
nominee proposed by such shareholder as would have been required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or
intended to be nominated by the Board; (e) the consent of each nominee to
serve as a director of the Corporation if so elected; and (f) a
representation as to whether or not the shareholder will solicit proxies in
support of the shareholder's nominee(s). The chairman of any meeting of
shareholders to elect directors and the Board may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing
procedure or if the shareholder fails to comply with the representations
set forth in the notice.
SECTION 4. Election. Except as otherwise expressly provided in the
articles of incorporation, at each meeting of the shareholders for the
election of directors at which a quorum is present, the persons receiving
the greatest number of votes, up to the number of directors to be elected,
shall be the directors.
SECTION 5. Resignation, Removal and Vacancies. Any director may resign
at any time by giving written notice of such resignation to the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein, or, if the time when it shall become
effective shall not be specified therein, then it shall take effect when
accepted by action of the Board. Except as aforesaid, the acceptance of
such resignation shall not be necessary to make it effective.
Any or all directors may be removed at a meeting of the shareholders
called expressly for that purpose. In the case of a removal of a director
without cause, removal shall require a vote of the holders of at least 80%
of the voting power of the then outstanding voting stock of the
Corporation, voting together as a single voting group. For purposes of this
Section, "cause" shall mean the willful and continuous failure of a
director to substantially perform such director's duties to the Corporation
(other than any failure resulting from incapacity due to physical or mental
illness) or the willful engaging by a director in gross misconduct
materially and demonstrably injurious to the Corporation. As used in these
By-laws, "voting stock" shall mean shares of capital stock of the
Corporation entitled to vote generally in the election of directors.
Any vacancy occurring on the Board may be filled by a majority of the
directors then in office, though less than a quorum, and the director
elected to fill such vacancy shall hold office for the remainder of the
full term of the class of
directors in which the vacancy occurred and until the director's successor
is elected and qualified.
SECTION 6. Meetings.
(A) Annual Meetings. As soon as practicable after each annual election
of directors, the Board shall meet for the purpose of organization and the
transaction of other business.
(B) Regular Meetings. Regular meetings of the Board shall be held at
such dates, times and places as the Board shall from time to time
determine.
(C) Special Meetings. Special meetings of the Board shall be held
whenever called by the Chairman of the Board, the President or upon the
written request of a majority of the members of the whole Board filed with
the Secretary. Any and all business may be transacted at a special meeting
which may be transacted at a regular meeting of the Board.
(D) Place of Meeting. The Board may hold its meetings at such place or
places within or without the Commonwealth of Kentucky as the Board may from
time to time by resolution determine or as shall be designated in the
respective notices or waiver of notices thereof.
(E) Notice of Meetings. Notices of regular meetings of the Board or of
any adjourned meeting need not be given. Notices of special meetings of the
Board, or of any meeting of any committee of the Board which has not been
fixed in advance as to hour and place by such committee, shall be sent by
the Secretary to each director, or member of such committee, by any form of
notice permitted by Kentucky law at the director's residence or usual place
of business at least two days before the day on which such meeting is to be
held. Such notice shall include the date, hour and place of such meeting,
but any such notice need not specify the business to be transacted at, or
the purpose of, any such meeting. Notice of any such meeting need not be
given to any director or member of any committee, however, if waived by the
director in writing, whether before or after such meeting shall be held, or
if the director shall be present at such meeting, unless the director at
the beginning of the meeting (or promptly upon such director's arrival)
objects to holding the meeting or transacting business at the meeting and
does not thereafter vote for or assent to action taken at the meeting.
(F) Quorum and Manner of Acting. A majority of the number of directors
fixed by or in the manner provided in these By-laws or in the articles of
incorporation shall be present at any meeting of the Board in order to
constitute a quorum for the transaction of business at such meeting, and
the vote of a majority of those directors shall be necessary for the
passage of any resolution or act of the
Board, except as otherwise expressly required by law, these By-laws or the
articles of incorporation. The directors present at a duly organized
meeting can continue to do business until adjournment, notwithstanding the
withdrawal of enough directors to leave less than a quorum.
(G) Action by Consent. Any action required or permitted to be taken at
any meeting of the Board, or of any committee thereof, may be taken without
a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and such writings are filed with the minutes of
the proceedings of the Board or committee.
(H) Presence at a Meeting. Any or all directors may participate in any
meeting of the Board or any committee thereof, or conduct the meeting
through the use of, any means of communication by which all persons
participating may simultaneously hear and speak to each other during the
meeting. Any director participating in a meeting by such means shall be
deemed to be present in person at the meeting for all purposes.
SECTION 7. Compensation. The Board may, from time to time, fix such
amount per annum and such fees to be paid by the Corporation to Directors
for attendance at meetings of the Board or of any committee, or both. The
Board may likewise provide that the Corporation shall reimburse each
director or member of a committee for any expenses incurred by the director
on account of the director's attendance at any such meeting. Nothing
contained in this Section shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 8. Committees. The Board may, by resolution adopted by a
majority of the Board, designate committees, each committee to consist of
two or more directors and to have such duties and functions as shall be
provided in such resolution. The Board shall have the power to change the
members of any such committee at any time, to fill vacancies and to
discharge any such committee, either with or without cause, at any time.
The Board may establish an executive committee in accordance with and
subject to the restrictions set out in the statutes of the Commonwealth of
Kentucky.
ARTICLE IV
OFFICERS
SECTION 1. Officers. The officers of the Corporation shall be
determined by the Board. The officers of the Corporation may include:
(a) a Chairman of the Board;
(b) a President;
(c) one or more Executive Vice Presidents;
(d) one or more Senior Vice Presidents;
(e) one or more Administrative Vice Presidents;
(f) one or more Vice Presidents;
(g) a Secretary and one or more Assistant Secretaries;
(h) a Treasurer and one or more Assistant Treasurers;
(i) a Controller and one or more Assistant Controllers; and
(j) an Auditor and one or more Assistant Auditors.
In addition, the Board may elect such other officers as it deems
necessary or appropriate and such other officers shall have such powers,
authority, and duties as may be delegated or assigned to such officer, from
time to time, by the Board, the Chairman of the Board, or the President.
The Board shall designate which of the officers shall be executive
officers of the Corporation.
SECTION 2. Election and Appointment and Term of Office. Each officer
shall be elected by the Board at its annual meeting and hold office until
the next annual meeting of the Board and until the officer's successor is
elected or until the officer's earlier death, resignation or removal in the
manner hereinafter provided. If additional officers are elected by the
Board during the year, each of them shall hold office until the next annual
meeting of the Board at which officers are regularly elected and until the
officer's successor is elected or appointed or until the officer's earlier
death, resignation or removal in the manner hereinafter provided.
In addition to the foregoing, the Chairman of the Board, by written
designation filed with the Secretary, may appoint one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers, Assistant
Controllers and Assistant Auditors of the Corporation. If appointed during
the year, each of them shall hold office until the next annual meeting of
the Board at which officers are regularly elected and until the officer's
successor is elected or appointed or until the officer's earlier death,
resignation or removal in the manner hereinafter provided. Subject to the
authority of the Board, the Chairman of the Board shall also have authority
to fix the salary of such officer.
SECTION 3. Resignation, Removal and Vacancies. Any officer may resign
at any time by giving written notice to the Chairman of the Board, the
President or the Secretary, and such resignation shall be effective when
the notice is delivered, unless the notice specifies a later effective
date. All officers and agents elected or appointed shall be subject to
removal at any time by the Board with or without cause. All appointed
officers may be removed at any time by the Chairman of the Board acting
jointly with the President or any Executive or Senior Vice President, by
written designation filed with the Secretary. A vacancy in any office may
be
filled for the unexpired portion of the term in the same manner as provided
for election or appointment to such office.
SECTION 4. Duties and Functions
(A) Chairman of the Board. The Chairman of the Board, if present,
shall preside at all meetings of the shareholders and the Board. If
designated by Board resolution, the Chairman of the Board shall be Chief
Executive Officer of the Corporation, and if so designated, shall be vested
with executive control and management of the business and affairs of the
Corporation and have the direction of all other officers, agents and
employees. The Chairman of the Board shall perform all such other duties as
are incident to the office or as may be properly required of the Chairman
by the Board, subject in all matters to the control of the Board.
(B) The President. The President, in the absence of the Chairman of
the Board, shall preside at all meetings of the shareholders and the Board.
If designated by Board resolution, the President shall be Chief Executive
Officer of the Corporation, and if so designated, shall be vested with
executive control and management of the business and affairs of the
Corporation and have the direction of all other officers, agents and
employees. The President shall have such powers, authority and duties as
may be delegated or assigned to the President from time to time by the
Board or the Chairman of the Board.
(C) Vice Presidents. The Executive Vice Presidents, Senior Vice
Presidents, Administrative Vice Presidents and Vice Presidents shall have
such powers, authority and duties as may be delegated or assigned to them
from time to time by the Board, the Chairman of the Board or the President.
(D) Secretary. The Secretary shall attend to the giving and serving of
all notices required by law or these By-laws, shall be the custodian of the
corporate seal and shall affix and attest the same to all papers requiring
it; shall have responsibility for preparing minutes of the meetings of the
Board and shareholders; shall have responsibility for authenticating
records of the Corporation; and shall in general perform all the duties
incident to the office of the Secretary, subject in all matters to the
control of the Board.
(E) Treasurer. The Treasurer shall have custody and control of the
funds and securities of the Corporation and shall perform all such other
duties as are incident to the office of the Treasurer or that may be
properly required of the Treasurer by the Board, the Chairman of the Board
or the President.
(F) Controller. The Controller shall maintain adequate records of all
assets, liabilities and transactions of the Corporation; shall see that
adequate audits thereof are currently and regularly made; shall have
general supervision of the
preparation of the Corporation's balance sheets, income accounts and other
financial statements or records; and shall perform such other duties as
shall, from time to time, be assigned to him, by the Board, the Chairman of
the Board or the President. These duties and powers shall extend to all
subsidiary corporations and, so far as the Board, the Chairman of the Board
or the President may deem practicable, to all affiliated corporations.
(G) Auditor. The Auditor shall review the accounting, financial and
related operations of the Corporation and shall be responsible for
measuring the effectiveness of various controls established for the
Corporation. The Auditor's duties shall include, without limitation, the
appraisal of procedures, verifying the extent of compliance with formal
controls and the prevention and detection of fraud or dishonesty and such
other duties as shall, from time to time, be assigned to the Auditor by the
Board, the Chairman of the Board or the President. These duties and powers
shall extend to all subsidiary corporations and, so far as the Board, the
Chairman of the Board or the President may deem practicable, to all
affiliated corporations.
(H) General Provision. The powers, authorities, and duties established
pursuant to this Section 4 may be delegated, assigned, or required directly
or indirectly by the Board of Directors, the Chairman of the Board or the
President, as the case may be.
ARTICLE V
BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders, the
Board and the committees of the Board.
ARTICLE VI
CONTRACTS, CHECKS, AND DEPOSITS
SECTION 1. Contracts and Agreements. The Board may authorize any
officer or agent to enter into any contract or agreement or execute and
deliver any instrument in the name of and on behalf of the Corporation, and
such authority may be general or limited to specific instances.
SECTION 2. Checks, Drafts, Orders, Etc. All checks, drafts, or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Corporation
shall be signed by such officer or agent of the Corporation and in such
manner as shall from time to time be prescribed by the Board in a duly
authorized resolution.
SECTION 3. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies, or other depositories in such
manner as shall from time to time be prescribed by the Board in a duly
authorized resolution.
ARTICLE VII
SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. The shares of the Corporation may
be represented by certificates or may be uncertificated. Certificates
representing shares of the Corporation shall be in such form as the Board
shall prescribe. Such certificates shall be in the name of the Corporation
and signed by the Chairman of the Board, the President or a Vice President
and by the Secretary or an Assistant Secretary and shall be sealed with the
corporate seal or contain a facsimile thereof. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it
may nevertheless be issued by the Corporation with the same effect as if
the person were such officer at the date of issue. Where any such
certificate is manually countersigned by a transfer agent or registrar
(other than the Corporation itself or an employee of the Corporation), any
of the other signatures on the certificate may be a facsimile.
SECTION 2. Record. The Corporation shall keep at its registered office
or principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, as required by applicable law.
Except as otherwise expressly required by law, the person in whose name
shares stand on the books of the Corporation shall be deemed the owner
thereof for all purposes as regards the Corporation.
SECTION 3. Transfer of Shares. Transfers of shares of the Corporation
shall be made only on the books of the Corporation by the registered
shareholder thereof, or by the registered shareholder's attorney thereunto
duly authorized by written power of attorney duly executed and filed with
the Secretary or with a transfer agent appointed as provided in Section 4
of this Article, and on the surrender of any certificate or certificates
for such shares properly endorsed.
SECTION 4. Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these By-laws, concerning
the issue, transfer and registration of shares of the Corporation. The
Board may appoint or authorize any officer or officers to appoint one or
more transfer agents
and one or more registrars and may require all certificates for shares to
bear the signature or signatures of any of them.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
October in each year.
ARTICLE IX
INDEMNIFICATION
SECTION 1. Every person who is or was an officer or employee of the
Corporation or of any other corporation or entity in which that person
served as a director, officer or employee at the request of the Corporation
(hereinafter collectively referred to as a "Covered Person"), shall be
indemnified by the Corporation against any and all reasonable costs and
expenses (including but not limited to attorney's fees) and any liabilities
(including but not limited to judgments, fines, penalties and reasonable
settlements) that may be paid by or imposed against that Covered Person in
connection with or resulting from any pending, threatened or completed
claim, action, suit or proceeding (whether brought by or in the right of
the Corporation or such other corporation or entity or otherwise), and
whether, civil, criminal, administrative, investigative or legislative
(including any appeal relating thereto), in which the Covered Person may be
involved, as a party or witness or otherwise, by reason of the Covered
Person's being or having been an officer or employee of the Corporation or
a director, officer or employee of such other corporation or entity, or by
reasons of any action taken or not taken in such capacity, whether or not
the Covered Person continues to be such at the time such liability or
expense shall have been paid or imposed, if the Covered Person:
(a) has been successful on the merits or otherwise with respect to
such claim, action, suit or proceeding; or
(b) acted in good faith, in what the Covered Person reasonably
believed to be the best interests of the Corporation or such other
corporation or entity, as the case may be, and in addition, in any criminal
action or proceeding, had no reasonable cause to believe that the Covered
Person's conduct was unlawful.
As used in this Article, the terms "expense" and "liability" shall
include, but not be limited to, counsel fees and disbursements and amounts
of judgments, fines or penalties against, and reasonable amounts paid in
settlement by, a Covered Person. The termination of any claim, action, suit
or proceeding by judgment, settlement (whether with or without court
approval), conviction or upon a plea of guilty or nolo contendere, or its
equivalent, shall not create a presumption that a Covered
Person did not meet the standards of conduct set forth in paragraph (b) of
this Section 1.
SECTION 2. Indemnification under paragraph (b) of Section 1 shall be
made unless it is determined by any of the following that the Covered
Person has not met the standard of conduct set forth in paragraph (b) of
Section 1:
(a) the Board, acting by a quorum consisting of directors who were not
parties to (or who are determined to have been successful with respect to)
the claim, action, suit or proceeding;
(b) a committee of the Board established pursuant to Article III
Section 8 of the By-laws consisting of directors who were not parties to
(or who are determined to have been successful with respect to) the claim,
action, suit or proceeding;
(c) any officer or group of officers of the Corporation who, by
resolution adopted by the Board, has been given authority to make such
determinations; or
(d) either of the following selected by the Board if a disinterested
committee of the Board (as described in paragraph (b) of this Section 2)
cannot be obtained or by the person(s) designated in paragraphs (a), (b) or
(c) of this Section 2:
(1) independent legal counsel (who may be the regular counsel of the
Corporation) who has delivered to the Corporation a written determination;
or
(2) an arbitrator or a panel of arbitrators (which panel may include
directors, officers, employees or agents of the Corporation) who has
delivered to the Corporation a written determination.
SECTION 3. Expenses incurred with respect to any claim, action, suit
or proceeding of the character described in Section 1 of this Article shall
be advanced to a Covered Person by the Corporation prior to the final
disposition thereof, but the Covered Person shall be obligated to repay
such advances if it is ultimately determined that the Covered Person is not
entitled to indemnification. As a condition to advancing expenses
hereunder, the Corporation may require the Covered Person to sign a written
instrument acknowledging such obligation to repay any advances hereunder if
it is ultimately determined the Covered Person is not entitled to
indemnity.
Notwithstanding the preceding paragraph, the Corporation may refuse to
advance expenses or may discontinue advancing expenses to a Covered Person
if
such advancement is determined by the Corporation, in its sole and
exclusive discretion, not to be in the best interest of the Corporation.
SECTION 4. Notwithstanding anything in this Article to the contrary,
no person shall be indemnified in respect of any claim, action, suit or
proceeding initiated by such person or such person's personal or legal
representative, or which involved the voluntary solicitation or
intervention of such person or such person's personal or legal
representative (other than an action to enforce indemnification rights
hereunder or an action initiated with the approval of a majority of the
Board).
SECTION 5. The rights of indemnification provided in this Article
shall be in addition to any other rights to which any Covered Person may
otherwise be entitled to by contract, vote of shareholders or disinterested
directors, other corporate action or otherwise; and in the event of any
such Covered Person's death, such rights shall extend to the Covered
Person's heirs and legal representatives.
ARTICLE X
AMENDMENTS
Any By-law may be adopted repealed, altered or amended by the Board at
any regular or special meeting thereof. The shareholders of the Corporation
shall have the power to amend, alter or repeal any By-law only to the
extent and in the manner provided in the articles of incorporation of the
Corporation.
ASHLAND INC.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
(Amended as of November 7, 2002)
ARTICLE I. GENERAL PROVISIONS
1. PURPOSE
The purpose of this Ashland Inc. Deferred Compensation Plan For
Non-Employee Directors (the "Plan") is to provide each Director with an
opportunity to defer some or all of the Director's Fees as a means of
saving for retirement or other purposes. In addition, the Plan provides
Directors with the ability to increase their proprietary interest in the
Company's long-term prospects by permitting Directors to receive all or a
portion of their Fees in Ashland Common Stock.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) "Accounting Date" means the Business Day on which a calculation
concerning a Participant's Compensation Account is performed, or as
otherwise defined by the Committee.
(b) "Act" means the Securities Act of 1933, as amended from time to
time.
(c) "Beneficiary" means the person(s) designated by a Participant in
accordance with Article IV, Section 1.
(d) "Board" means the Board of Directors of Ashland Inc. or its
designee.
(e) "Business Day" means a day on which the New York Stock Exchange is
open for trading activity.
(f) "Change in Control" shall be deemed to occur (1) upon the approval
of the shareholders of the Company (or if such approval is not required,
upon the approval of the Board) of (A) any consolidation or merger of the
Company, other than a consolidation or merger of the Company into or with a
direct or indirect wholly-owned subsidiary, in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Common
Stock would be converted into cash, securities or other property other than
a merger in which the holders of Common Stock immediately prior to the
merger will have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company,
provided, however, that no sale, lease, exchange or other transfer of all
or substantially all the assets of the Company shall be deemed to occur
unless assets constituting 80% of the total assets of the Company are
transferred pursuant to such sale, lease, exchange or other transfer, or
(C) adoption of any plan or proposal for the liquidation or dissolution of
the Company, (2) when any "person" (as defined in Section 3(a)(9) or 13(d)
of the Exchange Act), other than the Company or any subsidiary or employee
benefit plan or trust maintained by the Company, shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 15% of the Common Stock outstanding at
the time, without the approval of the Board, or (3) if at any time during a
period of two consecutive years, individuals who at the beginning of such
period constituted the Board shall cease for any reason to constitute at
least a majority thereof, unless the election or the nomination for
election by the Company's shareholders of each new director during such
two-year period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
two-year period. Notwithstanding the foregoing, any transaction, or series
of transactions, that shall result in the disposition of the Company's
interest in Marathon Ashland Petroleum LLC, including without limitation
any transaction arising out of that certain Put/Call, Registration Rights
and Standstill Agreement dated January 1, 1998 among Marathon Oil Company,
USX Corporation, the Company and Marathon Ashland Petroleum LLC, as amended
from time to time, shall not be deemed to constitute a Change in Control.
(g) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(h) "Committee on Directors" means the Committee on Directors of the
Board or its designee.
(i) "Common Stock" means the common stock, $1.00 par value, of Ashland
Inc.
(j) "Common Stock Fund" means that investment option, approved by the
Committee on Directors, in which a Participant's Retirement Account may be
deemed to be invested and may earn income based on a hypothetical
investment in Common Stock.
(k) "Company" means Ashland Inc., its divisions and subsidiaries.
(l) "Corporate Human Resources" means the Corporate Human Resources
Department of the Company.
(m) "Credit Date" means the date on which any Fees would otherwise
have been paid to the Participant or in the case of the Participant's
designation of investment option changes, within three Business Days after
the Participant's designation is received by Corporate Human Resources, or
as otherwise designated by the Committee.
(n) "Deferral Account" means the account(s) to which the Participant's
Deferred Fees are credited and from which, pursuant to Article III, Section
5, distributions are made.
(o) "Deferred Fees" means the Fees elected by the Participant to be
deferred pursuant to the Plan.
(p) "Director" means any non-employee director of the Company.
(q) "Disability" means a Director's incapacity, due to physical or
mental illness, resulting in an inability to attend to his or her duties
and responsibilities as a member of the Board.
(r) "Election" means a Participant's delivery of a written notice of
election to the Secretary of the Company electing to defer payment of his
or her Fees or to receive such Fees in the form of Common Stock.
(s) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(t) "Fair Market Value" means the price of a share of Common Stock, as
reported on the Composite Tape for New York Stock Exchange issues on the
date and at the time designated by the Company.
(u) "Fees" mean the annual retainer and meeting fees, as well as any
per diem compensation for special assignments, earned by a Director for his
or her service as a member of the Board during a calendar year or portion
thereof.
(v) "Fiscal Year" means that annual period commencing October 1 and
ending the following September 30.
(w) "Participant" means a Director who has elected to defer payment of
all or a portion of his or her Fees and/or to receive all or a specified
portion of his or her Fees in shares of Common Stock.
(x) "Payment Commencement Date" means the date payments of amounts
deferred begin pursuant to Article III, Section 6.
(y) "Personal Representative" means the person or persons who, upon
the disability or incompetence of a Director, shall have acquired on behalf
of the Director, by legal proceeding or otherwise, the right to receive the
benefits specified in this Plan.
(z) "Plan" means this Ashland Inc. Deferred Compensation Plan For
Non-Employee Directors.
(aa) "Stock Account" means an account by that name established
pursuant to Article III, Section 1.
(bb) "Stock Unit(s)" means the share equivalents credited to a
Participant's Stock Account pursuant to Article III, Section 1.
(cc) "Termination" means retirement from the Board or termination of
service as a Director for any other reason.
3. SHARES; ADJUSTMENTS IN EVENT OF CHANGES IN CAPITALIZATION
(a) Shares Authorized for Issuance. There shall be reserved for
issuance under the Plan 500,000 shares of Common Stock, subject to
adjustment pursuant to subsection (b) below. Such shares shall be
authorized but unissued shares of Common Stock.
(b) Adjustments in Certain Events. In the event of any change in the
outstanding Common Stock of the Company by reason of any stock split, stock
dividend, recapitalization, merger, consolidation, reorganization,
combination, or exchange of shares, split-up, split-off, spin-off,
liquidation or other similar change in capitalization, or any distribution
to common shareholders other than cash dividends, the number or kind of
shares that may be issued under the Plan shall be automatically adjusted so
that the proportionate interest of the Directors shall be maintained as
before the occurrence of such event. Such adjustment shall be conclusive
and binding for all purposes of the Plan.
4. ELIGIBILITY
Any non-employee Director of the Company shall be eligible to
participate in the Plan.
5. ADMINISTRATION
Full power and authority to construe, interpret and administer the
Plan shall be vested in the Company and the Committee on Directors.
Decisions of the Company and the Committee on Directors shall be final,
conclusive and binding upon all parties. Day-to-day administration of the
Plan shall be the responsibility of Corporate Human Resources. This
Department may authorize new or modify existing forms for use under this
Plan so long as any such modified or new forms are not inconsistent with
the terms of the Plan.
ARTICLE II. COMMON STOCK PROVISION
Each Director may elect to receive all or a portion of his or her Fees
in shares of Common Stock by making an Election pursuant to Article III,
Section 4. Shares shall be issued to the Director at the end of each
quarter beginning in the quarter the Election is effective. The number of
shares of Common Stock so issued shall be equal to the amount of Fees which
otherwise would have been payable to such Director during the quarter
divided by the Fair Market Value. Only whole number of shares of Common
Stock will be issued, with any fractional shares to be paid in cash.
ARTICLE III. DEFERRED COMPENSATION
1. PARTICIPANT ACCOUNTS
(a) Upon election to participate in the Plan, there shall be
established a Deferral Account to which there shall be credited any
Deferred Fees as of each Credit Date. The Deferral Account shall be
credited (or debited) on each Accounting Date with income (or loss) based
upon a hypothetical investment in any one or more of the investment options
available under the Plan, as prescribed by the Committee on Directors,
which may include a Common Stock Fund, as elected by the Participant under
the terms of Article III, Section 4.
(b) The Stock Account of a Participant shall be credited on each
Accounting Date with Stock Units equal to the number of shares of Common
Stock (including fractions of a share) that could have been purchased with
the amount of such deferred Fees as to which a stock deferral election has
been made at the Fair Market Value on the Accounting Date. As of the date
of any dividend distribution date for the Common Stock, the Participant's
Stock Account shall be credited with additional Stock Units equal to the
number of shares of Common Stock (including fractions of a share) that
could have been purchased, at the Fair Market Value on such date, with the
amount which would have been paid as dividends on that number of shares
(including fractions of a share) of Common Stock which is equal to the
number of Stock Units then credited to the Participant's Stock Account.
2. FINANCIAL HARDSHIP
Upon the written request of a Participant or a Participant's Personal
Representative and a finding that continued deferral will result in an
unforeseeable financial hardship to the Participant, the Committee on
Directors or the Company (each in its sole discretion) may authorize (a)
the payment of all or a part of a Participant's Deferral Account in a
single installment prior to his or her ceasing to be a Director, or (b) the
acceleration of payment of any multiple installments hereof. It is intended
that the Committee's determinations as to whether the Participant has
suffered an "unforeseeable financial emergency" shall be made consistent
with the requirements under Section 457(d) of the Internal Revenue Code. If
the Participant requesting such a payment is a member of the Committee on
Directors, the Participant shall abstain from the Committee on Directors'
determination as to whether the payment shall be made.
3. ACCELERATED DISTRIBUTION
(a) Availability of Withdrawal Prior to Termination. The Participant
or the Participant's Beneficiary who is receiving installment payments
under the Plan may elect, in writing, to withdraw all or a portion of a
Participant's Deferral Account at any time prior to the time such Deferral
Account otherwise becomes payable under the Plan, provided the conditions
specified in subsections (c), (d) and (e) of this Article III, Section 3
are satisfied.
(b) Acceleration of Periodic Distributions. Upon the written election
of the Participant or the Participant's Beneficiary who is receiving
installment payments under the Plan, the Participant or Participant's
Beneficiary may elect to have all or a portion of the remaining
installments distributed in the form of an immediately payable lump sum,
provided the conditions specified in subsection (c) and (e) of this Article
III, Section 3 are satisfied.
(c) Forfeiture Penalty. In the event of a withdrawal pursuant to
subsection (a) of this Article III, Section 3, or an accelerated
distribution pursuant to subsection (b) of this Article III, Section 3, the
Participant shall forfeit from such Deferral Account an amount equal to 10%
of the amount of the withdrawal or accelerated distribution, as the case
may be. The forfeited amount shall be deducted from the Deferral Account
prior to giving effect to the requested withdrawal or acceleration. Neither
the Participant nor the Participant's Beneficiary shall have any right or
claim to the forfeited amount, and the Company shall have no obligation
whatsoever to the Participant, the Participant's Beneficiary or any other
person with regard to the forfeited amount.
(d) Minimum Withdrawal. In no event shall the amount withdrawn in
accordance with subsection (a) of this Article III, Section 3 be less than
25% of the amount credited to such Participant's Deferral Account
immediately prior to the withdrawal.
(e) Suspension from Deferrals. In the event of a withdrawal pursuant to
subsection (a) or (b) of this Article III, Section 3, a Participant who is
otherwise eligible to make deferrals of Fees under this Plan shall be prohibited
from making such deferrals with respect to the remainder of the current Fiscal
Year and the Fiscal Year of the Plan immediately following the Fiscal Year of
the Plan during which the withdrawal was made, and any Election previously made
by the Participant with respect to deferrals of Fees for such Fiscal Year of the
Plan shall be void and of no effect.
4. MANNER OF ELECTION
(a) General. Any Director wishing to participate in the Plan may elect
to do so by delivering to the Secretary of the Company an Election on a
form prescribed by Corporate Human Resources designating the manner in
which such Deferred Fees are to be invested in accordance with Article III,
Section 1 and electing the timing and form of distribution. The timing of
the filing of the appropriate form with Corporate Human Resources shall be
determined by the Company or the Committee on Directors. An effective
election to defer Fees may not be revoked or modified except as otherwise
determined by the Company or the Committee on Directors or as stated
herein.
(b) Investment Alternatives - Existing Balances. A Participant may
elect to change an existing selection as to the investment alternatives in
effect with respect to existing deferred Fees (in increments prescribed by
the Committee on Directors or the Company) as often, and with such
restrictions, as determined by the Committee on Directors or by the
Company.
(c) Change of Beneficiary. A Participant may, at any time, elect to
change the designation of a Beneficiary in accordance with Article IV,
Section 1 hereof.
(d) Initial Election. With respect to Directors' Fees payable for all
or any portion of a calendar year after such person's initial election to
the office of Director of the Company, any such person wishing to
participate in the Plan may file a proper Election within 30 days after
such election to office. Any such Election shall be effective upon filing
or as soon as possible thereafter with respect to such Fees.
5. DISTRIBUTION
(a) Deferral Account. In accordance with the Participant's Election
and as prescribed by the Committee on Directors, Deferred Fees credited to
a Participant's Deferral Account shall be distributed in cash or shares of
Common Stock (or a combination of both). Unless otherwise directed by the
Committee on Directors, if no Election is made by a Participant as to the
distribution or form of payment of his or her Deferral Account, upon
Termination such account shall be paid in cash in lump sum. The entire
Deferral Account must be paid out within forty years following the date of
the Participant's Termination.
(b) Change of Distribution of Deferral Account. A Participant will be
allowed to change the Election as to the applicable payment period for all
amounts deferred pursuant to such Election, subject to approval by the
Company or the Committee. Such change must be made by the earlier of:
(i) the date six months prior to the first day of the month following
the Participant's Termination; or
(ii) the December 31 immediately preceding the first day of the month
following the Participant's Termination.
If the Participant making such change is a member of the Committee on
Directors, such Participant shall abstain from the Committee on Directors'
decision to approve or disapprove such change.
6. PAYMENT COMMENCEMENT DATE
Payments of amounts deferred pursuant to a valid Election shall
commence after a Participant's Termination in accordance with his or her
Election. If a Participant dies prior to the first deferred payment
specified in an Election, payments shall commence to the Participant's
Beneficiary on the first payment date so specified.
7. CHANGE IN CONTROL
Notwithstanding any provision of this Plan to the contrary, in the
event of a "Change in Control" (as defined in Section 2(f) of Article I),
each Participant in the Plan shall receive an automatic lump sum cash
distribution of all amounts accrued in the Participant's Cash and/or Stock
Account(s) (including interest at the Prime Rate of Interest through the
business day immediately preceding the date of distribution) not later than
fifteen (15) days after the date of the "Change in Control." For this
purpose, the balance in the Stock Account shall be determined by
multiplying the number of Stock Units by the higher of (a) the highest
closing price of a share of Common Stock during the period commencing 30
days prior to such Change in Control or (b) if the Change in Control of the
Company occurs as a result of a tender or exchange offer or consummation of
a corporate transaction, then the highest price paid per share of Common
Stock pursuant thereto. Any consideration other than cash forming a part or
all of the consideration for Common Stock to be paid pursuant to the
applicable transaction shall be valued at the valuation price thereon
determined by the Board.
In addition, the Company shall reimburse a Director for the legal fees
and expenses incurred if the Director is required to seek to obtain or
enforce any right to distribution. In the event that it is determined that
such Director is properly entitled to a cash distribution hereunder, such
Director shall also be entitled to interest thereon at the Prime Rate of
Interest quoted by Citibank, N.A. as its prime commercial lending rate on
the subject date from the date such distribution should have been made to
and including the date it is made. Notwithstanding any provision of this
Plan to the contrary, Article I, Section 2(f) and Section 7 of this Article
may not be amended after a "Change in Control" occurs without the written
consent of a majority in number of Participants.
ARTICLE IV. MISCELLANEOUS PROVISIONS
1. BENEFICIARY DESIGNATION
A Director may designate one or more persons (including a trust) to
whom or to which payments are to be made if the Director dies before
receiving payment of all amounts due hereunder. A designation of
Beneficiary will be effective only after the signed Election is filed with
the Secretary of the Company while the Director is alive and will cancel
all designations of a Beneficiary signed and filed earlier. If the Director
fails to designate a Beneficiary as provided above or if all of a
Director's Beneficiaries predecease him or her and he or she fails to
designate a new Beneficiary, remaining unpaid amounts shall be paid in one
lump sum to the estate of such Director. If all Beneficiaries of the
Director die before the Director or before complete payment of all amounts
due hereunder, the remaining unpaid amounts shall be paid in one lump sum
to the estate of the last to die of such Beneficiaries.
2. INALIENABILITY OF BENEFITS
The interests of the Directors and their Beneficiaries under the Plan
may not in any way be voluntarily or involuntarily transferred, alienated
or assigned, nor be subject to attachment, execution, garnishment or other
such equitable or legal process.
3. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky.
4. AMENDMENTS
The Committee on Directors may amend, alter or terminate this Plan at
any time without the prior approval of the Directors; provided, however,
that the Committee on Directors may not, without approval by the
shareholders:
(a) materially increase the number of securities that may be issued
under the Plan (except as provided in Article I, Section 3),
(b) materially modify the requirements as to eligibility for
participation in the Plan, or
(c) otherwise materially increase the benefits accruing to
participants under the Plan.
5. COMPLIANCE WITH RULE 16b-3
It is the intention of the Company that the Plan comply in all
respects with Rule 16b-3 promulgated under Section 16(b) of the Exchange
Act and that Plan Participants remain non-employee directors ("Non-Employee
Directors") for purposes of administering other employee benefit plans of
the Company and having such other plans be exempt from Section 16(b) of the
Exchange Act. Therefore, if any Plan provision is found not to be in
compliance with Rule 16b-3 or if any Plan provision would disqualify Plan
participants from remaining Non-Employee Directors, that provision shall be
deemed amended so that the Plan does so comply and the Plan participants
remain Non-Employee Directors, to the extent permitted by law and deemed
advisable by the Committee on Directors, and in all events the Plan shall
be construed in favor of its meeting the requirements of Rule 16b-3.
6. EFFECTIVE DATE
The Plan was approved by the shareholders of the Company on January
27, 1994, and originally became effective as of November 9, 1993, and has
been restated in this document effective November 7, 2002.
ASHLAND INC.
DEFERRED COMPENSATION PLAN
(Amended and Restated as of November 7, 2002)
1. PURPOSE
The purpose of this Ashland Inc. Deferred Compensation Plan (the
"Plan"), is to provide eligible key employees of the Company with an
opportunity to defer compensation to be earned by them from the Company as
a means of saving for retirement or other future purposes.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) "Accounting Date" means the Business Day on which a calculation
concerning a Participant's Compensation Account is performed, or as
otherwise defined by the Committee.
(b) "Beneficiary" means the person(s) designated by the Participant in
accordance with Section 12, or if no person(s) is/are so designated, the
estate of a deceased Participant.
(c) "Board" means the Board of Directors of Ashland Inc. or its
designee.
(d) "Business Day" means a day on which the New York Stock Exchange is
open for trading activity.
(e) "Change in Control" shall be deemed to occur (1) upon the approval
of the shareholders of the Company (or if such approval is not required,
upon the approval of the Board) of (A) any consolidation or merger of the
Company, other than a consolidation or merger of the Company into or with a
direct or indirect wholly-owned subsidiary, in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Common
Stock would be converted into cash, securities or other property other than
a merger in which the holders of Common Stock immediately prior to the
merger will have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company,
provided, however, that no sale, lease, exchange or other transfer of all
or substantially all the assets of the Company shall be deemed to occur
unless assets constituting 80% of the total assets of the Company are
transferred pursuant to such sale, lease, exchange or other transfer, or
(C) adoption of any plan or proposal for the liquidation or dissolution of
the Company, (2) when any "person" (as defined in Section 3(a)(9) or 13(d)
of the Exchange Act), other than Ashland Inc. or any subsidiary or employee
benefit plan or trust maintained by Ashland Inc. or any of its
subsidiaries, shall become the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of more than 15% of the
Common Stock outstanding at the time, without the approval of the Board, or
(3) if at any time during a period of two consecutive years, individuals
who at the beginning of such period constituted the Board shall cease for
any reason to constitute at least a majority thereof, unless the election
or the nomination for election by the Company's shareholders of each new
director during such two-year period was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such two-year period. Notwithstanding the foregoing, any
transaction, or series of transactions, that shall result in the
disposition of the Company's interest in Marathon Ashland Petroleum LLC,
including without limitation any transaction arising out of that certain
Put/Call, Registration Rights and Standstill Agreement dated January 1,
1998 among Marathon Oil Company, USX Corporation, the Company and Marathon
Ashland Petroleum LLC, as amended from time to time, shall not be deemed to
constitute a Change in Control.
(f) "Committee" means the Personnel and Compensation Committee of the
Board or its designee.
(g) "Common Stock" means the common stock, $1.00 par value, of Ashland
Inc.
(h) "Common Stock Fund" means that investment option, approved by the
Committee, in which a Participant's Compensation Account may be deemed to
be invested and may earn income based on a hypothetical investment in
Common Stock.
(i) "Company" means Ashland Inc., its divisions, subsidiaries and
affiliates.
(j) "Compensation" means any employee compensation determined by the
Committee to be properly deferrable under the Plan.
(k) "Compensation Account(s)" means the Retirement Account and/or the
In-Service Account(s).
(l) "Corporate Human Resources" means the Corporate Human Resources
Department of the Company.
(m) "Credit Date" means the date on which Compensation would otherwise
have been paid to the Participant or in the case of the Participant's
designation of investment option changes, within three Business Days after
the Participant's designation is received by Corporate Human Resources, or
as otherwise designated by the Committee.
(n) "Deferred Compensation" means the Compensation elected by the
Participant to be deferred pursuant to the Plan.
(o) "Election" means a Participant's delivery of a written notice of
election to defer payment of all or a portion of his or her Compensation
either until retirement, Termination, death or such other time as further
provided by the Committee or the Company.
(p) "Employee" means a full-time, regular salaried employee (which
term shall be deemed to include officers) of the Company, its present and
future subsidiary corporations as defined in Section 424 of the Internal
Revenue Code of 1986, as amended or its affiliates.
(q) "Excess Payments" means payments made to a Participant pursuant to
the Plan and the Excess Plan.
(r) "Excess Plan" means the Ashland Inc. Nonqualified Excess Benefit
Pension Plan, as it now exists or as it may hereafter be amended.
(s) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(t) "Fair Market Value" means the price of a share of Common Stock, as
reported on the Composite Tape for New York Stock Exchange issues on the date
and at the time designated by the Company.
(u) "Fiscal Year" means that annual period commencing October 1 and
ending the following September 30.
(v) "In-Service Account" means the account(s) to which the
Participant's Deferred Compensation is credited and from which, pursuant to
Section 10, distributions are made.
(w) "Participant" means an Employee selected by the Committee to
participate in the Plan and who has elected to defer payment of all or a
portion of his or her Compensation under the Plan.
(x) "Plan" means this Ashland Inc. Deferred Compensation Plan as it
now exists or as it may hereafter be amended.
(y) "Retirement Account" means the account(s) to which the
Participant's Deferred Compensation is credited and from which, pursuant to
Section 10, distributions are made.
(z) "SERP" means the Tenth Amended and Restated Ashland Inc.
Supplemental Early Retirement Plan for Certain Key Executive Employees, as
it now exists or as it may hereafter be amended.
(aa) "SERP Payments" means payments made to a Participant pursuant to
the Plan and the SERP.
(bb) "Stock Unit(s)" means the share equivalents credited to the
Common Stock Fund of a Participant's Compensation Account pursuant to
Section 6.
(cc) "Termination" means termination of services as an Employee for
any reason other than retirement.
3. SHARES; ADJUSTMENTS IN EVENT OF CHANGES IN CAPITALIZATION
(a) Shares Authorized for Issuance. There shall be reserved for
issuance under the Plan 500,000 shares of Common Stock, subject to
adjustment pursuant to subsection (c) below.
(b) Units Authorized for Credit. The maximum number of Stock Units
that may be credited to Participants' Compensation Accounts under the Plan
is 1,500,000, subject to adjustment pursuant to subsection (c) below.
(c) Adjustments in Certain Events. In the event of any change in the
outstanding Common Stock of the Company by reason of any stock split, share
dividend, recapitalization, merger, consolidation, reorganization,
combination, or exchange or reclassification of shares, split-up,
split-off, spin-off, liquidation or other similar change in capitalization,
or any distribution to common shareholders other than cash dividends, the
number or kind of shares or Stock Units that may be issued or credited
under the Plan shall be automatically adjusted so that the proportionate
interest of the Participants shall be maintained as before the occurrence
of such event. Such adjustment shall be conclusive and binding for all
purposes of the Plan.
4. ELIGIBILITY
The Committee shall have the authority to select from management
and/or highly compensated Employees those Employees who shall be eligible
to participate in the Plan; provided, however, that employees and/or
retirees who have elected to defer an amount into this Plan from another
plan sponsored or maintained by Ashland Inc., the terms of which allowed
such employee or retiree to make such a deferral election into this Plan,
shall be considered to be eligible to participate in this Plan.
5. ADMINISTRATION
Full power and authority to construe, interpret and administer the
Plan shall be vested in the Company and the Committee. This power and
authority includes, but is not limited to, selecting Compensation eligible
for deferral, establishing deferral terms and conditions and adopting
modifications, amendments and procedures as may be deemed necessary,
appropriate or convenient by the Committee. Decisions of the Company and
the Committee shall be final, conclusive and binding upon all parties.
Day-to-day administration of the Plan shall be the responsibility of
Corporate Human Resources.
6. PARTICIPANT ACCOUNTS
Upon election to participate in the Plan, there shall be established a
Retirement Account and/or In-Service Account, as designated by the
Participant to which there shall be credited any Deferred Compensation, as
of each Credit Date. Each such Compensation Account shall be credited (or
debited) on each Accounting Date with income (or loss) based upon a
hypothetical investment in any one or more of the investment options
available under the Plan, as prescribed by the Committee for the particular
compensation credited, which may include a Common Stock Fund, as elected by
the Participant under the terms of Section 9.
7. FINANCIAL HARDSHIP
Upon the written request of a Participant or a Participant's legal
representative and a finding that continued deferral will result in an
unforeseeable financial emergency to the Participant, the Committee or the
Company (each in its sole discretion) may authorize (a) the payment of all
or a part of a Participant's Compensation Account in a single installment
prior to his or her ceasing to be a Participant, or (b) the acceleration of
payment of any multiple installments thereof. It is intended that the
Committee's determinations as to whether the Participant has suffered an
"unforeseeable financial emergency" shall be made consistent with the
requirements under Section 457(d) of the Internal Revenue Code.
8. ACCELERATED DISTRIBUTION
(a) Availability of Withdrawal Prior to Retirement. The Participant or
the Participant's Beneficiary who is receiving installment payments under
the Plan may elect, in writing, to withdraw all or a portion of a
Participant's Compensation Account at any time prior to the time such
Compensation Account otherwise becomes payable under the Plan, provided the
conditions specified in Sections 8(c), 8(d) and 8(e) hereof are satisfied.
(b) Acceleration of Periodic Distributions. Upon the written notice of
the Participant or the Participant's Beneficiary who is receiving
installment payments under the Plan, the Participant or Participant's
Beneficiary may elect to have all or a portion of the remaining
installments distributed in the form of an immediately payable lump sum,
provided the conditions specified in Section 8(c) and 8(e) hereof are
satisfied.
(c) Forfeiture Penalty. In the event of a withdrawal pursuant to
Section 8(a), or an accelerated distribution pursuant to Section 8(b), the
Participant shall forfeit from such Compensation Account an amount equal to
10% of the amount of the withdrawal or accelerated distribution, as the
case may be. The forfeited amount shall be deducted from the Compensation
Account prior to giving effect to the requested withdrawal or acceleration.
Neither the Participant nor the Participant's Beneficiary shall have any
right or claim to the forfeited amount, and the Company shall have no
obligation whatsoever to the Participant, the Participant's Beneficiary or
any other person with regard to the forfeited amount.
(d) Minimum Withdrawal. In no event shall the amount withdrawn in
accordance with Section 8(a) be less than 25% of the amount credited to
such Participant's Compensation Account immediately prior to the
withdrawal.
(e) Suspension from Deferrals. In the event of a withdrawal pursuant
to Section 8(a) or 8(b), a Participant who is otherwise eligible to make
deferrals of Compensation under this Plan shall be prohibited from making
such deferrals with respect to the remainder of the current Fiscal Year and
the Fiscal Year of the Plan immediately following the Fiscal Year of the
Plan during which the withdrawal was made, and any Election previously made
by the Participant with respect to deferrals of Compensation for such
Fiscal Years of the Plan shall be void and of no effect.
9. MANNER OF ELECTION
(a) General. The Company or the Committee shall determine the timing
of the filing of the appropriate Election forms. An effective Election may
not be revoked or modified except as otherwise determined by the Company or
the Committee or as stated herein. In addition to the provisions contained
in this Plan, any deferrals of SERP Payments or Excess Payments must be in
accordance with the terms of the SERP or the Excess Plan.
(b) Investment Alternatives -- Existing Balances. A Participant may
elect to change an existing selection as to the investment alternatives in
effect with respect to an existing Compensation Account (in increments
prescribed by the Committee or the Company) as often, and with such
restrictions, as determined by the Committee or by the Company.
(c) Change of Beneficiary. A Participant may, at any time, elect to
change the designation of a Beneficiary in accordance with Section 11
hereof.
10. DISTRIBUTION
(a) Retirement Account. In accordance with the Participant's Election
and within the guidelines established by the Committee or the Company, a
Participant's Retirement Account shall be distributed in cash or shares of
Common Stock (or a combination of both). If no Election is made by a
Participant as to the distribution or form of payment of his or her
Retirement Account, upon the earlier of death or retirement such account
shall be paid in cash or shares of Common Stock (or a combination of both)
in lump sum. The entire Retirement Account must be paid out within forty
years following the date of the earlier of the Participant's death or
retirement.
(b) In-Service Account. In accordance with the Participant's Election
and within the guidelines established by the Committee or the Company,
Deferred Compensation credited to a Participant's In-Service Account shall
be distributed in cash or shares of Common Stock (or a combination of
both). A Participant may make different Elections with respect to the
applicable distribution periods for different deferral cycles in the
In-Service Accounts.
(c) Termination. Notwithstanding the foregoing, in the event of a
Participant's Termination, the Company reserves the right to distribute the
Participant's Compensation Account at such time and in such manner as
deemed appropriate.
(d) Change of Distribution of Compensation Account. A Participant will
be allowed to change the Election as to the distribution of Deferred
Compensation of his or her Retirement Account for all amounts previously
deferred pursuant to such Election, subject to approval by the Committee or
the Company. Such change must be made by the earlier of:
(1) the date six months prior to the first day of the month following
such Participant's retirement; or
(2) the December 31 immediately preceding the first day of the month
following such Participant's retirement.
A Participant may not change the Election as to the distribution of
Deferred Compensation in his or her In-Service Account(s) except as
otherwise set forth in Sections 7 and 8.
11. BENEFICIARY DESIGNATION
A Participant may designate one or more persons (including a trust) to
whom or to which payments are to be made if the Participant dies before
receiving distribution of all amounts due hereunder. A designation of
Beneficiary will be effective only after the signed Election is filed with
Corporate Human Resources while the Participant is alive and will cancel
all designations of Beneficiary signed and filed earlier. If the
Participant fails to designate a Beneficiary as provided above or if all of
a Participant's Beneficiaries predecease him or her and he or she fails to
designate a new Beneficiary, the remaining unpaid amounts shall be paid in
one lump sum to the estate of such Participant. If all Beneficiaries of the
Participant die after the Participant but before complete payment of all
amounts due hereunder, the remaining unpaid amounts shall be paid in one
lump sum to the estate of the last to die of such Beneficiaries.
12. CHANGE IN CONTROL
Notwithstanding any provision of this Plan to the contrary, in the
event of a Change in Control, each Participant in the Plan shall receive an
automatic lump sum cash distribution of all amounts accrued in the
Participant's Compensation Account not later than fifteen (15) days after
the date of the Change in Control. For this purpose, the balance in the
portion of a Participant's Compensation Account invested in the Common
Stock Fund shall be determined by multiplying the number of Stock Units by
the higher of (a) the highest Fair Market Value on any date within the
period commencing 30 days prior to such Change in Control, or (b) if the
Change in Control of the Company occurs as a result of a tender or exchange
offer or consummation of a corporate transaction, then the highest price
paid per share of Common Stock pursuant thereto. Any consideration other
than cash forming a part or all of the consideration for Common Stock to be
paid pursuant to the applicable transaction shall be valued at the
valuation price thereon determined by the Board.
In addition, the Company shall reimburse a Participant for the legal
fees and expenses incurred if the Participant is required to seek to obtain
or enforce any right to distribution. In the event that it is determined
that such Participant is properly entitled to a cash distribution
hereunder, such Participant shall also be entitled to interest thereon
payable in an amount equivalent to the Prime Rate of Interest quoted by
Citibank, N.A. as its prime commercial lending rate on the subject date
from the date such distribution should have been made to and including the
date it is made. Notwithstanding any provision of this Plan to the
contrary, this Section 12 may not be amended after a Change in Control
occurs without the written consent of a majority in number of Participants.
13. INALIENABILITY OF BENEFITS
The interests of the Participants and their Beneficiaries under the
Plan may not in any way be voluntarily or involuntarily transferred,
alienated or assigned, nor subject to attachment, execution, garnishment or
other such equitable or legal process. A Participant or Beneficiary cannot
waive the provisions of this Section 13.
14. GOVERNING LAW
The provisions of this plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky, except to the
extent preempted by Federal law.
15. AMENDMENTS
The Committee may amend, alter or terminate this Plan at any time
without the prior approval of the Board; provided, however, that the
Committee may not, without approval by the Board and the shareholders:
(a) increase the number of securities that may be issued under the
Plan (except as provided in Section 3(c));
(b) materially modify the requirements as to eligibility for
participation in the Plan; or
(c) otherwise materially increase the benefits accruing to
Participants under the Plan.
16. EFFECTIVE DATE
The Plan was approved by the shareholders of the Company on January
26, 1995, and originally became effective as of October 1, 1994, and has
been restated in this document effective as of November 7, 2002.
TENTH AMENDED AND RESTATED
ASHLAND INC.
SUPPLEMENTAL EARLY RETIREMENT PLAN
FOR CERTAIN EMPLOYEES
November 4, 1999 and as amended thereafter
ARTICLE I. PURPOSE AND EFFECTIVE DATE.
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1.01 Purpose
The purpose of the Plan is to allow designated employees to retire prior to
their sixty-fifth birthday without an immediate substantial loss of income.
This Plan is a supplemental retirement arrangement for a select group of
management.
1.02 Effective Date
The Tenth Amended and Restated Ashland Inc. Supplemental Early Retirement
Plan for Certain Employees is hereby amended effective November 4, 1999.
However, the rights and obligations of Employees who were selected by the
Board or approved for participation pursuant to the eligibility
requirements of the Plan to receive a benefit under the Plan, or who were
receiving benefits prior to November 4, 1999 shall be governed by the terms
of the Plan in effect at the time of each such Employee's Effective
Retirement Date, unless otherwise determined by the Committee in its sole
discretion.
ARTICLE II. DEFINITIONS.
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The following terms used herein shall have the following meanings unless
the context otherwise requires:
2.01 "Age" - means the age of an Employee as of his or her last
birthday, except as may otherwise be provided under Sections 5.01
and 5.02 in the event of a Change in Control.
2.02 "Annual Retirement Income" - means the annual income payable under
this Plan by Ashland for the lifetime of a Participant commencing
on such Participant's Effective Retirement Date and ending on his
or her date of death, subject to the provisions of Section 5.04.
2.03 "Ashland" - means Ashland Inc. and its present or future
subsidiary corporations.
2.04 "Board" - means the Board of Directors of Ashland and its
designees.
2.05 "Change in Control" - shall be deemed to occur (1) upon 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, other than a consolidation or merger of
Ashland into or with a direct or indirect wholly-owned subsidiary,
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, provided, however, that no sale, lease, exchange or other
transfer of all or substantially all the assets of Ashland shall
be deemed to occur unless assets constituting 80% of the total
assets of Ashland are transferred pursuant to such sale, lease
exchange or other transfer, 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. Notwithstanding the foregoing, any transaction,
or series of transactions, that shall result in the disposition of
Ashland's interest in Marathon Ashland Petroleum LLC, including
without limitation any transaction arising out of that certain
Put/Call, Registration Rights and Standstill Agreement dated
January 1, 1998 among Marathon Oil Company, USX Corporation,
Ashland and Marathon Ashland Petroleum LLC, as amended from time
to time, shall not be deemed to constitute a Change in Control.
2.06 "Committee" - means the Personnel and Compensation Committee of
the Board and its designees.
2.07 "Effective Retirement Date" - means the date upon which a
Participant retires under this Plan which shall be the first day
of the month following the Participant's 62nd birthday or, at
Ashland's discretion or as otherwise provided in Article V or VI,
any earlier age. Upon approval as provided in Sections 3.01 and
3.02, the "Effective Retirement Date" of a Participant may occur
after the Employee reaches age 62. The Effective Retirement Date
of an Employee who becomes a Participant under Section 3.03
because of a Change in Control and who is considered to be a Level
I or II participant in the Incentive Compensation Plan and who has
an Employment Agreement shall be the first day of the month
following (i) such Employee's termination for reasons other than
"Cause" or (ii) such Employee's resignation for "Good Reason." The
Effective Retirement Date of an Employee who becomes a Participant
under Section 3.03 because of a Change in Control and who is
considered to be a Level III, IV or V participant in the Incentive
Compensation Plan, or who is considered to be a Level I or II
participant in the Incentive Compensation Plan and who does not
have an Employment Agreement, shall be the first day of the month
following such Employee's termination for reasons other than
"Cause". For Employees who do not have an Employment Agreement
with Ashland, "Cause" shall have the meaning given to that word in
Section 3.05.
2.08 "Employee" - means an employee of Ashland who (i) is at least 55
years of age or such earlier age pursuant to Section 5.06(b); and
(ii) is deemed on the Effective Retirement Date to be a Level V or
above employee under the Incentive Compensation Plan.
Notwithstanding anything herein to the contrary, if, after a
Change in Control, an Employee is terminated other than for
"Cause" or, in the case of a Level I or II Employee having an
Employment Agreement, resigns for "Good Reason," the age 55
threshold in clause (i) does not apply and is inapplicable.
2.09 "Employment Agreements" - means those contractual agreements, in
effect from time to time, which are approved by the Board and
which provide an Employee with a specified period of employment
and other benefits.
2.10 "Final Average Bonus" - means the Participant's average bonus paid
under the Incentive Compensation Plan (including amounts that may
have been deferred) during the highest thirty-six (36) months out
of the final eighty-four-month (84) period. For these purposes,
the "bonus paid" for a particular month within a particular fiscal
year under such plan shall be equal to the amount of such bonus
actually paid (regardless of the date paid, but excluding any
adjustment for the deferral of such payment) to such Participant
on account of such fiscal year divided by the number of months
contained in such fiscal year which were used in determining the
amount of such bonus actually paid to such Participant.
2.11 "Final Average Compensation" - means the average total
compensation paid during the highest thirty-six months (36) out of
the final eighty-four-month (84) period. For these purposes,
"total compensation paid" is the sum of the "compensation paid"
and the "bonus paid" during a particular month. "Compensation
paid" shall be the base rate of compensation for such Participant
in effect on the first day of such calendar month. "Bonus paid"
shall have the same meaning as set forth in Section 2.10. In the
event a payment is due under the Plan after a Change in Control
because the Participant was terminated other than for "Cause" or
resigned for "Good Reason," the calculation of Final Average
Compensation shall include the amount paid under such
Participant's Employment Agreement. The amount so paid shall be
divided by 36 to derive the monthly "total compensation paid" it
represents.
2.12 "Incentive Compensation Plan" - means the Ashland Inc. Incentive
Compensation Plan or the Ashland Inc. Incentive Compensation Plan
for Key Executives, as applicable, including any successor to such
plans.
2.13 "Participant" - means an Employee who has been approved for
participation in the Plan pursuant to Article III or Section 5.06.
2.14 "Plan" - means the Tenth Amended and Restated Ashland Inc.
Supplemental Early Retirement Plan for Certain Employees as set
forth herein.
2.15 "Service" - means the number of years and fractional years of
employment by Ashland of an Employee, measured from the first day
of the month coincident with or next succeeding his or her initial
date of employment up to and including such Employee's Effective
Retirement Date. For purposes of this Section 2.15, Service shall
include an Employee's employment with a subsidiary or an affiliate
of Ashland determined in accordance with rules from time to time
adopted or approved by the Board, or its delegate.
ARTICLE III. PARTICIPATION IN PLAN.
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Eligibility for benefits shall be determined as follows:
3.01 Employees Who Require Board Approval
Except as otherwise provided in Section 3.03, an Employee who on the
Effective Retirement Date is deemed to be a Level I or II participant under
the Incentive Compensation Plan shall require Board approval to participate
in this Plan.
3.02 Employees Who Require CEO or Other Approval
Except as otherwise provided in Section 3.03, an Employee who on the
Effective Retirement Date is deemed to be a Level III, IV, or V participant
under the Incentive Compensation Plan shall require the approval of either
(i) Ashland's Chief Executive Officer or (ii) Ashland's Chief Financial
Officer and either the Vice President Human Resources - Programs and
Services or the Vice President and General Counsel to participate in this
Plan.
3.03 Automatic Approval for Change in Control
Subject to the provisions of Article VI, in the event of a Change in
Control (as defined in Section 2.05), an Employee who is deemed to be a
Level I, II, III, IV or V participant under the Incentive Compensation Plan
shall automatically be deemed to be approved by the Board or by the Chief
Executive Officer, as applicable, for participation under this Plan.
3.04 Other Approvals
The Board or Chief Executive Officer, as applicable, may approve such
employees for participation in the Plan as they deem to be appropriate, all
in its or his sole discretion.
3.05 Termination for Cause
Ashland reserves the right to terminate any Participant for "Cause" prior
to his or her Effective Retirement Date, with a resulting forfeiture of the
payment of benefits under the Plan. Ashland also reserves the right to
terminate any Participant's participation in the Plan for "Cause"
subsequent to his or her Effective Retirement Date. For purposes of this
Section 3.05, "Cause" shall mean the willful and continuous failure of a
Participant to substantially perform his or her duties to Ashland (other
than any such failure resulting from incapacity due to physical or mental
illness), or the willful engaging by a Participant in gross misconduct
materially and demonstrably injurious to Ashland, each to be determined by
Ashland in its sole discretion.
ARTICLE IV. INTERACTION WITH EMPLOYMENT AGREEMENTS.
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4.01 Terminations - General
Notwithstanding any provision of this Plan to the contrary, an Employee who
has entered into an Employment Agreement with Ashland and who is either
terminated without "Cause" prior to a "change in control of Ashland" or is
terminated without "Cause" or resigns for "Good Reason" following a "change
in control of Ashland" (each quoted term as defined in the applicable
employment agreement) shall be entitled to receive the benefits as provided
pursuant to this Plan. Benefits payable hereunder in such a situation shall
be calculated in accordance with the payment option selected by the
Employee at such time.
4.02 Benefits Prior to "Change in Control."
If the Employee's termination is without "Cause" prior to a "change in
control of Ashland," the benefits payable hereunder shall commence no
earlier than as of the first day of the calendar month coincident with or
next following the second anniversary following the Employee's "Date of
Termination" (as defined in the applicable employment agreement); however,
if the Employee elects to receive such benefits in a lump sum as provided
in Section 5.04(b)(1), such benefits shall commence and be payable as
therein specified.
4.03 Benefits Subsequent to a "Change in Control."
If the Employee's termination is without "Cause" or he or she resigns for
"Good Reason" following a "change in control of Ashland," benefits payable
hereunder shall begin as of the first day of the calendar month next
following the Participant's Effective Retirement Date.
4.04 Subsequent Activity in Conflict with Ashland
The provisions of this Section 4.04 shall apply to Level I, II, III, IV and
V Participants, regardless of whether such a Participant has an Employment
Agreement; except that the provisions of this Section 4.04 shall not apply
to any Participant who was approved for participation hereunder under the
provisions of Section 3.03. If a Participant accepts, during a period of
five (5) years subsequent to his or her Effective Retirement Date, any
consulting or employment activity which is in direct and substantial
conflict with the business of Ashland at such time (such determination
regarding conflicting activity to be made in the sole discretion of the
Board), he or she shall be considered in breach of the provisions of this
Section 4.04; provided, however, he or she shall not be restricted in any
manner with respect to any other non-conflicting activity in which he or
she is engaged. If a Participant wishes to accept employment or consulting
activity which may be prohibited under this Section 4.04, such Participant
may submit to Ashland written notice (Attention: Vice President Human
Resources - Programs and Services) of his or her wish to accept such
employment or consulting activity. If within ten (10) business days
following receipt of such notice Ashland does not notify the Participant in
writing of Ashland's objection to his or her accepting such employment or
consulting activity, then such Participant shall be free to accept such
employment or consulting activity for the period of time and upon the basis
set forth in his or her written request. In the event the provisions of
this Section 4.04 are breached by a Participant, the Participant shall not
be entitled to any additional periodic payments hereunder and shall be
liable to repay to Ashland all amounts such Participant received prior to
such breach. If a Participant who breaches the provisions of this Section
4.04 received a lump sum distribution of his or her benefit prior to such
breach, such Participant shall be liable to repay to Ashland the amount of
such distribution. If a Participant who breaches the provisions of this
Section 4.04 deferred all or any part of a lump sum distribution hereunder
to the Ashland Inc. Deferred Compensation Plan, the amount so deferred
shall be forfeited, and if any amount of the amount so deferred was
distributed from the Ashland Inc. Deferred Compensation Plan before the
breach occurred, the amount so distributed shall be repaid to Ashland. Any
repayment of benefits hereunder shall be assessed interest at the rate
applicable for the calculation of a lump sum payment under Section 5.04(b)
for the month in which the breach occurs, with such interest compounded
monthly from the month in which the breach occurs to the month in which
such repayment is made to Ashland. Ashland shall have available to it all
other remedies at law and equity to remedy a breach of this Section 4.04.
ARTICLE V. ANNUAL RETIREMENT INCOME AND OTHER BENEFITS.
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5.01 LEVELS I AND II.
The Annual Retirement Income of a Participant who is deemed to be a Level I
or II Participant under the Incentive Compensation Plan shall be equal to:
(a) Pre-Age 62 Benefit
A Participant who retires under this Plan, including a Participant to whom
the provisions of paragraph (d) of this Section 5.01 apply, shall receive
an Annual Retirement Income from and after the first day of the calendar
month next following his or her Effective Retirement Date until the end of
the month in which he or she attains age 62 equal to the greater of (1) the
amounts provided in the following schedule or (2) 50% of Final Average
Compensation. Notwithstanding the previous sentence, in the event such
Participant retired with less than 20 years of Service, such Annual
Retirement Income shall be multiplied by a fraction (A) the numerator of
which is such Participant's years of and fractional years of Service, and
(B) the denominator of which is twenty (20).
% of
Retirement Compensation
1st - Year After Effective 75%
Retirement Date
2nd - " 70%
3rd - " 65%
4th - " 60%
5th - " 55%
6th - Year and thereafter 50%
to Age 62
For purposes of this Section 5.01(a), "% of Compensation" shall mean the
annualized average of the Participant's base monthly compensation rates
(excluding incentive awards, bonuses, and any other form of extraordinary
compensation) in effect with respect to Ashland on the first day of the
thirty-six (36) consecutive calendar months which will give the highest
average out of the one-hundred twenty (120) consecutive calendar month
period ending on the Participant's Effective Retirement Date.
(b) Age 62 Benefit and Thereafter
From and after the first day of the calendar month next following his or
her Effective Retirement Date, or the attainment of age 62, whichever is
later, the Participant's Annual Retirement Income shall be equal to 50% of
Final Average Compensation; provided, however, that in the event such
Participant retired with less than 20 years of Service, such Annual
Retirement Income shall be 50% of Final Average Compensation multiplied by
a fraction (A) the numerator of which is such Participant's years of and
fractional years of Service, and (B) the denominator of which is twenty
(20).
(c) Benefit Reduction
The amount of benefit provided in paragraphs (a) and (b) of this Section
5.01 shall be reduced by the sum of the following:
(1) the Participant's benefit under the Ashland Inc. and Affiliates Pension
Plan (the "Pension Plan") (assuming 50% of such Participant's account under
the Ashland Inc. Leveraged Employee Stock Ownership Plan were transferred
to the Pension Plan, as allowed under the terms of each of the said plans
and disregarding any benefit assignment under an approved qualified
domestic relations order affecting either the Pension Plan or the Ashland
Inc. Leveraged Employee Stock Ownership Plan), determined on the basis of a
single life annuity form of benefit;
(2) the Participant's benefit under any other defined benefit pension plan
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended which is maintained by Ashland, determined by disregarding any
benefit assignment under an approved qualified domestic relations order and
on the basis of a single life annuity form of benefit (said plans referred
to in sub-paragraphs (1) and (2) of this paragraph (c) are hereinafter
referred to jointly and severally as the "Affected Plans");
(3) the Participant's benefit under the Ashland Inc. Nonqualified Excess
Benefit Pension Plan, determined on the basis of a single life annuity form
of benefit; and
(4) the Participant's benefit under the Ashland Inc. ERISA Forfeiture Plan
attributable to amounts which were forfeited under the Ashland Inc.
Leveraged Employee Stock Ownership Plan, multiplied by 50%, and determined
on the basis of a single life annuity benefit.
In the event a Participant's benefit hereunder is paid as a lump sum
pursuant to an election under Section 5.04(b)(1), the reduction to such
benefit shall be calculated based upon the lump sum actuarial present value
of the benefits referred to in subparagraphs (1)-(4) of this paragraph (c).
For distributions commencing after May 31, 2001, such calculation shall be
conducted on the basis that the benefits referred to in said subparagraphs
(1)-(4) commence at the same time as of which the benefit in this Plan is
paid as a lump sum, using the Participant's attained age at the time of
such commencement, unless otherwise required in paragraph (d) of this
Section 5.01.
(d) Benefit After a Change in Control
(1) Participants Having Employment Agreements. A Participant having an
Employment Agreement who either is terminated without "Cause" or resigns
for "Good Reason" after a Change in Control shall have the benefit payable
under this Section 5.01 computed by adding 3 years to the Participant's Age
and Service at the Participant's Effective Retirement Date. These additions
to Age and Service shall, except as otherwise provided, apply for purposes
of computing the single life annuity payment to the Participant. A
Participant subject to this paragraph (d)(1) whose Effective Retirement
Date occurs before attaining an actual age of 55 shall have the 3 year
addition to Age apply when converting the single life annuity amount to any
permitted optional form under this Article V. If the Effective Retirement
Date of a Participant subject to this paragraph (d)(1) occurs on or after
the Participant attains an actual age of 55, then the Participant's actual
age shall be used when making such a conversion. Notwithstanding anything
to the contrary contained herein, when converting a Participant's single
life annuity to a lump sum payment option, the Participant's actual age
shall be used without reference to the additional 3 years. If the addition
of 3 years to the Participant's age results in an Age less than 55 and the
Participant commences the benefit, the amount of the benefit shall be
adjusted to account for the fact it is paid before the Participant's
attainment of Age 55. This adjustment shall be based upon the early
retirement table in Section 6.2 of the Ashland Inc. and Affiliates Pension
Plan as it existed on September 30, 1999. When applying this table under
these circumstances, age 55 shall be substituted for age 62 and adjustments
for ages younger than those on the table shall be reasonably determined by
an actuary or actuarial firm who regularly performs services in connection
with the Plan.
(2) Participants Without Employment Agreements. A Participant without an
Employment Agreement who is terminated without "Cause" after a Change in
Control shall have the benefit payable under this Section 5.01 computed by
adding the applicable amount to the Participant's Age and Service at the
Participant's Effective Retirement Date. For these purposes, the applicable
amount is derived from the following table.
Length of Participant's Service at Number of Years
Separation from Employment (the Applicable Amount)
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Up to 5 years 3 months
More than 5 and up to 10 years 6 months
More than 10 and up to 15 years 1 year
More than 15 and up to 20 years 1 year and 6 months
More than 20 years 2 years
These additions to Age and Service shall, except as otherwise provided,
apply for purposes of computing the single life annuity payment to the
Participant. A Participant subject to this paragraph (d)(2) whose Effective
Retirement Date occurs before attaining an actual age of 55 shall have the
applicable amount added to such Participant's Age apply when converting the
single life annuity amount to any permitted optional form under this
Article V. If the Effective Retirement Date of a Participant subject to
this paragraph (d)(2) occurs on or after the Participant attains an actual
age of 55, then the Participant's actual age shall be used when making such
a conversion. Notwithstanding anything to the contrary contained herein,
when converting a Participant's single life annuity to a lump sum payment
option, the Participant's actual age shall be used without reference to the
addition of the applicable amount. If the addition of the applicable amount
to the Participant's age results in an Age less than 55 and the Participant
commences the benefit, the amount of the benefit shall be adjusted to
account for the fact it is paid before the Participant's attainment of Age
55. This adjustment shall be based upon the early retirement table in
Section 6.2 of the Ashland Inc. and Affiliates Pension Plan as it existed
on September 30, 1999. When applying this table under these circumstances,
age 55 shall be substituted for age 62 and adjustments for ages younger
than those on the table shall be reasonably determined by an actuary or
actuarial firm who regularly performs services in connection with the Plan.
5.02 LEVELS III, IV AND V.
--------------------
(a) General
The Annual Retirement Income of a Participant (including a Participant to
whom the provisions of paragraph (b) of this Section 5.02 apply) who on his
or her Effective Retirement Date was deemed to be a Level III, IV, or V
Participant under the Incentive Compensation Plan shall, from and after the
first day of the calendar month next following his or her 62nd birthday, be
equal to 50% of Participant's Final Average Bonus; provided, however, that
in the event such Participant retired with less than 20 years of Service,
such Annual Retirement Income after age 62 shall be 50% of Final Average
Bonus multiplied by a fraction (A) the numerator of which is such
Participant's years of and fractional years of Service, and (B) the
denominator of which is twenty (20). Although a Participant may elect to
commence benefits under this Plan upon his or her Effective Retirement
Date, there shall be an actuarial adjustment (consistent with that applied
under Ashland's qualified pension plan, as from time to time in effect) for
Participants receiving benefits under this Section 5.02 whose Effective
Retirement Date is prior to age 62.
(b) Benefit After a Change in Control
A Participant who is terminated other than for "Cause" after a Change in
Control shall have the benefit payable under this Section 5.02 computed by
adding to the Participant's Age and Service at the Participant's Effective
Retirement Date the number of years equal to the applicable amount for the
Participant derived from the following table.
Length of Participant's Service at Number of Years
Separation from Employment (the Applicable Amount)
- ---------------------------------- -----------------------
Up to 5 years 3 months
More than 5 and up to 10 years 6 months
More than 10 and up to 15 years 1 year
More than 15 and up to 20years 1 year and 6 months
More than 20 years 2 years
These additions to Age and Service shall, except as otherwise provided,
apply for purposes of computing the single life annuity payment to the
Participant. A Participant subject to this paragraph (b) whose Effective
Retirement Date occurs before attaining an actual age of 62 shall have the
applicable amount from the table hereinabove added to his or her Age apply
when converting the single life annuity amount to any permitted optional
form under this Article V. If the Effective Retirement Date of a
Participant subject to this paragraph (b) occurs on or after the
Participant attains an actual age of 62, then the Participant's actual age
shall be used when making such a conversion. Notwithstanding anything to
the contrary contained herein, when converting a Participant's single life
annuity to a lump sum payment option, the Participant's actual age shall be
used without reference to the applicable amount derived from the table
hereinabove. If the addition of the applicable amount from the table
hereinabove to the Participant's age results in an Age less than 62 and the
Participant commences the benefit, the amount of the benefit shall be
adjusted to account for the fact it is paid before the Participant's
attainment of Age 62. This adjustment shall be based upon the early
retirement table in Section 6.2 of the Ashland Inc. and Affiliates Pension
Plan as it existed on September 30, 1999, and adjustments for ages younger
than those on the table shall be reasonably determined by an actuary or
actuarial firm who regularly performs services in connection with the Plan.
5.03 Benefits Payable for Less Than 12 Months
Annual Retirement Income benefits payable under Sections 5.01 and 5.02 for
a period of less than 12 months due to a Participant's attainment of age 62
or death will be payable on a pro-rata basis, with months taken as a
fraction of a year.
5.04 Payment Options
(a) Election
A Participant shall, subject to Sections 5.05 and 5.06, elect the form in
which such benefit shall be paid from among those identified in this
Section 5.04 and such election shall be made at the time and in the manner
prescribed by Ashland, from time to time, provided that the election is
made before the Participant's Effective Retirement Date. Such election,
including the designation of any contingent annuitant or alternate
recipient under Sections 5.04(b)(4) or (5), shall be irrevocable except as
otherwise set forth herein. Notwithstanding anything in the foregoing to
the contrary, any Participant approved for participation in the Plan
pursuant to Sections 3.01, 3.02 and 3.04 who makes an election under
Section 5.04(b)(2) shall make such election by the later of -
(1) the 60th day following such Participant's approval to participate in
this Plan; or
(2) the earlier of -
(A) the date six months prior to Participant's Effective Retirement Date;
or
(B) the December 31 immediately preceding the Participant's Effective
Retirement Date. Such deferral election shall be made in the manner
prescribed by Ashland, from time to time, and shall be irrevocable as of
the applicable time identified under Sections 5.04(a)(1) or (2).
Until the time at which an election becomes irrevocable, a Participant
shall be able to change it.
(b) Optional Forms of Payment
(1) Lump Sum Option. A Participant may elect to receive the benefit under
Article V as a lump sum distribution.. A lump sum benefit payable under the
Plan to a Participant shall be computed on the basis of the actuarially
equivalent present value of such Participant's benefit under Article V
based upon such actuarial assumptions as determined by the Committee. Such
lump sum shall be payable within thirty (30) days following the later of
the Participant's Effective Retirement Date, or at such later date as
Ashland or its delegate may determine, in its sole discretion. The option
shall be made available to a Participant contingent upon various
considerations, including, but not limited to, the following: The tax
status of Ashland, including without limitation, the corporate and
individual tax rate then applicable and whether or not Ashland has or
projects a net operating loss; the current and projected liquidity of
Ashland, including cash flow, capital expenditures and dividends; Ashland
`s borrowing requirements and debt leverage; applicable book charges;
organizational issues, including succession issues; security of the
retirement payment(s) with respect to the retiree; and the Participant's
preference.
(2) Lump Sum Deferral Option. A Participant who is eligible to receive a
lump sum distribution under 5.04(b)(1) shall be able to elect to defer all
or a portion of the receipt of the elected lump sum (in increments of such
percentage or such amount as may be prescribed by Ashland or its delegatee,
from time to time), by having the obligation to distribute such amount
transferred to the Ashland Inc. Deferred Compensation Plan to be held
thereunder in a notional account and paid pursuant to the applicable
provisions of such Plan, as they may be amended from time to time;
provided, however, that the election to defer such distribution shall be
made at the time and in the manner prescribed in Section 5.04(a)(1) and
(2).
(3) Single Life Annuity. A Participant may elect to have such benefit paid
in the form of equal monthly payments for and during such Participant's
life, with such payments ending at such Participant's death. Payments under
this option shall be actuarially equivalent to the benefit provided under
Section 5.01 or 5.02, whichever is applicable, determined on the basis of
the applicable actuarial assumptions and other relevant provisions used for
the same in the Pension Plan.
(4) Joint and Survivor Income Option A Participant may elect to receive an
actuarially reduced benefit payable monthly during the Participant's
lifetime with payments to continue after his or her death to the person he
designates (hereinafter called "contingent annuitant"), in an amount equal
to (1) 100% of such actuarially reduced benefit, (2) 66 2/3% of such
actuarially reduced benefit, or (3) 50% of such actuarially reduced
benefit. Benefit payments under this option shall terminate with the
monthly payment for the month in which occurred the date of death of the
later to die of the Participant and his or her contingent annuitant. The
following additional limitations and conditions apply to this option:
(A) The contingent annuitant shall be designated by the Participant in
writing in such form and at such time as Ashland may from time to time
prescribe. Before the Participant's Effective Retirement Date, the
Participant may change the contingent annuitant elected.
(B) In the event of the death of the contingent annuitant prior to the date
as of which the election is irrevocable, the Participant's selection of
this option shall be void and the Participant may change the contingent
annuitant or change the option elected, subject to the applicable
limitations and conditions applied to elections for the options described
under 5.04(a)(1) and (2).
(C) Actuarial equivalence under this sub-paragraph (4) shall be determined
on the basis of the applicable actuarial assumptions and other relevant
provisions used for the same in the Pension Plan.
(5) Period Certain Income Option. A Participant may elect to receive an
actuarially reduced benefit payable monthly during his or her lifetime and
terminating with the monthly payment for the month in which his or her
death occurs, with the provision that not less than a total of 120 monthly
payments shall be made in any event to him or her and/or the person
designated by him or her to receive payments under this sub-paragraph (5)
in the event of his or her death (hereinafter called "alternate
recipient"). If a Participant and his or her alternate recipient die after
the Effective Retirement Date, but before the total specified monthly
payments have been made to such Participant and/or his or her alternate
recipient, the commuted value of the remaining unpaid payments shall be
paid in a lump sum to the estate of the later to die of the Participant or
his or her alternate recipient. The following additional limitations and
conditions shall apply to this option:
(A) The alternate recipient shall be designated in writing by the
Participant in such form and at such time as Ashland may from time to time
prescribe. The designation of an alternate recipient under this
sub-paragraph (5) is irrevocable after the Effective Retirement Date,
provided, however, a Participant may designate a new alternate recipient if
the one first designated dies before the Participant and after the
Effective Retirement Date.
(B) In the event of the death of the alternate recipient prior to the date
as of which the election is irrevocable, the Participant's selection of
this option shall be void and the Participant may change the alternate
recipient or change the option elected, subject to the applicable
limitations and conditions applied to elections for the options described
under 5.04(a)(1) and (2).
(C) Actuarial equivalence under this sub-paragraph (5) shall be determined
on the basis of the applicable actuarial assumptions and other relevant
provisions used for the same in the Pension Plan.
5.05. Payment of Small Amounts
Unless such Participant elects to receive his or her benefit in a lump sum
as provided in Section 5.04, in the event a monthly benefit under this
Plan, payable to either a Participant or to his or her contingent
annuitant, alternate recipient or surviving spouse, is too small (in the
sole judgment of Ashland) to be paid monthly, such benefit may be paid
quarterly, semi-annually, or annually, as determined by Ashland to be
administratively convenient.
5.06. Surviving Benefits
(a) Except as otherwise provided in Section 5.04 of this Plan, in the event
that a Participant receiving Annual Retirement Income benefits shall die
after his or her Effective Retirement Date, no additional benefits shall be
payable by Ashland under this Plan to such deceased Participant's
beneficiaries, survivors, or estate.
(b) If an Employee dies while in active service with Ashland
(1) prior to approval for participation in the Plan and said Employee is a
Level I or II participant under the Incentive Compensation Plan; or
(2) after approval for participation in the Plan but prior to making an
election pursuant to Section 5.04(a) and said Employee is a Level I -V
participant under the Incentive Compensation Plan; then such Employee shall
be deemed:
(i) to be a Participant under the Plan in the case of Section 5.06 (b)(1);
(ii) to have commenced participation one (1) day prior to the date of the
Employee's death; and
(iii) to have elected to receive his or her benefits in the form of the
100% Joint & Survivor retirement income option and to have designated his
or her spouse as the beneficiary thereunder.
(c) In the event an Employee is approved for participation under the Plan
and dies after having made an election under Section 5.04(a) but prior to
his or her Effective Retirement Date, then such Employee shall be deemed to
have commenced participation one (1) day prior to the date of the
Employee's death and payment shall be made under this Plan in accordance
with the Employee's election.
5.07 Participation in Other Benefits
After a Participant's Effective Retirement Date, he or she shall continue
to participate in Ashland's Group Life Insurance, Medical and Dental
programs in the same manner and under the same terms and conditions as
provided for retirees as a class under the provisions of such programs, as
from time to time in effect. Except as otherwise expressly provided in this
Plan, a Participant's active participation in all employee benefit programs
maintained by Ashland derived from his or her employment status with
Ashland shall be discontinued.
ARTICLE VI. CHANGE IN CONTROL.
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Notwithstanding any provision of this Plan to the contrary, in the event of
a Change in Control, an Employee who is deemed to be a Level I, II, III, IV
or V participant under Ashland's Incentive Compensation Plan, shall, in
accordance with Section 3.03, automatically be deemed approved for
participation under this Plan. Consistent with the applicable terms of
Sections 5.01 and 5.02, such a Participant may, in his or her sole
discretion, elect to retire prior to Age 62. In addition, Ashland (or its
successor after the Change in Control) shall reimburse an Employee for
legal fees, fees of other experts and expenses incurred by such Employee if
he or she is required to, and is successful in, seeking to obtain or
enforce any right to payment pursuant to the Plan. In the event that it
shall be determined that such Employee is properly entitled to the payment
of benefits hereunder, such Employee shall also be entitled to interest
thereon payable in an amount equivalent to the prime rate of interest
(quoted by Citibank, N.A. as its prime commercial lending rate on the
latest date practicable prior to the date of the actual commencement of
payments) from the date such payment(s) should have been made to and
including the date it is made. Notwithstanding any provision of this Plan
to the contrary, the provisions of this Plan or any other plan of Ashland
Inc. having a material impact on the benefits payable under this Plan may
not be amended after a Change in Control occurs without the written consent
of a majority of the Board who were directors prior to the Change in
Control.
ARTICLE VII. MISCELLANEOUS.
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7.01 The obligations of Ashland hereunder constitute merely the promise
of Ashland to make the payments provided for in this Plan. No
employee, his or her spouse or the estate of either of them shall
have, by reason of this Plan, any right, title or interest of any
kind in or to any property of Ashland. To the extent any
Participant has a right to receive payments from Ashland under
this Plan, such right shall be no greater than the right of any
unsecured general creditor of Ashland.
7.02 Full power and authority to construe, interpret and administer
this Plan shall be vested in the Board or its delegate. This
includes, without limitation, the ability to make factual
determinations, construe and interpret provisions of the Plan,
reconcile any inconsistencies between provisions in the Plan or
between provisions of the Plan and any other statement concerning
the Plan, whether oral or written, supply any omissions to the
Plan or any document associated with the Plan, and to correct any
defect in the Plan or in any document associated with the Plan.
Decisions of the Board or its delegate shall be final, conclusive
and binding upon all parties, provided, however, that no such
decision may adversely affect the rights of any Participant who
has been approved for participation in the Plan under the terms of
Section 3.03 and whose benefit is determined under the terms of
Section 5.01(d) or Section 5.02(b).
7.03 This Plan shall be binding upon Ashland and any successors to the
business of Ashland and shall inure to the benefit of the
Participants and their beneficiaries, if applicable. Except as
otherwise provided in Article VI, the Board or its delegate may,
at any time, amend this Plan, retroactively or otherwise, but no
such amendment may adversely affect the rights of any Participant
who has been approved for participation in the Plan except to the
extent that such action is required by law.
7.04 Except as otherwise provided in Section 5.04, no right or interest
of the Participants under this Plan shall be subject to voluntary
or involuntary alienation, assignment or transfer of any kind.
7.05 This Plan shall be governed for all purposes by the laws of the
Commonwealth of Kentucky.
7.06 If any term or provision of this Plan is determined by a court or
other appropriate authority to be invalid, void, or unenforceable
for any reason, the remainder of the terms and provisions of this
Plan shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
ASHLAND INC.
SALARY CONTINUATION PLAN
(as amended as of November 7, 2002)
The Ashland Inc. Salary Continuation Plan (the "Plan"), effective July
21, 1988, is an employee benefit plan which provides eligible salaried
employees of Ashland Inc. and its majority-owned subsidiaries (collectively
referred to herein as the "Company") with certain severance benefits if the
individual's employment with the Company is terminated under defined
circumstances after a Change in Control, as defined in Section 4(b). The
details and purpose of the Plan are more fully explained below.
SECTION 1. PURPOSE
The purpose of the Plan is to reduce employee concerns about the
possibility of a Change in Control, as defined below in Section 4(b). It is
important that each employee be able to focus his or her full attention and
energy toward the goals and objectives of the Company. The Plan is also
designed to permit the Company to retain its high quality work force by
increasing stability and improving morale and productivity. In addition,
the Plan will allow the company to attract and retain new qualified
employees.
SECTION 2. ADMINISTRATION
Ashland Inc. ("Ashland") shall be the Plan Administrator and shall
administer the Plan. Any determinations by the Vice President, Human
Resources - Programs and Services, or his or her designee, in carrying out,
administering, or interpreting this Plan shall be final and binding for all
purposes and upon all interested persons and their heirs, successors, and
personal representatives. All costs associated with the Plan shall be borne
by the Company.
SECTION 3. ELIGIBILITY
An employee who is classified on the records of the Company as a
regular, full-time salaried employee, whether exempt or non-exempt as
specified in the Fair Labor Standards Act, as from time to time amended,
(excluding hourly employees; employees covered by collective bargaining
agreements; employees of subsidiaries, entities, or partnerships in which
the Company has a 50% or less ownership interest; and international
employees, except foreign nationals who are located in Canada or those who
are U.S. expatriates) will be entitled to participate in the Plan,
regardless of length of service. Employees who have entered into employment
contracts with the Company will not be eligible to participate in the Plan.
At any time prior to a Change in Control, as defined in Section 4(b),
Ashland reserves, in its complete discretion, the right to amend the
eligible classes of employees.
SECTION 4. CONDITIONS FOR BENEFIT PAYMENTS
(a) A participant shall not be entitled to receive benefits under this
Plan prior to a Change in Control, as defined in Section 4(b).
Participation in the Plan does not create a contract of employment between
the Company and its employees. The Company reserves the right to terminate
employees at any time for any reason, just as employees have the right to
terminate their employment at any time for any reason.
(b) For purposes of the Plan, a change in control of Ashland (herein
after referred to as a "Change in Control") shall be deemed to have
occurred if:
(i) there shall be consummated (A) any consolidation or merger of the
Company, other than a consolidation or merger of the Company into or with a
direct or indirect wholly-owned subsidiary, in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company's common stock would be converted into cash, securities, or other
property, other than a merger of the Company in which the individual
holders of the Company's common stock immediately prior to the merger have
the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, or (B) any sale, lease, exchange,
or transfer (in one transaction or a series of related transactions) of all
or substantially all the assets of the Company, provided, however, that no
sale, lease, exchange or other transfer of all or substantially all the
assets of the Company shall be deemed to occur unless assets constituting
80% of the total assets of the Company are transferred pursuant to such
sale, lease, exchange or other transfer; or
(ii) the Shareholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company; or
(iii) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than the Company or a subsidiary thereof or any employee
benefit plan sponsored by the Company or a subsidiary thereof, shall become
the beneficial owner (within the meaning of Rule 13d-3 under the Exchange
Act) of securities of Ashland representing 50% or more of the combined
voting power of Ashland's then outstanding securities ordinarily (and apart
from rights accruing in special circumstances) having the right to vote in
the election of directors, as a result of a tender or exchange offer, open
market purchases, privately-negotiated purchases or otherwise; or
(iv) at any time during a period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors of
Ashland shall cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for election by Ashland's
shareholders of each new director during such two-year period was approved
by a vote of at least two-thirds of the directors then still in office who
were directors at the beginning of such two-year period.
Notwithstanding the foregoing, any transaction, or series of
transactions, that shall result in the disposition of the Company's
interest in Marathon Ashland Petroleum LLC, including without limitation
any transaction arising out of that certain Put/Call, Registration Rights
and Standstill Agreement dated January 1, 1998 among Marathon Oil Company,
USX Corporation, the Company and Marathon Ashland Petroleum LLC, as amended
from time to time, shall not be deemed to constitute a Change in Control.
(c) Benefits shall be payable to a participant under the Plan after a
Change in Control has occurred if a participant's employment is terminated by
the Company without Cause, as defined below, within two (2) years from the date
of the Change in Control. For purposes of the Plan, "cause" shall mean (i) the
willful and continued failure of an employee to substantially perform his or her
duties with the company (other than such failure resulting from the employee's
incapacity due to physical or mental illness), or (ii) willful engaging by an
employee in gross misconduct materially injurious to the Company.
SECTION 5. AMOUNT OF BENEFITS
Following a Change in Control and a participant's termination of
employment within two (2) years thereafter without Cause, a participant
shall be entitled to receive benefits under the Plan as described below:
(a) A participant shall be entitled to be paid in an undiscounted lump
sum, within ten (10) business days after such participant's termination of
employment without Cause, an amount equal to a specified portion of his or
her current base compensation (excluding any bonus compensation) based upon
the greater of such participant's (a) aggregate years and months of service
(whether or not continuous), or (b) current Job Band (or, if higher, the
Job Band of such participant at the time of the Change in Control)
calculated as follows:
Length of Service Payment
Up to 5 full years 3 months' base compensation
More than 5 and up 6 months' base compensation
to 10 full years
More than 10 and up 1 year's base compensation
to 15 full years
More than 15 and up 1-1/2 year's base compensation
to 20 full years
More than 20 full 2 years' base compensation
years
Job Band Payment
Band 1 - 10 3 months' base compensation
Band 11 - 22 6 months' base compensation
Band 23 and above 1 year's base compensation
(b) At the sole expense of the Company, a participant shall be
entitled to the continuation of his or her medical, dental, and group life
benefits in effect at the time of such participant's termination of
employment without Cause for a period of six (6) months following such
participant's termination of employment.
(c) A participant shall be reimbursed for any legal fees or expenses
incurred by the participant to enforce the payment of Plan benefits within
ten (10) business days of providing copies of applicable invoices to the
Company.
(d) A participant shall be entitled to interest on the amount of any
payments due under the Plan (but not timely paid) in an amount equivalent
to the prime rate of interest (quoted by Citibank, N.A. as its prime
commercial lending rate) on the latest date practicable prior to the date
such payments should have been made, to and including the date it is made.
(e) Within ten (10) business days of the participant's termination of
employment following a Change in Control, the Company shall provide, at no
cost to the participant, individual outside assistance in finding other
employment. Such obligation may be fulfilled by the Company through the
retention of an outplacement service for use by individual participants.
(f) Participants shall be entitled to receive any pension, disability,
workers' compensation, other Company benefit plan distribution, payment for
vacation accrued but not taken, statutory employment termination benefit, or any
other compensation plan payment otherwise independently due; however, in no
event shall a participant who receives benefit under this Plan be entitled to
additional severance payment pursuant to any other existing severance policy of
the Company.
SECTION 6. ACCEPTANCE OF BENEFITS
If a participant receives and accepts all of the benefits provided
under Section 5 of the Plan, he or she shall be deemed thereby to have waived
any right or cause of action against the Company and its directors, officers, or
employees arising from the termination of the participant's employment.
SECTION 7. CLAIMS PROCEDURE
(a) Following a Change in Control and a participant's termination of
employment, the benefits described in Section 5 of the Plan shall be paid
as described therein without any required action on the part of such
participant.
(b) If any participant believes that he or she is entitled to benefits
provided under the Plan and has not received such benefits within the time
prescribed by the Plan, such participant may submit a written claim for
payment of such benefits to the Company. If such claim for benefits is
wholly or partially denied, the Company shall, within thirty (30) business
days after receipt of the claim, notice the participant of the denial of
the claim. Such notice of denial (i) shall be in writing, (ii) shall be
written in a manner calculated to be understood by the participant, and
(iii) shall contain (A) the specific reason or reasons for denial of the
claim, (B) a specific reference to the pertinent Plan provisions upon which
the denial is based, (C) a description of any additional material or
information necessary to perfect the claim, along with an explanation of
why such material or information is necessary, and (D) an explanation of
the claim review procedure, in accordance with the provisions of this
Section 7.
(c) Within sixty (60) business days after the receipt by the
participant of a written notice of denial of the claim, or such later time
as shall be deemed reasonable taking into account the nature of the benefit
subject to the claim and any other attendant circumstances, the participant
may file a written request with the Company that it conduct a full and fair
review of the denial of the claim for benefits. As a part of such full and
fair review, the participant (or such participant's duly authorized
representative) may review and photocopy pertinent documents (including but
not limited to the participant's personal history file) and submit issues
and comments to the Company in writing. The Company shall make its
determination in accordance with the documents governing the Plan insofar
as such documents are consistent with the provisions of the Employee
Retirement Income Security Act of 1914 (herein "ERISA").
The Company shall promptly deliver to the participant its written
decision on the claim (in no event later than thirty (30) business days
after the receipt of the aforesaid request for review, except that if there
are special circumstances (such as a conference with the participant or his
or her representative) which require an extension of time, the aforesaid
thirty (30) business day period shall be extended to a reasonable period of
time not to exceed sixty (60) business days). Such decision shall (i) be
written in a manner calculated to be understood by the participant, (ii)
include the specific reason or reasons for the decision, and (iii) contain
a specific reference to the pertinent Plan provisions upon which the
decision is based. If the decision on review is not furnished within the
time prescribed by this Section 7(c), the claim shall be deemed granted on
review.
SECTION 8. AMENDMENTS AND TERMINATIONS
Ashland's Board of Directors shall have plenary authority to
terminate, modify, or amend this Plan in such respects as it shall deem
advisable at any time prior to a Change in Control.
SECTION 9. SUCCESSORS BINDING AGREEMENT
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to eligible participants,
expressly to assume and agree to provide benefits pursuant to this Plan in
the same manner and to the same extent that the Company would be required
to perform its obligations under the Plan if no such succession had taken
place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a violation of this Plan and
shall entitle eligible participants to compensation from the Company in the
same amount and on the same terms as the participant would be entitled
pursuant to Section 5, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the date of the participant's termination of employment without
Cause. As used in this Plan, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Section 9 or which otherwise becomes bound by all the terms and provisions
of this Plan by operation of law.
(b) This Plan shall inure to the benefit of and be enforceable by a
participant's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If a participant
should die while any amounts would still be payable to him or her hereunder
if he or she had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Plan to
such participant's devisee, legatee, or other designee or, if there be no
such designee, to his or her estate.
SECTION 10. WITHHOLDING TAXES
The Company is authorized to withhold any tax required to be withheld
from the amounts payable to a participant pursuant to this Plan which are
considered taxable compensation to the participant.
SECTION 11. GOVERNING LAW
The Plan shall be governed by the laws of the Commonwealth of
Kentucky.
NAME
ADDRESS
Dear Mr. _________________:
Ashland Inc. considers the establishment and maintenance of a sound
and vital management to be essential to protecting and enhancing the best
interest of the Company and its shareholders. In this regard, the Company
recognizes that, as is the case with many publicly-held corporations, the
possibility of a Change in Control of the Company does exist and that such
possibility, and the uncertainty and questions which a Change in Control of
the Company may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders. In addition, difficulties in attracting and retaining new
senior management personnel may be experienced. Accordingly, on the basis
of the recommendation of the Personnel and Compensation Committee of the
Board, the Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of certain
members of the Company's management, including you, to their assigned
duties without distraction in the face of the potentially disruptive
circumstances arising from the possibility of a Change in Control of the
Company.
In order to encourage you to remain in the employ of the Company, this
Agreement sets forth those benefits which the Company will provide to you
in the event your employment with the Company (1) is terminated without
Cause during the term of this Agreement, or (2) you resign for Good Reason
following a Change in Control of the Company under the circumstances
described below.
SECTION A. DEFINITIONS
1. "Agreement" shall mean this letter agreement.
2. "Board" shall mean the Company's Board of Directors.
3. "Cause" shall occur hereunder only upon (A) the willful and
continued failure by you substantially to perform your duties with
the Company (other than any such failure resulting from your
incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to you by the
Board which specifically identifies the manner in which the Board
believes that you have not substantially performed your duties,
(B) the willful engaging by you in gross misconduct materially and
demonstrably injurious to the Company after a written demand to
cease such misconduct is delivered to you by the Board, or (C)
your conviction of or the entering of a plea of nolo contendre to
the commission of a felony involving moral turpitude. For purposes
of this paragraph, no act, or failure to act, on your part shall
be considered "willful" unless done, or omitted to be done, by you
not in good faith and without reasonable belief that your action
or omission was in the best interest of the Company.
Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held
for the purpose, among others, (after at least 20 days prior
notice to you and an opportunity for you, together with your
counsel, to be heard before the Board), of finding that (i) in the
good faith opinion of the Board you failed to perform your duties
or engaged in misconduct as set forth above in subparagraph (A) or
(B) of this paragraph, and that you did not correct such failure
or cease such misconduct after being requested to do so by the
Board, or (ii) as set forth in subparagraph (C) of this paragraph,
you have been convicted of or have entered a plea of nolo
contendre to the commission of a felony involving moral turpitude.
4. "Change in Control of the Company" shall be deemed to have
occurred if (i) there shall be consummated (A) any consolidation
or merger of the Company, other than a consolidation or merger of
the Company into or with a direct or indirect wholly-owned
subsidiary, in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders
of the Company's Common Stock immediately prior to the merger have
substantially the same proportionate ownership of common stock of
the surviving corporation immediately after the merger, or (B) any
sale, lease, exchange or transfer (in one transaction or a series
of related transactions) of all or substantially all the assets of
the Company, provided, however, that no sale, lease, exchange or
other transfer of all or substantially all the assets of the
Company shall be deemed to occur unless assets constituting 80% of
the total assets of the Company are transferred pursuant to such
sale, lease, exchange or other transfer, or (ii) the shareholders
of the Company shall approve any plan or proposal for the
liquidation or dissolution of the Company, or (iii) any Person,
other than the Company or a Subsidiary thereof or any employee
benefit plan sponsored by the Company or a Subsidiary thereof,
shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of securities of the Company
representing 15% or more of the combined voting power of the
Company's then outstanding securities ordinarily (and apart from
rights accruing in special circumstances) having the right to vote
in the election of directors, as a result of a tender or exchange
offer, open market purchases, privately-negotiated purchases or
otherwise, or (iv) at any time during a period of two (2)
consecutive years, individuals who at the beginning of such period
constituted the Board shall cease for any reason to constitute at
least a majority thereof, unless the election or the nomination
for election by the Company's shareholders of each new director
during such two-year period was approved by a vote of at least
two-thirds of the directors then still in office who were
directors at the beginning of such two-year period.
Notwithstanding the foregoing, any transaction, or series of
transactions, that shall result in the disposition of the
Company's interest in Marathon Ashland Petroleum LLC, including
without limitation any transaction arising out of that certain
Put/Call, Registration Rights and Standstill Agreement dated
January 1, 1998 among Marathon Oil Company, USX Corporation, the
Company and Marathon Ashland Petroleum LLC, as amended from time
to time, shall not be deemed to constitute a Change in Control.
5. "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act, as amended.
6. "Common Stock" shall mean the common stock, par value $1.00 per
share, of the Company.
7. "Company" shall mean Ashland Inc. and any successor to its
business and/or assets which executes and delivers the agreement
provided for in Section F, paragraph 1 hereof or which otherwise
becomes bound by all the terms and provisions of this Agreement by
operation of law.
8. "Competitive Activity" shall have the meaning as set forth in
Section C, paragraph 2.
9. "Competitive Operation" shall have the meaning as set forth in
Section C, paragraph 2.
10. "Confidential Information" shall mean information relating to the
Company's, its divisions' and Subsidiaries' and their successors'
business practices and business interests, including, but not
limited to, customer and supplier lists, business forecasts,
business and strategic plans, financial and sales information,
information relating to products, process, equipment, operations,
marketing programs, research, or product development, engineering
records, computer systems and software, personnel records or legal
records.
11. "Date Of Termination" shall mean: (A) if this Agreement is
terminated for Disability, thirty (30) days after the Notice of
Termination is given by the Company to you (provided that you
shall not have returned to the performance of your duties on a
full-time basis during such thirty (30) day period), (B) if your
employment is terminated for Good Reason by you, the date
specified in the Notice of Termination, and (C) if your employment
is terminated for any other reason, the date on which a Notice of
Termination is received by you unless a later date is specified.
12. "Disability" shall occur when: if, as a result of your incapacity
due to physical or mental illness, you shall have been absent from
your duties with the Company for six (6) consecutive months and
shall not have returned to full-time performance of your duties
within thirty (30) days after written notice is given to you by
the Company.
13. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
14. "Excise Tax" shall have the meaning as set forth in Section E.
15. "Good Reason" shall mean:
(a) without your express written consent, the assignment to you after
a Change in Control of the Company, of any duties inconsistent
with, or a significant diminution of, your positions, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a diminution in your titles
or offices as in effect immediately prior to a Change in Control
of the Company or any removal of you from, or any failure to
reelect you to, any of such positions;
(b) a reduction by the Company in your base salary in effect
immediately prior to a Change in Control of the Company or a
failure by the Company to increase (within fifteen months of your
last increase in base salary) your base salary after a Change in
Control of the Company in an amount which is substantially
similar, on a percentage basis, to the average percentage increase
in base salary for all corporate officers of the Company during
the preceding twelve (12) months;
(c) the failure by the Company to continue in effect any thrift, stock
ownership, pension, life insurance, health, dental and accident or
disability plan in which you are participating or are eligible to
participate at the time of a Change in Control of the Company (or
plans providing you with substantially similar benefits), except
as otherwise required by the terms of such plans as in effect at
the time of any Change in Control of the Company, or the taking of
any action by the Company which would adversely affect your
participation in or materially reduce your benefits under any of
such plans or deprive you of any material fringe benefits enjoyed
by you at the time of the Change in Control of the Company or the
failure by the Company to provide you with the number of paid
vacation days to which you are entitled in accordance with the
vacation policies of the Company in effect at the time of a Change
in Control of the Company, unless a comparable plan is substituted
therefor;
(d) the failure by the Company to continue in effect any incentive
plan or arrangement (including without limitation, the Company's
Incentive Compensation plan, annual bonus and contingent bonus
arrangements and credits and the right to receive performance
awards and similar incentive compensation benefits) in which you
are participating at the time of a Change in Control of the
Company (or to substitute and continue other plans or arrangements
providing you with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at the
time of any Change in Control of the Company;
(e) the failure by the Company to continue in effect any plan or
arrangement to receive securities of the Company (including,
without limitation, any plan or arrangement to receive and
exercise stock options, stock appreciation rights, restricted
stock or grants thereof or to acquire stock or other securities of
the Company) in which you are participating at the time of a
Change in Control of the Company (or to substitute and continue
plans or arrangements providing you with substantially similar
benefits), except as otherwise required by the terms of such plans
as in effect at the time of any Change in Control of the Company,
or the taking of any action by the Company which would adversely
affect your participation in or materially reduce your benefits
under any such plan;
(f) the relocation of the Company's principal executive offices to a
location outside the Covington, Kentucky area, or the Company's
requiring you to be based anywhere other than at your current
location or at the location of the Company's principal executive
or divisional offices, except for required travel on the Company's
business to an extent substantially consistent with your present
business travel obligations, or, in the event you consent to any
such relocation of the Company's principal executive or divisional
offices, the failure by the Company to pay (or reimburse you for)
all reasonable moving expenses incurred by you relating to a
change of your principal residence in connection with such
relocation and to indemnify you against any loss (defined as the
difference between the actual sale price of such residence and the
greater of (a) your aggregate investment in such residence, or (b)
the fair market value of such residence as determined by
Relocation Properties Management LLC or other real estate
appraiser reasonably satisfactory to both you and the Company)
realized in the sale of your principal residence in connection
with any such change of residence;
(g) any breach by the Company of any material provision of this
Agreement; or
(h) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company.
16. "Gross-up Payment" shall have the meaning as set forth in Section
E.
17. "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your
employment under the provision so indicated.
18. "Payment" shall have the meaning as set forth in Section E.
19. "Person" shall have the meaning as set forth in the Sections 13(d)
and 14(d)(2) of the Exchange Act.
20. "Qualifying Termination" shall mean the termination of your
employment after a Change in Control of the Company while this
Agreement is in effect, unless such termination is (a) by reason
of your death or Disability, (b) by the Company for Cause, or (c)
by you other than for Good Reason.
21. "Salary Continuation Period" shall have the meaning set forth in
Section C, paragraph 1.
22. "Subsidiary" shall mean any corporation of which more than 20% of
the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation
(irrespective of whether or not at the time capital stock of any
other class or classes of such corporation shall or might have
voting power upon the occurrence of any contingency) is at the
time directly or indirectly owned by the Company, by the Company
and one or more other Subsidiaries, or by one or more other
Subsidiaries.
SECTION B. TERM AND BENEFITS
This Agreement shall be in effect for two years from the date you
accept this Agreement and shall automatically renew for successive two (2)
year periods on the first day of each month. This Agreement may be
terminated by either party provided that at least fifteen (15) days advance
written notice is given by either party to the other party hereto prior to
the commencement of the next succeeding two (2) year period at which time
the Agreement shall terminate at the end of the next succeeding two (2)
year period. During the term of employment hereunder, you agree to devote
your full business time and attention to the business and affairs of the
Company and to use your best efforts, skills and abilities to promote its
interests.
In the event of your retirement, at your election or in accordance
with the Company's generally applicable retirement policies, as in effect
from time to time, this Agreement shall automatically terminate, without
additional notice to you, as of the effective date of your retirement.
Notwithstanding the first sentence of this paragraph and the first and
second sentences of this Section B, if a Change in Control of the Company
should occur while you are still an employee of the Company and while this
Agreement is in effect, then this Agreement shall continue in effect from
the date of such Change in Control of the Company for a period of two
years. Prior to a Change in Control of the Company, your employment may be
terminated by the Company for Cause at any time pursuant to a Notice of
Termination. In such event, you shall not be entitled to the benefits
provided hereunder. No benefits shall be payable hereunder unless your
employment is terminated without Cause or there shall have been a Change in
Control of the Company and your employment by the Company shall thereafter
terminate in accordance with Section D hereof.
SECTION C. TERMINATION PRIOR TO CHANGE IN CONTROL
1. Compensation Prior to a Change in Control. If you are terminated
by the Company without Cause during the term of this Agreement and
prior to a Change in Control of the Company, you shall be entitled
to receive:
(a) payment of your highest salary during the prior two year fiscal
years preceding the fiscal year in which your Date of Termination
occurs for a period of two (2) years after your Date of
Termination ("Salary Continuation Period");
(b) continuation of your and your eligible dependents' existing
participation at regular employee rates, in effect from time to
time, in all of the Company's medical, dental and group life plans
or programs in which you were participating immediately prior to
your Date of Termination during the Salary Continuation Period,
after which time you and your eligible dependents will be eligible
for coverage under COBRA. In the event that your continued
participation in any such plan or program is for whatever reason
impossible, the Company shall arrange upon comparable terms to
provide you with benefits substantially equivalent on an after tax
basis to those which you and your eligible dependents are, or
become, entitled to receive under such plans and programs;
(c) if and when payments are made, payment in cash of any pro-rata
portion (up through your Date Of Termination) of any amounts you
would have received under the Company's performance unit/share
plans, incentive compensation plan and any other similar executive
compensation plan in which you were a participant immediately
prior to your Date of Termination; and
(d) outplacement services historically offered to displaced employees
by the Company under substantially the same terms and fee
structure as is consistent with an employee in your position.
However, in the event that your employment with the Company is
terminated during the term of this Agreement and prior to a Change in
Control of the Company and such termination is not a termination without
Cause (including, without limitation, termination by reason of your
voluntary termination, retirement, death, or Disability), or if your
employment is terminated for Cause during the term of this Agreement, you
shall not be entitled to receive any benefits under this Agreement.
2. Competitive Activity. In consideration of the foregoing, you agree
that if your employment is terminated during the term of this Agreement and
prior to a Change in Control of the Company, then during a period ending
six (6) months following your Date of Termination you shall not engage in
any Competitive Activity; provided, you shall not be subject to the
foregoing obligation if the Company breaches a material provision of this
Agreement. If you engage in any Competitive Activity during that period,
the Company shall be entitled to recover any benefits paid to you under
this Agreement. For purposes of this Agreement, "Competitive Activity"
shall mean your participation, without the written consent of the General
Counsel of the Company, in the management of any business operation of any
enterprise if such operation (a "Competitive Operation") engages in
substantial and direct competition with any business operation actively
conducted by the Company or its divisions and Subsidiaries on your Date of
Termination. For purposes of this paragraph, a business operation shall be
considered a Competitive Operation if such business sells a competitive
product or service which constitutes (i) 15% of that business's total sales
or (ii) 15% of the total sales of any individual subsidiary or division of
that business and, in either event, the Company's sales of a similar
product or service constitutes (i) 15% of the total sales of the Company or
(ii) 15% of the total sales of any individual Subsidiary or division of the
Company. Competitive Activity shall not include (i) the mere ownership of
securities in any enterprise, or (ii) participation in the management of
any enterprise or any business operation thereof, other than in connection
with a Competitive Operation of such enterprise.
3. Release. In exchange for the benefits herein, you completely
release the Company to the fullest extent permitted by law from all claims
you may have against the Company on your Date of Termination except claims
related to (a) claims for benefits to which you are entitled under this
Agreement and (b) any applicable worker's compensation or unemployment
compensation laws.
SECTION D. TERMINATION FOLLOWING CHANGE IN CONTROL
1. Qualifying Termination. If your termination is a Qualifying
Termination, you shall be entitled to receive the
payments and benefits provided in this Section.
2. Notice of Termination. Except as provided in Section F, paragraph
1, any termination of your employment following a Change in Control of the
Company shall be communicated by written Notice of Termination to the other
party hereto. No termination shall be effective without such Notice of
Termination.
3. Compensation Upon Termination After a Change in Control.
(a) If your termination is a Qualifying Termination, then the Company
shall pay to you as severance pay (and without regard to the
provisions of any benefit or incentive plan), in a lump sum cash
payment on the fifth (5th) day following your Date of Termination,
an amount equal to three (3) times the highest of your annual
compensation (including annual incentive compensation) paid or
payable in respect of the prior three (3) fiscal years preceding
the fiscal year in which your Date of Termination occurs or, if
greater, the prior three (3) fiscal years preceding the fiscal
year in which the Change in Control of the Company occurs.
(b) If your termination is a Qualifying Termination, the Company
shall, in addition to the payments required by the preceding
paragraph:
(i) provide for continuation of your and your eligible dependents'
participation at regular employee rates, in effect from time to
time, in all of the Company's medical, dental and group life plans
or programs in which you were participating immediately prior to
your Date of Termination for a period of three years from your
Date of Termination, after which time you and your eligible
dependents will be eligible for coverage under COBRA. In the event
that your continued participation in any such plan or program is
for whatever reason impossible, the Company shall arrange upon
comparable terms to provide you with benefits substantially
equivalent on an after tax basis to those which you and your
eligible dependents are, or become, entitled to receive under such
plans and programs;
(ii) provide for full payment in cash of any performance unit/share
awards in existence on your Date of Termination less any amounts
paid to you under the applicable performance unit/share plan upon
a Change in Control of the Company pursuant to the provisions of
such plan;
(iii) provide for payment in cash of any incentive compensation (a) for
the fiscal year during which the Change in Control of the Company
occurred and any prior fiscal years for which you have not yet
received payment, and (b) payment of incentive compensation for
the fiscal year in which your Date of Termination occurs
calculated as the greater of (x) the highest incentive
compensation amount you were awarded in the last (3) three fiscal
years preceding the fiscal year in which your Date of Termination
occurs and (y) 125% of your gross base salary (gross base salary
to be calculated as of the day prior to the date the Change in
Control of the Company occurs or, if greater, your Date of
Termination);
(iv) provide benefits or compensation under any compensation plan,
arrangement or agreement not in existence as of the date hereof
but which may be established by the Company prior to your Date of
Termination at such time as payments are made thereunder to the
same extent as if you had been a full-time employee on the date
such payments would otherwise have been made or benefits vested;
(v) if requested by you, purchase your principal residence in
accordance with the provisions of Relocation Properties Management
LLC that have historically applied in the case of transfers of the
Company's employees; provided, however, that the purchase price of
your residence shall be deemed to be the greater of (a) your
aggregate investment in such residence, or (b) the then current
fair market value of such residence;
(vi) for one (1) year after your Date of Termination, provide and pay
for outplacement services, by a firm reasonably acceptable to you,
that have historically been offered to displaced employees
generally by the Company under substantially the same terms and
fee structure as is consistent with an employee in your then
current position (or, if higher, your position immediately prior
to the Change in Control of the Company);
(vii) for one (1) year after your Date of Termination, provide and pay
for financial planning services, by a firm reasonably acceptable
to you, that have historically been offered to you under
substantially the same terms and fee structure as is consistent
with an employee in your then current position (or, if higher,
your position immediately prior to the Change in Control of the
Company);
(viii) pay to you an amount equal to the value of all unused, earned and
accrued vacation as of your Date of Termination pursuant to the
Company's policies in effect immediately prior to the Change in
Control of the Company; and
(ix) provide for the immediate vesting of all stock options held by
you, as of your Date of Termination, under any Company stock
option plan and all such options shall be exercisable for the
remaining terms of the options.
(c) Unless otherwise provided in this Agreement or in the applicable
compensation or stock option plan or program, all payments shall
be made to you within thirty (30) days after your Date of
Termination. The benefits in this Agreement are in addition to all
accrued and vested benefits to which you are entitled under any of
the Company's plans and arrangements (to the extent accrued and
vested benefits are relevant under the particular plan or
arrangement), including but not limited to, the accrued vested
benefits to which you are eligible and entitled to receive under
any of the Company's qualified and non-qualified benefit or
retirement plans, or any successor plans in effect on your Date of
Termination hereunder. For these purposes, accrued and vested
benefits shall include any extra, special or additional benefits
under such qualified and non-qualified benefit or retirement plans
that become due because of the Change in Control.
(d) You shall not be required to mitigate the amount of any payment
provided for in this Section by seeking other employment or
otherwise, nor shall the amount of any payment provided for in
this Section be reduced by any compensation earned by you as the
result of employment by another employer after your Date of
Termination, or otherwise. Except as provided herein, the Company
shall have no right to set off against any amount owing hereunder
any claim which it may have against you.
SECTION E. ADDITIONAL PAYMENTS BY THE COMPANY
Notwithstanding anything to the contrary in this Agreement, in the
event that any payment or distribution by the Company to or for your
benefit, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise (a "Payment"), would be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended, or any interest or penalties with respect to such excise
tax (such excise tax, together with any such interest or penalties, are
hereinafter collectively referred to as the "Excise Tax"), the Company
shall pay to you an additional payment (a "Gross-up Payment") in an amount
such that after payment by you of all taxes (including any interest or
penalties imposed with respect to such taxes), including any income,
employment and Excise Tax imposed on any Gross-up Payment, you retain an
amount of the Gross-up Payment equal to the Excise Tax imposed upon the
Payments. You and the Company shall make an initial determination as to
whether a Gross-up Payment is required and the amount of any such Gross-up
Payment. If you and the Company can not agree on whether a Gross-up Payment
is required or the amount thereof, then an independent nationally
recognized accounting firm, appointed by you, shall determine the amount of
the Gross-up Payment. The Company shall pay all expenses which you may
incur in determining the Gross-up Payment. You shall notify the Company in
writing of any claim by the Internal Revenue Service which, if successful,
would require the Company to make a Gross-up Payment (or a Gross-up Payment
in excess of that, if any, initially determined by the Company and you)
within ten days of the receipt of such claim. The Company shall notify you
in writing at least ten days prior to the due date of any response required
with respect to such claim if it plans to contest the claim. If the Company
decides to contest such claim, you shall cooperate fully with the Company
in such action; provided, however, the Company shall bear and pay directly
or indirectly all costs and expenses (including additional interest and
penalties) incurred in connection with such action and shall indemnify and
hold you harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result
of the Company's action. If, as a result of the Company's action with
respect to a claim, you receive a refund of any amount paid by the Company
with respect to such claim, you shall promptly pay such refund to the
Company. If the Company fails to timely notify you whether it will contest
such claim or the Company determines not to contest such claim, then the
Company shall immediately pay to you the portion of such claim, if any,
which it has not previously paid to you.
SECTION F. MISCELLANEOUS
1. Assumption of Agreement. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, share
exchange or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to
you, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession shall be a
breach of a material provision of this Agreement and shall entitle you to
compensation in the same amount and on the same terms as you would be
entitled pursuant to Section D, except that for purposes of implementing
the foregoing, the date on which any such succession becomes effective
shall be deemed your Date of Termination without a Notice of Termination
being given.
2. Confidentiality. All Confidential Information which you acquire or
have acquired in connection with or as a result of the performance of
services for the Company, whether under this Agreement or prior to the
effective date of this Agreement, shall be kept secret and confidential by
you unless (a) the Company otherwise consents, (b) the Company breaches any
material provision of this Agreement, or (c) you are legally required to
disclose such Confidential Information by a court of competent
jurisdiction. This covenant of confidentiality shall extend beyond the term
of this Agreement and shall survive the termination of this Agreement for
any reason. If you breach this covenant of confidentiality, the Company
shall be entitled to recover from any benefits paid to you under this
Agreement its damages resulting from such breach.
3. Employment. You agree to be bound by the terms and conditions of
this Agreement and to remain in the employ of the Company during any period
following any public announcement by any person of any proposed transaction
or transactions which, if effected, would result in a Change in Control of
the Company until a Change in Control of the Company has taken place.
However, nothing contained in this Agreement shall impair or interfere in
any way with the right of the Company to terminate your employment for
Cause prior to a Change in Control of the Company.
4. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled exclusively by
arbitration in accordance with the Center for Public Resources' Model ADR
Procedures and Practices, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
Notwithstanding the foregoing, the Company shall not be restricted from
seeking equitable relief, including injunctive relief as set forth in
paragraph 5 of this Section, in the appropriate forum. Any cost of
arbitration will be paid by the Company. In the event of a dispute over the
existence of Good Reason or Cause after a Change in Control of the Company,
the Company shall continue to pay your salary, bonuses and plan benefits
pending resolution of the dispute. If you prevail in the arbitration, the
amounts due to you under this Agreement are to be immediately paid to you.
5. Injunctive Relief. You acknowledge and agree that the remedy of the
Company at law for any breach of the covenants and agreements contained in
paragraph 2 of this Section and in Section C, paragraph 2 will be
inadequate, and that the Company will be entitled to injunctive relief
against any such breach or any threatened, imminent, probable or possible
breach. You represent and agree that such injunctive relief shall not
prohibit you from earning a livelihood acceptable to you.
6. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth on the first page of this Agreement,
provided that all notices to the Company shall be directed to the attention
of the General Counsel of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon
receipt.
7. Indemnification. The Company will indemnify you to the fullest
extent permitted by the laws of the Commonwealth of Kentucky and the
existing By-laws of the Company, in respect of all your services rendered
to the Company and its divisions and Subsidiaries prior to your Date of
Termination. You shall be entitled to the protection of any insurance
policies the Company now or hereafter maintains generally for the benefit
of its directors, officers and employees (but only to the extent of the
coverage afforded by the existing provisions of such policies) to protect
against all costs, charges and expenses whatsoever incurred or sustained by
you in connection with any action, suit or proceeding to which you may be
made a party by reason of your being or having been a director, officer or
employee of the Company or any of its divisions or Subsidiaries during your
employment therewith.
8. Further Assurances. Each party hereto agrees to furnish and execute
such additional forms and documents, and to take such further action, as
shall be reasonably and customarily required in connection with the
performance of this Agreement or the payment of benefits hereunder.
9. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by you and such officer(s) as may be
specifically designated by the Board. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with,
any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set
forth expressly in this Agreement.
10. Termination of other Agreements. Upon execution by both parties,
this Agreement shall terminate all prior employment and severance
agreements between you and the Company and its divisions or Subsidiaries.
11. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force and
effect.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
13. Legal Fees And Expenses. Any other provision of this Agreement
notwithstanding, the Company shall pay all legal fees and expenses which
you may incur as a result of the Company's unsuccessful contesting of the
validity, enforceability or your interpretation of, or determinations
under, any part of this Agreement.
14. Governing Law. This Agreement shall be governed in all respects by
the laws of the Commonwealth of Kentucky.
15. Agreement Binding on Successors. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
you should die while any amounts would still be payable to you hereunder if
you had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to
your devisee, legatee, or other designee or, if there be no such designee,
to your estate.
16. Headings. All Headings are inserted for convenience only and shall
not affect any construction or interpretation of this Agreement.
If this Agreement correctly sets forth our agreement on the subject
matter hereof, please sign and return to the Company the enclosed copy of
this Agreement which will then constitute our agreement on this matter.
Sincerely,
ASHLAND INC.
By:
-------------------------
ACCEPTED this _______ day of
______________________, 2002.
NAME
AGREEMENT AND GENERAL RELEASE
THIS AGREEMENT AND GENERAL RELEASE is entered into this 27 day of
November, 2002 by and between Ashland Inc., on behalf of itself, its
officers, directors, shareholders, employees and agents (in their
individual and representative capacities), and each of them, jointly and
severally (collectively referred to as "Ashland" or the "Company"); and
Paul W. Chellgren, on behalf of himself and his heirs, executors,
guardians, administrators, successors and assigns, and each of them,
jointly and severally (herein singularly and collectively called "Mr.
Chellgren" or the "Employee"), who agree to be bound by all of the terms
and conditions hereof.
WHEREAS, Employee has been employed by the Company from July 29, 1974
to the present; and
WHEREAS, Employee and the Company desire to settle fully and finally
all matters between them, including, but in no way limited to, any issues
that might arise out of Employee's employment with and retirement from the
Company;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, Employee and the Company agree as follows:
1. This Agreement and General Release (the "Agreement") shall not in
any way be construed as an admission by the Company that it has acted
wrongfully with respect to Employee or any other person, or that Employee
has any rights whatsoever against the Company, and the Company specifically
disclaims any liability to or wrongful acts against Employee or any other
person, on the part of itself, its officers, directors, shareholders,
employees or agents.
2. Employee represents, understands, and agrees that in accordance
with the terms of the Letter Agreement executed by Employee on November 6,
2002, the terms and conditions of which are incorporated herein by
reference, Employee stepped down from his position as Chief Executive
Officer on September 30, 2002, and will step down from his position as
Chairman of the Board of Directors of Ashland Inc. and as a director of
Ashland Inc., effective November 15, 2002. His employment will terminate on
November 15, 2002 ("Termination Date"), and he will be eligible to retire
from the Company on December 1, 2002 ("Retirement Date").
3. Employee represents that he has not filed any complaints or charges
or lawsuits against the Company with any governmental agency or any court
concerning any matter subject to the release he is providing under
paragraph (15) of this Agreement, and that he will not do so at any time
hereafter; provided, however, this shall not limit Employee from filing a
lawsuit for the sole purpose of enforcing Employee's rights under this
Agreement, or for the purposes of enforcing rights under the ADEA, as
described further herein.
Employee Initials:/s/PWC
Page 1
4. In order to assist Employee in the transition into other endeavors,
and as mutual consideration for the covenants expressed herein, the Company
will provide Employee with the Benefits more fully described in Attachment
I (Summary of Benefits), which is hereby incorporated by reference.
5. Employee understands and agrees that the consideration described
above is more than Employee would otherwise be entitled to under the
Company's existing policies and any current agreement with Employee.
6. Employee understands and agrees that, effective as of his
Termination Date, he is no longer authorized to incur any expenses or
obligations or liabilities on behalf of the Company. However, Ashland may,
during the two-year period immediately following his retirement
("Consulting Period"), request Employee perform services of the nature and
type he performed during his service with Ashland, and Employee will be
responsive on a reasonable basis to the requests of Ashland; provided
however, that any request to perform services in excess of six (6) days
during any one calendar month shall by mutual agreement only. For each day
during the Consulting Period in which services are provided under this
paragraph (6), Employee shall be compensated at a rate of an additional Two
Thousand Dollars ($2,000) per day, minus all applicable withholdings.
Ashland will reimburse Employee for his reasonable expenses related to the
performance of the services requested hereunder. Use of Company property,
equipment or aircraft in connection with the performance of such services
must be expressly authorized in advance by the Company's Chief Executive
Officer or the CEO's designee.
7. As of his Termination Date, Employee will return to the Company all
Company Information, as defined below, and related reports, maps, files,
memoranda, and records; credit cards, cardkey passes; door and file keys;
computer access codes; software; and other physical or personal property
which Employee received or prepared or helped prepare in connection with
his employment. Employee has not retained and will not retain any copies,
duplicates, reproductions, or excerpts thereof. The term "Company
Information" as used in this Agreement means (a) confidential information
including, without limitation, information received from third parties
under confidential conditions; and (b) technical, business, financial or
other information, the use or disclosure of which might reasonably be
construed to be contrary to the interests of the Company, and/or
detrimental to its business reputation or good will.
8. Employee agrees that during the course of his employment with the
Company he has acquired Company Information as defined in paragraph (7).
Employee understands and agrees that such Company Information is the
property of the Company and has been disclosed to Employee in confidence
and for Company use only. Employee understands and agrees that he (i) will
keep such Company Information confidential at all times during and after
his employment with the Company, (ii) will not disclose or communicate
Company Information to any third party, and (iii) will not make use of
Company Information on Employee's own behalf, or on behalf of any third
party. In view of the nature of Employee's employment and the nature of
Company
Employee Initials:/s/PWC
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Information which Employee has received during the course of his
employment, Employee agrees that any unauthorized disclosure to third
parties of Company Information or other violation, or threatened violation,
of this Agreement would cause irreparable damage to the trade secret status
of Company Information and to the Company. When Company Information becomes
generally available to the public other than by Employee's acts or
omissions, it is no longer subject to these restrictions. However, Company
Information shall not be deemed to come under this exception merely because
it is embraced by more general information that is or becomes generally
available to the public. It is understood that, if requested by Employee,
the Company may review and approve the Employee's resume to assure there is
no violation of this paragraph (8), which approval shall not be
unreasonably withheld.
9. From the effective date of this Agreement, through December 31,
2005 (the "Non-compete Period"), Employee shall not, without Ashland's
prior written consent, which shall not be unreasonably withheld, accept a
directorship or employment with, engage in consulting for or otherwise
render services for, make investments in, or otherwise engage in any other
business activity with, any corporation, partnership, firm or other form of
business enterprise which directly competes, both as to the type of
activity and geographical location, with any substantial business of the
Company. However, Employee's ownership, directly or indirectly, of issued
and outstanding stock or debt obligations of any corporation, which are
regularly traded on a national securities exchange or in the
over-the-counter market, shall not be deemed to be a violation of this
Agreement so long as such ownership does not, directly or indirectly,
permit Employee to control the business and affairs of such corporation.
Employee further agrees that for the Non-compete Period, Employee will not
interfere with or disrupt the relationship, contractual or otherwise, with
respect to the business or employment relationship between the Company or
its successors and any other party, including other employees of the
Company or its successors. Employee agrees that these restrictions are
reasonable, and that they do not unreasonably preclude Employee from being
gainfully employed. Notwithstanding, Employee shall also be subject to the
non-compete provisions of paragraph 4.04 of Ashland's Supplemental Early
Retirement Plan.
10. This Agreement shall immediately and automatically terminate if
(a) Employee breaches the confidentiality provisions of paragraph (8)
above, (b) Employee engages in competitive activity as set forth in
paragraph (9) above, or (c) Employee takes any other action inconsistent
with this Agreement. In the case of such termination of this Agreement, the
Company may cease further payments and benefits to Employee, and may recoup
previous amounts paid to Employee, and other damages, under this Agreement.
The covenants, agreements and releases set forth in paragraphs (8), (9),
(15), (16) and (17) shall survive the term of this Agreement.
11. Employee acknowledges and agrees that the remedy of the Company at
law for any breach of the covenants and agreements of paragraphs (8) and
(9) of this Agreement will be inadequate, and that the Company will be
entitled to injunctive relief against any such breach or any threatened,
imminent, probable or possible breach.
Employee Initials:/s/PWC
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12. The provisions of this Agreement are severable, and if any part of
it is found to be unenforceable, the other paragraphs shall remain fully
valid and enforceable.
13. Employee represents and agrees that he will keep the terms of this
Agreement completely confidential, and that he will not hereafter disclose
any information concerning this Agreement to anyone except his immediate
family, financial advisor and attorney; provided, they agree to keep said
information confidential and not disclose it to others.
14. Employee represents and agrees that he has carefully read and
fully understands all of the provisions of this Agreement, that he is
voluntarily entering into this Agreement, and that he has had sufficient
time before signing this Agreement to consult with legal counsel concerning
its content and effect. Employee understands that it is his decision
whether to consult with legal counsel, and if he elects to sign this
document without first consulting legal counsel, it will have been as a
result of his voluntary choice.
15. As a material inducement to the Company to enter into this
Agreement, Employee hereby irrevocably and unconditionally releases,
acquits, and forever discharges Company and each of the Company's owners,
stockholders, predecessors, successors, assigns, agents, directors,
officers, employees, representatives, attorneys, divisions, subsidiaries,
affiliates, and all persons acting by, through, under, or in concert with
any of them (collectively "Releasees"), jointly and individually, from any
and all charges, complaints, claims, liabilities, obligations, promises,
agreements, controversies, damages, actions, causes of action, suits,
rights, demands, costs, losses, debts, and expenses (including attorneys'
fees and costs actually incurred) of any nature whatsoever, including, but
not limited to, any claims of wrongful discharge or any other claim related
to Employee's employment or to acts or omissions of the Company involving
Employee or of rights under federal, state, or local laws prohibiting age
or other forms of discrimination, claims growing out of any legal
restrictions on Company's right to terminate its employees, claims based on
express or implied contract, claims arising in tort, including claims for
fraud or misrepresentation, and claims arising out of any actions or events
occurring before the date of Employee's execution of this Release against
each or any of the Releasees. Examples of such federal, state, or local
law, rule, or regulation regarding discrimination include, but are not
limited to, any claims arising under Title VII of the Civil Rights Act of
1964, 42 U.S.C. Section 2000e et seq., the Age Discrimination in Employment
Act, 29 U.S.C. Section 621 et seq., or the Workers' Adjustment and
Retraining Notification (WARN) Act, 29 U.S.C. Section 2101 et seq. These
examples shall not limit the scope of this Release. This Release is
intended to be a broad release and shall apply to any relief, no matter how
denominated, including, but not limited to, claims for future employment,
rights or causes of action for wages, backpay, front pay, compensatory
damages, or punitive damages. Employee also agrees that he will not file
such claim and Employee hereby agrees to indemnify and hold Releasees
harmless from any such claim. In addition,
Employee Initials:/s/PWC
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Employee agrees to waive the right to receive any recovery under any
charge, claim or lawsuit filed on Employee's behalf. Notwithstanding
anything to the contrary in this paragraph (15), Employee does not release
any claim he may have under any employee benefit plan in which he was a
participant during his employment with the Company for the payment of a
benefit thereunder to which he would be entitled in accordance with its
terms in the ordinary course of the administration of the Plan. Further,
Employee does not release any rights of indemnification as provided under
the Company's By-laws or policies, except as provided in paragraph (16)
below.
16. Employee also agrees to indemnify the Company from any and all
costs and expenses (including but not limited to payment of attorneys
fees), and to hold the Company harmless against any liabilities (including
but not limited to judgments, fines, penalties, and reasonable settlements
(provided that prior to settlement, Employee will be given notice and
opportunity to comment on the proposed settlement)), that may be paid by or
imposed against the Company in connection with or resulting from any
pending, threatened, or completed claim, action, suit or proceeding
(including any appeal relating thereto), arising from the Employee's
personal relationship with a fellow employee during his tenure with the
Company, in violation of the Company's human resources policies. Provided,
that this indemnification agreement shall not apply to any obligations
specifically undertaken by the Company with respect to said fellow employee
under the terms of the Amended Separation Agreement and General Release
executed by and between the Company and said fellow employee. And further,
that this indemnification agreement shall not apply to any liability
imposed against the Company for its own acts or omissions separate and
independent of the acts and omissions of Employee, if the Employee can
demonstrate that the Company, by its own acts or omissions separate and
independent of the acts and omissions of Employee, did not act in good
faith and in a manner the Company reasonably believed at the time to be in
the best interests of Employee and/or the Company. In connection with the
agreements contained in this paragraph (16) Employee further specifically
agrees to waive any right to indemnification from the Company that might
otherwise exist for such claims made against him in his individual or
representative capacity under Article IX of the Company's By-Laws or its
Articles of Incorporation or otherwise, or by operation of the Kentucky
Business Corporation Act, Chapter 271B of the Kentucky Revised Statutes,
including, but not limited to those rights provided under KRS ss.
271B.8-520 and KRS 271B.8-560. Employee further agrees that he will not
assert any rights or make any claims under the Company's D&O Policy
relating to such claims, and waives the right to any reimbursement for such
claims thereunder.
17. As a further material inducement to the Company to enter into this
Agreement, Employee hereby agrees to indemnify and hold each and all of the
Releasees harmless from and against any and all loss, costs, damages, or
expenses, including, without limitation, attorneys' fees incurred by
Releasees, or any of them, arising out of any breach of this Agreement by
Employee, including costs and expenses incurred to enforce this Agreement,
or the fact that any representation made herein by Employee was false when
made, except that this provision shall not apply to any alleged breach due
to a challenge of the validity of the ADEA waiver contained herein.
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18. Employee understands and agrees that Employee has been given
through November 27, 2002 (the "Review Period"), which is at least
twenty-one (21) days, to review and consider the General Release contained
in this Agreement. Employee understands that Employee may use as much or as
little of the Review Period as Employee wishes to prior to reaching a
decision regarding the signing of this Agreement. However, Employee
acknowledges that under no circumstances may Employee sign and date this
Agreement Release prior to his Termination Date. Accordingly, Employee
understands that if Employee does not sign, date, and return this Agreement
during that portion of the Review Period falling after Employee's
Termination Date and prior to the expiration of the Review Period, the
Agreement and General Release will not be valid and Employee will not
receive the special severance benefits under the terms of this special
severance offer.
19. In accordance with federal law, Employee may revoke this Agreement
and the General Release contained herein at any time within seven (7)
calendar days of the date of execution noted below. To be effective, the
revocation must be in writing and delivered to David L. Hausrath, Vice
President and General Counsel, 50 E. RiverCenter Boulevard, P.O. Box 391,
Covington, Kentucky 41012, either by hand or mail within a seven (7) day
period following Employee's execution of this Agreement. If delivered by
mail, the rescission must be:
1. Postmarked within the seven (7) day period;
2. Properly addressed as noted above; and
3. Sent by Certified Mail, Return Receipt Requested.
This Agreement shall not become effective or enforceable until this
7-day revocation period has expired.
20. This Agreement constitutes the full, complete, and entire
agreement between the parties and supercedes all prior agreements between
the parties and Employee's signature indicates that he has not relied upon
any statements or representations or other matters from the Company, its
agents, officers, or employees. Any future alteration, modification, or
waiver, to be binding on the parties, must be reduced to writing and
attached hereto.
21. Upon execution by both parties, this Agreement shall terminate all
prior employment and severance agreements between the Employee and the
Company and its divisions or subsidiaries, with the exception of those
prior agreements specifically incorporated herein by reference.
22. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
23. It is agreed that this Agreement and Release shall be interpreted
in accordance with the laws of the Commonwealth of Kentucky.
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IMPORTANT NOTICE
BY SIGNING THIS AGREEMENT, YOU, PAUL W. CHELLGREN, AFFIRM THAT YOU
HAVE READ AND UNDERSTAND THIS AGREEMENT; THAT YOU HAVE HAD A MINIMUM OF
TWENTY-ONE (21) DAYS TO CONSIDER THE AGREEMENT AND USED AS MUCH OF THIS
21-DAY PERIOD AS YOU WISHED PRIOR TO SIGNING; THAT YOU HAVE NOT SIGNED AND
DATED THIS AGREEMENT BEFORE YOUR TERMINATION DATE; THAT YOU UNDERSTAND
FULLY ITS FINAL AND BINDING EFFECT; THAT THE ONLY PROMISES MADE TO INDUCE
YOU TO SIGN THIS AGREEMENT ARE THOSE STATED HEREIN AND THAT YOU ARE SIGNING
THIS AGREEMENT VOLUNTARILY WITH THE FULL INTENT OF RELEASING THE COMPANY
AND ALL ASSOCIATED ENTITIES AND INDIVIDUALS FROM ANY AND ALL CLAIMS, KNOWN
OR UNKNOWN, RELATING TO OR ARISING OUT OF YOUR EMPLOYMENT WITH ASHLAND;
THAT YOU HAVE BEEN ADVISED THAT IT IS IN YOUR BEST INTEREST TO HAVE AN
ATTORNEY, HIRED BY YOU, LOOK AT THE AGREEMENT AND GIVE YOU ADVICE ABOUT IT;
THAT YOU WERE GIVEN A CHANCE TO REFUSE TO SIGN THIS AGREEMENT; AND THAT YOU
ARE AWARE THAT YOU HAVE AN ADDITIONAL SEVEN (7) DAYS IN WHICH TO REVOKE
YOUR ACCEPTANCE OF THIS AGREEMENT.
ASHLAND INC.
/s/ Paul W. Chellgren By: _________________________
PAUL W. CHELLGREN
November 27, 2002 Title: ________________________
Date of Execution
(Do Not Sign Prior To TERMINATION Date)
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Name: PAUL W. CHELLGREN
Date of Presentation: NOVEMBER 6, 2002
Attachment 1
RETIREMENT ELIGIBLE
SUMMARY OF EMPLOYEE BENEFITS
AND MISCELLANEOUS PROVISIONS
On November 15, 2002 (your "Termination Date"), your employment with the
Company will end. You will then be eligible to retire on December 1, 2002
(your "Retirement Date").
AGREEMENT AND GENERAL RELEASE
Program benefits will not begin until you have executed the Agreement and
Release and it becomes valid. If you do not execute the Agreement and
Release, you will not receive the special benefits provided hereunder, and
will receive only those benefits ordinarily available to employees in
payroll classifications similar to the one you are in at the time your
employment terminates.
In general, except as permitted by law, or your eligibility to elect to
retire and obtain retiree benefits, you cannot continue participation in
any employee benefit plan following your Termination Date. If you were
enrolled in a group health plan, you may be able to continue coverage by
making what is called a COBRA election. You cannot elect to have any
premiums you may have to pay for COBRA coverage deducted from your lump sum
severance payment.
The following summarize selected terms and conditions from some of the
employee benefit plans in which you may have participated. The actual terms
of these plans are in their plan documents. You should refer to the
relevant summary plan description for more information on a particular plan
and the effect that your severance has with regard to that plan.
PENSION PLAN
Your rights under the Pension Plan will be determined based on your age,
years of plan participation, and final average salary on your Termination
Date. You will be eligible for an immediate pension benefit commencing as
of the first day of the month coincident with or next following your
Termination Date if either of the following applies: on your Termination
Date you are at least age 55; or on your Termination Date the sum of your
age and years of continuous service is at least 80.
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MEDICAL AND DENTAL
If you are at least age 55 or the sum of your age and years of continuous
service is at least 80, and you have 5 years of service on your Termination
Date, you may be eligible for retiree coverage under the Medical Plan and
the Dental Plan. Dental coverage during retirement is only available if you
were covered by the plan on your Termination Date. Your dental coverage
during retirement also must end on the last day of the month in which you
attain age 65. Medical coverage during retirement is generally only
available if you were covered by the plan on your Termination Date. The
exceptions to this general rule are described in the summary plan
description.
If you elect retiree coverage, your retiree contributions would be
determined using your service to your Termination Date.
Although you may be eligible to elect retiree coverage, federal law
requires that COBRA continuation coverage also be offered for the plan or
plans in which you were covered. If the amount you have to pay for retiree
coverage is greater than what you paid for the same coverage as an active
employee, you can choose to elect the COBRA continuation coverage instead
of the retiree coverage. If enrolled in the Medical or Dental Plan on the
Termination Date, you will be eligible for COBRA continuation coverage
under these plans for 12 months, at the same contribution rates that apply
to regular, active employees. To be eligible for this, though, you must
first make a timely election of COBRA coverage. You make a timely election
by completing and filing the COBRA election form that will be sent to you
by the Employee Benefits Department. The form will have instructions
explaining how to complete it and where to file it. At the end of this
12-month coverage period, you will be eligible for continued COBRA coverage
for up to 6 additional months but you must pay the full COBRA costs (both
Company and employee contributions, plus 2%) for your coverage. Your first
payment for your medical and dental contributions must be made by personal
check mailed to the Company's Employee Benefits Department at the following
address:
Employee Benefits Department
Ashland Inc.
P. O. Box 14000
Lexington, KY 40512
That first payment is due on the first day of the 13th month, with a 30-day
grace period for a late payment. If you do not make the required payment by
the end of the grace period, the coverage is retroactively terminated to
the first day of the said 13th month, without the ability to reinstate the
coverage. You will not be billed for the COBRA coverage. Paying for the
coverage is your responsibility.
After the Employee Benefits Department receives your first check, you will
receive information on where future checks should be mailed. For further details
please consult
Employee Initials:/s/PWC
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the relevant summary plan description or call the Employee Benefits
Department at (800) 782-4669.
LIFE INSURANCE
If you are at least age 55 or the sum of your age and years of continuous
service is at least 80, you have 5 years of service, and you had plan
coverage on your Termination Date, you will be eligible for company-paid
retiree life coverage equal to $10,000. Contributory coverage, spouse
coverage, dependent child coverage and accidental death and dismemberment
coverage end at your Termination Date.
REIMBURSABLE ACCOUNTS PLAN
Any amount you have remaining in the Dependent Day Care Account and/or the
Health Care Account is available to reimburse you for covered services
incurred before the end of the month in which your Termination Date occurs.
Claims for services performed after that time are not eligible for
reimbursement. Claims for reimbursement must be filed by June 30 in the
calendar year following your Termination Date. Any amounts in your accounts
that are not used will be forfeited according to IRS rules. You will be
eligible to elect COBRA continuation coverage for your Health Care Account.
Ashland's Employee Benefits Department will provide you with a summary of
your COBRA rights that will tell you how to elect to continue coverage
under the Health Care Account. You may only elect to continue coverage
through the end of the calendar year that contains your Termination Date.
SAVINGS PLAN
Upon your Termination Date, you have a number of withdrawal options. If you
have an unpaid loan, you may continue to make monthly payments after your
Termination Date. Fidelity will send you payment instructions approximately
4 weeks following your Termination Date. To receive Savings Plan
information, call Fidelity Investments at (800) 827-4526. You may also
access Savings Plan information on the internet by clicking "Access My
Account" under NetBenefits at www.401k .com.
LESOP
Upon your Termination Date, you may elect to receive a distribution of your
entire account in cash or shares (if your spouse consents) or you may elect
to transfer 50% of your account to the Pension Plan and receive the
remaining 50% in shares. If there are fewer than 100 shares in your account
after the transfer, then you may elect to have them distributed in cash.
LESOP distributions are usually made 3 to 4 weeks from the Friday that the
Employee Benefits Department processes your withdrawal form.
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LONG TERM DISABILITY; VOLUNTARY ACCIDENTAL DEATH AND DISMEMBERMENT;
OCCUPATIONAL ACCIDENTAL DEATH AND DISMEMBERMENT; TRAVEL ACCIDENT INSURANCE
AND ADOPTION ASSISTANCE PROGRAM
Your eligibility for coverage for all the benefits identified in the above
title of this section ends on your Termination Date.
VISION COST ASSISTANCE PLAN
If you are enrolled for this coverage, it will end on your Termination
Date, although you may be able to elect COBRA continuation of coverage at
that time. Ashland's Employee Benefits Department will provide you with a
summary of your COBRA rights that will tell you how to elect to continue
coverage.
LEGAL PLAN
If you were enrolled for the Legal Plan, your participation ends on your
Termination Date. You may be eligible for coverage for covered legal
matters that are not completed as of your Termination Date. Consult your
summary plan description for details.
GROUP AUTO AND HOMEOWNERS INSURANCE; LONG TERM CARE
You may continue any coverage you had in the group auto and homeowners
insurance and the long term care insurance beyond your Termination Date on
the same basis as any other former employee. Continuing that coverage,
though, is strictly between you and the applicable insurance company that
provides the coverage.
GROUP FINANCIAL SERVICES
If you are enrolled for the group financial services at the time of your
Termination Date, you may continue them for the remainder of the calendar year
if you make appropriate arrangements with the provider to make any required
payments then remaining for the services.
MISCELLANEOUS PROVISIONS
UNUSED VACATION/SICK PAY
You will be paid for any unused earned and accrued vacation based on the amount
of earned vacation for calendar year 2002 that remains unused as of your
Termination Date. You will also be paid for 2003 vacation accrued due to
accelerated vesting through your Termination Date. You will not be paid for any
unused sick pay.
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CREDIT UNION
If you are a member of the Credit Union at the time of your Termination
Date, you will be able to participate in the Credit Union after your
Termination Date. You will need to contact them directly to discuss
handling of credit union business.
SERVICE AWARDS
If on your Termination Date you are within 6 months of the date on which
you would have received a Service Award, the Service Award will be provided
to you on your regularly scheduled date.
MATCHING GIFTS
You will continue to be eligible to participate in the Matching Gifts
Program following your retirement, under the terms and conditions of the
program.
UNEMPLOYMENT COMPENSATION
Whether you are eligible to receive unemployment compensation is controlled
by state laws. If you decide to file for unemployment compensation, the
Company is obligated to inform the state's unemployment commission of the
nature of your termination.
EXPENSES
If you have incurred any expenses that are reimbursable by the Company, you
should submit an Expense Report, along with required receipts immediately.
EMPLOYEE ASSISTANCE PROGRAM
Family Enterprises, Inc. will continue to be available for personal
counseling for up to 12 months following your Termination Date, should you
have the need. This service can be contacted by calling (800) 522-6330.
FUTURE CORRESPONDENCE
Any future information from the Company will be sent to the address you
currently have on file (i.e. employee benefit information, W-2's, etc.).
Should your address change in the near future you should contact Corporate
Human Resources at (800) 782-4669.
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IMPORTANT NOTE ABOUT THIS SUMMARY
DETAILS ON THE BENEFITS FROM THE EMPLOYEE BENEFIT PLANS DISCUSSED ABOVE ARE
PROVIDED IN THE SUMMARY PLAN DESCRIPTION BOOKLET FOR EACH PLAN. IN ALL
EVENTS, THE RIGHTS AND OBLIGATIONS OF THE COMPANY AND ALL COVERED
EMPLOYEES, BENEFICIARIES OR OTHER CLAIMANTS ARE GOVERNED SOLELY BY THE
TERMS OF THE OFFICIAL DOCUMENTS UNDER WHICH EACH PARTICULAR PLAN, POLICY OR
PROGRAM IS OPERATED.
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ASHLAND INC.
ADDENDUM TO RETIREMENT ELIGIBLE SUMMARY OF
EMPLOYEE BENEFITS AND MISCELLANEOUS PROVISIONS
STOCK OPTIONS
Any unvested Ashland Inc. stock options shall immediately vest, and all
vested options may be exercised for the remaining term of the options.
INCENTIVE COMPENSATION
You will be eligible to earn incentive compensation under the Ashland Inc.
Incentive Compensation Plan through your Termination Date. If and when
payments are made, you shall receive payment in cash of any amount due
under Ashland's FY 2002 incentive compensation bonus based on Ashland's
performance through the fiscal year and your current individual performance
rating. If and when payments are made under Ashland's FY 2003 Incentive
Compensation Plan, you shall receive a pro-rata payment in cash under this
plan calculated using your Termination Date, Ashland's performance through
fiscal year 2003 and your current individual performance rating. Provided,
however, that this pro-rata payment shall not be considered when
calculating your SERP benefit hereunder.
PUP/LTIP
If and when payments are made to participants generally, you shall receive
payment in cash of One Hundred Sixty-four Thousand, One Hundred Thirteen
Dollars and Eighteen Cents ($164,113.18) minus applicable withholdings for
employment taxes and deferred compensation elections, as payment under
Ashland's Performance Unit Plan for the 1999-2002 cycle. You will also
receive a pro rata portion of any payment, if and when made, under the Long
Term Incentive Plan for the 2001-2003 cycle and the 2002-2004 cycle.
Payments shall be pro-rated through your Termination Date, and based on
actual Ashland Inc. measures (as specified in the plans and your awards
under the plans) through the entire three or four-year plan cycles
(including adjustments for unusual items).
Deferred Compensation
Upon your Termination Date, you shall receive distribution of your "DCP"
account(s) in accordance with your DCP election(s). Any changes regarding
the distribution of your DCP account(s) must be made by September 30, 2002.
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Financial Planning
You shall be reimbursed for eligible financial planning expenses, including
eligible expenses for services provided by AYCO, incurred through the end
of calendar year 2004.
Executive Physicals
You shall be eligible for an Executive Physical during calendar years 2003
and 2004.
OFFICE EQUIPMENT AND FURNISHINGS
On your Release Date, the Company will transfer the ownership of certain
office furnishings and equipment, as approved in advance by Richard P.
Thomas, Vice-President and Corporate Secretary, to you. In lieu of
providing certain software that may be non-transferable due to licensing
agreements, the Company may agree to purchase replacement software
specifically for your use. The fair market value of any furnishings,
equipment and/or related materials provided to you under this paragraph
will be reported as income to you by the Company.
OFFICE SPACE AND Administrative ASSISTANCE
During the first twelve (12) months following your Termination Date, the
Company will pay the costs of office space for your professional use at the
Toebben Building, located at 541 Buttermilk Pike, Suite 207, Crescent
Springs, Kentucky, or at some other mutually agreeable location. The
Company will also provide you with reimbursement for your reasonable office
expenses, and administrative assistance during this period. To the extent
mutually agreeable, your current administrative assistant will be permitted
to report to you at your new office location, while remaining a regular
full-time employee of the Company. In the event either you or the Company
wish to discontinue this reporting arrangement at any time during this
twelve (12) month period, the Company agrees that in lieu of providing you
with an administrative assistant, it will provide you with up to $2,500 per
month for the remainder of this period for your use in securing alternative
administrative support services. Any extension of this agreement or
reimbursement for such expenses beyond this initial twelve (12) month
period must be approved by the Company in advance.
Pension Plan, Non-qualified Pension Plan and SERP
If eligible, you shall receive benefits under these plans as if you
remained actively employed up through the earlier of your death or your
Termination Date. For purposes of determining your benefits under the
Pension Plan or, if approved, the Non-qualified Pension Plan, your
compensation history will be determined as of your Termination Date. For
purposes of determining your benefits under the SERP, if approved, your
compensation history will be determined using the 60-month period ending on
September 30, 2002.
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ASHLAND INC. NONQUALIFIED EXCESS BENEFIT
PENSION PLAN - 1996 RESTATEMENT
as adopted on September 19, 1996 and as amended thereafter
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WHEREAS, the Employee Retirement Income Security Act of 1974 ("ERISA")
establishes maximum limitations on benefits and contributions for
retirement plans which meet the requirements of Section 401(a) of the
Internal Revenue Code of 1986, as amended ("Code");
WHEREAS, Ashland Inc. ("Ashland" or the "Company") maintains certain
pension plans which are subject to the aforesaid limitations on benefits
and contributions;
WHEREAS, Ashland adopted the Ashland Oil, Inc. Nonqualified Pension
Plan as of September 24, 1975 (which is now called the Ashland Inc.
Nonqualified Excess Benefit Pension Plan, otherwise referred to as the
"Plan"), for the purpose of providing benefits for certain employees in
excess of the aforesaid limitations;
WHEREAS, the Plan was amended and completely restated as of July 21,
1977; WHEREAS, the Plan was amended and completely restated as of October
1, 1982; WHEREAS, the Plan was amended and completely restated as of
November 3, 1988; WHEREAS, Ashland has retained the authority to make
additional amendments to or terminate the Plan;
WHEREAS, Ashland desires to further amend and restate the Plan and, as
so amended, to continue the Plan in full force and effect;
NOW, THEREFORE, effective September 19, 1996, Ashland does hereby
further amend and restate the Plan in accordance with the following terms
and conditions:
1. Designation and Purpose of Plan. The Plan is designated the
"Ashland Inc. Nonqualified Excess Benefit Pension Plan" ("Plan"). The
purpose of the Plan is to provide benefits for certain employees in excess
of the limitations on contributions, benefits, and compensation imposed by
Sections 415 and 401(a)(17) of the Code (including successor provisions
thereto) on the plans to which those Sections apply. The portion of the
Plan providing benefits in excess of the Section 415 limits is an "excess
benefit plan" as that term is defined in Section 3(36) of ERISA. It is
intended that the portion, if any, of the Plan which is not an excess
benefit plan shall be maintained primarily for a select group of management
or highly compensated employees.
2. Eligibility. Subject to Section 11, the Plan shall apply to those
employees - (i) who have retired as an early, normal, or deferred normal
retiree under the provisions of the Ashland Inc. and Affiliates Pension
Plan ("Ashland Pension Plan"), as it may be amended, from time to time, or
under provisions of any other retirement plan, as such other plan may be
amended from time to time, which, from time to time, is specifically
designated by Ashland for purposes of eligibility and benefits under the
Plan (all such plans are hereinafter referred to jointly and severally as
"Affected Plans"); and (ii) who have been approved for participation in
this Plan by Ashland or its delegate, and such approval may, in the
discretion of Ashland, be made (A) before an employee's actual early,
normal or deferred retirement; or (B) posthumously in the event of a
benefit potentially available under Section 6 of the Plan. Notwithstanding
anything to the contrary contained herein, any employee who would be
entitled to participate in this Plan, but who is not a member of a select
group of management or a highly compensated employee, shall be entitled to
a benefit amount payable under the Plan based solely on the limitations on
benefits imposed under Section 415 of the Code.
3. Benefit Amount.
(i) Computation. At any particular time, the benefit payable to a
retiree eligible to participate in this Plan pursuant to the provisions in
Section 2 shall be computed by subtracting from (A) the sum of (B) and (C)
where -
(A) shall be the single life annuity that would be payable at age 62
to such retiree under the Affected Plans -
(1) with the benefit so payable thereunder calculated by disregarding
any salary deferrals that may have been made by such retiree under the
Ashland Inc. Deferred Compensation Plan and thereby restoring any salary
that may have been so deferred to such retiree's compensation for purposes
of the Affected Plans, and
(2) prior to any reductions made because of the limits imposed by
Sections 415 and 401(a)(17) of the Code; provided that the single life
annuity that would be so payable under the Ashland Pension Plan shall be
computed without applying any offset attributable to the Ashland Inc.
Leveraged Employee Stock Ownership Plan ("LESOP"), and such single life
annuity shall be actuarially adjusted to be equivalent to a single life
annuity payable at the particular time applicable based upon the applicable
actuarial assumptions and other relevant provisions used for the same in
the Affected Plans;
(B) shall be the single life annuity that would be payable at age 62
to such retiree under the Affected Plans after reducing the amount so
payable for the limits imposed by Sections 415 and 401(a)(17) of the Code,
provided that such single life annuity that would be so payable under the
Ashland Pension Plan shall be computed after first applying the offset
attributable to the Offset Account (as that term is defined under the
LESOP) in the LESOP, and each such single life annuity shall be actuarially
adjusted to be equivalent to a single life annuity payable at the
particular time applicable based upon the applicable actuarial assumptions
and other relevant provisions used for the same in the Affected Plans; and
(C) shall be the single life annuity that would be actuarially
equivalent to such retiree's nonforfeitable portion of the Offset Account
under the LESOP as of the valuation date thereunder coincident with or next
preceding such retiree's termination of employment using the actuarial
assumptions prescribed for this purpose in the Ashland Pension Plan.
(ii) Commencement. Subject to Section 6, the benefit computed under
paragraph (i) of this Section 3 shall commence or otherwise be paid or
transferred pursuant to the provisions in Sections 4 or 5, effective as of
the date as of which payments to such retiree commence under the Affected
Plans.
4. Payment Options.
(i) Election. A retiree eligible under Section 2 for the benefit under
Section 3 shall, subject to Sections 5 and 6, elect the form in which such
benefit shall be paid from among those identified in this Section 4 and
such election shall be made at the time and in the manner prescribed by
Ashland, from time to time, provided that the election is made before the
first day of the month following such retiree's termination from
employment. Such election, including the designation of any contingent
annuitant or alternate recipient under sub-paragraphs (D) or (E) of
paragraph (ii) of this Section 4, shall be irrevocable except as otherwise
set forth herein. Notwithstanding anything in the foregoing to the
contrary, any retiree who makes an election under sub-paragraph (B) of
paragraph (ii) of this Section 4 shall make such election by the later of -
(A) the 60th day following such retiree's approval to participate in
this Plan as provided under Section 2; or
(B) by the earlier of -
(1) the date six months prior to the first day of the month following
such retiree's termination from employment; or
(2) the December 31 immediately preceding the first day of the month
following such retiree's termination from employment.
Such election under sub-paragraph (B) of paragraph (ii) of this
Section 4 shall be made in the manner prescribed by Ashland, from time to
time, and shall be irrevocable as of the applicable time identified under
(A) or (B) of this paragraph (i) of Section 4. Until the time at which such
election becomes irrevocable, an eligible retiree shall be able to change
it. (ii) Optional Forms of Payment.
(A) Lump Sum Option. Notwithstanding any provisions of Section 3 to
the contrary, a retiree in an eligible class may elect to receive all of
the benefit under Section 3 as a lump sum distribution, subject to the
discretion of the Committee as described below. A lump sum benefit payable
under the Plan to a retiree in an eligible class shall be computed on the
basis of the actuarially equivalent present value of such retiree's benefit
under Section 3 of the Plan payable at the particular time applicable based
upon such actuarial assumptions (including the interest rate) as determined
from time to time by the Committee, described below. The Personnel and
Compensation Committee of Ashland's Board of Directors shall have the sole
discretion to provide a lump sum benefit option to a class of retirees for
a given calendar year. The decision as to whether to provide a lump sum
benefit option shall generally be made by the Committee at the last
committee meeting prior thereto. The option shall be made available to a
retiree contingent upon various considerations, including, but not limited
to, the following:
The tax status of the Company, including without limitation, the
corporate and individual tax rate then applicable and whether or not the
Company has or projects a net operating loss; the current and projected
liquidity of the Company, including cash flow, capital expenditures and
dividends; Company borrowing requirements and debt leverage; applicable
book charges; organizational issues, including succession issues; security
of the retirement payment(s) with respect to the retiree; and the retiree's
preference.
(B) Lump Sum Deferral Option. A retiree who is eligible to receive a
lump sum distribution under sub-paragraph (A) of this paragraph (ii) of
Section 4 and who was part of a select group of management or a highly
compensated employee, shall be able to elect to defer all or a portion of
the receipt of the elected lump sum (in increments of such percentage or
such amount as may be prescribed by Ashland or its delegatee, from time to
time), by having the obligation to distribute such amount transferred to
the Ashland Inc. Deferred Compensation Plan to be held thereunder in a
notional account and paid pursuant to the applicable provisions of such
Plan, as they may be amended from time to time; provided, however, that the
election to defer such distribution shall be made at the time and in the
manner prescribed in paragraph (i) of this Section 4.
(C) Single Life Annuity. A retiree eligible under Section 2 for the
benefit under Section 3 may elect to have such benefit paid in the form of
equal monthly payments for and during such retiree's life, with such
payments ending at such retiree's death. Before such election becomes
irrevocable as provided under paragraph (i) of Section 4, the retiree may
change the option elected, subject to the applicable limitations and
conditions applied to elections for the options described under
sub-paragraphs (A) and (B) of this paragraph (ii) of Section 4. Payments
under this option shall be actuarially equivalent to the benefit provided
under Section 3, determined on the basis of the applicable actuarial
assumptions and other relevant provisions used for the same in the Ashland
Pension Plan.
(D) Joint and Survivor Income Option. A retiree eligible under Section
2 for the benefit under Section 3 may elect to receive an actuarially
reduced benefit payable monthly during the retiree's lifetime with payments
to continue after his death to the person he designates (hereinafter called
"contingent annuitant"), in an amount equal to (1) 100% of such actuarially
reduced benefit, (2) 66 2/3% of such actuarially reduced benefit, or (3)
50% of such actuarially reduced benefit. Benefit payments under this option
shall terminate with the monthly payment for the month in which occurred
the date of death of the later to die of the retiree and his contingent
annuitant. The following additional limitations and conditions apply to
this option:
(a) The contingent annuitant shall be designated by the retiree in
writing in such form and at such time as Ashland may from time to time
prescribe.
(b) In the event the contingent annuitant dies prior to the date the
election of this optional form of benefit becomes irrevocable as provided
under paragraph (i) of Section 4, the retiree's selection of this option
shall be void. Before the date the election of this optional form of
benefit becomes irrevocable as provided under paragraph (i) of Section 4,
the retiree may change the contingent annuitant or change the option
elected, subject to the applicable limitations and conditions applied to
elections for the options described under sub-paragraphs (A) and (B) of
this paragraph (ii) of Section 4.
(c) In the event of the death of the retiree prior to the date the
election is irrevocable as provided under paragraph (i) of Section 4, such
retiree shall be deemed to have terminated employment on the day before his
death (for reasons other than death) and survived until the day after the
date as of which the benefit he elected under this sub-paragraph (D) would
have commenced.
(d) Actuarial equivalence under this sub-paragraph (D) shall be
determined on the basis of the applicable actuarial assumptions and other
relevant provisions used for the same in the Ashland Pension Plan.
(E) Period Certain Income Option. A retiree eligible under Section 2
for the benefit under Section 3 may elect to receive an actuarially reduced
benefit payable monthly during his lifetime and terminating with the
monthly payment for the month in which his death occurs, with the provision
that not less than a total of 120 monthly payments shall be made in any
event to him and/or the person designated by him to receive payments under
this sub-paragraph (E) in the event of his death (hereinafter called
"alternate recipient"). Such alternate recipient shall be designated in
writing by the retiree in such form and at such time as Ashland may from
time to time prescribe. If a retiree and his alternate recipient die after
the date as of which payments have commenced but before the total specified
monthly payments have been made to such retiree and/or his alternate
recipient, the commuted value of the remaining unpaid payments shall be
paid in a lump sum to the estate of the later to die of the retiree or his
alternate recipient. The following additional limitations and conditions
shall apply to this option:
(a) A retiree may designate a new alternate recipient if the one first
designated dies before the retiree and after the date the election of this
optional form of benefit became irrevocable under paragraph (i) of Section
4. In the event the alternate recipient dies prior to the date the election
becomes irrevocable as provided under paragraph (i) of Section 4, the
retiree's selection of this option shall be void. Before the date the
election of this optional form of benefit becomes irrevocable as provided
under paragraph (i) of Section 4, the retiree may change the alternate
recipient or change the option elected, subject to the applicable
limitations and conditions applied to elections for the options described
under sub-paragraphs (A) and (B) of this paragraph (ii) of Section 4.
(b) In the event of the death of the retiree prior to the date the
election is irrevocable as provided under paragraph (i) of Section 4, such
retiree shall be deemed to have terminated employment on the day before his
death (for reasons other than death) and survived until the day after the
date as of which the benefit he elected under this sub-paragraph (E) would
have commenced.
(c) Actuarial equivalence under this sub-paragraph (E) shall be
determined on the basis of the applicable actuarial assumptions and other
relevant provisions used for the same in the Ashland Pension Plan.
(F) Death Before Payment. Subject to Section 6, in the event a retiree
eligible under Section 2 for the benefit under Section 3 dies after having
made an election of an optional form of payment under this paragraph (ii)
of Section 4 before the date such election became irrevocable as provided
under paragraph (i) of Section 4, such retiree shall be deemed to have
terminated employment on the day before his death (for reasons other than
death) and survived until the day after the date as of which the optional
form of payment he elected would have commenced and payment shall then be
made under the Plan in accordance with such retiree's election.
5. Payment of Small Amounts. Unless such retiree elects to receive his
or her benefit in a lump sum as provided in Section 4, in the event a
monthly benefit under this Plan, payable to either a retiree or to his
contingent annuitant, alternate recipient or surviving spouse, is too small
(in the sole judgment of Ashland) to be paid monthly, such benefit may be
paid quarterly, semi-annually, or annually, as determined by Ashland to be
administratively convenient.
6. Surviving Spouse Benefit. In the event a retiree who was eligible
under Section 2 for the benefit under Section 3 dies, leaving a surviving
spouse, before electing an optional form of payment under paragraph (ii) of
Section 4 and before the date such an election would have become
irrevocable under paragraph (i) of Section 4, then such retiree shall be
deemed to have - (i) elected the joint and 100% survivor income option
under sub-paragraph (D) of paragraph (ii) of Section 4; (ii) named his
spouse as the 100% contingent annuitant; (iii) terminated employment on the
day before his death (for reasons other than death); and (iv) survived
until the day after the date as of which such benefit would have commenced.
7. Costs. In appropriate cases, Ashland may cause an affiliate to make
the payment (or an allocable portion thereof) called for by the Plan
directly to the person eligible to receive such payments.
8. Confidentiality and No Competition. All benefits under the Plan
shall be forfeited by anyone who discloses confidential information to
others outside of Ashland's organization without the prior written consent
of Ashland or who accepts, during a period of five (5) years following his
or her retirement, any employment or consulting activity which is in direct
conflict with the business of Ashland at such time. Such determination
shall be made in the sole discretion of Ashland. A breach of this Section 8
shall result in an immediate forfeiture of benefits payable to any retiree
under the Plan.
9. Lost Participant/Beneficiary. In the event Ashland, after
reasonable effort, is unable to locate a person to whom a benefit is
payable under the Plan, such benefit shall be forfeited; provided, however,
that such benefit shall be reinstated (in the same amount and form as that
of the benefit forfeited without any obligation to pay amounts which would
otherwise have previously come due) upon proper claim made by such person
prior to termination of the Plan.
10. Miscellaneous.
(i) The obligations of Ashland and any affiliate thereof with respect
to benefits under this Plan constitute merely the unsecured promise of
Ashland and/or its affiliates, as the case may be, to make the payments
provided for in this Plan. No property of Ashland or any affiliate is or
shall, by reason of the Plan, be held in trust or be deemed to be held in
trust for any person and any participant or beneficiary under the Plan, the
estate of either of them and any person claiming under or through them
shall not have, by reason of the Plan, any right, title or interest of any
kind in or to any property of Ashland and its affiliates. To the extent any
person has a right to receive payments under the Plan, such right shall be
no greater than the right of any unsecured general creditor of Ashland/ or
its affiliates.
(ii) Ashland shall administer the Plan. Ashland shall have full power
and authority to amend, modify, or terminate the Plan and shall have all
powers and the discretion necessary and convenient to administer the Plan
in accordance with its terms, including, but not limited to, all necessary,
appropriate, discretionary and convenient power and authority to interpret,
administer and apply the provisions of the Plan with respect to all persons
having or claiming to have any rights, benefits, entitlements or
obligations under the Plan. This includes, without limitation, the ability
to construe and interpret provisions of the Plan, make determinations
regarding law and fact, reconcile any inconsistencies between provisions in
the Plan or between provisions of the Plan and any other statement
concerning the Plan, whether oral or written, supply any omissions to the
Plan or any document associated with the Plan, and to correct any defect in
the Plan or in any document associated with the Plan. All such
interpretations of the Plan and documents associated with the Plan and
questions concerning its administration and application, as determined by
Ashland, shall be binding on all persons having an interest under the Plan.
Ashland may delegate (and may give to its delegatee the power and authority
to redelegate) to any person or persons any responsibility, power or duty
under the Plan. Decisions of Ashland or its delegatee shall be final,
conclusive, and binding on all parties.
(iii) Except as expressly allowed pursuant to Sections 3 and 4 of this
Plan in regard to the form of benefit option, no right or interest of any
person entitled to a benefit under the Plan shall be subject to voluntary
or involuntary alienation, assignment, transfer, hypothecation, pledge, or
encumbrance of any kind; provided, however, Ashland or any affiliate may
offset or cause an offset to be made against any payment to be made under
the Plan in regard to amounts due and owing from such person to Ashland or
any affiliate. Notwithstanding anything to the contrary in this paragraph
(iii), legally required tax withholding on benefit payments, the recovery,
by any means, of previously made overpayments of Plan benefits, or the
direct deposit of Plan benefit payments in a bank or similar account,
provided that such direct deposits are allowed by Ashland in the
administration of the Plan and provided that such direct deposit is not
part of an arrangement constituting an assignment or alienation, shall not
be considered to be prohibited under this paragraph (iii).
(iv) No amount paid or payable under the Plan shall be deemed salary
or other compensation to any employee for the purpose of computing benefits
to which such employee or any other person may be entitled under any
employee benefit plan of Ashland or any affiliate.
(v) To the extent that state law shall not have been preempted by
ERISA or any other law of the United States, the Plan shall be governed by
the laws of the Commonwealth of Kentucky. (vi) The Plan described herein
shall amend and supersede, as of September 19, 1996, all provisions in the
Ashland Oil, Inc. Nonqualified Pension Plan as Amended, dated as of
November 3, 1988, except as otherwise provided herein and further excepting
that the rights of former employees who terminated employment, retired, or
became disabled prior to the day before the effective date hereof shall be
governed by the terms of the Plan as in effect at the time of such
termination of employment, retirement, or disability, unless otherwise
provided herein.
11. Change in Control. Notwithstanding any provision of this Plan to
the contrary, in the event of a Change in Control (as defined hereinafter
in this Section 11), any employee who would or will meet the requirements
of Section 2, except that such employee has not been approved to
participate as provided under paragraph (ii) of Section 2, shall be deemed
to be approved for participation hereunder, regardless of when such
employee actually retires and commences benefits under an Affected Plan and
such entitlement shall be vested from and after the time of such Change in
Control. Ashland shall reimburse an employee for legal fees and expenses
incurred if he or she is required to, and is successful in, seeking to
obtain or enforce any right to payment pursuant to the Plan after a Change
in Control. In the event that it shall be determined that such employee is
properly entitled to the payment of benefits hereunder, such employee shall
also be entitled to interest thereon payable in an amount equivalent to the
prime rate of interest (quoted by Citibank, N.A. as its prime commercial
lending rate on the latest date practicable prior to the date of the actual
commencement of payments) from the date such payment(s) should have been
made to and including the date it is made. Notwithstanding any provision of
this Plan to the contrary, the Plan may not be amended after a Change in
Control without the written consent of a majority of the Board of Directors
of Ashland (hereinafter "Board") who were directors prior to the Change in
Control. For purposes of this Section 11, 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, other than a consolidation or merger of
Ashland into or with a direct or indirect wholly-owned subsidiary, 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, provided, however, that no sale, lease, exchange or other transfer
of all or substantially all the assets of Ashland shall be deemed to occur
unless assets constituting 80% of the total assets of Ashland are
transferred pursuant to such sale, lease exchange or other transfer, 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.
Notwithstanding the foregoing, any transaction, or series of transactions,
that shall result in the disposition of Ashland's interest in Marathon
Ashland Petroleum LLC, including without limitation any transaction arising
out of that certain Put/Call, Registration Rights and Standstill Agreement
dated January 1, 1998 among Marathon Oil Company, USX Corporation, Ashland
and Marathon Ashland Petroleum LLC, as amended from time to time, shall not
be deemed to constitute a Change in Control.
ASHLAND INC.
DIRECTORS' CHARITABLE AWARD PROGRAM
(Amended as of November 7, 2002)
1. Purpose. The purpose of the Ashland Inc. Directors' Charitable
Award Program (the "Program") is to enhance the competitiveness of the
Company's Director benefits program, thereby aiding Ashland Inc. ("Ashland"
or the "Company") in the attraction and retention of Board members of the
highest caliber. The Program also provides a cost-effective means to
recognize the mutual interest of the Company and its Directors in
supporting worthy charitable and educational institutions, thereby
advancing the social and charitable goals and objectives of the Company and
its Directors.
2. Definitions.
(a) "Ashland" - means Ashland Inc.
(b) "Board" or "Board or Directors" - means the Board of Directors of
Ashland or its designee.
(c) "Change in Control" - shall be deemed to occur (1) upon the
approval of the Board of Directors of Ashland (or if approval of the Board
of Directors of Ashland is not required as a matter of law, the
shareholders of Ashland) of (A) any consolidation or merger of Ashland,
other than a consolidation or merger of Ashland into or with a direct or
indirect wholly-owned subsidiary, in which Ashland is not the continuing or
surviving corporation or pursuant to which shares of Ashland Common Stock
would be converted into cash, securities or other property other than a
merger in which the holders of Ashland Common Stock immediately prior to
the merger will have the same proportionate ownership of common stock of
the surviving corporation immediately after the merger, (B) any sale,
lease, exchange, or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of Ashland,
provided, however, that no sale, lease, exchange or other transfer of all
or substantially all the assets of Ashland shall be deemed to occur unless
assets constituting 80% of the total assets of Ashland are transferred
pursuant to such sale, lease, exchange or other transfer, or (C) adoption
of any plan or proposal for the liquidation or dissolution of Ashland, or
(2) when any "person" (as defined in Section 13(d) of the Securities
Exchange Act of 1934), other than Ashland or any subsidiary or employee
benefit plan or trust maintained by Ashland or any of its subsidiaries,
shall become the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of more than 15%
of the Ashland Common Stock outstanding at the time, without the prior
approval of the Board of Directors of Ashland, or (3) if at any time during
a period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of Ashland shall cease for any
reason to constitute at least a majority thereof, unless the election or
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. Notwithstanding the foregoing, any transaction, or
series of transactions, that shall result in the disposition of Ashland's
interest in Marathon Ashland Petroleum LLC, including without limitation
any transaction arising out of that certain Put/Call, Registration Rights
and Standstill Agreement dated January 1, 1998 among Marathon Oil Company,
USX Corporation, Ashland and Marathon Ashland Petroleum LLC, as amended
from time to time, shall not be deemed to constitute a Change in Control.
(d) "Director" - means a member of Ashland's Board of Directors.
(e) "Director Retirement Plan" - means the Ashland Inc. Director
Retirement Plan in effect from time to time.
(f) "Disability" - means a Director's incapacity due to physical or
mental illness for a period of six (6) months or more during which period
the Director is unable to attend to his or her duties and responsibilities
as a member of the Board.
(g) "Donation" - means a charitable contribution made under the terms
of this Program.
(h) "Program" - means the Ashland Inc. Directors' Charitable Award
Program.
3. Eligibility Criteria.
All current and future Directors of Ashland shall be eligible to
participate in the Program. However, former directors (whose service has
ceased prior to the effective date of the Program) shall not be eligible to
participate.
4. Grant Procedure.
(a) Each eligible Director will become a participant in the Program
upon submission of a form approved by Ashland for this purpose (the
"Beneficiary Recommendation Form") to the Vice President, Corporate Human
Resources (the "Human Resources Department") of Ashland designating that
one or more organization(s) be considered for a grant of all or part of
$1,000,000, payable following the death of the Director. However, no more
than ten (10) organizations may be recommended by any Director and the
amount of the recommended Donation must not be less than $100,000 to any
one organization.
(b) In order to qualify for a grant under this Program, the designated
charity must be a tax-exempt organization under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended (i.e., civic, religious,
educational or medical/health care organizations), and the designated
charity's activities or purposes must be compatible with the goals and
objectives of Ashland's charitable programs.
(c) Each organization recommended by a Director to receive a Donation
is subject to the review and initial approval of Ashland's Human Resources
Department, with the final determination as to whether an organization
meets the eligibility requirements at the time a Donation is to be made to
be decided jointly by the Chairman and Chief Executive Officer of Ashland
and the Chairman of the Personnel and Compensation Committee of the Board.
(d) The recommendation of a beneficiary may be revoked or revised by a
Director at any time before his or her death by the completion of a new
Beneficiary Recommendation Form, unless a Director elects to make a
recommendation irrevocable.
(e) A Director can make the recommendation of a beneficiary
irrevocable as to all or a portion of the recommended Donation for the
organization. An irrevocable recommendation cannot be changed by the
Director unless the recommended organization ceases to meet the eligibility
requirements of Section 4(b) under the Program.
(f) A Director may request Ashland to notify an organization that it
has been selected by the Director to receive a Donation by so advising
Ashland on the Beneficiary Recommendation Form.
(g) If any organization recommended by a Director to receive a
Donation ceases to meet the requirements of Section 4(b), the Director will
be advised of such and given an opportunity to revise his or her
Beneficiary Recommendation Form. If a revised Beneficiary Recommendation
Form is not submitted by the Director before his or her death, the amount
recommended for that particular organization shall be divided among the
Director's remaining recommended qualified organizations on a prorated
basis. If all the organizations selected by a Director cease to qualify,
Ashland will, in its sole discretion, select the organization(s) to receive
the Donation(s) on behalf of the Director.
(h) No Donation will be made on behalf of a Director if a Director's
termination from Board service is for any reason other than: (1) mandatory
retirement at age 72 under the Ashland Inc. Director Retirement Plan; (2)
death; (3) Disability; (4) voluntary early retirement to take a position in
public governmental service; or (5) a Change in Control of Ashland;
however, the Board of Directors shall have plenary authority to authorize
that a Donation be made on behalf of a retiring Director, provided that the
Director has a minimum of ten (10) years service as a Director with
Ashland.
(i) Any Donation made under this Program shall generally be made as
soon as practicable following the eligible Director's death. The payment
shall be identified as a gift in honor of the service of the Director on
Ashland's Board of Directors. Payment shall be contingent upon presentation
to the Human Resources Department of proof of the Director's death and the
continued approval of the Director's recommendations.
5. Miscellaneous Provisions.
(a) An eligible Director's rights and interest under the Program may
not be assigned or transferred in whole or in part. Nothing contained in
this Program shall create, or be deemed to create, a trust (actual or
constructive) for the benefit of a Director or any organization recommended
by a Director to receive a Donation.
(b) In order to financially support the Program, Ashland may elect to
purchase a life insurance policy or policies insuring the lives of the
Directors. Ashland will be the sole owner and beneficiary thereof. Neither
the Directors nor the charitable organizations recommended by the Directors
will have any rights or beneficial ownership interests in any such policy
or policies acquired by Ashland. Directors may be asked to provide certain
medical and other information to assist Ashland in acquiring such policy or
policies.
(c) The expenses of the Program shall be borne by Ashland.
(d) The Program shall be administered and interpreted by the Personnel
and Compensation Committee of the Board (the "Committee"). The Committee
shall have plenary authority to prescribe, amend, suspend or terminate the
Program (or any rules, regulations, and procedures relating to the Program)
at any time in its sole discretion without the consent of the Directors
participating in the Program. The determinations of the Committee shall be
conclusive and binding on all interested parties. The Human Resources
Department of Ashland, or its designee, shall be delegated the
responsibility of preparing and distributing periodic reports, making
disbursements, and administering the Program.
(e) The provisions of this Program shall be interpreted and construed
in accordance with the laws of the Commonwealth of Kentucky.
(f) Benefits payable under this Program shall be binding upon Ashland,
its successors and assigns.
(g) The effective date of this Program shall be December 1, 1990.
ASHLAND INC.
1997 STOCK INCENTIVE PLAN
(Amended as of November 7, 2002)
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 an
automatic grant of Restricted Stock of the Company upon being appointed or
elected to the Company's Board of Directors. 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) "Beneficiary" shall mean the person, persons, trust or trusts
designated by an Employee or Outside Director or if no designation has been
made, the person, persons, trust, or trusts entitled by will or the laws of
descent and distribution to receive the benefits specified under this Plan
in the event of an Employee's or Outside Director's death.
(E) "Board" shall mean the Board of Directors of the Company or its
designee.
(F) "Change in Control" shall be deemed to occur (1) upon approval of
the shareholders of Ashland (or if such approval is not required, upon the
approval of the Board) of (A) any consolidation or merger of Ashland, other
than a consolidation or merger of Ashland into or with a direct or indirect
wholly-owned subsidiary, 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, provided, however, that no
sale, lease, exchange or other transfer of all or substantially all the
assets of Ashland shall be deemed to occur unless assets constituting 80%
of the total assets of Ashland are transferred pursuant to such sale,
lease, exchange or other transfer, 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. Notwithstanding the foregoing, any
transaction, or series of transactions, that shall result in the
disposition of Ashland's interest in Marathon Ashland Petroleum LLC,
including without limitation any transaction arising out of that certain
Put/Call, Registration Rights and Standstill Agreement dated January 1,
1998 among Marathon Oil Company, USX Corporation, Ashland and Marathon
Ashland Petroleum LLC, as amended from time to time, shall not be deemed to
constitute a Change in Control.
(G) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(H) "Committee" shall mean the Personnel and Compensation Committee of
the Board, as from time to time constituted, or any successor committee of
the Board with similar functions, which shall consist of three or more
members, each of whom shall be a Non-Employee Director and an "outside
director" as defined in the regulations issued under Section 162(m) of the
Code or its designee.
(I) "Committee on Directors" shall mean the Committee on Directors of
the Board, as from time to time constituted, or any successor committee of
the Board with similar functions.
(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
Except as provided in subsection (B) of Section 8 herein, the Plan
shall be administered by the Committee.
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 (or, in the case of subsection (B) of Section 8 herein,
the Committee on Directors) may act only by a majority of its members. Any
determination of the Committee or the Committee on Directors may be made,
without notice, by the written consent of the majority of the members of
the Committee or the Committee on Directors. In addition, the Committee or
the Committee on Directors 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 or the Committee on Directors. No member of the Committee or
the Committee on Directors shall be liable for any action taken or omitted
to be taken by him or her or by any other member of the Committee or the
Committee on Directors in connection with the Plan, except for his or her
own willful misconduct or as expressly provided by statute.
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., 500 Diederich Boulevard, 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, each person who is duly appointed or
elected as an Outside Director shall be granted, effective on the date of
his or her appointment or election to the Board, an Award of 1,000 shares
of Restricted Stock. All Awards under this subsection (B) are subject to
the limitation on the number of shares of Common Stock available pursuant
to Section 3 and to the terms and conditions set forth in this subsection
(B) and subsection (C) below.
As a condition to any Award hereunder, the Outside Director 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 72, (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 on Directors, 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, the Committee, or the Committee on Directors 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 an Award of 1,000 Restricted Shares to an Outside
Director upon being appointed or elected to the Company's Board of
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 or, in the case of an Outside Director, the Committee on
Directors, 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, the Committee or the Committee on
Directors.
(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 was submitted to the shareholders of the Company for their
approval and adoption on January 30, 1997 and was approved by the
shareholders on that date.
SECTION 17. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky.
AMENDED AND RESTATED
ASHLAND INC. INCENTIVE PLAN
(As amended November 7, 2002)
SECTION 1. PURPOSE
The purpose of the Ashland Inc. 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 Option Awards, Stock Appreciation Rights
Awards, Restricted Stock Awards, Incentive Awards, Performance Unit Awards
and Merit Awards in an effort to attract and retain in its employ qualified
individuals and to provide such individuals with incentives to continue
service with the Company, devote their best efforts to the Company and
improve the Company's economic performance, thus enhancing the value of the
Company for the benefit of shareholders. This 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 an automatic Restricted Stock Award and with discretionary Option
Awards.
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) "Attestation" means the delivery to the Company of a completed
attestation form prescribed by the Company setting forth the whole shares
of Common Stock owned by the Recipient which the Recipient wishes to
utilize to pay the Exercise Price. The Common Stock listed on the
attestation form must have been owned by the Recipient six months or
longer, and not have been used to effect an Option exercise within the
preceding six months, unless the Committees specifically provide otherwise.
(C) "Award" shall mean an Option Award, a Stock Appreciation Right
Award, an Incentive Award, a Performance Unit Award, a Restricted Stock
Award or a Merit Award, in each case granted under this Plan.
(D) "Beneficiary" shall mean the person, persons, trust or trusts
designated by a Recipient 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 a Recipient's death.
(E) "Board" shall mean the Board of Directors of the Company or its
designee.
(F) "Cashless Exercise" shall mean the procedure by which a broker
provides the funds to a Recipient to effect an Option exercise. At the
direction of the Recipient, the broker will either: (i) sell all of the
shares received when the Option is exercised and pay the Recipient the
proceeds of the sale (minus the 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 Recipient (either directly or
through the Company) a stock certificate for the remaining shares.
(G) "Change in Control" shall be deemed to occur (1) upon approval of
the shareholders of the Company (or if such approval is not required, upon
the approval of the Board) of (A) any consolidation or merger of the
Company, other than a consolidation or merger of the Company into or with a
direct or indirect wholly-owned subsidiary, in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Common
Stock would be converted into cash, securities or other property other than
a merger in which the holders of Common Stock immediately prior to the
merger will have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company,
provided, however, that no sale, lease, exchange or other transfer of all
or substantially all the assets of the Company shall be deemed to occur
unless assets constituting 80% of the total assets of the Company are
transferred pursuant to such sale, lease, exchange or other transfer, or
(C) adoption of any plan or proposal for the liquidation or dissolution of
the Company, (2) when any person (as defined in Section 3(a)(9) or 13(d) of
the Exchange Act), other than the Company or any Subsidiary or employee
benefit plan or trust maintained by the Company, shall become the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 15% of the Company'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 the Company's shareholders of each new director
during such two-year period was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning
of such two-year period. Notwithstanding the foregoing, any transaction, or
series of transactions, that shall result in the disposition of Ashland's
interest in Marathon Ashland Petroleum LLC, including without limitation
any transaction arising out of that certain Put/Call, Registration Rights
and Standstill Agreement dated January 1, 1998 among Marathon Oil Company,
USX Corporation, the Company and Marathon Ashland Petroleum LLC, as amended
from time to time, shall not be deemed to constitute a Change in Control.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(I) "Committees" shall refer to the P&C Committee as it relates to
Awards to Participants and to the G&N Committee as it relates to Awards to
Outside Directors.
(J) "Common Stock" shall mean the Common Stock of the Company ($1.00
par value), subject to adjustment pursuant to Section 15 hereof.
(K) "Company" shall mean, collectively, Ashland Inc. and its
Subsidiaries.
(L) "Disability" shall mean, (i) in the case of a Participant, 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 and (ii)
in the case of an Outside Director, 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.
(M) "Exercise Price" shall mean, with respect to each share of Common
Stock subject to an Option, the price fixed by the Committees at which such
share may be purchased from the Company pursuant to the exercise of such
Option, which price at no time may be less than 100% of the Fair Market
Value of the Common Stock on the date the Option is granted.
(N) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(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 Committees or as otherwise provided in this
Plan.
(P) "G&N Committee" shall mean the Governance and Nominating Committee
of the Board, as from time to time constituted, or any successor committee
of the Board with similar functions, or its designee.
(Q) "Incentive Award" shall mean an Award made pursuant to Section 7
hereof, the payment of which is contingent upon the achievement of the
Performance Goals for the particular Performance Period.
(R) "Incentive Stock Option" or "ISO" shall mean an Option that is
intended by the Committees to meet the requirements of Section 422 of the
Code or any successor provision.
(S) "ISO Award" shall mean an Award of an Incentive Stock Option
pursuant to Section 10 hereof.
(T) "Merit Award" shall mean an Award of Common Stock issued pursuant to
Section 9 hereof.
(U) "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.
(V) "Nonqualified Stock Option" or "NQSO" shall mean an Option granted
pursuant to this Plan which does not qualify as an Incentive Stock Option.
(W) "Notice of Grant" shall mean a written notice setting forth the
terms of an Option or SAR Award, to be entered into at the Company's
discretion.
(X) "Option" shall mean the right to purchase Common Stock at a price
to be specified and upon terms to be designated by the Committees or
otherwise determined pursuant to this Plan. The Committees shall designate
an Option as a Nonqualified Stock Option or an Incentive Stock Option.
(Y) "Option Award" shall mean an Award of an Option pursuant to
Section 10 hereof.
(Z) "Outside Director" shall mean a director of the Company who is not
also an employee of the Company as selected by the G&N Committee to receive
an Award under this Plan.
(AA) "P&C 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, or its designee.
(BB) "Participant" shall mean a regular, full-time or part-time
employee of the Company as selected by the P&C Committee to receive an
Award under this Plan.
(CC) "Performance Goals" shall mean performance goals as may be
established in writing by the P&C Committee which may be based on earnings,
stock price, return on equity, return on investment, total return to
shareholders, economic profit, debt rating or achievement of business,
financial or operational goals. 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 a
Participant or the division or other unit in which the Participant works
and/or may be based on the performance of the Company generally.
(DD) "Performance Period" shall mean the period designated by the P&C
Committee during which the performance objectives shall be measured.
(EE) "Performance Unit Award" shall mean an Award made pursuant to
Section 8 hereof, the payment of which is contingent upon the achievement
of the Performance Goals for the particular Performance Period.
(FF) "Personal Representative" shall mean the person or persons who,
upon the Disability or incompetence of a Recipient, shall have acquired on
behalf of the Recipient by legal proceeding or otherwise the right to
receive the benefits specified in this Plan.
(GG) "Plan" shall mean this Ashland Inc. Incentive Plan, as amended
and restated.
(HH) "Recipients" shall mean a Participant or an Outside Director, as
appropriate.
(II) "Restricted Period" shall mean the period designated during which
Restricted Stock may not be sold, assigned, transferred, pledged, or
otherwise encumbered, which period in the case of Participants shall not be
less than one year from the date of grant (unless otherwise directed by the
P&C Committee), and in the case of Outside Directors is the period set
forth in Section 6(B) hereof.
(JJ) "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.
(KK) "Restricted Stock Award" shall mean an Award of Restricted Stock
pursuant to Section 6 hereof.
(LL) "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.
(MM) "Retirement" shall mean, (a) in the case of a Participant,
retirement 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, and (b) in the case of an Outside Director,
retirement from the Board at age 72 or at any other age as the Board may
from time to time determine.
(NN) "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. A SAR may only be granted concurrently with the grant of
the related Option. A 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 this Plan.
(OO) "Stock Appreciation Right Award" or "SAR Award" shall mean an
Award of a Stock Appreciation Right pursuant to Section 11 hereof.
(PP) "Subsidiary" shall mean any present or future subsidiary
corporations, as defined in Section 424 of the Code, of the Company.
(QQ) "Tax Date" shall mean the date the withholding tax obligation
arises with respect to an Award.
SECTION 3. STOCK SUBJECT TO THIS PLAN
There will be reserved for issuance under this Plan an aggregate of
4,000,000 shares of Common Stock, par value $1.00 per share; provided,
however, that of such shares only 1,000,000 shares in the aggregate shall
be available for Restricted Stock Awards, Merit Awards, ISO Awards and
Performance Unit Awards. Such shares shall be authorized but unissued
shares of Common Stock. If any Award under this Plan shall expire or
terminate for any reason without having been earned or vested in full, or
if any Award shall be forfeited or deferred, the shares subject to the
unearned, forfeited or deferred portion of such Award shall again be
available for the purposes of this Plan. No Participant shall be granted
more than a total of 250,000 Option or SAR Awards annually and no Outside
Director shall be granted more than a total of 10,000 Option or SAR Awards
annually.
SECTION 4. ADMINISTRATION
The P&C Committee shall have the exclusive authority to administer
this Plan for Participants. The G&N Committee shall have the exclusive
authority to administer this Plan for Outside Directors.
In addition to any implied powers and duties that may be needed to
carry out the provisions hereof, the Committees, acting individually, shall
have all the powers vested in them by the terms hereof, including exclusive
authority to select the Recipients, to determine the type, size and terms
of the Awards to be made to each Recipient, to determine the time when
Awards will be granted, and to prescribe the form of the Agreement or
Notice of Grant embodying Awards made under this Plan. The Committees shall
be authorized to interpret this Plan and the Awards granted under this
Plan, to establish, amend and rescind any rules and regulations relating to
this Plan, to make any other determinations which they believe necessary or
advisable for the administration hereof, and to correct any defect or
supply any omission or reconcile any inconsistency in this Plan or in any
Award in the manner and to the extent the Committees deem desirable to
carry it into effect. Any decision of the Committees in the administration
of this Plan, as described herein, shall be final and conclusive.
SECTION 5. ELIGIBILITY
Awards may only be granted (i) to regular full-time or part-time
employees of the Company, or (ii) as expressly provided in Sections 6(B),
10 and 11 hereof, to Outside Directors of the Company.
SECTION 6. RESTRICTED STOCK AWARDS
(A) Awards to Employees
The P&C Committee may make a Restricted Stock Award to selected
Participants, which Restricted Stock Awards may, at the Company's
discretion and as directed by the P&C Committee, be evidenced by an
Agreement which shall contain such terms and conditions as the P&C
Committee, in its sole discretion, may determine. The amount of each
Restricted Stock Award and the respective terms and conditions of such
Award (which terms and conditions need not be the same in each case) shall
be determined by the P&C Committee in its sole discretion. As a condition
to any Restricted Stock Award hereunder, the P&C Committee may require a
Participant to pay to the Company a non-refundable amount equal to, or in
excess of, the par value of the shares of the Restricted Stock Award.
Subject to the terms and conditions of each Restricted Stock Award, the
Participant, 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.
Unless otherwise determined and directed by the P&C Committee, in the
event that a Restricted Stock Award has been made to a Participant 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 Participant.
(B) Awards to Outside Directors
During the term of this Plan, each person who is hereafter duly
appointed or elected as an Outside Director shall be granted, effective on
the date of his or her appointment or election to the Board, a Restricted
Stock Award of 1,000 shares. All Awards under this subsection (B) are
subject to the limitation on the number of shares of Common Stock available
pursuant to Section 3 hereof and to the terms and conditions set forth in
this subsection (B) and subsection (C) below.
As a condition to any Restricted Stock 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 the Restricted Stock Award. 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, (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 G&N 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 Restricted Stock Award made pursuant to this
subsection will be forfeited by such Outside Director.
(C) Transferability
Subject to Section 17(B) hereof, Restricted Stock may not be sold,
assigned, transferred, pledged, or otherwise encumbered during a Restricted
Period, which, in the case of Participants, shall be determined by the P&C
Committee and, unless otherwise determined by the P&C Committee, shall not
be less than one year from the date of the Restricted Stock Award, and, in
the case of Outside Directors, shall be determined in accordance with
subsection (B) of this Section. The P&C Committee may, at any time, reduce
the Restricted Period with respect to any outstanding shares of a
Restricted Stock Award, but, unless otherwise determined by the P&C
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 this 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 this Plan and the
applicable Agreement, if any. Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes, with the
exception that: (i) the Recipient will not be entitled to delivery of the
stock 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
Section 17(B) 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) unless otherwise
determined and directed by the Committees, a breach of any restrictions,
terms, or conditions provided in this Plan or established by the Committees
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 7. INCENTIVE AWARDS
(A) Any Participant may receive one or more Incentive Awards, as the
P&C Committee shall from time to time determine.
(B) No later than 120 days (90 days for those Participants subject to
the limitations of Code Section 162(m)) after the commencement of each
Performance Period, the P&C Committee shall establish in writing one or
more Performance Goals that must be reached by a Participant in order to
receive an Incentive Award for such Performance Period. Except with respect
to Participants subject to the limitations of Code Section 162(m), the P&C
Committee shall have the discretion to later revise the Performance Goals
and the amount to be paid out upon the attainment of these goals for any
reason including the reflection of promotions, transfers or other changes
in a Participant's employment so long as such changes are consistent with
the Performance Goals established for other Participants in the same or
similar positions. Performance Goals established for Participants subject
to Code Section 162(m) may only be adjusted to reduce or eliminate the
amount of compensation otherwise payable upon attainment of the Performance
Goals.
(C) The target Incentive Award is a fixed percentage of the
Participant's Base Salary paid during the year. The maximum Incentive Award
is 150% of the target Incentive Award. No Incentive Award shall exceed
three million dollars ($3,000,000).
(D) Payment of Incentive Awards shall be made on a date or dates fixed
by the P&C Committee. Payment may be made in one or more installments and
may be made wholly in cash, wholly in shares of Common Stock or a
combination thereof as determined by the P&C Committee.
If payment of an Incentive Award shall be made all or partially in
shares of Common Stock, the number of shares of Common Stock to be
delivered to a Participant on any payment date shall be determined by
dividing (x) the original dollar amount to be paid on the payment date (or
the part thereof determined by the P&C Committee to be delivered in shares
of such Incentive Award) by (y) the Fair Market Value on the date the Board
approves the P&C Committee's decision to pay an Incentive Award or such
other date as the Board shall determine.
(E) Unless otherwise determined and directed by the P&C Committee, an
Incentive Award shall terminate if the Participant does not remain
continuously employed and in good standing with the Company until the date
of payment of such Award. Unless otherwise determined and directed by the
P&C Committee, in the event a Participant's employment is terminated
because of death, Disability or Retirement, the Participant (or his or her
beneficiaries or estate) shall receive the prorated portion of the payment
of an Incentive Award for which the Participant would have otherwise been
eligible based upon the portion of the Performance Period during which he
or she was so employed so long as the Performance Goals are subsequently
achieved.
SECTION 8. PERFORMANCE UNIT AWARDS
(A) Any Participant may receive one or more Performance Unit Awards,
as the P&C Committee shall from time to time determine.
(B) The Performance Goals and Performance Period applicable to a
Performance Unit Award shall be set forth in writing by the P&C Committee
no later than 120 days (90 days for those Participants subject to the
limitations imposed by Code Section 162(m)) after the commencement of the
Performance Period. Except with respect to Participants subject to the
limitations of Code Section 162(m), the P&C Committee shall have the
discretion to later revise the Performance Goals and the amount to be paid
out upon the attainment of these goals for any reason including the
reflection of promotions, transfers or other changes in a Participant's
employment so long as such changes are consistent with the Performance
Goals established for other Participants in the same or similar positions.
Goals established for Participants subject to Code Section 162(m) may only
be adjusted to reduce or eliminate the amount of compensation otherwise
payable upon attainment of the Performance Goals.
(C) Each Performance Unit Award shall be established in dollars or
shares of Common Stock, or a combination of both, as determined by the P&C
Committee. The original amount of any Performance Unit Award shall not
exceed 400% of the Participant's then annual base salary and the original
amount of any Performance Unit Award shall not exceed five million dollars
($5,000,000). In determining the amount of any Performance Unit Award made,
in whole or in part, in shares of Common Stock, the value thereof shall be
based on the Fair Market Value on the first day of the Performance Period
or on such other date as the Board shall determine.
(D) Unless otherwise determined and directed by the P&C Committee, a
Performance Unit Award shall terminate for all purposes if the Participant
does not remain continuously employed and in good standing with the Company
until payment of such Performance Unit Award. Unless otherwise determined
and directed by the P&C Committee, a Participant (or his or her
beneficiaries or estate) whose employment was terminated because of death,
Disability or Retirement will receive a prorated portion of the payment of
his or her Award based upon the portion of the Performance Period during
which he or she was so employed so long as the Performance Goals are
subsequently achieved.
(E) Payment with respect to Performance Unit Awards will be made to
Participants on a date or dates fixed by the P&C Committee. The amount of
such payment shall be determined by the P&C Committee and shall be based on
the original amount of such Performance Unit Award adjusted to reflect the
attainment of the Performance Goals during the Performance Period. Payment
may be made in one or more installments and may be made wholly in cash,
wholly in shares of Common Stock or a combination thereof as determined by
the P&C Committee.
If payment of a Performance Unit Award established in dollars is to be
made in shares of Common Stock or partly in such shares, the number of
shares of Common Stock to be delivered to a Participant on any payment date
shall be determined by dividing (x) the amount payable by (y) the Fair
Market Value on the date the Board approves the P&C Committee's decision to
pay the Performance Unit Award or on such other date as the Board shall
determine.
If payment of a Performance Unit Award established in shares of Common
Stock is to be made in cash or partly in cash, the amount of cash to be
paid to a Participant on any payment date shall be determined by
multiplying (x) the number of shares of Common Stock to be paid in cash on
such payment date with respect to such Performance Unit Award, by (y) the
Fair Market Value on the date the Board approves the P&C Committee's
decision to pay the Performance Unit Award or on such other date as the
Board shall determine. Any payment may be subject to such restrictions and
conditions as the P&C Committee may determine.
SECTION 9. MERIT AWARDS
Any Participant may receive a Merit Award of Common Stock under this
Plan for such reasons and in such amounts as the P&C Committee may from
time to time determine. As a condition to any such Merit Award, the P&C
Committee may require a Participant to pay to the Company a non-refundable
amount equal to, or in excess of, the par value of the shares of Common
Stock awarded to him or her.
SECTION 10. OPTION AWARDS
(A) Any Recipient may receive one or more Option Awards, as the
Committees shall from time to time determine.
(B) Designation and Price
(1) Any Option granted under this Plan may be granted as an Incentive
Stock Option or as a Nonqualified Stock Option as shall be designated by
the Committees at the time of the grant of such Option. Only Participants
may be granted ISOs. Each Option shall, at the discretion of the Company
and as directed by the Committees, be evidenced by a Notice of Grant, which
Notice of Grant 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 Committees, in their sole discretion, may determine in accordance with
this Plan.
(2) Every ISO shall provide for a fixed expiration date of not later
than ten years from the date such ISO is granted. Every NQSO shall provide
for a fixed expiration date of not later than ten years and one month from
the date such NQSO is granted.
(3) The Exercise Price of Common Stock issued pursuant to each Option
shall be fixed by the Committees 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.
(C) Exercise
The Committees may, in their sole discretion, provide for Options
granted under this 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 13 hereof or as the
Committees otherwise determine in accordance with this 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 the Company of (i) notice from the holder thereof of
the exercise of an Option, and (ii) payment to the Company (as provided in
subsection (D) of this Section), 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
Trust Investments Department of the Company, 3499 Blazer Parkway,
Lexington, Kentucky 40509, or such other place as the Company may designate
from time to time.
(D) Payment for Shares
Except as otherwise provided in this Section, the Exercise Price for
the Common Stock shall be paid in full when the Option is exercised.
Subject to such rules as the Committees 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 Recipient and evidenced by negotiable certificates,
valued at their Fair Market Value (which shares of Common Stock must have
been owned by the Recipient six months or longer, and not used to effect an
Option exercise within the preceding six months, unless the Committees
specifically provide 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 Committees (including, without limitation, effecting
a Cashless Exercise of the Option with a broker).
(E) Continued Employment, Agreement to Serve and Exercise Period
(1) Participants
(a) Subject to the provisions of Section 13(D) hereof, 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 P&C Committee) and if the employment of the
Participant shall terminate prior to the end of such one year period (or
such other period determined by the P&C Committee), the Option granted to
such Participant shall immediately terminate.
(b) Every Option shall provide that in the event the Participant dies
(i) while employed by the Company, (ii) during the periods in which Options
may be exercised by a Participant determined to be Disabled, 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
Participant could have acquired under the Option immediately prior to the
Participant's death.
(c) Every Option shall provide that in the event the employment of any
Participant shall cease by reason of Disability, as determined by the P&C
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 Participant for the number
of shares which the Participant could have acquired under the Option
immediately prior to the Participant's Disability. The determination by the
P&C Committee of any question involving Disability of a Participant shall
be conclusive and binding.
(d) Every Option shall provide that in the event the employment of any
Participant 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 Participant
could have acquired under the Option immediately prior to such Retirement.
(e) Notwithstanding any provision of this Plan to the contrary, any
Option, may, in the discretion of the P&C Committee or as provided in the
relevant Notice of Grant (if any), become exercisable, at any time or from
time to time, prior to the fixed termination date set forth in the Option
for the full number of awarded shares or any part thereof, less such number
as may have been theretofore acquired under the Option from and after the
time the Participant ceases to be an employee of the Company as a result of
the sale or other disposition by the Company of assets or property
(including shares of any Subsidiary) in respect of which such Participant
had theretofore been employed or as a result of which such Participant's
continued employment with the Company is no longer required.
(f) Except as provided in sub-subsections (b), (c), (d), (e) and (g)
of this Section 10(E) and Section 13(D) hereof, 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
Participant's employment for any cause in respect of the number of shares
which the Participant 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.
(g) Notwithstanding any provision of this Section to the contrary, in
the event the P&C Committee determines, in its sole and absolute
discretion, that the employment of any Participant 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 P&C Committee may direct that
such Participant forfeit any and all Options that he or she could otherwise
have exercised pursuant to the terms of this Plan.
(h) Each Participant granted an Award under this Plan shall agree by
his or her acceptance of such Award to remain in the service of the Company
for a period of at least one year from the date of the Notice of Grant
respecting the Award (or, if no Notice of Grant is given, at least one year
from the date of the Award). Such service shall, subject to the terms of
any contract between the Company and such Participant, be at the pleasure
of the Company and at such compensation as the Company shall reasonably
determine from time to time. Nothing in this Plan, or in any Award granted
pursuant to this Plan, shall confer on any individual any right to continue
in the employment of or service to the Company or interfere in any way with
the right of the Company to terminate the Participant's employment at any
time.
(i) Notwithstanding anything to the contrary herein, any Option that
is an ISO shall be exercisable not later than three (3) months following
the date that the employment of a Participant terminated.
(2) Outside Directors
If an Outside Director's service on the Board terminates by reason of
(i) Retirement, (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, any Option held by such Outside
Director may thereafter be exercised by the Outside Director, or in the
event of death, by his or her Beneficiary to the extent it was vested and
exercisable at the time of such termination (i) for a period equal to the
number of years of completed Board service as of the date of such
termination of the Outside Director on whose behalf the Option is
exercised, or (ii) until the expiration of the stated term of such Option
whichever period is the shorter. In the event of termination for any reason
other than those set forth above, any Option held by such Outside Director
may thereafter be exercised by the Outside Director to the extent it was
vested and exercisable at the time of termination (i) for a period of one
year from the date of such termination or (ii) until the expiration of the
stated term of such Option, whichever period is the shorter, unless
otherwise determined by the G&N Committee.
SECTION 11. STOCK APPRECIATION RIGHT AWARDS
The Committees may grant Stock Appreciation Rights pursuant to the
provisions of this Section to any Recipient holding any Option granted
under this Plan with respect to all or a portion of the shares subject to
the related Option. A SAR may only be granted concurrently with the grant
of the related Option. Subject to the terms and provisions of this Section,
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. A 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.
A SAR granted under this Plan shall be exercisable in whole or in part by
notice to the Company. Each such notice shall be delivered or mailed by
postpaid mail, addressed to the Trust Investments Department of the
Company, 3499 Blazer Parkway, Lexington, Kentucky 40509, or such other
place as the company may designate from time to time. 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, upon the exercise
of a SAR, the Recipient shall be entitled to receive from the Company
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 Committees may stipulate in the Notice of Grant the
form of consideration which shall be received upon the exercise of a SAR.
If no consideration is specified therein, upon the exercise of a SAR, the
Recipient, may specify the form of consideration to be received by such
Recipient, which shall be in shares of Common Stock, or in cash, or partly
in cash and partly in shares of Common Stock (valued at the Fair Market
Value on the date of exercise of the SAR), as the Recipient shall request;
provided, however, that the Committees, in their 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 a 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 this 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 12. CONTINUED EMPLOYMENT
Nothing in this Plan, or in any Award granted pursuant to this Plan,
shall confer on any individual any right to continue in the employment of,
or service to, the Company or interfere in any way with the right of the
Company to terminate the Participant's employment at any time.
SECTION 13. CHANGE IN CONTROL
(A) Upon a Change in Control, any Restricted Stock Award shall be free
of all restrictions for the full number of awarded shares less such number
as may have been theretofore acquired under the Restricted Stock Award.
(B) Upon a Change in Control, there shall be an acceleration of any
Performance Period relating to any Incentive Award, and payment of any
Incentive Award shall be made in cash as soon as practicable after such
Change in Control based upon achievement of the Performance Goals
applicable to such Award up to the date of the Change in Control. Further,
the Company's obligation with respect to such Incentive Award shall be
assumed, or new obligations substituted therefor, by the acquiring or
surviving corporation after such Change in Control. In addition, prior to
the date of such Change in Control, the P&C Committee, in its sole
judgment, may make adjustments to any Incentive Award as may be appropriate
to reflect such Change in Control.
(C) Upon a Change in Control, there shall be an acceleration of any
Performance Period relating to any Performance Unit Award, and payment of
any Performance Unit Award shall be made in cash as soon as practicable
after such Change in Control based upon achievement of the Performance
Goals applicable to such Performance Unit Award up to the date of the
Change in Control. If such Performance Unit Award was established in shares
of Common Stock, the amount of cash to be paid to a Participant with
respect to the Performance Unit Award shall be determined by multiplying
(x) the number of shares of Common Stock relating to such Performance Unit
Award, by (y) the Fair Market Value on the date of the Change in Control.
Further, the Company's obligation with respect to such Performance Unit
Award shall be assumed, or new obligations substituted therefor, by the
acquiring or surviving corporation after such Change in Control. In
addition, prior to the date of such Change in Control, the P&C Committee,
in its sole judgment, may make adjustments to any Performance Unit Award as
may be appropriate to reflect such Change in Control.
(D) Upon a Change in Control, any Option Award or SAR Award shall
become immediately exercisable for the full number of awarded shares or any
part thereof, less such numbers as may have been theretofore acquired under
the Option Award or SAR Award from and after the date of such Change in
Control, unless otherwise provided in the Notice of Grant.
SECTION 14. WITHHOLDING TAXES
Federal, state or local law may require the withholding of taxes
applicable to gains resulting from the payment or vesting of an Award.
Unless otherwise prohibited by the P&C Committee, each Participant 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 the
Company to withhold from the shares of Common Stock otherwise issuable to
the Participant pursuant to the 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 the
Company 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 the vesting of an Award. A Participant'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
P&C Committee may adopt, and may be disapproved by the P&C Committee. If
the amount requested is not paid, the P&C Committee may refuse to issue
Common Stock under this Plan.
SECTION 15. 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 this Plan
pursuant to Section 3 hereof 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 Recipient shall be
maintained as before the occurrence of such event. Such adjustment shall be
conclusive and binding for all purposes hereof.
SECTION 16. AMENDMENT AND TERMINATIONS
The Committees may amend, alter or terminate this Plan at any time
without the prior approval of the Board; provided, however, that: (i) the
Committees may not, without approval by the Board and the shareholders, (a)
materially increase the benefits provided to Recipients under this Plan or
(b) provide for the re-pricing of Options; and (ii) any amendment with
respect to Restricted Stock granted to Outside Directors must be approved
by the full Board.
Termination of this Plan shall not affect any Awards made hereunder
which are outstanding on the date of termination and such Awards shall
continue to be subject to the terms of this Plan notwithstanding its
termination.
SECTION 17. MISCELLANEOUS PROVISIONS
(A) Except as to Awards of Restricted Stock to Outside Directors, no
Participant or other person shall have any claim or right to be granted an
Award under this Plan.
(B) A Recipient's rights and interest under this 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 a Recipient'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 Recipient in
this Plan shall be subject to any obligation or liability of such
individual; provided, however, that a Recipient's rights and interest under
this Plan may, subject to the discretion and direction of the Committees,
be made transferable by such Recipient during his or her lifetime. Except
as specified in Section 6 hereof, 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 this Plan shall be borne by the Company.
(E) By accepting any Award under this Plan, each Recipient 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 this Plan by the
Company, the Board, and the Committees.
(F) Awards granted under this Plan shall be binding upon the Company,
its successors, and assigns.
(G) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required.
(H) Each Recipient shall be deemed to have been granted any Award on
the date the Committees took action to grant such Award under this Plan or
such date as the Committees in their sole discretion shall determine at the
time such grant is authorized.
SECTION 18. EFFECTIVENESS OF THIS PLAN
This Plan was originally approved by the shareholders of the Company
on January 27, 2000. The Amended and Restated Plan shall be submitted to
the shareholders of the Company for their approval and adoption on January
25, 2001, or such other date fixed for the next meeting of shareholders or
any adjournment or postponement thereof. If not approved by the
shareholders of the Company at the January 25, 2001 Annual Meeting, the
original Plan shall remain in effect with respect to Awards other than
Option Awards and SAR Awards. No Option Awards or SAR Awards shall be made
under the Amended and Restated Plan unless and until the Amended and
Restated Plan has been approved and adopted at a meeting of the Company's
shareholders.
SECTION 19. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky.
EXHIBIT 12
ASHLAND INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions)
Years Ended September 30
--------------------------------------------------------------
1998 1999 2000 2001 2002
---------- ---------- ---------- ---------- ----------
EARNINGS
Income from continuing operations $ 178 $ 291 $ 288 $ 403 $ 129
Income taxes 114 194 189 273 71
Interest expense 133 141 189 160 133
Interest portion of rental expense 40 35 39 41 36
Amortization of deferred debt expense 1 1 2 2 2
Distributions in excess of (less than) earnings of
unconsolidated affiliates (62) (12) (112) (90) 20
---------- ---------- ---------- ---------- ----------
$ 404 $ 650 $ 595 $ 789 $ 391
========== ========== ========== ========== ==========
FIXED CHARGES
Interest expense $ 133 $ 141 $ 189 $ 160 $ 133
Interest portion of rental expense 40 35 39 41 36
Amortization of deferred debt expense 1 1 2 2 2
---------- ---------- ---------- ---------- ----------
$ 174 $ 177 $ 230 $ 203 $ 171
========== ========== ========== ========== ==========
RATIO OF EARNINGS TO FIXED CHARGES 2.32 3.67 2.59 3.89 2.29
Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
Years Ended September 30
(In millions) 2002 2001 2000
SALES AND OPERATING REVENUES
APAC $2,652 $2,624 $2,505
Ashland Distribution 2,535 2,849 3,214
Ashland Specialty Chemical 1,290 1,248 1,283
Valvoline 1,152 1,092 1,077
Intersegment sales (86) (94) (118)
------------------------------------
$7,543 $7,719 $7,961
====================================
OPERATING INCOME
APAC $ 122 $ 55 $ 140
Ashland Distribution 1 35 70
Ashland Specialty Chemical 87 58 95
Valvoline 77 81 78
Refining and Marketing(1) 143 707 361
Corporate (92) (85) (73)
------------------------------------
$ 338 $ 851 $ 671
====================================
OPERATING INFORMATION
APAC
Construction backlog at September 30 (millions)(2) $1,691 $1,629 $1,397
Hot-mix asphalt production (million tons) 36.7 36.7 35.0
Aggregate production (million tons) 31.0 28.7 27.8
Ready-mix concrete production (million cubic yards) 2.1 2.3 2.6
Ashland Distribution(3)
Sales per shipping day (millions) $ 10.1 $ 11.2 $ 12.8
Gross profit as a percent of sales 16.0% 15.9% 15.6%
Ashland Specialty Chemical(3)
Sales per shipping day (millions) $ 5.1 $ 5.0 $ 5.1
Gross profit as a percent of sales 36.0% 33.8% 34.7%
Valvoline lubricant sales (million gallons) 194.4 183.0 189.6
Refining and Marketing(4)
Crude oil refined (thousand barrels per day) 930 912 892
Refined products sold (thousand barrels per day)(5) 1,321 1,302 1,309
Refining and wholesale marketing margin (per barrel)(6) $ 1.82 $ 5.17 $ 2.63
Speedway SuperAmerica (SSA)
Retail outlets at September 30 2,063 2,145 2,288
Gasoline and distillate sales (million gallons) 3,622 3,587 3,742
Gross margin - gasoline and distillates (per gallon) $.1040 $.1218 $.1284
Merchandise sales (millions) $2,381 $2,186 $2,143
Merchandise margin (as a percent of sales) 24.2% 23.3% 24.5%
====================================
(1) Includes Ashland's equity income from Marathon Ashland Petroleum
LLC (MAP), amortization related to Ashland's excess investment in
MAP, and other activities associated with refining and marketing.
(2) Includes APAC's proportionate share of the backlog of
unconsolidated joint ventures.
(3) Sales are defined as sales and operating revenues. Gross profit is
defined as sales and operating revenues, less cost of sales and
operating expenses, and depreciation and amortization relative to
manufacturing assets.
(4) Amounts represent 100% of MAP's operations, in which Ashland owns
a 38% interest.
(5) Total average daily volume of all refined product sales to MAP's
wholesale, branded and retail (SSA) customers.
(6) Sales revenue less cost of refinery inputs, purchased products and
manufacturing expenses, including depreciation.
32
RESULTS OF OPERATIONS
Ashland's net income (including discontinued operations and the cumulative
effect of accounting changes) amounted to $117 million in 2002, $417
million in 2001 and $70 million in 2000. Income from continuing operations
(which excludes discontinued operations and the cumulative effect of
accounting changes) amounted to $129 million in 2002, $403 million in 2001
and $288 million in 2000. As discussed in Note A to the Consolidated
Financial Statements, Ashland adopted FASB Statement No. 142 (FAS 142),
"Goodwill and Other Intangible Assets," as of October 1, 2001. Since
goodwill is not amortized under FAS 142, Ashland's reported results for
2002 are not comparable with previous years. The following table compares
reported results with pro forma financial information assuming that Ashland
adopted FAS 142 as of October 1, 1999.
(In millions) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
OPERATING INCOME
As reported $338 $851 $671
Pro forma 338 903 710
INCOME FROM CONTINUING OPERATIONS
As reported 129 403 288
Pro forma 129 448 320
=================================
Prior to the change in accounting for goodwill, Ashland's segments
recognized goodwill amortization of $42 million in 2001 ($25 million for
APAC, $7 million for Ashland Distribution, $9 million for Ashland Specialty
Chemical and $1 million for Valvoline) and $29 million in 2000 ($22 million
for APAC, $1 million for Ashland Distribution, $5 million for Ashland
Specialty Chemical and $1 million for Valvoline). In addition, part of
Ashland's excess investment in Marathon Ashland Petroleum LLC (MAP) was
accounted for as goodwill and was being amortized at a rate of $10 million
a year prior to the adoption of FAS 142.
APAC
The APAC construction companies generated operating income of $122 million
in 2002, compared to $55 million in 2001. The improvement reflects the net
effects of better operating results, the change in accounting for goodwill,
costs associated with APAC's business process redesign initiative, and a
non-recurring charge of $18 million related to the Manassas, Virginia
division that reduced last year's earnings. Earnings from construction jobs
and the asphalt plants improved, reflecting better margins. These margin
improvements resulted from more efficient production and favorable weather
conditions, lower costs for liquid asphalt, fuel and power, and the prior
year completion of most of the low-margin work obtained in acquisitions.
Goodwill amortization amounted to $25 million in 2001, but the expense
reduction from eliminating that amortization was largely offset by costs of
$17 million in 2002 associated with the process redesign initiative.
Operating income from APAC amounted to $55 million in 2001, compared to
$140 million in 2000. The decline resulted principally from unusually
severe winter weather in most of APAC's operating regions, weak
construction margins and a charge of $18 million to correct improper
recognition of construction contract earnings at its Manassas division. Net
construction job revenue (total revenue less subcontract costs) was about
flat, while production of hot-mix asphalt and aggregate were both up
modestly. The sale of certain operations in September 2000 resulted in a
decline in the production of ready-mix concrete. However, the levels of
construction activity and material production were less important factors
than the conditions under which the work took place (extreme cold and
precipitation) that made the processes highly inefficient. Construction
contract margins were also depressed as many low-margin jobs obtained in
acquisitions worked their way through the backlog, and the level of
higher-margin private work declined as a result of the economic slowdown.
(Bar graph showing APAC's operating income for 2000, 2001 and 2002)
During an internal investigation of financial activities at APAC's Manassas
division in the March 2001 quarter, it was discovered that the division's
earnings had been intentionally overstated, and local management of the
division was replaced. Independent investigations confirmed that the
problems related primarily to the improper recognition of revenues and
failure to recognize certain costs over a period of about two years. No
evidence of any impact on, or involvement by, outside parties, customers or
suppliers was discovered.
ASHLAND DISTRIBUTION
Operating income of Ashland Distribution amounted to $1 million in 2002,
compared to $35 million in 2001. Overall sales were off 11%, reflecting
weak markets and internal execution problems related to the implementation
of an enterprise resource planning system. Of all of Ashland's businesses,
Ashland Distribution is the most sensitive to industrial output, which
remains soft in comparison to prior years. However, sales in the September
2002 quarter exceeded last year's amount for that period and were also up
13% from the low point experienced in the December 2001 quarter. Economic
improvements and vigorous efforts to improve service across-the-board with
new processes are continuing to occur. Reported results include income of
$7 million from the settlement of a sorbate class action
33
antitrust suit in 2002, compared to $11 million from a similar class action
involving citric acid in 2001. Results for 2001 also included charges of $7
million for goodwill amortization and write-offs prior to the change in
accounting.
Operating income from Ashland Distribution amounted to $35 million in 2001,
compared to $70 million in 2000. Overall sales declined 11%, principally
reflecting the challenging economic environment and a slowdown in key
customer markets. The unfavorable economic conditions also led to higher
credit losses, particularly for the North American plastics distribution
and energy services divisions. However, the effects of these declines were
partially offset by expense reductions and various margin improvement
efforts. Such efforts resulted in higher earnings from three distribution
business units - industrial chemicals, fine ingredients and European
plastics distribution. Results of Ashland Distribution for 2001 reflect a
goodwill write-off of $6 million and other asset impairment charges, the
combination of which was largely offset by the proceeds of $11 million from
the citric acid settlement.
(Bar graph showing Ashland Distribution's operating income for 2000, 2001
and 2002)
ASHLAND SPECIALTY CHEMICAL
Operating income from Ashland Specialty Chemical increased to $87 million
in 2002, a 50% increase compared to its recession-weakened results of $58
million in 2001. Despite softness in unit volumes, Ashland Specialty
Chemical has achieved steady improvement throughout the year. Results
improved from performance materials (unsaturated polyester resins, foundry
chemicals and adhesives) and water treatment chemicals and services. In
addition, the semiconductor industry is continuing to recover from its
worldwide downturn during 2001. As a result, electronic chemicals had a
much better performance in the last half of 2002 even though results from
that division were still down for the year. Results of Ashland Specialty
Chemical for 2001 included a charge of $9 million for goodwill amortization
and write-downs prior to the change in accounting.
(Bar graph showing Ashland Specialty Chemical's operating income for 2000,
2001 and 2002)
Ashland Specialty Chemical's operating income amounted to $58 million in
2001, compared to $95 million in 2000. Earnings from marine and water
treatment chemicals were up, but these improvements were more than offset
by significant declines in other business units that are more sensitive to
a weak economy, including foundry products, specialty adhesives, maleic
anhydride and polyester resins. Profits from electronic chemicals also
deteriorated sharply as 2001 progressed, reflecting the worldwide downturn
in the semiconductor manufacturing industry. Results of Ashland Specialty
Chemical for 2001 reflect a goodwill write-down of $4 million and minor
asset impairment charges.
VALVOLINE
Operating income from Valvoline was $77 million in 2002, compared to $81
million in 2001. The decline was attributable entirely to lower sales of
R-12 automotive refrigerant that contributed essentially no gross profit to
2002 results, compared to $13 million in 2001. However, strong results from
core lubricants, automotive chemicals and international operations, as well
as a record year from Valvoline Instant Oil Change (VIOC), largely offset
the reduced earnings from sales of R-12. Lubricant volumes were up 6% and
sales of premium lubricants continued to grow. Increasing numbers of
premium oil changes using MaxLife, Durablend and SynPower also contributed
to VIOC's record year. Earnings from automotive chemicals and international
operations both recovered strongly from their weakened levels in 2001.
(Bar graph showing Valvoline's operating income for 2000, 2001 and 2002)
At September 30, 2002, VIOC operated 363 company-owned service centers,
compared to 364 centers in 2001 and 358 centers in 2000. The VIOC
franchising program continues to expand, with 335 centers open at September
30, 2002, compared to 311 centers in 2001 and 272 centers in 2000. VIOC's
future growth will continue to focus principally on expanding the number of
franchised rather than company-owned centers.
Valvoline's operating income increased from $78 million in 2000 to $81
million in 2001. Results from the core lubricants business and Eagle One
were up, offsetting declines from other businesses. Although domestic sales
of Valvoline branded motor oil were comparable to 2000, sales of premium
motor oils, such as MaxLife, continued to grow at a rapid rate. Sales of
Eagle One products were up 16%, and its operating income amounted to more
than 10% of its revenues. Results from international operations were down
as sales volumes fell, with Europe experiencing the largest decline.
Results from VIOC improved during the September 2001 quarter, but were down
slightly from 2000, which included gains on the sale of certain
company-owned service centers. Earnings from automotive chemicals and
antifreeze suffered from lower margins.
REFINING AND MARKETING
Operating income from Refining and Marketing, which consists primarily of
equity income from Ashland's 38% ownership interest in MAP, was $143
million in 2002, down from a record $707 million in 2001. Equity income
from MAP's refining and wholesale marketing operations was down $585
million due principally to weak refining margins. The reduction of $3.35 a
barrel in MAP's refining and wholesale marketing margin resulted from an
industry-wide decline
34
in demand for petroleum products and a narrow differential between sweet
and sour crude oil prices. Sour crude oils typically account for about 60%
of MAP's crude oil slate. Equity income from MAP's retail operations
(Speedway SuperAmerica and a 50% interest in the Pilot Travel Centers joint
venture) improved slightly, reflecting the net effects of higher sales
volumes of products and merchandise, improved merchandise margins and lower
product margins. Equity income from MAP for 2001 also included a charge of
$10 million for goodwill amortization.
(Bar graph showing Refining and Marketing operating income for 2000, 2001
and 2002)
Operating income from Refining and Marketing amounted to a record $707
million in 2001, compared to $361 million in 2000. Equity income from MAP's
refining and wholesale marketing operations was up $404 million, reflecting
the net effects of strong refining margins, a slight reduction in refined
product sales and higher operating and administrative expenses. The
increase of $2.54 a barrel in MAP's refining and wholesale marketing margin
reflected tight product supplies during much of 2001 in its primary Midwest
market. However, equity income from MAP's retail operations declined by $40
million. The decline principally reflects lower product margins and
volumes, reduced earnings from merchandise sales and higher operating
expenses.
CORPORATE
Corporate expenses were $92 million in 2002, $85 million in 2001 and $73
million in 2000. The increase in 2001 principally reflects higher incentive
and deferred compensation costs. Although such costs were down in 2002, the
effects were more than offset by higher administrative expenses and
additional reserves for environmental, litigation and severance costs.
NET INTEREST AND OTHER FINANCIAL COSTS
The following table summarizes the components of net interest and other
financial costs.
(In millions) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
NET INTEREST AND OTHER FINANCIAL COSTS
Interest expense $135 $162 $191
Expenses on sales of accounts receivable 4 8 6
Loss on early retirement of debt - 5 6
Other financial costs 3 2 1
Interest income (4) (2) (10)
---------------------------------
$138 $175 $194
=================================
The decreases in Ashland's interest expense during this period resulted
principally from reductions in the average level of debt outstanding.
However, lower interest rates also brought the expense down from prior year
levels by $9 million in 2002 and $4 million in 2001. Expenses on sales of
accounts receivable also reflect lower interest rates since that program
was implemented in March 2000.
INCOME TAXES
Ashland's overall effective income tax rate amounted to 35.5% in 2002,
40.4% in 2001 and 39.6% in 2000. The tax rate declined in 2002 principally
as a result of the accounting change for goodwill, reduced state income
taxes and a lower tax rate on foreign results. The accounting change
eliminated the amortization for financial reporting purposes, and most of
that amortization was not deductible for income tax purposes. In addition,
state income tax rates actually experienced were lower than those
previously assumed in the deferred tax calculations. Those reductions
resulted from changing apportionment factors related to MAP's earnings and
the use of tax loss carryforwards in various jurisdictions that had not
been recognized in prior years due to uncertainties as to their ultimate
realization.
DISCONTINUED OPERATIONS AND ACCOUNTING CHANGES
During 2000, Ashland spun-off the majority of its shares of Arch Coal
common stock to Ashland's shareholders. Ashland subsequently sold its
remaining Arch Coal shares in a public offering in February 2001. Any net
income or loss associated with Arch Coal (including the costs of the
spin-off) is included in discontinued operations. The loss of $218 million
in 2000 associated with Arch Coal included $203 million related to asset
impairment and restructuring costs. The net gain of $19 million in 2001
represents an after-tax gain of $33 million on the sale of the Arch Coal
shares, less after-tax charges of $14 million from reserves related to
other discontinued operations.
As a result of the adoption of FAS 142, Ashland recognized an impairment
loss of $12 million after income taxes in 2002 related to the goodwill of
Ashland Distribution. In addition, the cumulative effect of the change in
the method of accounting for derivatives by MAP resulted in an after-tax
charge to Ashland of $5 million in 2001.
35
FINANCIAL POSITION
LIQUIDITY
Cash flows from operations, a major source of Ashland's liquidity, amounted
to $188 million in 2002, $829 million in 2001 and $484 million in 2000.
Such amounts include cash distributions from MAP of $196 million in 2002,
$658 million in 2001 and $279 million in 2000. MAP operates on a calendar
year basis and is organized as a limited liability company that has elected
to be taxed as a partnership. As a result, Ashland pays income taxes on
most of its share of the taxable earnings reported by MAP in the following
year, creating additional variability in Ashland's cash flows from year to
year. Income taxes paid by Ashland related to MAP's earnings amounted to
$239 million in 2002, $157 million in 2001 and $54 million in 2000.
Cash flows from operations for 2000 were increased by proceeds of $150
million from the sale of receivables (reflected as part of the change in
operating assets and liabilities). Over the last three years, cash flows
from operations have exceeded Ashland's capital requirements for net
property additions and dividends by nearly $750 million, providing
additional funds for debt reductions, stock purchases and acquisitions.
Ashland's financial position has enabled it to obtain capital for its
financing needs and to maintain investment grade ratings on its senior debt
of Baa2 from Moody's and BBB from Standard & Poor's. Ashland has two
revolving credit agreements providing for up to $425 million in borrowings,
neither of which has been used. Furthermore, Ashland has access to the
commercial paper markets and various uncommitted lines of credit. While the
revolving credit agreements contain a covenant limiting new borrowings
based on Ashland's stockholders' equity, these agreements would have
permitted an additional $1.4 billion of borrowings at September 30, 2002.
Additional permissible borrowings are increased (decreased) by 150% of any
increase (decrease) in stockholders' equity.
At September 30, 2002, working capital (excluding debt due within one year)
amounted to $615 million, compared to $788 million at the end of 2001.
Ashland's working capital is affected by its use of the LIFO method of
inventory valuation. That method valued inventories below their replacement
costs by $65 million at September 30, 2002, and $70 million at September
30, 2001. Liquid assets (cash, cash equivalents and accounts receivable)
amounted to 78% of current liabilities at September 30, 2002, compared to
94% at the end of 2001.
CAPITAL RESOURCES
Property additions amounted to $622 million during the last three years and
are summarized in the Information by Industry Segment on page 61. For that
period, APAC accounted for 48% of Ashland's capital expenditures, while
Ashland Specialty Chemical accounted for an additional 28%. Capital used
for acquisitions (including assumed debt and companies acquired through the
issuance of common stock) amounted to $705 million during the last three
years, of which $623 million was invested in APAC, $79 million in Ashland
Specialty Chemical and $3 million in Valvoline. A summary of the capital
employed in Ashland's operations follows.
(In millions) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
CAPITAL EMPLOYED
APAC $1,039 $1,047 $1,156
Ashland Distribution 459 470 574
Ashland Specialty Chemical 610 612 597
Valvoline 343 389 333
Refining and Marketing 1,818 1,654 1,679
-----------------------------------
$4,269 $4,172 $4,339
===================================
Long-term borrowings provided cash flows of nearly $1.1 billion during the
last three years, including the issuance of $600 million in debt related to
the acquisition of the construction operations of Superfos and $457 million
of medium-term notes. The proceeds from these long-term borrowings were
used in part to retire $984 million of long-term debt, including the $600
million of Superfos-related debt. Debt retirements included scheduled
maturities, as well as prepayments or refundings to reduce interest costs.
Cash flows were supplemented as necessary by the issuance of short-term
notes and commercial paper.
During 2002, Ashland reduced its total debt by $64 million to $1.8 billion.
However, stockholders' equity also declined during 2002 by $53 million to
$2.2 billion. Ashland's net income of $117 million for 2002 was more than
offset by cash dividends of $76 million, common stock purchases of $42
million and a noncash charge of $88 million to recognize an additional
pension liability. On balance, debt as a percent of capital employed was
reduced slightly from 45.7% at the end of 2001 to 45.4% at September 30,
2002.
At September 30, 2002, Ashland's debt included $151 million of
floating-rate obligations, including short-term commercial paper of $10
million and $141 million of long-term debt, and the interest rates on an
additional $153 million of fixed-rate, medium-term notes were effectively
converted to floating rates through interest rate swap agreements. In
addition, Ashland's costs under its sale of receivables program and various
operating leases are based on the
36
floating-rate interest costs on $268 million of third-party debt underlying
those transactions. As a result, Ashland was exposed to fluctuations in
short-term interest rates on $572 million of debt obligations at September
30, 2002.
Ashland and its subsidiaries are lessees of office buildings, retail
outlets, transportation and off-road construction equipment, warehouses and
storage facilities, and other equipment, facilities and properties under
leasing agreements that expire at various dates. Capitalized lease
obligations are not significant and are included in long-term debt.
Aggregate maturities of long-term debt and minimum rental payments under
operating leases are summarized below for each of the periods shown.
(In millions) Total 2003 2004-2005 2006-2007 After 2007
- ------------------------------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS
Long-term debt $1,797 $191 $464 $185 $ 957
Operating leases 262 47 73 47 95
-------------------------------------------------------
$2,059 $238 $537 $232 $1,052
=======================================================
Under various operating leases, Ashland has guaranteed the residual value
of the underlying leased property. If Ashland had cancelled those leases as
of September 30, 2002, its maximum obligations under the related residual
value guarantees would have amounted to $137 million. Ashland does not
expect to incur any significant charge to earnings under these guarantees,
$74 million of which relates to real estate. These lease agreements are
with unrelated third party lessors and Ashland has no additional
contractual or other commitments to any parties to the leases.
Ashland has also guaranteed 38% of MAP's payments for certain crude oil
purchases, up to a maximum guarantee of $86 million. At September 30, 2002,
Ashland's contingent liability under this guarantee amounted to $72
million. Ashland has not made and does not expect to make any payments
under this guarantee.
During 2000, Ashland entered into a five-year agreement to sell, on an
ongoing basis and with limited recourse, up to a $200 million undivided
interest in a designated pool of accounts receivable. Under the terms of
the agreement, new receivables are added to the pool and collections reduce
the pool. Since inception, interests totaling $150 million have been sold
on a continuous basis. Ashland retains a credit interest in these
receivables and addresses its risk of loss on this retained interest in its
allowance for doubtful accounts. Receivables sold exclude defaulted
accounts (as defined) or concentrations over certain limits with any one
customer.
Earnings before interest, taxes, depreciation and amortization (EBITDA) is
a widely accepted financial indicator of a company's ability to incur and
service debt. Ashland's EBITDA, which represents operating income plus
depreciation, depletion and amortization, amounted to $558 million in 2002,
$1.1 billion in 2001 and $908 million in 2000. EBITDA should not be
considered in isolation or as an alternative to net income, operating
income, cash flows from operations, or a measure of profitability,
liquidity or performance under generally accepted accounting principles.
From time to time, Ashland's Board of Directors has authorized the purchase
of shares of Ashland common stock in the open market. As of September 30,
2002, Ashland could purchase an additional 2.7 million shares under
previous authorizations. The number of shares ultimately purchased and the
prices Ashland will pay for its stock are subject to periodic review by
management.
During 2003, Ashland expects capital expenditures of approximately $165
million. Ashland anticipates meeting its capital requirements during 2003
for property additions, dividends and scheduled debt repayments of $191
million from internally generated funds. However, external financing may be
necessary to provide funds for acquisitions or other corporate purposes.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of Ashland's consolidated financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and the disclosures
of contingent assets and liabilities. Significant items that are subject to
such estimates and assumptions include long-lived assets, employee benefit
obligations, reserves for asbestos litigation and environmental
remediation, and income recognized under construction contracts. Although
management bases its estimates on historical experience and various other
assumptions that are believed to be reasonable under the circumstances,
actual results could differ significantly from the estimates under
different assumptions or conditions. Management has reviewed the estimates
affecting these items with the Audit Committee of Ashland's Board of
Directors.
LONG-LIVED ASSETS
The cost of plant and equipment is depreciated by the straight-line method
over the estimated useful lives of the assets. Useful lives are based on
historical experience and are adjusted when changes in planned use,
technological advances or other factors show that a different life would be
more appropriate. Such costs are periodically reviewed
37
for recoverability when impairment indicators are present. Such indicators
include, among other factors, operating losses, unused capacity, market
value declines and technological obsolescence. Recorded values of plant and
equipment that are not expected to be recovered through undiscounted future
net cash flows are written down to current fair value, which is generally
determined from estimated discounted future net cash flows (assets held for
use) or net realizable value (assets held for sale). Although circumstances
can change considerably over time, Ashland is not aware of any impairment
indicators that would necessitate periodic reviews on any significant asset
within its plant and equipment at this time.
Goodwill and other intangible assets with indefinite lives are subject to
annual impairment tests. As a result of Ashland's initial impairment test
under FAS 142, the entire goodwill of $14 million of Ashland Distribution
was written off in 2002. Ashland's reporting units are generally synonymous
with its industry segments, except that the individual operating divisions
of Ashland Specialty Chemical are also considered reporting units under FAS
142. Since market prices of Ashland's reporting units are not readily
available, management makes various estimates and assumptions in
determining the estimated fair values of those units. Fair values are based
principally on EBITDA multiples of peer group companies for each of these
reporting units. Except for the goodwill of Ashland Distribution, the tests
indicated that the fair values of each of Ashland's remaining reporting
units with significant goodwill were in excess of their carrying values by
at least 20%.
EMPLOYEE BENEFIT OBLIGATIONS
Ashland and its subsidiaries sponsor noncontributory, defined benefit
pension plans that cover substantially all employees. Benefits under these
plans are generally based on employees' years of service and compensation
during the years immediately preceding their retirement. In addition, these
companies also sponsor other postretirement benefit plans, which provide
health care and life insurance benefits for eligible employees who retire
or are disabled. Retiree contributions to Ashland's health care plans are
adjusted periodically, and the plans contain other cost-sharing features,
such as deductibles and coinsurance. Life insurance plans are generally
noncontributory.
The principal assumptions used to determine Ashland's pension and other
postretirement benefit costs are the discount rate, the salary adjustment
rate and the expected return on plan assets. Nearly all of Ashland's
retiree health care plans contain a cap that limits Ashland's contributions
to base year per capita costs, plus annual increases of up to 4.5% per
year. Ashland believes that medical inflation will continue at a rate in
excess of 4.5% for the immediate future and, as a result, no explicit
assumption was required as to the expected rate of future medical
inflation.
The discount rates used to determine the present value of future pension
payments, medical costs and life insurance benefits are based on the yields
on high-quality, fixed-income investments (such as Moody's Aa-rated
corporate bonds), as adjusted for the longer duration of Ashland's pension
and other postretirement benefit obligations. The present values of
Ashland's future pension and other postretirement obligations were
determined using discount rates of 6.75% at September 30, 2002, and 7.25%
at September 30, 2001. Ashland's expense under these plans is determined
using the discount rate as of the beginning of the fiscal year, which
amounted to 7.25% for 2002, 7.75% for both 2001 and 2000, and will be 6.75%
for 2003.
The salary adjustment rate and the expected return on plan assets were
assumed to be 5% and 9% for each of the last three years, and those factors
will also be used to determine Ashland's costs for 2003. The salary
assumption has been indicative of actual results for the last few years,
but actual returns on plan assets have been below the expected amounts
during two of the last three years. For 2002, the pension plan assets
generated a loss of 6.7%, compared to a loss of 7.1% in 2001 and income of
12.3% in 2000. However, the expected return on plan assets is designed to
be a long-term assumption that will be subject to considerable year-to-year
variability by its inherent nature. Ashland has generated compounded annual
investment returns of 2.1% and 7.3% on its pension plan assets over the
last five and ten year periods. Although those returns are well below the
long-term assumption, they were measured with the ending point amidst a
two-year period of declining stock prices that accompanied depressed
economic conditions. For the five and ten year periods that ended in
September 2000 prior to this adverse investment climate, the compounded
annual investment returns on Ashland's pension plan assets were 11.4% and
12.4%.
Shown below are the estimated increases in pension and other postretirement
costs that would have resulted from a 1% change in the principal
assumptions for each of the last three years.
(In millions) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
INCREASE IN PENSION COSTS FROM
Decrease in the discount rate $21 $15 $14
Increase in the salary adjustment rate 10 6 6
Decrease in the expected return on plan assets 5 5 4
INCREASE IN OTHER POSTRETIREMENT COSTS FROM
Decrease in the discount rate 4 3 2
=================================
38
ASBESTOS-RELATED LITIGATION
Ashland is subject to liabilities from claims alleging personal injury
caused by exposure to asbestos. Those claims result primarily from
indemnification obligations undertaken in 1990 in connection with the sale
of Riley Stoker Corporation (Riley), a former subsidiary. Ashland's reserve
for asbestos claims amounted to $202 million at September 30, 2002, and
reflects the estimated costs on an undiscounted basis that will be incurred
over an extended period to resolve open claims.
The reserve for asbestos claims is based on assumptions and estimates
derived from currently known facts. However, projecting future events, such
as the average cost of resolving the open claims, is subject to numerous
variables that are extremely difficult to predict. These variables include
the type and severity of the disease alleged by each claimant, dismissal
rates, future costs of medical treatment, the impact of bankruptcies of
other companies that are co-defendants in claims, uncertainties surrounding
the litigation process from jurisdiction to jurisdiction and from case to
case, and the impact of potential changes in legislative or judicial
standards.
Insurance provides reimbursements for most of the litigation defense and
claim settlement costs incurred, and coverage-in-place agreements exist
with the insurance carriers that provide substantially all of the coverage
that is currently being accessed. The amounts not recoverable are generally
due from insurers that are insolvent, rather than as a result of uninsured
claims or the exhaustion of the insurance coverage. At September 30, 2002,
the receivable for recoveries of litigation defense and claim settlement
costs from insurers amounted to $196 million, including $24 million related
to costs previously incurred.
Ashland believes that insurance will cover the majority of the costs that
will be incurred on open and future asbestos claims. Equitas Limited
(Equitas) and other London companies currently provide about 59% of the
insurance coverage, and this percentage could decline over time to around
44% if higher layers of coverage provided by other carriers have to be
accessed. The remaining 41% of the coverage is currently provided by five
companies, all of which are rated A or higher by A. M. Best Company.
Depending upon the level of costs that are ultimately incurred, the
non-London coverage could ultimately expand to about 25 insurance companies
or groups. Companies or groups that provide about 90% of this coverage are
also rated A or higher.
Ashland has not recognized a reserve for future asbestos claims that may be
asserted. Although additional claim filings are expected, Ashland does not
have sufficient information to make a reasonable estimate of the number of
new claims that might be filed. Furthermore, any predictions about the
other variables discussed previously are subject to even greater
uncertainty as the projection period lengthens. Ashland has retained the
services of professional advisors to assist management in the estimation of
projected liabilities and probable insurance recoveries for future asbestos
claims. Results of that effort are expected to be available during the
quarter ending March 31, 2003.
Although coverage limits are resolved in the coverage-in-place agreement
with Equitas and the other London companies, there is a disagreement with
these companies over the timing of recoveries. Depending upon the
assumptions made with respect to the projected payments to settle future
claims, an unfavorable resolution of this disagreement could materially
affect the present value of additional insurance recoveries from those
companies. Until such time as this disagreement is resolved, Ashland will
use the less favorable interpretation of this agreement in estimating such
insurance recoveries.
ENVIRONMENTAL REMEDIATION
Ashland is subject to various federal, state and local environmental laws
and regulations that require environmental assessment or remediation
efforts (collectively environmental remediation) at multiple locations. At
September 30, 2002, such locations included 97 waste treatment or disposal
sites where Ashland has been identified as a potentially responsible party
under Superfund or similar state laws, approximately 140 current and former
operating facilities (including certain facilities conveyed to MAP) and
about 1,220 service station properties. Ashland's reserves for
environmental remediation amounted to $169 million at September 30, 2002,
and reflect its estimates of the most likely costs that will be incurred
over an extended period to remediate identified conditions for which the
costs are reasonably estimable, without regard to any third-party
recoveries. Engineering studies, probability techniques, historical
experience and other factors are used to identify and evaluate remediation
alternatives and their related costs, in determining the estimated reserves
for environmental remediation.
Environmental remediation reserves are subject to numerous inherent
uncertainties that affect Ashland's ability to estimate its share of the
costs. Such uncertainties involve the nature and extent of contamination at
each site, the extent of required cleanup efforts under existing
environmental regulations, widely varying costs of alternate cleanup
methods, changes in environmental regulations, the potential effect of
continuing improvements in remediation technology, and the number and
financial strength of other potentially responsible parties at multiparty
sites. Ashland regularly adjusts its reserves as environmental remediation
continues.
None of the remediation locations is individually material to Ashland as
its largest reserve for any site is less than $10 million. As a result,
Ashland's exposure to adverse developments with respect to any individual
site is not
39
expected to be material, and these sites are in various stages of ongoing
remediation. Although environmental remediation could have a material
effect on results of operations if a series of adverse developments occurs
in a particular quarter or fiscal year, Ashland believes that the chance of
such developments occurring in the same quarter or fiscal year is remote.
CONSTRUCTION CONTRACTS
Income related to construction contracts is generally recognized by the
units-of-production method, which is a variation of the
percentage-of-completion method. Construction jobs by their very nature are
subject to numerous risks that could create variances from expectations.
Such risks include changes in raw material and other costs, adverse weather
conditions and the performance of subcontractors and other entities. Income
is only known for certain after a job is completed, and the extent of
completion can be difficult to assess in certain circumstances.
The extent of completion for each production phase is determined by
reference to material quantities, labor hours, subcontract costs or other
factors that are believed to be most indicative of the progress made under
each phase of a project. Revenues earned are computed by reference to the
extent of completion and either the contract or detailed analyses of
revenues and expenses by production phase that supported the related
construction contract or bid proposal. These detailed analyses also serve
as early indicators as to whether a construction contract may ultimately be
completed at a loss. Any anticipated losses on such contracts are charged
against operations as soon as such losses are determined to be probable and
estimable.
Assumptions concerning the extent of completion can have a significant
affect on the income recognized on an individual construction project in
any period. However, the effects of individual assumptions on APAC's
reported results are mitigated to a large extent by the significant number
of jobs in various stages of completion at any point in time.
DERIVATIVE INSTRUMENTS
Ashland selectively uses unleveraged interest rate swap agreements to
obtain greater access to the lower borrowing costs normally available on
floating-rate debt, while minimizing refunding risk through the issuance of
long-term, fixed-rate debt. Ashland's intent is to maintain its
floating-rate exposure between 25% and 45% of total interest-bearing
obligations. At September 30, 2002, Ashland held interest rate swaps that
effectively converted the interest rates on $153 million of fixed-rate,
medium-term notes to floating rates based upon three-month LIBOR. The swaps
have been designated as fair value hedges, and since the critical terms of
the debt instruments and the swaps match, the hedges are assumed to be
perfectly effective, with the changes in fair value of the debt and swaps
offsetting.
Ashland regularly uses commodity-based and foreign currency derivative
instruments to manage its exposure to price fluctuations associated with
the purchase and sale of natural gas in its energy services business and
certain transactions denominated in foreign currencies. In addition,
Ashland opportunistically enters into petroleum crackspread futures to
economically hedge or enhance its equity earnings and cash distributions
from MAP. Although certain of these instruments could be designated as
qualifying for hedge accounting treatment, Ashland has not elected to do
so. Therefore, the fair value of the derivatives is recorded on the balance
sheet, with the offsetting gain or loss recognized in earnings during the
period of change. The potential loss from a hypothetical 10% adverse change
in commodity prices or foreign currency rates on Ashland's open
commodity-based and foreign currency derivative instruments at September
30, 2002, would not significantly affect Ashland's consolidated financial
position, results of operations, cash flows or liquidity.
MAP uses commodity-based futures, forwards, swaps and options to reduce the
effects of price fluctuations on purchases and sales of crude oil, natural
gas and refined products. MAP has not elected to designate these derivative
instruments as qualifying for hedge accounting treatment. As a result, the
changes in fair value of these derivatives are recognized in earnings
during the period of change, impacting Ashland's equity income from MAP
accordingly.
OUTLOOK
Ashland's strategy has consistently been to strengthen its wholly owned
businesses, maintain a strong financial position and manage its investment
in MAP for growth in earnings and cash distributions. In October 2002,
management announced the following eight-point plan to bring this strategy
into sharper focus and improve Ashland's profitability.
o Identify and divest assets that cannot achieve desired market
strength as part of Ashland.
o Increase revenues and profits, largely through organic means, by
expanding in existing or adjacent product and geographic markets,
primarily in APAC and Ashland Specialty Chemical.
o Reduce debt over time to a target of 35% of capital employed from
a current level of about 45%. In the near term, debt reduction
will be emphasized over stock repurchases and growth investments.
o Reduce general and administrative expenses by $25 million a year.
o Improve returns from Ashland Distribution or pursue strategic
alternatives for this business.
o Increase returns from APAC, achieving a 10% after-tax return on
capital employed by fiscal 2004.
o Capture value from the MAP investment through cash distributions.
o Improve organizational effectiveness by using common processes
across all of Ashland's businesses to improve operating
efficiency.
40
In October, APAC announced a strategic reorganization of operations to
become more competitive in each of its markets and more efficient. APAC's
first priority is to complete this effort and finish implementing its
ongoing business process redesign initiative. In addition, Ashland
Distribution has completely redesigned the way it goes to market by
restructuring its sales organization, consolidating its marketing into
regional territories and changing its processes to become more efficient
and customer service oriented.
At September 30, 2002, APAC's construction backlog amounted to $1.7
billion, compared to $1.6 billion at the end of 2001. Public sector work in
the backlog increased 5% during the year from $1.5 billion to $1.6 billion,
and the public funding outlook remains positive. Private contract work
declined from $149 million at the end of 2001 to $136 million this year,
reflecting the weaker economy.
Ashland's sales and operating revenues are normally subject to seasonal
variations. Although APAC tends to enjoy a relatively long construction
season, most of its operating income is generated during the construction
period of May to October. In addition, MAP experiences demand increases for
gasoline during the summer driving season, for propane and distillate
during the winter heating season and for asphalt during the construction
season. The following table compares operating income by quarter for the
three years ended September 30, 2002 (amounts for each quarter do not
necessarily total to results for the year due to rounding).
(In millions) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
QUARTERLY OPERATING INCOME (LOSS)
December 31 $ 98 $144 $111
March 31 (1) 87 90
June 30 137 369 268
September 30 104 251 203
=================================
EFFECTS OF INFLATION AND CHANGING PRICES
Ashland's financial statements are prepared on the historical cost method
of accounting and, as a result, do not reflect changes in the purchasing
power of the U.S. dollar. Although annual inflation rates have been low in
recent years, Ashland's results are still affected by the cumulative
inflationary trend from prior years.
In the capital-intensive industries in which Ashland operates, replacement
costs for its properties would generally exceed their historical costs.
Accordingly, depreciation, depletion and amortization expense would be
greater if it were based on current replacement costs. However, since
replacement facilities would reflect technological improvements and changes
in business strategies, such facilities would be expected to be more
productive than existing facilities, mitigating part of the increased
expense.
Ashland uses the LIFO method to value a substantial portion of its
inventories to provide a better matching of revenues with current costs.
However, LIFO values such inventories below their replacement costs.
Monetary assets (such as cash, cash equivalents and accounts receivable)
lose purchasing power as a result of inflation, while monetary liabilities
(such as accounts payable and indebtedness) result in a gain, because they
can be settled with dollars of diminished purchasing power. Ashland's
monetary liabilities exceed its monetary assets, which results in net
purchasing power gains and provides a hedge against the effects of future
inflation.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis (MD&A) contains forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934, with respect to
various information in the sections entitled Capital Resources, Application
of Critical Accounting Policies, Derivative Instruments and Outlook.
Estimates as to operating performance and earnings are based on a number of
assumptions, including those mentioned in MD&A. Such estimates are also
based upon internal forecasts and analyses of current and future market
conditions and trends, management plans and strategies, weather, operating
efficiencies and economic conditions, such as prices, supply and demand,
and cost of raw materials. Although Ashland believes its expectations are
based on reasonable assumptions, it cannot assure the expectations
reflected in MD&A will be achieved. This forward-looking information may
prove to be inaccurate and actual results may differ significantly from
those anticipated if one or more of the underlying assumptions or
expectations proves to be inaccurate or is unrealized, or if other
unexpected conditions or events occur. Other factors and risks affecting
Ashland are contained in Risks and Uncertainties in Note A to the
Consolidated Financial Statements and in Ashland's Form 10-K for the fiscal
year ended September 30, 2002. Ashland undertakes no obligation to
subsequently update or revise these forward-looking statements.
41
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
Years Ended September 30
(In millions except per share data) 2002 2001 2000
REVENUES
Sales and operating revenues $7,543 $7,719 $7,961
Equity income - Note D 181 754 394
Other income 68 74 81
-----------------------------------
7,792 8,547 8,436
COSTS AND EXPENSES
Cost of sales and operating expenses 6,049 6,319 6,434
Selling, general and administrative expenses 1,185 1,127 1,094
Depreciation, depletion and amortization 220 250 237
-----------------------------------
7,454 7,696 7,765
-----------------------------------
OPERATING INCOME 338 851 671
Net interest and other financial costs - Note E (138) (175) (194)
-----------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 200 676 477
Income taxes - Note J (71) (273) (189)
-----------------------------------
INCOME FROM CONTINUING OPERATIONS 129 403 288
Results from discontinued operations (net of income taxes) - Note N - 19 (218)
-----------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 129 422 70
Cumulative effect of accounting changes (net of income taxes) - Note A (12) (5) -
-----------------------------------
NET INCOME $ 117 $ 417 $ 70
===================================
EARNINGS PER SHARE - NOTE A
Basic
Income from continuing operations $ 1.86 $ 5.79 $ 4.06
Results from discontinued operations - .27 (3.07)
Cumulative effect of accounting changes (.17) (.07) -
-----------------------------------
Net income $ 1.69 $ 5.99 $ .99
===================================
Diluted
Income from continuing operations $ 1.83 $ 5.73 $ 4.05
Results from discontinued operations - .26 (3.07)
Cumulative effect of accounting changes (.16) (.06) -
-----------------------------------
Net income $ 1.67 $ 5.93 $ .98
===================================
See Notes to Consolidated Financial Statements.
43
Ashland Inc. and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30
(In millions) 2002 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 90 $ 236
Accounts receivable (less allowances for doubtful accounts of
$35 million in 2002 and $34 million in 2001) 1,089 1,201
Inventories - Note A 485 495
Deferred income taxes - Note J 122 134
Other current assets 139 171
---------------------
1,925 2,237
INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) - Note D 2,350 2,387
Goodwill 521 528
Other noncurrent assets 512 539
---------------------
3,383 3,454
PROPERTY, PLANT AND EQUIPMENT
Cost
APAC 1,358 1,290
Ashland Distribution 360 359
Ashland Specialty Chemical 906 887
Valvoline 379 374
Corporate 115 120
---------------------
3,118 3,030
Accumulated depreciation, depletion and amortization (1,701) (1,590)
---------------------
1,417 1,440
---------------------
$6,725 $7,131
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year
Commercial paper $ 10 $ -
Current portion of long-term debt 191 85
Trade and other payables 1,285 1,429
Income taxes 25 20
---------------------
1,511 1,534
NONCURRENT LIABILITIES
Long-term debt (less current portion) - Note E 1,606 1,786
Employee benefit obligations - Note O 509 412
Deferred income taxes - Note J 256 448
Reserves of captive insurance companies 166 173
Other long-term liabilities and deferred credits 504 552
Commitments and contingencies - Notes F and M
---------------------
3,041 3,371
STOCKHOLDERS' EQUITY - NOTES E, K AND L
Preferred stock, no par value, 30 million shares authorized - -
Common stock,par value $1.00 per share, 300 millon shares authorized
Issued - 68 million shares in 2002 and 69 million shares in 2001 68 69
Paid-in capital 338 363
Retained earnings 1,961 1,920
Accumulated other comprehensive loss (194) (126)
---------------------
2,173 2,226
---------------------
$6,725 $7,131
=====================
See Notes to Consolidated Financial Statements.
44
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
Accumulated
other
Common Paid-in Retained comprehensive
(In millions) stock capital earnings loss Total
BALANCE AT OCTOBER 1, 1999 $ 72 $464 $1,710 $ (46) $2,200
Total comprehensive income(1) 70 (26) 44
Dividends
Cash, $1.10 per common share (78) (78)
Spin-off of Arch Coal shares (123) (123)
Issued common stock under
Stock incentive plans 8 8
Acquisitions of other companies 3 3
Repurchase of common stock (2) (87) (89)
----------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2000 70 388 1,579 (72) 1,965
Total comprehensive income(1) 417 (54) 363
Cash dividends, $1.10 per common share (76) (76)
Issued common stock under
stock incentive plans 1 22 23
Repurchase of common stock (2) (47) (49)
----------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2001 69 363 1,920 (126) 2,226
Total comprehensive income(1) 117 (68) 49
Cash dividends, $1.10 per common share (76) (76)
Issued common stock under
stock incentive plans 16 16
Repurchase of common stock (1) (41) (42)
----------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2002 $ 68 $338 $1,961 $(194) $2,173
================================================================
(1) Reconciliations of net income to total comprehensive income
follow.
(In millions) 2002 2001 2000
Net income $ 117 $417 $70
Minimum pension liability adjustment (144) (57) 2
Related tax benefit (expense) 56 22 (1)
Unrealized translation gains (losses) 19 (21) (37)
Related tax benefit 1 2 10
-----------------------------------
Total comprehensive income $ 49 $363 $44
===================================
At September 30, 2002, the accumulated other comprehensive loss of $194
million (after tax) was comprised of net unrealized translation losses of
$63 million and a minimum pension liability of $131 million.
See Notes to Consolidated Financial Statements.
45
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years Ended September 30
(In millions) 2002 2001 2000
CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 129 $403 $288
Expense (income) not affecting cash
Depreciation, depletion and amortization 220 250 237
Deferred income taxes (119) 152 111
Equity income from affiliates (181) (754) (394)
Distributions from equity affiliates 201 664 282
Other items - 5 (19)
Change in operating assets and liabilities(1) (62) 109 (21)
----------------------------------
188 829 484
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt 55 52 988
Proceeds from issuance of common stock 11 15 5
Repayment of long-term debt (140) (169) (675)
Repurchase of common stock (42) (49) (89)
Increase (decrease) in short-term debt 10 (245) 63
Dividends paid (76) (76) (78)
----------------------------------
(182) (472) 214
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (185) (205) (232)
Purchase of operations - net of cash acquired (15) (91) (590)
Proceeds from sale of operations - 9 50
Other - net 26 13 71
----------------------------------
(174) (274) (701)
----------------------------------
CASH PROVIDED (USED) BY CONTINUING OPERATIONS (168) 83 (3)
Cash provided (used) by discontinued operations 22 86 (40)
----------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (146) 169 (43)
Cash and cash equivalents - beginning of year 236 67 110
----------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 90 $236 $ 67
==================================
DECREASE (INCREASE) IN OPERATING ASSETS(1)
Accounts receivable $ 112 $ 70 $ 67
Inventories 11 5 -
Deferred income taxes 18 - (28)
Other current assets 31 29 (27)
Investments and other assets 33 (170) (92)
INCREASE (DECREASE) IN OPERATING LIABILITIES(1)
Trade and other payables (133) 67 112
Income taxes (17) 2 (13)
Noncurrent liabilities (117) 106 (40)
----------------------------------
CHANGE IN OPERATING ASSETS AND LIABILITIES $ (62) $109 $(21)
==================================
(1) Excludes changes resulting from operations acquired or sold.
See Notes to Consolidated Financial Statements.
46
Ashland Inc. and Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Ashland and
its majority owned subsidiaries. Investments in joint ventures and 20% to
50% owned affiliates are accounted for on the equity method.
RISKS AND UNCERTAINTIES
The preparation of Ashland's consolidated financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and the disclosures
of contingent assets and liabilities. Significant items that are subject to
such estimates and assumptions include long-lived assets, employee benefit
obligations, reserves for asbestos litigation and environmental
remediation, and income recognized under construction contracts. Although
management bases its estimates on historical experience and various other
assumptions that are believed to be reasonable under the circumstances,
actual results could differ significantly from the estimates under
different assumptions or conditions.
Ashland's results, including those of Marathon Ashland Petroleum LLC (MAP),
are affected by domestic and international economic, political,
legislative, regulatory and legal actions, as well as weather conditions.
Economic conditions, such as recessionary trends, inflation, interest and
monetary exchange rates, and changes in the prices of crude oil, petroleum
products and petrochemicals, can have a significant effect on operations.
Political actions may include changes in the policies of the Organization
of Petroleum Exporting Countries or other developments involving or
affecting oil-producing countries, including military conflict, embargoes,
internal instability or actions or reactions of the U.S. government in
anticipation of, or in response to, such actions. While Ashland maintains
reserves for anticipated liabilities and carries various levels of
insurance, Ashland could be affected by civil, criminal, regulatory or
administrative actions, claims or proceedings relating to asbestos,
environmental remediation or other matters. In addition, climate and
weather can significantly affect Ashland's results from several of its
operations, such as APAC's construction activities and MAP's refined
product sales.
INVENTORIES
(In millions) 2002 2001
- ------------------------------------------------------------------------------------------------------------
Chemicals and plastics $367 $374
Construction materials 68 74
Petroleum products 58 54
Other products 51 57
Supplies 6 6
Excess of replacement costs over LIFO carrying values (65) (70)
-------------------
$485 $495
===================
Chemicals, plastics, petroleum products and supplies with a replacement
cost of $321 million at September 30, 2002, and $330 million at September
30, 2001, are valued using the last-in, first-out (LIFO) method. The
remaining inventories are stated generally at the lower of cost (using the
first-in, first-out [FIFO] or average cost method) or market.
LONG-LIVED ASSETS, GOODWILL AND OTHER INTANGIBLE ASSETS
The cost of plant and equipment is depreciated by the straight-line method
over the estimated useful lives of the assets. Such costs are periodically
reviewed for recoverability when impairment indicators are present. Such
indicators include, among other factors, operating losses, unused capacity,
market value declines and technological obsolescence. Recorded values of
plant and equipment that are not expected to be recovered through
undiscounted future net cash flows are written down to current fair value,
which is generally determined from estimated discounted future net cash
flows (assets held for use) or net realizable value (assets held for sale).
As of October 1, 2001, Ashland adopted Financial Accounting Standards Board
Statement No. 142 (FAS 142), "Goodwill and Other Intangible Assets." Under
FAS 142, goodwill and intangible assets with indefinite lives are no longer
amortized but are subject to annual impairment tests. Prior to the adoption
of FAS 142, Ashland's goodwill was amortized by the straight-line method
over periods generally ranging from 15 to 40 years, and goodwill
amortization amounted to $42 million in 2001 and $29 million in 2000. The
amount for 2001 included charges of $10 million for write-downs related to
certain operations. Results from these operations consistently had been
well below the levels that were expected when they were acquired,
necessitating the impairment review and resulting write-downs.
When MAP was formed, Ashland's investment exceeded its underlying equity in
the net assets of that company. That excess investment included $245
million that was accounted for as part of the carrying value of MAP's plant
and equipment, and is being amortized on a straight-line basis over 15
years at a rate of $16 million a year. The remainder was accounted for as
goodwill and was being amortized on a straight-line basis over 20 years at
a rate of $10 million
47
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
a year prior to the adoption of FAS 142. At September 30, 2002, Ashland's
investment exceeds its equity in the net assets of MAP by $323 million, of
which $167 million represents plant and equipment that will continue to be
amortized, and $156 million represents goodwill.
As a result of the adoption of FAS 142, it was determined that the goodwill
of Ashland Distribution was impaired. Accordingly, an impairment loss of
$14 million ($12 million net of income taxes) was recorded as a cumulative
effect of accounting change as of October 1, 2001. Due to the
nonamortization of goodwill, Ashland's reported results for 2002 are not
comparable with previous years. The following table presents pro forma
information assuming that Ashland adopted FAS 142 as of October 1, 1999.
(In millions) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 129 $ 448 $ 320
Earnings per share
Basic 1.86 6.44 4.52
Diluted 1.83 6.37 4.51
===================================
All of Ashland's intangible assets are subject to amortization. These
intangible assets (included in other noncurrent assets) and the related
amortization expense are not material to Ashland's consolidated financial
position or results of operations.
Following is a progression of goodwill by segment for the year ended
September 30, 2002.
Ashland
Ashland Specialty
(In millions) APAC Distribution Chemical Valvoline Total
- ------------------------------------------------------------------------------------------------------------
Balance at October 1, 2001 $419 $14 $92 $3 $528
Goodwill acquired 1 - 1 2 4
Impairment losses - (14) - - (14)
Currency translation adjustments - - 3 - 3
----------------------------------------------------------------
Balance at September 30, 2002 $420 $ - $96 $5 $521
================================================================
ENVIRONMENTAL COSTS
Accruals for environmental costs are recognized when it is probable that a
liability has been incurred and the amount of that liability can be
reasonably estimated. Such costs are charged to expense if they relate to
the remediation of conditions caused by past operations or are not expected
to mitigate or prevent contamination from future operations. Accruals are
recorded at undiscounted amounts based on experience, assessments and
current technology, without regard to any third-party recoveries and are
regularly adjusted as environmental assessments and remediation efforts
continue.
EARNINGS PER SHARE
Following is the computation of basic and diluted earnings per share (EPS)
from continuing operations.
(In millions except per share data) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
NUMERATOR
Numerator for basic and diluted EPS - Income from continuing operations $ 129 $ 403 $ 288
==================================
DENOMINATOR
Denominator for basic EPS - Weighted average common shares outstanding 69 69 71
Common shares issuable upon exercise of stock options 1 1 -
----------------------------------
Denominator for diluted EPS - Adjusted weighted average shares and
assumed conversions 70 70 71
==================================
BASIC EPS FROM CONTINUING OPERATIONS $1.86 $5.79 $4.06
DILUTED EPS FROM CONTINUING OPERATIONS $1.83 $5.73 $4.05
==================================
48
STOCK INCENTIVE PLANS
Ashland accounts for its stock options using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees," and related Interpretations.
The disclosure requirements of Financial Accounting Standards Board
Statement No. 123 (FAS 123), "Accounting for Stock-Based Compensation," are
included in Note L. Ashland will start expensing stock options under FAS
123 effective October 1, 2002.
DERIVATIVE INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 (FAS 133), "Accounting for Derivative Instruments and Hedging
Activities." FAS 133 was amended by two other statements and was required
to be adopted in years beginning after June 15, 2000. Because of Ashland's
minimal use of derivatives, FAS 133 did not have a significant effect on
Ashland's consolidated financial position or results of operations when it
was adopted on October 1, 2000. MAP's adoption of FAS 133 on January 1,
2001, resulted in a $20 million pretax loss from the cumulative effect of
this accounting change. Ashland's share of the pretax loss amounted to $8
million which, net of income tax benefits of $3 million, resulted in a loss
of $5 million from the cumulative effect of this accounting change.
Ashland selectively uses unleveraged interest rate swap agreements to
obtain greater access to the lower borrowing costs normally available on
floating-rate debt, while minimizing refunding risk through the issuance of
long-term, fixed-rate debt. Ashland's intent is to maintain its
floating-rate exposure between 25% and 45% of total interest-bearing
obligations. At September 30, 2002, Ashland held interest rate swaps that
effectively converted the interest rates on $153 million of fixed-rate,
medium-term notes to floating rates based upon three-month LIBOR. The swaps
have been designated as fair value hedges, and since the critical terms of
the debt instruments and the swaps match, the hedges are assumed to be
perfectly effective, with the changes in fair value of the debt and swaps
offsetting.
Ashland regularly uses commodity-based and foreign currency derivative
instruments to manage its exposure to price fluctuations associated with
the purchase and sale of natural gas in its energy services business and
certain transactions denominated in foreign currencies. In addition,
Ashland opportunistically enters into petroleum crackspread futures to
economically hedge or enhance its equity earnings and cash distributions
from MAP. Although certain of these instruments could be designated as
qualifying for hedge accounting treatment, Ashland has not elected to do
so. Therefore, the fair value of the derivatives is recorded on the balance
sheet, with the offsetting gain or loss recognized in earnings during the
period of change.
MAP uses commodity-based futures, forwards, swaps and options to reduce the
effects of price fluctuations on purchases and sales of crude oil, natural
gas and refined products. MAP has not elected to designate these derivative
instruments as qualifying for hedge accounting treatment. As a result, the
changes in fair value of these derivatives are recognized in earnings
during the period of change, impacting Ashland's equity income from MAP
accordingly.
OTHER
Cash equivalents include highly liquid investments maturing within three
months after purchase.
Income related to construction contracts is generally recognized by the
units-of-production method, which is a variation of the
percentage-of-completion method. Any anticipated losses on such contracts
are charged against operations as soon as such losses are determined to be
probable and estimable.
Advertising costs ($79 million in 2002, $67 million in 2001 and $67 million
in 2000) and research and development costs ($38 million in 2002, $36
million in 2001 and $33 million in 2000) are expensed as incurred.
In April 2002, the Financial Accounting Standards Board issued Statement
No. 145 (FAS 145), under which gains and losses on early retirement of debt
are generally no longer shown as extraordinary items in the income
statement. Ashland adopted the statement as of October 1, 2001, the
beginning of its fiscal year. As a result of the reclassification of losses
on early retirement of debt to interest and other financial costs, income
from continuing operations was reduced by $3 million ($.04 per share) in
2001 and $4 million ($.05 per share) in 2000.
Certain prior year amounts have been reclassified in the consolidated
financial statements and accompanying notes to conform to 2002
classifications.
49
NOTE B - INFORMATION BY INDUSTRY SEGMENT
Ashland's operations are conducted primarily in the United States and are
managed along industry segments, which include APAC, Ashland Distribution,
Ashland Specialty Chemical, Valvoline, and Refining and Marketing.
Information by industry segment is shown on pages 60 and 61.
The APAC group of companies performs contract construction work, such as
paving, repairing and resurfacing highways, streets, airports, residential
and commercial developments, sidewalks, and driveways; grading and base
work; and excavation and related activities in the construction of bridges
and structures, drainage facilities and underground utilities in 14
southern and midwestern states. APAC also produces and sells construction
materials, such as hot-mix asphalt, crushed stone and other aggregate, and
ready-mix concrete.
Ashland Distribution distributes chemicals, plastics, fiber reinforcements
and fine ingredients in North America and plastics in Europe, and provides
environmental and energy management services.
Ashland Specialty Chemical manufactures composites, adhesives, and casting
binder chemicals for use in the transportation and construction industries.
Ashland Specialty Chemical also manufactures water treatment chemicals for
use in the general industrial and merchant marine markets. In addition, the
company manufactures high purity chemicals and provides services to the
microelectronics industry.
Valvoline is a marketer of premium-branded automotive and commercial oils,
automotive chemicals, appearance products and automotive services, with
sales in more than 140 countries. Valvoline is engaged in the "fast oil
change" business through owned and franchised service centers operating
under the Valvoline Instant Oil Change name.
The Refining and Marketing segment includes Ashland's 38% ownership
interest in Marathon Ashland Petroleum LLC (MAP) and other activities
associated with refining and marketing. MAP was formed January 1, 1998,
combining the major elements of the refining, marketing and transportation
operations of Ashland and Marathon Oil Company. MAP has seven refineries
with a combined crude oil refining capacity of 935,000 barrels per calendar
day, 88 light products and asphalt terminals in the Midwest and Southeast
United States, about 5,900 retail marketing outlets in 17 states and
significant pipeline holdings. Ashland accounts for its investment in MAP
using the equity method.
Information about Ashland's domestic and foreign operations follows.
Ashland has no material operations in any individual foreign country.
Revenues from Property, plant
external customers and equipment
(In millions) 2002 2001 2000 2002 2001
- ------------------------------------------------------------------------------------------------------------
United States $6,766 $7,526 $7,344 $1,275 $1,299
Foreign 1,026 1,021 1,092 142 141
--------------------------------------------------
$7,792 $8,547 $8,436 $1,417 $1,440
==================================================
NOTE C - RELATED PARTY TRANSACTIONS
Ashland sells chemicals and lubricants to Marathon Ashland Petroleum LLC
(MAP) and purchases petroleum products from MAP. Such transactions are in
the ordinary course of business at negotiated prices comparable to those of
transactions with other customers and suppliers. In addition, Ashland
leases certain facilities to MAP, and provides certain information
technology and administrative services to MAP. For the year ended September
30, 2002, Ashland's sales to MAP amounted to $24 million, its purchases
from MAP amounted to $217 million, and its costs charged to MAP amounted to
$6 million. Comparable amounts for the year ended September 30, 2001, were
$22 million, $258 million, and $6 million, and for the year ended September
30, 2000, were $15 million, $261 million, and $8 million. Ashland's
transactions with other affiliates and related parties were not
significant.
Ashland has entered into revolving credit agreements providing for
short-term loans, at Ashland's discretion, to and from MAP at competitive
rates. Under MAP's borrowing agreement, Ashland may loan up to $190 million
to MAP. Under Ashland's borrowing agreement, MAP could invest up to 38% of
its surplus cash balances with Ashland. No loans were outstanding under
either agreement at September 30, 2002, and 2001. Under these agreements,
Ashland paid interest expense to MAP of $4 million in 2001 and $5 million
in 2000. Interest expense paid to MAP in 2002 and interest income received
from MAP in all three years was not significant.
Ashland has guaranteed 38% of MAP's payments for certain crude oil
purchases, up to a maximum guarantee of $86 million. At September 30, 2002,
Ashland's contingent liability under this guarantee amounted to $72
million. Ashland has not made and does not expect to make any payments
under this guarantee.
50
NOTE D - UNCONSOLIDATED AFFILIATES
Affiliated companies accounted for on the equity method include Marathon
Ashland Petroleum LLC (MAP) and various other companies. See Note B for a
description of MAP. Summarized financial information reported by these
affiliates and a summary of the amounts recorded in Ashland's consolidated
financial statements follow. MAP is organized as a limited liability
company that has elected to be taxed as a partnership. Therefore, the
parents are responsible for income taxes applicable to their share of MAP's
taxable income. The net income reflected below for MAP does not include any
provision for income taxes that will be incurred by its parents. At
September 30, 2002, Ashland's retained earnings included $157 million of
undistributed earnings from unconsolidated affiliates accounted for on the
equity method.
Other
(In millions) MAP affiliates Total
- ------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2002
Financial position
Current assets $ 3,425 $165
Current liabilities (2,200) (85)
------------------------------------
Working capital 1,225 80
Noncurrent assets 4,572 125
Noncurrent liabilities (461) (106)
------------------------------------
Stockholders' equity $ 5,336 $ 99
====================================
Results of operations
Sales and operating revenues $25,063 $262
Income from operations 511 23
Net income 502 15
Amounts recorded by Ashland
Investments and advances 2,350(1) 48 $2,398
Equity income 176 5 181
Distributions received 196 5 201
====================================
SEPTEMBER 30, 2001
Financial position
Current assets $ 3,485 $ 80
Current liabilities (2,214) (55)
-----------------------------------
Working capital 1,271 25
Noncurrent assets 4,431 77
Noncurrent liabilities (364) (15)
-----------------------------------
Stockholders' equity $ 5,338 $ 87
==================================
Results of operations
Sales and operating revenues $28,865 $207
Income from operations 2,042 21
Net income 2,022 12
Amounts recorded by Ashland
Investments and advances 2,387 45 $2,432
Equity income 749 5 754
Distributions received 658 6 664
====================================
SEPTEMBER 30, 2000
Results of operations
Sales and operating revenues $27,657 $181
Income from operations 1,084 21
Net income 1,092 13
Amounts recorded by Ashland
Equity income 389 5 $ 394
Distributions received 279 3 282
=====================================
(1) At September 30, 2002, Ashland's investment exceeds its equity in
the net assets of MAP by $323 million, of which $167 million
represents plant and equipment that will continue to be amortized,
and $156 million represents goodwill. Straight-line amortization
of this excess investment against equity income amounted to $16
million in 2002 and $26 million in 2001 and 2000 (see Note A).
51
NOTE E - DEBT
(In millions) 2002 2001
- ------------------------------------------------------------------------------------------------------------
Medium-term notes, due 2003-2025, interest at a weighted
average rate of 7.3% at September 30, 2002 (2.4% to 10.4%) $ 765 $ 845
8.80% debentures, due 2012 250 250
7.83% medium-term notes, Series J, due 2005 229 229
Pollution control and industrial revenue bonds, due
2003-2022, interest at a weighted average rate of 5.7%
at September 30, 2002 (1.6% to 7.2%) 201 201
6.86% medium-term notes, Series H, due 2009 150 150
6.625% senior notes, due 2008 150 150
Other 52 46
---------------------
Total long-term debt 1,797 1,871
Current portion of long-term debt (191) (85)
---------------------
Long-term debt (less current portion) $1,606 $1,786
=====================
Aggregate maturities of long-term debt are $191 million in 2003, $68
million in 2004, $396 million in 2005, $60 million in 2006 and $125 million
in 2007. Interest payments on all indebtedness amounted to $138 million in
2002, $167 million in 2001 and $189 million in 2000. The weighted average
interest rate on short-term borrowings outstanding was 1.9% at September
30, 2002. No short-term borrowings were outstanding at September 30, 2001.
Ashland has two revolving credit agreements providing for up to $425
million in borrowings, neither of which has been used. The agreement
providing for $250 million in borrowings expires on June 2, 2004. The
agreement providing for $175 million in borrowings expires on June 6, 2003.
Both agreements contain a covenant limiting new borrowings based on
Ashland's stockholders equity. However, these agreements would have
permitted an additional $1.4 billion of borrowings at September 30, 2002.
Additional permissible borrowings are increased (decreased) by 150% of any
increase (decrease) in stockholders' equity.
NET INTEREST AND OTHER FINANCIAL COSTS
(In millions) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Interest expense $135 $162 $191
Expenses on sales of accounts receivable (see Note G) 4 8 6
Loss on early retirement of debt - 5 6
Other financial costs 3 2 1
Interest income (4) (2) (10)
---------------------------------
$138 $175 $194
=================================
NOTE F - LEASES
Ashland and its subsidiaries are lessees of office buildings, retail
outlets, transportation and off-road construction equipment, warehouses and
storage facilities, and other equipment, facilities and properties under
leasing agreements that expire at various dates. Under various operating
leases, Ashland has guaranteed the residual value of the underlying leased
property. If Ashland had cancelled those leases as of September 30, 2002,
its maximum obligations under the related residual value guarantees would
have amounted to $137 million. Ashland does not expect to incur any
significant charge to earnings under these guarantees, $74 million of which
relates to real estate. These lease agreements are with unrelated third
party lessors and Ashland has no additional contractual or other
commitments to any parties to the leases. Capitalized lease obligations are
not significant and are included in long-term debt. Future minimum rental
payments at September 30, 2002, and rental expense under operating leases
follow.
(In millions) (In millions)
Future minimum rental payments Rental expense 2002 2001 2000
- ---------------------------------- --------------------------------------------------------
2003 $ 47
2004 40 Minimum rentals
2005 33 (including rentals under
2006 25 short-term leases) $106 $119 $115
2007 22 Contingent rentals 3 5 5
Later years 95 Sublease rental income (2) (2) (2)
- ---------------------------------- ---------------------------------------------------------
$262 $107 $122 $118
================================== =========================================================
52
NOTE G - SALE OF ACCOUNTS RECEIVABLE
On March 15, 2000, Ashland entered into a five-year agreement to sell, on
an ongoing basis with limited recourse, up to a $200 million undivided
interest in a designated pool of accounts receivable. Under the terms of
the agreement, new receivables are added to the pool and collections reduce
the pool. Since inception, interests totaling $150 million have been sold
on a continuous basis. Ashland retains a credit interest in these
receivables and addresses its risk of loss on this retained interest in its
allowance for doubtful accounts. Receivables sold exclude defaulted
accounts (as defined) or concentrations over certain limits with any one
customer. The proceeds from the initial sale were reflected as a reduction
of accounts receivable on Ashland's balance sheet and as cash flows from
operations (included in change in operating assets and liabilities) on
Ashland's cash flow statement. The costs of these sales are based on the
buyer's short-term borrowing rates and approximated 2.2% at September 30,
2002, and 3.5% at September 30, 2001.
NOTE H - FINANCIAL INSTRUMENTS
DERIVATIVE INSTRUMENTS
Ashland uses interest rate swaps and commodity-based and foreign currency
derivative instruments as described in Note A. Open contracts other than
interest rate swaps were not significant at September 30, 2002, and 2001.
FAIR VALUES
The carrying amounts and fair values of Ashland's significant financial
instruments at September 30, 2002, and 2001, are shown below. The fair
values of cash and cash equivalents, investments of captive insurance
companies and commercial paper approximate their carrying amounts. The fair
values of long-term debt are based on quoted market prices or, if market
prices are not available, the present values of the underlying cash flows
discounted at Ashland's incremental borrowing rates. The fair values of
interest rate swaps are based on quoted market prices.
2002 2001
Carrying Fair Carrying Fair
(In millions) amount value amount value
- ------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 90 $ 90 $ 236 $ 236
Interest rate swaps 11 11 3 3
Investments of captive insurance companies(1) 3 3 20 20
Liabilities
Commercial paper 10 10 - -
Long-term debt (including current portion) 1,797 1,958 1,871 2,023
=========================================
(1) Included in other noncurrent assets in the Consolidated Balance
Sheets.
NOTE I - ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
In October 1999, Ashland completed its tender offer for Superfos a/s, a
Denmark based industrial company. In November 1999, in a series of
transactions, Ashland sold the businesses of Superfos, other than its U.S.
construction operations, to a unit of Industri Kapital, a European private
equity fund. Ashland's net cost for the U.S. construction business of
Superfos was approximately $533 million, of which $315 million was assigned
to goodwill and was being amortized on a straight-line basis over a 20-year
period through September 30, 2001. In addition, several smaller
acquisitions were made by APAC and Ashland Specialty Chemical in 2000, two
of which included the issuance of $3 million in Ashland common stock.
During 2001, Ashland Specialty Chemical acquired Neste Polyester's
unsaturated polyester resins and gelcoats business and assets from Dynea
Oy. Several smaller acquisitions were also completed by APAC and Ashland
Specialty Chemical in 2001. During 2002, several small acquisitions were
made by APAC, Ashland Specialty Chemical and Valvoline. These acquisitions
were accounted for as purchases and did not have a significant effect on
Ashland's consolidated financial statements.
DIVESTITURES
During 2001, APAC sold certain grading and utilities construction
operations. During 2000, APAC sold certain concrete and block plants and
Ashland Distribution sold its plastics compounding business in Italy. None
of these divestitures had a significant effect on Ashland's consolidated
financial statements.
53
NOTE J - INCOME TAXES
A summary of the provision for income taxes related to continuing operations
follows.
(In millions) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Current(1)
Federal $151 $ 89 $ 55
State 22 13 6
Foreign 17 19 17
---------------------------------
190 121 78
Deferred (119) 152 111
---------------------------------
$ 71 $273 $189
=================================
(1) Income tax payments amounted to $158 million in 2002, $103 million
in 2001 and $114 million in 2000.
Deferred income taxes are provided for income and expense items recognized
in different years for tax and financial reporting purposes. Ashland has
not recorded deferred income taxes on the undistributed earnings of certain
foreign subsidiaries and 50% owned foreign corporate joint ventures.
Management intends to indefinitely reinvest such earnings, which amounted
to $96 million at September 30, 2002. Because of significant foreign tax
credits, it is not practicable to determine the U.S. federal income tax
liability, if any, that might be incurred if those earnings were
distributed. Temporary differences that give rise to significant deferred
tax assets and liabilities follow.
(In millions) 2002 2001
- ------------------------------------------------------------------------------------------------------------
Employee benefit obligations $204 $177
Environmental, self-insurance and litigation reserves 134 148
Compensation accruals 53 61
Uncollectible accounts receivable 19 20
Other items 54 59
-------------------
Total deferred tax assets 464 465
-------------------
Property, plant and equipment 186 173
Investment in unconsolidated affiliates 412 606
-------------------
Total deferred tax liabilities 598 779
-------------------
Net deferred tax liability $134 $314
===================
The U.S. and foreign components of income from continuing operations before
income taxes and a reconciliation of the statutory federal income tax with
the provision for income taxes follow.
(In millions) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes
United States $114 $605 $417
Foreign 86 71 60
---------------------------------
$200 $676 $477
=================================
Income taxes computed at U.S. statutory rate (35%) $ 70 $236 $167
Increase (decrease) in amount computed resulting from
State income taxes 1 22 14
Net impact of foreign results - 3 -
Nondeductible goodwill amortization - 12 7
Other items - - 1
---------------------------------
Income taxes $ 71 $273 $189
=================================
54
NOTE K - CAPITAL STOCK
From time to time, Ashland's Board of Directors has authorized the purchase
of shares of Ashland common stock in the open market. As of September 30,
2002, Ashland could purchase an additional 2.7 million shares under
previous authorizations.
Under Ashland's Shareholder Rights Plan, each common share is accompanied
by one right to purchase one-thousandth share of preferred stock for $140.
Each one-thousandth share of preferred stock will be entitled to dividends
and to vote on an equivalent basis with one common share. The rights are
neither exercisable nor separately transferable from the common shares
unless a party acquires or tenders for more than 15% of Ashland's common
stock. If any party acquires more than 15% of Ashland's common stock or
acquires Ashland in a business combination, each right (other than those
held by the acquiring party) will entitle the holder to purchase preferred
stock of Ashland or the acquiring company at a substantial discount. The
rights expire on May 16, 2006, and Ashland's Board of Directors can amend
certain provisions of the Plan or redeem the rights at any time prior to
their becoming exercisable.
At September 30, 2002, 500,000 shares of cumulative preferred stock are
reserved for potential issuance under the Shareholder Rights Plan and 7.5
million common shares are reserved for issuance under outstanding stock
options.
NOTE L - STOCK INCENTIVE PLANS
Ashland has stock incentive plans under which key employees or directors
can purchase shares of common stock under stock options or restricted stock
awards. Stock options are granted to employees at a price equal to the fair
market value of the stock on the date of grant and become exercisable over
periods of one to four years. Unexercised options lapse 10 years after the
date of grant. Restricted stock awards entitle employees or directors to
purchase shares at a nominal cost, to vote such shares and to receive any
dividends thereon. However, such shares are subject to forfeiture upon
termination of service before the restriction period ends.
As discussed in Note A, Ashland accounts for its stock incentive plans in
accordance with APB 25. Ashland has not recognized compensation expense for
stock options, because the exercise price of the options equals the market
price of the underlying stock on the date of grant, which is the
measurement date. If the alternative method of accounting for stock
incentive plans prescribed by FAS 123 had been followed, Ashland's net
income and earnings per share would have been reduced to the pro forma
amounts shown in the following table. The fair value per share of options
granted was determined using the Black-Scholes option pricing model with
the indicated assumptions.
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Pro forma
Net income (in millions) $ 113 $ 414 $ 66
Basic earnings per share 1.63 5.94 .93
Diluted earnings per share 1.61 5.88 .92
-----------------------------------
Weighted average fair value per share of options granted $5.35 $7.38 $7.26
-----------------------------------
Assumptions (weighted average)
Risk-free interest rate 2.9% 4.1% 6.1%
Expected dividend yield 3.8% 3.0% 3.3%
Expected volatility 26.7% 24.4% 22.9%
Expected life (in years) 5.0 5.0 5.0
===================================
A progression of activity and various other information relative to stock
options is presented in the following table.
2002 2001 2000
Weighted avg. Weighted avg. Weighted avg.
(In thousands except Common option price Common option price Common option price
per share data) shares per share shares per share shares per share
- --------------------------------------------------------------------------------------------------------------
Outstanding -
beginning of year(1) 6,735 $38.41 6,380 $38.01 6,381 $38.34
Granted 1,210 29.05 1,001 36.38 506 32.96
Exercised (413) 31.34 (572) 30.06 (195) 30.75
Canceled (50) 38.54 (74) 41.04 (312) 41.26
-------------------------------------------------------------------------------
Outstanding - end of year(1) 7,482 $37.28 6,735 $38.41 6,380 $38.01
===============================================================================
Exercisable - end of year 5,537 $39.34 4,803 $39.36 4,684 $38.53
===============================================================================
(1) Shares of common stock available for future grants of options or
awards amounted to 3,727,000 at September 30, 2002, and 4,812,000
at September 30, 2001. Exercise prices per share for options
outstanding at September 30, 2002, ranged from $23.88 to $33.88
for 2,591,000 shares, from $35.88 to $43.13 for 3,554,000 shares,
and from $44.20 to $53.38 for 1,337,000 shares. The weighted
average remaining contractual life of the options was 6.2 years.
55
NOTE M - LITIGATION, CLAIMS AND CONTINGENCIES
ASBESTOS-RELATED LITIGATION
Ashland is subject to liabilities from claims alleging personal injury
caused by exposure to asbestos. Those claims result primarily from
indemnification obligations undertaken in 1990 in connection with the sale
of Riley Stoker Corporation (Riley), a former subsidiary. Although Riley
was neither a producer nor a manufacturer of asbestos, its industrial
boilers contained some asbestos-containing components produced by other
companies.
A summary of asbestos claims activity follows. Because claims are
frequently filed and settled in large groups, the amount and timing of
settlements, and the number of open claims, can fluctuate significantly
from period to period. Over the last 17 years, Riley has been dismissed as
a defendant in 55% of the resolved claims.
(In thousands) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Open claims - beginning of year 167 118 93
New claims filed 45 52 37
Claims settled (15) (2) (9)
Claims dismissed (37) (1) (3)
---------------------------------
Open claims - end of year 160 167 118
=================================
Amounts spent on litigation defense and claim settlements totaled $38
million in 2002, $15 million in 2001 and $11 million in 2000. Insurance
provides reimbursements for most of these costs, and coverage-in-place
agreements exist with the insurance carriers that provide substantially all
of the coverage that is currently being accessed. The amounts not
recoverable are generally due from insurers that are insolvent, rather than
as a result of uninsured claims or the exhaustion of the insurance
coverage.
In previous years, Ashland recognized a net reserve for the estimated
litigation defense and claim settlement costs to settle open claims that
would not be recovered from insolvent insurance carriers. However, the
reserve and related receivable are now presented on a gross basis in
consolidated balance sheet at September 30, 2001, to conform to the 2002
presentation. This change did not result from an increase in expected
asbestos exposure, and had no effect on net income or stockholders' equity.
Under this presentation, the reserve for asbestos claims amounted to $202
million at September 30, 2002, and $199 million at September 30, 2001. Such
reserve reflects the estimated costs on an undiscounted basis that will be
incurred over an extended period to resolve open claims. In addition, the
receivable for recoveries of litigation defense and claim settlement costs
from insurers amounted to $196 million at September 30, 2002, and $178
million at September 30, 2001.
The reserve for asbestos claims is based on assumptions and estimates
derived from currently known facts. However, projecting future events, such
as the average cost of resolving the open claims, is subject to numerous
variables that are extremely difficult to predict. These variables include
the type and severity of the disease alleged by each claimant, dismissal
rates, future costs of medical treatment, the impact of bankruptcies of
other companies that are co-defendants in claims, uncertainties surrounding
the litigation process from jurisdiction to jurisdiction and from case to
case, and the impact of potential changes in legislative or judicial
standards.
Ashland believes that insurance will cover the majority of the costs that
will be incurred on open and future asbestos claims. Equitas Limited
(Equitas) and other London companies currently provide about 59% of the
insurance coverage, and this percentage could decline over time to around
44% if higher layers of coverage provided by other carriers have to be
accessed. The remaining 41% of the coverage is currently provided by five
companies, all of which are rated A or higher by A. M. Best Company.
Depending upon the level of costs that are ultimately incurred, the
non-London coverage could ultimately expand to about 25 insurance companies
or groups. Companies or groups that provide about 90% of this coverage are
also rated A or higher.
Ashland has not recognized a reserve for future asbestos claims that may be
asserted. Although additional claim filings are expected, Ashland does not
have sufficient information to make a reasonable estimate of the number of
new claims that might be filed. Furthermore, any predictions about the
other variables discussed previously are subject to even greater
uncertainty as the projection period lengthens. Ashland has retained the
services of professional advisors to assist management in the estimation of
projected liabilities and probable insurance recoveries for future asbestos
claims. Results of that effort are expected to be available during the
quarter ending March 31, 2003.
Although coverage limits are resolved in the coverage-in-place agreement
with Equitas and the other London companies, there is a disagreement with
these companies over the timing of recoveries. Depending upon the
assumptions made with respect to the projected payments to settle future
claims, an unfavorable resolution of this disagreement could materially
affect the present value of additional insurance recoveries from those
companies. Until such time as this disagreement is resolved, Ashland will
use the less favorable interpretation of this agreement in estimating such
insurance recoveries.
56
ENVIRONMENTAL PROCEEDINGS
Ashland is subject to various federal, state and local environmental laws
and regulations that require environmental assessment or remediation
efforts (collectively environmental remediation) at multiple locations. At
September 30, 2002, such locations included 97 waste treatment or disposal
sites where Ashland has been identified as a potentially responsible party
under Superfund or similar state laws, approximately 140 current and former
operating facilities (including certain operating facilities conveyed to
MAP) and about 1,220 service station properties. Ashland's reserves for
environmental remediation amounted to $169 million at September 30, 2002,
and $176 million at September 30, 2001. Such amounts reflect Ashland's
estimates of the most likely costs that will be incurred over an extended
period to remediate identified conditions for which the costs are
reasonably estimable, without regard to any third-party recoveries.
Engineering studies, probability techniques, historical experience and
other factors are used to identify and evaluate remediation alternatives
and their related costs, in determining the estimated reserves for
environmental remediation.
Environmental remediation reserves are subject to numerous inherent
uncertainties that affect Ashland's ability to estimate its share of the
costs. Such uncertainties involve the nature and extent of contamination at
each site, the extent of required cleanup efforts under existing
environmental regulations, widely varying costs of alternate cleanup
methods, changes in environmental regulations, the potential effect of
continuing improvements in remediation technology, and the number and
financial strength of other potentially responsible parties at multiparty
sites. Ashland regularly adjusts its reserves as environmental remediation
continues.
None of the remediation locations is individually material to Ashland, as
its largest reserve for any site is less than $10 million. As a result,
Ashland's exposure to adverse developments with respect to any individual
site is not expected to be material, and these sites are in various stages
of ongoing remediation. Although environmental remediation could have a
material effect on results of operations if a series of adverse
developments occurs in a particular quarter or fiscal year, Ashland
believes that the chance of such developments occurring in the same quarter
or fiscal year is remote.
OTHER LEGAL PROCEEDINGS
In addition to the matters described above, there are pending or threatened
against Ashland and its current and former subsidiaries various claims,
lawsuits and administrative proceedings. Such actions are with respect to
commercial matters, product liability, toxic tort liability, and other
environmental matters, which seek remedies or damages some of which are for
substantial amounts. While these actions are being contested, their outcome
is not predictable with assurance.
NOTE N - DISCONTINUED OPERATIONS
On March 16, 2000, Ashland's Board of Directors approved a spin-off of 17.4
million shares of its Arch Coal Common Stock to Ashland's shareholders of
record on March 24, 2000, in the form of a taxable dividend. The shares
were distributed on the basis of .246097 of a share of Arch Coal for each
Ashland share outstanding. The spin-off resulted in a charge to retained
earnings of $123 million, with no gain or loss recorded. Ashland sold its
remaining 4.7 million Arch Coal shares in a public offering during February
2001 for $86 million (after underwriting commissions). In 2002, Ashland
received $22 million in current tax benefits from capital loss carrybacks
generated by the sale, which are included in "Cash provided (used) by
discontinued operations" on the Statements of Consolidated Cash Flows.
Ashland's net income (loss) associated with Arch Coal and other
discontinued operations are summarized below.
(In millions) 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
Arch Coal
Equity loss $ - $ - $(246)(1)
Administrative expenses - - (1)
Reserves related to other discontinued operations - (23) -
GAIN (LOSS) ON DISPOSAL OF ARCH COAL
Gain on sale of stock - 49 -
Costs related to the spin-off - - (5)
------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES - 26 (252)
INCOME TAXES
Income (loss) from discontinued operations - 9 32
Gain (loss) on disposal of Arch Coal - (16) 2
------------------------------------
RESULTS FROM DISCONTINUED OPERATIONS $ - $19 $(218)
====================================
(1) Includes a net loss of $203 million related to asset impairment
and restructuring costs, largely due to the write-down of assets
at Arch's Dal-Tex and Hobet 21 mining operations and certain coal
reserves in central Appalachia.
57
NOTE O - EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT PLANS
Ashland and its subsidiaries sponsor noncontributory, defined benefit
pension plans that cover substantially all employees. Benefits under these
plans are generally based on employees' years of service and compensation
during the years immediately preceding their retirement. For certain plans,
50% of employees' leveraged employee stock ownership plan (LESOP) accounts
are coordinated with and used to partially fund their pension benefits.
Ashland's objective is to fully fund the accumulated benefit obligations of
its qualified plans, and determines the level of its contributions annually
to achieve that objective over time. Ashland's contributions of $103
million to its pension plans during 2002 exceeded the amounts required
under federal laws and regulations by $48 million. These additional
contributions were made to partially mitigate the adverse effects of the
reduction in the discount rate and depressed investment returns on the
funded status of its qualified plans.
Ashland and its subsidiaries also sponsor other postretirement benefit
plans, which provide health care and life insurance benefits for eligible
employees who retire or are disabled. Retiree contributions to Ashland's
health care plans are adjusted periodically, and the plans contain other
cost-sharing features, such as deductibles and coinsurance. Life insurance
plans are generally noncontributory. Ashland funds the costs of benefits as
they are paid.
Summaries of the changes in the benefit obligations and plan assets
(primarily listed stocks and debt securities) and of the funded status of
the plans follow.
Pension benefits
2002 2001
------------------------------------------- Other
Non- Non- postretirement
Qualified qualified Qualified qualified benefits
(In millions) plans plans plans plans 2002 2001
- ------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations at October 1 $715 $103 $595 $ 87 $333 $269
Service cost 42 1 35 2 12 11
Interest cost 52 7 46 7 23 22
Retiree contributions - - - - 8 7
Benefits paid (30) (4) (28) (5) (33) (28)
Other-primarily actuarial loss 95 2 67 12 18 52
-----------------------------------------------------------------
Benefit obligations at September 30 $874 $109 $715 $103 $361 $333
=================================================================
CHANGE IN PLAN ASSETS
Value of plan assets at October 1 $518 $ - $506 $ - $ - $ -
Actual return on plan assets (42) - (40) - - -
Employer contributions 103 4 76 5 25 21
Retiree contributions - - - - 8 7
Benefits paid (30) (4) (28) (5) (33) (28)
Other 2 - 4 - - -
-----------------------------------------------------------------
Value of plan assets at September 30 $551 $ - $518 $ - $ - $ -
=================================================================
FUNDED STATUS OF THE PLANS
Unfunded accumulated obligation $150 $ 98 $ 53 $ 91 $361 $333
Provision for future salary increases 173 11 144 12 - -
-----------------------------------------------------------------
Excess of obligations over plan assets 323 109 197 103 361 333
Unrecognized actuarial loss (354) (43) (186) (44) (72) (56)
Unrecognized prior service credit (cost) (2) - (3) - 15 24
-----------------------------------------------------------------
Net liability recognized $(33) $ 66 $ 8 $ 59 $304 $301
=================================================================
BALANCE SHEET LIABILITIES (ASSETS)
Prepaid benefit costs $ - $ (4) $ - $ -
Accrued benefit liabilities 250 144 304 301
Intangible assets (2) (2) - -
Accumulated other comprehensive loss (215) (71) - -
-----------------------------------------------------------------
Net liability recognized $ 33 $ 67 $304 $301
=================================================================
ASSUMPTIONS AS OF SEPTEMBER 30
Discount rate 6.75% 7.25% 6.75% 7.25%
Salary adjustment rate 5.00 5.00 - -
Expected return on plan assets 9.00 9.00 - -
=================================================================
58
The following table details the components of pension and other
postretirement benefit costs.
Other
Pension benefits postretirement benefits
(In millions) 2002 2001 2000 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Service cost $43 $37 $37 $12 $11 $ 9
Interest cost 59 53 47 23 22 19
Expected return on plan assets (47) (48) (39) - - -
Other amortization and deferral 19 4 5 (6) (6) (9)
----------------------------------------------------------
$74 $46 $50 $29 $27 $19
==========================================================
Ashland amended nearly all of its retiree health care plans in 1992 to
place a cap on its contributions and to adopt a cost-sharing method based
upon years of service. The cap limits Ashland's contributions to base year
per capita costs, plus annual increases of up to 4.5% per year. These
amendments reduced Ashland's obligations under its retiree health care
plans, with the reduction amortized to income over approximately 12 years.
The remaining credit at September 30, 2002, amounted to $14 million, and
the amortization to income will amount to $8 million in 2003 and $6 million
in 2004.
OTHER PLANS
Ashland sponsors a qualified savings plan to assist eligible employees in
providing for retirement or other future needs. Under that plan, Ashland
contributes up to 4.2% of a participating employee's earnings. Company
contributions amounted to $17 million in 2002, $16 million in 2001 and $15
million in 2000.
NOTE P - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents quarterly financial information and per share
data relative to Ashland's common stock. Amounts for the December 2001
quarter have been restated to include the cumulative effect of accounting
change for the adoption of FAS 142. Amounts for the September 2001 quarter
have been restated for the adoption of FAS 145. See Note A for further
explanations.
Quarters ended December 31 March 31 June 30 September 30
(In millions except per share data) 2001(1) 2000 2002(1) 2001 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------
Sales and operating revenues $1,812 $1,878 $1,598 $1,659 $2,047 $2,053 $2,086 $2,129
Operating income (loss) 98 144 (1) 87 137 369 104 251
Income (loss) from continuing operations 38 59 (21) 26 65 197 47 122
Net income (loss) 27 59 (21) 46 65 197 47 116
Basic earnings (loss) per share
Continuing operations $ .55 $ .84 $ (.31) $ .37 $ .94 $ 2.82 $ .68 $ 1.75
Net income (loss) .38 .84 (.31) .66 .94 2.82 .68 1.66
Diluted earnings (loss) per share
Continuing operations $ .54 $ .84 $ (.31) $ .37 $ .93 $ 2.79 $ .68 $ 1.73
Net income (loss) .38 .84 (.31) .66 .93 2.79 .68 1.64
Common cash dividends per share $ .275 $ .275 $ .275 $ .275 $ .275 $ .275 $ .275 $ .275
Market price per common share
High $46.54 $36.24 $46.98 $41.35 $45.61 $44.25 $41.20 $44.05
Low 37.60 30.63 43.04 34.39 37.11 37.15 26.29 35.53
===========================================================================
(1) MAP maintains an inventory valuation reserve to reduce the LIFO
cost of its inventories to their net realizable values.
Adjustments in that reserve are recognized quarterly based on
changes in petroleum product prices, creating non-cash charges or
credits to Ashland's earnings. A pretax charge of $29 million ($18
million after tax, or $.26 per share) was recognized in the
December 2001 quarter and reversed in the March 2002 quarter as a
result of these adjustments.
59
Ashland Inc. and Consolidated Subsidiaries
INFORMATION BY INDUSTRY SEGMENT
Years Ended September 30
(In millions) 2002 2001 2000
REVENUES
Sales and operating revenues
APAC $2,652 $2,624 $2,505
Ashland Distribution 2,535 2,849 3,214
Ashland Specialty Chemical 1,290 1,248 1,283
Valvoline 1,152 1,092 1,077
Intersegment sales(1)
Ashland Distribution (20) (26) (38)
Ashland Specialty Chemical (64) (66) (78)
Valvoline (2) (2) (2)
-----------------------------------
7,543 7,719 7,961
Equity income
Ashland Specialty Chemical 4 4 4
Valvoline 1 1 1
Refining and Marketing 176 749 389
-----------------------------------
181 754 394
Other income
APAC 12 13 21
Ashland Distribution 17 15 9
Ashland Specialty Chemical 26 27 30
Valvoline 6 6 7
Refining and Marketing 2 7 6
Corporate 5 6 8
-----------------------------------
68 74 81
-----------------------------------
$7,792 $8,547 $8,436
===================================
OPERATING INCOME
APAC $ 122 $ 55 $ 140
Ashland Distribution 1 35 70
Ashland Specialty Chemical 87 58 95
Valvoline 77 81 78
Refining and Marketing(2) 143 707 361
Corporate (92) (85) (73)
-----------------------------------
$ 338 $ 851 $ 671
===================================
ASSETS
APAC $1,498 $1,574 $1,654
Ashland Distribution 884 961 1,047
Ashland Specialty Chemical 944 944 888
Valvoline 611 642 573
Refining and Marketing 2,409 2,452 2,352
Corporate(3) 379 558 311
-----------------------------------
$6,725 $7,131 $6,825
===================================
60
(In millions) 2002 2001 2000
INVESTMENT IN EQUITY AFFILIATES
APAC $ (2) $ - $ 10
Ashland Specialty Chemical 41 36 40
Valvoline 9 9 7
Refining and Marketing 2,350 2,387 2,295
-----------------------------------
$2,398 $2,432 $2,352
===================================
EXPENSE (INCOME) NOT AFFECTING CASH
Depreciation, depletion and amortization
APAC $ 114 $ 133 $ 129
Ashland Distribution 21 27 23
Ashland Specialty Chemical 50 56 49
Valvoline 24 23 23
Corporate 11 11 13
-----------------------------------
220 250 237
Other noncash items(4)
APAC 24 14 9
Ashland Distribution 1 (1) (3)
Ashland Specialty Chemical 5 5 3
Valvoline (2) 4 -
Refining and Marketing (168) 21 (17)
Corporate 41 24 (12)
-----------------------------------
(99) 67 (20)
-----------------------------------
$ 121 $ 317 $ 217
===================================
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
APAC $ 107 $ 92 $ 98
Ashland Distribution 12 15 18
Ashland Specialty Chemical 38 57 82
Valvoline 21 29 25
Corporate 7 12 9
-----------------------------------
$ 185 $ 205 $ 232
===================================
(1) Intersegment sales are accounted for at prices that approximate
market value.
(2) Includes Ashland's equity income from MAP, amortization related to
Ashland's excess investment in MAP, and other activities
associated with refining and marketing.
(3) Includes cash, cash equivalents and other unallocated assets.
(4) Includes deferred income taxes, equity income from affiliates net
of distributions, and other items not affecting cash.
61
Ashland Inc. and Consolidated Subsidiaries
FIVE-YEAR SELECTED FINANCIAL INFORMATION
Years Ended September 30
(In millions except per share data) 2002 2001 2000 1999 1998
SUMMARY OF OPERATIONS
Revenues
Sales and operating revenues $7,543 $7,719 $7,961 $6,801 $6,534
Equity income 181 754 394 351 304
Other income 68 74 81 101 70
Costs and expenses
Cost of sales and operating expenses (6,049) (6,319) (6,434) (5,346) (5,299)
Selling, general and
administrative expenses (1,185) (1,127) (1,094) (1,054) (1,006)
Depreciation, depletion and
amortization (220) (250) (237) (228) (181)
----------------------------------------------------------------
Operating income 338 851 671 625 422
Net interest and other financial costs (138) (175) (194) (140) (130)
----------------------------------------------------------------
Income from continuing operations
before income taxes 200 676 477 485 292
Income taxes (71) (273) (189) (194) (114)
----------------------------------------------------------------
Income from continuing operations 129 403 288 291 178
Results from discontinued operations - 19 (218) (1) 25
----------------------------------------------------------------
Income before cumulative effect
of accounting changes 129 422 70 290 203
Cumulative effect of accounting changes (12) (5) - - -
----------------------------------------------------------------
Net income $ 117 $ 417 $ 70 $ 290 $ 203
================================================================
BALANCE SHEET INFORMATION
Current assets $1,925 $2,237 $2,139 $2,063 $1,832
Current liabilities 1,511 1,534 1,712 1,401 1,367
----------------------------------------------------------------
Working capital $ 414 $ 703 $ 427 $ 662 $ 465
================================================================
Total assets $6,725 $7,131 $6,825 $6,478 $6,136
================================================================
Debt due within one year $ 201 $ 85 $ 327 $ 219 $ 125
Long-term debt (less current portion) 1,606 1,786 1,899 1,627 1,507
Stockholders' equity 2,173 2,226 1,965 2,200 2,137
----------------------------------------------------------------
Capital employed $3,980 $4,097 $4,191 $4,046 $3,769
================================================================
CASH FLOW INFORMATION
Cash flows from operations $ 188 $ 829 $ 484 $ 383 $ 354
Additions to property, plant and equipment 185 205 232 248 274
Cash dividends 76 76 78 81 84
================================================================
COMMON STOCK INFORMATION
Diluted earnings per share
Income from continuing operations $ 1.83 $ 5.73 4.05 $ 3.90 $ 2.31
Net income 1.67 5.93 .98 3.89 2.63
Cash dividends per share 1.10 1.10 1.10 1.10 1.10
================================================================
62
EXHIBIT 21
LIST OF SUBSIDIARIES
Subsidiaries of Ashland Inc. ("AI") at September 30, 2002, included the
companies listed below. Ashland has numerous unconsolidated affiliates, which
are primarily accounted for on the equity method, and majority-owned
consolidated subsidiaries in addition to the companies listed below. Such
affiliates and subsidiaries are not listed below since they would not constitute
a significant subsidiary considered in the aggregate as a single entity.
Jurisdiction of Immediate
Company Incorporation Parent*
------- ------------- -----------
APAC-Alabama, Inc......................................... Delaware AHI
APAC-Arkansas, Inc........................................ Delaware AHI
APAC-Carolina, Inc........................................ Delaware AHI
APAC-Florida, Inc......................................... Delaware AHI
APAC-Georgia, Inc......................................... Georgia AHI
APAC Holdings, Inc. ("AHI")............................... Delaware AI
APAC-Kansas, Inc.......................................... Delaware AHI
APAC-Mississippi, Inc..................................... Delaware AHI
APAC-Missouri, Inc........................................ Delaware AHI
APAC-Oklahoma, Inc........................................ Delaware AHI
APAC-Tennessee, Inc....................................... Delaware AHI
APAC-Texas, Inc........................................... Delaware AHI
APAC-Virginia, Inc........................................ Delaware AHI
ASH GP LLC ("ASH GP")..................................... Delaware AIHI
Ashland ACT Korea Limited................................. Korea AHBV
Ashland Canada Corp. ..................................... Nova Scotia, Canada ACHBV
Ashland Canada Holdings B.V. ("ACHBV").................... Netherlands AHBV
Ashland Chemical Hispania, S.L............................ Spain AI
Ashland France SAS........................................ France AHBV 99% - ASBV 1%
Ashland Holdings B.V. ("AHBV")............................ Netherlands ATCV
Ashland International Holdings, Inc. ("AIHI")............. Delaware AI
Ashland Italia S.p.A...................................... Italy ATCV 95% - AOCV 5%
Ashland Nederland B.V..................................... Netherlands AHBV
Ashland Services B.V. ("ASBV")............................ Netherlands AHBV
Ashland UK Limited........................................ United Kingdom AHBV
Ashmont Insurance Company, Inc. .......................... Vermont AI
AshOne C.V. ("AOCV") ..................................... Netherlands AI 10% - AIHI 89% - ASH GP 1%
AshTwo C.V. ("ATCV")...................................... Netherlands AIHI 10% - AOCV 89% - ASH GP 1%
Marathon Ashland Petroleum LLC............................ Delaware AI 38%
Valvoline (Australia) Pty. Ltd............................ Australia AHBV
- ---------------
*100% of the voting securities are owned by the immediate parent except as
otherwise indicated.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-52125) pertaining to the Ashland Inc. Deferred
Compensation and Stock Incentive Plan for Non-Employee Directors, in the
Registration Statement (Form S-8 No. 2-95022) pertaining to the Ashland
Inc. Amended Stock Incentive Plan for Key Employees, in the Registration
Statement (Form S-8 No. 33-32612) pertaining to the Ashland Inc. Employee
Savings Plan, in the Registration Statement (Form S-8 No. 33-26101)
pertaining to the Ashland Inc. Long-Term Incentive Plan, in the
Registration Statement (Form S-8 No. 33-55922) pertaining to the Ashland
Inc. 1993 Stock Incentive Plan, in the Registration Statement (Form S-8 No.
33-49907) pertaining to the Ashland Inc. Leveraged Employee Stock Ownership
Plan, in the Registration Statement (Form S-8 No. 33-62901) pertaining to
the Ashland Inc. Deferred Compensation Plan, in the Registration Statement
(Form S-8 No. 333-33617) pertaining to the Ashland Inc. 1997 Stock
Incentive Plan, in the Registration Statement (Form S-3 No. 333-78675)
pertaining to the registration of 68,925 shares of Ashland Inc. Common
Stock, in the Registration Statement (Form S-3 No. 333-36842) pertaining to
the registration of 96,600 shares of Ashland Inc. Common Stock, in the
Registration Statement (Form S-3 No. 333-54762) pertaining to the
registration of 149,300 shares of Ashland Inc. Common Stock, in the
Registration Statement (Form S-3 No. 333-82830) pertaining to the
registration of 265,100 shares and in the Registration Statement (Form S-3
No. 333-69138) pertaining to the offering of $600,000,000 of Debt
Securities, Preferred Stock, Depository Shares, Common Stock and/or
Warrants of Ashland Inc., of our report dated November 6, 2002, with
respect to the consolidated financial statements and schedule of Ashland
Inc. and consolidated subsidiaries included in this Annual Report (Form
10-K) for the year ended September 30, 2002.
Cincinnati, Ohio
November 26, 2002
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors and
Officers of ASHLAND INC., a Kentucky corporation, which is about to file an
Annual Report on Form 10-K with the Securities and Exchange Commission
under the provisions of the Securities Exchange Act of 1934, as amended,
hereby constitutes and appoints JAMES J. O'BRIEN, DAVID L. HAUSRATH and
LINDA L. FOSS, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power to act without the others to
sign and file such Annual Report and the exhibits thereto and any and all
other documents in connection therewith, and any such amendments thereto,
with the Securities and Exchange Commission, and to do and perform any and
all acts and things requisite and necessary to be done in connection with
the foregoing as fully as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any
of them, may lawfully do or cause to be done by virtue hereof.
Dated: November 7, 2002
/s/ James J. O'Brien /s/ Bernadine P. Healy
- --------------------------------------- --------------------------------
James J. O'Brien, Chairman of the Board Bernadine P. Healy, Director
and Chief Executive Officer
/s/ J. Marvin Quin /s/ Mannie L. Jackson
- --------------------------------------- --------------------------------
J. Marvin Quin, Senior Vice President Mannie L. Jackson, Director
and Chief Financial Officer
/s/ Kenneth L. Aulen /s/ Patrick F. Noonan
- --------------------------------------- --------------------------------
Kenneth L. Aulen, Administrative Vice Patrick F. Noonan, Director
President, Controller and Principal
Accounting Officer
/s/ Samuel C. Butler /s/ Jane C. Pfeiffer
- --------------------------------------- --------------------------------
Samuel C. Butler, Director Jane C. Pfeiffer, Director
/s/ Frank C. Carlucci /s/ William L. Rouse, Jr.
- --------------------------------------- --------------------------------
Frank C. Carlucci, Director William L. Rouse, Jr., Director
/s/ Ernest H. Drew /s/ Theodore M. Solso
- --------------------------------------- --------------------------------
Ernest H. Drew, Director Theodore M. Solso, Director
/s/ James B. Farley /s/ Michael J. Ward
- --------------------------------------- --------------------------------
James B. Farley, Director Michael J. Ward, Director
/s/ Roger W. Hale
- ---------------------------------------
Roger W. Hale, Director
ASHLAND INC.
Certificate of Assistant Secretary
The undersigned hereby certifies that she is an Assistant Secretary of
Ashland Inc., a Kentucky corporation (the "Corporation"), and that, as
such, she is authorized to execute this Certificate on behalf of the
Corporation and further certifies that:
(a) Attached hereto as Exhibit A is a true and correct copy of an
excerpt from the minutes of the meeting of the Board of Directors
of the Corporation held on November 7, 2002, setting forth certain
actions taken at such meeting, and the powers and authorities
granted pursuant to such actions have at all times been in effect
without amendment, waiver, rescission or modification since
November 7, 2002.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Corporation on this 2nd day of December, 2002.
/s/ Linda L. Foss
------------------------
Linda L. Foss
Assistant Secretary
[SEAL]
Exhibit A
Annual Report on Form 10-K
RESOLVED, that the Corporation's Annual Report to the Securities and
Exchange Commission (the "SEC") on Form 10-K (the "Form 10-K") in the form
previously circulated to the Board in preparation for this meeting be, and
it hereby is, approved with such changes as the Chief Executive Officer,
any Vice President, the Secretary or the Corporation's counsel ("Authorized
Persons") shall approve, the execution and filing of the Form 10-K with the
SEC to be conclusive evidence of such approval; provided, however, that
without derogating from the binding effect of the above, it is understood
that an Authorized Person shall cause the distribution prior to the filing
with the SEC, of a copy of such Form 10-K to the directors in substantially
that form which is to be filed with the SEC and that each director shall
have the opportunity to review with and comment to an Authorized Person
prior to such filing;
FURTHER RESOLVED, that the Authorized Persons be, and each of them hereby
is, authorized to file with the SEC the Form 10-K and any amendments
thereto on Form 10-K/A and/or any other applicable form; and
FURTHER RESOLVED, that the Authorized Persons be, and each of them hereby
is, authorized to take all such further actions as in their judgment may be
necessary or advisable to accomplish the purposes of the foregoing
resolutions.
Exhibit 99.1
ASHLAND INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Ashland Inc. (the "Company") on
Form 10-K for the year ended September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
James J. O'Brien, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ James J. O'Brien
- --------------------------------
James J. O'Brien
Chief Executive Officer
December 3, 2002
Exhibit 99.2
ASHLAND INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Ashland Inc. (the "Company") on
Form 10-K for the year ended September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, J.
Marvin Quin, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ J. Marvin Quin
- ------------------------------
J. Marvin Quin
Chief Financial Officer
December 3, 2002