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                               UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549

                               -------------

                                 FORM 10-K

                     FOR ANNUAL AND TRANSITION REPORTS
                  PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934

           (Mark One)
           |X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934

               For the fiscal year ended September 30, 2004

                                     OR
           |_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                THE SECURITIES EXCHANGE ACT OF 1934

          For the transition period from _________ to ___________


                       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) of the Act: 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|
     Indicate by check mark whether the Registrant is an accelerated  filer
(as defined in Rule 12b-2 of the Act). Yes |X| No |_|
     At March 31, 2004, 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  $3,249,782,427.  In determining this amount,
the  Registrant  has assumed that its directors and executive  officers are
affiliates.  Such assumption  shall not be deemed  conclusive for any other
purpose.
     At November 30, 2004,  there were  71,941,455  shares of  Registrant's
common stock outstanding.
                    DOCUMENTS INCORPORATED BY REFERENCE
     Portions of  Registrant's  definitive  Proxy Statement for its January
27, 2005 Annual Meeting of Shareholders  are incorporated by reference into
Part III.



TABLE OF CONTENTS Page PART I Item 1. Business....................................................... 1 Corporate Developments....................................... 2 APAC......................................................... 2 Ashland Distribution......................................... 3 Ashland Specialty Chemical................................... 3 Valvoline.................................................... 4 Refining and Marketing....................................... 5 Miscellaneous................................................ 8 Item 2. Properties..................................................... 12 Item 3. Legal Proceedings.............................................. 12 Item 4. Submission of Matters to a Vote of Security Holders............ 14 Item X. Executive Officers of Ashland ................................. 14 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities........... 15 Item 6. Selected Financial Data........................................ 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 15 Item 7A. Quantitative and Qualitative Disclosures about Market Risk..... 15 Item 8. Financial Statements and Supplementary Data.................... 15 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure...................... 15 Item 9A. Controls and Procedures........................................ 16 Item 9B. Other Information.............................................. 16 PART III Item 10. Directors and Executive Officers of the Registrant............. 16 Item 11. Executive Compensation......................................... 16 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters....... 16 Item 13. Certain Relationships and Related Transactions................. 17 Item 14. Principal Accountant Fees and Services......................... 17 PART IV Item 15. Exhibits and Financial Statement Schedules..................... 17

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, 2004, is set forth on pages F-26 and F-27 of this annual report on Form 10-K. 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 mid-continent United States. Ashland Distribution distributes chemicals, plastics and resins in North America and plastics in Europe. Ashland Distribution also provides environmental services. Ashland Specialty Chemical is focused on two primary businesses: thermoset resins and water technologies. It is a, worldwide supplier of specialty chemicals serving industries including building and construction; commercial and institutional water treatment; graphic arts and printing; industrial water treatment; marine; metal casting; packaging and converting; pulp and paper; recreational marine; and transportation. Valvoline is a producer and marketer of premium packaged motor oil and automotive chemicals, including appearance products, antifreeze, filters, and automotive fragrances. 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 ("Marathon"), operates seven refineries with a total crude oil refining capacity of 948,000 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 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, 2004, Ashland and its consolidated subsidiaries had approximately 21,200 employees (excluding contract employees). Available Information. Ashland's Internet address is www.ashland.com. There, Ashland makes available, free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as well as any beneficial ownership reports of officers and directors filed electronically on Forms 3, 4 and 5. All such reports will be available as soon as reasonably practicable after Ashland electronically files such material with, or furnishes such material to, the Securities and Exchange Commission ("SEC"). Ashland also makes available, free of charge on its website, its Corporate Governance Guidelines; Board Committee Charters; Director Independence Standards; and Code of Business Conduct for directors, officers and employees. These documents are also available in print to any shareholder who requests it. Information contained on Ashland's website is not part of this annual report on Form 10-K and is not incorporated by reference in this document. Ashland has designated a Presiding Director of the Board of Directors, whose primary responsibility is to preside over regular executive sessions of the Board in which management directors and other members of management do not participate. The Presiding Director is an independent director appointed by the Board. The non-management directors of the Board have designated Mr. Solso to serve in this capacity through Ashland's 2006 Annual Meeting. Shareholders and others interested in communicating directly with the Board, the Presiding Director, with a specific member of the Board or a Committee of the Board, or with the non-management directors as a group may do so by writing to the Presiding Director, Ashland Inc., 50 E. RiverCenter Boulevard, P.O. Box 391, Covington, Kentucky 41012-0391, Attn: Secretary. Communications directed to the Presiding Director will be reviewed by the Secretary and distributed to the Presiding Director as well as to other individual directors, as appropriate, depending on the subject matter and facts and circumstances outlined in such correspondence.

Communications that are not related to the duties and responsibilities of the Board, or are otherwise inappropriate, will not be forwarded to the Presiding Director, although all communications directed to the Board will be available to any director upon request. CORPORATE DEVELOPMENTS On March 19, 2004, Ashland announced the signing of an agreement under which it would transfer its 38% interest in MAP and two wholly-owned businesses to Marathon in a transaction structured to be generally tax free and valued at approximately $3.0 billion. The two other businesses are Ashland's maleic anhydride business and 61 Valvoline Instant Oil Change ("VIOC") centers. The transaction is subject to several previously disclosed conditions, including approval by Ashland's shareholders, consent from Ashland's public debt holders and receipt of a favorable private letter ruling from the Internal Revenue Service ("IRS") with respect to the tax treatment of the transaction. Ashland has filed registration statements and proxy materials with the SEC and is responding to comments. In addition, Ashland submitted a request to the IRS for a private letter ruling on the tax-free status of the proposed transaction. Ashland continues to discuss the complex tax issues related to this transaction with the IRS. Ashland has not resolved all issues with the IRS and is exploring alternatives for the resolution of these issues. At this time, Ashland cannot predict whether the requested rulings will be received. If the requested rulings are not received, the transaction would have to be modified or terminated. In any event, Ashland does not believe that a transaction will close earlier than March 2005. APAC The Ashland Paving And Construction, Inc. group of companies ("APAC") is one of the nation's largest transportation construction contractors 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 24 market-focused business units and a Major Projects Group operating in 14 southern and mid-continent states. These business units provide construction services and materials throughout the regions in which they operate. The market-focused business units and Major Projects Group 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 93 aggregate production facilities, including 36 permanent operating quarry locations; 31 ready-mix concrete plants; 226 hot-mix asphalt plants; and a fleet of over 13,000 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 each other. Raw materials and aggregate generally consists of sand, gravel, granite, limestone and sandstone. About 29% of the 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 materials, such as liquid asphalt, Portland cement and reinforcing steel, are purchased from third parties. Approximately 78% of APAC's sales and operating revenues are construction revenues, with the remaining 22% coming from sales of construction materials. Approximately 82% of APAC's construction revenues are derived directly from highway and other public sector sources, with the remaining 18% 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, 2004, was $1,746 million (including APAC's $19 million proportionate share of work related to an unconsolidated equity joint venture), compared to $1,745 million at September 30, 2003. 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, 2004, is considered firm, and a major portion is expected to be completed during fiscal 2005. 2

OTHER MATTERS For information on APAC and federal, state and local statutes and regulations governing releases into, or protection of, the environment, see "Item 3. Legal Proceedings - Environmental Proceedings" in this annual report on Form 10-K. ASHLAND DISTRIBUTION Ashland Distribution distributes chemicals, plastics and resins in North America and plastics in Europe. Suppliers include many of the world's leading chemical manufacturers. 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 126 locations in North America. Distribution of thermoplastic resins in Europe is conducted in 13 countries primarily through 17 third-party warehouses and one owned warehouse. Ashland Distribution operates in the following major market segments: Chemicals - Ashland Distribution distributes specialty and industrial chemicals, additives and solvents to industrial users in the United States, Canada, Mexico and Puerto Rico as well as some export operations. Markets served include the paint and coatings, personal care, inks, adhesives, polymer, rubber, industrial and institutional compounding, automotive, appliance and paper industries. Plastics - Ashland Distribution offers a broad range of thermoplastic resins and specialties to processors in the United States, Canada, Mexico and Puerto Rico as well as some export operations. Processors include injection molders, extruders, blow molders and rotational molders. Ashland Distribution 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, Denmark, 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. Environmental Services - Working in cooperation with chemical waste service companies, Ashland Distribution provides customers with collection, disposal and recycling of hazardous and non-hazardous waste streams. Services are offered through a North American network of more than 30 distribution centers, including 10 storage facilities that have been fully permitted by the United States Environmental Protection Agency ("USEPA"). On August 31, 2004, Ashland Distribution entered into an agreement to sell its ingestibles line of business - which includes food and beverage additives and pharmaceutical actives and excipients. Ashland expects the transaction to be completed by January 31, 2005. ASHLAND SPECIALTY CHEMICAL Ashland Specialty Chemical is focused on two primary businesses: thermoset resins and water technologies. It is a worldwide supplier of specialty chemicals serving industries including building and construction; commercial and institutional water treatment; graphic arts and printing; industrial water treatment; marine; metal casting; packaging and converting; power generation; pulp and paper; recreational marine and transportation. Ashland Specialty Chemical owns and operates 38 manufacturing facilities and participates in 12 manufacturing joint ventures in 19 countries. THERMOSET RESINS Composite Polymers - This business group manufactures and sells a broad range of corrosion-resistant, fire-retardant, general-purpose and high-performance marine grades of unsaturated polyester and vinyl ester resins and gel coats for the reinforced plastics industry. Key markets include the transportation, construction and marine industries. This business group has manufacturing plants in Jacksonville and Fort Smith, Arkansas; Los Angeles, California; Bartow, Florida; Pittsburgh and Philadelphia, Pennsylvania; Johnson Creek, Wisconsin; Kelowna, British Columbia, Canada; Kunshan, China; Porvoo and Lahti, Finland; Sauveterre, France; Miszewo, Poland; 3

Benicarlo, Spain; and, through separate joint ventures has manufacturing plants in Sao Paolo, Brazil, and Jeddah, Saudi Arabia. This business group also manufactures products through an Ashland Specialty Chemical facility located in Mississauga, Ontario, Canada. Composite Polymers also manufactures maleic anhydride in Neal, West Virginia, and markets maleic anhydride in North America. For information on the transfer of the maleic business as part of the proposed transfer of Ashland's 38% interest in MAP to Marathon, see "Item 1. Business - Corporate Developments" in this annual report on Form 10-K. In November 2004 this business group signed an agreement to purchase the DERAKANE(TM) epoxy vinyl ester resins business (which includes the DERAKANE MOMENTUM(TM) product line) from The Dow Chemical Company in a cash transaction valued at approximately $92 million. The closing of the transaction, which is anticipated to take place in late calendar 2004 or early 2005, is conditional upon a number of standard closing conditions, including several regulatory reviews. Casting Solutions - This business group manufactures and sells metal casting chemicals worldwide, including sand-binding resin systems, refractory coatings, release agents, engineered sand additives and riser sleeves. This group also provides casting process modeling, core making process modeling and rapid prototyping services. This business group serves the global metal casting industry from nine owned and operated manufacturing sites, which include factories located in Campinas, Brazil; Mississauga, Ontario, Canada; Changzhou, China; Milan, Italy; Alava, Cantabria, Spain; Kidderminster, England and Cleveland East and Cleveland West, Ohio. Casting Solutions also has eight joint venture manufacturing facilities located in Vienna, Austria; Pons and Le Goulet, France; Bendorf and Wuelfrath, Germany; Ulsan, South Korea; Alvsjo, Sweden and St. Gallen, Switzerland. Specialty Polymers and Adhesives - This business group manufactures and sells adhesive solutions to the building and construction, transportation, and packaging and converting markets. Key technologies and markets include: emulsion polymer isocyanate adhesives for structural wood bonding; elastomeric polymer adhesives and butyl rubber roofing tapes for commercial roofing applications; polyurethane and epoxy structural adhesives for bonding fiberglass reinforced plastics, composites, thermoplastics and metals in automotive, recreational, and industrial applications; specialty phenolic resins for paper impregnation and friction material bonding; induction bonding systems for thermoplastic materials; acrylic polymers for pressure-sensitive adhesives; urethane adhesives for flexible packaging applications; and hot melt adhesives for various packaging applications. It has manufacturing plants in Calumet City, Illinois; Norwood and Totowa, New Jersey; Ashland and Columbus, Ohio; White City, Oregon; and Kidderminster, England. WATER TECHNOLOGIES Drew Industrial - This business group supplies specialized chemicals and consulting services for 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 and has manufacturing plants in Kearny, New Jersey; Houston, Texas; Ajax, Ontario, Canada; Viiala, Finland; Somercotes, England; Chester Hill, Australia; and Singapore; and, through separate joint ventures, has production facilities in Seoul, South Korea and Navi Mumbai, India. Drew Marine - This business group supplies technical products and services for the global marine industry. Products and services worldwide include a comprehensive line of marine chemicals and water treatment testing, sealing products, welding and refrigeration products, and firefighting, safety and rescue products for the world's merchant marine fleet. 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 annual report on Form 10-K. VALVOLINE Valvoline is a marketer of premium-branded automotive and commercial lubricants, automotive chemicals, automotive appearance products and automotive services, with sales in more than 100 countries. The Valvoline(R) trademark was federally registered in 1873 and is the oldest trademark for lubricating oil in the United States. 4

Valvoline markets the following key brands of products and services to the private passenger car and light truck and commercial markets: Valvoline(R) lubricants, synthetic SynPower(R) automotive chemicals; Eagle One(R) automotive appearance products; Zerex(R) antifreeze; Pyroil(R) automotive chemicals; MaxLife(R) automotive products for vehicles with 75,000 miles or more; Premium Blue(R) commercial lubricants and Valvoline Instant Oil Change(R) automotive services. In North America, Valvoline is comprised of the following three core businesses: Do It Yourself ("DIY") - The DIY business group sells Valvoline products 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. Do It For Me ("DIFM") - The DIFM business unit sells Valvoline products to installers (such as car dealers and quick lubes) through a network of independent distributors and five company-owned and operated "direct market" operations. This business also includes a chain of quick lubes branded "Valvoline Express Care(R)," which consists of 348 independently owned and operated stores. The DIFM business group also has a strategic alliance with Cummins Engine Company, Inc. ("Cummins") to distribute heavy duty lubricants to the commercial market. Valvoline Instant Oil Change(R) - 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 DIFM segment of the passenger car and light truck motor oil market. As of September 30, 2004, 360 company-owned and 397 franchised service centers were operating in 39 states. (For information on the inclusion of 61 VIOC centers as part of the proposed transfer of Ashland's 38% interest in MAP to Marathon, see "Item 1. Business - Corporate Developments" in this annual report on Form 10-K.) VIOC has continued its customer service innovation through its upgraded and enhanced preventive maintenance tracking system for consumers and fleet operators. This computer-based system maintains service records on all customer vehicles and contains a database on all car models, which allows service technicians to make service recommendations based on vehicle owner's manual recommendations. Outside North America, Valvoline is comprised of one core business group: Valvoline International - Valvoline International markets Valvoline- and Eagle One- branded products through wholly-owned affiliates, joint ventures, licenses, and independent distributors in more than 100 countries. The profitability of the business is dispersed geographically, with more than half of the profit coming from mature markets in Europe and Australia. There are smaller, rapidly growing businesses in the emerging markets of China, India and Mexico, including joint ventures with Cummins in India and China. These businesses market lubricants for consumer vehicles and heavy duty engines and equipment and are served by toll manufacturers and company-owned plants in the United States, Australia, and the Netherlands. OTHER MATTERS For information on Valvoline and federal, state and local statutes and regulations governing releases into, or protection of, the environment, see "Item 3. Legal Proceedings - Environmental Proceedings" in this annual report on Form 10-K. 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. MAP also participates in the travel center business through its joint venture with Pilot Corporation ("Pilot"). Marathon holds a 62% interest in MAP, and Ashland holds a 38% interest in MAP. For information on the proposed transfer of Ashland's 38% interest in MAP to Marathon, see "Item 1. Business - Corporate Developments" in this annual report on Form 10-K. 5

Refining - MAP owns and operates seven refineries with an aggregate refining capacity of 948,000 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, 2004: Garyville, Louisiana................................... 245,000 Catlettsburg, Kentucky................................. 222,000 Robinson, Illinois..................................... 192,000 Detroit, Michigan...................................... 74,000 Canton, Ohio........................................... 73,000 Texas City, Texas...................................... 72,000 St. Paul Park, Minnesota............................... 70,000 -------- Total..................................... 948,000 ======== 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"). Approximately 60% of MAP's crude oil throughputs are sour crudes. In addition to typical refinery products, the Catlettsburg refinery, an ISO-9000 certified facility, manufactures base lube oil stocks and a wide range of petrochemicals. For the twelve months ended September 30, 2004, 58% of MAP's base lube oil production was purchased by Valvoline, and 39% of MAP's petrochemical production (excluding propylene) was purchased by Ashland Distribution. The table below sets forth MAP's refinery total input and refinery production by product group for the three years ended September 30, 2004. Refinery total inputs include crude oil and other feedstocks. Years Ended September 30 ---------------------------------- (in thousands of barrels per day) 2004 2003 2002 - -------------------------------- ------- ------- ------- Refinery Input 1,086.6 1,033.1 1,080.9 - -------------- Refined Product Yields - ---------------------- Gasoline 599.5 553.9 594.0 Distillates 291.5 278.4 292.9 Propane 21.3 20.7 21.7 Feedstocks & Special Products 90.3 87.6 83.5 Heavy Fuel Oils 23.2 23.1 21.3 Asphalt 73.8 70.5 73.3 ------- ------- ------- Total 1,099.6 1,034.2 1,086.7 ======= ======= ======= Planned maintenance activities requiring temporary shutdown of certain refinery operating units are periodically performed at each refinery. At its Catlettsburg, Kentucky, refinery, MAP has completed an approximately $440 million multi-year integrated investment program to upgrade product yield realizations and reduce fixed and variable manufacturing expenses. This program involved the expansion, conversion and retirement of certain refinery processing units which, in addition to improving profitability, reduced the refinery's total gasoline pool sulfur below 30 parts per million, thereby eliminating the need for additional low sulfur gasoline compliance investments at the refinery based on current regulations. In the December 2003 quarter, MAP commenced approximately $300 million in new capital projects for its Detroit, Michigan, refinery, with completion scheduled for the December 2005 quarter. One of the projects, a $110 million expansion project, is expected to raise crude throughput at the refinery by 35% to 100,000 barrels per day. Other projects are expected to enable the refinery to produce new clean fuels and further control regulated air emissions. MAP is obtaining financing from Marathon to fund these capital projects. 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 3,970 jobber-dealer, open-dealer and lessee-dealer locations using the Marathon(R) and Ashland(R) brand names. 6

Gasoline, distillates and aviation products are also sold to utilities, railroads, river towing companies, commercial fleet operators, airlines and governmental agencies. About one-half of MAP's propane is sold into the home heating markets and the balance is purchased by industrial consumers. Propylene and petrochemicals are marketed to customers in the chemical industry. Base lube oils, slack wax and extract are sold throughout the United States. Pitch is also sold domestically, but approximately 16% 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. Retail sales of gasoline and diesel fuel are made through MAP's wholly-owned subsidiary, Speedway SuperAmerica LLC ("SSA"). As of September 30, 2004, SSA had 1,685 retail outlets in nine states in the Midwest that 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. During the twelve months ended September 30, 2004, 64% 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") is the largest operator of travel centers in the United States with approximately 250 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. MAP's retail marketing strategy is focused on SSA's Midwest operations, additional growth in the Marathon(R) brand and continued growth for PTC. The table below shows the volume of MAP's consolidated refined product sales for the three years ended September 30, 2004. Years Ended September 30 --------------------------------- (in thousands of barrels per day) 2004 2003 2002 - -------------------------------- -------- -------- --------- Refined Product Sales - --------------------- Gasoline 801.9 772.4 774.3 Distillates 369.1 360.6 345.7 Propane 21.9 20.3 22.7 Feedstocks & Special Products 89.5 94.9 80.3 Heavy Fuel Oils 25.3 23.2 22.0 Asphalt 77.0 73.2 76.2 ------- ------- ------- Total 1,384.7 1,344.6 1,321.2 ======= ======= ======= Matching Buy/Sell Volumes included in above 68.4 68.3 69.3 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 year ended September 30, 2004, MAP's negotiated contract and spot purchases for refinery input of crude oil produced in the United States averaged 424,500 barrels per day, including an average of 22,300 net barrels per day acquired from Marathon. For the year ended September 30, 2004, 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 54% of MAP's crude oil requirements for the year ended September 30, 2004. 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 6,711 miles of pipelines in 13 states. This network transports crude oil and refined products to and from terminals, refineries and other pipelines and includes 2,861 miles of crude oil trunk lines and 3,850 miles of refined product lines. 7

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 LLC ("LOCAP"), which is the owner and operator of a crude oil pipeline connecting LOOP to the Capline system. Ashland has retained an 8.62% ownership interest in LOCAP. For information on the transfer of Ashland's interests in LOOP and LOCAP as part of the proposed transfer of Ashland's 38% interest in MAP to Marathon, see "Item 1. Business - Corporate Developments" in this annual report on Form 10-K. 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, a subsidiary of MAP, has completed construction of a pipeline from Kenova, West Virginia, to Columbus, Ohio. The pipeline is an interstate common carrier pipeline. The pipeline is known as Cardinal Products Pipeline. The pipeline, which has a capacity of up to 80,000 barrels per day, is expected to provide a stable, cost effective supply of gasoline, diesel and jet fuel to the central Ohio market. MAP has a 50% ownership in Centennial Pipeline LLC ("Centennial"). Centennial, a 797-mile refined products pipeline, is designed to transport approximately 210,000 barrels per day of refined petroleum products from the Gulf Coast to the Midwest. MAP has a 33.3% ownership interest 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 84 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 annual report on Form 10-K. In connection with the formation of MAP, Ashland and Marathon entered into a Put/Call, Registration Rights and Standstill Agreement (the "Put/Call Agreement"). The Put/Call Agreement provides that at any time after December 31, 2004, Ashland will have the right to sell Marathon all of Ashland's ownership interest in MAP, for an amount in cash and/or Marathon debt or equity securities equal to the product of 85% (90% if equity securities are used) of the fair market value of MAP at that time, multiplied by Ashland's percentage interest in MAP. Payment could be made at closing, or, at Marathon's option, in three equal annual installments, the first of which would be payable at closing. At any time after December 31, 2004, Marathon will have the right to purchase Ashland's ownership interest in MAP, for an amount in cash equal to the product of 115% of the fair market value in MAP at that time, multiplied by Ashland's percentage interest in MAP. The agreement entered into in connection with the proposed transfer of Ashland's 38% interest in MAP to Marathon provides that Ashland may not exercise its put right and Marathon may not exercise its call right under the Put/Call Agreement unless the agreement is terminated in accordance with its terms. For additional information on the proposed transfer of Ashland's 38% interest in MAP to Marathon, see "Item 1. Business - Corporate Developments" in this annual report on Form 10-K. MISCELLANEOUS ENVIRONMENTAL MATTERS Ashland has implemented a companywide environmental policy overseen by the Environmental, Health and Safety Committee of Ashland's Board of Directors. Ashland's Environmental, Health and Safety ("EH&S") 8

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 legislative and 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 precisely defined. In addition, most foreign countries in which Ashland conducts business have laws dealing with similar matters. At September 30, 2004, Ashland's reserves for environmental remediation amounted to $152 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. 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. Environmental remediation expense amounted to $2 million in 2004, $22 million in 2003 and $30 million in 2002. No individual remediation location is material to Ashland as its largest reserve for any site is less than 10% of the remediation reserve. 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. 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 USEPA promulgated revisions to the National Ambient Air Quality Standards ("NAAQS") for ground level ozone and particulate matter that could have a significant effect on certain of Ashland's chemical manufacturing and distribution businesses, and on MAP. The USEPA 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 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. 9

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. While many facilities are subject to the RCRA rules governing generators of hazardous waste, certain facilities also have hazardous waste storage permits. Ashland has implemented systems to oversee compliance with the RCRA regulations and, where applicable, permit conditions. In addition to regulating 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 research facilities in Dublin, Ohio; Lexington, Kentucky; Boonton, New Jersey; and Atlanta, Georgia. Research and development costs are expensed as they are incurred and totaled $43 million in fiscal 2004 ($36 million in 2003 and $34 million in 2002). 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, the geographic location of plants and aggregate materials, machinery and equipment, knowledge of local market conditions and estimating abilities. Each of Ashland Distribution's lines of business (chemicals, plastics, ingredients, composites, and environmental services), competes with national, regional and local companies throughout North America. The plastics distribution business also competes in Europe. Competition within each line of business 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 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. Valvoline competes in the highly competitive lubricants business principally through premium products and services, 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. Important competitive factors for Valvoline in the "fast oil change" market include Valvoline's brand recognition; increasing market presence through VIOC and Valvoline Express Care outlets; as well as quality of service, speed, location, convenience and sales promotion. 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, 2004. MAP competes in four 10

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 its 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 annual report on Form 10-K 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. 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 that 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 this annual report on Form 10-K. 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 terrorist activities, 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 this annual report on Form 10-K 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. Additional information concerning Ashland's asbestos-related litigation and environmental remediation may be found in Note M of "Notes to Consolidated Financial Statements" in this annual report on Form 10-K. 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 discharge of pollutants into the air and water, the management and disposal of hazardous substances, and the cleanup of contaminated properties. The costs 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 is 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, and marine. Both overall demand for Ashland's products and services 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. Ashland's profitability may also 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 11

of construction projects and may require the use of additional resources. Additionally, most of the refined products sold by MAP and Valvoline are seasonal in nature, and thus demand for those products may decline due to significant changes in prevailing climate and weather conditions such as floods, frozen rivers or hurricanes. Adverse weather conditions that impair driving conditions, such as winter storms, can also result in reduced retail sales of gasoline. 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); Boonton, New Jersey (Ashland Specialty Chemical); Lexington, Kentucky (Valvoline); and Russell, Kentucky (Administrative Services). All of these offices are leased, except for the Russell office and two buildings in Dublin, Ohio, which are 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 annual report on Form 10-K. Additional information concerning certain leases may be found in Note F of "Notes to Consolidated Financial Statements" in this annual report on Form 10-K. ITEM 3. LEGAL PROCEEDINGS Asbestos-Related Litigation - Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such 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 provided by other companies. The majority of lawsuits filed involve multiple plaintiffs and multiple defendants, with the number of defendants in many cases exceeding 100. The monetary damages sought in the asbestos-related complaints that have been filed in state or federal courts vary as a result of jurisdictional requirements and practices, though the vast majority of these complaints either do not specify monetary damages sought or merely recite that the monetary damages sought meet or exceed the required jurisdictional minimum in which the complaint was filed. Plaintiffs have asserted specific dollar claims for damages in approximately 6% of the 50,500 active lawsuits pending as of September 30, 2004. In these active lawsuits, less than 0.2% of the active lawsuits involve claims between $0 and $100,000; approximately 1.6% of the active lawsuits involve claims between $100,000 and $1 million; less than 1% of the active lawsuits involve claims between $1 million and $5 million; less than 0.2% of the active lawsuits involve claims between $5 million and $10 million; approximately 3% of the active lawsuits involve claims between $10 million and $15 million; and less than 0.02% of the active lawsuits involve claims between $15 million and $100 million. The variability of requested damages, coupled with the actual experience of resolving claims over an extended period, demonstrates that damages requested in any particular lawsuit or complaint bear little or no relevance to the merits or disposition value of a particular case. Rather, the amount potentially recoverable by a specific plaintiff or group of plaintiffs is determined by other factors such as product identification or lack thereof, the type and severity of the disease alleged, the number and culpability of other defendants, the impact of bankruptcies of other companies that are co-defendants in claims, specific defenses available to certain defendants, other potential causative factors and the specific jurisdiction in which the claim is made. For additional information regarding liabilities arising from asbestos-related litigation, see "Management's Discussion and Analysis - Application of Critical Accounting Policies - Asbestos-related litigation" and Note M of "Notes to Consolidated Financial Statements" in this annual report on Form 10-K. U.S. Department of Justice Antitrust Division Investigation - In November 2003, Ashland received a subpoena from the USDOJ relating to a foundry resins grand jury investigation. Ashland is providing responsive records to the subpoena. As is frequently the case when such investigations are in progress, a number of civil actions have since been filed in multiple jurisdictions, most of which are seeking class action status for classes of customers of foundry resins. These cases have been consolidated for pretrial purposes in the United States District Court, Southern District of Ohio. Ashland will vigorously defend the actions. Environmental Proceedings - (1) Under the federal Comprehensive Environmental Response Compensation and Liability Act (as amended) and similar state laws, Ashland may be subject to joint and several liability for clean-up costs in connection with alleged releases of hazardous substances at sites where it has been identified as a 12

"potentially responsible party" ("PRP"). As of September 30, 2004, Ashland had been named a PRP at 93 waste treatment or disposal sites. These sites are currently subject to ongoing investigation and remedial activities, overseen by USEPA 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. For additional information regarding environmental matters and reserves, see Note M of "Notes to Consolidated Financial Statements" in this annual report on Form 10-K. (2) On May 13, 2002, Ashland entered into a plea agreement with the U.S. Attorney's Office for the District of Minnesota and the U.S. Department of Justice regarding a May 16, 1997, sewer fire at the St. Paul Park, Minnesota refinery, which is now owned by MAP. As part of the plea agreement, Ashland entered guilty pleas to two misdemeanors, paid a $3.5 million fine related to violations of the CAA, paid $3.55 million as restitution to the employees injured in the fire, and paid $200,000 as restitution to the responding rescue units. Ashland also agreed to complete certain upgrades to the St. Paul Park refinery's process sewers, junction boxes and drains to meet standards established by Subpart QQQ of the New Source Performance Standards of the CAA (the "Refinery Upgrades"). The Refinery Upgrades are expected to be completed on or before the end of calendar 2004. In addition, as part of the plea agreement, Ashland entered into a deferred prosecution agreement, wherein prosecution of a separate count of the indictment charging Ashland with violating Subpart QQQ was deferred for four years. The deferred prosecution agreement provides that if Ashland satisfies the terms and conditions of the plea agreement and completes the Refinery Upgrades, the deferred prosecution agreement will terminate and the United States will dismiss that count with prejudice. Ashland believes that it has satisfied these terms and conditions and has filed a motion with the court requesting that the deferred count be dismissed. As part of its sentence, Ashland was placed on probation for five years. The primary condition of probation is an obligation not to commit future federal, state, or local crimes. If Ashland were to commit such a crime, it would be subject not only to prosecution for that new violation, but the government could also seek to revoke Ashland's probation. The probation office has retained an independent environmental consultant to review and monitor Ashland's compliance with applicable environmental requirements and the terms and conditions of probation. The court also included other customary terms and restrictions of probation in its probation order. (3) Pursuant to a 1988 RCRA Administrative Consent Order ("Consent Order"), Ashland is remediating soil and groundwater at a former chemical distribution facility site in Lansing, Michigan. The USEPA has asserted that Ashland has not complied with certain provisions of the Consent Order relating to interim remedial measures at the site. Although Ashland disputed this assertion, Ashland and the USEPA agreed to resolve the dispute prior to USEPA's filing of a formal enforcement action. Ashland has paid a $650,000 penalty, and has signed a Consent Agreement and Final Order ("CAFO") that reflects an agreement between the parties as to what will constitute future compliance with the disputed provisions of the original Consent Order. Ashland is continuing to work with the USEPA to design and implement a final remedy at the site. Once the final remedy is implemented, the CAFO will expire. (4) In 1990, contamination of groundwater at Ashland's former Canton, Ohio, refinery (now owned and operated by MAP) was first identified and reported to Ohio's Environmental Protection Agency ("OEPA"). Since that time, Ashland has voluntarily conducted investigation and remediation activities and regularly communicated with OEPA regarding this matter. Ashland and the state of Ohio have exchanged Consent Order drafts and have met to negotiate the terms of such an order. The state filed a complaint in February 2004, but simultaneously expressed an interest in continuing Consent Order settlement discussions. Following the filing of the complaint, Ashland, OEPA and Ohio's Office of the Attorney General have continued to work to finalize a Consent Order. The state has advised that it will assess a penalty as part of the overall settlement and has made an initial request for $650,000. 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 United States District Court, Eastern District of Kentucky, Covington Division. The case has been remanded to the state court. Ashland has filed a Motion to Dismiss the Complaint. 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 13

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 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. Other Legal Proceedings - In addition to the matters described above, there are various claims, lawsuits and administrative proceedings pending or threatened against Ashland and its current and former subsidiaries. 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. 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, 2004. 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 members of Ashland's Executive Committee and other executive officers). JAMES J. O'BRIEN (age 50) is Chairman of the Board, Chief Executive Officer and Director of Ashland, and has served in such capacities since 2002. During the past five years, he has also served as President, Chief Operating Officer, Senior Vice President and Group Operating Officer of Ashland, and as President of Valvoline. GARY A. CAPPELINE (age 55) is Senior Vice President of Ashland and President and Chief Operating Officer, Chemical Sector, and has served in such capacities since 2003. During the past five years, he has also served as Group Operating Officer of Ashland and President of Ashland Specialty Chemical, as a chemical industry partner at Bear Stearns Merchant Bank, as President of AlliedSignal Specialty Chemicals and as Group Vice President, Pigments and Additives of Engelhard Corp. DAVID J. D'ANTONI (age 59) was Senior Vice President of Ashland, and served in such capacity since 1988. During the past five years, he has also served as Group Operating Officer of Ashland, and President of Ashland Paving And Construction, Inc. Mr. D'Antoni retired from Ashland on September 30, 2004. DAVID L. HAUSRATH (age 52) is Senior Vice President, General Counsel and Secretary of Ashland and has served in such capacities since 2004, 1999 and 2004, respectively. During the past five years, he has also served as Vice President of Ashland. GARRY M. HIGDEM (age 51) is Senior Vice President of Ashland; President and Chief Operating Officer, Transportation Construction Sector; and President, Ashland Paving And Construction, Inc., and has served in such capacities since 2004. During the past five years, he has also served as Vice President for Granite Construction Incorporated, Heavy Construction Division. J. MARVIN QUIN (age 57) is Senior Vice President and Chief Financial Officer of Ashland and has served in such capacities since 1992. LAMAR M. CHAMBERS (age 49) is Vice President and Controller of Ashland and has served in such capacities since 2004. During the past five years, he has also served as Regional Vice President and Senior Vice President, Finance & Administration of Ashland Paving And Construction, Inc., and Auditor of Ashland. 14

SUSAN B. ESLER (age 43) is Vice President Human Resources of Ashland and has served in such capacity since 2004. During the past five years, she has also served as Vice President Human Resources Programs & Services, Director of Corporate Human Resources and Manager of Executive Compensation of Ashland. SAMUEL J. MITCHELL (age 43) is Vice President of Ashland and President of Valvoline and has served in such capacities since 2002. During the past five years, he has also served as Vice President - Retail Business, Vice President of Marketing and Director of Marketing -Valvoline. FRANK L. WATERS (age 43) is Vice President of Ashland and President of Ashland Distribution and has served in such capacities since 2002. During the past five years, he has also served as Vice President of Ashland Plastics - Europe. Each executive officer is elected by the Board of Directors of Ashland to a term of one year, or until a successor is duly elected, at the annual meeting of the Board of Directors, except in those instances where the officer is elected other than at an annual meeting of the Board of Directors, in which case his or her tenure will expire at the next annual meeting of the Board of Directors unless the officer is re-elected. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES There is hereby incorporated by reference the information appearing in Note P of "Notes to Consolidated Financial Statements" in this annual report on Form 10-K. At September 30, 2004, there were approximately 15,900 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 See Five-Year Selected Financial Information on page F-28. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See Management's Discussion and Analysis of Financial Condition and Results of Operations on pages M-1 through M-13. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Quantitative and Qualitative Disclosures about Market Risk on page M-13. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and financial schedule of Ashland presented in this annual report on Form 10-K are listed in the index on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 15

ITEM 9A. CONTROLS AND PROCEDURES (a) As of September 30, 2004, Ashland, under the supervision and with the participation of its management, including Ashland's Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of Ashland's disclosure controls and procedures pursuant to Rule 13a-15(b) and 15d-15(b) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective. (b) There were no significant changes in Ashland's internal control over financial reporting, or in other factors, that occurred during the fiscal quarter ended September 30, 2004, that have materially affected, or are reasonably likely to materially affect, Ashland's internal control over financial reporting. ITEM 9B. OTHER INFORMATION 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 "Election of Directors" and the information regarding Section 16 beneficial ownership reporting compliance in Ashland's definitive Proxy Statement for its January 27, 2005, Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after September 30, 2004, ("Proxy Statement"). See also the list of Ashland's executive officers and related information under "Executive Officers of Ashland" in Part 1 - Item X in this annual report on Form 10-K. There is hereby incorporated by reference the information to appear under the caption "Audit Committee Report" regarding Ashland's audit committee financial experts, as defined under Item 401 of Regulation S-K of the Securities Exchange Act of 1934, as amended, in Ashland's Proxy Statement. There is hereby incorporated by reference the information to appear under the caption "Corporpate Governance - Shareholder Nominations of Directors" in Ashland's Proxy Statement. Ashland has adopted a Code of Business Conduct (the "Code"). The Code applies to Ashland's directors, all employees of Ashland and its subsidiary companies, including the principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions ("Key Personnel"). The Code is posted on Ashland's website. Ashland will satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, any provision of the Code with respect to its Key Personnel or directors by disclosing the nature of such amendment or waiver on its website or in a current report on Form 8-K. ITEM 11. EXECUTIVE COMPENSATION There is hereby incorporated by reference the information to appear under the captions "Executive Compensation," "Compensation of Directors" and "Corporate Governance - 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 STOCKHOLDER MATTERS There is hereby incorporated by reference the information to appear under the captions "Ashland Common Stock Ownership of Directors and Certain Officers of Ashland" and "Ashland Common Stock Ownership of Certain Beneficial Owners" 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, 2004. Except as disclosed in the narrative to the table, all plans were approved by shareholders of Ashland. 16

Number of securities Number of securities remaining available for to be issued upon Weighted-average future issuance under exercise exercise price of equity compensation plans of outstanding options, outstanding options, (excluding securities Plan Category warrants and rights warrants and rights reflected in column (a)) - ------------- ------------------------ --------------------- ------------------------- (a) (b) (c) Equity compensation plans approved by security holders.............. 4,925,043 40.73 1,922,675 (2) Equity compensation plans not approved by security holders (1)........................... 240,160 32.94 0 ---------- ------- ------------ Total................. 5,165,203 40.37 1,922,675 ========== ======= ============ (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. (2) Includes 458,746 shares available for issuance under the Deferred Compensation Plan for Employees, and 365,527 shares available for issuance under the Deferred Compensation Plan for Non-Employee Directors. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES There is hereby incorporated by reference the information with respect to principal accountant fees and services to appear under the captions "Ratification of Auditors" and "Audit Committee Report" in Ashland's Proxy Statement. Ashland has been made aware that, in connection with certain income tax compliance services, affiliates of E&Y held employment tax related funds of a de minimis amount and made payment of such funds to the applicable tax authority in respect of expatriot and foreign employees of subsidiaries of Ashland in Taiwan and China. These actions by affiliates of E&Y have been discontinued. Custody of the assets of an audit client is not permitted under the auditor independence rules in Regulation S-X of the SEC. The Audit Committee and E&Y have considered the impact that the holding and paying of these funds may have had on E&Y's independence with respect to Ashland and have concluded that there has been no impairment of E&Y's independence. In making this determination, the Audit Committee considered the de minimis amount of funds involved, the ministerial nature of the actions, and that the subsidiaries involved were immaterial to the consolidated financial statements of Ashland. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (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 in this annual report on Form 10-K are listed in the index on page F-1. 17

(3) Exhibits 2.1* - Master Agreement dated as of March 18, 2004, among Ashland Inc., ATB Holdings Inc., EXM LLC, New EXM Inc., Marathon Oil Corporation, Marathon Oil Company, Marathon Domestic LLC and Marathon Ashland Petroleum LLC (filed as Exhibit 2.1 to Ashland's Form 8-K/A dated March 18, 2004, and filed November 5, 2004, and incorporated herein by reference). 2.2* - Tax Matters Agreement dated March 18, 2004, among Ashland Inc., ATB Holdings Inc., EXM LLC, New EXM Inc., Marathon Oil Corporation, Marathon Oil Company, Marathon Domestic LLC and Marathon Ashland Petroleum LLC (filed as Exhibit 2.2 to Ashland's Form 8-K/A dated March 18, 2004, and filed November 5, 2004, and incorporated herein by reference). 2.3* - Assignment and Assumption Agreement (VIOC Centers) dated as of March 18, 2004, between Ashland Inc. and ATB Holdings Inc. (filed as Exhibit 2.3 to Ashland's Form 8-K/A dated March 18, 2004, and filed November 5, 2004, and incorporated herein by reference). 2.4* - Assignment and Assumption Agreement (Maleic Business) dated as of March 18, 2004, between Ashland Inc. and ATB Holdings Inc. (filed as Exhibit 2.4 to Ashland's Form 8-K/A dated March 18, 2004, and filed November 5, 2004, and incorporated herein by reference). 2.5* - Amendment No. 2 dated as of March 18, 2004, to the Amended and Restated Limited Liability Company Agreement dated as of December 31, 1998, of Marathon Ashland Petroleum LLC, by and between Ashland Inc. and Marathon Oil Company (filed as Exhibit 2.5 to Ashland's Form 8-K/A dated March 18, 2004, and filed November 5, 2004, and incorporated herein by reference). 3.1 - Third Restated Articles of Incorporation of Ashland (filed as Exhibit 3(i) 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 (filed as Exhibit 3.2 to Ashland's annual report on Form 10-K for the fiscal year ended September 30, 2002, and incorporated herein by reference). 4.1 - Ashland agrees to provide the SEC, upon request, copies of instruments defining the rights of holders of long-term debt of Ashland and all of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed with the SEC. 4.2 - Indenture, dated as of August 15, 1989, as amended and restated as of August 15, 1990, between Ashland and Citibank, N.A., as Trustee (filed as Exhibit 4.2 to Ashland's annual report on 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 annual report on 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 annual report on Form 10-K for the fiscal year ended September 30, 2001, and incorporated herein by reference). 4.5 - Amendment No. 1 dated as of March 18, 2004, to Rights Agreement dated as of May 16, 1996, between Ashland Inc. and Rights Agent (filed as Exhibit 4 to Ashland's Form 10-Q for the quarter ended March 31, 2004, and incorporated herein by reference). The following Exhibits 10.1 through 10.16 are compensatory plans or arrangements or management contracts required to be filed as exhibits pursuant to Item 601(b)(10)(ii)(A) of Regulation S-K. 10.1 - Amended Stock Incentive Plan for Key Employees of Ashland Inc. and its Subsidiaries (filed as Exhibit 10.1 to Ashland's annual report on Form 10-K for the fiscal year ended September 30, 1999, and incorporated herein by reference). 18

10.2 - Ashland Inc. Deferred Compensation Plan for Non-Employee Directors (filed as Exhibit 10.2 to Ashland's Form 10-Q for the quarter ended June 30, 2003, and incorporated herein by reference). 10.3 - Ashland Inc. Deferred Compensation Plan (filed as Exhibit 10.1 to Ashland's Form 10-Q for the quarter ended June 30, 2003, and incorporated herein by reference). 10.4 - Eleventh Amended and Restated Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (filed as Exhibit 10.3 to Ashland's Form 10-Q for the quarter ended June 30, 2003, and incorporated herein by reference). 10.5 - Ashland Inc. Salary Continuation Plan (filed as Exhibit 10.5 to Ashland's annual report on Form 10-K for the fiscal year ended September 30, 2002, and incorporated herein by reference). 10.6 - Form of Ashland Inc. Executive Employment Contract between Ashland Inc. and certain executives of Ashland (filed as Exhibit 10.6 to Ashland's annual report on Form 10-K for the fiscal year ended September 30, 2002, and incorporated herein by reference). 10.7 - Form of employment agreement between Ashland Inc. and an executive officer. 10.8 - Form of Indemnification Agreement between Ashland Inc. and members of its Board of Directors (filed as Exhibit 10.7 to Ashland's annual report on Form 10-K for the fiscal year ended September 30, 2003, and incorporated herein by reference). 10.9 - Ashland Inc. Nonqualified Excess Benefit Pension Plan (filed as Exhibit 10.4 to Ashland's Form 10-Q for the quarter ended June 30, 2003, and incorporated herein by reference). 10.10 - Ashland Inc. Directors' Charitable Award Program (filed as Exhibit 10.11 to Ashland's annual report on Form 10-K for the fiscal year ended September 30, 2002, and incorporated herein by reference). 10.11 - Ashland Inc. 1993 Stock Incentive Plan (filed as Exhibit 10.11 to Ashland's annual report on Form 10-K for the fiscal year ended September 30, 2000, and incorporated herein by reference). 10.12 - Ashland Inc. 1997 Stock Incentive Plan (filed as Exhibit 10.14 to Ashland's annual report on Form 10-K for the fiscal year ended September 30, 2002, and incorporated herein by reference). 10.13 - Amended and Restated Ashland Inc. Incentive Plan (filed as Exhibit 10.1 to Ashland's Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference). 10.14 - Form of Notice granting Stock Appreciation Rights Awards. 10.15 - Form of Notice granting Restricted Stock Awards. 10.16 - Form of Notice granting Nonqualified Stock Option Awards. 10.17 - Amended and Restated Limited Liability Company Agreement dated as of December 31, 1998, of Marathon Ashland Petroleum LLC by and between Ashland Inc. and Marathon Oil Company. 10.18** - Amendment No. 1 dated as March 17, 2004, to the Amended and Restated Limited Liability Company Agreement dated as of December 31, 1998, of Marathon Ashland Petroleum LLC (filed as Exhibit 10.2 to Ashland's Form 10-Q for the quarter ended March 31, 2004, and incorporated herein by reference). 10.19 - Put/Call Registration Rights and Standstill Agreement, dated as of January 1, 1998, including Amendment No. 1 thereto, dated as of December 31, 1998, among Marathon Oil Company, USX Corporation, Ashland Inc. and Marathon Ashland Petroleum LLC. 10.20 - Amendment No. 2 dated as of March 17, 2004, to the Put/Call Registration Rights and Standstill Agreement dated as of January 1, 1998, among Marathon Oil Company, USX Corporation, Ashland Inc. and Marathon Ashland Petroleum LLC (filed as Exhibit 10.1 to Ashland's Form 10-Q for the quarter ended March 31, 2004, and incorporated herein by reference). 19

10.21 - Three-Year, $250 Million Revolving Credit Agreement dated as of April 2, 2004 10.22 - 364-Day, $100 Million Revolving Credit Agreement dated as of April 2, 2004 11 - Computation of Earnings Per Share (appearing on page F-9 of this annual report on Form 10-K). 12 - Computation of Ratio of Earnings to Fixed Charges. 21 - List of Subsidiaries. 23.1 - Consent of Independent Registered Public Accounting Firm. 24 - Power of Attorney, including resolutions of the Board of Directors. 31.1 - Certification of James J. O'Brien, Chief Executive Officer of Ashland, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 - Certification of J. Marvin Quin, Chief Financial Officer of Ashland, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 - Certification of James J. O'Brien, Chief Executive Officer of Ashland, and J. Marvin Quin, Chief Financial Officer of Ashland, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 - Consent of Tillinghast-Towers Perrin. 99.2 - Consent of Hamilton, Rabinovitz & Alschuler, Inc. *Ashland agrees to supplement this filing and furnish a copy of any omitted schedule to the United States Securities and Exchange Commission upon request. **Portions of this document have received confidential treatment. Upon written or oral request, a copy of the above exhibits will be furnished at cost. 20

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 14, 2004 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 14, 2004. Signatures Capacity ---------- --------- /S/ JAMES J. O'BRIEN Chairman of the Board, - -------------------------------------------- Chief Executive Officer JAMES J. O'BRIEN and Director /S/ J. MARVIN QUIN Senior Vice President and - -------------------------------------------- Chief Financial Officer J. MARVIN QUIN /S/ LAMAR M. CHAMBERS Vice President, Controller - -------------------------------------------- and Principal Accounting LAMAR M. CHAMBERS Officer * Director - -------------------------------------------- ERNEST H. DREW * Director - -------------------------------------------- ROGER W. HALE * Director - -------------------------------------------- BERNADINE P. HEALY * Director - -------------------------------------------- ERNEST H. DREW * Director - -------------------------------------------- MANNIE L. JACKSON * Director - -------------------------------------------- KATHLEEN LIGOCKI * Director - -------------------------------------------- PATRICK F. NOONAN * Director - -------------------------------------------- JANE C. PFEIFFER * Director - -------------------------------------------- WILLIAM L. ROUSE, JR. * Director - -------------------------------------------- GEORGE A. SCHAEFER, JR. * Director - -------------------------------------------- THEODORE M. SOLSO * Director - -------------------------------------------- MICHAEL J. WARD *By: /s/ David L. Hausrath David L. Hausrath Attorney-in-Fact Date: December 14, 2004 21

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table shows revenues, operating income and operating information by industry segment for each of the last three years ended September 30. (In millions) 2004 2003 2002 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- SALES AND OPERATING REVENUES APAC $ 2,525 $ 2,400 $ 2,652 Ashland Distribution 3,199 2,811 2,541 Ashland Specialty Chemical 1,386 1,212 1,130 Valvoline 1,297 1,235 1,152 Intersegment sales (106) (92) (85) ---------- ---------- ---------- $ 8,301 $ 7,566 $ 7,390 ========== ========== ========== OPERATING INCOME APAC $ 111 $ (42) $ 122 Ashland Distribution 78 32 1 Ashland Specialty Chemical 87 31 70 Valvoline 105 87 77 Refining and Marketing (1) 383 263 143 Corporate (102) (105) (92) ---------- ---------- ---------- $ 662 $ 266 $ 321 ========== ========== ========== OPERATING INFORMATION APAC Construction backlog at September 30 (millions) (2) $ 1,746 $ 1,745 $ 1,691 Net construction job revenues (millions) (3) $ 1,433 $ 1,361 $ 1,527 Hot-mix asphalt production (million tons) 33.4 32.5 36.7 Aggregate production (million tons) 29.6 28.7 31.0 Ready-mix concrete production (million cubic yards) 1.7 2.0 2.1 Ashland Distribution (4) Sales per shipping day (millions) $ 12.6 $ 11.2 $ 10.1 Gross profit as a percent of sales 9.6% 9.9% 9.7% Ashland Specialty Chemical (4) Sales per shipping day (millions) $ 5.4 $ 4.8 $ 4.5 Gross profit as a percent of sales 27.9% 29.9% 32.9% Valvoline Lubricant sales (million gallons) 191.6 193.5 199.0 Premium lubricants (percent of U.S. branded volumes) 21.5% 18.5% 16.1% Refining and Marketing (5) Refinery runs (thousand barrels per day) Crude oil refined 920 900 930 Other charge and blend stocks 167 133 151 Refined product yields (thousand barrels per day) Gasoline 600 554 594 Distillates 291 278 293 Asphalt 74 71 73 Other 135 131 127 ---------- ---------- ---------- Total 1,100 1,034 1,087 Refined product sales (thousand barrels per day) (6) 1,385 1,345 1,321 Refining and wholesale marketing margin (per barrel) (7) $ 3.11 $ 2.59 $ 1.82 Speedway SuperAmerica (SSA) Retail outlets at September 30 1,685 1,791 2,063 Gasoline and distillate sales (million gallons) 3,165 3,423 3,622 Gross margin - gasoline and distillates (per gallon) $ .1167 $ .1191 $ .1040 Merchandise sales (millions) (8) $ 2,301 $ 2,281 $ 2,381 Merchandise margin (as a percent of sales) 24.4% 24.5% 24.2% (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) Total construction job revenues, less subcontract costs. (4) Sales are defined as sales and operating revenues. Gross profit is defined as sales and operating revenues, less cost of sales and operating expenses. (5) Amounts represent 100% of MAP's operations, in which Ashland owns a 38% interest. (6) Total average daily volume of all refined product sales to MAP's wholesale, branded and retail (SSA) customers. (7) Sales revenue less cost of refinery inputs, purchased products and manufacturing expenses, including depreciation. (8) Effective January 1, 2003, SSA adopted EITF 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor," which requires rebates from vendors to be recorded as reductions to cost of sales. Rebates from vendors recorded in SSA merchandise sales for periods prior to January 1, 2003 have not been restated and included $46 million in 2003 and $170 million in 2002. M-1

RESULTS OF OPERATIONS Ashland's net income amounted to $378 million in 2004, $75 million in 2003 and $117 million in 2002. Income from continuing operations (which excludes discontinued operations and the cumulative effect of accounting changes) amounted to $398 million in 2004, $94 million in 2003 and $115 million in 2002. Ashland's results from discontinued operations, consisting of charges associated with estimated future asbestos liabilities less probable insurance recoveries, as well as net income from the discontinued operations of its Electronic Chemicals business, along with the cumulative effect of accounting changes adopted in 2002 and 2003, accounted for the difference in net income and income from continuing operations. Chemical Sector (consisting of Ashland Distribution, Ashland Specialty Chemical and Valvoline) operating income totaled $270 million in 2004, compared to $150 million in 2003 and $148 million in 2002. Ashland Distribution, Ashland Specialty Chemical and Valvoline all showed significant improvement in 2004, reflecting a combined 12% increase in sales and operating revenues and an improved cost structure. In the Transportation Construction Sector, Ashland Paving And Construction (APAC) recorded operating income of $111 million in 2004, compared to a loss of $42 million in 2003 and income of $122 million in 2002. APAC's improvement in 2004 reflected a reduced cost structure and more normal weather for the overall year. Refining and Marketing operating income was $383 million in 2004, compared to $263 million in 2003 and $143 million in 2002, reflecting higher refining margins year-over-year and increased refinery throughput in 2004 compared with 2003. An analysis of operating income by industry segment follows. APAC Operating income from APAC totaled $111 million in 2004, compared with an operating loss of $42 million in 2003. Higher margins on construction work, driven primarily by reduced operating costs, was the primary contributor to the earnings improvement. Income also increased from the sale of hot-mix asphalt and aggregates, reflecting improved pricing and margins as well as slightly higher sales volumes in both areas. Operating efficiency increased as a result of broad-based business improvement programs implemented over the last three years, and somewhat better weather conditions for 2004 overall, compared with the record levels of rainfall experienced in 2003. APAC reversed into income $5 million of a job loss reserve established in 2003 related to a large highway construction project in Virginia. Also contributing to 2004 earnings, APAC sold a significant portion of its ready-mix concrete operations in the June quarter, realizing proceeds net of selling expenses of $38 million and a pretax gain of $9 million. Costs related to Project PASS, APAC's process redesign initiative completed during 2004, amounted to $10 million in 2004, compared with $20 million in 2003. As of September 30, 2004, APAC's construction backlog, which consists of contracts awarded and funded but not yet performed, was $1.75 billion, essentially even with the year-end record set in 2003. During 2003, APAC reported an operating loss of $42 million, compared to income of $122 million in 2002. In many of the states in which APAC operates, rainfall during 2003 was among the highest levels on record in the past 109 years as measured by the National Climatic Data Center. In addition to hampering the overall level of construction activity, the weather conditions resulted in significant levels of rework and created significant inefficiencies in completing the construction work that APAC performed. Earnings from construction jobs were down significantly, reflecting an 11% decrease in net construction job revenues (total construction job revenues less subcontract costs) and a related increase in overhead costs not allocated to individual jobs. As a result of weather-related cost increases and construction delays, APAC established reserves for job losses on several projects, including $14 million related to a large highway construction project in Virginia. Margins of the asphalt plants were also down due to an 11% decrease in production and significantly higher costs for liquid asphalt and fuel. In addition, APAC recognized an impairment charge of $9 million associated with non-strategic businesses identified for sale. Costs associated with Project PASS, APAC's process redesign initiative, amounted to $20 million in 2003, compared to $17 million in 2002. ASHLAND DISTRIBUTION Ashland Distribution generated record operating income of $78 million in 2004, compared with $32 million in 2003. Sales increased 14% compared with 2003, due to a 7% increase in unit volumes and a 7% increase in selling prices. Gross profit as a percent of sales declined slightly, from 9.9% to 9.6%, attributable primarily to lower margins within the chemicals product category. Selling, general and administrative expenses were reduced 10%, reflecting cost-cutting and efficiency improvements achieved through Ashland's Top-Quartile Cost Structure (TQCS) program that began in 2003. Income in 2004 increased from all regions, both domestically and in Europe. M-2

Operating income from Ashland Distribution amounted to $32 million in 2003, compared to $1 million in 2002. Overall sales were up 11% (of which 5% came from higher volumes), despite a continuing sluggish industrial production environment. Reported results for 2003 included $6 million of gains from property sales and litigation settlements, as well as a charge of $5 million for staff reductions under the TQCS program. Results of Ashland Distribution for 2002 included income of $7 million from the settlement of the sorbate antitrust litigation. ASHLAND SPECIALTY CHEMICAL Operating income from Ashland Specialty Chemical increased to $87 million in 2004, compared to $31 million in 2003. Sales from the thermoset resins businesses (Casting Solutions, Composite Polymers and Specialty Polymers & Adhesives) increased 17%, reflecting an 11% increase in unit sales volumes and a 6% increase in selling prices. The increase in sales was partially offset by a decline in gross profit percentage due to the inability to fully recover persistently rising raw materials costs. The water technologies businesses (Drew Industrial and Drew Marine) achieved higher income as a result of a 7% increase in revenues. Ashland Specialty Chemical's selling, general and administrative expenses were reduced in 2004, reflecting cost reductions achieved through Ashland's TQCS program. Adding to income in 2004, a parcel of land and fixed assets in Plaquemine, Louisiana were sold for net proceeds of $9 million, resulting in a pretax gain of $6 million. Results for 2003 included an impairment charge of $10 million for a maleic anhydride production facility, as well as a charge of $5 million for staff reductions under the TQCS program. Ashland Specialty Chemical's operating income amounted to $31 million in 2003, compared to $70 million in 2002. Although overall sales were up 7%, the individual businesses reported mixed results. Earnings from most of the thermoset resins businesses were down, reflecting raw material cost increases that were not completely recovered in the marketplace. Results from Castings Solutions and Drew Industrial were up, reflecting sales increases of 11% and 8%, combined with more stable margins. In spite of higher sales, operating income from Drew Marine was down largely due to the effects of the weakening U.S. dollar on margins. Sales of Drew Marine are principally denominated in U.S. dollars, while most of its costs are denominated in foreign currencies. In addition, the earnings of Ashland Specialty Chemical for 2003 included an impairment charge of $10 million for a maleic anhydride production facility, as well as a charge of $5 million for staff reductions under the TQCS program. VALVOLINE Valvoline generated record operating income of $105 million in 2004, compared with $87 million in 2003. Lubricant sales volumes decreased 1% from 2003, but unit sales of higher-margin premium lubricants (MaxLife, Durablend and SynPower) increased 15%. Valvoline Instant Oil Change (VIOC) reported its third year of record earnings due in part to a 3% increase in non-oil change revenues and a 2% increase in premium oil changes, contributing to a 6% increase in the average sale per customer visit. Valvoline's international operations posted record operating income, mostly due to a 6% increase in lubricant sales volumes and strengthening foreign currencies. At September 30, 2004, VIOC operated 360 company-owned service centers, compared to 357 centers in 2003 and 363 centers in 2002. The VIOC franchising program continues to expand, with 397 centers open at September 30, 2004, compared to 372 centers in 2003 and 335 centers in 2002. VIOC's future growth will continue to focus principally on expanding the number of franchised rather than company-owned centers. Operating income from Valvoline amounted to $87 million in 2003, compared to $77 million in 2002. Branded lubricant volume was up slightly, but the mix improved considerably with higher margin premium lubricants accounting for 18.5% of the total in 2003, compared to 16.1% in 2002. Significant improvements were also achieved from international operations, VIOC and automotive system fluids. Valvoline International had better volumes and margins in Europe and Australia, and their improved operating results were further enhanced by strengthening foreign currency translation rates. VIOC's increased earnings reflected a growing number of oil changes using premium lubricants and increased revenues from transmission, cooling, fuel and air quality system services. Valvoline also sold its remaining inventory of R-12 refrigerant at a small profit. REFINING AND MARKETING Operating income from Refining and Marketing, which consists primarily of equity income from Ashland's 38% ownership interest in MAP, amounted to $383 million in 2004, compared to $263 million in 2003. In 2004, MAP achieved its second highest level of earnings for the twelve months ended September. Equity income from MAP's refining and marketing operations increased $127 million, reflecting an increase of 52 cents per barrel in its refining and wholesale marketing margin. MAP's refineries processed approximately 1.1 million barrels per day of crude oil and other feedstocks during 2004, an increase of 5% from 2003. Equity income from MAP's retail operations M-3

(Speedway SuperAmerica and a 50% interest in the Pilot Travel Centers joint venture) declined $6 million due to an $8 million gain on the sale of Speedway SuperAmerica's southern stores in 2003. On March 19, 2004, Ashland announced the signing of an agreement under which it would transfer its 38% interest in MAP and two wholly-owned businesses to Marathon in a transaction structured to be generally tax free and valued at approximately $3.0 billion (the "MAP Transaction"). The two other businesses are Ashland's maleic anhydride business and 61 VIOC centers. The transaction is subject to several previously disclosed conditions, including approval by Ashland's shareholders, consent from Ashland's public debt holders and receipt of a favorable private letter ruling from the Internal Revenue Service (IRS) with respect to the tax treatment. Ashland has filed registration statements and proxy materials with the Securities and Exchange Commission (SEC) and is responding to comments. In addition, Ashland submitted a request to the IRS for a private letter ruling on the tax-free status of the proposed transaction. Ashland continues to discuss the complex tax issues related to this transaction with the IRS. Ashland has not resolved all issues with the IRS and is exploring alternatives for the resolution of these issues. At this time, Ashland cannot predict whether the requested rulings will be received. If the requested rulings are not received, the transaction would have to be modified or terminated. In any event, Ashland does not believe that a transaction will close earlier than March 2005. Operating income from Refining and Marketing was $263 million in 2003, compared to $143 million in 2002. Equity income from MAP's refining and wholesale marketing operations was up $92 million, principally reflecting an increase of 77 cents a barrel in its refining and wholesale marketing margin and higher operating expenses. Equity income from MAP's retail operations increased by $20 million, reflecting a gain of $8 million on the sale of Speedway SuperAmerica's southern stores and higher product and merchandise margins for Pilot Travel Centers. CORPORATE Corporate expenses were $102 million in 2004, $105 million in 2003 and $92 million in 2002. The reduction in expense reflects an increase in 2004 of $16 million related to performance-based employee incentive plans, which was more than offset by the inclusion in 2003 of $19 million in severance and other transition costs related to Ashland's TQCS and other cost reduction programs. The increase in 2003 compared to 2002 reflects the expense in 2003 for severance and other transition costs related to Ashland's TQCS and other cost reduction programs, increased incentive and deferred compensation costs and $6 million related to the expensing of employee stock options. Those increases were partially offset by lower ongoing administrative costs in 2003, as well as additional reserves that were included in 2002 costs. NET INTEREST AND OTHER FINANCIAL COSTS The following table summarizes the components of net interest and other financial costs. (In millions) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- NET INTEREST AND OTHER FINANCIAL COSTS Interest expense $ 114 $ 123 $ 135 Expenses on sales of accounts receivable 3 3 4 Other financial costs 3 3 3 Interest income (6) (1) (4) ----------- ----------- ----------- $ 114 $ 128 $ 138 =========== =========== =========== Ashland's long-term debt declined from $1.9 billion at October 1, 2001 to $1.5 billion at the end of fiscal 2004, accounting for a reduction in interest expense of $12 million in 2003 and an additional $9 million in 2004. Interest income increased $5 million in 2004, with most of that increase due to the recognition of interest income associated with income tax refunds claimed for prior years. INCOME TAXES Ashland's income tax expense for 2004 included $48 million in tax benefits related to prior years. During the year, Ashland reached resolution with the Internal Revenue Service on several open tax matters from prior years, resulting in a tax benefit of $33 million as a result of the reduction of amounts previously provided as contingent tax liabilities. In addition, Ashland recognized federal income tax benefits associated with a claim for additional research and development tax credits valued at $15 million. Excluding these two items, Ashland's adjusted effective tax rate was 36.0% in 2004, compared to 31.9% in 2003. The overall effective rate was lower in 2003 than in 2004 M-4

due to Ashland's lower level of earnings in 2003 and the resulting larger relative portion of those earnings derived from income taxed at less than full U.S. statutory rates. Ashland's overall effective income tax rate declined from 37.2% in 2002 to 31.9% in 2003. Recurring nontaxable income, such as equity income from foreign operations, had a larger effect on the effective rate in 2003 due to the reduced level of earnings. In addition, the changed investment climate resulted in nontaxable income being realized under life insurance policies during 2003, compared to 2002 when nondeductible losses were incurred. These life insurance policies are the underlying investments behind Ashland's deferred compensation programs. DISCONTINUED OPERATIONS AND ACCOUNTING CHANGES Results of Ashland's discontinued operations are summarized below. See Note N of Notes to Consolidated Financial Statements for additional information. (In millions) 2004 2003 2002 - ------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM DISCONTINUED OPERATIONS (NET OF TAX) Reserves for asbestos-related litigation (net of insurance recoveries) $ (18) $ (109) $ - Electronic Chemicals Results of operations - 14 13 Gain on sale of operations (3) 81 - Resolution of tax contingency issues 1 - - ----------- ---------- ---------- $ (20) $ (14) $ 13 =========== ========== ========== Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims result primarily from indemnification obligations undertaken in 1990 in connection with the sale of Riley Stoker Corporation, a former subsidiary. During the quarter ended December 31, 2002, Ashland increased its reserve for asbestos claims by $390 million to cover litigation defense and claim settlement costs expected to be paid through December 2012. Because insurance provides reimbursements for most of these costs and coverage-in-place agreements exist with the insurance companies that provide substantially all of the coverage being accessed, the increase in the asbestos reserve was offset in part by probable insurance recoveries valued at $235 million. The resulting $155 million pretax charge to income, net of deferred income tax benefits of $60 million, was reflected as an after-tax loss from discontinued operations of $95 million in the Statement of Consolidated Income for the three months ended December 31, 2002. Additional reserves have been provided since then to reflect updates in the estimate of potential payments for litigation defense and claim settlement costs. During 2003, Ashland sold the net assets of its Electronic Chemicals business and certain related subsidiaries for $300 million. Due to the sale, the results of operations of those businesses, as well as the gain on the sale, were shown in discontinued operations. During 2004, Ashland reached resolution with the Internal Revenue Service on several open tax matters from prior years, as described previously in the discussion of income taxes. In addition to amounts reported in income from continuing operations, favorable resolution was also reached on matters associated with previously discontinued businesses, resulting in a $1 million tax benefit from the associated reduction in contingent tax liabilities previously recorded. As discussed in Note A to the Consolidated Financial Statements, Ashland adopted certain pronouncements of the FASB during the last three years. As of July 1, 2003, Ashland consolidated a lessor entity in its financial statements under FIN 46, and doing so resulted in an after-tax charge of $5 million to adjust the depreciation included in the cumulative lease payments to conform to Ashland's depreciation methods. Ashland also adopted FAS 142 in 2002 and recognized an impairment loss of $11 million after income taxes to write off the goodwill of Ashland Distribution. FINANCIAL POSITION LIQUIDITY Cash flows from operations, a major source of Ashland's liquidity, amounted to $209 million in 2004, $242 million in 2003 and $168 million in 2002. Such amounts include cash distributions from MAP of $146 million in 2004, $197 million in 2003 and $196 million in 2002. During 2004, Ashland paid income taxes of $84 million, M-5

compared with $24 million in 2003 and $158 million in 2002. Ashland also contributed $137 million to its qualified pension plans in 2004, compared with $61 million in 2003 and $103 million in 2002. Cash flows from operations during 2004 were supplemented by $108 million in proceeds from the issuance of common stock resulting from stock option exercises, as well as $48 million from the sale of certain APAC operations. Over the last three years, cash flows from operations approximately equaled Ashland's capital requirements for net property additions and dividends, despite the fact that cash distributions from MAP have been suspended since December 31, 2003, pending closure of the MAP Transaction. Ashland's share of MAP's undistributed cash on September 30, 2004 was $203 million. 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 (S&P). In August 2003, S&P revised its outlook on Ashland to negative from stable, and lowered Ashland's commercial paper rating to A-3 from A-2. In March 2004, following the announcement of the pending MAP Transaction, S&P affirmed its long-term debt rating and placed Ashland's A-3 commercial paper rating on credit watch with positive implications. Conversely, in March 2004, Moody's lowered Ashland's commercial paper rating to P-3 from P-2. These actions materially restrict, and could at times eliminate, the availability of the commercial paper market to Ashland. Ashland has two revolving credit agreements providing for up to $350 million in borrowings. Although Ashland borrowed $175 million under these agreements to repay commercial paper shortly after the S&P downgrade in 2003, the revolving credit agreements were not used during 2004. In the June 2004 quarter, Ashland executed an additional $200 million revolving credit agreement which expires March 31, 2005. Ashland has utilized this facility to fund currently maturing long-term debt and certain lease payments, and had $40 million outstanding under this facility at September 30, 2004. While the revolving credit agreements contain covenants limiting new borrowings based on Ashland's stockholders' equity, these agreements would have permitted an additional $2.4 billion of borrowings at September 30, 2004. Additional permissible borrowings are increased (decreased) by 150% of any increase (decrease) in stockholders' equity. At September 30, 2004, working capital (excluding debt due within one year) amounted to $926 million, compared to $703 million at the end of 2003. 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 $95 million at September 30, 2004, and $78 million at September 30, 2003. Liquid assets (cash, cash equivalents and accounts receivable) amounted to 84% of current liabilities at September 30, 2004, compared to 92% at the end of 2003. Essentially all of this decrease was due to a $337 million increase in debt due within one year. CAPITAL RESOURCES Property additions amounted to $500 million during the last three years and are summarized in the Information by Industry Segment on page F-27. Property additions in 2004 included a $33 million buyout of an operating lease for a portion of the buildings on Ashland's Dublin, Ohio campus. For the past three years, APAC accounted for 45% of Ashland's capital expenditures, while Ashland Specialty Chemical accounted for an additional 25%. Capital used for acquisitions (including assumed debt) amounted to $27 million during the last three years, of which $20 million was invested in APAC, $4 million in Ashland Specialty Chemical and $3 million in Valvoline. A summary of the capital employed in Ashland's operations follows. The increase in capital employed in Refining and Marketing in 2004 is attributed to the terms of the pending MAP Transaction, under which MAP suspended quarterly cash distributions to Ashland and Marathon after December 31, 2003 until the closing of the transaction. The reduction in capital employed in Ashland Specialty Chemical in 2003 resulted principally from the sale of the Electronic Chemicals business. (In millions) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- CAPITAL EMPLOYED APAC $ 959 $ 1,014 $ 1,039 Ashland Distribution 449 418 459 Ashland Specialty Chemical 490 438 610 Valvoline 388 399 343 Refining and Marketing 2,053 1,866 1,818 Long-term borrowings provided cash flows of $55 million during the last three years, the proceeds from which were used in part to retire $456 million of long-term 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, commercial paper and borrowings under the revolving credit agreements. M-6

During 2004, Ashland reduced its total debt by $66 million to $1.5 billion. Stockholders' equity increased by $453 million during 2004 to $2.7 billion. Increases resulting from $378 million of net income, $132 million from issuance of common shares under stock incentive and other plans, and $33 million of translation gains associated with foreign operations were partially offset by cash dividends of $77 million and a $13 million increase in the minimum pension liability. Debt as a percent of capital employed was reduced from 41.7% at the end of 2003 to 36.4% at September 30, 2004. At September 30, 2004, Ashland's debt included $69 million of floating-rate obligations, and the interest rates on an additional $183 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 floating-rate interest costs on $187 million of third-party debt underlying those transactions. As a result, Ashland was exposed to short-term interest rate fluctuations on $439 million of debt obligations at September 30, 2004. During 2005, Ashland expects capital expenditures of approximately $280 million, excluding any buyouts of current leases, compared with $210 million in 2004. Most of the increase is planned for APAC and Valvoline. Improvements in APAC's equipment management processes and a sizable lease program during the past two years has allowed a reduction in capital expenditures during that period. Valvoline's increase reflects capital spending on various organic growth and efficiency improvement projects. In 2004, Ashland initiated a multi-year SAP enterprise resource planning (ERP) project that is expected to be implemented world-wide across Ashland's Chemical Sector to achieve increased efficiency and effectiveness in supply chain, financial, and environmental, health and safety processes. Capital costs for this project through 2007 are expected to total in the range of $90 to $100 million, of which approximately $25 million is expected to be spent in 2005. Ashland's capital requirements in 2005 for property additions and dividends will be met from internally generated funds. Scheduled debt repayments of $439 million will be met either through proceeds from the pending MAP Transaction or, if that transaction should not close, partially from short-term investments and partially from refundings. The following table aggregates Ashland's commitments to make future payments under existing contracts at September 30, 2004. Contractual cash obligations for which the ultimate settlement amounts are not fixed and determinable have been excluded. 2006- 2008- Later (In millions) Total 2005 2007 2009 Years - ------------------------------------------------------------------------------------------------------------------- CONTRACTUAL OBLIGATIONS Short-term and long-term debt (1) $ 2,151 $ 544 $ 341 $ 499 $ 767 Operating lease obligations 257 47 76 51 83 Purchase obligations Construction subcontracts 570 513 57 - - Construction materials 387 319 66 1 1 Other raw materials 173 75 88 10 - Property, plant and equipment 6 6 - - - Employee benefit obligations (2) 401 104 62 65 170 ---------- ----------- ----------- ---------- ---------- Total contractual obligations $ 3,945 $ 1,608 $ 690 $ 626 $ 1,021 ========== =========== =========== ========== ========== (1) Includes principal and interest payments. Capitalized lease obligations are not significant and are included in long-term debt. (2) Includes estimated funding of Ashland's qualified U.S. and non-U.S. pension plans for 2005, as well as projected benefit payments through 2014 under Ashland's nonqualified pension plans and other postretirement benefit plans. See Note O of Notes to Consolidated Financial Statements for additional information. OFF-BALANCE SHEET ARRANGEMENTS 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 property. If Ashland had canceled those leases at September 30, 2004, its maximum obligations under the residual value guarantees would have amounted to $98 million. Ashland does not expect to incur any significant charge to earnings under these guarantees, $24 million of which relates to real estate. These M-7

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 $95 million. At September 30, 2004, Ashland's contingent liability under this guarantee amounted to the full $95 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 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, except for a period between April 29 and September 7, 2003, when the full $200 million capacity was utilized. 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 or concentrations over certain limits with any one customer. 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 and associated receivables 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 other 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 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 property, plant and equipment that are not expected to be recovered through undiscounted future net cash flows are written down to current fair value, which generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable value (assets held for sale). During 2003, Ashland recognized an impairment charge of $10 million for a maleic anhydride production facility that is shut down and not likely to reopen based on internal analyses. 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 property, plant and equipment at September 30, 2004. Intangible assets with indefinite lives are subject to annual impairment tests. Such tests are completed separately with respect to the goodwill of each of Ashland's reporting units, which generally are synonymous with its industry segments. However, 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 (earnings before interest, taxes, depreciation and amortization) multiples of peer group companies for each of these reporting units. Ashland recognized impairment charges of $9 million in 2003 and $2 million in 2004 for goodwill associated with non-strategic businesses of APAC identified for sale. The most recent annual impairment tests indicated that the fair values of each of Ashland's reporting units with significant goodwill were in excess of their carrying values, with the large majority of those units exceeding carrying value by more than 20%. Despite that excess, however, impairment charges could still be required if a divestiture decision were made with respect to a particular business included in one of the reporting units. EMPLOYEE BENEFIT OBLIGATIONS Ashland and its subsidiaries sponsor contributory and noncontributory qualified and non-qualified defined benefit pension plans that cover substantially all employees in the United States and in a number of other countries. Benefits under these plans generally are based on employee's years of service and compensation during the years immediately preceding their retirement. In addition, the companies also sponsor unfunded postretirement benefit M-8

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 generally are noncontributory. The principal assumptions used to determine Ashland's pension and other postretirement benefit costs are the discount rate, the rate of compensation increase and the expected long-term rate of return on plan assets. Because Ashland's retiree health care plans contain various caps that limit Ashland's contributions and because medical inflation is expected to continue at a rate in excess of these caps for the immediate future, no assumption is needed with respect to future inflation in medical costs. The discount rates used to determine the present value of future pension payments, healthcare 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 value of Ashland's future obligations under the pension and postretirement plans were determined using discount rates of 6.0% at September 30, 2004, and 6.25% at September 30, 2003. Ashland's expense under these plans is determined using the discount rate as of the beginning of the fiscal year, which amounted to 6.25% for 2004, 6.75% for 2003, 7.25% for 2002, and will be 6.0% for 2005. The rate of compensation increase assumptions are 4.5% for 2004 and 5.0% for 2003 and 2002. The long-term expected rate of return on assets is assumed to be 8.5% in 2004 and 9.0% in 2003 and 2002. The return on plan assets is subject to wide year-to-year variances. For 2004, the pension plan assets generated an actual return of 11.8%, compared to 19.1% in 2003 and losses of 6.7% in 2002. However, the expected return on plan assets is designed to be a long-term assumption, and actual returns will be subject to considerable year-to-year variances. Ashland has generated compounded annual investment returns of 5.3% and 9.3% on its pension plan assets over the last five-year and ten-year periods. Shown below are the estimated increases in pension and postretirement expense that would have resulted from a 1% change in each of the assumptions for each of the last three years. (In millions) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- INCREASE IN PENSIONS COSTS FROM Decrease in the discount rate $ 21 $ 20 $ 21 Increase in the salary adjustment rate 9 9 10 Decrease in the expected return on plan assets 7 6 5 INCREASE IN OTHER POSTRETIREMENT COSTS FROM Decrease in the discount rate 2 2 4 ASBESTOS-RELATED LITIGATION Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such 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 provided by other companies. During the December 2002 quarter, Ashland increased its reserve for asbestos claims by $390 million to cover the litigation defense and claim settlement costs for probable and reasonably estimable future payments related to existing open claims, as well as an estimate of those that may be filed in the future. Prior to December 31, 2002, the asbestos reserve was based on the estimated costs that would be incurred to settle existing open claims. A range of estimates of future asbestos claims and related costs using various assumptions was developed with the assistance of Hamilton, Rabinovitz & Alschuler, Inc. (HR&A). The methodology used by HR&A to project future asbestos costs was based largely on Ashland's recent experience, including claim-filing and settlement rates, disease mix, open claims, and litigation defense and claim settlement costs. Ashland's claim experience was compared to the results of previously conducted epidemiological studies estimating the number of people likely to develop asbestos-related diseases. Those studies were undertaken in connection with national analyses of the population expected to have been exposed to asbestos. Using that information, HR&A estimated a range of the number of future claims that may be filed, as well as the related costs that may be incurred in resolving those claims. From the range of estimates, Ashland recorded the amount it believed to be the best estimate, which represented the expected payments for litigation defense and claim settlement costs during the next ten years. Subsequent updates to this estimate have been made, with the assistance of HR&A, based on a combination of a number of factors including the actual volume of new claims, recent settlement costs, changes in the mix of alleged disease, M-9

enacted legislative changes and other developments impacting Ashland's estimate of future payments. Ashland's reserve for asbestos claims on an undiscounted basis amounted to $618 million at September 30, 2004. Projecting future asbestos costs is subject to numerous variables that are extremely difficult to predict. In addition to the significant uncertainties surrounding the number of claims that might be received, other variables include the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, 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. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, Ashland believes its asbestos reserve represents the best estimate within a range of possible outcomes. As a part of the process to develop Ashland's estimates of future asbestos costs, a range of long-term cost models is developed that assumes a run-out of claims through 2055. These models are based on national studies that predict the number of people likely to develop asbestos-related diseases and are heavily influenced by assumptions regarding long-term inflation rates for indemnity payments and legal defense costs, as well as other variables mentioned previously. The total future litigation defense and claim settlement costs on an undiscounted basis has been estimated within a reasonably possible range of $400 million to $2.0 billion, depending on the number of years those costs extend and other combinations of assumptions selected. Ashland's reserve represents between 10 and 29 years of future costs, depending on the model selected. If actual experience is worse than projected relative to the number of claims filed, the severity of alleged disease associated with those claims or costs incurred to resolve those claims, Ashland may need to increase further the estimates of the costs associated with asbestos claims and these increases could potentially be material over time. Ashland has insurance coverage for most of the litigation defense and claim settlement costs incurred in connection with its asbestos claims, and coverage-in-place agreements exist with the insurance companies that provide substantially all of the coverage currently being accessed. As a result, increases in the asbestos reserve have been largely offset by probable insurance recoveries. The amounts not recoverable generally are due from insurers that are insolvent, rather than as a result of uninsured claims or the exhaustion of Ashland's insurance coverage. Ashland retained the services of Tillinghast-Towers Perrin to assist management in the estimation of reasonably possible insurance recoveries associated with Ashland's estimate of its asbestos liabilities. Such recoveries are based on management's assumptions and estimates surrounding the available or applicable insurance coverage. One such assumption is that all solvent insurance carriers remain solvent. Although coverage limits are resolved in the coverage-in-place agreement with Equitas Limited (Equitas) and other London companies, which collectively provide a significant portion of Ashland's insurance coverage for asbestos claims, there is a disagreement with these companies over the timing of recoveries. The resolution of this disagreement could have a material effect on the value of insurance recoveries from those companies. In estimating the value of future recoveries, Ashland has used the least favorable interpretation of this agreement under which the ultimate recoveries are extended for many years, resulting in a significant discount being applied to value those recoveries. Ashland will continue to apply this methodology until such time as the disagreement is resolved. On July 21, 2004, Ashland filed a demand for arbitration to resolve the dispute concerning the interpretation of this agreement. At September 30, 2004, Ashland's receivable for recoveries of litigation defense and claim settlement costs from its insurers amounted to $435 million, of which $54 million relates to costs previously paid. About 35% of the estimated receivables from insurance companies at September 30, 2004, are expected to be due from Equitas and other London companies. Of the remainder, approximately 90% is expected to come from companies or groups that are rated A or higher by A. M. Best. 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, 2004, such locations included 93 waste treatment or disposal sites where Ashland has been identified as a potentially responsible party under Superfund or similar state laws, approximately 130 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 $152 million at September 30, 2004. 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. M-10

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. Environmental remediation expense amounted to $2 million in 2004, $22 million in 2003 and $30 million in 2002. No individual remediation location is material to Ashland, as its largest reserve for any site is less than 10% of the remediation reserve. 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. CONSTRUCTION CONTRACTS Income related to construction contracts generally is 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 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 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. In 2003, reserves of $14 million were established for job losses related to a large highway construction project in Virginia, reflecting weather-related cost increases and construction delays resulting from record levels of rainfall. In 2004, $5 million of that reserve, which was the amount that had been provided for potential liquidated damages, was reversed into income when it was determined that those damages would not apply. Assumptions concerning the extent of completion can have a significant effect 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 some extent by the significant number of jobs in various stages of completion at any point in time. OUTLOOK Ashland's focus in 2005 will be to support long-term growth in earnings and shareholder value through increased efficiency, effective capital management and expansion in existing and adjacent markets. Earnings performance will be driven largely by the strength of the U.S. and world economies, in combination with Ashland's continuing efforts to gain greater operational efficiency. The Top-Quartile Cost Structure (TQCS) program initiated in 2003 has yielded selling, general and administrative (SG&A) cost reductions in every segment, evidenced by a reduction in total SG&A expense of $85 million in 2004. In 2005, this program's focus will transition from cost reductions within the individual business segments to gains in process efficiency and effectiveness across the segments. Ashland is currently in the design phase of a multi-year SAP ERP system that is scheduled to be implemented globally over the next three years across Ashland's Chemical Sector. This project focuses on supply chain, financial, and environmental, health and safety processes. It is expected to provide an integrated system that streamlines and standardizes these key processes on an end-to-end basis, with the foundational objective being to deliver exemplary performance for Ashland's customers. Positively impacting APAC, federal highway funding for the 14 states in which APAC operates increased 22% in 2004 compared to 2003. An even larger appropriation for fiscal year 2005 is pending in Congress. APAC should also benefit from additional savings as a result of its multi-year Project PASS business redesign initiative that focused on greater leverage of purchasing power, improved equipment management and more efficient administrative support. At September 30, 2004, construction backlog amounted to $1.7 billion, essentially the same M-11

as the previous year-end record set in 2003. Earnings are also expected to benefit from 0.5% higher estimated margin on new construction contracts awarded in 2004, compared with that of 2003. APAC will pursue organic earnings growth through emphasizing large construction jobs and expanding existing capabilities in the areas of concrete paving, bridge work and milling. Ashland Distribution's strong earnings performance is expected to continue in 2005, with a focus on increasing sales volumes through greater customer satisfaction from the delivery of on-time, accurate and complete orders and overall reductions in the level of rework in the order-to-cash process. Ashland Specialty Chemical should build on its successes achieved in 2004 in the area of manufacturing expense reduction and quality improvements through the application of Six Sigma principles, as well as drive revenue growth through various new product initiatives. Building on successes in 2004, Valvoline expects to further increase the share of its lubricants product mix represented by premium brands, reflecting a strategy of product innovation, while also driving growth in its Valvoline Instant Oil Change business through preventative maintenance service. Ashland expects to continue its growth outside the U.S. in areas where market position or the external market dynamics offer attractive opportunities for profitable growth. Ashland was successful in 2004 in largely recovering raw material cost increases through higher selling prices in most segments. However, Ashland Specialty Chemical did experience a reduction in gross margin in 2004 due to its inability to fully recover those higher costs. The ability to recover any cost increases that may be experienced in 2005 will be an important determinant of Ashland's earnings. Ashland does not believe that the proposed MAP Transaction will close earlier than March 2005. If certain rulings concerning the proposed transaction are not received from the IRS, the transaction would have to be modified or terminated. Forward petroleum markets currently suggest that 2005 should be another strong year for MAP and for Ashland's Refining and Marketing segment during the period Ashland holds its interest in MAP. Refining margins are, however, subject to considerable change as actual and perceived supply and demand factors change. Ashland's sales and operating revenues are normally subject to seasonal variations. Although APAC normally enjoys a relatively long construction season, most of its operating income is generated during the construction period of May through 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, 2004 (amounts for each quarter do not necessarily total to results for the year due to rounding). (In millions) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- QUARTERLY OPERATING INCOME (LOSS) December 31 $ 92 $ 32 $ 96 March 31 10 (24) (3) June 30 292 138 132 September 30 268 119 96 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. Certain of the industries in which Ashland and MAP operate are capital-intensive, and replacement costs for their plant and equipment generally would 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. M-12

FORWARD-LOOKING STATEMENTS Management's Discussion and Analysis contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include those that refer to Ashland's operating performance, earnings and expectations about the MAP Transaction. Although Ashland believes its expectations are based on reasonable assumptions, it cannot assure the expectations reflected herein will be achieved. These forward-looking statements are 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, cost of raw materials, and legal proceedings and claims (including environmental and asbestos matters) and are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. The risks, uncertainties, and assumptions include the possibility that Ashland will be unable to fully realize the benefits anticipated from the MAP Transaction; the possibility of failing to receive a favorable ruling from the Internal Revenue Service; the possibility that Ashland fails to obtain the approval of its shareholders; the possibility that the transaction may not close or that Ashland may be required to modify some aspect of the transaction to obtain regulatory approvals. Other factors and risks affecting Ashland are contained in Risks and Uncertainties in Note A to the Consolidated Financial Statements and in Item 1 of this annual report on Form 10-K. Ashland undertakes no obligation to subsequently update or revise these forward-looking statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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. At September 30, 2004, Ashland held interest rate swaps that effectively converted the interest rates on $183 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 of natural gas, diesel fuel and gasoline, as well as certain transactions denominated in foreign currencies. In addition, Ashland opportunistically enters into petroleum crackspread futures to economically hedge its refining and marketing earnings. Changes in the fair value of all derivatives are recognized immediately in income unless the derivative qualifies as a hedge of future cash flows or certain foreign currency exposures. Ashland has designated a limited portion of its foreign currency derivatives as qualifying for hedge accounting treatment, but their impact on the consolidated financial statements is not significant. 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, 2004, would not significantly affect Ashland's consolidated financial position, results of operations, cash flows or liquidity. MAP uses commodity-based derivatives and financial instrument-related derivatives to manage its exposure to commodity price risk. MAP's management has authorized the use of futures, forwards, swaps and combinations of options, including written or net written options, related to the purchase or sale of crude oil, refined products and natural gas. Changes in the fair value of all derivatives are recognized immediately in income. M-13

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL SCHEDULE Page ------- Report of management.................................................................................................... F-2 Report of independent registered public accounting firm................................................................. F-2 Consolidated financial statements: Statements of consolidated income.............................................................................. F-3 Consolidated balance sheets ................................................................................... F-4 Statements of consolidated stockholders' equity................................................................ F-5 Statements of consolidated cash flows.......................................................................... F-6 Notes to consolidated financial statements..................................................................... F-7 Consolidated financial schedule: Schedule II - Valuation and qualifying accounts................................................................ F-25 Information by industry segment.......................................................................................... F-26 Five-year selected financial information................................................................................. F-28 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 annual report on Form 10-K within 90 days after the end of MAP's fiscal year ending December 31, 2004. 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. F-1

REPORT OF MANAGEMENT Management is responsible for the consolidated financial statements and other financial information included in this annual report on Form 10-K. Such financial statements are prepared in accordance with U.S. generally accepted accounting principles. Accounting principles are selected and information is reported which, using management's best judgment and estimates, present fairly Ashland's consolidated financial position, results of operations and cash flows. The other financial information in this annual report on Form 10-K is consistent with the consolidated financial statements. Ashland's Code of Business Conduct summarizes our guiding values as obeying the law, adhering to high ethical standards and acting as responsible members of the communities where we operate. Compliance with that Code forms the foundation of our internal control systems, which are designed to provide reasonable assurance that Ashland's assets are safeguarded and its records reflect, in all material respects, transactions in accordance with management's authorization. The concept of reasonable assurance is based on the recognition that the cost of a system of internal control should not exceed the related benefits. Management believes that adequate internal controls are maintained by the selection and training of qualified personnel, by an appropriate division of responsibility in all organizational arrangements, by the establishment and communication of accounting and business policies, and by internal audits. The Board, subject to stockholder ratification, selects and engages the independent auditors based on the recommendation of the Audit Committee. The Audit Committee, composed of directors who are not members of management, reviews the adequacy of Ashland's policies, procedures and controls, the scope of auditing and other services performed by the independent auditors, and the scope of the internal audit function. The Committee holds meetings with Ashland's internal auditor and independent auditors, with and without management present, to discuss the findings of their audits, the overall quality of Ashland's financial reporting and their evaluation of Ashland's internal controls. Ernst & Young, independent auditors, are engaged to audit Ashland's consolidated financial statements. Their audit includes a review of Ashland's internal controls to the extent they consider necessary in the circumstances, and their report follows. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have audited the accompanying consolidated balance sheets of Ashland Inc. and consolidated subsidiaries as of September 30, 2004 and 2003, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 30, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of Ashland Inc.'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 the standards of the Public Company Accounting Oversight Board (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 referred to above (appearing on pages F-3 to F-27 of this annual report on Form 10-K) present fairly, in all material respects, the consolidated financial position of Ashland Inc. and consolidated subsidiaries at September 30, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note A to the financial statements, in 2003 Ashland Inc. changed its methods of accounting for employee stock options and variable interest entities and in 2002 Ashland Inc. changed its method of accounting for goodwill and other intangible assets. Ernst & Young LLP Cincinnati, Ohio November 3, 2004 F-2

Ashland Inc. and Consolidated Subsidiaries STATEMENTS OF CONSOLIDATED INCOME Years Ended September 30 (In millions except per share data) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- REVENUES Sales and operating revenues $ 8,301 $ 7,566 $ 7,390 Equity income - Note D 432 301 181 Other income 48 45 46 ----------- ----------- ----------- 8,781 7,912 7,617 COSTS AND EXPENSES Cost of sales and operating expenses 6,948 6,390 6,115 Selling, general and administrative expenses 1,171 1,256 1,181 ----------- ----------- ----------- 8,119 7,646 7,296 ----------- ----------- ----------- OPERATING INCOME 662 266 321 Net interest and other financial costs - Note E (114) (128) (138) ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 548 138 183 Income taxes - Note J (150) (44) (68) ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS 398 94 115 Results from discontinued operations (net of income taxes) - Note N (20) (14) 13 ----------- ----------- ----------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 378 80 128 Cumulative effect of accounting changes (net of income taxes) - Note A - (5) (11) ----------- ----------- ----------- NET INCOME $ 378 $ 75 $ 117 =========== =========== =========== EARNINGS PER SHARE - NOTE A Basic Income from continuing operations $ 5.69 $ 1.37 $ 1.67 Results from discontinued operations (.28) (.19) .19 Cumulative effect of accounting changes - (.08) (.17) ----------- ----------- ----------- Net income $ 5.41 $ 1.10 $ 1.69 =========== =========== =========== Diluted Income from continuing operations $ 5.59 $ 1.37 $ 1.64 Results from discontinued operations (.28) (.19) .19 Cumulative effect of accounting changes - (.08) (.16) ----------- ----------- ----------- Net income $ 5.31 $ 1.10 $ 1.67 =========== =========== =========== See Notes to Consolidated Financial Statements. F-3

Ashland Inc. and Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS September 30 (In millions) 2004 2003 - --------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 243 $ 223 Accounts receivable (less allowances for doubtful accounts of $41 million in 2004 and $35 million in 2003) 1,290 1,135 Inventories - Note A 458 441 Deferred income taxes - Note J 103 142 Other current assets 208 144 ---------- ---------- 2,302 2,085 INVESTMENTS AND OTHER ASSETS Investment in Marathon Ashland Petroleum LLC (MAP) - Note D 2,713 2,448 Goodwill - Note A 513 523 Asbestos insurance receivable (noncurrent portion) - Note M 399 399 Other noncurrent assets 319 279 ---------- ---------- 3,944 3,649 PROPERTY, PLANT AND EQUIPMENT Cost APAC 1,302 1,337 Ashland Distribution 356 357 Ashland Specialty Chemical 780 723 Valvoline 466 452 Corporate 200 178 ---------- ---------- 3,104 3,047 Accumulated depreciation, depletion and amortization (1,848) (1,775) ---------- ---------- 1,256 1,272 ---------- ---------- $ 7,502 $ 7,006 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------- CURRENT LIABILITIES Debt due within one year Revolving credit facility $ 40 $ - Current portion of long-term debt 399 102 Trade and other payables 1,362 1,371 Income taxes 14 11 ---------- ---------- 1,815 1,484 NONCURRENT LIABILITIES Long-term debt (less current portion) - Note E 1,109 1,512 Employee benefit obligations - Note O 428 385 Deferred income taxes - Note J 367 291 Reserves of captive insurance companies 179 168 Asbestos litigation reserve (noncurrent portion) - Note M 568 560 Other long-term liabilities and deferred credits 330 353 Commitments and contingencies - Notes F and M ---------- ---------- 2,981 3,269 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 million shares authorized Issued - 72 million shares in 2004 and 68 million shares in 2003 72 68 Paid-in capital 478 350 Retained earnings 2,262 1,961 Accumulated other comprehensive loss (106) (126) ---------- ---------- 2,706 2,253 ---------- ---------- $ 7,502 $ 7,006 ========== ========== See Notes to Consolidated Financial Statements. F-4

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, 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 382,646 common shares under stock incentive and other plans (2) 16 16 Repurchase of 1,219,600 common shares (1) (41) (42) ---------- ---------- ---------- ---------- ---------- BALANCE AT SEPTEMBER 30, 2002 68 338 1,961 (194) 2,173 Total comprehensive income (1) 75 68 143 Cash dividends, $1.10 per common share (75) (75) Issued 81,698 common shares under stock incentive and other plans (2) 12 12 ---------- ---------- ---------- ---------- ---------- BALANCE AT SEPTEMBER 30, 2003 68 350 1,961 (126) 2,253 Total comprehensive income (1) 378 20 398 Cash dividends, $1.10 per common share (77) (77) Issued 3,310,204 common shares under stock incentive and other plans (2) 4 128 132 ---------- ---------- ---------- ---------- ---------- BALANCE AT SEPTEMBER 30, 2004 (3) $ 72 $ 478 $ 2,262 $ (106) $ 2,706 ========== ========== ========== ========== ========== (1) Reconciliations of net income to total comprehensive income follow. (In millions) 2004 2003 2002 --------------------------------------------------------------------------------- Net income $ 378 $ 75 $ 117 Minimum pension liability adjustment (21) 24 (144) Related tax benefit (expense) 8 (9) 56 Unrealized translation gains 32 53 19 Related tax benefit 1 - 1 ---------- ---------- ---------- Total comprehensive income $ 398 $ 143 $ 49 ========== ========== ========== (2) Includes income tax benefits resulting from the exercise of stock options of $16 million in 2004 and $2 million in 2002. The amount in 2003 was not significant. (3) At September 30, 2004, the accumulated other comprehensive loss of $106 million (after tax) was comprised of net unrealized translation gains of $23 million and a minimum pension liability of $129 million. See Notes to Consolidated Financial Statements. F-5

Ashland Inc. and Consolidated Subsidiaries STATEMENTS OF CONSOLIDATED CASH FLOWS Years Ended September 30 (In millions) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATIONS Income from continuing operations $ 398 $ 94 $ 115 Expense (income) not affecting cash Depreciation, depletion and amortization 193 204 208 Deferred income taxes 125 49 (121) Equity income from affiliates (432) (301) (181) Distributions from equity affiliates 169 203 201 Other items 2 1 - Change in operating assets and liabilities (1) (246) (8) (54) ----------- ----------- ----------- 209 242 168 CASH FLOWS FROM FINANCING Proceeds from issuance of long-term debt - - 55 Proceeds from issuance of common stock 108 2 11 Repayment of long-term debt (100) (216) (140) Repurchase of common stock - - (42) Increase (decrease) in short-term debt 40 (10) 10 Dividends paid (77) (75) (76) ----------- ----------- ----------- (29) (299) (182) CASH FLOWS FROM INVESTMENT Additions to property, plant and equipment (210) (112) (178) Purchase of operations - net of cash acquired (5) (5) (15) Proceeds from sale of operations 48 7 - Other - net 26 13 26 ----------- ----------- ----------- (141) (97) (167) ----------- ----------- ----------- CASH PROVIDED (USED) BY CONTINUING OPERATIONS 39 (154) (181) Cash provided (used) by discontinued operations (19) 287 35 ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 20 133 (146) Cash and cash equivalents - beginning of year 223 90 236 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 243 $ 223 $ 90 =========== =========== =========== DECREASE (INCREASE) IN OPERATING ASSETS (1) Accounts receivable $ (157) $ (79) $ 110 Inventories (14) 15 12 Deferred income taxes 2 22 17 Other current assets (64) (5) 30 Investments and other assets (15) 7 41 INCREASE (DECREASE) IN OPERATING LIABILITIES (1) Trade and other payables (15) 115 (132) Income taxes (19) (50) (18) Noncurrent liabilities 36 (33) (114) ----------- ----------- ----------- CHANGE IN OPERATING ASSETS AND LIABILITIES $ (246) $ (8) $ (54) =========== =========== =========== (1) Excludes changes resulting from operations acquired or sold. See Notes to Consolidated Financial Statements. F-6

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. In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities." Beginning July 1, 2003, the lessor entity in one of Ashland's lease programs was consolidated in Ashland's financial statements under FIN 46, resulting in a pretax charge of $8 million ($5 million net of income taxes) for the cumulative effect of this accounting change. Property, plant and equipment increased by $27 million and long-term debt increased by $35 million as a result of the consolidation of the lessor entity. Ashland canceled the lease and purchased the assets from the lessor in October 2003. 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 and associated receivables 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) 2004 2003 - --------------------------------------------------------------------------------------------------------------------- Chemicals and plastics $ 370 $ 333 Construction materials 71 67 Petroleum products 61 66 Other products 45 48 Supplies 6 5 Excess of replacement costs over LIFO carrying values (95) (78) ----------- ----------- $ 458 $ 441 =========== =========== Chemicals, plastics and petroleum products with a replacement cost of $286 million at September 30, 2004, and $279 million at September 30, 2003, 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 methods) 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 F-7

NOTE A - SIGNIFICANT ACCOUNTING POLICIES (continued) indicators include, among other factors, operating losses, unused capacity, market value declines and technological obsolescence. Recorded values of property, plant and equipment that are not expected to be recovered through undiscounted future net cash flows are written down to current fair value, which generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable value (assets held for sale). During 2003, Ashland recognized an impairment charge of $10 million for a maleic anhydride production facility that is shutdown and not likely to reopen based on internal analyses. As of October 1, 2001, Ashland adopted FASB 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. As a result of the adoption of FAS 142, it was determined the goodwill of Ashland Distribution was impaired. Accordingly, an impairment loss of $14 million ($11 million net of income taxes) was recorded as a cumulative effect of accounting change as of October 1, 2001. Ashland recognized impairment charges of $9 million in 2003 and $2 million in 2004 for goodwill associated with non-strategic businesses of APAC identified for sale. 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, 2004. Ashland Specialty (In millions) APAC Chemical Valvoline Total - --------------------------------------------------------------------------------------------------------------------- Balance at October 1, 2003 $ 426 $ 91 $ 6 $ 523 Goodwill assigned to sold businesses (13) - - (13) Impairment losses (2) - - (2) Currency translation adjustments - 5 - 5 ---------- ----------- ----------- ----------- Balance at September 30, 2004 $ 411 $ 96 $ 6 $ 513 ========== =========== =========== =========== 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. At September 30, 2004, Ashland held interest rate swaps that effectively converted the interest rates on $183 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. Settlements of terminated swaps are amortized to interest expense over the remaining term of the debt. Ashland regularly uses commodity-based and foreign currency derivative instruments to manage its exposure to price fluctuations associated with the purchase of natural gas, diesel fuel and gasoline, as well as certain transactions denominated in foreign currencies. In addition, Ashland opportunistically enters into petroleum crackspread futures to economically hedge its refining and marketing earnings. Changes in the fair value of all derivatives are recognized immediately in income unless the derivative qualifies as a hedge of future cash flows or certain foreign currency exposures. Ashland has designated a limited portion of its foreign currency derivatives as qualifying for hedge accounting treatment, but their impact on the consolidated financial statements is not significant. MAP uses commodity-based derivatives and financial instrument-related derivatives to manage its exposure to commodity price risk. MAP's management has authorized the use of futures, forwards, swaps and combinations of options, including written or net written options, related to the purchase or sale of crude oil, refined products and natural gas. Changes in the fair value of all derivatives are recognized immediately in income. ENVIRONMENTAL COSTS Accruals for environmental costs are recognized when it is probable 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 F-8

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. STOCK INCENTIVE PLANS As of October 1, 2002, Ashland began expensing employee stock options in accordance with FASB Statement No. 123 (FAS 123), "Accounting for Stock-Based Compensation," and its related amendments. Ashland elected the modified prospective method of adoption, under which compensation costs recorded in the year ended September 30, 2003 were the same as that which would have been recorded had the recognition provisions of FAS 123 been applied from its original effective date. Results for prior periods were not restated. Prior to October 1, 2002, Ashland accounted for stock options under Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," and related Interpretations, and no expense was recorded. In 2004, Ashland began granting stock-settled stock appreciation rights (SARs), which are expensed like stock options in accordance with FAS 123. In addition to stock options and SARs, Ashland grants nonvested stock awards to key employees and directors, which are expensed over their vesting period under either APB 25 or FAS 123. See Note L for the impact of this accounting change on net income and earnings per share. EARNINGS PER SHARE Following is the computation of basic and diluted earnings per share (EPS) from continuing operations. (In millions except per share data) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- NUMERATOR Numerator for basic and diluted EPS - Income from continuing operations $ 398 $ 94 $ 115 =========== =========== =========== DENOMINATOR Denominator for basic EPS - Weighted average common shares outstanding 70 68 69 Common shares issuable upon exercise of stock options 1 1 1 ----------- ----------- ----------- Denominator for diluted EPS - Adjusted weighted average shares and assumed conversions 71 69 70 =========== =========== =========== EPS FROM CONTINUING OPERATIONS Basic $ 5.69 $ 1.37 $ 1.67 Diluted 5.59 1.37 1.64 OTHER Cash equivalents include highly liquid investments maturing within three months after purchase. Income related to construction contracts generally is 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. Other revenues generally are recognized when products are shipped or services are provided to customers and the sales price is fixed or determinable and collectibility is reasonably assured. Costs associated with revenues, including shipping and handling costs, are recorded in cost of sales and operating expenses. Because Ashland's products generally are sold without any extended warranties, liabilities for product warranties are insignificant. Costs of product warranties generally are expensed as incurred. Advertising costs ($78 million in 2004, $77 million in 2003 and $78 million in 2002) and research and development costs ($43 million in 2004, $36 million in 2003 and $34 million in 2002) are expensed as incurred. Certain prior year amounts have been reclassified in the consolidated financial statements and accompanying notes to conform to 2004 classifications. F-9

NOTE B - INFORMATION BY INDUSTRY SEGMENT Ashland's operations 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 F-26 and F-27. 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, composites and fine ingredients in North America and plastics in Europe, and provides environmental services throughout North America. 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. Valvoline is a marketer of premium-branded automotive and commercial oils, automotive chemicals, appearance products and automotive services, with sales in more than 100 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 948,000 barrels per calendar day, 84 light products and asphalt terminals in the Midwest and Southeast United States, about 5,650 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 international operations follows. Ashland has no material operations in any individual international country. Revenues from Property, plant external customers and equipment ------------------------------------- ------------------------ (In millions) 2004 2003 2002 2004 2003 - --------------------------------------------------------------------------------------------------------------------- United States $ 7,406 $ 6,787 $ 6,662 $ 1,105 $ 1,140 International 1,375 1,125 955 151 132 ---------- ----------- ----------- ----------- ----------- $ 8,781 $ 7,912 $ 7,617 $ 1,256 $ 1,272 ========== =========== =========== =========== =========== F-10

NOTE C - RELATED PARTY TRANSACTIONS Ashland sells chemicals and lubricants to 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. The following table indicates the amounts of these transactions for each of the last three years ended September 30. Ashland's transactions with other affiliates and related parties were not significant. (In millions) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- Ashland's sales to MAP $ 21 $ 23 $ 24 Ashland's purchases from MAP 274 247 217 Ashland's costs charged to MAP 2 3 6 Ashland has entered into a revolving credit agreement providing for short-term loans, at Ashland's discretion, to MAP at competitive rates. Under the agreement, Ashland may loan up to $190 million to MAP. No loans were outstanding under the agreement at September 30, 2004 and 2003. 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 $95 million. At September 30, 2004, Ashland's contingent liability under this guarantee amounted to $95 million. Although Ashland has not made and does not expect to make any payments under this guarantee, it has recorded the fair value of this guarantee obligation, which is not significant. NOTE D - UNCONSOLIDATED AFFILIATES Ashland accounts for its investment in MAP on the equity method. Under the agreements related to its formation, MAP was organized by Ashland and Marathon Oil Company (Marathon) as a limited liability company for an initial term expiring on December 31, 2022, subject to automatic ten-year extensions unless a termination notice is given by either parent. The parents also entered into a put/call agreement that could be exercised by either parent at any time after December 31, 2004. Under that agreement, Ashland will have the right to sell all of its ownership interest in MAP to Marathon for an amount equal to 85% (90% if equity securities are used) of the fair market value of that ownership interest, payable in cash or Marathon debt or equity securities. Similarly, Marathon will have the right to purchase all of Ashland's ownership interest in MAP for an amount equal to 115% of the fair market value of that ownership interest, payable in cash. Neither Ashland nor Marathon has the right to exercise their respective put and call rights unless the agreement described below is terminated. On March 19, 2004, Ashland announced the signing of an agreement under which it would transfer its 38% interest in MAP and two wholly-owned businesses to Marathon in a transaction structured to be generally tax free and valued at approximately $3.0 billion. The two other businesses are Ashland's maleic anhydride business and 61 Valvoline Instant Oil Change (VIOC) centers. The transaction is subject to several previously disclosed conditions, including approval by Ashland's shareholders, consent from Ashland's public debt holders and receipt of a favorable private letter ruling from the Internal Revenue Service (IRS) with respect to the tax treatment. Ashland has filed registration statements and proxy materials with the Securities and Exchange Commission (SEC) and is responding to comments. In addition, Ashland submitted a request to the IRS for a private letter ruling on the tax-free status of the proposed transaction. Ashland continues to discuss the complex tax issues related to this transaction with the IRS. Ashland has not resolved all issues with the IRS and is exploring alternatives for the resolution of these issues. At this time, Ashland cannot predict whether the requested rulings will be received. If the requested rulings are not received, the transaction would have to be modified or terminated. In any event, Ashland does not believe that a transaction will close earlier than March 2005. Summarized financial information reported by MAP and other companies accounted for on the equity method is presented in the following table, along with a summary of the amounts recorded in Ashland's consolidated financial statements. Since MAP is organized as a limited liability company that has elected to be taxed as a partnership, the parents are responsible for income taxes applicable to their share of MAP's taxable income. The net income of MAP reflected below does not include any provision for income taxes that will be incurred by its parents. At September 30, 2004, Ashland's retained earnings included $378 million of undistributed earnings from unconsolidated affiliates accounted for on the equity method. F-11

NOTE D - UNCONSOLIDATED AFFILIATES (continued) Other (In millions) MAP affiliates Total - ---------------------------------------------------------------------------------------------------------------------- September 30, 2004 Financial position Current assets $ 5,265 $ 160 Current liabilities (3,436) (87) ----------- ---------- Working capital 1,829 73 Noncurrent assets 5,219 78 Noncurrent liabilities (724) (14) ----------- ---------- Stockholders' equity $ 6,324 $ 137 =========== ========== Results of operations Sales and operating revenues $ 40,672 $ 409 Income from operations 1,129 51 Net income 1,118 44 Amounts recorded by Ashland Investments and advances 2,713 (1) 54 $ 2,767 Equity income 405 27 432 Distributions received 146 23 169 September 30, 2003 Financial position Current assets $ 3,889 $ 149 Current liabilities (2,640) (82) ----------- ---------- Working capital 1,249 67 Noncurrent assets 4,946 99 Noncurrent liabilities (586) (59) ----------- ---------- Stockholders' equity $ 5,609 $ 107 =========== ========== Results of operations Sales and operating revenues $ 32,034 $ 336 Income from operations 810 41 Net income 795 34 Amounts recorded by Ashland Investments and advances 2,448 47 $ 2,495 Equity income 285 16 301 Distributions received 197 6 203 September 30, 2002 Results of operations Sales and operating revenues $ 25,063 $ 237 Income from operations 511 24 Net income 502 16 Amounts recorded by Ashland Equity income 176 5 $ 181 Distributions received 196 5 201 (1) At September 30, 2004, Ashland's investment exceeds its equity in the net assets of MAP by $310 million, of which $135 million represents plant and equipment that will continue to be amortized, and $175 million represents goodwill. Straight-line amortization of the excess investment that was charged against equity income amounted to $16 million in each of the three years ended September 30, 2004. F-12

NOTE E - DEBT (In millions) 2004 2003 - --------------------------------------------------------------------------------------------------------------------- Medium-term notes, due 2005-2025, interest at a weighted average rate of 8% at September 30, 2004 (6.9% to 9.4%) $ 524 $ 578 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 2005-2022, interest at a weighted average rate of 5.7% at September 30, 2004 (1.7% to 7.1%) 168 176 6.86% medium-term notes, Series H, due 2009 150 150 6.625% senior notes, due 2008 150 150 Other 37 81 ----------- ----------- Total long-term debt 1,508 1,614 Current portion of long-term debt (399) (102) ----------- ----------- Long-term debt (less current portion) $ 1,109 $ 1,512 =========== =========== Aggregate maturities of long-term debt are $399 million in 2005, $62 million in 2006, $125 million in 2007, $168 million in 2008 and $211 million in 2009. Interest payments on all indebtedness amounted to $116 million in 2004, $125 million in 2003 and $138 million in 2002. The weighted average interest rate on short-term borrowings outstanding was 2.7% at September 30, 2004. No short-term borrowings were outstanding at September 30, 2003. Ashland has two revolving credit agreements providing for up to $350 million in borrowings, neither of which was used during 2004. The agreement providing for $250 million in borrowings expires on April 1, 2007. The agreement providing for $100 million in borrowings expires on April 1, 2005. In the June 2004 quarter, Ashland executed an additional $200 million revolving credit agreement which expires March 31, 2005. Ashland has utilized this facility to fund currently maturing long-term debt and certain lease payments, and had $40 million outstanding under this facility at September 30, 2004. While the revolving credit agreements contain covenants limiting new borrowings based on Ashland's stockholders' equity, these agreements would have permitted an additional $2.4 billion of borrowings at September 30, 2004. Additional permissible borrowings are increased (decreased) by 150% of any increase (decrease) in stockholders' equity. NET INTEREST AND OTHER FINANCIAL COSTS (In millions) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- Interest expense $ 114 $ 123 $ 135 Expenses on sales of accounts receivable (see Note G) 3 3 4 Other financial costs 3 3 3 Interest income (6) (1) (4) ----------- ----------- ----------- $ 114 $ 128 $ 138 =========== =========== =========== 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 made guarantees with respect to the residual value of the underlying property. If Ashland had canceled those leases at September 30, 2004, its maximum obligations under the residual value guarantees would have amounted to $98 million. Ashland does not expect to incur any significant charge to earnings under these guarantees, $24 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 party to the leases. Capitalized lease obligations are not significant and are included in long-term debt. Future minimum rental payments at September 30, 2004, and rental expense under operating leases follow. F-13

NOTE F - LEASES (continued) (In millions) Future minimum rental payments Rental expense 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- 2005 $ 47 Minimum rentals 2006 41 (including rentals under 2007 35 short-term leases) $ 104 $ 98 $ 103 2008 28 Contingent rentals 3 3 3 2009 23 Sublease rental income (2) (2) (2) Later years 83 ----------- ----------- ----------- ---------- $ 105 $ 99 $ 104 $ 257 =========== =========== =========== ========== FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," was issued in November 2002. Upon entering new lease agreements with residual value guarantees after December 31, 2002, Ashland is required to record the fair value at inception of these guarantee obligations in accordance with FIN 45. At September 30, 2004 and 2003, the recorded value of such obligations was not significant. 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, except for a period between April 29 and September 7, 2003, when the full $200 million capacity was utilized. 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 or concentrations over certain limits with any one customer. The costs of these sales are based on the buyer's short-term borrowing rates and approximated 2.2% at September 30, 2004, and 1.5% at September 30, 2003. 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, 2004 and 2003. FAIR VALUES The carrying amounts and fair values of Ashland's significant financial instruments at September 30, 2004 and 2003 are shown below. The fair values of cash and cash equivalents, investments of captive insurance companies and the revolving credit facility 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. 2004 2003 ----------------------- ------------------------ Carrying Fair Carrying Fair (In millions) amount value amount value - --------------------------------------------------------------------------------------------------------------------- Assets Cash and cash equivalents $ 243 $ 243 $ 223 $ 223 Interest rate swaps (1) (1) 1 1 Investments of captive insurance companies (1) 13 13 13 13 Liabilities Revolving credit facility 40 40 - - Long-term debt (including current portion) 1,508 1,675 1,614 1,809 (1) Included in other noncurrent assets in the Consolidated Balance Sheets. F-14

NOTE I - ACQUISITIONS AND DIVESTITURES ACQUISITIONS Several small acquisitions were completed by APAC, Ashland Specialty Chemical and Valvoline during the three years ended September 30, 2004. These acquisitions were accounted for as purchases and did not have a significant effect on Ashland's consolidated financial statements. DIVESTITURES During 2003, APAC sold the assets of its Nashville division and certain ready-mix operations in Missouri. During 2004, APAC sold much of its remaining ready-mix operations and certain other operations. None of these divestitures had a significant effect on Ashland's consolidated financial statements. See Note N for a discussion of the sale of the Electronic Chemicals division of Ashland Specialty Chemical in 2003. NOTE J - INCOME TAXES A summary of the provision for income taxes related to continuing operations follows. (In millions) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- Current (1) Federal $ (6) $ (17) $ 151 State 6 (3) 22 Foreign 25 15 16 ----------- ----------- ----------- 25 (5) 189 Deferred 125 49 (121) ----------- ----------- ----------- $ 150 $ 44 $ 68 =========== =========== =========== (1) Income tax payments amounted to $84 million in 2004, $24 million in 2003 and $158 million in 2002. 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 foreign corporate joint ventures. Management intends to indefinitely reinvest such earnings, which amounted to $160 million at September 30, 2004. Because of significant foreign tax credits, it is estimated that U.S. federal income taxes of approximately $17 million would be incurred if those earnings were distributed. Temporary differences that give rise to significant deferred tax assets and liabilities follow. (In millions) 2004 2003 - --------------------------------------------------------------------------------------------------------------------- Employee benefit obligations $ 201 $ 219 Environmental, self-insurance and litigation reserves (net of receivables) 183 196 Compensation accruals 74 59 Uncollectible accounts receivable 15 18 Other items 37 61 ----------- ----------- Total deferred tax assets 510 553 ----------- ----------- Property, plant and equipment 182 189 Investment in unconsolidated affiliates 592 513 ----------- ----------- Total deferred tax liabilities 774 702 ----------- ----------- Net deferred tax liability $ 264 $ 149 =========== =========== Ashland's income tax expense for 2004 included $48 million in tax benefits related to prior years. During the year, Ashland reached resolution with the Internal Revenue Service on several open tax matters from prior years, resulting in a tax benefit of $33 million as a result of the reduction of amounts previously provided as contingent tax liabilities. In addition, Ashland recognized federal income tax benefits associated with a claim for additional research and development tax credits valued at $15 million. F-15

NOTE J - INCOME TAXES (continued) 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) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes United States $ 441 $ 60 $ 114 Foreign 107 78 69 ----------- ----------- ----------- $ 548 $ 138 $ 183 =========== =========== =========== Income taxes computed at U.S. statutory rate (35%) $ 192 $ 48 $ 64 Increase (decrease) in amount computed resulting from Resolution of prior-year contingency issues (33) - - Claim for prior-year research and development credits (15) - - State income taxes 18 3 1 Net impact of foreign results - (2) 3 Business meals and entertainment 2 3 3 Deductible dividends under employee stock ownership plan (2) (2) (3) Life insurance expense (income) (2) (2) 4 Other items (10) (4) (4) ----------- ----------- ----------- Income taxes $ 150 $ 44 $ 68 =========== =========== =========== NOTE K - CAPITAL STOCK 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, 2004, 500,000 shares of cumulative preferred stock are reserved for potential issuance under the Shareholder Rights Plan and 7.1 million common shares are reserved for issuance under stock incentive and deferred compensation plans. NOTE L - STOCK INCENTIVE PLANS Ashland has stock incentive plans under which key employees or directors are granted stock options, stock-settled stock appreciation rights (SARs) or nonvested stock awards. Stock options and SARs 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 and SARs lapse 10 years after the date of grant. Nonvested stock awards entitle employees or directors to vote the shares and to receive any dividends thereon. However, such shares are subject to forfeiture upon termination of service before the vesting period ends. During 2004, Ashland granted 216,900 nonvested stock awards with a weighted average fair value of $40.87 per share. Nonvested stock awards in 2003 and 2002 were not significant. As discussed in Note A, Ashland began expensing employee stock options and SARs in accordance with FAS 123 in 2003. The following table illustrates the effect on net income and earnings per share if FAS 123 had been applied in 2002 to all outstanding and unvested awards. The fair value per share of options or SARs granted was determined using the Black-Scholes option pricing model with the indicated assumptions. F-16

(In millions except per share data) 2004 2003 2002 - ------------------------------------------------------------------------------------------------------------------- Net income as reported $ 378 $ 75 $ 117 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 4 5 - Deduct: Total stock-based employee compensation expense determined under FAS 123 for all awards, net of related tax effects (4) (5) (4) ----------- ----------- ---------- Pro forma net income $ 378 $ 75 $ 113 =========== =========== ========== Earnings per share: Basic - as reported $ 5.41 $ 1.10 $ 1.69 Basic - pro forma 5.41 1.10 1.63 Diluted - as reported 5.31 1.10 1.67 Diluted - pro forma 5.31 1.10 1.61 Weighted average fair value per share of options or SARs granted 12.65 6.71 5.35 Assumptions (weighted average) Risk-free interest rate 3.4% 3.1% 2.9% Expected dividend yield 2.0% 3.3% 3.8% Expected volatility 25.9% 27.3% 26.7% Expected life (in years) 5.0 5.0 5.0 A progression of activity and various other information relative to stock options and SARs is presented in the following table. 2004 2003 2002 -------------------------- ------------------------- -------------------------- Number Weighted Weighted Weighted of average average average (In thousands except common exercise price Common exercise price Common exercise price per share data) shares per share shares per share shares per share - -------------------------------------------------------------------------------------------------------------------------- Outstanding-beginning of year (1) 7,807 $ 37.17 7,482 $ 37.28 6,735 $ 38.41 Granted 603 54.65 537 33.42 1,210 29.05 Exercised (3,100) 35.29 (103) 27.96 (413) 31.34 Canceled (145) 36.04 (109) 35.27 (50) 38.54 ----------- ----------- ---------- Outstanding-end of year (1) 5,165 40.37 7,807 37.17 7,482 37.28 =========== =========== ========== Exercisable-end of year 4,067 39.37 6,491 38.25 5,537 39.34 (1) Shares of common stock available for future grants of options or awards amounted to 1,098,000 at September 30, 2004, and 1,860,000 at September 30, 2003. Exercise prices per share for options and SARs outstanding at September 30, 2004 ranged from $25.00 to $34.00 for 1,579,000 shares, from $35.88 to $43.13 for 1,829,000 shares, and from $44.20 to $54.81 for 1,757,000 shares. The weighted average remaining contractual life of the options and SARs was 6.0 years. NOTE M - LITIGATION, CLAIMS AND CONTINGENCIES ASBESTOS-RELATED LITIGATION Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such 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 provided 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 number of open claims can fluctuate significantly from period to period. (In thousands) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- Open claims - beginning of year 198 160 167 New claims filed 29 66 45 Claims settled (7) (7) (15) Claims dismissed (24) (21) (37) ----------- ----------- ----------- Open claims - end of year 196 198 160 =========== =========== =========== F-17

NOTE M - LITIGATION, CLAIMS AND CONTINGENCIES (continued) Since October 1, 2001, Riley has been dismissed as a defendant in 73% of the resolved claims. Amounts spent on litigation defense and claim settlements averaged $1,655 per claim resolved in 2004, compared to $1,610 in 2003 and $723 in 2002. A progression of activity in the asbestos reserve is presented in the following table. (In millions) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- Asbestos reserve - beginning of period $ 610 $ 202 $ 199 Expense incurred 59 453 41 Amounts paid (51) (45) (38) ----------- ----------- ----------- Asbestos reserve - end of period $ 618 $ 610 $ 202 =========== =========== =========== During the December 2002 quarter, Ashland increased its reserve for asbestos claims by $390 million to cover the litigation defense and claim settlement costs for probable and reasonably estimable future payments related to existing open claims, as well as an estimate of those that may be filed in the future. Prior to December 31, 2002, the asbestos reserve was based on the estimated costs that would be incurred to settle existing open claims. A range of estimates of future asbestos claims and related costs using various assumptions was developed with the assistance of Hamilton, Rabinovitz & Alschuler, Inc. (HR&A). The methodology used by HR&A to project future asbestos costs was based largely on Ashland's recent experience, including claim-filing and settlement rates, disease mix, open claims, and litigation defense and claim settlement costs. Ashland's claim experience was compared to the results of previously conducted epidemiological studies estimating the number of people likely to develop asbestos-related diseases. Those studies were undertaken in connection with national analyses of the population expected to have been exposed to asbestos. Using that information, HR&A estimated a range of the number of future claims that may be filed, as well as the related costs that may be incurred in resolving those claims. From the range of estimates, Ashland recorded the amount it believed to be the best estimate, which represented the expected payments for litigation defense and claim settlement costs during the next ten years. Subsequent updates to this estimate have been made, with the assistance of HR&A, based on a combination of a number of factors including the actual volume of new claims, recent settlement costs, changes in the mix of alleged disease, enacted legislative changes and other developments impacting Ashland's estimate of future payments. Ashland's reserve for asbestos claims on an undiscounted basis amounted to $618 million at September 30, 2004, compared to $610 million at September 30, 2003. Projecting future asbestos costs is subject to numerous variables that are extremely difficult to predict. In addition to the significant uncertainties surrounding the number of claims that might be received, other variables include the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, 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. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, Ashland believes its asbestos reserve represents the best estimate within a range of possible outcomes. As a part of the process to develop Ashland's estimates of future asbestos costs, a range of long-term cost models is developed that assumes a run-out of claims through 2055. These models are based on national studies that predict the number of people likely to develop asbestos-related diseases and are heavily influenced by assumptions regarding long-term inflation rates for indemnity payments and legal defense costs, as well as other variables mentioned previously. The total future litigation defense and claim settlement costs on an undiscounted basis has been estimated within a reasonably possible range of $400 million to $2.0 billion, depending on the number of years those costs extend and other combinations of assumptions selected. Ashland's reserve represents between 10 and 29 years of future costs, depending on the model selected. If actual experience is worse than projected relative to the number of claims filed, the severity of alleged disease associated with those claims or costs incurred to resolve those claims, Ashland may need to increase further the estimates of the costs associated with asbestos claims and these increases could potentially be material over time. Ashland has insurance coverage for most of the litigation defense and claim settlement costs incurred in connection with its asbestos claims, and coverage-in-place agreements exist with the insurance companies that provide substantially all of the coverage currently being accessed. As a result, increases in the asbestos reserve have been largely offset by probable insurance recoveries. The amounts not recoverable generally are due from insurers that are insolvent, rather than as a result of uninsured claims or the exhaustion of Ashland's insurance coverage. F-18

Ashland retained the services of Tillinghast-Towers Perrin to assist management in the estimation of reasonably possible insurance recoveries associated with Ashland's estimate of its asbestos liabilities. Such recoveries are based on management's assumptions and estimates surrounding the available or applicable insurance coverage. One such assumption is that all solvent insurance carriers remain solvent. Although coverage limits are resolved in the coverage-in-place agreement with Equitas Limited (Equitas) and other London companies, which collectively provide a significant portion of Ashland's insurance coverage for asbestos claims, there is a disagreement with these companies over the timing of recoveries. The resolution of this disagreement could have a material effect on the value of insurance recoveries from those companies. In estimating the value of future recoveries, Ashland has used the least favorable interpretation of this agreement under which the ultimate recoveries are extended for many years, resulting in a significant discount being applied to value those recoveries. Ashland will continue to apply this methodology until such time as the disagreement is resolved. On July 21, 2004, Ashland filed a demand for arbitration to resolve the dispute concerning the interpretation of this agreement. At September 30, 2004, Ashland's receivable for recoveries of litigation defense and claim settlement costs from its insurers amounted to $435 million, of which $54 million relates to costs previously paid. Receivables from insurance companies amounted to $429 million at September 30, 2003. About 35% of the estimated receivables from insurance companies at September 30, 2004, are expected to be due from Equitas and other London companies. Of the remainder, approximately 90% is expected to come from companies or groups that are rated A or higher by A. M. Best. 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, 2004, such locations included 93 waste treatment or disposal sites where Ashland has been identified as a potentially responsible party under Superfund or similar state laws, approximately 130 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 $152 million at September 30, 2004, and $174 million at September 30, 2003. 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. Environmental remediation expense amounted to $2 million in 2004, $22 million in 2003 and $30 million in 2002. No individual remediation location is material to Ashland as its largest reserve for any site is less than 10% of the remediation reserve. 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 various claims, lawsuits and administrative proceedings pending or threatened against Ashland and its current and former subsidiaries. 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. F-19

NOTE N - DISCONTINUED OPERATIONS Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims result primarily from indemnification obligations undertaken in 1990 in connection with the sale of Riley Stoker Corporation, a former subsidiary. During the quarter ended December 31, 2002, Ashland increased its reserve for asbestos claims by $390 million to cover litigation defense and claim settlement costs expected to be paid through December 2012. Because insurance provides reimbursements for most of these costs and coverage-in-place agreements exist with the insurance companies that provide substantially all of the coverage being accessed, the increase in the asbestos reserve was offset in part by probable insurance recoveries valued at $235 million. The resulting $155 million pretax charge to income, net of deferred income tax benefits of $60 million, was reflected as an after-tax loss from discontinued operations of $95 million in the Statement of Consolidated Income for the three months ended December 31, 2002. Additional reserves have been provided since then to reflect updates in the estimate of potential payments for litigation defense and claim settlement costs. See Note M for further discussion of Ashland's asbestos-related litigation. On August 29, 2003, Ashland sold the net assets of its Electronic Chemicals business and certain related subsidiaries in a transaction valued at approximately $300 million before tax. Electronic Chemicals was a part of Ashland Specialty Chemical, providing ultra pure chemicals and other products and services to the worldwide semiconductor industry, with revenues of $215 million in 2003 and $217 million in 2002. The sale reflects Ashland's strategy to optimize its business mix and focus greater attention on the remaining chemical and transportation construction operations where it can achieve strategic advantage. Ashland's after-tax proceeds were used primarily to reduce debt. During 2004, Ashland recorded certain minor adjustments to the gain reported in 2003. During 2004, Ashland reached resolution with the Internal Revenue Service on several open tax matters from prior years. In addition to amounts reported in income from continuing operations, favorable resolution was also reached on matters associated with previously discontinued businesses, resulting in a $1 million tax benefit from the associated reduction in contingent tax liabilities previously recorded. Components of amounts reflected in the income statements related to discontinued operations are presented in the following table. (In millions) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM DISCONTINUED OPERATIONS Reserves for asbestos-related litigation $ (29) $ (178) $ - Electronic Chemicals - 17 17 GAIN (LOSS) ON DISPOSAL OF DISCONTINUED OPERATIONS Electronic Chemicals (2) 101 - ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (31) (60) 17 INCOME TAX BENEFIT (EXPENSE) Income (loss) from discontinued operations Reserves for asbestos-related litigation 11 69 - Electronic Chemicals - (3) (4) Gain (loss) on disposal of discontinued operations (1) (20) - Resolution of tax contingency issues 1 - - ----------- ----------- ----------- RESULTS FROM DISCONTINUED OPERATIONS $ (20) $ (14) $ 13 =========== =========== =========== F-20

NOTE O - EMPLOYEE BENEFIT PLANS PENSION PLANS Ashland and its subsidiaries sponsor contributory and noncontributory qualified and non-qualified defined benefit pension plans that cover substantially all employees in the United States and in a number of other countries. Included in the following pension plan disclosures for the first time in 2004 are amounts related to employees in the United Kingdom, the Netherlands and Canada. Amounts for prior years have not been restated, as the impact on Ashland's financial position and results of operations would not be material. Ashland's funding policy is to fully fund the accumulated benefit obligations of its qualified U.S. plans with the level of contributions being determined annually to achieve that objective over time. In addition, Ashland has non-qualified unfunded pension plans which provide supplemental defined benefits to those employees whose benefits under the qualified pension plans are limited by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. Ashland funds the costs of the non-qualified plans as the benefits are paid. Pension obligations for employees of non-U.S. consolidated subsidiaries are provided for by depositing funds with trustees or by book reserves in accordance with local practices and regulations of the respective countries. Prior to July 1, 2003, benefits under Ashland's U.S. pension plans generally were based on employees' years of service and compensation during the years immediately preceding their retirement. Although certain changes were implemented on that date, the pension benefits of employees with at least ten years of service were not affected. As of July 1, 2003, the pension benefits of affected employees were converted to cash balance accounts. Such employees received an initial account balance equal to the present value of their accrued benefits under the previous plan on that date. Pension benefits for these employees are based on the balances in their accounts upon retirement. OTHER POSTRETIREMENT BENEFIT PLANS Ashland and its subsidiaries sponsor healthcare and life insurance plans for eligible employees who retire or are disabled. Ashland's retiree life insurance plans are noncontributory, while Ashland shares the costs of providing healthcare coverage with its retired employees through premiums, deductibles and coinsurance provisions. Ashland funds its share of the costs of the postretirement benefit plans as the benefits are paid. On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. Among other things, the Act will expand Medicare to include an outpatient prescription drug benefit beginning in 2006, as well as provide a subsidy for sponsors of retiree health care plans that provide a benefit that is at least actuarially equivalent to the Medicare Act benefits. In May 2004, the Financial Accounting Standards Board issued Staff Position No. FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." Pending final guidance on determining actuarial equivalency, Ashland has not yet been able to determine the impact of the Act on its postretirement benefit plans. As a result, the accumulated postretirement benefit obligation and net periodic postretirement benefit costs do not reflect the effects of the Act. On July 1, 2003, Ashland implemented changes in the way it shares the cost of healthcare coverage with future retirees. These changes did not affect the previous cost-sharing program for retirees or for employees meeting certain qualifications at that date. However, Ashland did amend that program to limit its annual per capita costs to an amount equivalent to base year per capita costs, plus annual increases of up to 1.5% per year for costs incurred after January 1, 2004. Under a previous amendment, base year costs were limited to the amounts incurred in 1992, plus annual increases of up to 4.5% per year thereafter. Premiums for retiree healthcare coverage are equivalent to the excess of the estimated per capita costs over the amounts borne by Ashland. Employees who were employed on June 30, 2003, who did not meet the required qualifications were allocated notional accounts that can only be used to pay all or part of the premiums for retiree healthcare coverage. Such premiums represent the full costs of providing that coverage, without any subsidy from Ashland. Employees must meet certain requirements upon separation in order to have access to their notional accounts. Retirees will continue to have access to Ashland coverage after their notional accounts are exhausted, but they will be responsible for paying the full premiums. New hires after June 30, 2003, will have access to any retiree health coverage that may be provided, but will have no company funds available to help pay for such coverage. F-21

NOTE O - EMPLOYEE BENEFIT PLANS (continued) OBLIGATIONS AND FUNDED STATUS Ashland uses a measurement date of September 30 for its pension and postretirement benefit plans. Summaries of the change in benefit obligations, plan assets, funded status of the plans, amounts recognized in the balance sheet, and assumptions used to determine the U.S. plan benefit obligations for 2004 and 2003 follow. Non-U.S. pension plans use assumptions generally consistent with those of U.S. plans. Other postretirement Pension plans benefit plans ----------------------- ------------------------ (In millions) 2004 2003 2004 2003 - --------------------------------------------------------------------------------------------------------------------- Change in benefit obligations Benefit obligations at October 1 $ 1,192 (1)$ 983 $ 296 $ 361 Service cost 51 43 9 11 Interest cost 73 65 17 22 Participant contributions 1 - 11 12 Benefits paid (48) (37) (31) (33) Plan amendments - (6) - (95) Changes in assumptions 44 63 7 19 Foreign currency exchange rate changes 8 - - - Other-net 9 (10) (11) (1) ---------- ---------- ----------- ---------- Benefit obligations at September 30 $ 1,330 $ 1,101 $ 298 $ 296 ========== ========== =========== ========== Change in plan assets Value of plan assets at October 1 $ 740 (1)$ 551 Actual return on plan assets 86 99 Employer contributions 137 61 Participant contributions 1 - Benefits paid (43) (33) Foreign currency exchange rate changes 5 - Other 6 2 ---------- ---------- Value of plan assets at September 30 $ 932 $ 680 ========== ========== Funded status of the plans Unfunded benefit obligation $ (398) $ (421) $ (298) $ (296) Unrecognized net actuarial loss 422 (1) 385 77 87 Unrecognized prior service credit (2) (3) (85) (100) ---------- ---------- ----------- ---------- Net amount recognized $ 22 $ (39) $ (306) $ (309) ========== ========== =========== ========== Amounts recognized in the balance sheet Accrued benefit liabilities $ (191) $ (231) $ (306) $ (309) Intangible assets 1 1 - - Accumulated other comprehensive loss 212 191 - - ---------- ---------- ----------- ---------- Net amount recognized $ 22 $ (39) $ (306) $ (309) ========== ========== =========== ========== U.S. plan assumptions Discount rate 6.00% 6.25% 6.00% 6.25% Rate of compensation increase 4.50% 4.50% - - (1) Beginning balances have been adjusted to include $91 million of benefit obligations, $60 million of plan assets, and $31 million of unrecognized net actuarial loss for certain non-U.S. pension plans. F-22

The accumulated benefit obligation for all pension plans was $1,118 million at September 30, 2004 and $909 million at September 30, 2003. Information for pension plans with an accumulated benefit obligation in excess of plan assets follows. 2004 2003 ---------------------------------- ----------------------------------- Non- Non- Qualified qualified Qualified qualified (In millions) plans (1) plans Total plans plans Total - --------------------------------------------------------------------------------------------------------------------- Projected benefit obligation $ 1,195 $ 110 $ 1,305 $ 1,002 $ 99 $ 1,101 Accumulated benefit obligation 1,000 98 1,098 819 90 909 Fair value of plan assets 908 - 908 680 - 680 (1) Includes qualified U.S. and non-U.S. pension plans. COMPONENTS OF NET PERIODIC BENEFIT COSTS The plan amendments in 2003 and 1992 previously discussed under other postretirement benefit plans reduced Ashland's accrued obligations under those plans, and the reductions are being amortized to income over future periods. Such amortization reduced Ashland's net periodic benefit costs for other postretirement benefits by $15 million in 2004, $10 million in 2003 and $8 million in 2002. At September 30, 2004, the remaining unrecognized prior service credit resulting from the changes amounted to $85 million, and will reduce future costs by $9 million in 2005, $8 million in 2006 and approximately $8 million annually thereafter through 2014. The following table summarizes the components of pension and other postretirement benefit costs, and the assumptions used to determine net periodic benefit costs for U.S. plans. Non-U.S. pension plans use assumptions generally consistent with those of U.S. plans. Pension benefits Other postretirement benefits ------------------------------------ ----------------------------------- (In millions) 2004 2003 2002 2004 2003 2002 - -------------------------------------------------------------------------------------------------------------------- Net periodic benefit costs Service cost $ 51 $ 43 $ 43 $ 9 $ 11 $ 12 Interest cost 73 65 59 17 22 23 Expected return on plan assets (66) (51) (47) - - - Amortization of prior service cost (credit) - - 1 (15) (10) (8) Amortization of net actuarial loss 29 30 18 5 3 2 ----------- ---------- ----------- ---------- ----------- ---------- $ 87 $ 87 $ 74 $ 16 $ 26 $ 29 =========== ========== =========== ========== =========== ========== U.S. plan assumptions Discount rate 6.25% 6.75% 7.25% 6.25% 6.75% 7.25% Rate of compensation increase 4.50% 5.00% 5.00% - - - Expected long-term rate of return on plan assets 8.50% 9.00% 9.00% - - - PLAN ASSETS The expected long-term rate of return on U. S. pension plan assets for 2004 of 8.5% was based on an assumed real rate of return of 5.5% and a projected long-term inflation rate of 3%. The basis for determining the expected long-term rate of return is a combination of future return assumptions for various asset classes in Ashland's investment portfolio, historical analysis of previous returns, market indices, and a projection of inflation. Ashland's U. S. pension plan assets are managed by outside investment managers, which are monitored monthly against investment return benchmarks and Ashland's established investment strategy. Ashland's investment strategy is designed to promote diversification to moderate volatility and to balance the expected long-term rate of return with an acceptable risk level. Investment managers are selected based on an analysis of, among other things, their investment process, historical investment results, frequency of management turnover, cost structure, and assets under management. Assets are periodically reallocated between investment managers to maintain an appropriate asset mix, diversification of investments and to maximize returns. F-23

NOTE O - EMPLOYEE BENEFIT PLANS (continued) Ashland's investment strategy and management practices relative to plan assets of non-U.S. plans generally are consistent with those for U.S. plans, except in those countries where investment of plan assets is dictated by applicable regulations. The target allocation for 2004 by asset category and actual allocations at September 30, 2004 and 2003 follow. Target Actual at September 30 --------- ------------------------- (In millions) 2004 2004 2003 - --------------------------------------------------------------------------------------------------------------------- Plan assets allocation Equity securities 70% 68% 60% Debt securities 30% 30% 36% Other - 2% 4% --------- --------- --------- 100% 100% 100% ========= ========= ========= CASH FLOWS In fiscal 2005, Ashland expects to contribute $70 million to its U. S. pension plans and $7 million to its non-U.S. pension plans. The following benefit payments, which reflect future service, are expected to be paid in each of the next five years and in aggregate for five years thereafter. Other Pension postretirement (In millions) benefits benefits - --------------------------------------------------------------------------------------------------------------------- 2005 $ 51 $ 21 2006 57 21 2007 61 22 2008 68 22 2009 70 23 2010-2014 451 122 OTHER PLANS Certain union employees are covered under multiemployer pension plans administered by unions. Amounts contributed to the plans by Ashland and charged to expense amounted to $5 million annually in 2004, 2003 and 2002. Ashland sponsors qualified savings plans to assist eligible employees in providing for retirement or other future needs. Under such plans, company contributions amounted to $23 million in 2004, $19 million in 2003, and $17 million in 2002. F-24

NOTE P - QUARTERLY FINANCIAL INFORMATION (unaudited) The following table presents quarterly financial information and per share data relative to Ashland's common stock. Quarters ended December 31 March 31 June 30 September 30 ------------------- -------------------- ------------------- ------------------- (In millions except per share data) 2003 2002 2004 2003 2004 2003 2004 2003 - ----------------------------------------------------------------------------------------------------------------------- Sales and operating revenues $ 1,936 $ 1,749 $ 1,825 $ 1,657 $ 2,206 $ 2,018 $ 2,334 $ 2,142 Operating income (loss) 92 32 10 (24) 292 138 268 119 Income (loss) from continuing operations 39 (1) (11) (37) 167 71 203 61 Net income (loss) 34 (92) (16) (39) 161 70 200 137 Basic earnings (loss) per share Continuing operations $ .56 $ (.02) $ (.16) $ (.54) $ 2.38 $ 1.04 $ 2.86 $ .89 Net income (loss) .49 (1.35) (.23) (.57) 2.29 1.02 2.81 2.00 Diluted earnings (loss) per share Continuing operations $ .56 $ (.02) $ (.16) $ (.54) $ 2.35 $ 1.03 $ 2.81 $ .89 Net income (loss) .49 (1.35) (.23) (.57) 2.26 1.01 2.76 1.99 Common cash dividends per share $ .275 $ .275 $ .275 $ .275 $ .275 $ .275 $ .275 $ .275 Market price per common share High $ 44.55 $ 30.80 $ 52.20 $ 30.37 $ 53.35 $ 33.85 $ 56.71 $ 34.51 Low 33.19 23.60 43.73 25.91 44.25 28.66 48.40 30.27 Ashland Inc. and Consolidated Subsidiaries Schedule II - Valuation and Qualifying Accounts Balance at Provisions Balance beginning charged to Reserves Other at end (In millions) of year earnings utilized changes of year - --------------------------------------------------------------------------------------------------------------------- Year ended September 30, 2004 Reserves deducted from asset accounts Accounts receivable $ 35 $ 20 $ (16) $ 2 $ 41 Inventories 9 2 (1) - 10 - --------------------------------------------------------------------------------------------------------------------- Year ended September 30, 2003 Reserves deducted from asset accounts Accounts receivable $ 34 $ 18 $ (18) $ 1 $ 35 Inventories 12 2 (5) - 9 - --------------------------------------------------------------------------------------------------------------------- Year ended September 30, 2002 Reserves deducted from asset accounts Accounts receivable $ 33 $ 23 $ (23) $ 1 $ 34 Inventories 12 5 (5) - 12 - --------------------------------------------------------------------------------------------------------------------- F-25

Ashland Inc. and Consolidated Subsidiaries Information by Industry Segment Years Ended September 30 (In millions) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- Revenues Sales and operating revenues APAC $ 2,525 $ 2,400 $ 2,652 Ashland Distribution 3,199 2,811 2,541 Ashland Specialty Chemical 1,386 1,212 1,130 Valvoline 1,297 1,235 1,152 Intersegment sales (1) Ashland Distribution (19) (21) (20) Ashland Specialty Chemical (86) (69) (63) Valvoline (1) (2) (2) ----------- ----------- ----------- 8,301 7,566 7,390 Equity income APAC 19 9 - Ashland Specialty Chemical 8 7 4 Valvoline - - 1 Refining and Marketing 405 285 176 ----------- ----------- ----------- 432 301 181 Other income APAC 22 - 12 Ashland Distribution 9 18 17 Ashland Specialty Chemical 16 10 4 Valvoline 4 5 6 Refining and Marketing (6) 2 2 Corporate 3 10 5 ----------- ----------- ----------- 48 45 46 ----------- ----------- ----------- $ 8,781 $ 7,912 $ 7,617 =========== =========== =========== Operating income APAC $ 111 $ (42) $ 122 Ashland Distribution 78 32 1 Ashland Specialty Chemical 87 31 70 Valvoline 105 87 77 Refining and Marketing (2) 383 263 143 Corporate (102) (105) (92) ----------- ----------- ----------- $ 662 $ 266 $ 321 =========== =========== =========== Assets APAC $ 1,428 $ 1,481 $ 1,498 Ashland Distribution 922 856 884 Ashland Specialty Chemical 842 749 941 Valvoline 658 667 611 Refining and Marketing 2,742 2,484 2,409 Corporate (3) 910 769 379 ----------- ----------- ----------- $ 7,502 $ 7,006 $ 6,722 =========== =========== =========== F-26

(In millions) 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- Investment in equity affiliates APAC $ 6 $ 4 $ (2) Ashland Specialty Chemical 40 35 30 Valvoline 7 8 9 Refining and Marketing 2,713 2,448 2,350 Corporate 1 - - ----------- ----------- ----------- $ 2,767 $ 2,495 $ 2,387 =========== =========== =========== Expense (income) not affecting cash Depreciation, depletion and amortization APAC $ 95 $ 108 $ 114 Ashland Distribution 18 19 21 Ashland Specialty Chemical 41 40 38 Valvoline 27 26 24 Corporate 12 11 11 ----------- ----------- ----------- 193 204 208 Other noncash items (4) APAC 20 (25) 24 Ashland Distribution 3 3 1 Ashland Specialty Chemical 8 (2) 3 Valvoline 2 4 (2) Refining and Marketing (181) 2 (168) Corporate 12 (30) 41 ----------- ----------- ----------- (136) (48) (101) ----------- ----------- ----------- $ 57 $ 156 $ 107 =========== =========== =========== Additions to property, plant and equipment APAC $ 73 $ 47 $ 107 Ashland Distribution 10 5 15 Ashland Specialty Chemical 62 34 27 Valvoline 26 18 22 Corporate 39 8 7 ----------- ----------- ----------- $ 210 $ 112 $ 178 =========== =========== =========== (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. F-27

Ashland Inc. and Consolidated Subsidiaries Five-Year Selected Financial Information Years Ended September 30 (In millions except per share data) 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------- Summary of operations Revenues Sales and operating revenues $ 8,301 $ 7,566 $ 7,390 $ 7,544 $ 7,785 Equity income 432 301 181 755 395 Other income 48 45 46 53 63 Cost and expenses Cost of sales and operating expenses (6,948) (6,390) (6,115) (6,358) (6,517) Selling, general and administrative expenses (1,171) (1,256) (1,181) (1,163) (1,081) ---------- ---------- ----------- ----------- ----------- Operating income 662 266 321 831 645 Net interest and other financial costs (114) (128) (138) (175) (194) ---------- ---------- ----------- ----------- ----------- Income from continuing operations before income taxes 548 138 183 656 451 Income taxes (150) (44) (68) (266) (179) ---------- ---------- ----------- ----------- ----------- Income from continuing operations 398 94 115 390 272 Results from discontinued operations (20) (14) 13 32 (202) ---------- ---------- ----------- ----------- ----------- Income before cumulative effect of accounting changes 378 80 128 422 70 Cumulative effect of accounting changes - (5) (11) (5) - ---------- ---------- ----------- ----------- ----------- Net income $ 378 $ 75 $ 117 $ 417 $ 70 ========== ========== =========== =========== =========== Balance sheet information Current assets $ 2,302 $ 2,085 $ 2,071 $ 2,233 $ 2,173 Current liabilities 1,815 1,484 1,520 1,530 1,711 ---------- ---------- ----------- ----------- ----------- Working capital $ 487 $ 601 $ 551 $ 703 $ 462 ========== ========== =========== =========== =========== Total assets $ 7,502 $ 7,006 $ 6,722 $ 7,128 $ 6,824 Short-term debt $ 40 $ - $ 10 $ - $ 245 Long-term debt (including current portion) 1,508 1,614 1,797 1,871 1,981 Stockholders' equity 2,706 2,253 2,173 2,226 1,965 ---------- ---------- ----------- ----------- ----------- Capital employed $ 4,254 $ 3,867 $ 3,980 $ 4,097 $ 4,191 ========== ========== =========== =========== =========== Cash flow information Cash flows from operations $ 209 $ 242 $ 168 $ 814 $ 468 Additions to property, plant and equipment 210 112 178 214 240 Cash dividends 77 75 76 76 78 Common stock information Diluted earnings per share Income from continuing operations $ 5.59 $ 1.37 $ 1.64 $ 5.54 $ 3.83 Net income 5.31 1.10 1.67 5.93 .98 Cash dividends per share 1.10 1.10 1.10 1.10 1.10 F-28

EXHIBIT INDEX 10.7 - Form of employment agreement between Ashland Inc. and an executive officer. 10.14 - Form of Notice of Grant of Stock Appreciation Right (SAR) Award. 10.15 - Form of Restricted Stock Award. 10.16 - Form of Notice of Grant of Nonqualified Stock Option. 10.17 - Amended and Restated Limited Liability Company Agreement dated as of December 31, 1998, of Marathon Ashland Petroleum LLC by and between Ashland Inc. and Marathon Oil Company. 10.19 - Put/Call Registration Rights and Standstill Agreement, dated as of January 1, 1998, including Amendment No. 1 thereto, dated December 31, 1998, among Marathon Oil Company, USX Corporation, Ashland Inc. and Marathon Ashland Petroleum LLC. 10.21 - Three-Year, $250 Million Revolving Credit Agreement dated as of April 2, 2004 10.22 - 364-Day, $100 Million Revolving Credit Agreement dated as of April 2, 2004 11 - Computation of Earnings Per Share (appearing on page F-9 of this annual report on Form 10-K). 12 - Computation of Ratio of Earnings to Fixed Charges. 21 - List of Subsidiaries. 23.1 - Consent of Independent Registered Public Accounting Firm. 24 - Power of Attorney, including resolutions of the Board of Directors. 31.1 - Certification of James J. O'Brien, Chief Executive Officer of Ashland, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 - Certification of J. Marvin Quin, Chief Financial Officer of Ashland, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 - Certification of James J. O'Brien, Chief Executive Officer of Ashland, and J. Marvin Quin, Chief Financial Officer of Ashland, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 - Consent of Tillinghast-Towers Perrin. 99.2 - Consent of Hamilton, Rabinovitz & Alschuler, Inc.

                                                          EXHIBIT 10.7



                                              December 19, 2003






Mr. Garry Higdem
2207 Longmire Road
Conroe, TX 77304

Dear Garry:

           This letter is to confirm the employment offer extended to you
for the position of Senior Vice President of Ashland Inc., and President of
APAC reporting directly to me as Chairman and Chief Executive Officer, Your
salary will be $450,000 on an annualized basis, which is paid semi-monthly
at $18,750. Ashland will provide you with a one time sign-on bonus in the
amount of $250,000 to be paid upon commencement of your employment. You
will also be recommended for a one time restricted stock grant of 25,000
shares. The shares will vest in increments of 25% per year and be fully
vested four years from date of grant.

           As was discussed in the job offer, you will be eligible for our
annualized incentive program (IC). Your annualized target opportunity
under this program is 90% of salary and actual payout is dependent upon
your individual performance as well as Ashland end APAC financial
performance for the year, however, we will guarantee a minimum payment of
$300,000 for fiscal 2004. Bonuses are normally paid in November following
the end of the fiscal year.

         You will also be included in the company's multi-year incentive
program called LTIP (long-term incentive program). Your target annual
opportunity under this program is 100% of salary and again, actual payout
is dependent on financial results over the performance cycle. However, you
will be eligible for a guaranteed payment of $337,500 under the 2002-2004
performance cycle. A copy of the FY 2002-2004 and 2003-2005 Policy
Memorandums outlining the specifics of the plan is included for your
reference. You will receive more information regarding your grants under
the 2003-2005 and 2004-2006 cycles once formally approved by the Personnel
and Compensation Committee in January.

Mr. Garry Hidem December 19, 2003 Page 2 Stock options are typically granted in September of each year. Under the current guidelines you would be eligible to receive up to 20,000 options on an annual basis, We are currently reviewing our stock program and are considering some changes to the form of the equity compensation provided. In September 2004 you will be eligible to receive a grant under the guidelines established for a Level I executive. In addition to the above, you will be eligible to participate in other benefit plans consisting of financial planning, deferred compensation, various insurance and health benefit plans. Your participation in particular employee benefits programs will be subject to the same limitations and conditions as those applicable to other employees eligible to participate. Garry, we are very pleased to extend this offer of employment to you. We look forward to an excellent opportunity for both you and Ashland as a result of your acceptance. If you have any questions, concerns or need additional information, Susan Baler, Vice President, Human Resources Programs & Services will be happy to assist you. She can be reached at 859/815-3543. Yours truly, James J. O'Brien Enclosures

                                                                  EXHIBIT 10.14


      FORM OF NOTICE OF GRANT OF STOCK APPRECIATION RIGHT (SAR) AWARD

Name of Employee:

Name of Plan:            Amended and Restated Ashland Inc. Incentive Plan

Number of SAR's:

Grant Price Per SAR:

Date of SAR Grant:

Exercise Schedule:

Expiration Date:

ASHLAND INC ("Ashland") hereby confirms the grant of a Stock Appreciation
Right ("SAR") award ("Award") to the above-named Employee ("Employee").
This Award entitles Employee to receive Ashland stock equal to the excess
of the fair market value of Ashland Common Stock, par value $1.00 per share
("Common Stock") , as determined by the closing price of the Common Stock
as reported on the Composite Tape of the New York Stock Exchange, on the
date the SAR is exercised over the grant price of the Common Stock, 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 SAR multiplied by
the number of SARs of Common Stock covered by such SAW or portion thereof
which is so surrendered. This Award is granted under, and is subject to,
all the terms and conditions of the Plan. Copies of the Plan and related
Prospectus are available for your review on FirstHand, Ashland's intranet
site. If you would prefer to have a hard copy of either of these documents
mailed to you, please contact Corporate Human Resources at (859) 357-2008.

Please acknowledge your receipt of this Notice of Grant, by signing, dating
and returning the enclosed copy of this Notice of Grant to Kristie Ptasnik,
Corporate Human Resources, LA-lN, on or before _________________, or the
Award will become null and void

ASHLAND INC.


By:_____________________________

DATE:                                          EMPLOYEE:



____________________________________           ______________________________


                                                                EXHIBIT 10.15


                       FORM OF RESTRICTED STOCK AGREEMENT


Name of Company:                      ASHLAND  INC.

Name of Participant:

Number of Shares of Ashland Inc.
    Common Stock

Par Value Per Share:                  $1.00

Vesting Schedule:


Date of Award:



         WHEREAS, Ashland Inc. (hereinafter called "Ashland") desires to award
to the above-named Participant (hereinafter called the "Participant"), ______
shares of Ashland Common Stock, par value $1.00 per share, subject to certain
restrictions (hereinafter called "Restricted Stock"), pursuant to the Amended
and Restated Ashland Inc. Incentive Plan (hereinafter called the "Plan"), in
order to provide the Participant with an additional incentive to continue
his/her services to Ashland and to continue to work for the best interests of
Ashland;

         NOW, THEREFORE, Ashland hereby confirms this award to the Participant,
as a matter of separate agreement and not in lieu of salary or any other
compensation for services, of the number of shares of Restricted Stock set forth
above, subject to and upon all the terms, provisions and conditions contained
herein and in the Plan, which is incorporated by reference. Full details of the
Plan are in the legal text of the Plan. If there are any differences between the
general description of the restrictions offered herein and the legal text of the
Plan, the Plan governs.

         Your award will be evidenced by the issuance of Restricted Stock
Certificates. Each certificate issued in respect of shares of Restricted Stock
shall be registered in the name of the Participant, but held in the custody of
Ashland along with a copy of an executed Stock Power (the form of which is
attached hereto as Exhibit A), and shall bear the following legend:

         "The transferability of this certificate and the shares of stock
         represented hereby are subject to the terms and conditions (including
         forfeitures) contained in the Amended and Restated Ashland Inc.
         Incentive Plan and an Agreement entered into between the registered
         owner and Ashland Inc."

         The Restricted Stock will vest according to the Vesting Schedule and
may not be sold, assigned, transferred, pledged, or otherwise encumbered (except
to the extent such shares shall have vested) until such date. Unless otherwise
determined and directed by the Personnel and Compensation Committee (the
"Committee"), in the case of the Participant's termination for any reason prior
to the lapse of all restrictions on the Restricted Stock, all such Restricted
Stock which has not vested will be forfeited. Except for such restrictions
described above, the Participant will have all rights of a shareholder with
respect to the shares of Restricted Stock including, but not limited to, the
right to vote and to receive dividends if and when paid.

         Six months prior to each Vesting Date, the Participant may elect to
defer some or all of the shares of Restricted Stock that vest into a
hypothetical stock fund in the Ashland Inc. Deferred Compensation Plan
("Deferred Compensation Plan") in the form of Common Stock Units (the "Common
Stock Units"). Common Stock Units in the Deferred Compensation Plan have no
voting rights. However, the Common Stock Units have the right to receive
dividends if and when paid and those dividends will be automatically deferred.
Distribution will be made in accordance with the Participant's election under
the Deferred Compensation Plan. Currently, distribution of Common Stock Units
must be made in shares of Ashland Common Stock.

         If you elect to defer all of the shares of Restricted Stock, you will
owe federal employment taxes, and depending on your city and county of
residence, local income taxes at the Vesting Date. If you elect to defer a
portion of the shares, you will owe federal, state and local income taxes and
federal employment taxes on the portion of shares you receive, and federal
employment taxes, and depending on your city and county of residence, local
income taxes on the shares you defer, at the Vesting Date. If you do not elect
to defer any of the shares, you will owe federal, state and local income taxes
and employment taxes on all of the shares at the Vesting Date. The amount of
taxes due in each instance is based on the fair market value of the shares on
the Vesting Date.

         Nothing contained in this Agreement or in the Plan shall confer upon
the Participant any right to remain in the service of Ashland.

         Subject to the terms and conditions specified herein and of the Plan,
the Restricted Stock shall be confirmed by execution of this Agreement and
delivery thereof no later than _________________, to Ashland, which is located
at 3499 Blazer Parkway, Lexington, KY 40509 Attention: Kristie Ptasnik
(inter-company LA-1N). The right to the Restricted Stock under the Plan shall
expire if not accepted within forty-five (45) days after the date of the award
of Restricted Stock as set forth above.


IN WITNESS WHEREOF, ASHLAND has caused this instrument to be executed and delivered effective as of the day and year first above written. This Restricted Stock Agreement shall not be valid unless signed by a Vice President, Human Resources of Ashland. ASHLAND INC. By: _________________________ Vice President, Human Resources I hereby elect to receive my award of Restricted Stock subject to the terms and conditions of the Amended and Restated Ashland Inc. Incentive Plan. My election to accept the award of Restricted Stock is effective October 1, 2004. Date: ________________ _____________________________ Employee Name

STOCK POWER Exhibit A FOR VALUE RECEIVED, _______________________ hereby sells, assigns and transfers unto _________________________________ (_______) Shares of the Capital Stock of ___________________________________ standing in __________________________ name on the books of said ________________________ represented by Certificate No. _________ herewith and do hereby irrevocably constitute and appoint _______________________ attorney to transfer the said stock on the books of the within named Company with full power of substitution in the premises. Dated: __________, ____ ____________________________________ Signature Guaranteed By: Not Required (Name of Bank) By:----------------------------------- (Signature of Officer) (Title of Officer) TO BE EXECUTED BY A DULY AUTHORIZED OFFICER OF THE BANK

                                                                   EXHIBIT 10.16

           FORM OF NOTICE OF GRANT OF NON-QUALIFIED STOCK OPTION


  Name of Employee:

  Name of Plan:            Amended and Restated Ashland Inc. Incentive Plan

  Number of Option Shares:

  Exercise Price Per Share:

  Date of Option Grant:

  Exercise Schedule:

  Expiration Date:

ASHLAND INC. ("Ashland") hereby confirms the grant of a non-qualified stock
option to purchase  shares of Ashland  Common Stock  including  restoration
options,  (the "Option") to the  above-named  Employee  ("Employee").  This
Option is granted under, and is subject to, all of the terms and conditions
of  the  Plan.  Copies  of  the  Plan  end  related  Prospectus,  including
information  with respect to  restoration  options,  are available for your
review on FirstHand, Ashland's intranet site. If you would prefer to have a
hard copy of  either  of these  documents  mailed  to you,  please  contact
Corporate Human Resources at (859) 357-2008.

Please  acknowledge  your  receipt of this  Notice by  signing,  dating and
returning  the  enclosed  copy of this Notice of Grant to Kristie  Ptasnik,
Corporate Human Resources, LA-1N, on or before ____________________, or the
Option will become null and void.


  ASHLAND INC.



By:_________________________________


DATE:                                                 EMPLOYEE:


_____________________________________                 ________________________

Amended and Restated Limited Liability Company Agreement

Exhibit 10.17

 

EXECUTION COPY

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

 

of

 

MARATHON ASHLAND PETROLEUM LLC

 

Dated as of December 31, 1998

 


TABLE OF CONTENTS

 

          Page

ARTICLE I     
Certain Definitions; Applicable GAAP     

SECTION 1.01.

   Definitions    2

SECTION 1.02.

   Applicable GAAP    21
ARTICLE II     
General Provisions     

SECTION 2.01.

   Formation; Effectiveness    21

SECTION 2.02.

   Name    22

SECTION 2.03.

   Term    22

SECTION 2.04.

   Registered Agent and Office    22

SECTION 2.05.

   Purpose    23

SECTION 2.06.

   Powers    23
ARTICLE III     
Members     

SECTION 3.01.

   Members; Percentage Interests    25

SECTION 3.02.

   Adjustments in Percentage Interests    25
ARTICLE IV     
Capital Contributions; Assumption of Assumed Liabilities     

SECTION 4.01.

   Contributions    26

SECTION 4.02.

   Additional Contributions    28

SECTION 4.03.

   Negative Balances; Withdrawal of Capital; Interest    29
ARTICLE V     
Distributions     

SECTION 5.01.

   Distributions    29

SECTION 5.02.

   Certain General Limitations    32

SECTION 5.03.

   Distributions in Kind    32

 


SECTION 5.04.

   Distributions in the Event of an Exercise of the Marathon Call Right, Ashland Put Right or the Special Termination Rights    32
ARTICLE VI     
Allocations and Other Tax Matters     

SECTION 6.01.

   Maintenance of Capital Accounts    33

SECTION 6.02.

   Allocations    33

SECTION 6.03.

   Tax Allocations    35

SECTION 6.04.

   Tax Elections    35

SECTION 6.05.

   Fiscal Year    35

SECTION 6.06.

   Tax Returns    36

SECTION 6.07.

   Tax Matters Partner    37

SECTION 6.08.

   Duties of Tax Matters Partner    37

SECTION 6.09.

   Survival of Provisions    39

SECTION 6.10.

   Section 754 Election    39

SECTION 6.11.

   Qualified Income Offset, Minimum Gain Chargeback    39

SECTION 6.12.

   Tax Treatment of Designated Sublease Agreements    39

SECTION 6.13.

   Tax Treatment of Reimbursed Liability Payments    40

SECTION 6.14.

   Tax Treatment of Disproportionate Payments    40

SECTION 6.15.

   Allocation of Income, Gains, Losses and Other Items from LOOP LLC and LOCAP, Inc.    40

SECTION 6.16.

   Allocation of Income, Gain, Loss, Deduction and Credits Attributable to Stock-Based Compensation    41
ARTICLE VII     
Books and Records     

SECTION 7.01.

   Books and Records; Examination    41

SECTION 7.02.

   Financial Statements and Reports    42

SECTION 7.03.

   Notice of Affiliate Transactions; Annual List    44

 

ii


ARTICLE VIII     
Management of the Company     

SECTION 8.01.

   Managing Members    45

SECTION 8.02.

   Board of Managers    45

SECTION 8.03.

   Responsibility of the Board of Managers    46

SECTION 8.04.

   Meetings    46

SECTION 8.05.

   Compensation    48

SECTION 8.06.

   Quorum    48

SECTION 8.07.

   Voting    49

SECTION 8.08.

   Matters Constituting Super Majority Decisions    50

SECTION 8.09.

   Annual Capital Budget    55

SECTION 8.10.

   Business Plan    56

SECTION 8.11.

   Requirements as to Affiliate Transactions    57

SECTION 8.12.

   Review of Certain Affiliate Transactions Related to Crude Oil Purchases and Shared Services    59

SECTION 8.13.

   Adjustable Amounts    61

SECTION 8.14.

   Company Leverage Policy    62

SECTION 8.15.

   Company’s Investment Guidelines    62

SECTION 8.16.

   Requirements as to Operating Leases    62

SECTION 8.17.

   Limitations on Actions Relating to the Calculation of Distributable Cash    63

SECTION 8.18.

   Reliance by Third Parties    63

SECTION 8.19.

   Integration of Retail Operations    63
ARTICLE IX     
Officers     

SECTION 9.01.

   Election, Appointment and Term of Office    65

SECTION 9.02.

   Resignation, Removal and Vacancies    66

SECTION 9.03.

   Duties and Functions of Executive Officers    67
ARTICLE X     
Transfers of Membership Interests     

SECTION 10.01.

   Restrictions on Transfers    67

SECTION 10.02.

   Conditions for Admission    71

SECTION 10.03.

   Allocations and Distributions    71

SECTION 10.04.

   Right of First Refusal    72

SECTION 10.05.

   Restriction on Resignation or Withdrawal    73

 

iii


ARTICLE XI     
Liability, Exculpation and Indemnification     

SECTION 11.01.

   Liability    73

SECTION 11.02.

   Exculpation    73

SECTION 11.03.

   Indemnification    74
ARTICLE XII     
Fiduciary Duties     

SECTION 12.01.

   Duties and Liabilities of Covered Persons    75

SECTION 12.02.

   Fiduciary Duties of Members of the Company and Members of the Board of Managers    75
ARTICLE XIII     
Dispute Resolution Procedures     

SECTION 13.01.

   General    76

SECTION 13.02.

   Dispute Notice and Response    76

SECTION 13.03.

   Negotiation Between Senior Managers    77

SECTION 13.04.

   Negotiation Between Chief Executive Officer and President    77

SECTION 13.05.

   Right to Equitable Relief Preserved    78
ARTICLE XIV     
Rights and Remedies with Respect to Monetary Disputes     

SECTION 14.01.

   Ability of Company to Borrow to Fund Disputed Monetary Amounts    78

SECTION 14.02.

   Interim Payment of Disputed Monetary Amount    80

SECTION 14.03.

   Liquidated Damages    80

SECTION 14.04.

   Right of Set-Off    82

SECTION 14.05.

   Security Interest    82

 

iv


ARTICLE XV     
Dissolution and Termination     

SECTION 15.01.

   Dissolution    83

SECTION 15.02.

   Winding Up of Company    84

SECTION 15.03.

   Distribution of Property    84

SECTION 15.04.

   Time Limitation    85

SECTION 15.05.

   Termination of Company    85
ARTICLE XVI     
Miscellaneous     

SECTION 16.01.

   Notices    85

SECTION 16.02.

   Merger and Entire Agreement    86

SECTION 16.03.

   Assignment    86

SECTION 16.04.

   Parties in Interest    87

SECTION 16.05.

   Counterparts    87

SECTION 16.06.

   Amendment; Waiver    87

SECTION 16.07.

   Severability    87

SECTION 16.08.

   GOVERNING LAW    87

SECTION 16.09.

   Enforcement    88

SECTION 16.10.

   Creditors    88

SECTION 16.11.

   No Bill for Accounting    88

SECTION 16.12.

   Waiver of Partition    88

SECTION 16.13.

   Table of Contents, Headings and Titles    89

SECTION 16.14.

   Use of Certain Terms; Rules of Construction    89

SECTION 16.15.

   Holidays    89

SECTION 16.16.

   Third Parties    89

SECTION 16.17.

   Liability for Affiliates    89

 

Appendix A

   Certain Definitions

Appendix B

   Procedures for Dispute Resolution

Exhibit A

   Speedway SuperAmerica LLC Retail Integration Protocol

Schedule 1.01

   Financed Properties

Schedule 4.01(c)

   Subleased Property

Schedule 4.02(a)-1

   Marathon Capital Expenditures

Schedule 4.02(a)-2

   Ashland Capital Expenditures

Schedule 8.01(k)(i)(A)

   Closing Date Affiliate Transactions

Schedule 8.14

   Company Leverage Policy

Schedule 8.15

   Company Investment Guidelines

Schedule A

   Calculations re: Normal Annual Capital Budget Amount

Schedule B-1

   Adjustments to Historical EBITDA (Marathon)

Schedule B-2

   Adjustments to Historical EBITDA (Ashland)

Schedule C

   Initial Executive Officers

 

v


AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT dated as of December 31, 1998, of MARATHON ASHLAND PETROLEUM LLC (the “Company”), by and between Marathon Oil Company, an Ohio corporation (“Marathon”), and Ashland Inc., a Kentucky corporation (“Ashland”), as Members.

 

Preliminary Statement

 

WHEREAS, on June 11, 1997, Marathon and Emro Marketing Company (“Emro Marketing”) formed the Company (formerly known as “Emro Supply, LLC”) by filing a Certificate of Formation of the Company with the Secretary of State of the State of Delaware and executed the Limited Liability Company Agreement of the Company pursuant to which Marathon received a 60% interest in the Company and Emro Marketing received a 40% interest in the Company;

 

WHEREAS, on July 18, 1997, Emro Marketing assigned its interest in the Company to Marathon and Fuelgas Company, Inc., a wholly owned subsidiary of Marathon (“Fuelgas”), with Marathon receiving an additional 39% interest in the Company and Fuelgas receiving a 1% interest in the Company, which interest will be transferred to Marathon immediately following the Closing (for purposes of this Agreement and the other Transaction Documents, all references to Marathon’s interest in the Company shall be deemed to include the 1% interest owned by Fuelgas);

 

WHEREAS, on July 18, 1997, Marathon and Fuelgas executed the First Amended and Restated Limited Liability Company Agreement of the Company and filed an Amended and Restated Certificate of Formation of the Company with the Secretary of State of the State of Delaware;

 

WHEREAS, on October 29, 1997, Marathon and Fuelgas filed a Second Amended and Restated Certificate of Formation of the Company with the Secretary of State of the State of Delaware to change the name of the Company to Marathon Ashland Petroleum LLC;

 

WHEREAS, on December 8, 1997, Marathon and Fuelgas executed the Second Amended and Restated Limited Liability Company Agreement of the Company which became effective on December 10, 1997;

 

WHEREAS the parties hereto desire that the Company (a) be a premier petroleum supply, refining, marketing and transportation business, (b) create a highly efficient, cost-effective and competitive petroleum supply, refining,

 


marketing and transportation system, (c) deliver to the Members the highest possible economic value added, (d) be customer-focused and market-driven in its business strategy, (e) be a respected and responsible member of the communities in which the Company will operate, with a high regard for environmental responsibility and employee safety, and (f) seek to maximize Distributable Cash to the Members consistent with the foregoing, including capital spending levels which over time are expected to be generally equivalent to the level of non-cash charges; and

 

WHEREAS the Members entered into this Agreement on January 1, 1998 to set forth the rights and responsibilities of each of them with respect to the governance, financing and operation of the Company;

 

WHEREAS, the Members have executed Amendment No. 1 to this Agreement as of August 21, 1998, and have executed Amendment No. 2 to this Agreement as of September 1, 1998; and

 

WHEREAS, the Members wish to make certain additional amendments to this Agreement, and to restate this Agreement incorporating such additional amendments as well as the amendments contained in Amendment No. 1 and Amendment No. 2.

 

NOW, THEREFORE, the parties hereto hereby agree as follows:

 

ARTICLE I

 

Certain Definitions; Applicable GAAP

 

SECTION 1.01. Definitions. Defined terms used in this Agreement shall have the meanings ascribed to them by definition in this Agreement or in Appendix A. In addition, when used herein the following terms have the following meanings:

 

Accounting Determination” has the meaning set forth in Section 1.02.

 

Acquisition Expenditures” means, in connection with any acquisition by the Company and its subsidiaries, without duplication (i) the purchase price paid or to be paid for the net assets or capital stock or other equity interests in connection with such acquisition, (ii) any Indebtedness assumed by the Company and its subsidiaries in connection with any such acquisition, (iii) any contingent

 

2


liabilities assumed or incurred by the Company and its subsidiaries in connection with any such acquisition to the extent that such contingent liabilities are required to be reflected on the balance sheet of the Company and its subsidiaries in accordance with Financial Accounting Standard Number 5 (or any successor or superseding provision of Applicable GAAP), and (iv) all other costs and expenses incurred or to be incurred by the Company or any of its subsidiaries in connection with any such acquisition to the extent that such costs and expenses would be capitalized if such acquisition were consummated.

 

Adjustable Amount” has the meaning set forth in Section 8.13.

 

Additional Monetary Amount” has the meaning set forth in Section 14.03(c).

 

Additional Required Cash Amount” has the meaning set forth in Section 14.01(a).

 

Adjusted DD&A” means:

 

(i) for the twelve-month periods ended December 31, 1995 and 1996, $348 million and $346 million, respectively;

 

(ii) for the twelve-month period ended December 31, 1997, the total combined depreciation, depletion and amortization expense of the Marathon Business and the Ashland Business during such twelve-month period, including, without duplication, (a) any gains (deductions from depreciation, depletion and amortization) or losses (additions to depreciation, depletion and amortization) on asset retirements during such period and (b) pro forma depreciation, depletion and amortization expense related to the Financed Properties during such period (calculated in the same manner such pro forma depreciation, depletion and amortization expense was calculated in Schedule A, which considers the placed-in-service dates of the Financed Properties);

 

(iii) for the twelve-month period ended September 30, 1998, the sum of:

 

(a) the total combined depreciation, depletion and amortization expense of the Marathon Business and the Ashland Business during the period commencing on October 1, 1997, and ended on the date immediately preceding the Closing Date,

 

3


including, without duplication, (1) any gains (deductions from depreciation, depletion and amortization) or losses (additions to depreciation, depletion and amortization) on asset retirements during such period and (2) pro forma depreciation, depletion and amortization expense related to the Financed Properties during such period (calculated in the same manner such pro forma depreciation, depletion and amortization expense was calculated in Schedule A, which considers the placed-in-service dates of the Financed Properties); and

 

(b) the total depreciation, depletion and amortization expense of the Company and its subsidiaries for the period commencing on the Closing Date and ended on September 30, 1998, including (1) any gains (deductions from depreciation, depletion and amortization) or losses (additions to depreciation, depletion and amortization) on asset retirements during such period, (2) depreciation, depletion and amortization expense related to the Garyville Propylene Upgrade Project during such period and (3) depreciation, depletion and amortization expense related to all Company-funded Capital Expenditures, but excluding (4) depreciation, depletion and amortization expense related to Member-Funded Capital Expenditures and (5) the increase or decrease in such depreciation, depletion and amortization expense related to the Ashland Transferred Assets (including pro forma depreciation, depletion and amortization expense related to the Financed Properties) resulting from the application of purchase accounting treatment to the transactions contemplated by the Transaction Documents (such purchase accounting treatment causing an increase or decrease in the estimated useful lives and the net book value of the Ashland Transferred Assets); and

 

(iv) for the twelve-month period ended September 30, 1999, and each twelve-month period ended September 30 thereafter, the total depreciation, depletion and amortization expense of the Company and its subsidiaries for such twelve-month period, including, without duplication, (a) any gains (deductions from depreciation, depletion and amortization) or losses (additions to depreciation, depletion and amortization) on asset retirements during such period, (b) depreciation, depletion and amortization expense

 

4


related to the Garyville Propylene Upgrade Project during such period and (c) depreciation, depletion and amortization expense related to Company-funded Capital Expenditures but excluding (d) depreciation, depletion and amortization expense related to Member-Funded Capital Expenditures and (e) the increase or decrease in such depreciation, depletion and amortization expense related to the Ashland Transferred Assets (including pro forma depreciation, depletion and amortization expense related to the Financed Properties) resulting from the application of purchase accounting treatment to the transactions contemplated by the Transaction Documents (such purchase accounting treatment causing an increase or decrease in the estimated useful lives and the net book value of the Ashland Transferred Assets);

 

all as determined on a consolidated basis with respect to (x) in the case of any period ending prior to the Closing Date, Marathon and its subsidiaries or Ashland and its subsidiaries, as applicable, or (y) in the case of any period ending on or after the Closing Date, the Company and its subsidiaries, in each case in accordance with Applicable GAAP.

 

Adjusted EBITDA” means:

 

(i) for the twelve-month periods ended December 31, 1995 and 1996, $657 million and $600 million, respectively;

 

(ii) for the twelve-month period ended December 31, 1997, the sum of:

 

(a) Historical EBITDA for such twelve-month period, plus

 

(b) $80 million, minus

 

(c) 38% of an amount equal to (1) the sum of the amounts calculated pursuant to clauses (a) and (b) above for such twelve-month period less (2) the Adjusted DD&A for such twelve-month period.

 

(iii) for the twelve-month period ended September 30, 1998, the sum of:

 

(a) for the period commencing on October 1, 1997, and ended on the date immediately preceding the Closing Date, the sum of:

 

(1) Historical EBITDA for such period, plus

 

5


(2) $20 million, minus

 

(3) 38% of an amount equal to (A) the sum of the amounts calculated pursuant to clauses (1) and (2) above with respect to such period less (B) the Adjusted DD&A for such period; and

 

(b) for the period commencing on the Closing Date and ended on September 30, 1998, the sum of:

 

(1) EBITDA of the Company and its subsidiaries for such period, plus

 

(2) $12.4 million, minus

 

(3) the Tax Distribution Amounts paid or to be paid in respect of each of the three Fiscal Quarters (or portion thereof) included in such period; and

 

(iv) for the twelve-month period ended September 30, 1999 and each twelve-month period ended September 30 thereafter, the sum of:

 

(a) EBITDA of the Company and its subsidiaries for such twelve-month period, minus

 

(b) the Tax Distribution Amounts paid or to be paid in respect of each of the four Fiscal Quarters included in such twelve-month period;

 

all as determined on a consolidated basis with respect to (x) in the case of any period ending prior to the Closing Date, Marathon and its subsidiaries or Ashland and its subsidiaries, as applicable, or (y) in the case of any period ending on or after the Closing Date, the Company and its subsidiaries, in each case in accordance with then Current GAAP (other than Ordinary Course Lease Expenses which shall be calculated in accordance with Applicable GAAP).

 

Advanced Amount” has the meaning set forth in Section 14.01(b).

 

6


Affiliate Transaction” means any agreement or transaction between the Company or any of its subsidiaries and any Member or any Affiliate of any Member that:

 

(a) for purposes of Section 7.03(a)(i), will result or is reasonably anticipated will result in expenditures, contingent or actual liabilities or benefits to the Company and its subsidiaries in excess of $2 million;

 

(b) for purposes of Section 7.03(b), is either (i) outside the ordinary course of the Company and its subsidiaries’ business and results or will result in contingent or actual liabilities or benefits to the Company and its subsidiaries in excess of $100,000 in the applicable Fiscal Year or (ii) within the ordinary course of the Company and its subsidiaries’ business and results or will result in expenditures, contingent or actual liabilities or benefits to the Company and its subsidiaries (A) in excess of $2 million individually in the applicable Fiscal Year or (B) when taken together with all other agreements or transactions entered into the same Fiscal Year as such agreement or transaction which are either related to such agreement or transaction or are substantially the same type of agreement or transaction as such agreement or transaction, in excess of $2 million in the aggregate in the applicable Fiscal Year; and

 

(c) for purposes of Section 8.08(k)(i), is either (i) outside the ordinary course of the Company and its subsidiaries’ business and will result or is reasonably anticipated will result in expenditures, contingent or actual liabilities or benefits to the Company and its subsidiaries in excess of $2 million or (ii) within the ordinary course of the Company and its subsidiaries’ business and will result or is reasonably anticipated will result in expenditures, contingent or actual liabilities or benefits to the Company and its subsidiaries in excess of $25 million.

 

For purposes of this definition of Affiliate Transaction, any guarantee by a Member or any Affiliate of any Member of any obligations of the Company or any of its subsidiaries that is provided by such Member or such Affiliate without cost to the Company and its subsidiaries shall not be deemed to be an Affiliate Transaction. Notwithstanding the foregoing, the term “Affiliate Transaction” shall not include any distributions of cash or other property to the Members pursuant to Article V.

 

Affiliate Transaction Dispute Notice” has the meaning set forth in Section 8.11(b).

 

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Aggregate Tax Rate” has the meaning set forth in Section 5.01(a)(i).

 

Agreed Additional Capital Contributions” has the meaning set forth in Section 4.02(c).

 

Agreement” means this Limited Liability Company Agreement of the Company, as the same may be amended, restated, supplemented or otherwise modified from time to time.

 

Annual Capital Budget” has the meaning set forth in Section 8.09(a).

 

Applicable GAAP” has the meaning set forth in Section 1.02.

 

Approved Marathon Crude Oil Purchase Program” has the meaning set forth in Section 8.12.

 

Arbitratable Dispute” has the meaning set forth in Section 13.04(a).

 

Arbitration Payment Due Date” has the meaning set forth in Section 14.03(a).

 

Arbitration Proceeding” has the meaning set forth in Section 14.01(a).

 

Arbitration Tribunal” has the meaning set forth in Appendix B.

 

Arm’s-Length Transaction” has the meaning set forth in Section 8.11(a).

 

Ashland Designated Sublease Agreements” shall mean the Ashland Sublease Agreements attached as Exhibits L-1, L-2, L-3 and L-4 to the Asset Transfer and Contribution Agreement.

 

Ashland-Funded Capital Expenditures” has the meaning set forth in Section 4.02(a).

 

Audited Financial Statements” has the meaning set forth in Section 7.02(c).

 

Average Annual DD&A” means:

 

(a) for Fiscal Year 1998, the average of the Adjusted DD&A for the three twelve-month periods ended December 31, 1995, 1996 and 1997;

 

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(b) for Fiscal Year 1999, the average of the Adjusted DD&A (i) for the two twelve-month periods ended December 31, 1996 and 1997 and (ii) for the one twelve-month period ended September 30, 1998;

 

(c) for Fiscal Year 2000, the average of the Adjusted DD&A (i) for the twelve-month period ended December 31, 1997 and (ii) for the two twelve-month periods ending on September 30, 1998 and 1999; and

 

(d) for Fiscal Year 2001 and each Fiscal Year thereafter, the average of the Adjusted DD&A for the three twelve-month periods ending on September 30 in each of the three Fiscal Years immediately preceding such Fiscal Year.

 

Average Adjusted EBITDA” means:

 

(a) for Fiscal Year 1998, the average of the Adjusted EBITDA for the three twelve-month periods ended December 31, 1995, 1996 and 1997;

 

(b) for Fiscal Year 1999, the average of the Adjusted EBITDA (i) for the two twelve-month periods ended December 31, 1996 and 1997 and (ii) for the one twelve-month period ended September 30, 1998;

 

(c) for Fiscal Year 2000, the average of the Adjusted EBITDA (i) for the twelve-month period ended December 31, 1997 and (ii) for the two twelve-month periods ending on September 30, 1998 and 1999; and

 

(d) for Fiscal Year 2001 and each Fiscal Year thereafter, the average of the Adjusted EBITDA for the three twelve-month periods ending on September 30 in each of the three Fiscal Years immediately preceding such Fiscal Year.

 

Average Annual Level” means for any twelve-month period ending on September 30 of any calendar year, the average of the level of the Price Index ascertained by adding the twelve monthly levels of the Price Index during such twelve-month period and dividing the total by twelve.

 

Bareboat Charters” has the meaning set forth in Section 9.3(k) of the Asset Transfer and Contribution Agreement.

 

Base Level” means 161.2.

 

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Base Rate” has the meaning set forth in Section 1.01 of the Put/Call, Registration Rights and Standstill Agreement.

 

Board of Managers” has the meaning set forth in Section 8.02(a).

 

Bulk Motor Oil Business” has the meaning set forth in Section 14.03(h) of the Put/Call, Registration Rights and Standstill Agreement.

 

Business Plan” has the meaning set forth in Section 8.10.

 

Capital Account” has the meaning set forth in Section 6.01.

 

Capital Expenditures” means, for any period, the aggregate of all expenditures incurred by the Company and its subsidiaries during such period that, in accordance with Applicable GAAP, are or should be included in additions to property, plant or equipment or similar items reflected in the consolidated statement of cash flows of the Company and its subsidiaries; provided, however, that Capital Expenditures shall not include (a) exchanges of such items for other items, (b) expenditures of proceeds of insurance settlements by the Company or any of its subsidiaries in respect of lost, destroyed or damaged assets, equipment or other property to the extent such expenditures are made to replace or repair such lost, destroyed or damaged assets, equipment or other property within 18 months of such loss, destruction or damage, (c) funds expended by a Member or an Affiliate of a Member to purchase any Subleased Property that is contributed to the Company or a subsidiary of the Company pursuant to Section 4.01(c)(i)(A) or (d) Member-Funded Capital Expenditures; all as determined on a consolidated basis with respect to the Company and its subsidiaries in accordance with Applicable GAAP.

 

Capital Lease” means any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a consolidated balance sheet of the Company and its subsidiaries in accordance with Applicable GAAP.

 

Closing Date Affiliate Transactions” has the meaning set forth in Section 8.08(k)(i)(A).

 

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Company Independent Auditors” has the meaning set forth in Section 7.01.

 

Company Investment Guidelines” has the meaning set forth in Section 8.15.

 

Company Leverage Policy” has the meaning set forth in Section 8.14.

 

Competitive Business” has the meaning set forth in Section 14.01(a) of the Put/Call, Registration Rights and Standstill Agreement.

 

Competitive Third Party” has the meaning set forth in Section 14.01(d) of the Put/Call, Registration Rights and Standstill Agreement.

 

Contracting Member” has the meaning set forth in Section 8.11(b).

 

Covered Person” means any Member, any Affiliate of a Member or any officers, directors, shareholders, partners, employees, representatives or agents of a Member or their respective Affiliates, or any Representative, or any employee, officer or agent of the Company or its Affiliates.

 

Critical Decision” means each Primary Critical Decision and each Other Critical Decision.

 

Critical Decision Termination Date” means (a) in the case of any Other Critical Decision, the first anniversary of the Closing Date or (b) in the case of any Primary Critical Decision, the first anniversary of the Closing Date or, if the Critical Decision Termination Date shall be extended with respect to such Primary Critical Decision as provided in Section 8.19(c), the fifteen-month anniversary of the Closing Date.

 

Crude Oil Purchases” means any purchase of crude oil by the Company or any of its subsidiaries from Marathon or any Affiliate of Marathon.

 

Current GAAP” means, at any time, GAAP as in effect at such time.

 

Delinquent Member” has the meaning set forth in Section 14.01(a).

 

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Designated Sublease Agreements” means the Ashland Designated Sublease Agreements and the Marathon Designated Sublease Agreements.

 

Designated Sublease Amount” means any obligation of a Member to the Company or a subsidiary of the Company under Section 4.01(c) with respect to a Subleased Property or a Designated Sublease Agreement.

 

Dispute” has the meaning set forth in Section 13.01.

 

Dispute Notice” has the meaning set forth in Section 13.02.

 

Disputed Capital Contribution Amount” has the meaning set forth in Section 13.04(a).

 

Disputed Indemnification Amount” has the meaning set forth in Section 14.01(a).

 

Disputed Monetary Amount” has the meaning set forth in Section 14.01(a).

 

Distributable Cash” means, for each Fiscal Quarter, without duplication:

 

(a) the Short-Term Investments of the Company and its subsidiaries on the last day of such Fiscal Quarter, minus

 

(b) the Ordinary Course Debt of the Company and its subsidiaries on the last day of such Fiscal Quarter, minus

 

(c) the Tax Distribution Amount to be paid in respect of such Fiscal Quarter, minus

 

(d) funds held on the last day of such Fiscal Quarter for financing Special Projects or Permitted Capital Projects/Acquisitions, minus

 

(e) if the notional repayment of principal for Special Project Indebtedness or Permitted Capital Project/Acquisition Indebtedness during such Fiscal Quarter calculated using a notional repayment schedule established and approved by the Board of Managers in accordance with the Company Leverage Policy was more than the amount of actual principal repayments for such Special Project Indebtedness or Permitted Capital

 

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Project/Acquisition Indebtedness during such Fiscal Quarter, the amount of such excess, plus

 

(f) if the amount of the actual principal repayments for Special Project Indebtedness or Permitted Capital Project/Acquisition Indebtedness during such Fiscal Quarter was more than the notional repayment of principal for such Special Project Indebtedness or Permitted Capital Project/Acquisition Indebtedness during such Fiscal Quarter (calculated in the manner described in clause (e) above), the amount of such excess, plus or minus

 

(g) any adjustments or reserves (including any adjustments for minimum cash balance requirements, including cash reserves for accrued or withheld Taxes not yet due) in the amounts and for the time periods established and approved by the Board of Managers pursuant to a vote in accordance with Section 8.07(b).

 

Distribution Date” has the meaning set forth in Section 5.01(a).

 

Distributions Calculation Statement” has the meaning set forth in Section 5.01(c).

 

EBITDA” means for any period:

 

(a) net income, plus

 

(b) to the extent deducted in computing such net income, the sum of (i) estimated or actual Federal, state, local and foreign income tax expense, (ii) interest expense, (iii) depreciation, depletion and amortization expense, (iv) non-cash charges resulting from the cumulative effect of changes in accounting principles, and (v) non cash lower of cost or market inventory or fixed asset writedowns; minus

 

(c) to the extent added in computing such net income, (i) any interest income (excluding interest income on accounts receivable related to marketing programs), (ii) non-cash gains resulting from the cumulative effect of changes in accounting principles and (iii) non-cash lower of cost or market inventory or fixed asset gains;

 

all as determined on a consolidated basis (x) in the case of any period ended prior to the Closing Date, Marathon and its subsidiaries or Ashland and its subsidiaries, as applicable, or (y) in the case of any period ending on or after the

 

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Closing Date, with respect to the Company and its subsidiaries, in each case in accordance with then Current GAAP. For purposes of this definition, depreciation, depletion and amortization expense will include any gains (deductions from depreciation, depletion and amortization) or losses (additions to depreciation, depletion and amortization) on asset retirements and excess purchase price amortization adjustments. For the avoidance of doubt, EBITDA shall not include any revenues or expenses constituting Member-Funded Capital Expenditures or Member-Indemnified Expenditures.

 

Executive Officers” has the meaning set forth in Section 9.01(a).

 

Final Monetary Amount” has the meaning set forth in Section 14.03(a).

 

Financed Properties” means each of the properties listed in Schedule 1.01.

 

Fiscal Quarter” means the three-month period ended March 31, June 30, September 30 and December 31 of each Fiscal Year.

 

Fiscal Year” has the meaning set forth in Section 6.05.

 

Fuelgas Interest” means the 1% interest in the Company which is owned by Fuelgas.

 

GAAP” means United States generally accepted accounting principles applied on a consistent basis.

 

Garyville Propylene Upgrade Project” means the propylene splitter with a capacity of approximately 800 million pounds per year that is being constructed at the Garyville refinery for the production of propylene.

 

Historical EBITDA” means for any period ending prior to the Closing Date the sum of:

 

(a) EBITDA of the Marathon Business for such period as adjusted for each of the “EBIT Adjustment” items set forth in lines 10-55 of Schedule B-1 and each of the “Depreciation Adjustment” items set forth in lines 133 through 150 of Schedule B-1, in each case calculated for such period in the same manner that such adjustments were calculated in Schedule B-1, plus

 

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(b) EBITDA of the Ashland Business for such period as adjusted for each of the “EBIT Adjustment” items set forth in lines 11-56 of Schedule B-2 and each of the “Depreciation Adjustment” items set forth in lines 111-120 of Schedule B-2, in each case calculated for such period in the same manner that such adjustments were calculated in Schedule B-2;

 

all determined on a consolidated basis with respect to Marathon and its subsidiaries or Ashland and its subsidiaries, as applicable, in accordance with then Current GAAP.

 

Initial GAAP” has the meaning set forth in Section 1.02.

 

Initial Term” has the meaning set forth in Section 2.03.

 

Make-Up Expense” has the meaning set forth in Section 6.02(d).

 

Maralube Express Business” has the meaning set forth in Section 14.03(d)(i) of the Put/Call, Registration Rights and Standstill Agreement.

 

Marathon Crude Oil Purchase Program” has the meaning set forth in Section 8.12.

 

Marathon Designated Sublease Agreements” shall mean the Marathon Sublease Agreements attached as Exhibits E-1, E-2 and E-3 to the Asset Transfer and Contribution Agreement.

 

Marathon-Funded Capital Expenditures” has the meaning set forth in Section 4.02(a).

 

Material Adverse Effect” has the meaning set forth in the Asset Transfer and Contribution Agreement.

 

Member-Funded Capital Expenditures” has the meaning set forth in Section 4.02(a).

 

Member-Indemnified Expenditures” has the meaning set forth in Section 4.02(b).

 

Monetary Dispute” has the meaning set forth in Section 14.01(a).

 

Non-Contracting Member” has the meaning set forth in Section 8.11(b).

 

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Non-Delinquent Member” has the meaning set forth in Section 14.01.

 

Non-Terminating Member” has the meaning set forth in the Put/Call, Registration Rights and Standstill Agreement.

 

Normal Annual Capital Budget Amount” means, for each Fiscal Year, an amount equal to the sum of:

 

(i) an amount equal to 130% of the Average Annual DD&A for such Fiscal Year, plus

 

(ii) if, with respect to any Fiscal Year, (a) the Average Adjusted EBITDA for such Fiscal Year less the amount calculated pursuant to clause (i) above for such Fiscal Year exceeds (b) $240 million (such excess, the “Excess EBITDA” for such Fiscal Year), the sum of (1) the lesser of: (x) 10% of the Average Annual DD&A for such Fiscal Year and (y) the Excess EBITDA for such Fiscal Year and (2) 50% of the amount by which the Excess EBITDA for such Fiscal Year exceeds an amount equal to 10% of the Average Annual DD&A for such Fiscal Year.

 

An example of the calculation of Adjusted DD&A, Adjusted EBITDA, Average Annual DD&A, Average Adjusted EBITDA and the Normal Annual Capital Budget Amount is shown in Schedule A. In the event of any inconsistency between such Schedule A and the language of this definition of Normal Annual Capital Budget Amount, neither shall control over the other.

 

Offer Notice” has the meaning set forth in Section 10.04(a).

 

Ordinary Course Debt” means, without duplication, the aggregate outstanding principal amount of all loans and advances under any committed or uncommitted credit facilities (including any commercial paper borrowings or borrowings under the Revolving Credit Agreement, but excluding trade payables), provided that Ordinary Course Debt shall not include any Permitted Intercompany Debt, any Special Project Indebtedness or any Permitted Capital Project Indebtedness.

 

Ordinary Course Lease Expense” means, with respect to any Fiscal Year, the rental or lease expense for such Fiscal Year of assets rented or financed by operating leases (as determined in accordance with Applicable GAAP).

 

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Original Lease” means the lease or charter underlying a Marathon Designated Sublease Agreement or an Ashland Designated Sublease Agreement in which Marathon or Ashland, as applicable, is the lessee or charterer.

 

Other Critical Decision” means each of the Level III decisions set forth in paragraphs 2(c)(iii), (v), (vii), (viii) and (ix) of the Retail Integration Protocol.

 

Packaged Motor Oil Business” has the meaning set forth in Section 14.03(h) of the Put/Call, Registration Rights and Standstill Agreement.

 

Percentage Interest” has the meaning set forth in Section 3.01.

 

Permitted Capital Project/Acquisition Indebtedness” has the meaning set forth in the Company Leverage Policy.

 

Permitted Intercompany Debt” has the meaning set forth in the Company Leverage Policy.

 

Price Index” means the Consumer Price Index for All Urban Consumers of the United States Department of Labor Bureau of Labor Statistics for all Urban Areas (on the 1982-84 equals 100 standard).

 

Primary Critical Decision” means each of the Level III decisions set forth in paragraphs 2(c)(i), (ii), (iv) and (vi) of the Retail Integration Protocol.

 

Prime Rate” means the rate of interest per annum publicly announced from time to time by Citibank, NA, as its prime rate in effect at its principal office in New York; each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective.

 

Private Label Packaged Motor Oil Business” has the meaning set forth in Section 14.03(h) of the Put/Call Registration Rights and Standstill Agreement.

 

Profit and Loss”, as appropriate, means, for any period, the taxable income or tax loss of the Company and its subsidiaries under Code Section 703(a) and Treasury Regulation Section 1.703-1 for the Fiscal Year, adjusted as follows:

 

(a) All items of income, gain, loss or deduction required to be separately stated pursuant to Code Section 703(a)(1) shall be included;

 

17


(b) Tax exempt income as described in Code Section 705(a)(1)(B) realized by the Company during such Fiscal Year shall be taken into account as if it were taxable income;

 

(c) Expenditures of the Company described in Code Section 705(a)(2)(B) for such Fiscal Year, including items treated under Treasury Regulation Section .704-1(b)(2)(iv)(i) as items described in Code Section 705(a)(2)(B), shall be taken into account as if they were deductible items;

 

(d) With respect to any property (other than money) which has been contributed to the capital of the Company, “Profit” and “Loss” shall be computed in accordance with the provisions of Treasury Regulation Section 1.704-1(b)(2)(iv)(g) by computing depreciation, amortization, income, gain, loss or deduction based upon the fair market value of such property at the date of contribution. Book depreciation (as that term is used in Treasury Regulation Section 1.704-(b)(2)(iv)(g)(3)) for any asset contributed to the Company that was fully depreciated for federal income tax purposes as of the date of its contribution shall be based on the applicable recovery period (as determined in Code Section 168(c)) for new assets of the same type;

 

(e) With respect to any property of the Company which has been revalued as required or permitted by Treasury Regulations under Code Section 704(b), “Profit” or “Loss” shall be determined based upon the fair market value of such property as determined in such revaluation; and

 

(f) With respect to any property of the Company which (i) is distributed in kind to a Member, or (ii) has been revalued under Section 6.03 upon the occurrence of any event specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(f), the difference between the adjusted basis for federal income tax purposes and the fair market value shall be treated as gain or loss upon the disposition of such property.

 

Qualified Candidate” has the meaning set forth in Section 9.02(c).

 

Quick Lube Business” has the meaning set forth in Section 14.03(h) of the Put/Call, Registration Rights and Standstill Agreement.

 

Refundable Amount” has the meaning set forth in Section 14.03(d).

 

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Representatives” has the meaning set forth in Section 8.01

 

Response” has the meaning set forth in Section 13.02.

 

Retail Integration Protocol” means the Speedway SuperAmerica LLC Retail Integration Protocol attached hereto as Exhibit A.

 

Revolving Credit Agreement” has the meaning set forth in Section 2.2(a) of the Master Formation Agreement.

 

Section 8.11(b) Affiliate Transaction” has the meaning set forth in Section 8.11(b).

 

Security Interest” has the meaning set forth in Section 14.05(a).

 

Selling Member” has the meaning set forth in Section 10.04(a).

 

Senior Manager” has the meaning set forth in Section 13.02.

 

Shared Service” means an administrative service that is provided to the Company or its subsidiaries by Marathon, Ashland or any of their respective Affiliates pursuant to the Shared Services Agreement or provided to Marathon, Ashland or any of their respective Affiliates by the Company or its subsidiaries pursuant to the Shared Services Agreement.

 

Shared Services Agreement” means the Shared Services Agreement by and among Marathon, Ashland and the Company, including the Schedules thereto, attached as Exhibit U to the Asset Transfer and Contribution Agreement.

 

Short-Term Investments” means, without duplication, collected or available bank cash balances, the fair market value of any investment made by the Company or any of its subsidiaries pursuant to the Company’s Investment Guidelines and the fair market value of any investment made by the Company or any of its subsidiaries that should have been made pursuant to the Company’s Investment Guidelines, but excluding Incidental Cash and any cash balances that represent uncollected funds.

 

Significant Shared Service” means (a) any Shared Service related to the Treasury and Cash Management function and (b) any Shared Service (or group of related Shared

 

19


Services) that results or is reasonably anticipated to result in the payment by or to the Company or any of its subsidiaries of more than $2 million in any contract year in the period during which such Shared Service will be provided. For purposes of determining whether the $2 million threshold of this definition has been satisfied, payments for all Shared Services in each of the following general administrative areas shall be aggregated within each area specified below and considered related Shared Services: Human Resources; Health, Environment and Safety; Law; Public Affairs; Governmental Affairs; Finance and Accounting (including Internal Audit); Administrative Services; Information Technology Services; Procurement; Business Development; Aviation; Engineering and Technology; Economics; and Security.

 

Sole Arbitrator” has the meaning set forth in Appendix B.

 

Special Project” has the meaning set forth in the Company Leverage Policy.

 

Special Project Indebtedness” has the meaning set forth in the Company Leverage Policy.

 

Special Termination Right” has the meaning set forth in Section 2.01(a) of the Put/Call, Registration Rights and Standstill Agreement.

 

Subleased Property” has the meaning set forth in Section 4.01(c).

 

Super Majority Decision” has the meaning set forth in Section 8.08.

 

Surplus Cash” has the meaning assigned to such term in the Company Leverage Policy.

 

Tax Distribution Amount” has the meaning set forth in Section 5.01(a).

 

Tax Liability” means, with respect to a Fiscal Year, a Member’s liability for Federal, state, local and foreign taxes attributable to taxable income allocated to such Member pursuant to Section 6.03 and Section 10.03, taking into account any Tax deduction or loss specifically allocated to a Member pursuant to this Agreement or any other Transaction Document.

 

Term of the Company” has the meaning set forth in Section 2.03.

 

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Terminating Member” has the meaning set forth in Section 2.01(a) of the Put/Call, Registration Rights and Standstill Agreement.

 

Unaudited Financial Statements” has the meaning set forth in Section 7.02(a).

 

Valvoline Business” has the meaning set forth in Section 14.03(h) of the Put/Call, Registration Rights and Standstill Agreement.

 

SECTION 1.02. Applicable GAAP. In connection with the calculation pursuant to this Agreement of Adjusted DD&A, Capital Expenditures or Ordinary Course Lease Expenses, the determination of whether a lease is a Capital Lease or the determination of whether the Company has entered into an operating lease for purposes of Section 8.16 (each such calculation or determination, an “Accounting Determination”), the Company shall apply then Current GAAP; provided, however, that if at any time after January 1, 1998, a change shall occur in GAAP which would result in any Accounting Determination being different under Current GAAP than such Accounting Determination would have been under GAAP as in effect on January 1, 1998 (“Initial GAAP”), then (a) the Members shall negotiate in good faith to make such amendments to the relevant provisions of this Agreement as shall be required to preserve the economic and other results intended by the Members as of January 1, 1998 with respect to such Accounting Determination and (b) unless and until such time as the Members shall in good faith mutually agree to such amendments, Initial GAAP shall be applied to make such Accounting Determination or, if the Members shall have previously amended the relevant provisions of this Agreement pursuant to this Section 1.02 in response to a prior change in GAAP, then GAAP as in effect at the time the most recent such previous amendment was made shall be used to make such Accounting Determination (the GAAP that is actually applied by the Company in making any such Accounting Determination pursuant to this Agreement being the “Applicable GAAP”).

 

ARTICLE II

 

General Provisions

 

SECTION 2.01. Formation; Effectiveness. The Company has been formed as a limited liability company pursuant to the provisions of the Delaware Act by the filing of the Certificate of Formation with the Secretary of State of the State of Delaware. Pursuant to Section 18-201(d) of the Delaware Act, the provisions of this Agreement shall be

 

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effective as of the Closing Date. Each Member hereby adopts, confirms and ratifies the Certificate of Formation and all acts taken in connection therewith. Ashland shall be admitted as a member of the Company upon its execution and delivery of this Agreement. Except as provided in this Agreement, the rights, duties, liabilities and powers of the Members shall be as provided in the Delaware Act.

 

SECTION 2.02. Name. The name of the Company shall be Marathon Ashland Petroleum LLC. The Board of Managers may adopt such trade or fictitious names as it may determine.

 

SECTION 2.03. Term. Subject to the provisions of Article XV providing for early termination in certain circumstances and the provisions of Article IX of the Put/Call, Registration Rights and Standstill Agreement, the initial term of the Company (the “Initial Term”) began on the date the Certificate of Formation was filed with the Secretary of State of the State of Delaware, and shall continue until the close of business on December 31, 2022 and, thereafter, the term of the Company shall be automatically extended for successive 10-year periods unless at least two years prior to the end of the Initial Term or any succeeding 10-year period, as applicable, a Member notifies the Board of Managers and the other Member in writing that it wants to terminate the term of the Company at the end of the Initial Term or such 10-year period, in which event, the term of the Company shall not thereafter be extended for a successive ten-year term. The President of the Company shall notify each Member in writing at least six months prior to each such two-year notification date that the Term of the Company will be automatically extended unless a Member provides a notice to the contrary pursuant to this Section 2.03. The failure of the President of the Company to give such notice, or any defect in any notice so given, shall not affect the Members’ rights to terminate the Term of the Company pursuant to this Section 2.03, and shall not result in a termination of the Term of the Company unless a Member provides a notice to the contrary pursuant to this Section 2.03. The Initial Term, together with any such extensions, is hereinafter referred to as the “Term of the Company”. The existence of the Company as a separate legal entity shall continue until the cancelation of the Certificate of Formation in the manner provided in the Delaware Act.

 

SECTION 2.04. Registered Agent and Office. The name of the registered agent of the Company for service of process on the Company in the State of Delaware is The Corporation Trust Company, and the address of the registered

 

22


agent and the address of the office of the Company in the State of Delaware is c/o The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. The Board of Managers may change such office and such agent from time to time in its sole discretion.

 

SECTION 2.05. Purpose. (a) The purpose of the Company is to engage in any lawful act or activity for which a limited liability company may be formed under the Delaware Act (either directly or indirectly through one or more subsidiaries). It is the Members’ understanding and intent that (i) the Company will be an independent, self-funding entity, (ii) no additional capital contributions are expected to be required by the Members and (iii) the administrative requirements of the Company will generally be provided by the Company’s own employees. In furtherance of this understanding and intent, and without limiting the generality of the foregoing, unless the Members shall mutually agree otherwise, the following administrative functions and services shall be provided substantially by the Company and its subsidiaries’ employees (or by its unaffiliated third party contractors) under the supervision and control of the Company’s officers: Human Resources; Health, Environment and Safety; Law; Finance and Accounting; Internal Audit; Treasury and Cash Management; and Information Technology. For the avoidance of doubt, the Members acknowledge and agree that the provision at any time of the specific Shared Services identified and described in Schedule 10.2(e) to the Marathon Asset Transfer and Contribution Agreement Disclosure Letter and Schedule 10.2(e) to the Ashland Asset Transfer and Contribution Agreement Disclosure Letter to the Company and its subsidiaries by the Members shall not be deemed to violate the requirements of the immediately preceding sentence.

 

(b) The Company, and the President on behalf of the Company, may enter into and perform the Transaction Documents and the Commercial Documents to which the Company is a party without any further act, vote or approval of the Board of Managers or the Members notwithstanding any other provision of this Agreement, the Delaware Act or other Applicable Law. The President of the Company is hereby authorized to enter into such Transaction Documents and such Commercial Documents on behalf of the Company, but such authorization shall not be deemed a restriction on the power of the Board of Managers to enter into other agreements on behalf of the Company.

 

SECTION 2.06. Powers. In furtherance of its purposes, but subject to all the provisions of this

 

23


Agreement, the Company shall have the power and is hereby authorized to:

 

(a) acquire by purchase, lease, contribution of property or otherwise, own, operate, hold, sell, convey, transfer or dispose of any real or personal property which may be necessary, convenient or incidental to the accomplishment of the purpose of the Company;

 

(b) act as a trustee, executor, nominee, bailee, director, officer, agent or in some other fiduciary capacity for any person or entity and to exercise all the powers, duties, rights and responsibilities associated therewith;

 

(c) take any and all actions necessary, convenient or appropriate as trustee, executor, nominee, bailee, director, officer, agent or other fiduciary, including the granting or approval of waivers, consents or amendments of rights or powers relating thereto and the execution of appropriate documents to evidence such waivers, consents or amendments;

 

(d) borrow money and issue evidences of indebtedness in furtherance of any or all of the purposes of the Company, and secure the same by mortgage, pledge or other lien on the assets of the Company;

 

(e) invest any funds of the Company pending distribution or payment of the same pursuant to the provisions of this Agreement;

 

(f) prepay in whole or in part, refinance, recast, increase, modify or extend any Indebtedness of the Company and, in connection therewith, execute any extensions, renewals or modifications of any mortgage or security agreement securing such Indebtedness;

 

(g) enter into, perform and carry out contracts of any kind, including, without limitation, contracts with any person or entity affiliated with any of the Members, necessary to, in connection with, convenient to, or incidental to the accomplishment of the purposes of the Company;

 

(h) employ or otherwise engage employees, managers, contractors, advisors, attorneys and consultants and pay reasonable compensation for such services;

 

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(i) enter into partnerships, limited liability companies, trusts, associations, corporations or other ventures with other persons or entities in furtherance of the purposes of the Company; and

 

(j) do such other things and engage in such other activities related to the foregoing as may be necessary, convenient or incidental to the conduct of the business of the Company, and have and exercise all of the powers and rights conferred upon limited liability companies formed pursuant to the Delaware Act.

 

ARTICLE III

 

Members

 

SECTION 3.01. Members; Percentage Interests. The names and addresses of the Members and their respective percentage interests in the Company (“Percentage Interests”) are as follows:

 

Members


   Percentage
Interests


Marathon Oil Company

   62%

5555 San Felipe

    

P.O. Box 3128

    

Houston, TX 77056-2723

    

Ashland Inc.

   38%

50 East RiverCenter Boulevard

    

P.O. Box 391

    

Covington, KY 41012-0391

    

 

Marathon’s Percentage Interest shall be deemed to include the Fuelgas Interest. Promptly after the Closing, Marathon will cause Fuelgas to merge with and into Marathon.

 

SECTION 3.02. Adjustments in Percentage Interests. Marathon’s and Ashland’s Percentage Interests, and the Percentage Interests of each other Member, if any, shall be adjusted (a) at the time of any Transfer of such Member’s Membership Interests pursuant to Section 10.02 and (b) at the time of the admission of each new Member pursuant to such terms and conditions as the Board of Managers from time to time shall determine pursuant to a vote in accordance with Section 8.07(b), in each case to take into account such Transfer or admission of a new Member.

 

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ARTICLE IV

 

Capital Contributions; Assumption of Assumed Liabilities

 

SECTION 4.01. Contributions. (a) On or before the Closing Date, Marathon shall contribute, convey, transfer, assign and deliver to the Company or shall have contributed, conveyed, transferred, assigned and delivered to the Company, the Marathon Transferred Assets, and Ashland shall contribute, convey, transfer, assign and deliver to the Company or shall have contributed, conveyed, transferred, assigned and delivered to the Company, the Ashland Transferred Assets, in each case pursuant to terms and conditions of the Asset Transfer and Contribution Agreement. In addition, any additional assets that Marathon or Ashland are required to contribute, convey, transfer, assign and deliver to the Company at a later date pursuant to the terms and conditions of the Asset Transfer and Contribution Agreement shall be so contributed at such later date.

 

(b) The Company shall assume, as of the Closing Date, the Assumed Liabilities pursuant to the terms of the Asset Transfer and Contribution Agreement.

 

(c) Payments or Damages under Designated Sublease Agreements as Contributions. (i) Each Member has agreed, pursuant to the Designated Sublease Agreements to which it is a party, to sublease to the Company or one of its subsidiaries the assets or property listed on Schedule 4.01(c) (“Subleased Property”) for a nominal consideration in lieu of transferring such property to the Company or such subsidiary, free of any Liens, other than Permitted Encumbrances, as a capital contribution.

 

(A) If at any time after January 1, 1998 a Member in its capacity as a sublessor shall become the owner of any Subleased Property, such Member shall promptly contribute, convey, transfer, assign and deliver to the Company (or, if the Company so directs, to one of its subsidiaries) at no cost to the Company or such subsidiary, and the Company hereby agrees to accept, or to cause such subsidiary to accept, such Subleased Property and the related Designated Sublease Agreement shall be terminated with respect to such Subleased Property, all as more specifically set forth in such Designated Sublease Agreement. In addition, if at any time after January 1, 1998 a Member assigns to the Company (or a subsidiary of the Company) a purchase option with respect to a Subleased Property pursuant to a Designated Sublease Agreement and the Company or such

 

26


subsidiary exercises such purchase option and pays all or a portion of the purchase price therefor, such Member shall promptly reimburse the Company or such subsidiary such amount so paid and, if not so reimbursed, such amount shall be subject to set-off pursuant to Section 14.04. Any such payment by the Company shall be treated as a distribution to the appropriate Member for capital account purposes, and any such amount paid to the Company or such subsidiary by a Member in connection with such reimbursement obligation, or to the extent of a set-off applied pursuant to Section 14.04 as a result of such failure to so reimburse, shall be treated as a capital contribution to the Company.

 

(B) Any amount paid by the Company or any of its subsidiaries under a Designated Sublease Agreement to cure or prevent a payment default by the sublessor Member under the underlying Original Lease shall be reimbursed to the Company or such subsidiary by such Member, and if not so reimbursed, shall be subject to set-off pursuant to Section 14.04. Any such payment by the Company shall be treated as a distribution to the appropriate Member for capital account purposes, and any such amount paid to the Company or such subsidiary by a Member in connection with a default of its payment obligations under its respective Designated Sublease Agreements, or to the extent of a set-off applied pursuant to Section 14.04 as a result of such default, shall be treated as a capital contribution to the Company.

 

(C) None of the capital contributions pursuant to (A) and (B) above shall result in any adjustment to the Members’ respective Percentage Interests in the Company.

 

(ii) If (A) a Member commences a voluntary case under any applicable bankruptcy, insolvency, liquidation, receivership, reorganization or other similar law now in effect, or an order for relief is entered against such Member in an involuntary case under any such law and (B) a trustee of such Member rejects a Designated Sublease Agreement of such Member, then (1) the Member shall be obligated to reimburse the Company for the Loss to the Company as a result of such rejected Designated Sublease Agreement, which Loss, if not so reimbursed, shall be subject to set-off pursuant to Section 14.04 prior to the interest of such Member in any distributions hereunder and (2) the amount of such Loss shall be deemed to be the loss of use of such

 

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Subleased Property for the economic life thereof rather than any other period.

 

SECTION 4.02. Additional Contributions. (a) Member-Funded Capital Expenditures. For each Capital Expenditure project identified on Schedule 4.02(a)-1, Marathon shall contribute to the Company the amount of funds necessary to comply with its obligations under Section 7.1(j) of the Asset Transfer and Contribution Agreement with respect to such Capital Expenditure project as, when and if the Company actually incurs Capital Expenditures related to such Capital Expenditure project (such Capital Expenditures, as, when and if they are funded by Marathon, are referred to herein as the “Marathon-Funded Capital Expenditures”). For each Capital Expenditure project identified on Schedule 4.02(a)-2, Ashland shall contribute to the Company the amount of funds necessary to comply with its obligations under Section 7.2(k) of the Asset Transfer and Contribution Agreement with respect to such Capital Expenditure project as, when and if the Company actually incurs Capital Expenditures related to such Capital Expenditure project (such Capital Expenditures, as, when and if they are funded by Ashland, are referred to herein as the “Ashland-Funded Capital Expenditures”, and together with the Marathon-Funded Capital Expenditures, the “Member-Funded Capital Expenditures”). Each Member-Funded Capital Expenditure shall be treated as a capital contribution to the Company, but shall not result in any adjustment to the Members’ respective Percentage Interests in the Company. To the extent permitted by applicable Tax law, any Tax deduction by the Company of a Member-Funded Capital Expenditure shall be specially allocated so that each Member will have the Tax benefit of its Member-Funded Capital Expenditures.

 

(b) Indemnification Payments as Contributions. Any indemnity amount paid by Marathon or Ashland to the Company under Article IX of the Asset Transfer and Contribution Agreement (each a “Member-Indemnified Expenditure”) shall be treated as a capital contribution to the Company, but shall not result in any adjustment to the Members’ respective Percentage Interests in the Company. A determination of whether the associated Loss will be deducted or capitalized by the Company for Tax purposes shall be made by the Company at the direction of the Indemnifying Party. Any Tax deduction or loss claimed by the Company with respect to the indemnified amount shall be specially allocated to the Indemnifying Party.

 

(c) Other Additional Capital Contributions. The Members shall make other additional capital contributions

 

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(“Agreed Additional Capital Contributions”) pro rata based on their respective Percentage Interests if and to the extent such capital contributions are approved by the Board of Managers pursuant to a vote in accordance with Section 8.07(b).

 

(d) No Third-Party Beneficiaries. The provisions of this Agreement, including without limitation, this Section 4.02, are intended solely to benefit the Members and, to the fullest extent permitted by Applicable Law, shall not be construed as conferring any benefit upon any creditor of the Company other than the Members, and no such creditor of the Company other than the Members shall be a third-party beneficiary of this Agreement, and no Member or member of the Board of Managers shall have any duty or obligation to any creditor of the Company to issue any call for capital pursuant to this Agreement.

 

SECTION 4.03. Negative Balances; Withdrawal of Capital; Interest. Neither of the Members shall have any obligation to the Company or to the other Member to restore any negative balance in its Capital Account. Neither Member may withdraw capital or receive any distributions from the Company except as specifically provided herein. No interest shall be paid by the Company on any capital contributions.

 

ARTICLE V

 

Distributions

 

SECTION 5.01. Distributions. (a) Within 45 days after the end of each Fiscal Quarter during each Fiscal Year, the Company shall distribute to the Members (the date of such distribution being a “Distribution Date”) an amount in cash (the “Tax Distribution Amount”) determined as follows:

 

(i) The maximum Tax Liability of each Member with respect to its allocable portion (as provided in Section 6.03) of the Company’s estimated taxable income for the portion of such Fiscal Year ending on the last day of such Fiscal Quarter shall be determined, based upon the highest aggregate marginal statutory Federal, state and local income tax rate (determined taking into account the deductibility, to the extent allowed, of income-based taxes paid to governmental entities) to which any Member may be subject for the related Fiscal Year (and excluding any deferred taxes) (the “Aggregate Tax Rate”).

 

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(ii) If the Tax Liability determined in clause (i) is positive with respect to either Member, there shall be a cash distribution to each of the Members, in accordance with their Percentage Interests, of an aggregate amount such that neither Member shall have received distributions under this clause and subsection (b) below for such portion of such Fiscal Year in an amount less than its Tax Liability for such portion of such Fiscal Year.

 

(iii) Following a determination by the Company of the Company’s actual net taxable income with respect to a Fiscal Year, the maximum Tax Liability of each Member with respect to its allocable portion (as provided in Section 6.03) of the Company’s net taxable income for such Fiscal Year shall be determined, based upon the Aggregate Tax Rate. If the maximum Tax Liability of any Member for the Fiscal Year is in excess of the cash distributions previously made to the Member for such Fiscal Year under clause (ii) above and subsection (b) below, the Company shall make a cash distribution to all the Members, in accordance with their Percentage Interests, of an aggregate amount such that the excess is eliminated for all the Members. Such distribution shall be made within 45 days of the date the Company’s actual net taxable income is determined.

 

(iv) In the event that the Company Independent Auditors determine pursuant to Section 7.02(d) that the Company’s actual net taxable income with respect to a Fiscal Year is greater than the amount determined by the Company pursuant to clause (iii) above, the Company shall make a determination of the amount of cash, if any, required to be distributed to the Members, in accordance with their Percentage Interests, such that, after taking into account cash distributions previously made to a Member under clauses (ii) and (iii) above and subsection (b) below, no Member shall receive less than its Tax Liability for such Fiscal Year based on such higher net taxable income amount. The Company shall, within 15 days after the determination is made, distribute such additional amount of cash to the Members, in accordance with their Percentage Interests.

 

(v) In the event that the Company Independent Auditors determine pursuant to Section 7.02(d) that the Company’s actual net taxable income with respect to a Fiscal Year is less than the amount determined by the Company pursuant to clause (iii) above, a determination shall be made of the excess Tax Distribution Amount that was distributed to the Members in respect of such

 

30


Fiscal Year based on the Company’s determination of its actual net taxable income and the Company shall deduct from the next Tax Distribution Amount payable to the Members pursuant to this Section 5.01, the amount of such excess distribution.

 

(b) In addition to the distributions pursuant to Section 5.01(a), on each Distribution Date, the Company shall distribute to the Members all Distributable Cash for the Fiscal Quarter to which such Distribution Date relates provided, however, that the distribution of (i) Distributable Cash pursuant to this paragraph 5.01(b) or (ii) cash pursuant to Section 5.01(a) above, in each case with respect to any Fiscal Quarter may be made in such other manner and in such other amount as the Members shall agree with respect to such Fiscal Quarter; provided, further, however, that any agreement by any Member with respect to the distribution of either Distributable Cash pursuant to this paragraph 5.01(b) or cash pursuant to Section 5.01(a) for any Fiscal Quarter pursuant to the preceding proviso shall not alter or waive any of the rights of either Member under this Agreement with respect to distributions of Distributable Cash pursuant to this paragraph 5.01(b) or cash pursuant to Section 5.01(a) with respect to any subsequent Fiscal Quarter. Subject to Section 5.02(b), each such distribution shall be allocated between the Members pro rata based upon their respective Percentage Interests.

 

(c) The Company shall prepare and distribute to each Member within 45 days after the end of each Fiscal Quarter a statement (a “Distributions Calculation Statement”) setting forth the calculations (in reasonable detail) used by the Company for purposes of distributions pursuant to this Section 5.01 of (i) the Tax Distribution Amount for each Member for such Fiscal Quarter, (ii) the amount of Distributable Cash for such Fiscal Quarter and (iii) the allocation of such Distributable Cash between the Members.

 

(d) Notwithstanding anything to the contrary in this Agreement, any agreement reached between the Members to distribute any amount of cash different from the amounts which would be calculated in accordance with the methodology set forth in Section 5.01(a) and Section 5.01(b) above shall not alter or waive in any manner the obligations of the Company to prepare and deliver the Distributions Calculation Statement as set forth in Section 5.01(c) above, and after any such agreement has been reached the Company shall continue to prepare and deliver such Distribution Calculation Statement with respect to each Fiscal Quarter as if no such agreement had been reached.

 

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SECTION 5.02. Certain General Limitations. (a) Notwithstanding any provision to the contrary contained in this Agreement, the Company, and the Board of Managers on behalf of the Company, shall not be required to make a distribution to either Member with respect to such Member’s Membership Interests if such distribution would violate Section 18-607 of the Delaware Act or other applicable law.

 

(b) Notwithstanding any other provision of this Article V, all amounts distributed to the Members in connection with a dissolution of the Company or the sale or other disposition of all or substantially all the assets of the Company that results in a dissolution of the Company shall be distributed to the Members in accordance with their respective Capital Account balances, as adjusted pursuant to Article VI for all Company operations up to and including the date of such distribution.

 

SECTION 5.03. Distributions in Kind. The Company shall not distribute to the Members any assets in kind unless approved by the Board of Managers pursuant to a vote in accordance with Section 8.07(b). If cash and property in kind are to be distributed simultaneously, the Company shall distribute such cash and property in kind in the same proportion to each Member, unless otherwise approved by the Board of Managers pursuant to a vote in accordance with Section 8.07(b). For purposes of determining amounts distributable to Members under Section 5.01, for purposes of determining Profit and Loss under Section 1.01, for purposes of making adjustments to Capital Accounts under Article VI and for purposes of allocations under Article VI, any property to be distributed in kind shall have the value assigned to such property by the Board of Managers pursuant to a vote in accordance with Section 8.07(b) and such value shall be deemed to be part of and included in Distributable Cash for purposes of determining distributions to the Members under this Agreement.

 

SECTION 5.04. Distributions in the Event of an Exercise of the Marathon Call Right, Ashland Put Right or the Special Termination Rights. In the event of an exercise by Marathon of its Marathon Call Right or its Special Termination Right or the exercise by Ashland of its Ashland Put Right or its Special Termination Right pursuant to the Put/Call, Registration Rights and Standstill Agreement, certain distributions to Ashland or Marathon, as applicable, will be suspended in accordance with the provisions of Section 5.01 thereof.

 

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ARTICLE VI

 

Allocations and Other Tax Matters

 

SECTION 6.01. Maintenance of Capital Accounts. An account (a “Capital Account”) shall be established and maintained in the Company’s books for each Member in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv) and to which the following provisions apply to the extent not inconsistent with such Regulation:

 

(a) There shall be credited to each Member’s Capital Account (i) the amount of money contributed by such Member to the Company (including liabilities of the Company assumed by such Member as provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(c)), (ii) the fair market value of any property contributed by the Member to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Code Section 752), and (iii) such Member’s share of the Company’s Profit;

 

(b) There shall be debited from each Member’s Capital Account (i) the amount of money distributed to such Member by the Company (including liabilities of such Member assumed by the Company as provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(c)) other than amounts which are in repayment of debt obligations of the Company to such Member, (ii) the fair market value of property distributed to such Member (net of liabilities secured by such property that such Member is considered to assume or take subject to under Code Section 752), and (iii) such Member’s share of the Company’s Loss;

 

(c) To each Member’s Capital Account there shall be credited, in the case of an increase, or debited, in the case of a decrease, such Member’s share of any adjustment to the adjusted basis of Company assets pursuant to Code Section 734(b) or Code Section 743(b) to the extent provided by Treasury Regulation Section 1.704-(b)(2)(iv)(m); and

 

(d) Upon the transfer of all or any part of the Membership Interests of a Member, the Capital Account of the transferee Member shall include the portion of the Capital Account of the transferor Member attributable to such transferred Membership Interest (or portion thereof).

 

SECTION 6.02. Allocations. (a) Except as provided in Section 6.02(b), 6.02(c), 6.02(d) and 6.02(e), Profit or Loss for any Fiscal Year shall be allocated

 

33


between the Members in proportion to their respective Percentage Interests.

 

(b) To the extent any Tax deduction or loss is specifically allocated to a Member pursuant to this Agreement (other than pursuant to Section 6.03) or any other Transaction Document, including any deduction or loss indemnified by a Member, any Member-Funded Capital Expenditure, any Member-Indemnified Expenditure and any special allocations pursuant to Sections 6.12, 6.13, 6.14, 6.15 and 6.16 the associated Profit and Loss shall be allocated to the same Member.

 

(c) Depreciation and amortization with respect to any asset contributed by a Member to the Company shall be allocated solely to such Member.

 

(d) If any asset contributed by a Member is sold or otherwise disposed of prior to the time such asset has been completely depreciated or amortized for Federal income tax purposes, the Member contributing such property shall be allocated an expense (“Make-Up Expense”) equal to (i) the remaining tax basis of the asset at the time of the sale or other disposition, multiplied by (ii) the other Member’s Percentage Interest at the time of such sale or other disposition. The contributing Member shall be allocated Make-Up Expense over the remaining tax life of the asset at the time of sale or other disposition at the same rate as depreciation or amortization would have been allocated to such Member if the sale or other disposition had not occurred. Make-Up Expense allocated to a Member shall be taken from and reduce the amount of expenses allocated to the other Member. The purpose for this provision is to allocate to a Member, with respect to depreciable or amortizable assets contributed by such Member, a total amount of deductions and cost recovery allowances equal to 100% of the basis of such assets at the time of contribution.

 

(e) In the event that the Company sells or otherwise disposes of all or substantially all its assets or engages in any other transaction that will lead to a liquidation of the Company, then, notwithstanding the foregoing provisions of this Section 6.02, (i) any Profit or Loss realized by the Company in such transaction and (ii), to the extent necessary, any other Profit or Loss in the Fiscal Year such transaction occurs or thereafter (and, in each case, to the extent necessary, constituent items of income, gain, loss, deduction and credit) shall be specially allocated as between the Members as required so as to cause

 

34


in so far as possible each Member’s Capital Account balance to be proportionate to its Percentage Interest.

 

SECTION 6.03. Tax Allocations. (a) For income tax purposes only, each item of income, gain, loss, deduction and credit of the Company as determined for income tax purposes shall be allocated between the Members in accordance with the corresponding allocation in Section 6.02, subject to the requirements of Section 704(c) of the Code.

 

(b) The Members acknowledge and agree that Section 704(c) shall be applied using the so-called “traditional method with curative allocations” set forth in Treasury Regulation Section 1.704-3(c). Curative allocations of income, gain, loss or deduction shall, to the extent possible, have substantially the same effect on each Member’s Federal income tax liability as the item of income, gain, loss or deduction for which allocation is limited.

 

(c) By reason of the special allocation of book depreciation and amortization with respect to the assets contributed by the Members pursuant to Section 6.02(c), tax depreciation and amortization with respect to each such asset shall be allocated solely to the contributing Member.

 

(d) Items described in this Section 6.03 shall neither be credited nor charged to the Members’ Capital Accounts.

 

SECTION 6.04. Tax Elections. (a) The Members intend that the Company be treated as a partnership for Federal income tax purposes. Accordingly, neither the Tax Matters Partner nor either Member shall file any election or return on its own behalf or on behalf of the Company that is inconsistent with that intent.

 

(b) Any elections or other decisions relating to tax matters that are not expressly provided for herein, including the determination of the fair market value of contributed property and the decision to adjust the Capital Accounts to reflect the fair market value of the Company’s assets upon the occurrence of any event specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(f), shall be made jointly by the Members in any manner that reasonably reflects the purpose and intention of this Agreement.

 

SECTION 6.05. Fiscal Year. The fiscal year (the “Fiscal Year”) of the Company for tax and accounting purposes shall be the 12-month (or shorter) period ending on the last day of December of each year.

 

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SECTION 6.06. Tax Returns. (a) The Company shall cause to be prepared and timely filed all Federal, state, local and foreign income tax returns and reports required to be filed by the Company and its subsidiaries. The Company shall provide copies of all the Company’s Federal, state, local and foreign tax returns (and any schedules or other required filings related to such returns) that reflect items of income, gain, deduction, loss or credit that flow to separate Member returns, to the Members for their review and comment prior to filing, except as otherwise agreed by the Members. The Members agree in good faith to resolve any difference in the tax treatment of any item affecting such returns and schedules. However, if the Members are unable to resolve the dispute, the position of the Tax Matters Partner shall be followed if nationally recognized tax counsel acceptable to both Members provides an opinion that substantial authority exists for such position. Substantial authority shall be given the meaning ascribed to it in Code Section 6662. If the Members are unable to resolve the dispute prior to the due date for filing the return, including approved extensions, the position of the Tax Matters Partner shall be followed, and amended returns shall be filed if necessary at such time the dispute is resolved. The costs of the dispute shall be borne by the Company. The Members agree to file their separate Federal income tax returns in a manner consistent with the Company’s return, the provisions of this Agreement and in accordance with applicable Federal income tax law.

 

(b) The Company shall elect the most rapid method of depreciation and amortization allowed under Applicable Law, unless the Members agree otherwise. The failure of either Member to agree that the Company should elect a less rapid method of depreciation or amortization is not subject to any dispute resolution provisions.

 

(c) The Members shall provide each other with copies of all correspondence or summaries of other communications with the Internal Revenue Service or any state, local or foreign taxing authority (other than routine correspondence and communications) regarding the tax treatment of the Company’s operations. No Member shall enter into settlement negotiations with the Internal Revenue Service or any state, local or foreign taxing authority with respect to any issue concerning the Company’s income, gains, losses, deductions or credits if the tax adjustment attributable to such issue (assuming the then current Aggregate Tax Rate) would be $2 million or greater, without first giving reasonable advance notice of such intended action to the other Member.

 

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SECTION 6.07. Tax Matters Partner. (a) Initially, Marathon shall be the “Tax Matters Partner” of the Company within the meaning of Section 6231(a)(7) of the Code, and shall act in any similar capacity under state, local or foreign law, but only with respect to returns for which items of income, gain, loss, deduction or credit flow to the separate returns of the Members. In the event of a transfer of any Member’s interest in the Company, the Tax Matters Partner shall be the Member with the largest Percentage Interest following such transfer.

 

(b) The Tax Matters Partner shall incur no liability (except as a result of the gross negligence or willful misconduct of the Tax Matters Partner) to the other Member including, but not limited to, liability for any additional taxes, interest or penalties owed by the other Member due to adjustments of Company items of income, gain, loss, deduction or credit at the Company level.

 

SECTION 6.08. Duties of Tax Matters Partner. (a) Except as provided in Section 6.08(b), the Tax Matters Partner shall cooperate with the other Member and shall promptly provide the other Member with copies of notices or other materials from, and inform the other Member of discussions engaged in with, the Internal Revenue Service or any state, local or foreign taxing authority and shall provide the other Member with notice of all scheduled administrative proceedings, including meetings with agents of the Internal Revenue Service or any state, local or foreign taxing authority, technical advice conferences, appellate hearings, and similar conferences and hearings, as soon as possible after receiving notice of the scheduling of such proceedings, but in any case prior to the date of such scheduled proceedings.

 

(b) The duties of the Tax Matters Partner under Section 6.08(a) shall not apply with respect to notices, materials, discussions, proceedings, meetings, conferences, or hearings involving any issue concerning the Company’s income, gains, losses, deductions or credits if the tax adjustment attributable to such issue (assuming the then current Aggregate Tax Rate) would be less than $2 million except as otherwise required under Applicable Law.

 

(c) The Tax Matters Partner shall not extend the period of limitations or assessments without the consent of the other Member, which consent shall not be unreasonably withheld.

 

(d) The Tax Matters Partner shall not file a petition or complaint in any court, or file any claim,

 

37


amended return or request for an administrative adjustment with respect to partnership items, after any return has been filed, with respect to any issue concerning the Company’s income, gains, losses, deductions or credits if the tax adjustment attributable to such issue (assuming the then current Aggregate Tax Rate) would be $2 million or greater, unless agreed by the other Member. If the other Member does not agree, the position of the Tax Matters Partner shall be followed if nationally recognized tax counsel acceptable to both Members issues an opinion that a reasonable basis exists for such position. Reasonable basis shall be given the meaning ascribed to it for purposes of applying Code Section 6662. The costs of the dispute shall be borne by the Company.

 

(e) The Tax Matters Partner shall not enter into any settlement agreement with the Internal Revenue Service or any state, local or foreign taxing authority, either before or after any audit of the applicable return is completed, with respect to any issue concerning the Company’s income, gains, losses, deductions or credits, unless any of the following apply:

 

(i) both Members agree to the settlement;

 

(ii) the tax effect of the issue if resolved adversely would be, and the tax effect of settling the issue is, proportionately the same for both Members (assuming each otherwise has substantial taxable income);

 

(iii) the Tax Matters Partner determines that the settlement of the issue is fair to both Members and the amount of the tax adjustment attributable to such issue (assuming the then current Aggregate Tax Rate) would be less than $2 million; or

 

(iv) nationally recognized tax counsel acceptable to both Members determines that the settlement is fair to both Members and is one it would recommend to the Company if both Members were owned by the same person and each had substantial taxable income.

 

In all events, the costs incurred by the Tax Matters Partner in performing its duties hereunder shall be borne by the Company in accordance with the Shared Services Agreement.

 

(f) The Tax Matters Partner may request extensions to file any tax return or statement without the written consent of, but shall so inform, the other Member.

 

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SECTION 6.09. Survival of Provisions. The provisions of this Agreement regarding the Company’s tax returns and Tax Matters Partner shall survive the termination of the Company and the transfer of any Member’s interest in the Company and shall remain in effect for the period of time necessary to resolve any and all matters regarding the federal, state, local and foreign taxation of the Company and items of Company income, gain, loss, deduction and credit.

 

SECTION 6.10. Section 754 Election. In the event that a Member purchases the Membership Interests of a Selling Member pursuant to Section 10.04, the purchasing Member shall have the right to direct the Tax Matters Partner to make an election under Section 754 of the Code. The purchasing Member shall pay all costs incurred by the Company in connection with such election, including any costs borne by the Company to maintain records required as a result of such election. The purchasing Member, at its option and expense, may maintain on behalf of the Company any records required as a result of such election.

 

SECTION 6.11. Qualified Income Offset, Minimum Gain Chargeback. Notwithstanding anything to the contrary in this Agreement, there is hereby incorporated a qualified income offset provision which complies with Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and minimum gain chargeback and partner minimum gain chargeback provisions which comply with the requirements of Treasury Regulation Section 1.704-2 and such provisions shall apply to the allocation of Profits and Losses.

 

SECTION 6.12. Tax Treatment of Designated Sublease Agreements. (a) For purposes of Article VI, Ashland or Marathon, as the case may be, shall be treated as transferring to the Company all of its interest in Subleased Property pursuant to an Ashland Designated Sublease Agreement or a Marathon Designated Sublease Agreement, as if the leasehold interest in such Subleased Property was an Ashland Transferred Asset or a Marathon Transferred Asset.

 

(b) Payments under the Original Lease made by Ashland or Marathon, as the case may be, after the effective date of the Ashland Designated Sublease Agreement or Marathon Designated Sublease Agreement, as the case may be, shall be treated as made by the Company or its subsidiaries, and then immediately reimbursed by Ashland or Marathon, as the case may be.

 

(c) All items of loss, deduction and credit attributable to payments under the Original Lease made by

 

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Ashland or Marathon, as the case may be, including payments by the Company or any of its subsidiaries that are charged to Ashland or Marathon by set-off or other means, shall be allocated entirely to the Member incurring such payments.

 

(d) Depreciation and amortization deductions, if any, as well as any deductions or offsets to taxable income or gain, attributable to property described in the Ashland Designated Sublease Agreements or the Marathon Designated Sublease Agreements, as the case may be, shall be allocated entirely to Ashland or Marathon, as the case may be, except to the extent such deductions or offsets are attributable to amounts paid by the Company or any of its subsidiaries and not reimbursed by Ashland or Marathon, as the case may be, either directly or indirectly.

 

SECTION 6.13. Tax Treatment of Reimbursed Liability Payments. Any tax deduction or loss attributable to payments by the Company or any of its subsidiaries of Assumed Liabilities, as described in Schedules 2.3(d) and 3.3(d) to the Asset Transfer and Contribution Agreement, that are reimbursed by a Member either directly or indirectly, shall be allocated entirely to such Member.

 

SECTION 6.14. Tax Treatment of Disproportionate Payments. Except as otherwise provided in this Agreement or in any other Transaction Document, any Tax deduction or loss reflected on a Tax return, report or other Tax filing by the Company, attributable to (i) payments made or costs incurred by a Member, (ii) payments made or costs incurred by the Company and reimbursed or to be reimbursed by a Member and (iii) payments made or costs incurred by the Company and not shared among the Members based on their Percentage Interests, shall be allocated among the Members to take into account the amounts paid, incurred, reimbursed or shared by each.

 

SECTION 6.15. Allocation of Income, Gains, Losses and Other Items from LOOP LLC and LOCAP, Inc. (a) Income, gains, losses, deductions, credits, adjustments, tax preferences and other distributive share items with respect to the Company’s interest in LOOP LLC, a tax partnership, for periods beginning on or after the Closing, shall be allocated between the Members in such a manner so that, when such items are included with the same items allocated to Ashland with respect to the Ashland LOOP/LOCAP Interest, each Member is allocated all such items in proportion to its respective Percentage Interest in the Company.

 

(b) In determining the Capital Account for each Member, (i) Ashland shall be treated as contributing the

 

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Ashland LOOP/LOCAP Interest to the Company, (ii) Profit and Loss shall be treated as including taxable income, gain, loss and distributions arising from Ashland’s 4% interest in LOOP LLC and (iii) dividends and distributions that Ashland receives from LOOP LLC or LOCAP, Inc. in respect of the Ashland LOOP/LOCAP Interest and paid to the Company pursuant to Section 7.2(i) of the Asset Transfer and Contribution Agreement shall be treated as being received directly by the Company.

 

SECTION 6.16. Allocation of Income, Gain, Loss, Deduction and Credits Attributable to Stock-Based Compensation. Each item of income, gain, loss, deduction (excluding deductions for administrative costs incurred by the Company) and credit attributable to the grant to, or the exercise by or on behalf of, an employee or retired employee of the Company of a stock option, stock appreciation right, or other stock-based incentive compensation involving the stock of a Member or an Affiliate of a Member shall be allocated to the Member whose stock or whose Affiliate’s stock is involved. Any exercise price paid by or on behalf of the employee or retired employee to the Company shall be paid over to the Member whose stock (or whose Affiliate’s stock) is involved. A Member’s Capital Account shall be (i) increased by the fair market value of its (or its Affiliate’s) stock delivered to or on behalf of an employee or retired employee as aforesaid (without duplication to the extent such stock is first contributed to the Company), (ii) decreased (pursuant to Section 6.01(a)(iii) or (b)(iii)) by the deduction allocated to such Member as aforesaid and (iii) decreased by the amount of the exercise price so paid over by the Company or deemed to be paid over by the Company under principles analogous to those in Treasury Regulation Section 1.83-6(d)(1).

 

ARTICLE VII

 

Books and Records

 

SECTION 7.01. Books and Records; Examination. The Board of Managers shall keep or cause to be kept such books of account and records with respect to the Company’s business as they may deem appropriate. Each Member and its duly authorized representatives shall have the right at any time to examine, or to appoint independent certified public accountants (the fees of which shall be paid by such Member) to examine, the books, records and accounts of the Company and its subsidiaries, their operations and all other matters that such Member may wish to examine, including, without limitation, all documentation relating to actual or proposed transactions with either Member or any Affiliate of either

 

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Member. The Company, and the Board of Managers, shall not have the right to keep confidential from the Members any information that the Board of Managers would otherwise be permitted to keep confidential from the Members pursuant to Section 18-305(c) of the Delaware Act. The Company’s books of account shall be kept using the method of accounting determined by the Board of Managers. The Company Independent Auditors (the “Company Independent Auditors”) shall be an independent public accounting firm selected by the Board of Managers pursuant to a vote in accordance with Section 8.07(b) or Section 8.07(c), as applicable, and shall initially be Price Waterhouse LLP.

 

SECTION 7.02. Financial Statements and Reports. (a) Unaudited Monthly Financial Statement (i) The Company shall prepare and send to each Member (at the same time) promptly, but in no event later than noon on the 15th Business Day after the last day of each month, the following unaudited financial statements with respect to the Company and its subsidiaries: a balance sheet, a statement of operations, a statement of cash flows and a statement of changes in capital (collectively, “Unaudited Financial Statements”) as at the end of and for such month.

 

(ii) The Company shall prepare and send to each Member promptly, but in no event later than noon on the 20th Business Day after the last day of each month, an unaudited financial summary booklet containing a breakdown of such operating and financial information by major department or division of the Company and its subsidiaries as at the end of and for such month as either Member shall reasonably request; provided that each Member shall be provided with the same information at the same time as the other Member.

 

(b) Unaudited Quarterly Financial Statements. The Company shall prepare and send to each Member (at the same time) promptly, but in no event later than the 30th day after the last day of each Fiscal Quarter, (i) Unaudited Financial Statements as at the end of and for such Fiscal Quarter; (ii) a management’s discussion and analysis of financial condition and results of operations section prepared in accordance with Rule 303 of Regulation S-K of the Securities Act with respect to such Fiscal Quarter; and (iii) an unaudited statement of changes in the Members’ capital accounts as at the end of and for such Fiscal Quarter.

 

(c) Audited Annual Financial Statements. Within 75 days after the end of each Fiscal Year, the Board of

 

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Managers shall cause (i) an examination to be made, at the expense of the Company, by the Company Independent Auditors, covering (A) the assets, liabilities and capital of the Company and its subsidiaries, and the Company’s and its subsidiaries’ operations during such Fiscal Year, (B) an examination of the Distributions Calculation Statement for such Fiscal Year, and (C) all other matters customarily included in such examinations and (ii) to be delivered to each Member (at the same time) a copy of the report of such examination, stating that such examination has been performed in accordance with generally accepted auditing standards, together with (1) the following financial statements with respect to the Company and its subsidiaries certified by such accountants as having been prepared in accordance with GAAP: a balance sheet, a statement of operations, a statement of cash flows and a statement of changes in capital as at the end of and for such Fiscal Year (collectively, the “Audited Financial Statements”) and (2) a management’s discussion and analysis of financial condition and results of operations section prepared in accordance with Rule 303 of Regulation S-K of the Securities Act with respect to such Fiscal Year. The Company shall prepare the Audited Financial Statements in such manner and form as is necessary to enable Ashland to file such Audited Financial Statements with the Commission in accordance with Item 3-09 of Regulation S-X under the Exchange Act.

 

(d) Schedule of Members’ Capital Accounts. (i) Preliminary Annual Capital Account Schedule. The Company shall prepare and send to each Member (at the same time) promptly, but in no event later than the 75th day after the last day of each Fiscal Year, a schedule showing the respective Capital Accounts of the Members based on the Company’s estimated taxable income for such Fiscal Year.

 

(ii) Examination. Unless otherwise agreed by the Members, within 15 days after the date the Company determines its net taxable income with respect to any Fiscal Year, but in no event later than 7 months after the end of such Fiscal Year, the Board of Managers shall cause (i) an examination to be made, at the expense of the Company, by the Company Independent Auditors, covering (A) the determination of the Company’s taxable income with respect to such Fiscal Year and (B) the respective Capital Accounts of the Members based on the Company’s taxable income for such Fiscal Year and (ii) to be delivered to each Member (at the same time) a copy of the report of such examination, stating that such examination has been performed in accordance with generally accepted auditing standards.

 

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(iii) Final Annual Capital Account Schedule. The Company shall prepare and send to each Member (at the same time) promptly, but in no event later than the 15th day after the date the Company files its federal income tax return with respect to each Fiscal Year, a schedule showing the respective Capital Accounts of the Members based on the Company’s actual taxable income for such Fiscal Year.

 

(e) Other Financial Information. The Company shall prepare and send to each Member (at the same time) promptly such other financial information as a Member shall from time to time reasonably request.

 

SECTION 7.03. Notice of Affiliate Transactions; Annual List. (a) (i) The Company shall notify each Member of any Affiliate Transaction (other than an Affiliate Transaction that is a Significant Shared Service) that the Company or any of its subsidiaries is considering entering into or renewing or extending the term thereof (whether pursuant to contractual provisions thereof or otherwise), which notice shall be given, to the extent reasonably possible, sufficiently in advance of the time that the Company intends to enter into, renew or extend the term of such Affiliate Transaction so as to provide the Members with a reasonable opportunity to examine the documentation related to such Affiliate Transaction.

 

(ii) The Company shall notify each Member of any Affiliate Transaction that is a Significant Shared Service that the Company or any of its subsidiaries is considering entering into or renewing or extending the term thereof (whether pursuant to contractual provisions thereof or otherwise), which notice shall be given, to the extent reasonably possible, sufficiently in advance of the time that the Company intends to enter into, renew or extend the term of such Affiliate Transaction so as to provide the Members with a reasonable opportunity to examine the documentation related to such Affiliate Transaction.

 

(b) Within 60 days after the end of each Fiscal Year, the Company shall prepare and distribute to each Member a list setting forth a description of each Affiliate Transaction entered into by the Company or any of its subsidiaries during such Fiscal Year and identifying all of the parties to such Affiliate Transactions; provided that if two or more Affiliate Transactions either (i) constitute a series of related transactions or agreements or (ii) are substantially the same type of transaction or agreement, the Company need not separately describe each such Affiliate

 

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Transaction but instead can describe such related or similar Affiliated Transactions as a group.

 

ARTICLE VIII

 

Management of the Company

 

SECTION 8.01. Managing Members. The business and affairs of the Company shall be managed by the Members acting through their respective representatives on the Board of Managers (“Representatives”). The President and the Representatives shall be deemed “managers” of the Company within the meaning of the Delaware Act. Except for such matters as may be delegated to a Member from time to time by the Board of Managers pursuant to a vote in accordance with Section 8.07(b), and subject to the provisions of Sections 6.07 and 6.08, no Member shall act unilaterally on behalf of the Company or any of its subsidiaries without the approval of the other Member and no Member shall have the power unilaterally to bind the Company or any of its subsidiaries.

 

SECTION 8.02. Board of Managers. (a) The Members shall exercise their management authority through a board of managers (the “Board of Managers”) consisting of (i) the President of the Company, who shall not be deemed a Representative hereunder and who shall not be entitled to vote on any matter coming before the Board of Managers, and (ii) eight Representatives, each of whom shall be entitled to vote, five of whom shall be designated by Marathon and three of whom shall be designated by Ashland. In the event of a Transfer by a Member of its Membership Interests pursuant to Article X, effective at the time of such Transfer, (i) such Member’s Representatives shall automatically be removed from the Board of Managers and (ii) the transferee of such Membership Interests shall be permitted to designate the number of Representatives to the Board of Managers as is equal to the number previously designated by the transferor of such Membership Interests. Such transferee shall promptly notify the other Member as to the names of the persons who such transferee has designated as its Representatives on the Board of Managers.

 

(b) Each Representative may be removed and replaced, with or without cause, at any time by the Member designating him or her, but, except as provided in Section 8.02(a), may not be removed or replaced by any other means. A Member who removes one or more of its Representatives from the Board of Managers shall promptly

 

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notify the other Member as to the names of its replacement Representatives.

 

SECTION 8.03. Responsibility of the Board of Managers. The Board of Managers shall be responsible for overseeing the operations of the Company and shall, in particular, have sole jurisdiction to approve each of the following matters:

 

(i) hiring senior executives of the Company, evaluating their performance and planning for their succession;

 

(ii) reviewing and approving Company strategies, Business Plans and Annual Capital Budgets;

 

(iii) reviewing and approving significant external business opportunities for the Company, including acquisitions, mergers and divestitures;

 

(iv) reviewing and approving policies of the Company that maintain high standards in areas of environmental responsibility, employee safety and health, community, government, employee and customer relations;

 

(v) reviewing external and internal audits and management responses thereto; and

 

(vi) establishing compensation and benefits policies for employees of the Company.

 

SECTION 8.04. Meetings. (a) Except as set forth in Section 8.04(h), all actions of the Board of Managers shall be taken at meetings of the Board of Managers in accordance with this Section 8.04.

 

(b) As soon as practicable after the appointment of the Representatives, the Board of Managers shall meet for the purpose of organization and the transaction of other business.

 

(c) Regular meetings of the Board of Managers shall be held at such times as the Board of Managers shall from time to time determine, but no less frequently than once each Fiscal Quarter; provided that an annual meeting of the Board of Managers (which annual meeting shall count as one of the regular quarterly meetings) shall be held no later than June 30 of each Fiscal Year.

 

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(d) Special meetings of the Board of Managers shall be held whenever called by any Member. Any and all business may be transacted at a special meeting that may be transacted at a regular meeting of the Board of Managers.

 

(e) The Board of Managers may hold its meetings at such place or places as the Board of Managers may from time to time by resolution determine or as shall be designated in the respective notices or waivers of notice thereof; however, the Board of Managers shall consider holding meetings from time to time at each of the Member’s corporate headquarters and at the operational sites of the Company.

 

(f) Notices of regular meetings of the Board of Managers or of any adjourned meeting shall be given at least two weeks prior to such meeting, unless otherwise agreed by each Member. Notices of special meetings of the Board of Managers shall be mailed by the Secretary or an Assistant Secretary to each member of the Board of Managers addressed to him or her at his or her residence or usual place of business, so as to be received at least two Business Days before the day on which such meeting is to be held, or shall be sent to him or her by telegraph, cable, facsimile or other form of recorded communication or be delivered personally, by overnight courier or by telephone so as to be received not later than two Business Days before the day on which such meeting is to be held. Such notice shall include the purpose, time and place of such meeting and shall set forth in reasonable detail the matters to be considered at such meeting. However, notice of any such meeting need not be given to any member of the Board of Managers if such notice is waived by him or her in writing or by telegraph, cable, facsimile or other form of recorded communication, whether before or after such meeting shall be held, or if he or she shall be present at such meeting.

 

(g) Action by Communication Equipment. The members of the Board of Managers may participate in a meeting of the Board of Managers by means of video or telephonic conferencing or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting.

 

(h) Unanimous Action by Written Consent. Any action required or permitted to be taken at any meeting of the Board of Managers may be taken without a meeting if all the Representatives consent thereto in writing and such writing is filed with the minutes of the proceedings of the Board of Managers.

 

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(i) Organization. Meetings of the Board of Managers shall be presided over by a chair, who will be a member of the Board of Managers selected by a majority of the Board of Managers. The Secretary of the Company or, in the case of his or her absence, any person whom the person presiding over the meeting shall appoint, shall act as secretary of such meeting and keep the minutes thereof.

 

SECTION 8.05. Compensation. Unless the Members otherwise agree, no person shall be entitled to any compensation from the Company in connection with his or her services as a Representative.

 

SECTION 8.06. Quorum. (a) Quorum for Super Majority Decisions. Subject to Section 14.01(e) of the Put/Call, Registration Rights and Standstill Agreement and Sections 14.01 and 14.05 and Section 5 of Schedule 8.14, at all meetings of the Board of Managers, the quorum required for the transaction of any business that constitutes a Super Majority Decision shall be the presence, either in person or by proxy, of (i) at least one Representative of each Member and (ii) a majority of all the Representatives on the Board of Managers (which may include the Representatives referred to in the preceding clause (i)).

 

(b) Quorum for Other Decisions. Subject to Sections 14.01 and 14.05 and Section 5 of Schedule 8.14, at all meetings of the Board of Managers, the quorum required for the transaction of any business that does not constitute a Super Majority Decision shall be (i) in the case of all matters that were described in the notice in reasonable detail for such meeting delivered to the members of the Board of Managers pursuant to Section 8.04(f), the presence, either in person or by proxy, of a majority of all the Representatives on the Board of Managers and (ii) in the case of all matters that were not described in the notice in reasonable detail for such meeting delivered to the members of the Board of Managers pursuant to Section 8.04(f), the presence, either in person or by proxy, of (A) at least one Representative of each Member and (B) a majority of all the Representatives on the Board of Managers (which may include the Representatives referred to in the preceding clause A)).

 

(c) Rescheduled Meetings. The Company shall use its reasonable best efforts to schedule the time and place of each meeting of the Board of Managers so as to ensure that a quorum will be present at each such meeting and that at least one Representative of each Member will be present at each such meeting. In the absence of a quorum at any such meeting or any adjournment or adjournments thereof, a

 

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majority in voting interest of those present in person or by proxy and entitled to vote thereat may reschedule such meeting from time to time until the Representatives requisite for a quorum, as aforesaid, be present in person or by proxy. At any such rescheduled meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally called.

 

SECTION 8.07. Voting. (a) General. Each Representative shall be entitled to cast one vote on all matters coming before the Board of Managers. In exercising their voting rights under this Agreement, the Representatives may act by proxy.

 

(b) Super Majority Decisions. Subject to Section 14.01(e) of the Put/Call, Registration Rights and Standstill Agreement and Sections 14.01 and 14.05 and Section 5 of Schedule 8.14, all Super Majority Decisions to be decided by the Board of Managers shall be approved by the unanimous affirmative vote of the votes cast by the Representatives who are present, either in person or by proxy, at a duly called meeting of the Board of Managers at which a quorum is present. The parties acknowledge and agree that all references in this Agreement, any other Transaction Document and any appendices, exhibits or schedules hereto or thereto to any determination, decision, approval or other form of authorization by the Board of Managers pursuant to a vote in accordance with Section 8.07(b) shall be deemed to mean that such determination, decision, approval or other form of authorization shall constitute a Super Majority Decision which requires the approval of the Board of Managers in accordance with this Section 8.07(b).

 

(c) Other Decisions. Subject to Sections 14.01 and 14.05 and Section 5 of Schedule 8.14, all matters other than Super Majority Decisions to be decided by the Board of Managers shall be approved by the affirmative vote of a majority of the votes cast by the Representatives who are present, either in person or by proxy, at a duly called meeting of the Board of Managers at which a quorum is present, unless the vote of a greater number of Representatives is required by Applicable Law or this Agreement.

 

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SECTION 8.08. Matters Constituting Super Majority Decisions. Subject to the provisions of Section 8.07(b), each of the following matters, and only the following matters, shall constitute a “Super Majority Decision” which requires the approval of the Board of Managers pursuant to Section 8.07(b):

 

(a) (i) the purchase or investment by the Company or any of its subsidiaries of or in any assets or securities, or any group of assets or securities, that have an aggregate purchase price or cost of more than $20 million, if the purpose or effect of such purchase or investment is to enable the Company to enter into a line of business other than (A) the Company’s Business as such Business is conducted on the Closing Date or (B) any other line of business that is approved after the Closing Date by the Board of Managers as a Super Majority Decision under this Section 8.08(a)(i) pursuant to a vote in accordance with Section 8.07(b), provided that any such purchase or investment by the Company or any of its subsidiaries shall not require a Super Majority Decision under this Section 8.08(a) if and to the extent such purchase or investment is being made to enable the Company to enter into the Bulk Motor Oil Business, the Packaged Motor Oil Business, the Private Label Packaged Motor Oil Business and/or the Quick Lube Business and, at the time of such purchase or investment, (1) the Company and its subsidiaries are permitted to engage in such business under Section 14.03(b) of the Put/Call, Registration Rights and Standstill Agreement and (2) Ashland and its Affiliates shall own (beneficially or otherwise) 20% or more of the Valvoline Business (it being understood and agreed that this proviso shall not limit or constitute an exception to any other provision of Section 8.08); and

 

(ii) the determination of whether any new line of business approved by the Board of Managers as a Super Majority Decision under Section 8.08(a)(i) should constitute a “Competitive Business” for purposes of Section 14.01 of the Put/Call, Registration Rights and Standstill Agreement;

 

(b) (i) any reorganization, merger, consolidation or similar transaction between the Company and any person (other than a direct or indirect Wholly Owned Subsidiary of the Company) or any sale or lease of all or substantially all of the Company’s assets to any person (other than a direct or indirect Wholly Owned Subsidiary of the Company);

 

(ii) any (A) reorganization, merger, consolidation or similar transaction or series of transactions between any of the Company’s subsidiaries and any person (other than the Company or a direct or indirect Wholly Owned Subsidiary of the Company) or (B) sale or lease of all or substantially all of any of the

 

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Company’s subsidiaries’ assets to any person (other than the Company or a direct or indirect Wholly Owned Subsidiary of the Company) which in either case involves an aggregate consideration of over $50,000,000;

 

c) the admission of a new Member (other than as a result of a Transfer of an existing Member’s Membership Interests pursuant to Article X) or the issuance of any additional Membership Interests or other equity interests to any person, including any existing Member;

 

(d) except as expressly provided in Sections 4.01(c), 4.02(a) and 4.02(b), the acceptance or requirement of any additional capital contributions to the Company by either Member;

 

(e) the initial hiring of the following officers of the Company: the President; the Executive Vice President; the officers principally in charge of (i) refining, (ii) wholesale and branded marketing, (iii) retail marketing (two initially), (iv) supply and transportation and (v) environmental health and safety and human resources; the Senior Vice President-Finance and Commercial Services of the Company; and the general counsel of the Company;

 

(f) (i) the approval of Acquisition Expenditures, Capital Expenditures and such other expenditures of the type to be included in the Annual Capital Budget for any Fiscal Year (other than (A) Ordinary Course Lease Expenses, (B) up to $100 million in the aggregate for all periods in Capital Expenditures of the Company and its subsidiaries directly associated with the Garyville Propylene Upgrade Project, (C) Member-Funded Capital Expenditures, (D) Member-Indemnified Expenditures and (E) Acquisition Expenditures or Capital Expenditures of the Company and its subsidiaries directly associated with Permitted Capital Projects/Acquisitions that are funded with Permitted Capital Project/Acquisition Indebtedness) that when taken together with (x) the other expenditures already approved as part of the Annual Capital Budget for such Fiscal Year and (y) all other expenditures already made in such Fiscal Year, would reasonably be expected to exceed the Normal Annual Capital Budget Amount for such Fiscal Year; and

 

(ii) the incurrence of rentals or operating leases which result in aggregate Ordinary Course Lease Expenses (other than Ordinary Course Lease Expenses

 

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incurred under the Bareboat Charters) for any Fiscal Year that exceed $80 million; provided, however, in the event the Company or one of its subsidiaries shall make any acquisition or divestiture, the Members shall negotiate in good faith to adjust the dollar amount set forth in this Section 8.08(f)(ii) to take into account the effect of such acquisition or divestiture;

 

(g) (i) except for any acquisition or capital project related to the Bulk Motor Oil Business, the Packaged Motor Oil Business, the Private Label Motor Oil Business and/or the Quick Lube Business, any acquisition, divestiture or individual capital project (other than (i) Ordinary Course Lease Expenses, (ii) up to $100 million in the aggregate for all periods in Capital Expenditures of the Company and its subsidiaries directly associated with the Garyville Propylene Upgrade Project, (iii) Member-Funded Capital Expenditures, (iv) Member-Funded Indemnified Expenditures and (v) Acquisition Expenditures or Capital Expenditures of the Company and its subsidiaries directly associated with Permitted Capital Projects/Acquisitions that are funded with Permitted Capital Project/Acquisition Indebtedness) where the liability or consideration involved is more than $50 million in the aggregate (including contingent liabilities only to the extent required to be reflected on the balance sheet of the Company in accordance with Financial Accounting Standard Number 5 (or any successor or superseding provision of Current GAAP));

 

(ii) any acquisitions or individual capital projects related to the Bulk Motor Oil Business, the Packaged Motor Oil Business, the Private Label Motor Oil Business and/or the Quick Lube Business during any Fiscal Year where the liability or consideration involved is more than $50 million in the aggregate in such Fiscal Year (including contingent liabilities only to the extent required to be reflected on the balance sheet of the Company in accordance with Financial Accounting Standard Number 5 (or any successor or superseding provision of Current GAAP)); provided that nothing in this Section 8.08(g)(ii) shall be deemed or interpreted to permit the Company or any of its subsidiaries to engage in any of such businesses except as and to the extent expressly permitted under Section 14.03 of the Put/Call, Registration Rights and Standstill Agreement;

 

(iii) for the avoidance of doubt, acquisitions or individual capital projects related to the Maralube

 

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Express Business shall be subject to clause (i) of this Section 8.08(g) and not clause (ii) of this Section 8.08(g);

 

(h) the initiation or settlement of any action, suit, claim or proceeding involving (i) an amount in excess of $50 million (with respect to initiation) or $25 million (with respect to settlement), (ii) material non-monetary relief (including, without limitation, entering into any consent decree that has or could reasonably be expected to (A) impose any material obligation on Ashland or any of its Affiliates or the Company or any of its subsidiaries or (B) have a material adverse effect on the business, operations, assets, liabilities, results of operations, cash flows, condition (financial or otherwise) or prospects of Ashland or any of its Affiliates or the Company or any of its subsidiaries) or (iii) the initiation or settlement of any criminal action, suit, claim or proceeding (other than a misdemeanor) if such criminal action, suit or proceeding has or could reasonably be expected to (A) impose any material obligation on Ashland or any of its Affiliates or (B) have a material adverse effect on the business, operations, assets, liabilities, results of operations, cash flows, condition (financial or otherwise) or prospects of Ashland or any of its Affiliates;

 

(i) any change in the Company Independent Auditors unless the new firm is one of the “Big Six” accounting firms (or any successor thereto) or a firm of comparable stature in Ashland’s opinion;

 

(j) any modification, alteration, amendment or termination of any Transaction Document to which the Company or any of its subsidiaries is a party and all Members are not a party;

 

(k) (i) in the case of any Affiliate Transaction that is not a Crude Oil Purchase, a Significant Shared Service or a Designated Sublease Agreement, (A) any Affiliate Transaction (other than the Affiliate Transactions listed on Schedule 8.08(k)(i)(A) (the “Closing Date Affiliate Transactions”)), (B) any

 

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material amendment to or change in the terms or provisions of any Affiliate Transaction that was either a Closing Date Affiliate Transaction or previously approved by the Board of Managers pursuant to Section 8.08(k)(i)(A) (it being understood that a renewal or extension of the term of an Affiliate Transaction pursuant to contractual provisions that were previously approved by the Board of Managers pursuant to this Section 8.08(k)(i) or that were included in a Closing Date Affiliate Transaction on the Closing Date shall be deemed for purposes of this Agreement not to constitute a new Affiliate Transaction or a material amendment to or change in an Affiliate Transaction) or (C) any amendment or change in the terms or provisions of any agreement or transaction between the Company or any of its subsidiaries and any Member or any Affiliate of any Member which causes such agreement or transaction to become an Affiliate Transaction;

 

(ii) in the case of Crude Oil Purchases, the approval of such Crude Oil Purchases in accordance with Section 8.12(a);

 

(iii) in the case of any Significant Shared Service, (A) any agreement or transaction constituting a Significant Shared Service (other than the specific Significant Shared Services identified and described in Schedule 10.2(e) to the Asset Transfer and Contribution Agreement), (B) any material amendment to or change in the terms and provisions of any Significant Shared Service identified and described in Schedule 10.2(e) to the Asset Transfer and Contribution Agreement or thereafter approved by the Board of Managers in accordance with this Section 8.08(k)(iii), (C) subject to the provisions of Section 8.11(b) and except as expressly provided in Section 8.12(b), any cancelation or failure by the Company or any of its subsidiaries to renew any Significant Shared Service provided by Ashland or any Affiliate of Ashland to the Company or any of its subsidiaries or provided by the Company or any of its subsidiaries to Ashland or any Affiliate of Ashland and (D) the periodic review and approval of Significant Shared Services in accordance with Section 8.12(b); and

 

(iv) any material amendment to or change in the terms or provisions of, cancelation, termination or failure to renew, any Designated Sublease Agreement or any election by the Company to refuse or reject the

 

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contribution of any Subleased Property to the Company or any of its subsidiaries;

 

(l) the commencement of a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent to the entry of an order for relief in an involuntary case under any such law, or the consent to the appointment of or the taking possession by a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of the Company or any of its subsidiaries or for any substantial part of the Company’s or any of its subsidiaries’ property, or the making of any general assignment for the benefit of creditors;

 

(m) (i) the modification, alteration or amendment of the amount, timing, frequency or method of calculation of distributions to the Members from that provided in Article V or (ii) an adjustment to the amount of Distributable Cash pursuant to clause (g) of the definition of “Distributable Cash” in Section 1.01;

 

(n) (i) the modification, alteration or amendment of the Company Leverage Policy, or (ii) the approval of any matter which the Company Leverage Policy provides is to be approved by the Board of Managers as a Super Majority Decision;

 

(o) (i) the approval of any distribution by the Company to the Members of any assets in kind, (ii) the approval of any distribution by the Company to the Members of cash and property in kind on a non-pro rata basis, and (iii) the determination of the value assigned to such assets in kind;

 

(p) each Critical Decision or material amendment thereto made on or prior to the Critical Decision Termination Date for such Critical Decision; and

 

(q) the delegation to a Member of the power to unilaterally bind the Company or any of its subsidiaries with respect to any matter.

 

SECTION 8.09. Annual Capital Budget. (a) In Fiscal Year 1999 and in each Fiscal Year thereafter, the Executive Officers of the Company shall timely prepare or cause to be prepared a draft capital budget (the “Draft Annual Capital Budget”) for such Fiscal Year, which shall set forth in reasonable line item detail the proposed Acquisition Expenditures, Capital Expenditures and the Ordinary Course Lease Expenditures of the Company and its

 

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subsidiaries for such Fiscal Year, including all Ordinary Course Lease Expenditures and all Capital Expenditures of the Company and its subsidiaries directly associated with the Garyville Propylene Upgrade Project. In addition, to the extent that information can reasonably be obtained on the nature of assets rented or financed by operating leases, such information shall be presented along with the Annual Capital Budget. Copies of the Draft Annual Capital Budget shall be provided to each Member (at the same time) and to the Board of Managers. No later than the last regular meeting of the Board of Managers for a Fiscal Year, the Executive Officers shall present to the Board of Managers the Draft Annual Capital Budget for the following Fiscal Year for the Board of Managers’ review, consideration and approval, with such additions, deletions and changes thereto as the Board of Managers shall deem necessary. Upon its approval by the Board of Managers (and taking into account any additions, deletions or other changes deemed necessary by the Board of Managers) the Draft Annual Capital Budget for a Fiscal Year shall become the “Annual Capital Budget” for such Fiscal Year.

 

(b) If the Board of Managers shall fail to approve an Annual Capital Budget for any Fiscal Year, the total expenditures provided for in the Annual Capital Budget for such Fiscal Year shall be in an amount equal to the Normal Annual Capital Budget Amount for such Fiscal Year.

 

(c) No later than August 30 of each Fiscal Year, the Board of Managers shall review the Annual Capital Budget for such Fiscal Year and shall make such additions, deletions and changes thereto as the Board of Managers shall deem necessary.

 

SECTION 8.10. Business Plan. In Fiscal Year 1999 and in each Fiscal Year thereafter, the Executive Officers of the Company shall timely prepare or cause to be prepared a draft business plan (the “Draft Business Plan”) for the next three Fiscal Years. Copies of the Draft Business Plan shall be provided to each Member (at the same time) and to the Board of Managers. No later than the last regular meeting of the Board of Managers for a Fiscal Year, the Executive Officers shall present to the Board of Managers the Business Plan for their review, consideration and approval, with such additions, deletions and changes thereto as the Board of Managers shall deem necessary. Upon its approval by the Board of Managers (and taking into account any such additions, deletions or other changes deemed necessary by the Board of Managers), the Draft Business Plan for a Fiscal Year shall become the “Business Plan” for such Fiscal Year.

 

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SECTION 8.11. Requirements as to Affiliate Transactions. (a) The Company and its subsidiaries shall only be permitted to enter into or renew or extend the term thereof (whether pursuant to contractual provisions thereof or otherwise) an agreement or a transaction with a Member or an Affiliate of a Member (which, solely for purposes of this Section 8.11, shall be deemed to include any entity more than 10% of the voting stock or other ownership interests of, or economic interest in, which is owned by a Member (other than the Company or any of its subsidiaries)) on the same terms or on terms no less favorable to the Company or such subsidiary than could be obtained from a third party on an arm’s-length basis (an “Arm’s-Length Transaction”).

 

(b) (i) If (A) the Company or any subsidiary of the Company enters into, renews or extends the term of (pursuant to contractual provisions thereof that were previously approved by the Board of Managers or otherwise) or materially amends or changes the terms or provisions of, any agreement or transaction between the Company or any of its subsidiaries and any Member or any Affiliate of any Member (a “Section 8.11(b) Affiliate Transaction”) or proposes to do any of the foregoing and (ii) not later than 90 days after receiving written notice thereof from the Company pursuant to Section 7.03 or otherwise (which notice describes the material terms and conditions of such transaction in reasonable detail), the Member that is not (or whose Affiliate is not) a party to such Section 8.11(b) Affiliate Transaction (the “Non-Contracting Member”) notifies the Company and the Member that is (or whose Affiliate is) a party to such Section 8.11(b) Affiliate Transaction (the “Contracting Member”) in writing that the Non-Contracting Member believes in good faith that either such Affiliate Transaction is not an Arm’s-Length Transaction or that the quality of the service being provided or to be provided by the Contracting Member is inferior to that which the Company and its subsidiaries could otherwise obtain on comparable terms and conditions, then the Company shall promptly (and, in any event within 30 days) provide the Non-Contracting Member with a reasonably detailed explanation of the basis for the Company’s determination that such new, renewed or extended Affiliate Transaction is an Arm’s-Length Transaction or the quality of the service being provided or to be provided to the Company and its subsidiaries is not inferior.

 

(ii) If following receipt of such evidence, the Non-Contracting Member is not reasonably satisfied that

 

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such Affiliate Transaction is an Arm’s-Length Transaction or the quality of the service being provided or to be provided to the Company and its subsidiaries is not inferior, then, at the written request of the Non-Contracting Member (such written request being an “Affiliate Transaction Dispute Notice”), the Company shall (A) modify the terms of such Affiliate Transaction so that it becomes an Arm’s-Length Transaction, (B) if the Company had given the Members written notice pursuant to Section 7.03(a) prior to entering into, renewing or extending such Affiliate Transaction, not enter into, renew or extend such Affiliate Transaction or (C) if the Company had given the Members written notice pursuant to Section 7.03(a) prior to entering into, renewing or extending such Affiliate Transaction, enter into, renew or extend such Affiliate Transaction in which event the determination of whether such Affiliate Transaction is an Arm’s Length Transaction and/or whether the quality of the service being provided is inferior shall be in accordance with the Dispute Resolution Procedures set forth in Article XIII or (D) if the Company shall not have given the Members written notice pursuant to Section 7.03(a) prior to entering into, renewing or extending such Affiliate Transaction, commence the dispute resolution procedures set forth in Article XIII.

 

(iii) For purposes of Article XIII, a Non-Contracting Member’s delivery of an Affiliate Transaction Dispute Notice to the Company shall constitute delivery of a Dispute Notice thereunder, and the Company shall be required to deliver a Response to the Non-Contracting Member within 30 days thereafter. If it is finally determined pursuant to such Dispute Resolution Procedures that such Affiliate Transaction is an Arm’s-Length Transaction and, if disputed, that the quality of service being so provided is not inferior, then the Company shall be permitted to enter into, renew or extend such Affiliate Transaction. If it is finally determined pursuant to such Dispute Resolution Procedures that such Affiliate Transaction is not an Arm’s-Length Transaction or that the quality of service being so provided is inferior, then the Company shall either modify the terms of such Affiliate Transaction so that it becomes an Arm’s-Length Transaction and, if disputed, with an adequate level of quality of service or not enter into, renew or extend such Affiliate Transaction. In the event that such Affiliate Transaction has already been entered into, renewed or extended, then (A) the Company and the

 

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Contracting Member shall make such modifications to the terms of such Affiliate Transaction as are necessary so that such Affiliate Transaction becomes an Arm’s-Length Transaction and, if disputed, with an adequate level of quality of service and (B) the Contracting Member shall pay the Company an amount equal to the difference between (I) the costs incurred by the Company under such Affiliate Transaction since the time of such entering into, renewal or extension and (II) the costs that the Company would have incurred under such Affiliate Transaction during such time period had such Affiliate Transaction been an Arm’s-Length Transaction and, if disputed, with an adequate level of quality of service at the time of such initial agreement, renewal or extension.

 

SECTION 8.12. Review of Certain Affiliate Transactions Related to Crude Oil Purchases and Shared Services. (a) (i) Not less than 30 days prior to the regular meeting of the Board of Managers during the fourth Fiscal Quarter of each Fiscal Year (or, if no regular meeting of the Board of Managers is scheduled during such Fiscal Quarter, at a special meeting of the Board of Managers during such Fiscal Quarter), the Company shall submit to the Board of Managers a reasonably detailed description of any proposed transactions or agreements related to crude oil purchases by the Company and its subsidiaries from Marathon or any Affiliate of Marathon that are intended to remain in effect or to be put into effect during such next Fiscal Year (collectively, the “Marathon Crude Oil Purchase Program”). Following such submission, the Company shall provide the Board of Managers promptly with such information with respect to such Marathon Crude Oil Purchase Program and the Company’s other proposed crude oil purchases and policies for such next Fiscal Year as any Representative shall reasonably request. At each such regular or special meeting during the fourth Fiscal Quarter of each Fiscal Year, the Board of Managers shall review such Marathon Crude Oil Purchase Program. During such next Fiscal Year, the Company and its subsidiaries shall be permitted to purchase crude oil from Marathon or any Affiliate of Marathon only on the terms and conditions of the proposed transactions and agreements submitted to and approved by the Board of Managers at such regular or special meeting pursuant to a vote in accordance with Section 8.07(b) (the “Approved Marathon Crude Oil Purchase Program”). Any purchase (or group of related purchases) of crude oil by the Company or any of its subsidiaries from Marathon or any Affiliate of Marathon during such Fiscal Year that is an Affiliate Transaction for purposes of Section 8.08(k) and is not made under or in accordance with

 

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the Approved Marathon Crude Oil Purchase Program and any material amendment to or change in the Approved Marathon Crude Oil Purchase Program during such Fiscal Year shall be made only with the prior approval of the Board of Managers pursuant to a vote in accordance with Section 8.07(b).

 

(ii) The Company shall prepare and send to each Member (at the same time) promptly, but in no event later than the 30th day after the last day of each Fiscal Quarter, (A) a summary of all Crude Oil Purchases during such Fiscal Quarter, (B) a description of any amendments to, changes in or deviations from the Approved Marathon Crude Oil Purchase Program in effect during such Fiscal Quarter, (C) a description of any then known proposed amendments to, changes in or deviations from the Approved Marathon Crude Oil Purchase Program in effect during the remaining balance of the Fiscal Year and (D) such other information with respect to purchases of crude oil by the Company and its subsidiaries as either Member shall reasonably request.

 

(b)(i) All administrative services that Marathon, Ashland and each of their respective Affiliates provide to the Company or any of its subsidiaries, and that the Company and its subsidiaries provide to Marathon, Ashland or any of their respective Affiliates, shall be pursuant to the Shared Services Agreement. To the extent that there is a conflict between the Shared Services Agreement, Schedule 10.2(e) to the Marathon Asset Transfer and Contribution Agreement Disclosure Letter or Schedule 10.2(e) to the Ashland Asset Transfer and Contribution Agreement Disclosure Letter, on the one hand, and this Agreement, on the other hand, this Agreement shall control.

 

(ii) Not less than 90 days prior to each of the annual meetings of the Board of Managers held in 2000, 2003 and every three years thereafter, the Company shall submit to the Board of Managers the provisions of the Shared Services Agreement that relate to each Significant Shared Service then in effect or that is proposed to be put into effect. Following such submission, the Company shall provide the Board of Managers promptly with such information with respect to such Significant Shared Services and with respect to any other Shared Services then being provided or proposed to be provided as any Representative shall reasonably request. At each such annual meeting, unless all the Representatives otherwise agree, the Board of Managers shall review each such Significant

 

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Shared Service and shall determine pursuant to a vote in accordance with Section 8.07(b) whether such Significant Shared Service should be continued (or, in the case of any proposed Significant Shared Service, put into effect). Unless the Board of Managers approves pursuant to a vote in accordance with Section 8.07(b) the continuation or effectiveness of a Significant Shared Service, the Shared Service Agreement to the extent it relates to such Significant Shared Service shall be terminated effective 90 days after such annual meeting or at such later date as the Board of Managers shall specify pursuant to a vote in accordance with Section 8.07(b) and the Company shall be deemed at the time of such annual meeting to have given notice to the Member providing or receiving (or whose Affiliate is providing or receiving) such Significant Shared Service that the Company is terminating the Shared Service Agreement with respect to such Significant Shared Service.

 

SECTION 8.13. Adjustable Amounts. Within 30 days following the date on which the United States Department of Labor Bureau of Labor Statistics for all Urban Areas publishes the Price Index for the month of September of each Fiscal Year commencing September, 1998, the Company shall determine whether the Average Annual Level for the immediately preceding twelve-month period exceeds the Base Level. If the Company determines that the Average Annual Level for such twelve-month period exceeds the Base Level, then the Company shall increase or decrease each of the dollar amounts set forth in this Agreement (other than the $348 million and $346 million amounts set forth in the definition of Adjusted DD&A, the $657 million, $600 million, $80 million, $20 million and $12.4 million amounts set forth in the definition of Adjusted EBITDA, the $240 million amount set forth in the definition of “Normal Annual Capital Budget Amount” in Section 1.01, the $100 million amount set forth in Section 8.08(f)(i) and any dollar amount set forth in any Appendix, Exhibit or Schedule to this Agreement, including Schedule 8.14) (each dollar amount that is adjusted pursuant to this Section 8.13 being an “Adjustable Amount”), including, without limitation, the following amounts, to an amount calculated by multiplying the relevant Adjustable Amount by a fraction whose numerator is the Average Annual Level for such twelve-month period and whose denominator is the Base Level: (i) the $100,000, $2 million and $25 million amounts set forth in the definition of “Affiliate Transaction” and the $2 million amount set forth in the definition of “Significant Shared Service” in each case in Section 1.01; (ii) the $2 million amount set forth in Section 6.06(c); (iii) the $2 million amounts set forth

 

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in Sections 6.08(b), (d) and (e); (iv) the $20 million amount set forth in Section 8.08(a)(i); (v) the $80 million amount set forth on Section 8.08(f)(ii) (or such other dollar amount as shall be agreed pursuant to the proviso to Section 8.08(f)(ii)); (vi) the $50 million amount set forth in Section 8.08(g); (vii) the $50 million and $25 million amounts set forth in Section 8.08(h)(i); and (viii) each $7.5 million amount set forth in Section 14.01(a); provided that in no event shall any Adjustable Amount be decreased below the initial amount thereof set forth herein. Within five Business Days after making such determinations, the Company shall distribute to each Member a notice setting forth: (A) the amount by which the Average Annual Level for such Fiscal Year exceeded the Base Level and (B) the calculations of any adjustments made to the Adjustable Amounts pursuant to this Section 8.13. Any adjustment made to the Adjustable Amounts pursuant to this Section 8.13 shall be effective as of January 1st of the next Fiscal Year.

 

SECTION 8.14. Company Leverage Policy. The leverage policy for the Company shall be the leverage policy set forth on Schedule 8.14, with such modifications, alterations or amendments thereto as the Board of Managers shall from time to time approve pursuant to a vote in accordance with Section 8.07(b) (such leverage policy, as so modified, altered or amended, is referred to herein as the “Company Leverage Policy”).

 

SECTION 8.15. Company’s Investment Guidelines. The Company’s Senior Vice President-Finance and Commercial Services, Vice President-Finance and Controller and Treasurer (or Treasury Manager) shall constitute an Investment Policy Committee of the Company and shall establish investment guidelines for the Company and its subsidiaries (such investment guidelines, as they may be modified, altered or amended by such Investment Policy Committee from time to time, are referred to herein as the “Company Investment Guidelines”). The initial Company Investment Guidelines is set forth on Schedule 8.15. The Company and its subsidiaries shall only make investments that are permitted under the Company Investment Guidelines at the time of such investments. In addition, the Company and its subsidiaries shall invest all Surplus Cash (after meeting daily cash requirements) in accordance with the Company Investment Guidelines.

 

SECTION 8.16. Requirements as to Operating Leases. The Company and its subsidiaries shall not enter into any operating lease (as determined in accordance with Applicable GAAP) if the purpose or intent of entering into

 

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such operating lease is to circumvent the Company Leverage Policy or the super majority voting requirement for Capital Expenditures of the Company set forth in Section 8.08(f). The lease by the Company and its subsidiaries of vehicles, railcars and computers in accordance with the historical practices of the Ashland Business and the Marathon Business shall not be deemed to violate this Section 8.16, provided, for the avoidance of doubt, that all Ordinary Course Lease Expenses related to any such leases shall be considered Ordinary Course Lease Expenses for the purposes of Section 8.08(f)(ii).

 

SECTION 8.17. Limitations on Actions Relating to the Calculation of Distributable Cash. Notwithstanding anything to the contrary contained in this Agreement, the Company shall not, and shall cause its subsidiaries not to (a) modify, alter or amend the Company Investment Guidelines, (b) accelerate the payment of the Company’s and its subsidiaries’ accounts payable, (c) delay the collection of the Company’s and its subsidiaries’ accounts receivable or (d) take any other action, if the purpose or intent of such action is to reduce the amount of Distributable Cash in a manner that is inconsistent with the intent of the Members to maximize the amount of Distributable Cash distributions to the Members.

 

SECTION 8.18. Reliance by Third Parties. Persons dealing with the Company are entitled to rely conclusively upon the power and authority of the Board of Managers herein set forth. Except as provided in this Agreement, neither the President, nor a Representative, nor any Member shall have any authority to bind the Company or any of its subsidiaries.

 

SECTION 8.19. Integration of Retail Operations. (a) Until the Critical Decision is made regarding the location of the Company’s retail operations’ headquarters, the Company’s retail operations’ business shall have headquarters in both Enon, Ohio and Lexington, Kentucky.

 

(b) (i) The Company shall make a formal recommendation to the Board of Managers with respect to each Critical Decision not later than the ten-month anniversary of the Closing Date. Following receipt of a formal recommendation with respect to any Critical Decision, Marathon and Ashland shall negotiate in good faith to reach an agreement with respect to such Critical Decision not later than the first anniversary of the Closing Date.

 

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(ii) Each formal recommendation with respect to any Critical Decision shall be accompanied by a report on the business and economic analyses used by the Company to arrive at such recommendation, including but not limited to, a reasonably detailed description of the risks and benefits of the recommended decision and the anticipated impact of the recommended decision on the Speedway and SuperAmerica brand images and business models.

 

(iii) Following receipt of any formal recommendation with respect to any Critical Decision, each Member may request, and the Company shall promptly provide to both Members, such additional information and analyses (including studies by outside consultants) as such Member may reasonably request; provided, however, any additional information request shall not extend the Critical Decision Termination Date.

 

(c) If any Primary Critical Decision shall not have been agreed by the Board of Managers pursuant to a vote in accordance with Section 8.07(b) prior to the first anniversary of the Closing Date, the Critical Decision Termination Date with respect to such Primary Critical Decision shall be automatically, and without any further action required by either Member, the Company or the Board of Managers, extended until the fifteen-month anniversary of the Closing Date. During the period of such extension, the Company shall provide promptly to each Member such additional information or analyses (including studies by outside consultants) as either Member shall reasonably request. Not later than 30 days prior to the fifteen-month anniversary of the Closing Date, the Company shall, if requested by either Member, again make a formal recommendation to the Board of Managers with respect to such Primary Critical Decision. Such formal recommendation shall include a report on the supporting business and economic analyses described in Section 8.19(b)(ii). Any request for additional information shall not extend the Critical Decision Termination Date.

 

(d) Until such time as the implementation of any Critical Decision shall have been completed in all material respects, the President of the Company shall report to the Board of Managers at each regular meeting of the Board of Managers on the implementation of such Critical Decision and on any material modifications or changes to such Critical Decision.

 

(e) To the extent there is any conflict between the terms and provisions of this Agreement and the terms and provisions of the Retail Integration Protocol, the terms and provisions of this Agreement shall control.

 

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ARTICLE IX

 

Officers

 

SECTION 9.01. (a) Election, Appointment and Term of Office. The executive officers of the Company (the “Executive Officers”) shall consist solely of: a President; an Executive Vice President; an officer principally in charge of refining; an officer principally in charge of wholesale and branded marketing; the officer or officers (two initially) principally in charge of retail marketing; an officer principally in charge of supply and transportation; an officer who shall be the Senior Vice President-Finance and Commercial Services of the Company; and an officer who shall be the general counsel of the Company; provided, however, that Marathon and Ashland may make additions or deletions to the positions which shall be considered executive officers of the Company by mutual agreement. Schedule C sets forth a list of (i) the persons who Marathon and Ashland have chosen to serve initially as the Executive Officers of the Company, (ii) the executive office for which each such person is to serve and (iii) whether each such person was designated by Marathon or Ashland. Marathon and Ashland agree that the composition of the initial Executive Officers is intended to reflect their respective Percentage Interests in the Company. Accordingly, if any person identified on Schedule C is for any reason unable or unwilling to serve as an Executive Officer at the Closing Date, the Member who designated such person shall have the right to designate a substitute person, subject to the right of the other Member to consent to such substitute nominee (which consent shall not be unreasonably withheld). Marathon and Ashland shall cause their respective Representatives to promptly approve the appointment of each person listed on Schedule C to the related executive office position listed on Schedule C.

 

(b) Except as otherwise determined by the Board of Managers, each Executive Officer shall hold office until his or her death or until his or her earlier resignation or removal in the manner hereinafter provided. Except as otherwise expressly provided herein, the Executive Officers shall have such powers and duties in the management of the Company as generally pertain to their respective offices as if the Company were a corporation governed by the General Corporation Law of the State of Delaware.

 

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(c) The Board of Managers may elect or appoint such other officers to assist and report to the Executive Officers as it deems necessary. Subject to the preceding sentence, each such officer shall have such authority and shall perform such duties as may be provided herein or as the Board of Managers may prescribe. The Board of Managers may delegate to any Executive Officer the power to choose such other officers and to prescribe their respective duties and powers.

 

(d) Except as otherwise determined by the Board of Managers, if additional officers are elected or appointed during the year pursuant to Section 9.01(c), each such officer shall hold office until his or her death or until his or her earlier resignation or removal in the manner hereinafter provided.

 

SECTION 9.02. Resignation, Removal and Vacancies. (a) Any officer may resign at any time by giving written notice to the President or the Secretary of the Company, and such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, when accepted by action of the Board of Managers. Except as aforesaid, the acceptance of such resignation shall not be necessary to make it effective.

 

(b) All officers and agents elected or appointed by the Board of Managers shall be subject to removal at any time by the Board of Managers with or without cause.

 

(c) Vacancies in all Executive Officer positions may only be filled by the majority vote of the Representatives on the Board of Managers. In each instance where a vacant Executive Officer position is to be filled, Marathon, after consultation with the Company, shall first send Ashland a notice which discloses the name and details of the candidate for the vacant Executive Officer position that the Representatives of Marathon will nominate and vote in favor of for such position. Ashland shall thereafter have the right, by notice to the Company and Marathon within ten days after receipt of such notice from Marathon, to veto such candidate. Each candidate that Marathon proposes for a vacant Executive Officer position shall be a bona fide candidate who is willing and able to serve and who Marathon in good faith believes is qualified to fill such vacant Executive Officer position (a “Qualified Candidate”). In the event Ashland exercises its veto with respect to a Qualified Candidate, the vacancy will be filled by the majority vote of the Representatives on the Board of Managers.

 

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SECTION 9.03. Duties and Functions of Executive Officers. (a) President. The President of the Company, who shall be a non-voting member of the Board of Managers, shall be in charge of the day-to-day operations of the Company and shall preside at all meetings of the Board of Managers and shall perform such other duties and exercise such powers, as may from time to time be prescribed by the Board of Managers.

 

(b) Executive Vice President. The Executive Vice President of the Company initially shall report to the President and be the officer principally in charge of all supply, refining, marketing and transportation operations of the Company other than the Company’s retail operations.

 

(c) Other Executive Officers. The Executive Officers of the Company other than the President and the Executive Vice President shall perform such duties and exercise such powers, as may from time to time be prescribed by the President or the Board of Managers.

 

ARTICLE X

 

Transfers of Membership Interests

 

SECTION 10.01. Restrictions on Transfers. (a) General. Except as expressly provided by this Article X, neither Member shall Transfer all or any part of its Membership Interests to any person without first obtaining the written approval of the other Member, which approval may be granted or withheld in its sole discretion. Notwithstanding anything to the contrary contained in this Agreement, no Transfer by a Member of its Membership Interests to any person shall be made except to a permitted assignee under Article XV of the Put/Call, Registration Rights and Standstill Agreement.

 

(b) Transfer by Operation of Law. In the event a Member shall be party to a merger, consolidation or similar business combination transaction with a third party or sell all or substantially all its assets to a third party, such Member may Transfer all (but not part) of its Membership Interests to such third party; provided, however, that such Member shall not be permitted to Transfer its Membership Interests to such third party as aforesaid if the purpose or intent of such merger, consolidation, similar business combination transaction or sale is to circumvent or avoid the application of Sections 10.01(c) and 10.04 to the Transfer of such Member’s Membership Interests to such third party.

 

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(c) Transfer by Sale to Third Party. At any time after December 31, 2002, a Member may sell all (but not part) of its Membership Interests (and, in the case of Ashland, the Ashland LOOP/LOCAP Interest) to any person (other than a Transfer by operation of law pursuant to Section 10.01(b), a Transfer to a Wholly Owned Subsidiary pursuant to Section 10.01(d) or a Transfer by Ashland to Marathon pursuant to Section 10.01(e)) if (i) it shall first have offered the other Member the opportunity to purchase such Membership Interests (and, in the case of Ashland, the Ashland LOOP/LOCAP Interest) pursuant to the right of first refusal procedures set forth in Section 10.04, (ii) such sale is completed within the time periods specified in Section 10.04, (iii) the other Member shall have approved the purchaser of such Membership Interests (and, in the case of Ashland, the Ashland LOOP/LOCAP Interest), which approval shall not be unreasonably withheld or delayed and (iv) it shall use its commercially reasonable best efforts to (A) terminate the outstanding Original Lease underlying each of its Designated Sublease Agreements on or prior to the date of such Transfer and (B) contribute the related Subleased Property to the Company or one of its subsidiaries at no cost to the Company or such subsidiary on or prior to the date of such Transfer; provided, however, that (i) such Member shall not be obligated to pay more than a reasonable amount as consideration therefor to, or make more than a reasonable financial accommodation in favor of, or commence litigation against, a third party lessor with respect to any such underlying Original Lease in order to obtain any consent required from such lessor and (ii) any additional cost associated with exercising an option under the Original Lease to purchase Subleased Property or to terminate the Original Lease shall be deemed not to constitute an obligation to pay more than a reasonable amount. In the event that such Member is unable to terminate an outstanding Original Lease in accordance with this Section 10.02(b), then (i) the Company shall be entitled to continue to sublease the Subleased Property pursuant to the related Designated Sublease Agreement until the term of the Original Lease expires, (ii) the Member shall continue to use its commercially reasonable best efforts to terminate the Original Lease and contribute the Subleased Property to the Company as provided above; provided, however that (A) such Member shall not be obligated to pay more than a reasonable amount as consideration therefor to, or make more than a reasonable financial accommodation in favor of, or commence litigation against, a third party lessor with respect to any such Original Lease in order to obtain any consent required from such lessor and (b) any additional cost associated with exercising an option under the Original Lease to purchase Subleased Property or to terminate the Original Lease shall

 

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be deemed not to constitute an obligation to pay more than a reasonable amount and (iii) if such Member subsequently acquires fee title to the Subleased Property, such Member shall contribute such Subleased Property to the Company or one of its subsidiaries at no cost to the Company or such subsidiary at such time. It is expressly understood and agreed that, in determining whether to reasonably withhold its approval of a proposed purchaser of Marathon’s Membership Interests pursuant to this Section 10.01(c), Ashland shall be entitled to consider the creditworthiness of such proposed purchaser, including whether such proposed purchaser is likely to be able to perform all of Marathon’s and USX’s respective obligations under the Put/Call, Registration Rights and Standstill Agreement.

 

(d) Transfer to Wholly Owned Subsidiary. A Member may Transfer all (but not part) of its Membership Interests at any time to a Wholly Owned Subsidiary of such Member if (i) such Member shall have received an opinion from nationally recognized tax counsel acceptable to both Members that such Transfer will not result in a termination of the status of the Company as a partnership for Federal income tax purposes and (ii) the transferring Member enters into an agreement with the other Member providing that so long as such Wholly Owned Subsidiary holds such transferring Member’s Membership Interests, such Wholly Owned Subsidiary shall remain a Wholly Owned Subsidiary of such transferring Member.

 

(e) Transfer Pursuant to Put/Call, Registration Rights and Standstill Agreement. Ashland may Transfer all of its Membership Interests to Marathon in connection with the exercise by Marathon of its Marathon Call Right or its Special Termination Right or the exercise by Ashland of its Ashland Put Right. In addition, Marathon may Transfer all of its Membership Interests to Ashland in connection with the exercise by Ashland of its Special Termination Right.

 

(f) Consequences of Permitted Transfers. (i) In connection with any Transfer by a Member to a third party transferee pursuant to Section 10.01(b), (A) such third party transferee shall at the time of such Transfer become subject to all of such transferring Member’s obligations hereunder and shall succeed to all of such transferring Member’s rights hereunder and (B) such transferring Member shall be relieved of all of its obligations hereunder other than with respect to any default hereunder by such transferring Member or any of its Affiliates hereunder that occurred prior to the time of such Transfer.

 

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(ii) In connection with any Transfer by a Member to a third party transferee or to the other Member pursuant to Section 10.01(c), (A) such third party transferee or such other Member shall at the time of such Transfer become subject to all of such transferring Member’s obligations hereunder and shall succeed to all of such transferring Member’s rights hereunder and (B) such transferring Member shall at the time of such Transfer be relieved of all of its obligations hereunder other than with respect to any default hereunder by such transferring Member or any of its Affiliates that occurred prior to the time of such Transfer.

 

(iii) In connection with any Transfer by a Member to a Wholly Owned Subsidiary of such Member pursuant to Section 10.01(d), (A) such Wholly Owned Subsidiary shall at the time of such Transfer become subject to all of such Member’s obligations hereunder and shall succeed to all of such Member’s rights hereunder and (B) such Member shall not be relieved of its obligations hereunder without the prior written consent of the other Member, which consent shall not be unreasonably withheld or delayed.

 

(iv) In connection with any Transfer by Ashland to Marathon pursuant to Section 10.01(e), (A) Marathon shall at the time of such Transfer become subject to all of Ashland’s obligations hereunder and shall succeed to all of Ashland’s rights hereunder and (B) Ashland shall at the time of such Transfer be relieved of all of its obligations hereunder other than with respect to any default hereunder by Ashland or any of its Affiliates that occurred prior to the Exercise Date (as such term is defined in the Put/Call, Registration Rights and Standstill Agreement).

 

(v) In connection with any Transfer by Marathon to Ashland pursuant to Section 10.01(e), (A) Ashland shall at the time of such Transfer become subject to all of Marathon’s obligations hereunder and shall succeed to all of Marathon’s rights hereunder and (B) Marathon shall at the time of such Transfer be relieved of all of its obligations hereunder other than with respect to any default hereunder by Marathon or any of its Affiliates that occurred prior to the Special Termination Exercise Date (as such term is defined in the Put/Call, Registration Rights and Standstill Agreement).

 

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(vi) In connection with any Transfer by Ashland to a third party transferee pursuant to Section 10.01(b), 10.01(c) or 10.01(d), such third party transferee shall at the time of such Transfer succeed to all of Ashland’s veto rights under Section 9.02(c); provided, that if Ashland Transfers its Membership Interests to a third party transferee pursuant to Section 10.01(c), such third party transferee shall not thereafter be permitted to transfer its veto rights under Section 9.02(c) to another third party transferee pursuant to Section 10.01(c).

 

(vii) In connection with any Transfer by a Member to a third party transferee pursuant to this Article X, such transferring Member shall retain all of the rights granted to a Member under Article VII to examine the books and records of the Company and to receive financial statements and reports prepared by the Company until such time following such Transfer as such transferring Member ceases to have any liability under Article IX of the Asset Transfer and Contribution Agreement.

 

(g) Consequences of an Unpermitted Transfer. Any Transfer of a Member’s Membership Interests made in violation of the applicable provisions of this Agreement shall be void and without legal effect.

 

SECTION 10.02. Conditions for Admission. No transferee of all of the Membership Interests of any Member shall be admitted as a Member hereunder unless (a) such Membership Interests are Transferred to a person in compliance with the applicable provisions of this Agreement, (b) such transferee shall have executed and delivered to the Company such instruments as the Board of Managers deems necessary or desirable in its reasonable discretion to effectuate the admission of such transferee as a Member and to confirm the agreement of such transferee or recipient to be bound by all the terms and provisions of this Agreement with respect to the Membership Interests acquired by such transferee and (c) such transferee shall have executed and delivered an assignment and assumption agreement pursuant to Section 15.04 of the Put/Call, Registration Rights and Standstill Agreement.

 

SECTION 10.03. Allocations and Distributions. Subject to applicable Treasury Regulations, upon the Transfer of all the Membership Interests of a Member as herein provided, the Profit or Loss of the Company attributable to the Membership Interests so transferred for the Fiscal Year during which such Transfer occurs shall be

 

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allocated between the transferor and transferee as of the date set forth on the written assignment, and such allocation shall be based upon any permissible method agreed to by the Members that is provided for in Code Section 706 and the Treasury Regulations issued thereunder. Except as otherwise expressly provided in Section 5.01 of the Put/Call, Registration Rights and Standstill Agreement, distributions shall be made to the holder of record of the Membership Interests on the date of distribution.

 

SECTION 10.04. Right of First Refusal. (a) If a Member (the “Selling Member”) shall desire to sell all (but not part) of its Membership Interests (which, for purposes of this Section 10.04, shall be deemed to include, in the case of Ashland, the Ashland LOOP/LOCAP Interest) pursuant to Section 10.01(c), then the Selling Member shall give notice (the “Offer Notice”) to the other Member, identifying the proposed purchaser from whom it has received a bona fide offer and setting forth the proposed sale price (which shall be payable only in cash or purchase money obligations secured solely by the Membership Interests being sold) and the other material terms and conditions upon which the Selling Member is proposing to sell such Membership Interests to such proposed purchaser. No such sale shall encompass or be conditioned upon the sale or purchase of any property other than such Membership Interests (other than, in the case of Ashland, the Ashland LOOP/LOCAP Interest). The other Member shall have 30 days from receipt of the Offer Notice to elect, by notice to the Selling Member, to purchase the Membership Interests offered for sale on the terms and conditions set forth in the Offer Notice.

 

(b) If a Member makes such election, the notice of election shall state a closing date not later than 60 days after the date of the Offer Notice. If such Member breaches its obligation to purchase the Membership Interests of the Selling Member on the same terms and conditions as those contained in the Offer Notice after giving notice of its election to make such purchase (other than where such breach is due to circumstances beyond such Member’s reasonable control), then, in addition to all other remedies available, the Selling Member may, at any time for a period of 270 days after such default, sell such Membership Interests to any person at any price and upon any other terms without further compliance with the procedures set forth in Section 10.04.

 

(c) If the other Member gives notice within the 30-day period following the Offer Notice from the Selling Member that it elects not to purchase the Membership Interests, the Selling Member may, within 120 days after the

 

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end of such 30-day period (or 270 days in the case where such parties have received a second request under HSR), sell such Membership Interests to the identified purchaser (subject to clause (iii) of Section 10.01(c)) on terms and conditions no less favorable to the Selling Member than the terms and conditions set forth in such Offer Notice. In the event the Selling Member shall desire to offer the Membership Interests for sale on terms and conditions less favorable to it than those previously set forth in an Offer Notice, the procedures set forth in this Section 10.04 must again be initiated and applied with respect to the terms and conditions as modified.

 

SECTION 10.05. Restriction on Resignation or Withdrawal. Except in connection with a Transfer permitted pursuant to Section 10.01, neither Member shall resign or withdraw from the Company without the consent of the other Member. Any purported resignation or withdrawal from the Company in violation of this Section 10.05 shall be null and void and of no force or effect.

 

ARTICLE XI

 

Liability, Exculpation and Indemnification

 

SECTION 11.01. Liability. Except as otherwise provided by the Delaware Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Covered Person shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Covered Person.

 

SECTION 11.02. Exculpation. (a) No Covered Person shall be liable to the Company or any other Covered Person for any cost, expense, loss, damage, claim or liability incurred by reason of any act or omission performed or omitted by such Covered Person in such capacity, whether or not such person continues to be a Covered Person at the time of such cost, expense, loss, damage, claim or liability is incurred or imposed, if the Covered Person acted in good faith and in a manner the Covered Person reasonably believed to be in or not opposed to the best interests of the Company, and if, with respect to any criminal action or proceeding, such Covered Person had no reasonable cause to believe its conduct was unlawful, except that a Covered Person shall be liable for any such cost, expense, loss, damage, claim or liability incurred by reason of such Covered Person’s breach of Section 12.02.

 

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(b) A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any person as to any matters the Covered Person reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which distributions to Members might properly be paid.

 

SECTION 11.03. Indemnification. (a) To the fullest extent permitted by Applicable Law, a Covered Person shall be entitled to indemnification from the Company for any reasonable cost and expense, loss, damage, claim or liability incurred by such Covered Person in connection with any pending, threatened or completed claim, action, suit or proceeding by reason of being a Covered Person or by reason of any act or omission performed or omitted by such Covered Person in such capacity, whether or not such person continues to be a Covered Person at the time such cost, expense, loss, damage, claim or liability is incurred or imposed, if the Covered Person (i) has been successful on the merits or otherwise with respect to such claim, action, suit or proceeding, or (ii) acted in good faith and in a manner the Covered Person reasonably believed to be in or not opposed to the best interests of the Company, and if, with respect to any criminal action or proceeding, such Covered Person had no reasonable cause to believe its conduct was unlawful, except that no Covered Person shall be entitled to be indemnified in respect of any such cost, expense, loss, damage, claim or liability incurred by such Covered Person by reason of such Covered Person’s breach of Section 12.02 with respect to such acts or omissions; provided, however, that any indemnity under this Section 11.03 shall be provided out of and to the extent of Company assets only, and no Covered Person shall have any personal liability on account of such indemnification of any other Covered Person, and provided further that, in the case of officers, employees and agents of the Company, such right to indemnification shall be subject to any further limitations or requirements that may be adopted by the Board of Managers, provided such limitations or requirements were adopted prior to the events that gave rise to the claim for indemnification.

 

(b) Expenses incurred with respect to any claim, action, suit or proceeding of the character described in Section 11.03(a) shall be advanced to a Covered Person by

 

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the Company prior to the final disposition thereof, but the Covered Person shall be obligated to repay such advances if it is ultimately determined that the Covered Person is not entitled to indemnification under Section 11.03(a). As a condition to advancing expenses hereunder, the Company may require the Covered Person to sign a written instrument acknowledging his obligation to repay any advances hereunder if it is ultimately determined he is not entitled to such indemnity.

 

(c) Notwithstanding anything in this Section 11.03 to the contrary, no Covered Person shall be indemnified in respect of any claim, action, suit or proceeding initiated by such Covered Person or his personal or legal representative, or which involved the voluntary solicitation or intervention of such person or his personal or legal representative (other than an action to enforce indemnification rights hereunder or any action initiated with the approval of a majority of the Board of Managers).

 

(d) The rights of indemnification provided in this Section 11.03 shall be in addition to any other rights to which any Covered Person may otherwise be entitled to by contract or otherwise; and in the event of any Covered Person’s death, such rights shall extend to such Covered Person’s heirs and personal representatives.

 

ARTICLE XII

 

Fiduciary Duties

 

SECTION 12.01. Duties and Liabilities of Covered Persons. To the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any other Covered Person, a Covered Person acting under this Agreement shall not be liable to the Company or to any other Covered Person for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they expand or restrict the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Covered Person.

 

SECTION 12.02. Fiduciary Duties of Members of the Company and Members of the Board of Managers. Each Member and each member of the Board of Managers shall have the fiduciary duties of loyalty and care (similar to the fiduciary duties of loyalty and care of directors of a business corporation governed by the General Corporation Law

 

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of the State of Delaware) to the Company and all of the Members. Notwithstanding any provision of this Agreement to the contrary, each Member and each member of the Board of Managers agrees to and shall exercise good faith, fairness and loyalty to the Company and to all of the Members, and shall make all decisions in a manner that such Member or such member of the Board of Managers reasonably believes to be in the best interest of the Company and all of the Members. Notwithstanding the foregoing, this Section 12.02 is not intended to limit a Member’s ability to exercise or enforce any of its rights and remedies under this Agreement and the other Transaction Documents in good faith, including, without limitation, Article IX of the Asset Transfer and Contribution Agreement.

 

ARTICLE XIII

 

Dispute Resolution Procedures

 

SECTION 13.01. General. All controversies, claims or disputes between the Members or between the Company and either Member that arise out of or relate to this Agreement or the construction, interpretation, performance, breach, termination, enforceability or validity of this Agreement, or the commercial, economic or other relationship of the parties hereto, whether such claim is based on rights, privileges or interests recognized by or based upon statute, contract, tort, common law or otherwise and whether such claim existed prior to or arises on or after January 1, 1998 (a “Dispute”) shall be resolved in accordance with the provisions of this Article XIII (except as otherwise expressly provided in Sections 6.06 and 6.08). Notwithstanding anything to the contrary contained in this Article XIII, nothing in this Article XIII shall limit the ability of the directors and officers of either Member from communicating directly with the directors and officers of the other Member.

 

SECTION 13.02. Dispute Notice and Response. Either Member may give the other Member written notice (a “Dispute Notice”) of any Dispute which has not been resolved in the normal course of business. Within fifteen Business Days after delivery of the Dispute Notice, the receiving Member shall submit to the other Member a written response (the “Response”). The Dispute Notice and the Response shall each include (i) a statement setting forth the position of the Member giving such notice, a summary of the arguments supporting such position and, if applicable, the relief sought and (ii) the name and title of a senior manager of such Member who has authority to settle the

 

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Dispute and will be responsible for the negotiations related to the settlement of the Dispute (the “Senior Manager”).

 

SECTION 13.03. Negotiation Between Senior Managers. (a) Within 10 days after delivery of the Response provided for in Section 13.02, the Senior Managers of both Members shall meet or communicate by telephone at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, and shall negotiate in good faith to attempt to resolve the Dispute that is the subject of such Dispute Notice. If such Dispute has not been resolved within 45 days after delivery of the Dispute Notice, then the Members shall attempt to settle the Dispute pursuant to Section 13.04.

 

(b) All negotiations between the Senior Managers pursuant to this Section 13.03 shall be treated as compromise and settlement negotiations. Nothing said or disclosed, nor any document produced, in the course of such negotiations which is not otherwise independently discoverable shall be offered or received as evidence or used for impeachment or for any other purpose in any current or future arbitration or litigation.

 

SECTION 13.04. Negotiation Between Chief Executive Officer and President. (a) If the Dispute has not been resolved by negotiation between the Senior Managers pursuant to Section 13.03, then within 10 Business Days after the expiration of the 45 day period provided in Section 13.03, the Chief Executive Officer of Ashland and the President of Marathon shall meet or communicate by telephone at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, and shall negotiate in good faith to attempt to resolve the Dispute that is the subject of such Dispute Notice. If such Dispute has not been resolved within 20 Business Days after the expiration of the 45 day period provided in Section 13.03, then (i) if the Dispute relates solely to (A) a claim by a Member or the Board of Managers that the other Member has failed to pay the Company a Designated Sublease Amount or an amount in respect of a Member-Funded Capital Expenditure, a Member-Funded Indemnity Expenditure or an Agreed Additional Capital Contribution required to be made by it pursuant to Section 4.02 (a “Disputed Capital Contribution Amount”), (B) the determination of any of the following amounts with respect to any period: distributions pursuant to Article V; the Aggregate Tax Rate; Adjusted DD&A; Adjusted EBITDA; EBITDA; Distributable Cash; the Average Annual Level and adjustments to Adjustable Amounts; the Normal Annual Capital Budget Amount; Ordinary Course Lease Expenses; Profit and Loss; the Tax Distribution

 

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Amount; the Tax Liability of any Member; and the determination of fair market value of property distributed in kind under Section 15.03, (C) the resolution of any dispute arising under Section 8.11(b) with respect to Affiliate Transactions or (D) the resolution of any dispute arising under Section 8.12 with respect to certain Affiliate Transactions related to Crude Oil Purchases and Shared Services (any Dispute relating to any of the matters set forth in clause (A), (B), (C) or (D) above being referred to herein as an “Arbitratable Dispute”), such Dispute shall be settled pursuant to the arbitration procedures set forth in Appendix B and (ii) if the Dispute does not relate primarily to an Arbitratable Dispute, each party hereto shall be permitted to take such actions at law or in equity as it is otherwise permitted to take or as may be available under Applicable Law.

 

(b) All negotiations between the Chief Executive Officer of Ashland and the President of Marathon pursuant to this Section 13.04 shall be treated as compromise and settlement negotiations. Nothing said or disclosed, nor any document produced, in the course of such negotiations which is not otherwise independently discoverable shall be offered or received as evidence or used for impeachment or for any other purpose in any current or future arbitration or litigation.

 

SECTION 13.05. Right to Equitable Relief Preserved. Notwithstanding anything in this Agreement or Appendix B to the contrary, either Member or the Company may at any time seek from any court of the United States located in the State of Delaware or from any Delaware state court, any interim, provisional or injunctive relief that may be necessary to protect the rights or property of such party or maintain the status quo before, during or after the pendency of the negotiation process or the arbitration proceeding or any other proceeding contemplated by Section 13.03 or 13.04.

 

ARTICLE XIV

 

Rights and Remedies with Respect to Monetary Disputes

 

SECTION 14.01. Ability of Company to Borrow to Fund Disputed Monetary Amounts. (a) If the Company or a Member on behalf of the Company (a “Non-Delinquent Member”) claims that the other Member (a “Delinquent Member”) owes the Company a monetary amount in respect of either (i) a Disputed Capital Contribution Amount or (ii) an indemnification obligation under Article IX of the Asset Transfer and Contribution Agreement that the Company or the

 

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Non-Delinquent Member claims the Delinquent Member owes the Company and is either (A) past due or (B) in dispute (a “Disputed Indemnification Amount”) (each such claim described in clauses (i) and (ii) above being a “Monetary Dispute”, and each such claimed amount being a “Disputed Monetary Amount”), and if (1) the Disputed Monetary Amount itself, or when added together all other Disputed Monetary Amounts, exceeds $7.5 million; (2) the Board of Managers (by vote of a majority of the Representatives of the Non-Delinquent Member at a special or regular meeting of the Board of Managers (which majority shall constitute a quorum for purposes of the transaction of such business)) has determined that an out-of-pocket disbursement of such Disputed Monetary Amount or any portion thereof by the Company or one of its subsidiaries within the next twelve months is reasonably necessary for the operation and conduct of the Company’s Business and, accordingly, that such amount should be paid within the next twelve months; (3) the aggregate amount of all Disputed Monetary Amounts (or portions thereof) that the Board of Managers shall have determined pursuant to clause (2) above should be paid within the next twelve months (such aggregate amount being the “Additional Required Cash Amount”) exceeds $7.5 million; (4) postponement by the Company or such subsidiary of such disbursement until such time as the Monetary Dispute is reasonably likely to be finally resolved pursuant to an arbitration proceeding in accordance with Appendix B to this Agreement or Appendix B to the Asset Transfer and Contribution Agreement, as applicable (an “Arbitration Proceeding”), would have, or would reasonably be expected to have, a Material Adverse Effect on the Company’s Business; and (5) the Delinquent Member has not paid the Company the Disputed Monetary Amount pursuant to Section 14.02 or otherwise, then the Board of Managers (by vote of a majority of the Representatives of the Non-Delinquent Member at a special or regular meeting of the Board of Managers (which majority shall constitute a quorum for purposes of the transaction of such business)) shall be permitted to cause the Company to incur an amount of Indebtedness equal to such Additional Required Cash Amount, which Indebtedness may be borrowed from a third party or the Non-Delinquent Member.

 

(b) If the Non-Delinquent Member lends the Company the Additional Required Cash Amount pursuant to Section 14.01(a), then (i) the amount actually lent by the Non-Delinquent Member (the “Advanced Amount”) and all accrued interest thereon shall be due and payable on the Arbitration Payment Due Date (provided that the Company shall be permitted to prepay the Advanced Amount in whole or in part at any time prior to such date); and (ii) the Advanced Amount shall bear interest at the Base Rate from

 

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the date on which such advance is made until the date that the Advanced Amount, together with all interest accrued thereon, is repaid to the Non-Delinquent Member.

 

SECTION 14.02. Interim Payment of Disputed Monetary Amount. In order to reduce the amount of liquidated damages that a Delinquent Member would be required to pay to the Company pursuant to Section 14.03 in the event that such Delinquent Member loses in an Arbitration Proceeding with respect to a Monetary Dispute, the Delinquent Member shall be permitted to pay the Company the related Disputed Monetary Amount prior to the commencement of such Arbitration Proceeding. The Arbitration Tribunal or Sole Arbitrator, as applicable, shall not take into consideration in determining the liability of the Delinquent Member, a decision by such Delinquent Member to pay the Disputed Monetary Amount prior to the commencement of the Arbitration Proceeding.

 

SECTION 14.03. Liquidated Damages. (a) No Interim Payment of Disputed Monetary Amount—Delinquent Member is Found Liable for Final Monetary Amount. If (i) it is finally determined in an Arbitration Proceeding that a Delinquent Member owes the Company a monetary amount in respect of (A) a Disputed Capital Contribution Amount or (B) a Disputed Indemnification Amount (each such finally determined amount being a “Final Monetary Amount”) and (ii) the Delinquent Member had not paid the Company the Disputed Monetary Amount prior to the commencement of such Arbitration Proceeding pursuant to Section 14.02, then the Delinquent Member shall promptly, and in any event on or before the tenth Business Day following the date on which the Arbitration Tribunal or Sole Arbitrator makes its final determination (such tenth Business Day being the “Arbitration Payment Due Date”), pay to the Company (A) the Final Monetary Amount, together with interest, accrued from the commencement of the Arbitration Proceeding to the date that the Delinquent Member pays the Final Monetary Amount to the Company, on the Final Monetary Amount, at a rate per annum equal to (1) during the period from the commencement of the Arbitration Proceeding to the Arbitration Payment Due Date, the Prime Rate and (2) at any time thereafter, 150% of the Prime Rate, in each case, with daily accrual of interest, plus (B) an amount equal to 25% of the Final Monetary Amount.

 

(b) Interim Payment of Disputed Monetary Amount—Delinquent Member is Found Liable for the Same Amount. If (i) it is finally determined in an Arbitration Proceeding that a Delinquent Member owes the Company a Final Monetary Amount, (ii) the Final Monetary Amount is equal to the

 

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Disputed Monetary Amount and (iii) the Delinquent Member had paid the Company the Disputed Monetary Amount prior to the commencement of such Arbitration Proceeding pursuant to Section 14.02, then if the Final Monetary Amount is equal to the Disputed Monetary Amount, the Delinquent Member shall not owe the Company any other amount in respect of the Monetary Dispute.

 

(c) Interim Payment of Disputed Monetary Amount—Delinquent Member is Found Liable for a Greater Amount. If (i) it is finally determined in an Arbitration Proceeding that a Delinquent Member owes the Company a Final Monetary Amount, (ii) the Final Monetary Amount is greater than the Disputed Monetary Amount and (iii) the Delinquent Member had paid the Company the Disputed Monetary Amount prior to the commencement of such Arbitration Proceeding pursuant to Section 14.02, then the Delinquent Member shall promptly, and in any event on or before the Arbitration Payment Due Date, pay to the Company an amount (an “Additional Monetary Amount”) equal to (A) the Final Monetary Amount less (B) the Disputed Monetary Amount, together with interest, accrued from the commencement of the Arbitration Proceeding to the date that the Delinquent Member pays the Additional Monetary Amount to the Company, on the Additional Monetary Amount, at a rate per annum equal to (1) during for the period from the commencement of the Arbitration Proceeding to the Arbitration Payment Due Date, the Prime Rate and (2) at any time thereafter, 150% of the Prime Rate, in each case, with daily accrual of interest.

 

(d) Interim Payment of Disputed Monetary Amount—Delinquent Member is Found Liable for a Lesser Amount. If (i) it is finally determined in an Arbitration Proceeding that a Delinquent Member owes the Company a Final Monetary Amount, (ii) the Final Monetary Amount is less than the Disputed Monetary Amount and (iii) the Delinquent Member had paid the Company the Disputed Monetary Amount prior to the commencement of such Arbitration Proceeding, then the Company shall promptly, and in any event on or before the Arbitration Payment Due Date, repay to the Delinquent Member an amount (a “Refundable Amount”) equal to (A) the Disputed Monetary Amount less (B) the Final Monetary Amount, together with interest, accrued from the commencement of the Arbitration Proceeding to the date that the Company repays the Refundable Amount to the Delinquent Member, on the Refundable Amount, at a rate per annum equal to (1) during the period from the commencement of the Arbitration Proceeding to the Arbitration Payment Due Date, the Prime Rate and (2) at any time thereafter, 150% of the Prime Rate, in each case, with daily accrual of interest.

 

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(e) Interim Payment of Disputed Monetary Amount—Delinquent Member is Found Not Liable for Disputed Monetary Amount. If (i) it is finally determined in an Arbitration Proceeding that a Delinquent Member does not owe the Company the related Disputed Monetary Amount and (ii) the Delinquent Member had paid the Company the Disputed Monetary Amount prior to the commencement of such Arbitration Proceeding, then the Company shall promptly, and in any event on or before the Arbitration Payment Due Date, repay to the Delinquent Member an amount equal to the Disputed Monetary Amount, together with interest, accrued from the commencement of the Arbitration Proceeding to the date that the Company repays the Disputed Monetary Amount to the Delinquent Member, on the Disputed Monetary Amount, at a rate per annum equal to (A) during the period from the commencement of the Arbitration Proceeding to the Arbitration Payment Due Date, the Prime Rate and (B) at any time thereafter, 150% of the Prime Rate, in each case, with daily accrual of interest.

 

SECTION 14.04. Right of Set-Off. Notwithstanding any provision to the contrary contained in this Agreement, if at the time of a Distribution Date a Delinquent Member has failed to pay the Company an amount that it was required pursuant to Section 14.03 to pay to the Company on or before such Distribution Date, then on such Distribution Date, the Company shall be permitted to set off from the distribution that it would otherwise be required to make to such Delinquent Member pursuant to Section 5.01 on such Distribution Date, an amount equal to such unpaid amount. If the amount of the distribution that such Delinquent Member was otherwise entitled to receive pursuant to Section 5.01 on such Distribution Date is less than the aggregate amount that such Delinquent Member owes to the Company pursuant to Section 14.03, then the Company shall be permitted to set off from subsequent distributions that it would otherwise make to such Delinquent Member pursuant to Section 5.01 the remaining unpaid amount until such time as such remaining unpaid amount shall have been paid in full. A Delinquent Member’s interest in distributions to be made to such Delinquent Member pursuant to Section 5.01 shall be reduced by any amount set off by the Company against such distributions pursuant to this Section 14.04(a).

 

SECTION 14.05. Security Interest. (a) Each Member hereby agrees that if (i) it has failed to pay the Company an amount that it was required to pay to the Company pursuant to Section 14.03 on or prior to the related Arbitration Payment Due Date, and (ii) the Board of Managers (by vote of a majority of the Representatives of the other Member at a special or regular meeting of the Board of

 

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Managers (which majority shall constitute a quorum for purposes of the transaction of such business) so requests, such Member shall (A) on the Business Day next following such Arbitration Payment Due Date, grant to the Company, as security for the performance of its obligation to pay the Company such amount owed (but for no other amount), a first priority security interest in its Membership Interests and the proceeds thereof (a “Security Interest”), all under the Uniform Commercial Code of the State of Delaware and (ii) promptly thereafter, execute and deliver to the Company all financing statements and other instruments that the Board of Managers (by vote of a majority of the Representatives of the other Member at a special or regular meeting of the Board of Managers (which majority shall constitute a quorum for purposes of the transaction of such business)) may request to effectuate and carry out the preceding provisions of this Section 14.05(a). The Company shall be entitled to all the rights and remedies of a secured party under the Uniform Commercial Code of the State of Delaware with respect to any Security Interest granted by such Member. At the option of the Company, this Agreement or a carbon, photographic, or other copy hereof may serve as a financing statement with respect to any such Security Interest. For purposes of perfecting a Security Interest, a Member’s Membership Interests shall be deemed to be a “security” governed by Chapter 8 of the Delaware Uniform Commercial Code and as such term is therein defined in Section 8-102(c) thereunder.

 

(b) If the Company incurs Indebtedness pursuant to Section 14.01 by borrowing from a Non-Delinquent Member, the Company shall be permitted to assign all its rights with respect to a Security Interest granted to it pursuant to Section 14.05(a) to such Non-Delinquent Member as security for such Indebtedness; provided that such Non-Delinquent Member shall not be permitted to assign such Security Interest to a third party.

 

ARTICLE XV

 

Dissolution and Termination

 

SECTION 15.01. Dissolution. The Company shall be dissolved and its business and affairs wound up upon the earliest to occur of any one of the following events:

 

(a) the expiration of the Term of the Company;

 

(b) the sale or other disposition of all or substantially all the property of the Company;

 

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(c) the written consent of both Members;

 

(d) the unanimous agreement of all Representatives on the Board of Managers;

 

(e) the bankruptcy, involuntary liquidation or dissolution of either Member; or

 

(f) the entry of a decree of judicial dissolution pursuant to Section 18-802 of the Delaware Act.

 

The bankruptcy, involuntary liquidation of dissolution of a Member shall cause a Member to cease to be a member of the Company. Notwithstanding the foregoing, the Company shall not be dissolved and its business and affairs shall not be wound up upon the occurrence of any event specified in (i) clause (e) above if within 90 days after the date on which such event occurs, the remaining Member elects in writing to continue the business of the Company or (ii) clause (a) above if a Non-Terminating Member purchases the Membership Interests of the Terminating Member pursuant to its Special Termination Right. Except as provided in this paragraph and Section 15.01(e), and to the fullest extent permitted by the Delaware Act, the occurrence of an event that causes a Member to cease to be a member of the Company shall not cause the Company to be dissolved or its business or affairs to be wound up, and upon the occurrence of such an event, the business of the Company shall continue without dissolution.

 

SECTION 15.02. Winding Up of Company. Upon dissolution, the Company’s business shall be liquidated in an orderly manner. The Board of Managers shall act as the liquidating trustee (unless the Board of Managers elects to appoint a liquidating trustee) to wind up the affairs of the Company pursuant to this Agreement. In performing its duties, the liquidating trustee is authorized to sell, distribute, exchange or otherwise dispose of the assets of the Company in accordance with the Delaware Act and in any reasonable manner that the liquidating trustee shall determine to be in the best interest of the Members or their successors-in-interest.

 

SECTION 15.03. Distribution of Property. In the event the Board of Managers determines that it is necessary in connection with the liquidation of the Company to make a distribution of property in kind, such property shall be transferred and conveyed to the Members so as to vest in each of them as a tenant in common an undivided interest in the whole of such property equal to their interests in the property based upon the amount of cash that would be

 

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distributed to each of the Members in accordance with Article V if such property were sold for an amount of cash equal to the fair market value of such property, as determined and approved by the Board of Managers pursuant to a vote in accordance with Section 8.07(b).

 

SECTION 15.04. Time Limitation. Any liquidating distribution pursuant to this Article XV shall be made no later than the later of (a) the end of the taxable year during which such liquidation occurs and (b) 90 days after the date of such liquidation.

 

SECTION 15.05. Termination of Company. The Company shall terminate when all assets of the Company, after payment of or due provision for all debts, liabilities and obligations of the Company, shall have been distributed to the Members in the manner provided for in this Agreement, and the Certificate of Formation shall have been canceled in the manner provided by the Delaware Act.

 

ARTICLE XVI

 

Miscellaneous

 

SECTION 16.01. Notices. Any notice, consent or approval to be given under this Agreement shall be in writing and shall be deemed to have been given if delivered: (i) personally by a reputable courier service that requires a signature upon delivery; (ii) by mailing the same via registered or certified first-class mail, postage prepaid, return receipt requested; or (iii) by telecopying the same with receipt confirmation (followed by a first-class mailing of the same) to the intended recipient. Any such writing will be deemed to have been given: (a) as of the date of personal delivery via courier as described above; (b) as of the third calendar day after depositing the same into the custody of the postal service as evidenced by the date-stamped receipt issued upon deposit of the same into the mails as described above; and (c) as of the date and time electronically transmitted in the case of telecopy delivery as described above, in each case addressed to the intended party at the address set forth below:

 

To the Board of Managers:

 

Marathon Ashland Petroleum LLC

539 South Main Street

Findlay, Ohio 45840

Attn: General Counsel

Phone: (419) 422-2121

Fax: (419) 421-4115

 

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To Marathon:

 

Marathon Oil Company

5555 San Felipe

P.O. Box 3128

Houston, TX 77056-2723

Attn: General Counsel

Phone: (713) 296-4137

Fax: (713) 296-4171

 

To Ashland:

 

Ashland Inc.

50 E. RiverCenter Boulevard

P.O. Box 391

Covington, KY 41012-0391

Attn: General Counsel

Phone: (606) 815-4711

Fax: (606) 815-3823

 

Any party may designate different addresses or telecopy numbers by notice to the other parties.

 

SECTION 16.02. Merger and Entire Agreement. This Agreement (including the Exhibits, Schedules and Appendices attached hereto), together with the other Transaction Documents (including the exhibits, schedules and appendices thereto) and certain other agreements executed contemporaneously with the Master Formation Agreement constitutes the entire Agreement of the parties hereto and supersedes any prior understandings, agreements, or representations by or among the parties hereto, written or oral, to the extent they relate in any way to the subject matter hereof.

 

SECTION 16.03. Assignment. A party hereto shall not assign all or any of its rights, obligations or benefits under this Agreement to any third party otherwise than (i) in connection with a Transfer of its Membership Interests pursuant to Article X, (ii) with the prior written consent of the other party hereto, which consent may be withheld in such party’s sole discretion, (iii) the granting by a Member of a Security Interest to the Company pursuant to Section 14.05 or (iv) pursuant to Article V of the Put/Call, Registration Rights and Standstill Agreement, and any attempted assignment not in compliance with this Section 16.03 shall be void ab initio.

 

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SECTION 16.04. Parties in Interest. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors, legal representatives and permitted assigns.

 

SECTION 16.05. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

SECTION 16.06. Amendment; Waiver. This Agreement may not be amended except in a written instrument signed by each of the parties hereto and expressly stating it is an amendment to this Agreement. Any failure or delay on the part of any party hereto in exercising any power or right hereunder shall not operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power hereunder or otherwise available at law or in equity.

 

SECTION 16.07. Severability. If any term, provision, covenant, or restriction of this Agreement or the application thereof to any person or circumstance, at any time or to any extent, is held by a court of competent jurisdiction or other Governmental Authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement (or the application of such provision in other jurisdictions or to persons or circumstances other than those to which it was held invalid or unenforceable) shall in no way be affected, impaired or invalidated, and to the extent permitted by Applicable Law, any such term, provision, covenant or restriction shall be restricted in applicability or reformed to the minimum extent required for such to be enforceable. This provision shall be interpreted and enforced to give effect to the original written intent of the parties hereto prior to the determination of such invalidity or unenforceability.

 

SECTION 16.08. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH SECTION 18-1101 OF THE DELAWARE ACT. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR PROCEEDING RELATED TO OR ARISING OUT OF THIS AGREEMENT, OR ANY TRANSACTION OR CONDUCT IN CONNECTION HEREWITH, IS WAIVED.

 

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SECTION 16.09. Enforcement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the Delaware Chancery Court; provided that if the Delaware Chancery Court does not have jurisdiction with respect to such matter, the parties hereto shall be entitled to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of Delaware or in Delaware state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (i) consents to submit itself to the personal jurisdiction of the Delaware Chancery Court in the event that any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement; provided that if the Delaware Chancery Court does not have jurisdiction with respect to any such dispute, such party consents to submit itself to the personal jurisdiction of any Federal court located in the State of Delaware or any Delaware state court, (ii) agrees to appoint and maintain an agent in the State of Delaware for service of legal process, (iii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (iv) agrees that it will not plead or claim in any such court that any action relating to this Agreement or any of the transactions contemplated by this Agreement in any such court has been brought in an inconvenient forum and (v) agrees that it will not initiate any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than (1) the Delaware Chancery Court, or (2)if the Delaware Chancery Court does not have jurisdiction with respect to such action, a Federal court sitting in the State of Delaware or a Delaware state court.

 

SECTION 16.10. Creditors. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditor of the Company or of any Member.

 

SECTION 16.11. No Bill for Accounting. In no event shall either Member have any right to file a bill for an accounting or any similar proceeding.

 

SECTION 16.12. Waiver of Partition. Each Member hereby waives any right to partition of the Company property.

 

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SECTION 16.13. Table of Contents, Headings and Titles. The table of contents and section headings of this Agreement and titles given to Exhibits and Schedules to this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement.

 

SECTION 16.14. Use of Certain Terms; Rules of Construction. As used in this Agreement, the words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular paragraph, subparagraph, section, subsection or other subdivision. Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. Each party hereto agrees that any rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation or construction of this Agreement or any Transaction Document.

 

SECTION 16.15. Holidays. Notwithstanding any deadline for payment, performance, notice or election under this Agreement, if such deadline falls on a date that is not a Business Day, then the deadline for such payment, performance, notice or election will be extended to the next succeeding Business Day.

 

SECTION 16.16. Third Parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person and their respective successors, legal representatives and permitted assigns any rights, remedies or basis for reliance upon, under or by reason of this Agreement.

 

SECTION 16.17. Liability for Affiliates. Except where and to the extent that a contrary intention otherwise appears, where a Member undertakes to cause its Affiliates to take or abstain from taking any action, such undertaking shall mean (i) in the case of any Affiliate that is controlled by such Member, that such Member shall cause such Affiliate to take or abstain from taking such action and (ii) in the case of an Affiliate that controls or is under common control with such Member, that such Member shall use its commercially reasonable best efforts to cause such Affiliates to take or abstain from taking such action; provided, however, that such Member shall not be required to violate, or cause any director of such Affiliate to violate, any fiduciary duty to minority shareholders of such Affiliate.

 

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IN WITNESS WHEREOF, this Agreement has been duly executed by the Members as of the day and year first above written.

 

MARATHON OIL COMPANY
by   /s/    V. G. BEGHNI        

Name:

Title:

 

Victor G. Beghini

President

 

ASHLAND INC.
by   /s/    PAUL W. CHELLGREN        

Name:

Title:

 

Paul W. Chellgren

Chairman of the Board and Chief Executive Officer

 

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APPENDIX A

 

DEFINITION OF TERMS

 

The following terms shall have the following meanings wherever they appear in a Transaction Document (as hereinafter defined) and such meanings shall be equally applicable to both the singular and the plural forms of the terms herein defined. References herein to an agreement, instrument or document shall, unless otherwise expressly provided, include such agreement, instrument or document as the same may be amended, modified or supplemented from time to time in accordance with its terms and as permitted by the Transaction Documents and shall include the permitted successors to, and assigns of, any Person.

 

Addendum and Joinder” shall mean the Addendum and Joinder to the Asset Transfer and Contribution Agreement in substantially the form attached as Exhibit W to the Asset Transfer and Contribution Agreement.

 

Affiliate” shall mean, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question; provided, however, that unless otherwise indicated, neither the Company nor any of its subsidiaries shall be considered an Affiliate of Marathon, USX or Ashland.

 

Affiliated Ashland Group” shall have the meaning set forth in Section 6.4(c) of the Asset Transfer and Contribution Agreement.

 

Affiliated Marathon Group” shall have the meaning set forth in Section 5.4(c) of the Asset Transfer and Contribution Agreement.

 

Applicable GAAP” shall have the meaning set forth in Section 1.02 of the LLC Agreement.

 

Applicable Law” shall mean any applicable statute, law, regulation, ordinance, rule, judgment, rule of law, order, decree, permit, approval, concession, grant, franchise, license, agreement, requirement, or other governmental restriction or any similar form of decision of, or any provision or condition of any permit, license or other operating authorization issued under any of the foregoing by, or any determination by any Governmental Authority having or asserting jurisdiction over the matter or matters in question, whether now or hereafter in effect and in each case as amended (including without limitation, all of the terms and provisions of the common law of such Governmental Authority), as interpreted and enforced at the time in question.

 

Ashland” shall mean Ashland Inc., a Kentucky corporation, or its successor.

 

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Ashland Asset Leases” shall have the meaning set forth in Section 3.1(g) of the Asset Transfer and Contribution Agreement.

 

Ashland Asset Transfer and Contribution Agreement Disclosure Letter” shall mean the letter from Ashland to Marathon and the Company dated the date of and relating to the Asset Transfer and Contribution Agreement.

 

Ashland Assumed Liabilities” shall have the meaning set forth in Section 3.3 of the Asset Transfer and Contribution Agreement.

 

Ashland Benefit Plan” shall mean every Employee Benefit Plan sponsored, maintained, or contributed to, or required to be contributed to, by Ashland, or any ERISA Affiliate of Ashland, for the benefit of current or former employees of Ashland’s Business in the United States.

 

Ashland Chemical Product Sale Agreement” shall mean the Ashland Chemical Product Sale Agreement in substantially the form attached as Exhibit P to the Asset Transfer and Contribution Agreement.

 

Ashland Commercial Affiliates” shall have the meaning set forth in Section 4.1 of the Master Formation Agreement.

 

Ashland Consent Decrees” shall mean any consent decrees, consent orders, agreed orders, notices of violation, judgments, decrees or similar orders or obligations entered into prior to Closing or relating to any investigations of which Ashland had received notice from the appropriate Governmental Authority prior to Closing.

 

Ashland Contracts” shall have the meaning set forth in Section 3.1(o) of the Asset Transfer and Contribution Agreement.

 

Ashland Designated Sublease Agreements” shall mean the Ashland Sublease Agreements in substantially the forms attached as Exhibit L to the Asset Transfer and Contribution Agreement.

 

Ashland Designated UST Environmental Contamination” shall mean any Environmental Contamination associated with, or discovered as part of, Ashland’s 1998 underground storage tank upgrade program at the Ashland Service Stations set forth on Schedule 9.1(c) to the Ashland Asset Transfer and Contribution Agreement Disclosure Letter under the heading “Ashland Designated UST Environmental Contamination.”

 

Ashland Environmental Loss” shall mean any Environmental Loss to the extent arising out of, based on, or occurring in connection with Ashland’s Business prior to Closing or related to the ownership, use, operation or maintenance of, or related to the reporting practices associated with, the Ashland Transferred Assets prior to Closing, whether or not Asserted prior to Closing.

 

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Ashland Excluded Assets” shall have the meaning set forth in Section 3.2 of the Asset Transfer and Contribution Agreement.

 

Ashland Excluded Liabilities” shall have the meaning set forth in Section 3.4 of the Asset Transfer and Contribution Agreement.

 

Ashland Excluded Taxes” shall have the meaning set forth in Section 3.3(i) of the Asset Transfer and Contribution Agreement.

 

Ashland Financial Statements” shall have the meaning set forth in Section 4.6 of the Master Formation Agreement.

 

Ashland General Assignment and Assumption Agreement” shall mean the General Assignment and Assumption Agreement in substantially the form attached as of Exhibit I to the Asset Transfer and Contribution Agreement.

 

Ashland Indemnified Persons” shall mean Ashland and its Affiliates and their respective employees, officers and directors.

 

Ashland Information Package” shall have the meaning set forth in Section 4.8 of the Master Formation Agreement.

 

Ashland Intellectual Property License Agreement” shall mean the Intellectual Property License Agreement in substantially the form attached as Exhibit J-1 to the Asset Transfer and Contribution Agreement.

 

Ashland Joint Contracts” shall have the meaning set forth in Section 3.6(b) of the Asset Transfer and Contribution Agreement.

 

Ashland Joint Permits” shall have the meaning set forth in Section 3.6(c) of the Asset Transfer and Contribution Agreement.

 

Ashland Joint Services Agreement” shall mean the Ashland Joint Services Agreement in substantially the form attached as Exhibit Q to the Asset Transfer and Contribution Agreement.

 

Ashland Lease Agreements” shall mean the Lease Agreements in substantially the form attached as Exhibit K to the Asset Transfer and Contribution Agreement.

 

Ashland LOOP/LOCAP Interest” shall have the meaning set forth in Section 1.01 of the Put/Call, Registration Rights and Standstill Agreement.

 

Ashland Master Formation Agreement Disclosure Letter” shall mean the letter from Ashland to Marathon dated the date of and relating to the Master Formation Agreement.

 

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Ashland Material Contracts” shall have the meaning set forth in Section 6.9 of the Asset Transfer and Contribution Agreement.

 

Ashland Material Permits” shall have the meaning set forth in Section 6.3 of the Asset Transfer and Contribution Agreement.

 

Ashland 1997 Balance Sheet” shall mean the audited balance sheet of Ashland appearing in the Ashland Financial Statements.

 

Ashland Ongoing Remediation” shall mean, with respect to any Ashland Environmental Loss, Remediation Activities that either were commenced prior to Closing or that relate to any investigation of which Ashland had received notice from the appropriate Governmental Authority prior to Closing.

 

Ashland Other Real Property Rights” shall have the meaning set forth in Section 3.1(h) of the Asset Transfer and Contribution Agreement.

 

Ashland Other Sublease Agreements” shall mean the Ashland Sublease Agreements in substantially the forms attached as Exhibit M to the Asset Transfer and Contribution Agreement.

 

Ashland Pension Plan” shall have the meaning set forth in Section 10.5(c)(i) of the Asset Transfer and Contribution Agreement.

 

Ashland Permits” shall have the meaning set forth in Section 3.1(p) of the Asset Transfer and Contribution Agreement.

 

Ashland Personal Property Leases” shall have the meaning set forth in Section 3.1(j) of the Asset Transfer and Contribution Agreement.

 

Ashland Personal Property Owned” shall have the meaning set forth in Section 3.1(i) of the Asset Transfer and Contribution Agreement.

 

Ashland Pipelines” shall have the meaning set forth in Section 3.1(c) of the Asset Transfer and Contribution Agreement.

 

Ashland Proprietary Rights” shall have the meaning set forth in Section 6.10(a) of the Asset Transfer and Contribution Agreement.

 

Ashland Quitclaim Deeds” shall mean the Quitclaim Deeds substantially in the forms attached as Exhibit H to the Asset Transfer and Contribution Agreement.

 

Ashland Real Property Leased” shall have the meaning set forth in Section 3.1(f) of the Asset Transfer and Contribution Agreement.

 

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Ashland Real Property Leases” shall have the meaning set forth in Section 3.1(f) of the Asset Transfer and Contribution Agreement.

 

Ashland Real Property Owned” shall have the meaning set forth in Section 3.1(e) of the Asset Transfer and Contribution Agreement.

 

Ashland Records” shall have the meaning set forth in Section 3.1(s) of the Asset Transfer and Contribution Agreement.

 

Ashland Refineries” shall have the meaning set forth in Section 3.1(a) of the Asset Transfer and Contribution Agreement.

 

Ashland Restricted Asset” shall have the meaning set forth in Section 3.6(a) of the Asset Transfer and Contribution Agreement.

 

Ashland Restricted Liability” shall have the meaning set forth in Section 3.6(a) of the Asset Transfer and Contribution Agreement.

 

Ashland Restriction” shall have the meaning set forth in Section 3.6(a) of the Asset Transfer and Contribution Agreement.

 

Ashland Retirement Plan” shall have the meaning set forth in Section 10.7(a) of the Asset Transfer and Contribution Agreement.

 

Ashland Service Stations” shall have the meaning set forth in Section 3.1(d) of the Asset Transfer and Contribution Agreement.

 

Ashland Shut-Down Refinery Assets” shall mean those portions of shut down refineries of Ashland that are operating as terminals and are being leased to the Company pursuant to the Ashland Lease Agreements.

 

Ashland Sublease Agreements” shall mean the Ashland Designated Sublease Agreements and the Ashland Other Sublease Agreements.

 

Ashland Subsidiaries” shall have the meaning set forth in Section 4.1 of the Master Formation Agreement.

 

Ashland Subsidiaries Interests” shall have the meaning set forth in Section 4.10 of the Master Formation Agreement.

 

Ashland Supplier Cooperation Agreement” shall mean the Ashland Supplier Cooperation Agreement substantially in the form of Exhibit S to the Asset Transfer and Contribution Agreement.

 

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Ashland Terminals” shall have the meaning set forth in Section 3.1(b) of the Asset Transfer and Contribution Agreement.

 

Ashland Trademark License Agreement” shall mean the Ashland Trademark License Agreement in substantially the form attached as Exhibit J-2 to the Asset Transfer and Contribution Agreement.

 

Ashland Transferred Assets” shall have the meaning set forth in Section 3.1 of the Asset Transfer and Contribution Agreement.

 

Ashland Transferred Employees” shall have the meaning set forth in Section 10.1(c) of the Asset Transfer and Contribution Agreement.

 

Ashland Transferring Affiliates” shall have the meaning set forth in Section 4.1 of the Master Formation Agreement.

 

Ashland Transferring Affiliate Interests” shall have the meaning set forth in Section 4.11 of the Master Formation Agreement.

 

Ashland Transferring Entities” shall have the meaning set forth in Section 4.1 of the Master Formation Agreement.

 

Ashland VEBA” shall have the meaning set forth in Section 10.14 of the Asset Transfer and Contribution Agreement.

 

Ashland Working Capital Shortfall” shall have the meaning set forth in Section 4.3(g) of the Asset Transfer and Contribution Agreement.

 

Ashland’s Adjusted Capital Expenditures” shall have the meaning set forth in Section 4.4(c) of the Asset Transfer and Contribution Agreement.

 

Ashland’s Business” shall mean that portion of Ashland’s business, tangible assets, intangible assets, rights, contracts, permits, licenses and other rights which comprise Ashland’s petroleum supply, refining, marketing and transportation business (excluding the Ashland Excluded Assets and Ashland Excluded Liabilities).

 

Ashland’s Target Capital Expenditures” shall have the meaning set forth in Section 4.4(a) of the Asset Transfer and Contribution Agreement.

 

Asserted” shall mean with respect to an Environmental Loss, that the Indemnified Party has provided written notice to the Indemnifying Party either of (i) its receipt of written notice, including letters of inquiry, requests for information or other investigatory inquiries, from a Governmental Authority relating to such Environmental Loss or (ii) the existence of facts, conditions or circumstances from which the Indemnified Party has reasonably concluded, based on an opinion of

 

A-6


counsel delivered at any time after the Closing Date to such Indemnified Party, that an Environmental Loss may result.

 

Asset Transfer and Contribution Agreement” shall mean the Asset Transfer and Contribution Agreement dated as of December 12, 1997, among Marathon, Ashland and the Company, including any appendices and exhibits to the Asset Transfer and Contribution Agreement and the Asset Transfer and Contribution Agreement Disclosure Letters.

 

Asset Transfer and Contribution Agreement Disclosure Letters” shall mean the Marathon Asset Transfer and Contribution Agreement Disclosure Letter and the Ashland Asset Transfer and Contribution Agreement Disclosure Letter.

 

Assumed Liabilities” shall mean, with respect to Marathon and Ashland, the Marathon Assumed Liabilities and the Ashland Assumed Liabilities, respectively.

 

Bareboat Charter” shall have the meaning set forth in Section 9.3(k) of the Asset Transfer and Contribution Agreement.

 

Board of Managers” shall have the meaning set forth in Section 8.02(a) of the LLC Agreement.

 

Business” shall mean, with respect to Marathon and Ashland, Marathon’s Business and Ashland’s Business, respectively, and with respect to the Company, the Company’s Business.

 

Business Day” shall mean any day that is not a Saturday, Sunday or a holiday on which national banks in New York City, New York are closed for business.

 

Capital Expenditure Accounting Firm” shall have the meaning set forth in Section 4.4(e) of the Asset Transfer and Contribution Agreement.

 

Capital Expenditure Statement” shall have the meaning set forth in Section 4.4(c) of the Asset Transfer and Contribution Agreement.

 

Capital Lease” shall mean any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as a capital lease on a consolidated balance sheet of the Company and its subsidiaries in accordance with GAAP.

 

Casualty or Condemnation Loss” shall mean, with respect to Marathon’s Business or Ashland’s Business, as the case may be, (i) a Loss, whether or not insured, as a result of any fire, flood, accident, explosion, strike, labor disturbance, riot, act of God or public enemy or other calamity or casualty, unless either such Loss shall have been substantially cured, repaired or restored by such party prior to the Closing Date, or such party shall have otherwise substantially compensated the Company for such Loss, or (ii) that proceedings have been instituted or threatened seeking the condemnation or other taking of a portion of such business in the future.

 

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CERCLA” shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended.

 

Claim” shall mean any existing or threatened future claim, demand, suit, action, investigation, proceeding, governmental action or cause of action of any kind or character (in each case, whether civil, criminal, investigative or administrative), known or unknown, under any theory, including those based on theories of contract, tort, statutory liability, strict liability, employer liability, premises liability, products liability, breach of warranty or malpractice.

 

Claims Review Committee” shall mean a committee, consisting of no more than six and no fewer than four qualified representatives, with each of Marathon and Ashland choosing 50% of the representatives, duly formed and constituted as soon as practicable after the Closing Date to consider any matter referred to it pursuant to Section 9.8(c)(iii) of the Asset Transfer and Contribution Agreement.

 

Closing” shall have the meaning set forth in Section 2.1 of the Master Formation Agreement.

 

Closing Date” shall have the meaning set forth in Section 2.1 of the Master Formation Agreement.

 

COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and Sections 601 through 608 of ERISA.

 

Code” shall mean the Internal Revenue Code of 1986, as amended.

 

Commercial Documents” shall mean the Shared Services Agreement, the Marathon Pipe Line Operating Agreement, the Crude Oil and NGL Supply Agreement, the Valvoline Lube Oil Supply Agreement, the Ashland Chemical Product Sale Agreement, the Ashland Joint Services Agreement, the Ashland Supplier Cooperation Agreement and the Revolving Credit Agreement.

 

Commission” shall have the meaning set forth in Section 1.01 of the Put/Call, Registration Rights and Standstill Agreement.

 

Company” shall mean Marathon Ashland Petroleum LLC, a Delaware limited liability company.

 

Company Indemnified Persons” shall mean the Company and its Affiliates and their respective employees, officers and directors.

 

Company’s Business” shall mean Marathon’s Business and Ashland’s Business to be conducted by the Company and its subsidiaries after the Closing.

 

Confidentiality Agreement” shall mean the Confidentiality Agreement dated December 13, 1996 between Marathon and Ashland.

 

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Contracts” shall mean contracts, leases, licenses, indentures, agreements, purchase orders, commitments and all other legally binding arrangements, whether oral or written, express or implied.

 

Control” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or general partnership or managing member interests, by contract or otherwise. Without limiting the generality of the foregoing, a Person shall be deemed to control any other Person in which it owns, directly or indirectly, a majority of the ownership interests.

 

Conveyance Documents” shall mean the Asset Transfer and Contribution Agreement, the Marathon Quitclaim Deeds, the Ashland Quitclaim Deeds, the Marathon General Assignment and Assumption Agreement, the Ashland General Assignment and Assumption Agreement, the Marathon Intellectual Property License Agreement, the Ashland Intellectual Property License Agreement, the Marathon Trademark License Agreement, the Ashland Trademark License Agreement, the Marathon Lease Agreements, the Ashland Lease Agreements, the Marathon Sublease Agreements and the Ashland Sublease Agreements and related conveyancing documents pursuant to which Transferred Assets are transferred to the Company and its subsidiaries.

 

Crude Oil and NGL Supply Agreement” shall mean the Crude Oil and Natural Gas Liquids Supply Agreement in substantially the form attached as Exhibit R to the Asset Transfer and Contribution Agreement.

 

Cumene Project” shall have the meaning set forth in Section 4.4(c) of the Asset Transfer and Contribution Agreement.

 

Cumene Project 1997 Budget Amount” shall have the meaning set forth in Section 4.4(c) of the Asset Transfer and Contribution Agreement.

 

Delaware Act” shall mean the Delaware Limited Liability Company Act, as in effect and amended from time to time, or any successor statute.

 

Demand Registration” shall have the meaning set forth in Section 10.01 of the Put/Call, Registration Rights and Standstill Agreement.

 

Designated Persons” shall have the meaning set forth in the Confidentiality Agreement.

 

Disclosure Letters” shall mean the Master Formation Agreement Disclosure Letters, the Parent Agreement Disclosure Letter, the Asset Transfer and Contribution Agreement Disclosure Letters and the Put/Call, Registration Rights and Standstill Agreement Disclosure Letter.

 

Dispute” shall have the meaning set forth in Appendix B to the Asset Transfer and Contribution Agreement and Appendix B to the Master Formation Agreement.

 

DOJ” shall mean the United States Department of Justice.

 

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Employee Benefit Plans” shall mean all pension, retirement, profit-sharing, medical, vacation, hospitalization, vision, dental, health, life, severance or termination of employment plans, including any “employee benefit plan” as defined in Section 3(3) of ERISA.

 

Employer Company” shall have the meaning set forth in Section 10.1(b) of the Asset Transfer and Contribution Agreement.

 

Employment Transfer Date” shall have the meaning set forth in Section 10.1(c) of the Asset Transfer and Contribution Agreement.

 

Emro” shall mean Emro Marketing Company.

 

Emro Savings Plan” shall have the meaning set forth in Section 10.11 of the Asset Transfer and Contribution Agreement.

 

Environmental Contamination” shall mean (a) any release, discharge or disposal of any Hazardous Substance into or onto groundwater, surface water or soil at, from, to or under any of the Marathon Real Property Owned or Marathon Real Property Leased or any of the Ashland Real Property Owned or Ashland Real Property Leased or (b) any transportation, treatment, recycling, storage, discharge or disposal by, at or to any facility owned or operated by another party, including any facility leased by either Marathon or Ashland or any of their respective Affiliates or predecessors or the Company or any of its Affiliates of any Hazardous Substance that (i) was shipped from or disposed of on, at or under any of the properties or facilities that are or have been owned, operated or used by either Marathon or Ashland or any of their respective Affiliates or predecessors or the Company or its Affiliates or (ii) arose from the operations of either Marathon or Ashland or any of their respective Affiliates or predecessors or the Company or its Affiliates.

 

Environmental Law” shall mean any Applicable Law relating to (a) the protection of (i) the environment or (ii) the public welfare from actual or potential exposure (or the effects of exposure) to any actual or potential release, discharge, disposal or emission (whether past or present) of any Hazardous Substance or (b) the manufacture, processing, distribution, use, treatment, labeling, storage, disposal, transport or handling of any Hazardous Substance.

 

Environmental Loss” shall mean any Loss arising out of any Environmental Contamination or any Environmental Violation or a combination of both. Environmental Loss specifically includes all costs incurred to install new improvements or make repairs or alterations to prevent the continuation of any Environmental Contamination or to remedy noncompliance with any Environmental Law and, in the case of any Special Environmental Projects, shall include the reasonable hourly costs of Company facility personnel to the extent dedicated to Remediation Activities or other activity directly related to such Special Environmental Projects. Environmental Loss specifically does not include any Claim brought by a Person other than a Governmental Authority seeking damages, contribution, indemnification, cost recovery, penalties, compensation or injunctive relief resulting from the existence or release of, or exposure to, Hazardous Substances except where such Claim is brought as a citizen’s suit in which no monetary damages are sought for the account of such Person

 

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Notwithstanding the foregoing, any Loss under CERCLA or any comparable state Environmental Law that arises out of, is based on or is in connection with the disposal by Marathon or Ashland of Hazardous Substances at a location other than a property included in the Transferred Assets shall be treated as a Marathon Excluded Liability or an Ashland Excluded Liability, as the case may be. All Environmental Losses arising from the same event, condition or set of circumstances at a particular facility shall be considered as an individual Environmental Loss for purposes of determining the applicability of the Individual Threshold Amount.

 

Environmental Requirement” shall mean any notice of violation, directive, instruction, judgment, order or similar mandate from any Governmental Authority directing, ordering or requiring a correction of any Environmental Contamination or Environmental Violation, or any related Remediation Activities.

 

Environmental Violation” shall mean any violation of any Environmental Law, excluding, however, any such violation related to Environmental Contamination.

 

ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

 

ERISA Affiliate” shall mean with respect to any Person any trade or business, whether or not incorporated, which together with such Person would be deemed a “single employer” within the meaning of Section 414(b), (c) or (m) of the Code.

 

Exchange Act” shall have the meaning set forth in Section 1.01 of the Put/Call, Registration Rights and Standstill Agreement.

 

Extraordinary Environmental Loss” shall mean (a) an Environmental Loss arising from an Environmental Violation or Environmental Contamination in which (i) the amount in controversy could reasonably be expected to exceed $15,000,000; (ii) the Company has Asserted a Claim for indemnity under either Section 9.1(c) or Section 9.2(c) of the Asset Transfer and Contribution Agreement; and (iii) the Indemnifying Party has a prior course of dealing with the Governmental Authority with jurisdiction over the matter or (b) a facility-wide application of the corrective action requirements of Sections 3004(u) and (v) of RCRA to a refinery included in the Transferred Assets.

 

Fiscal Quarter” shall mean the three-month period ended March 31, June 30, September 30 and December 31 of each Fiscal Year.

 

Fiscal Year” shall have the meaning set forth in Section 6.05 of the LLC Agreement.

 

FTC” shall mean the United States Federal Trade Commission.

 

Former Marathon Plan Participants” shall have the meaning set forth in Section 10.5(a) of the Asset Transfer and Contribution Agreement.

 

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Freedom Employees” shall have the meaning set forth in Section 10.7(a) of the Asset Transfer and Contribution Agreement.

 

Freedom Pension Plan” shall have the meaning set forth in Section 10.7(a) of the Asset Transfer and Contribution Agreement.

 

Fundamental Adverse Effect” shall mean (a) with respect to Marathon’s Business, an effect on the business, operations, assets, liabilities, results of operations, cash flows, condition (financial or otherwise) or prospects of Marathon’s Business which results in a Loss of $80,000,000 or more, or, if such Loss is not susceptible to being measured in monetary terms, is otherwise fundamentally adverse to Marathon’s Business, and in any event includes a shutdown by a Governmental Authority of any Marathon Refinery or Major Unit thereof contained within the Marathon Transferred Assets, (b) with respect to Ashland’s Business, an effect on the business, operations, assets, liabilities, results of operations, cash flows, condition (financial or otherwise) or prospects of Ashland’s Business which results in a Loss of $50,000,000 or more, or, if such Loss is not susceptible to being measured in monetary terms, is otherwise fundamentally adverse to Ashland’s Business, and in any event includes a shutdown by a Governmental Authority of any Ashland Refinery or Major Unit thereof contained within the Ashland Transferred Assets, and (c) with respect to the Company’s Business, an effect on the business, operations, assets, liabilities, results of operations, cash flows, condition (financial or otherwise) or prospects of the Company’s Business which results, individually or in the aggregate, in a Loss of $65,000,000 or more, or, if such Loss is not susceptible to being measured in monetary terms, is otherwise fundamentally adverse to the Company’s Business, and in any event includes a shutdown by a Governmental Authority of any Marathon Refinery or Ashland Refinery or Major Unit thereof contained within either the Marathon Transferred Assets or the Ashland Transferred Assets; provided, however, that any such effect relating to or resulting from any change in the price of petroleum or petroleum byproducts, general economic conditions or local, regional, national or international industry conditions (including changes in financial or market conditions) shall be deemed not to constitute a Fundamental Adverse Effect.

 

Fuelgas Interest” shall have the meaning set forth in Section 1.01 of the LLC Agreement.

 

GAAP” shall mean United States generally accepted accounting principles applied on a consistent basis.

 

Governmental Approval” shall mean any permit, license, franchise, approval, consent, waiver, certification, qualification or other authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Applicable Law.

 

Governmental Authority” shall mean any federal, state, local or foreign government or any provincial, departmental or other political subdivision thereof, or any entity, body or authority exercising executive, legislative, judicial, regulatory, administrative or other governmental functions or any court, department, commission, board, bureau, agency, instrumentality or administrative body of any of the foregoing.

 

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Guarantee” by any Person shall mean any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person or in any manner, providing for the payment of any Indebtedness or other obligation of any other Person or otherwise protecting the holder of such Indebtedness or other obligation against loss (whether arising by virtue of partnership arrangements, by obtaining letters of credit, by agreement to keep-well, to purchase assets, goods, securities or services, or to take-or-pay or otherwise), provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business.

 

Hazardous Substances” shall mean, collectively, any substance which is identified and regulated (or the cleanup of which can be required) under any Environmental Law, and, in addition, any substance which requires special handling, storage or disposal procedures or whose use, handling, storage or disposal of which is in any way regulated, whether now or in the future, in any case under any Applicable Law for the protection of health, safety and the environment. Without limiting the generality of the foregoing, Hazardous Substances shall include (a) “hazardous wastes,” “hazardous substances,” “toxic substances,” “pollutants,” or “contaminants” or other similar identified designations in, or otherwise subject to regulation under, any Environmental Law; and (b) petroleum, refined petroleum products and fractions or by-products thereof, in each case whether in their virgin, used or waste state.

 

HIPAA” shall mean the Health Insurance Portability and Accountability Act of 1996.

 

HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

 

Incidental Cash” shall mean (a) petty cash, (b) refining, retail outlets and transportation (“RMT”) working funds, (c) depository account balances for the RMT business (automated clearinghouse transmissions submitted on the most recent banking day in the applicable jurisdiction immediately preceding the Closing Date or later will be for the account of the Company and its subsidiaries), (d) funds in transit relating to retail outlet deposits, and (e) uncollected funds in lockboxes and lockbox bank accounts for the RMT business (automated clearinghouse transmissions submitted on the most recent banking day in the applicable jurisdiction immediately preceding the Closing Date or later will be for the account of the Company and its subsidiaries).

 

Indebtedness” of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person upon which interest charges are customarily paid, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable, trade advertising and accrued obligations), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease obligations of such person, (i) all

 

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obligations of such person in respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements and (j) all obligations of such person as an account party in respect of letters of credit and bankers’ acceptances. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner, other than to the extent that the instrument or agreement evidencing such Indebtedness expressly limits the liability of such person in respect thereof.

 

Indemnified Party” shall have the meaning set forth in Section 9.6(a) of the Asset Transfer and Contribution Agreement.

 

Indemnifying Party” shall have the meaning set forth in Section 9.6(b) of the Asset Transfer and Contribution Agreement.

 

Indemnity Agreement” shall mean the Insurance Indemnity Agreement in substantially the form attached as Exhibit T to the Asset Transfer and Contribution Agreement.

 

Individual Threshold Amount” shall mean, with respect to (a) each Environmental Loss related to Environmental Contamination associated with a Marathon Refinery or an Ashland Refinery, $1,000,000, (b) all Environmental Losses related to Environmental Contamination associated with any individual retail gasoline service station included in the Transferred Assets, $100,000, (c) each Environmental Loss related to Environmental Contamination associated with a pipeline, pipeline station or pipeline-related facility (other than a pipeline terminal) included in the Transferred Assets, $100,000; provided, however, that such amount shall be reduced to zero for purposes of each of Section 9.1(c)(ii) and Section 9.2(c)(ii) of the Asset Transfer and Contribution Agreement once the aggregate amount of Environmental Losses borne by the Company under each such section with respect to Environmental Contamination associated with pipelines, pipeline stations or pipeline-related facilities (other than pipeline terminals) as a result of application of the Individual Threshold Amount equals $5,000,000, (d) each Environmental Loss related to Environmental Contamination associated with a particular terminal (including a pipeline terminal) included in the Transferred Assets, $100,000, (e) each Environmental Loss related to Environmental Contamination associated with any other property included in the Transferred Assets, $100,000 and (f) each Environmental Violation (including a series of Environmental Violations arising from the same event, condition or set of circumstances), $100,000.

 

Initial Term” shall have the meaning set forth in Section 2.03 of the LLC Agreement.

 

Intellectual Property” shall mean patents, patent applications (filed, unfiled or being prepared), records of invention, invention disclosures, trademarks (registered or unregistered), trademark applications (filed, unfiled or being prepared), trade names, copyrights (registered or unregistered), copyright applications (filed, unfiled or being prepared), service marks (registered or unregistered), service mark registrations, service mark applications (filed, unfiled or being prepared), all together with the goodwill associated with such marks or names, trade secrets, shop and royalty rights, technology, inventions, knowhow, processes and confidential and proprietary information, including any being developed (including but not limited to designs, manufacturing data, design data, test data,

 

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operational data, and formulae), whether or not recorded in tangible form through drawings, software, reports, manuals or other tangible expressions, whether or not subject to statutory registration, whether foreign or domestic, and all rights to any of the foregoing.

 

Joint Defense Agreement” shall mean the Joint Defense Agreement in substantially the form attached as Exhibit N to the Asset Transfer and Contribution Agreement.

 

Knowledge” shall mean (a) with respect to an individual, the actual knowledge of a particular fact or (b) with respect to a Person other than an individual, actual knowledge of a particular fact by an executive officer, division manager, refinery manager or terminal manager or by any individual serving in a similar capacity of such Person or individuals directly reporting to such individuals.

 

Liabilities” shall mean obligations, responsibilities and liabilities (whether based in common law or statute or arising under written contract or otherwise, known or unknown, fixed or contingent, real or potential, tangible or intangible, now existing or hereafter arising).

 

Lien” shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

 

LLC Agreement” shall mean the Limited Liability Company Agreement of the Company in substantially the form attached as Exhibit A to the Master Formation Agreement.

 

Loaned Employees” shall have the meaning set forth in Section 10.1(a) of the Asset Transfer and Contribution Agreement.

 

Loss” shall mean any loss, cost, Liability or expense, settlement, damage of any kind, judgment, obligation, charge, fee, fine, penalty, court cost and/or attorneys’ and administrative fee or disbursement (at all levels, including appellate), but excluding a party’s indirect corporate and administrative overhead costs.

 

Lowest Remediation Cost” shall mean the lowest overall obtainable cost to effect Remediation Activities or a correction of an Environmental Violation, as the case may be, taking into consideration the applicable Environmental Requirements or standards under applicable Environmental Laws, the nature and quantity of any Hazardous Substances being remediated, the location of any Environmental Contamination, the potential effect of any Environmental Contamination on health and safety, the difficulty of effecting the Remediation Activities, the expected duration of the Remediation Activities, the enforcement policies of the Governmental Authorities responsible for enforcing the applicable Environmental Requirements and Environmental Laws (subject to Section 9.8(h) of the Asset Transfer and Contribution Agreement), the reputation of the contractors available to effect the Remediation Activities and any potentially adverse effect on the operation of the Company’s Business as a result of the Remediation Activities.

 

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Major Unit” of a refinery shall mean a crude unit, a catalytic cracker, a reformer, a wastewater treatment plant and a desulfurization unit.

 

Marathon” shall mean Marathon Oil Company, an Ohio corporation, or its successor.

 

Marathon Asset Leases” shall have the meaning set forth in Section 2.1(g) of the Asset Transfer and Contribution Agreement.

 

Marathon Asset Transfer and Contribution Agreement Disclosure Letter” shall mean the letter from Marathon to Ashland and the Company dated the date of and relating to the Asset Transfer and Contribution Agreement.

 

Marathon Assumed Liabilities” shall have the meaning set forth in Section 2.3 of the Asset Transfer and Contribution Agreement.

 

Marathon Audited Financial Statements” shall have the meaning set forth in Section 3.6 of the Master Formation Agreement.

 

Marathon Benefit Plan” shall mean every Employee Benefit Plan sponsored, maintained, or contributed to, or required to be contributed to, by Marathon, or any ERISA Affiliate of Marathon, for the benefit of current or former employees of Marathon’s Business in the United States.

 

Marathon Commercial Affiliates” shall have the meaning set forth in Section 3.1 of the Master Formation Agreement.

 

Marathon Consent Decrees” shall mean any consent decrees, consent orders, agreed orders, notices of violation, judgments, decrees or similar orders or obligations entered into prior to the Closing Date or relating to any investigations of which Marathon had received notice from the appropriate Governmental Authority prior to the Closing Date.

 

Marathon Contracts” shall have the meaning set forth in Section 2.1(o) of the Asset Transfer and Contribution Agreement.

 

Marathon Designated Sublease Agreements” shall mean the Marathon Sublease Agreements in substantially the forms attached as Exhibit E to the Asset Transfer and Contribution Agreement.

 

Marathon Designated UST Environmental Contamination” shall mean any Environmental Contamination associated with, or discovered as part of, Marathon’s 1998 underground storage tank upgrade program at the Marathon Service Stations set forth on Schedule 9.1(c) to the Marathon Asset Transfer and Contribution Agreement Disclosure Letter under the heading “Marathon Designated UST Environmental Contamination.”

 

Marathon Environmental Loss” shall mean any Environmental Loss to the extent arising out of, based on, or occurring in connection with Marathon’s Business prior to Closing or related to the

 

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ownership, use, operation or maintenance of, or related to the reporting practices associated with, the Marathon Transferred Assets prior to Closing, whether or not Asserted prior to Closing.

 

Marathon Equity Crude Payables” shall mean the amount owed for receipts by Marathon’s Business of (i) Marathon and its Affiliates’ equity crude oil with payment on the 20th day of the month following receipt and (ii) Marathon and its Affiliates’ equity natural gas liquids with payment on the 10th day following receipt.

 

Marathon Excluded Assets” shall have the meaning set forth in Section 2.2 of the Asset Transfer and Contribution Agreement.

 

Marathon Excluded Liabilities” shall have the meaning set forth in Section 2.4 of the Asset Transfer and Contribution Agreement.

 

Marathon Excluded Taxes” shall have the meaning set forth in Section 2.3(i) of the Asset Transfer and Contribution Agreement.

 

Marathon Financial Statements” shall have the meaning set forth in Section 3.6 of the Master Formation Agreement.

 

Marathon General Assignment and Assumption Agreement” shall mean the General Assignment and Assumption Agreement in substantially the form attached as Exhibit B to the Asset Transfer and Contribution Agreement.

 

Marathon Group” shall have the meaning set forth in the Restated Certificate of Incorporation of USX dated September 1, 1996.

 

Marathon Group Stock” shall mean the USX-Marathon Group Common Stock, par value $1.00 per share, of USX.

 

Marathon Indemnified Persons” shall mean Marathon and its Affiliates and their respective employees, officers and directors.

 

Marathon Information Package” shall have the meaning set forth in Section 3.8 of the Master Formation Agreement.

 

Marathon Intellectual Property License Agreement” shall mean the Intellectual Property License Agreement in substantially the form attached as Exhibit C-1 to the Asset Transfer and Contribution Agreement.

 

Marathon Joint Contracts” shall have the meaning set forth in Section 2.6(b) of the Asset Transfer and Contribution Agreement.

 

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Marathon Joint Permits” shall have the meaning set forth in Section 2.6(c) of the Asset Transfer and Contribution Agreement.

 

Marathon Lease Agreements” shall mean the Lease Agreements in substantially the forms attached as Exhibit D to the Asset Transfer and Contribution Agreement.

 

Marathon Master Formation Agreement Disclosure Letter” shall mean the letter from Marathon to Ashland dated the date of and relating to the Master Formation Agreement.

 

Marathon Material Contracts” shall have the meaning set forth in Section 5.9 of the Asset Transfer and Contribution Agreement.

 

Marathon Material Permits” shall have the meaning set forth in Section 5.3 of the Asset Transfer and Contribution Agreement.

 

Marathon Ongoing Remediation” shall mean, with respect to any Marathon Environmental Loss, Remediation Activities that either were commenced prior to Closing or relate to any investigation of which Marathon had received notice from the appropriate Governmental Authority prior to Closing.

 

Marathon Other Sublease Agreement” shall mean the Marathon Sublease Agreement in substantially the form attached as Exhibit F to the Asset Transfer and Contribution Agreement.

 

Marathon Other Real Property Rights” shall have the meaning set forth in Section 2.1(h) of the Asset Transfer and Contribution Agreement.

 

Marathon Permits” shall have the meaning set forth in Section 2.1(p) of the Asset Transfer and Contribution Agreement.

 

Marathon Pension Transfer Date” shall have the meaning set forth in Section 10.5(a) of the Asset Transfer and Contribution Agreement.

 

Marathon Personal Property Leases” shall have the meaning set forth in Section 2.1(j) of the Asset Transfer and Contribution Agreement.

 

Marathon Personal Property Owned” shall have the meaning set forth in Section 2.1(i) of the Asset Transfer and Contribution Agreement.

 

Marathon Pipelines” shall have the meaning set forth in Section 2.1(c) of the Asset Transfer and Contribution Agreement.

 

Marathon Pipe Line” shall mean Marathon Pipe Line Company.

 

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Marathon Pipe Line Operating Agreement” shall mean the Marathon Pipe Line Operating Agreement in substantially the form attached as Exhibit G to the Asset Transfer and Contribution Agreement.

 

Marathon Proprietary Rights” shall have the meaning set forth in Section 5.10(a) of the Asset Transfer and Contribution Agreement.

 

Marathon Quitclaim Deeds” shall mean the Quitclaim Deeds in substantially the forms attached as Exhibit A to the Asset Transfer and Contribution Agreement.

 

Marathon Real Property Leases” shall have the meaning set forth in Section 2.1(f) of the Asset Transfer and Contribution Agreement.

 

Marathon Real Property Leased” shall have the meaning set forth in Section 2.1(f) of the Asset Transfer and Contribution Agreement.

 

Marathon Real Property Owned” shall have the meaning set forth in Section 2.1(e) of the Asset Transfer and Contribution Agreement.

 

Marathon Records” shall have the meaning set forth in Section 2.1(s) of the Asset Transfer and Contribution Agreement.

 

Marathon Refineries” shall have the meaning set forth in Section 2.1(a) of the Asset Transfer and Contribution Agreement.

 

Marathon Restricted Asset” shall have the meaning set forth in Section 2.6(a) of the Asset Transfer and Contribution Agreement.

 

Marathon Restricted Liability” shall have the meaning set forth in Section 2.6(a) of the Asset Transfer and Contribution Agreement.

 

Marathon Restriction” shall have the meaning set forth in Section 2.6(a) of the Asset Transfer and Contribution Agreement.

 

Marathon Retirement Plan” shall have the meaning set forth in Section 10.5 of the Asset Transfer and Contribution Agreement.

 

Marathon September 30, 1997 Balance Sheet” shall mean the unaudited balance sheet of the Marathon Group appearing in the Marathon September 30, 1997 Financial Statements.

 

Marathon September 30, 1997 Financial Statements” shall have the meaning set forth in Section 3.6 of the Master Formation Agreement.

 

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Marathon Service Stations” shall have the meaning set forth in Section 2.1(d) of the Asset Transfer and Contribution Agreement.

 

Marathon Shut-Down Refinery Assets” shall mean those portions of shut down refineries of Marathon that are operating as terminals and are being leased to the Company pursuant to the Marathon Lease Agreements.

 

Marathon Sublease Agreements” shall mean the Marathon Designated Sublease Agreements and the Marathon Other Sublease Agreement.

 

Marathon Subsidiaries” shall have the meaning set forth in Section 3.1 of the Master Formation Agreement.

 

Marathon Subsidiaries Interests” shall have the meaning set forth in Section 3.10 of the Master Formation Agreement.

 

Marathon Terminals” shall have the meaning set forth in Section 2.1(b) of the Asset Transfer and Contribution Agreement.

 

Marathon Thrift Plan” shall have the meaning set forth in Section 10.10 of the Asset Transfer and Contribution Agreement.

 

Marathon Trademark License Agreement” shall mean the Marathon Trademark License Agreement in substantially the form attached as Exhibit C-2 to the Asset Transfer and Contribution Agreement.

 

Marathon Transferred Assets” shall have the meaning set forth in Section 2.1 of the Asset Transfer and Contribution Agreement.

 

Marathon Transferred Employees” shall have the meaning set forth in Section 10.1(c) of the Asset Transfer and Contribution Agreement.

 

Marathon Transferred Real Property” shall mean, collectively, the Marathon Real Property Owned and the Marathon Real Property Leased.

 

Marathon Transferring Affiliate Interests” shall have the meaning set forth in Section 3.11 of the Master Formation Agreement.

 

Marathon Transferring Affiliates” shall have the meaning set forth in Section 3.1 of the Master Formation Agreement.

 

Marathon Transferring Entities” shall have the meaning set forth in Section 3.1 of the Master Formation Agreement.

 

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Marathon Working Capital Shortfall” shall have the meaning set forth in Section 4.3(g) of the Asset Transfer and Contribution Agreement.

 

Marathon’s Business” shall mean that portion of Marathon’s business, tangible assets, intangible assets, rights, contracts, permits, licenses and other rights which comprise Marathon’s petroleum supply, refining, marketing and transportation business (excluding the Marathon Excluded Assets and the Marathon Excluded Liabilities).

 

Marathon’s Target Capital Expenditures” shall have the meaning set forth in Section 4.4(a) of the Asset Transfer and Contribution Agreement.

 

Master Formation Agreement” shall mean the Master Formation Agreement, dated as of December 12, 1997, between Marathon and Ashland, including any appendices and exhibits to the Master Formation Agreement and the schedules to the Master Formation Agreement Disclosure Letters.

 

Material Adverse Effect” shall mean an effect on the business, operations, assets, liabilities, results of operations, cash flows, condition (financial or otherwise) or prospects of Marathon’s Business, Ashland’s Business or the Company’s Business which results in a Loss of $2,000,000 or more, or, if such Loss is not susceptible to being measured in monetary terms, is otherwise materially adverse to Marathon’s Business, Ashland’s Business or the Company’s Business, as the case may be; provided that any such effect relating to or resulting from any change in the price of petroleum or petroleum byproducts, general economic conditions or local, regional, national or international industry conditions (including changes in financial or market conditions) shall be deemed not to constitute a Material Adverse Effect.

 

Members” shall mean Marathon and Ashland and any persons hereafter admitted as additional or substitute members of the Company pursuant to the LLC Agreement.

 

Membership Interest” shall mean, with respect to any Member at any time, the limited liability company interest of such Member in the Company at such time, including the right of such Member to any and all benefits to which a Member may be entitled as provided in the LLC Agreement, together with the obligations of such Member to comply with all the terms and provisions of the LLC Agreement.

 

Merrill Lynch Master Lease Program” shall mean The Bluegrass Funding, Inc. Master Lease Program and The Fayette Funding Limited Partnership Master Lease Program, collectively.

 

Mutualized Formation Costs” shall have the meaning set forth in Section 9.2(c) of the Master Formation Agreement.

 

New RCRA Environmental Loss” shall mean an Environmental Loss arising from any new application after the Closing of the corrective action requirements of Section 3004(u) and (v) of RCRA.

 

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Non-Retail DB Plan” shall have the meaning set forth in Section 10.5 of the Asset Transfer and Contribution Agreement.

 

Northwestern Refinery Pension Plan” shall have the meaning set forth in Section 10.8 of the Asset Transfer and Contribution Agreement.

 

Notice of Capital Expenditure Disagreement” shall have the meaning set forth in Section 4.4(d) of the Asset Transfer and Contribution Agreement.

 

Notice of Working Capital Disagreement” shall have the meaning set forth in Section 4.3(d) of the Asset Transfer and Contribution Agreement.

 

OCAW” shall mean Oil, Chemical & Atomic Workers International Union.

 

Offering Memorandum” shall have the meaning set forth in Section 10.01 of the Put/Call, Registration Rights and Standstill Agreement.

 

Offer Notice” shall have the meaning set forth in Section 10.04(a) of the LLC Agreement.

 

Opening Balance Sheet” shall have the meaning set forth in Section 4.3(b) of the Asset Transfer and Contribution Agreement.

 

Parent Agreement” shall mean the Parent Agreement, dated as of December 12, 1997, among USX, Marathon and Ashland, including any exhibit to the Parent Agreement.

 

Parent Agreement Disclosure Letter” shall mean the letter from USX to Ashland dated the date of and relating to the Parent Agreement.

 

PBGC” shall mean the Pension Benefit Guaranty Corporation.

 

PBO” shall have the meaning set forth in Section 10.5(a) of the Asset Transfer and Contribution Agreement.

 

Pension Benefit Plan” shall mean every benefit plan subject to Title IV of ERISA or the minimum funding requirements of Section 302 of ERISA.

 

Percentage Interest” shall have the meaning set forth in Section 3.01 of the LLC Agreement.

 

Permian Plans” shall have the meaning set forth in Section 10.12 of the Asset Transfer and Contribution Agreement.

 

Permits” shall mean licenses, permits, registrations, approvals and franchises issued by any Governmental Authority.

 

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Permitted Encumbrances” shall mean (a) Liens for current taxes, assessments, governmental charges or levies not yet due; (b) workers’ or unemployment compensation Liens arising in the ordinary course of business; (c) mechanic’s, materialman’s, supplier’s, vendor’s, garnishment or similar Liens arising in the ordinary course of business for amounts not yet due; (d) security interests, pledges, Liens or other charges or encumbrances as may have arisen in the ordinary course of business, none of which individually or in the aggregate are material to the ownership, use or operation of the Marathon Transferred Assets or the Ashland Transferred Assets, as the case may be; (e) any state of facts which an accurate survey would show which does not materially detract from the value of or materially interfere with the use and operation of the Marathon Transferred Assets or the Ashland Transferred Assets, as the case may be; (f) any Liens, easements, rights-of-way, restrictions, rights, leases and other encumbrances affecting title thereto, whether or not of record, which do not materially detract from the value of or materially interfere with the use and operation of the Marathon Transferred Assets or the Ashland Transferred Assets, as the case may be; (g) legal highways, zoning and building laws, ordinances or regulations; (h) any liens for real estate Taxes which are not yet due and payable; and (i) except with respect to Permitted Encumbrances on the Marathon Refineries or the Ashland Refineries, Liens, if any, that do not have or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Marathon’s Business or Ashland’s Business, as the case may be.

 

Person” or “person” shall mean any natural person, trust, estate, unincorporated organization, firm, corporation, association, partnership, joint venture, joint stock company, limited liability company or Governmental Authority, whether acting in an individual, fiduciary or other capacity.

 

Personal Property” shall mean machinery and equipment, including tanks, pumps and other containers; furniture and fixtures; tools; leasehold improvements; vessels, barges and other marine transportation equipment; railcars, trucks and automobiles; computing and telecommunications equipment; and other items of tangible personal property (and interests in any of the foregoing).

 

PMRP” shall have the meaning set forth in Section 10.06(a) of the Asset Transfer and Contribution Agreement.

 

Pre-Closing Tax Period” shall mean any Tax period (or portion thereof) ending on or before the close of business on the Closing Date.

 

Prime Rate” shall mean the prime rate per annum established by Citibank, N.A. or if Citibank, N.A. no longer establishes a prime rate for any reason, the prime rate per annum established by the largest U.S. bank measured by deposits from time to time as its base rate on corporate loans, automatically fluctuating upward or downward with each announcement of such prime rate.

 

Procedures for Dispute Resolution” shall mean the Procedures for Dispute Resolution in substantially the form attached as Appendix B to the Asset Transfer and Contribution Agreement, Appendix B to the Master Formation Agreement and Appendix B to the LLC Agreement.

 

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Put/Call, Registration Rights and Standstill Agreement” shall mean the Put/Call, Registration Rights and Standstill Agreement in substantially the form attached as Exhibit B to the Master Formation Agreement.

 

Put/Call, Registration Rights and Standstill Agreement Disclosure Letters” shall mean the letters from USX, Marathon and Ashland, respectively, dated the date of and relating to the Put/Call, Registration Rights and Standstill Agreement.

 

RCRA” shall mean the Resource Conservation and Recovery Act of 1976, as amended.

 

Reasonable Requested Action” shall have the meaning set forth in Section 7.2(g) of the Asset Transfer and Contribution Agreement.

 

Registration Statement” shall have the meaning set forth in Section 10.01 of the Put/Call, Registration Rights and Standstill Agreement.

 

Relevant Accounting Factors” shall mean (a) GAAP, (b) any pending Financial Accounting Standards Board exposure drafts or Emerging Issue Task Force minutes, (c) any relevant official pronouncement, release or staff accounting bulletin issued by the Commission, (d) any formal advice or statement by the Commission that it questions the ability of the parties to treat the transactions contemplated by this Agreement as a purchase by Marathon of Ashland’s Business for accounting purposes or the ability of Marathon to consolidate the Company’s Business in its financial statements or (e) if any other person has received formal advice, comment letter or a statement from the Commission that it questions the ability of such person to use purchase or consolidation accounting with respect to a similar transaction and such formal advice or statement leads Price Waterhouse to believe that the ability of Marathon and Ashland to treat the transactions contemplated by the Asset Transfer and Contribution Agreement as a purchase by Marathon of Ashland’s Business for accounting purposes or the ability of Marathon to consolidate the Company’s Business in its financial statements may be questioned or impaired.

 

Remediation Activities” shall mean any testing, investigation, assessment, cleanup, removal, response, remediation or other similar activities undertaken in connection with any Environmental Loss.

 

Representative” shall have the meaning set forth in Section 8.01 of the LLC Agreement.

 

Requested Action” shall have the meaning set forth in Section 7.2(g) of the Asset Transfer and Contribution Agreement.

 

Retirement Pension Transfer Date” shall have the meaning set forth in Section 10.7(a) of the Asset Transfer and Contribution Agreement.

 

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Revolving Credit Agreement” shall mean the Revolving Credit Agreement among Marathon, Ashland and the Company in substantially the form attached as Exhibit V to the Asset Transfer and Contribution Agreement.

 

Securities Act” shall have the meaning set forth in Section 1.01 of the Put/Call, Registration Rights and Standstill Agreement.

 

Shared Services Agreement” shall mean the Shared Services Agreement in substantially the form attached as Exhibit U to the Asset Transfer and Contribution Agreement.

 

Special Environmental Projects” shall mean the projects listed on Schedule 7.2(k) to the Ashland Asset Transfer and Contribution Agreement Disclosure Letter.

 

Special Termination Price” shall have the meaning set forth in Section 2.01 of the Put/Call, Registration Rights and Standstill Agreement.

 

Special Termination Right” shall have the meaning set forth in Section 2.01 of the Put/Call, Registration Rights and Standstill Agreement.

 

Sublease Agreements” shall mean the Marathon Sublease Agreements and the Ashland Sublease Agreements.

 

subsidiary” shall mean, with respect to any person (herein referred to as the “parent”), any corporation, partnership, limited liability company, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partner interests are, at the time any determination is being made, owned, controlled or held, or (b) that is, at the time any determination is made, otherwise controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

 

SuperAmerica” shall mean the SuperAmerica division of Ashland.

 

Tax” shall mean any and all national, federal, state, provincial or local income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, assets, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on, minimum, estimated or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not.

 

Tax Benefit” shall mean the amount of the reduction in an indemnified party’s liability for Taxes (including reductions in Taxes attributable, in whole or in part, to positive basis adjustments) realized as a result of the payment or accrual of any loss, expense or Tax.

 

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Teamster Member Employees” shall have the meaning set forth in Section 10.9(a) of the Asset Transfer and Contribution Agreement.

 

Teamsters Pension Fund” shall have the meaning set forth in Section 10.9(a) of the Asset Transfer and Contribution Agreement.

 

Term of the Company” shall have the meaning set forth in Section 2.03 of the LLC Agreement.

 

Termination Event” shall mean, with respect to any Environmental Requirement (or discrete portion thereof) relating to Environmental Contamination, the earlier to occur of (a) the receipt by the Company, Marathon or Ashland, as applicable, of a no further action letter, or the substantial equivalent thereof, from the appropriate Governmental Authority or (b) the fifth anniversary date of the completion of Remediation Activities (which, for purposes of this definition, shall not include groundwater monitoring) undertaken as a result of or in connection with such Environmental Requirement (or discrete portion thereof) if during such five-year period no new Environmental Requirement relating to such Environmental Contamination (or discrete portion thereof) has been issued by an appropriate Governmental Authority.

 

Third Party Claim” shall mean a Claim that is not a Claim by Marathon, USX, Ashland, the Company or any of their Affiliates for its own Losses.

 

Throughput and Deficiency Agreements” shall mean (i) the First Stage Throughput and Deficiency Agreement dated as of December 1, 1977, as amended by the First Amendment dated as of March 27, 1986, the Second Amendment dated as of January 1, 1989 and the Third Amendment dated as of September 11, 1991, among Ashland Inc. (formerly Ashland Oil, Inc.), Marathon Oil Company, Murphy Oil Corporation, Shell Oil Company, Texaco Inc. and LOOP LLC (formerly LOOP Inc.), (ii) the Initial Facility Throughput and Deficiency Agreement dated as of March 1, 1979, as amended by the First Amendment dated as of January 1, 1989, among Ashland Inc. (formerly Ashland Oil Inc.), Marathon Oil Company, Texaco Inc., Shell Oil Company and LOCAP Inc., and (iii) the Adjustment Agreement dated March 1, 1979, as amended by the First Amendment dated as of January 1, 1989, among Ashland Inc. (formerly Ashland Oil Inc.), Marathon Oil Company, Texaco Inc., Shell Oil Company and LOCAP Inc.

 

Transaction” shall mean the collective transactions contemplated by the Transaction Documents.

 

Transaction Documents” shall mean the Conveyance Documents, the Master Formation Agreement, the Parent Agreement, the Put/Call, Registration Rights and Standstill Agreement, the LLC Agreement, the Indemnity Agreement and the Joint Defense Agreement.

 

Transfer” shall mean any sale, exchange, transfer, assignment, pledge, hypothecation or other disposition, whether by merger or otherwise. When used as a verb, the term “Transfer” shall have a correlative meaning.

 

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Transfer Taxes” shall have the meaning set forth in Section 7.4 of the Asset Transfer and Contribution Agreement.

 

Transferred Assets” shall mean, with respect to Marathon and Ashland, the Marathon Transferred Assets and the Ashland Transferred Assets, respectively.

 

True Insurance Policy” shall mean any insurance policy other than an insurance policy which is a captive insurance policy, a fronting insurance policy or an insurance policy for which the insured party is required to indemnify the insurer.

 

USX” shall mean USX Corporation, a Delaware corporation, any successor ultimate parent corporation of Marathon or, in the event Marathon is not a subsidiary of any other person, Marathon.

 

Valvoline Lube Oil Supply Agreement” shall mean the Valvoline Lube Oil Supply Agreement substantially in the form of Exhibit O to the Asset Transfer and Contribution Agreement.

 

Wholly Owned Subsidiary” shall mean, with respect to any person (herein referred to as the “parent”), any corporation, partnership, limited liability company, association or other business entity (a) of which securities or other ownership interests representing 100% of the equity or 100% of the ordinary voting power or 100% of the general partner interests are, at the time any determination is being made, owned, controlled or held, or (b) that is, at the time any determination is made, otherwise controlled, entirely by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

 

Working Capital Accounting Firm” shall have the meaning set forth in Section 4.3(e) of the Asset Transfer and Contribution Agreement.

 

Working Capital Deficiency Materiality Threshold” shall have the meaning set forth in Section 4.3(d) of the Asset Transfer and Contribution Agreement.

 

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APPENDIX B

 

PROCEDURES FOR DISPUTE RESOLUTION

 

For purposes of this Appendix, the term “Agreement” refers to any Transaction Document that incorporates the terms hereof by reference and the term “party” or “parties” refers to the party or parties to such Agreement. All other terms not defined herein shall have the meanings assigned to them in the Agreement.

 

Section 1. General. Except as otherwise expressly set forth in the Agreement, all controversies, claims or disputes that arise out of or relate to the Agreement or the construction, interpretation, performance, breach, termination, enforceability or validity of the Agreement, or the commercial, economic or other relationship of the parties thereto, whether such claim is based on rights, privileges or interests recognized by or based upon statute, contract, tort, common law or otherwise and whether such claim existed prior to or arises on or after the date of the Agreement (a “Dispute”) shall be resolved in accordance with the provisions of this Appendix. Notwithstanding anything to the contrary contained in this Appendix, nothing in this Appendix shall limit the ability of the directors and officers of a party to the Agreement from communicating directly with the directors and officers of any other party thereto or its Affiliates.

 

Section 2. Dispute Notice and Response. A party may give another party written notice (a “Dispute Notice”) of any Dispute which has not been resolved in the normal course of business. Within five Business Days after delivery of the Dispute Notice, the receiving party shall submit to the other party a written response (the “Response”). The Dispute Notice and the Response shall each include (i) a statement setting forth the position of the party giving such notice, a summary of the arguments supporting such position and, if applicable, the relief sought and (ii) in the event that the Dispute Notice is delivered at or after the Closing, the name and title of a senior manager of such party who has authority to settle the Dispute and will be responsible for the negotiations related to the settlement of the Dispute (the “Senior Manager”).

 

Section 3. Pre-Closing Negotiation Between Chief Executive Officers.

 

a. If a Dispute Notice is delivered prior to the Closing, within 10 Business Days after delivery of the Response provided for in Section 2, the Chief Executive Officers of both parties shall meet or communicate by telephone at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, and shall negotiate in good faith to attempt to resolve the Dispute that is the subject of such Dispute Notice. If such Dispute has not been resolved within 10 Business Days after the delivery of the Response as provided for in Section 2, then each party shall be permitted to take such actions at law or in equity as it is otherwise permitted to take or as may be available under Applicable Law. Notwithstanding the foregoing, in the event that the Closing occurs

 

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following delivery of such Dispute Notice and the Dispute has not been resolved prior to Closing, then to the extent such Dispute has not been resolved within 10 Business Days after delivery of the Response as provided in Section 2, either party may refer the Dispute to mediation in accordance with Section 6, or, if not so referred to mediation within the five Business Day period provided in Section 6, the Dispute shall be referred to arbitration in accordance with Section 7.

 

b. All negotiations between the Chief Executive Officers pursuant to this Section 3 shall be treated as compromise and settlement negotiations. Nothing said or disclosed, nor any document produced, in the course of such negotiations which is not otherwise independently discoverable shall be offered or received as evidence or used for impeachment or for any other purpose in any current or future arbitration or litigation.

 

Section 4. Post-Closing Negotiation Between Senior Managers.

 

a. If a Dispute Notice is delivered at or after the Closing, within 10 days after delivery of the Response provided for in Section 2, the Senior Managers of both parties shall meet or communicate by telephone at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, and shall negotiate in good faith to attempt to resolve the Dispute that is the subject of such Dispute Notice. If such Dispute has not been resolved within 30 days after delivery of the Dispute Notice, then the parties shall attempt to settle the Dispute pursuant to Section 5.

 

b. All negotiations between the Senior Managers pursuant to this Section 4 shall be treated as compromise and settlement negotiations. Nothing said or disclosed, nor any document produced, in the course of such negotiations which is not otherwise independently discoverable shall be offered or received as evidence or used for impeachment or for any other purpose in any current or future arbitration or litigation.

 

Section 5. Post-Closing Negotiation Between Chief Executive Officers.

 

a. If the Dispute Notice is delivered at or after the Closing and the Dispute has not been resolved by negotiation between the Senior Managers pursuant to Section 4, then within 10 Business Days after the expiration of the 30-day period provided in Section 4, the respective Chief Executive Officers of both parties shall meet or communicate by telephone at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, and shall negotiate in good faith to attempt to resolve the Dispute that is the subject of such Dispute Notice. If such Dispute has not been resolved within 20 Business Days after the expiration of the 30-day period provided in Section 4, then either party may refer the Dispute to mediation in accordance with Section 6, or, if not so referred to mediation within the five Business Day period provided in Section 6, the Dispute shall be referred to arbitration in accordance with Section 7.

 

b. All negotiations between the Chief Executive Officers pursuant to this Section 5 shall be treated as compromise and settlement negotiations. Nothing said or disclosed, nor any document

 

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produced, in the course of such negotiations which is not otherwise independently discoverable shall be offered or received as evidence or used for impeachment or for any other purpose in any current or future arbitration or litigation.

 

Section 6. Mediation.

 

a. If the Dispute Notice is delivered at or after the Closing and the Dispute has not been resolved by negotiation between the Senior Managers pursuant to Section 4 or the Chief Executive Officers pursuant to Section 5, then within five Business Days after the expiration of such 20 Business Day period provided in Section 5, any party may initiate mediation hereunder by giving a notice of mediation (a “Mediation Notice”) to any other party. Such Mediation Notice shall include an undertaking by the party delivering such Mediation Notice to pay all costs and expenses of the mediator chosen or appointed pursuant to this Section 6. If neither party has given a Mediation Notice to the other party within such five Business Day period, then the Dispute shall be referred to arbitration in accordance with Section 7.

 

b. Selection of Mediator. The mediator shall be jointly appointed by the parties. The parties intend that the mediator be independent and impartial. To this end, the mediator shall disclose to the parties any professional or social relationships, present or past, with any party (or its Affiliates), including any party’s (or its Affiliates’) directors, officers and supervisory personnel and counsel.

 

c. Location. Any mediation pursuant to this Section 6 shall be conducted in Columbus, Ohio, unless otherwise agreed.

 

d. Governing Law. The Model ADR Procedures for Mediation of Business Disputes of the Center for Public Resources, Inc., either as written or as modified by mutual agreement of the parties, shall govern any non-binding mediation pursuant to this Section 6.

 

e. Mediation Process.

 

(1) All mediation pursuant to this Section 6 shall be treated as compromise and settlement negotiations. Nothing said or disclosed, nor any document produced, in the course of such non-binding mediation which is not otherwise independently discoverable shall be offered or received as evidence or used for impeachment or for any other purpose in any current or future arbitration or litigation.

 

(2) In the mediation, each party shall be represented by an executive officer. No party shall be obligated to attend mediation proceedings for more than an aggregate of five days.

 

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(3) If a Dispute has not been resolved within 10 Business Days after the delivery of the Mediation Notice, then the Dispute shall be referred to arbitration in accordance with Section 7.

 

Section 7. Arbitration.

 

a. Commencement of Arbitration. If the Dispute Notice is delivered at or after the Closing and the Dispute has not been resolved by negotiation between the Senior Managers pursuant to Section 4, by negotiation between the Chief Executive Officers pursuant to Section 5, or by mediation pursuant to Section 6 (or, if neither party delivered a mediation notice to the other party within the five Business Day period provided in Section 6, by the expiration of such five Business Day period), then any party may initiate an arbitration hereunder by giving a notice of arbitration (the “Arbitration Notice”) to any other party. If the parties cannot agree on a procedure to be used to arbitrate the controversy within 10 days of receipt by the other party of the Arbitration Notice, then the controversy shall be finally resolved by arbitration as provided in this Section 7.

 

b. Location. Any arbitration pursuant to this Section 7 shall be conducted in Columbus, Ohio, unless otherwise agreed.

 

c. Governing Law. Section 2 of the Federal Arbitration Act (Title 9, U.S.C., Section 1, et seq.) shall control the validity of any arbitration proceeding pursuant to this Section 7. All other substantive issues in any arbitration hereunder shall be resolved by application of the provisions of the Agreement in accordance with the governing law provisions thereof.

 

d. Framing of Issues. The Arbitration Notice shall contain a statement of any controversies in sufficient detail to apprise the other parties of (i) the nature and scope of the controversies, (ii) the initiating party’s position and (iii) the relief sought. Each other party shall, within a period of 30 days after delivery of the Arbitration Notice, or within such other period of time as the parties may agree, deliver its answer to the initiating party (the “Arbitration Answer”), which shall contain its statement of the controversy, its positions and any counterclaims or other determinations which it seeks. The initiating party shall then have 30 days, or such other period of time as the parties may agree, to deliver its reply (the “Arbitration Reply”) to any counterclaim or request for determination raised in the Arbitration Answer. No amendments to the Arbitration Notice, Arbitration Answer or Arbitration Reply shall be permitted without the consent of the other parties or of the Arbitration Tribunal or Sole Arbitrator, as applicable. Such Arbitration Notice, Arbitration Answer and Arbitration Reply and all written notifications and other documents provided for in this Section 7 or in any rules or orders or directions issued by the Arbitration Tribunal or Sole Arbitrator, as applicable, to be delivered to a party or the Arbitration Tribunal or Sole Arbitrator, as applicable, shall be delivered in person against written receipt or by registered or certified mail, return receipt requested.

 

e. Choice of Sole Arbitrator or Arbitration Tribunal. The parties may agree in writing within 20 days after delivery of the Arbitration Notice that the arbitration proceedings shall be by

 

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and before a Sole Arbitrator appointed in accordance with Section 7(f) and conducted in accordance with Section 7(h) or other procedures acceptable to them. Failing such agreement, the arbitration proceedings shall be by and before an Arbitration Tribunal appointed in accordance with Section 7(g) and conducted in accordance with Section 7(h) or other procedures acceptable to them.

 

f. Appointment of Sole Arbitrator.

 

(1) If so agreed pursuant to Section 7(e) or as provided in the Agreement, the arbitration proceedings shall be conducted by and before a single arbitrator (the “Sole Arbitrator”). Such Arbitrator shall be jointly appointed by the parties, who shall jointly obtain acceptance of his or her appointment within a period of 30 days after the date of delivery of the Arbitration Notice. Failing such joint appointment and its acceptance, either party may request the Center for Public Resources, acting in the capacity of the Appointing Authority hereunder (the “Appointing Authority”) to make the appointment and obtain his or her acceptance (which appointment, subject to Section 7(f)(4), shall be binding upon the parties to the arbitration).

 

(2) If at any time during the course of the arbitration proceedings, the Sole Arbitrator dies, resigns, withdraws, or is removed by the parties pursuant to Section 7(f)(4), such vacancy shall be filled in the same manner and subject to the same requirements as provided in Section 7(f)(1) for the original appointment to that position except as to the period of time specified for such original appointment. If the vacancy is not filled within 30 days after the occurrence of the death, resignation, withdrawal or removal of the Sole Arbitrator, either party may request the Appointing Authority to make the appointment and obtain acceptance. Upon the filling of a vacancy, and after allowing the newly appointed Sole Arbitrator sufficient time to familiarize himself or herself with the submissions and proceedings, the arbitration proceedings shall be continued without rehearing from the point at which the vacancy occurred, unless the parties agree otherwise or the Sole Arbitrator directs otherwise.

 

(3) The parties intend that the Sole Arbitrator be independent and impartial. To this end, the Sole Arbitrator shall disclose to the parties any professional or other social relationships, present or past, with any party (or its Affiliates), including any party’s (or its Affiliates’) directors, officers and supervisory personnel and counsel.

 

(4) Except as otherwise provided in Section 7(f)(2), the Sole Arbitrator may be removed only by (i) application of either party to, and order of, the Appointing Authority after a showing of lack of independence, partiality, misconduct, incapacity of the Sole Arbitrator for more than 60 days or any other cause likely to impair his or her ability to effectively participate in the arbitration proceedings or render a fair and equitable decision, or (ii) mutual agreement of the parties.

 

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g. Appointment of Arbitration Tribunal.

 

(1) If the parties do not agree within the 20-day period provided in Section 7(e) to have the arbitration proceedings conducted by and before a Sole Arbitrator, then the arbitration proceedings shall be conducted by and before a tribunal composed of three Arbitrators (an “Arbitration Tribunal”) who are appointed pursuant to this Section 7(g). Each party shall appoint one arbitrator, obtain its appointee’s acceptance of such appointment, and deliver written notification of such appointment and acceptance to the other party within 45 days after delivery of the Arbitration Notice. If a party fails for any reason to appoint an arbitrator, obtain acceptance of such appointment and notify the other party in writing within the period provided above, the Appointing Authority, upon written request of either party, shall appoint such arbitrator, obtain acceptance of such appointment and notify the parties in writing of such appointment and acceptance. If the controversy involves more than two parties, a party (and its Affiliates) shall be considered a single party for the purposes of this Section 7(g).

 

(2) The two arbitrators appointed pursuant to Section 7(g)(1) shall jointly appoint the third arbitrator (the “Third Arbitrator”), obtain such appointee’s acceptance of such appointment and notify the parties in writing of such appointment and acceptance within 30 days after the appointment and acceptance of the two initial arbitrators. If the appointment and acceptance of the Third Arbitrator and the required notifications are not effected by the other two arbitrators within the 30-day period, then, upon the request of either party, the Appointing Authority shall appoint the Third Arbitrator, obtain acceptance of such appointment and notify the parties and both arbitrators appointed pursuant to Section 7(g)(1) in writing of such appointment and acceptance.

 

(3) The Third Arbitrator shall serve as the Chairman of the Arbitration Tribunal.

 

(4) If at any time a vacancy occurs on the Arbitration Tribunal by reason of death, resignation or withdrawal of an arbitrator or removal of an arbitrator pursuant to Section 7(g)(6), such vacancy shall be filled in the same manner and subject to the same requirements as are provided in Sections 7(g)(1) and 7(g)(2) for the original appointment to that position except as to the periods of time specified for such original appointments. If the vacancy is not filled within 30 days after the occurrence of the death, resignation, withdrawal or removal of the arbitrator, either party may request the Appointing Authority to make the appointment and obtain acceptance. Upon the filling of a vacancy, and after allowing the newly appointed arbitrator sufficient time to familiarize himself or herself with the submissions and proceedings, the arbitration proceedings shall be continued without rehearing from the point at which the vacancy occurred, unless the parties agree otherwise or the Chairman of the Arbitration Tribunal, whether appointed prior to the occurrence of the vacancy or appointed to fill the vacancy, directs otherwise.

 

(5) The parties intend that each of the arbitrators on the Arbitration Tribunal be independent and impartial. To this end, each such arbitrator shall disclose to the parties, and to the other members of the Arbitration Tribunal, any professional or social relationships, present or past, with any party (or its Affiliates), including any party’s (or its Affiliates’) directors, officers and supervisory personnel and counsel.

 

(6) Any party may challenge in writing the appointment or continued service of any arbitrator on the Arbitration Tribunal for lack of independence, partiality, incapacity of the arbitrator for more than 60 days, or any other cause likely to impair such arbitrator’s ability to

 

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effectively participate in the arbitration proceedings or render a fair and equitable decision. Where such challenge is made with regard to an arbitrator other than the Third Arbitrator, the Third Arbitrator shall uphold or dismiss the challenge. Where such challenge is made with regard to the Third Arbitrator, the Appointing Authority shall uphold or dismiss the challenge. In the event a challenge is upheld, the arbitrator as to whom the challenge was upheld shall cease to be a member of the Arbitration Tribunal. Furthermore, any arbitrator may be removed upon mutual agreement of the parties.

 

(7) The Arbitration Tribunal in its discretion may appoint a secretary to assist the Arbitration Tribunal in the administrative arrangements for the arbitration proceedings. The Arbitration Tribunal may also employ such stenographic and other assistance as it deems necessary.

 

(8) All decisions or rulings of the Arbitration Tribunal, as well as any interim or final award, shall be pursuant to the majority vote of the three arbitrators comprising the Arbitration Tribunal.

 

h. Arbitration Procedures.

 

(1) The Arbitration Tribunal or Sole Arbitrator, as applicable, shall hold a preliminary meeting with the parties at a time and place determined by the Arbitration Tribunal or Sole Arbitrator, as applicable, for the discussion of procedural matters prior to the issuance of rules of procedure or other procedural directives by the Arbitration Tribunal or Sole Arbitrator, as applicable, and for discussion of such other matters as the Arbitration Tribunal or Sole Arbitrator, as applicable, may determine.

 

(2) The procedure to be followed in any arbitration proceedings hereunder shall be as prescribed in this Section 7 and in the rules of procedure which shall be issued by the Arbitration Tribunal or Sole Arbitrator, as applicable, following consultation with the parties. Such rules shall be based on the principle of fairness to both parties, and unless otherwise agreed by the parties shall provide, inter alia, for the submission of briefs by the parties, the introduction of documents and the oral testimony of witnesses, cross-examination of witnesses, oral arguments, the closure of the arbitration proceedings and such other matters as the Arbitration Tribunal or Sole Arbitrator, as applicable, may deem appropriate. Further, the Arbitration Tribunal or Sole Arbitrator, as applicable, shall regulate all matters relating to the conduct of the arbitration proceedings not otherwise provided for. Subject to any contrary rules adopted by the Arbitration Tribunal or Sole Arbitrator, as applicable:

 

(A) The party which initiated the Arbitration shall, within 14 days after the date of the Sole Arbitrator’s appointment pursuant to Section 7(f) or the appointment of the Arbitration Tribunal pursuant to Section 7(g), as applicable, or within such other period of time as the parties

 

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may mutually agree, submit to the Arbitration Tribunal or the Sole Arbitrator, as applicable, a written brief in support of its case and the relief or determination it seeks, with a copy to the other party. Each such other party shall, within 21 days after delivery to it of a copy of the initiating party’s brief or within such other period of time as the parties may agree, submit to the Arbitration Tribunal or the Sole Arbitrator, as applicable, such other party’s answering brief in support of its defense, with a copy to the initiating party. Such answering brief shall also state and support any counterclaim or determination of a matter not submitted by the initiating party which such other party seeks. In the event that the answering brief states a counterclaim or request for determination of a matter not submitted by the initiating party, the initiating party may submit, within a period of 21 days after delivery to it of such answering brief, or within such other period of time as the parties may agree, a reply brief stating its defense to such counterclaim or request for determination, with a copy to the other parties.

 

(B) Any brief provided for in Section 7(h)(2)(A) may include documentary evidence and written affidavits. The Arbitration Tribunal or the Sole Arbitrator, as applicable, may invite any other written submissions or documents he or she deems necessary for the proper determination of the arbitration.

 

(C) Copies of documents submitted in a brief shall be deemed authentic unless challenged by a party by written notification to the Arbitration Tribunal or the Sole Arbitrator, as applicable, with a copy to the other party. The facts stated in any affidavit submitted in a brief shall be deemed accurate unless similarly challenged. Any such notification of challenge, together with any supporting documents or affidavits and a list of the names and addresses of any witnesses the challenging party will present in support of such challenge, shall be submitted by that party within a period of 30 days after the date of such party’s receipt of the document or affidavit being challenged. The party challenging the contents of an affidavit may also include, in its notification, a request that the party which submitted the affidavit or challenging affidavit produce the affiant for cross-examination. Subject to a request to the Arbitration Tribunal or the Sole Arbitrator, as applicable, for a protective order, the party which submitted a document or affidavit challenged shall, within a period of 14 days after its receipt of notification of the challenge, submit any documents and a list of the names and addresses of any witnesses it will present to establish the authenticity of a document or the accuracy of the facts stated in an affidavit.

 

(D) An oral hearing shall be held, at a place and time designated by the Arbitration Tribunal or the Sole Arbitrator, as applicable, such time to be within a period of 30 days after the date of the submission of the answering brief or, if a reply brief was submitted pursuant to Section 7(h)(2)(A), within 30 days thereafter, or, where objection or challenge was made as provided in Section 7(h)(2)(C), within a period of 14 days after the date of the last submission made pursuant to that Section. At such hearing, the Arbitration Tribunal or the Sole Arbitrator, as applicable, shall permit the submission of further documentation or oral testimony by the parties, including direct examination, cross-examination and redirect examination, relevant to the determination of any challenge to the authenticity of a document or to the accuracy of the facts stated in an affidavit. No oral testimony shall be permitted except as provided in this Section 7 or as permitted by order of the

 

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Arbitration Tribunal or the Sole Arbitrator, as applicable. The Arbitration Tribunal or the Sole Arbitrator, as applicable, shall, following the submission of any documents and oral testimony, invite each of the parties to make oral arguments in support of its case on the controversy concerning which the initiating party initiated the arbitration and on any counterclaim or other controversy initiated by the other party.

 

(E) Strict rules of evidence shall not apply in any arbitration proceedings conducted pursuant to this Section 7. The parties may offer such evidence as they desire and the Arbitration Tribunal or the Sole Arbitrator, as applicable, shall accept such evidence as its deems relevant to the issue(s) and accord it such weight as the Arbitration Tribunal or the Sole Arbitrator, as applicable, deems appropriate. However, no party or witness may be required to waive any privilege recognized under Applicable Law.

 

(F) The parties agree that discovery shall be limited and handled expeditiously. Discovery procedures available in litigation before the courts shall not apply in any arbitration proceedings pursuant to this Section 7. However, each party shall produce relevant and nonprivileged documents or copies thereof requested by the other party in writing. Unless otherwise agreed or ordered by the Arbitration Tribunal or the Sole Arbitrator, as applicable, any such request by either party shall be made within 15 days after submission of the brief, document or affidavit submitted earliest which could reasonably have indicated that the documents sought to be produced were relevant, and production shall be made within 10 days of receipt of such request. All disputes regarding discovery shall be resolved promptly by the Arbitration Tribunal or the Sole Arbitrator, as applicable. In the event of a party’s failure to produce such documents as provided above, the Arbitration Tribunal or the Sole Arbitrator, as applicable, shall take such failure into consideration in the light of the prevailing circumstances.

 

(G) In the event the Sole Arbitrator or a member of the Arbitration Tribunal, as applicable, becomes incapable of acting for a period of less than 60 days and then resumes his or her duties as Sole Arbitrator or an arbitrator, as applicable, the time periods provided in Sections 7(h)(2)(A), (C), (D) and (F) shall be extended by the number of days during which the Sole Arbitrator or an arbitrator, as applicable, was incapable of acting. In the event the Sole Arbitrator or a member of the Arbitration Tribunal, as applicable, dies or resigns or becomes incapable of acting for a period of at least 60 days, such time periods shall be extended by the number of days between the date of such death, resignation, or commencement of incapacity and the date of the appointment of a substitute arbitrator plus a reasonable period of time (to be mutually agreed upon by the parties or fixed by the Arbitration Tribunal or the Sole Arbitrator, as applicable) for the Sole Arbitrator or arbitrator, as applicable, to familiarize himself or herself with the submissions and proceedings.

 

(H) The arbitration proceedings shall be deemed closed at the conclusion of the oral hearing provided in Section 7(h)(2)(D), except that in the event the Arbitration Tribunal or the Sole Arbitrator, as applicable, requests or invites the submission of any further documents or briefs, the proceedings shall be deemed closed upon the submission of such further documents or briefs or

 

B-9


upon the expiration of the period set by the Arbitration Tribunal or the Sole Arbitrator, as applicable, for such submissions, whichever date is earlier.

 

(I) If requested by any party, the Arbitration Tribunal or the Sole Arbitrator, as applicable, shall keep records of all its proceedings and decisions, and a verbatim record of all oral hearings. Such records shall be available and copies shall be furnished to the parties upon request and reasonable notice by any party to the Arbitration Tribunal or the Sole Arbitrator, as applicable.

 

(J) All awards or portions thereof, whether preliminary or final, shall be in writing signed by the Sole Arbitrator or, in the case of an Arbitration Tribunal, by each arbitrator, and shall state the reasons upon which such are based. In the event that one arbitrator in an Arbitration Tribunal refuses to sign the award or a portion thereof, the two arbitrators forming the majority shall note such refusal in the award or portion thereof. The arbitrator dissenting from an award or portion thereof may issue a dissent from the award or portion thereof in writing, stating the reasons therefor.

 

(K) The Arbitration Tribunal or the Sole Arbitrator, as applicable, shall use its best efforts to issue its final award or awards, and any dissent therefrom, in any arbitration proceedings conducted pursuant to this Section 7, within a period of 30 days after closure of such arbitration proceedings. Failure of the Arbitration Tribunal or Sole Arbitrator, as applicable, to do so, however, shall not be a basis for challenging the award or awards.

 

i. Failure to Participate. In the event a party, having been given due notice and opportunity, shall fail or shall refuse to appear or participate in any arbitration proceedings pursuant to this Section 7 or in any stage thereof, or to so appear or participate in accordance with time limits or dates set forth in this Section 7, or in rules of procedure issued pursuant hereto by the Arbitration Tribunal or the Sole Arbitrator, as applicable, or other directives issued by the Arbitration Tribunal or the Sole Arbitrator, as applicable, the arbitration proceedings shall nevertheless be conducted to conclusion and final award. Any award or awards rendered under such circumstances shall be as valid and enforceable as if both parties had appeared and participated fully at all stages.

 

j. Relief. Subject to any limitations on awards and damages that are expressly set forth in the Agreement, the Arbitration Tribunal or the Sole Arbitrator, as applicable, shall be empowered in an award to deny or grant, in whole or in part, relief of the following types if so requested by a party in the Arbitration Notice, the Arbitration Answer or the Arbitration Reply:

 

  (i) compensatory damages;

 

  (ii) other monetary claims or counterclaims;

 

  (iii) pre-award and post-award interest on monetary awards, including applicable rates and periods at to which such interest shall be computed;

 

B-10


  (iv) specific performance of the Agreement or any portion thereof;

 

  (v) interpretation, including declaratory interpretation, of the provisions of the Agreement; and

 

  (vi) any other equitable relief.

 

The Arbitration Tribunal or the Sole Arbitrator, as applicable, shall, in a final award, assess, as set forth in Section 7(m), the amount of the costs of the arbitration proceedings.

 

k. Finality. Any award or portion of award rendered, whether final or interim, by the Arbitration Tribunal or the Sole Arbitrator, as applicable, in any arbitration proceedings pursuant to this Section 7 shall be binding on the parties, who hereby waive all rights of appeal or challenge except to the extent permitted by Title 9, U.S.C. §§ 10 and 11. The parties further agree that judgment upon any award hereunder may be entered in any of the courts referred to in Section 9.17 of the Agreement (if the Agreement is the Master Formation Agreement), Section 11.15 of the Agreement (if the Agreement is the Asset Transfer and Contribution Agreement or an Agreement that incorporates by reference the procedures for dispute resolution of the Asset Transfer and Contribution Agreement) or Section 16.09 of the Agreement (if the Agreement is the LLC Agreement), and application may be made by a party to such court or to any court of competent jurisdiction wherever situated for enforcement of such judgment and the entry of whatever orders are necessary for such enforcement.

 

l. Confidentiality. The parties and the Arbitration Tribunal or the Sole Arbitrator, as applicable, shall treat all aspects of the arbitration proceedings, including without limitation discovery, testimony and other evidence, briefs and the award, as strictly confidential.

 

m. Costs and Expenses. Each party shall pay its own costs and expenses. The costs of the arbitration proceedings, including the expenses of the Arbitration Tribunal and its members and secretary, if any, or of the Sole Arbitrator, as applicable, and the honoraria of the members of an Arbitration Tribunal and its secretary, or the honorarium of the Sole Arbitrator, as applicable, shall be borne by the parties to the arbitration proceedings in equal shares. The Chairman of the Arbitration Tribunal or the Sole Arbitrator, as applicable, shall notify the parties, from time to time, of the estimated amounts to be advanced by them in equal shares to meet all such anticipated expenses, and each party shall advance its share promptly.

 

Section 8. Disputes; Consent to Jurisdiction.

 

(a) Except as otherwise expressly provided in the Agreement, no party shall be entitled to commence or maintain any action, suit or other proceeding against any other party regarding any Dispute, other than any action, suit or other proceeding (i) to the extent provided in Section 3, (ii) to compel arbitration pursuant to Section 7, (iii) to select an arbitrator or arbitrators pursuant to Section 7 or (iv) to enforce any judgment pursuant to Section 7(k).

 

(b) Section 9.17 of the Agreement (if the Agreement is the Master Formation Agreement), Section 11.15 of the Agreement (if the Agreement is the Asset Transfer and Contribution Agreement or an Agreement that incorporates by reference the procedures for dispute resolution of the Asset Transfer and Contribution Agreement) or Section 16.09 of the Agreement (if the Agreement is the LLC Agreement) shall apply with respect to any suit, action or proceeding permitted under Section 8(a).

 

B-11


 

EXHIBIT A

LIMITED LIABILITY COMPANY AGREEMENT

 

SPEEDWAY SUPERAMERICA LLC

 

RETAIL INTERGRATION PROTOCOL

 

The retail business unit of Marathon Ashland Petroleum LLC (“MAP”), Speedway SuperAmerica LLC (“SSA”), will include the combined assets of Emro Marketing Company (“Emro”) and SuperAmerica Group (“SuperAmerica”). This protocol establishes the plan of integration of Emro and SuperAmerica from the present state of two competing retail organizations to an integrated retail organization.

 

1. General Principles. Marathon and Ashland desire to begin realizing the efficiencies and other benefits of the integration of retail operations as soon as possible after the closing of the Joint Venture. However, Marathon and Ashland agree to integrate Emro and SuperAmerica in a deliberate manner, based upon thorough analyses of all relevant information and issues, including impact on the brand equity, operating systems and operating practices (collectively referred to as the “Business Equity”) of Emro or SuperAmerica. Such analyses shall be conducted by or at the direction of one or more integration teams, each of which is comprised of members representing both Emro and SuperAmerica (collectively, the “Integration Teams”). Major decisions and actions relative to integration of Emro and SuperAmerica shall be reviewed and approved prior to implementation by the appropriate levels of SSA and MAP executive management and the MAP Board of Managers. An overriding principle of the integration process is to maximize the economic value added to MAP in total.

 

- 1 -


2. Integration Levels. The integration process will commence immediately after the Joint Venture closes, and will occur in three general levels as analyses of various functions and aspects of the business are completed:

 

a. Level I. Level I integration initiatives require little or no analysis to determine best practice, or that create obvious efficiencies, with little or no impact on the Business Equity of Emro or SuperAmerica. Level I initiatives include, but are not limited to, the following:

 

(i) coordination of the retail pricing of light products between Emro and SuperAmerica (but not major and long-range light product or merchandise pricing philosophy as described in Paragraph 2(c)(iv) below);

 

(ii) purchase of common supplies for consumption and products and services for resale;

 

(iii) supply of retail locations from various terminals to minimize operating costs to the SSA and MAP;

 

(iv) coordination of support services and elimination of duplicate services and processes not required to maintain separate operations; and

 

(v) establishment of Integration Teams to extend the process of integration and define and analyze the more complex issues.

 

b. Level II. Level II integration initiatives are relatively more complex and will require more time and effort to gather and analyze relevant information, determine the best practices, and evaluate the potential impact of alternate strategies or actions on the Business Equity of Emro or SuperAmerica. Level II integration initiatives will be prioritized by the Integration Teams and SSA executive management to generate savings as rapidly as possible without adversely impacting the Business Equity of Emro and SuperAmerica. Level II initiatives include, but are not limited to, the following:

 

(i) Consolidating purchases of items such as pumps, dispensers and operating hardware that may be interchangeable between Emro and SuperAmerica;

 

(ii) Adoption of a unified and coordinated marketing program (i.e., private label applicable category merchandising agreements, etc.) as opportunities are identified and evaluated by the marketing integration team;

 

(iii) Adoption of common maintenance practices and coordination and integration of maintenance personnel in overlapping areas;

 

- 2 -


(iv) Internal communication in support of our one-company commitment and vision (All outside product and service provider communications will support this same commitment.);

 

(v) Adoption of new common product and services offerings where appropriate;

 

(vi) Further consolidation of support services that SSA and MAP executive management determine will not adversely affect the Business Equity of Emro and SuperAmerica;

 

(vii) Continued integration of common support services (such as law, accounting, planning and analysis, environmental, health and safety, and security);

 

(viii) Overall Information Technology strategy (but not store-automation strategy, which is a Level III issue as provided in Paragraph 2(c), below);

 

(ix) Changing the geography of our present joint territories, e.g., truck stop travel center expansion; and

 

(x) Physical facility issues, e.g., size of facilities, common building designs, number of basic designs.

 

c. Level III. Level III integration initiatives involve complex and strategic issues that may have material impact on the Business Equity of Emro and SuperAmerica. Level III initiatives will require the most time an effort to gather and analyze relevant information, determine the best practices, and evaluate the potential impact of proposed decisions or actions on such Business Equity. Consultants may be used to assist the Integration Teams in quantifying various matters that are not easily quantified, especially those related to differences in Business Equity. Decisions and other actions on Level III initiatives will be made only after a thorough analysis of all relevant information, by super-majority approval of the MAP Board of Managers to the extent and for the time periods provided in the Limited Liability Company Agreement between Marathon and Ashland (the “LLC Agreement”). Level III issues are:

 

(i) Utilization of the Enon and Lexington facilities, including establishment of a single headquarters location for Speedway SuperAmerica LLC;

 

- 3 -


(ii) Major store staffing and similar employment issues, including any material change in the compensation or benefit packages of the Speedway SuperAmerica LLC unit;

 

(iii) Branding strategy (e.g., continuing to use the present brand names, combining brands or developing a new brand), including any material change in the brand image of SuperAmerica and Emro stores;

 

(iv) Any material change in the fundamental business strategies of SuperAmerica and Emro including, but not limited to, major and long-range light-product or merchandise pricing philosophy, in-store merchandising strategy and advertising and promotion practices.

 

(v) Future use of the Speedway and SuperAmerica business models in SSA;

 

(vi) Finalizing the retail organization (See discussion in Paragraph 5(a) below);

 

(vii) Credit card acceptance between Emro and SuperAmerica. More specifically the development of a new common credit card for SSA.

 

(viii) Evaluation of alternate modes of supplying stores with merchandise through company-owned warehouses or outside suppliers, including an evaluation of SuperAmerica’s existing warehousing/distribution processes; and

 

(ix) Store-automation strategy.

 

Provided, however, that until any decision or action by the Board of Managers to the contrary, Emro and SuperAmerica shall continue to do business in accordance with their historical practices.

 

3. Timeframe for Super Majority Decisions. The timeframe for super-majority decisions or actions by the MAP Board of Managers with respect to the issues described in Paragraph 2(c)(i), (ii), (iv) and (vi) only are subject to extension as provided in the LLC Agreement. The integration timetable outlined in (4) below anticipates that all super majority recommendations for all Level III issues will be submitted for action to the Board of Managers by SSA MAP executive management by October 30, 1998, thus permitting the Board of Managers to act on these issues during calendar 1998. Such submissions shall include the business and economic analyses necessary to support the recommended decision or action including but not limited to the risks and

 

- 4 -


benefits of such decisions and the anticipated impact of such decision or action on the Speedway and SuperAmerica brand images and business models.

 

4. Integration Timetable. The integration process will be fluid, but should occur along the following general timeline:

 

a. January 1st: MAP and SSA are established. SSA Integration Teams begin work without restrictions on information flow.

 

b. First Quarter 1998: Emro and SuperAmerica continue the transition from separate operations to an integrated retail organization, through Level I integration. Also during this quarter, analyses of Level II and III issues continue. All such analyses shall include benchmarking of Emro and SuperAmerica practices and results. Recommendations for some Level II issues are presented to MAP executive management for review and approval. SSA executive management reviews progress on Level I, II and III initiatives with MAP executive management and MAP Board of Managers.

 

c. Second Quarter 1998: Emro and SuperAmerica continue the transition from separate operations to one integrated retail organization. During this quarter, recommendations for some Level II and III integration issues may be presented to the MAP executive management and MAP Board of Managers for review and approval, and analyses of other Level II and III issues continue as provided in paragraph 4(b). SSA executive management reviews progress on Level I, II and III initiatives with MAP executive management and MAP Board of Managers.

 

d. Third Quarter 1998: Emro and SuperAmerica complete additional Level I integration and continue work on Level II and III integration actions approved during the second quarter. During this quarter, the Integration Teams and SSA executive management complete additional analyses and valuation of alternatives and make additional recommendations on Level II and III initiatives. SSA executive management

 

- 5 -


reviews progress on Level I, II and III integration actions with MAP executive management and with the MAP Board of Managers.

 

e. Fourth Quarter 1998: Emro and SuperAmerica complete additional Level I integration and continue work on Level II and III integration actions. SSA executive management reviews progress on Level I, II and III integration actions with MAP executive management and Board of Managers. SSA and MAP executive management will present any remaining super majority issues proposals for action by the Board of Managers no later than October 30, 1998 to provide ample time for the MAP executive management and Board of Managers to formulate decisions during the fourth quarter.

 

f. Calendar 1999: Complete Level II and III integration actions as directed by the MAP executive management and Board of Managers.

 

5. Management Guidance. A number of Level III issues are addressed in more detail in this Paragraph 5. This Paragraph 5 is intended to give guidance to the executive management of SSA and MAP on certain key issues:

 

a. SSA Organization. As the integration process proceeds, it will be implemented through a transitional organization as outlined on Exhibit A with the intention of ultimately implementing an organization similar to that shown on Exhibit B, subject to changes approved by SSA and MAP executive management and the MAP Board of Managers.

 

b. Key Management Issues.

 

(i) Proper communication to everyone concerned needs to occur early and clearly to ensure the success of the operation. Structure, form, and responsibilities need to be clearly communicated. Key SSA managers, especially those involved in best practice

 

- 6 -


integration teams, need to fully understand their individual roles during what may be a chaotic period that may last longer than originally anticipated.

 

(ii) Outside agencies and suppliers will be dealing with one legal entity that in some cases will continue to behave as two separate entities. This is potentially an area of confusion that needs to be addressed to avoid causing problems in the retail operation. Speedway SuperAmerica LLC office of the president will have the primary responsibility for developing and disseminating the proper communication as needed to address these issues.

 

c. Co-Management. It is anticipated that through its early stages, SSA will be con-managed by R.N. Yammine and J. F. Pettus to achieve the overall objectives of Marathon and Ashland for MAP. During such stages, it is anticipated that Pettus’ emphasis will be on SSA operations and Yammine’s on SSA financial and other support functions, but they will share responsibility for managing SSA, ensuring that best practices guide the integration process in the manner and on the timetable described in this protocol, and ensuring that the non-integrated segments on SSA continue to operate smoothly and efficiently. References in this protocol to the executive management of SSA are references to Yammine and Pettus. ALL SSA EXECUTIVE MANAGEMENT DECISIONS, RECOMMENDATIONS AND OTHER ACTIONS RELATIVE TO INTEGRATION AND TO ONGOING OPERATION OF SSA’S BUSINESS ARE TO BE MADE JOINTLY BY YAMMINE AND PETTUS; PROVIDED THAT IF YAMMINE AND PETTUS ARE UNABLE TO AGREE ON A DECISION, RECOMMENDATION OR ACTION, THEY WILL REPORT TO THE PRESIDENT OF MAP WHO WILL RESOLVE ANY DIFFERENCE AND REPORT HIS RECOMMENDATION TO THE MAP BOARD ON ANY MATTER REQUIRED HEREUNDER, INCLUDING LEVEL III DECISIONS.

 

- 7 -


d. Measurement of Success.

 

(i) The present P & L statements of Emro and SuperAmerica are not consistent since Emro’s P & L is based on rack prices and SuperAmerica’s is based on adjusted rack prices. A common transfer price will be adopted by MAP executive management after the closing of the Joint Venture, with appropriate input from the SSA executive management. Depending upon the transfer price methodology used, various adjustments will be made to permit accurate analysis of Emro and SuperAmerica performance, e.g., if rack price is used, adjustments will be made to reflect the synergy added to MAP by Emro and SuperAmerica.

 

(ii) Except as noted in this protocol, the intent of Marathon and Ashland is to analyze all decisions to be made and other actions to be taken relative to Level II and Level III integration, and to value alternatives, on an economic value added (“EVA”) basis, as it relates to MAP in total. However, Marathon and Ashland recognize that certain qualitative issues relative to Emro and SuperAmerica Business Equity may not lend themselves to a strict EVA analysis. In such cases, other tools may be used to analyze such qualitative issues and value alternatives, including but not limited to:

 

A) Benchmarking performances between similar operations in Emro and SuperAmerica, e.g., money loss and inventory shrink in similar groups of stores, sales by category, profit by store category, etc.;

 

B) Marketing program and reverse marketing program testing;

 

C) Customer-intercept studies;

 

D) Focus-group evaluations; and

 

E) Consultants’ input and analysis, as deemed appropriate and cost effective by the SSA or MAP executive management.

 

F) Various economic methodologies pertinent to the economic performance of SSA and SSA and MAP combined.

 

- 8 -


EXHIBIT A

 

LOGO

 


EXHIBIT B

 

LOGO

 


 

SCHEDULE 1.01

to

Limited Liability Company Agreement

Financed Properties

 

1. Double-Skin Barge Program – PNC Leasing Corp., Kentucky and Pitney Bowes Credit Corporation (35 barges are currently in the program).

 

(a) Charter Agreement between PNC Leasing Corp., Kentucky, as Owner, and Ashland Inc., as Charterer, dated as of January 19, 1996, as amended by First Amendment thereto dated as of October 28, 1997.

 

(b) Charter Agreement between Pitney Bowes Credit Corporation, as Owner, and Ashland Inc., as Charterer, dated as of January 19, 1996, as amended by First Amendment thereto dated as of October 28, 1997.

 

2. Sale & Leaseback of 125 DOT 112J340W Pressure Tank Cars between Signet Leasing & Financial Corporation and Ashland Inc.

 

(a) Master Lease Agreement, dated as of April 26, 1995, between Signet Leasing and Financial Corporation, as lessor, and Ashland Inc., as lessee.

 

3. Super America-Goldman Sachs Sale Leaseback (24 properties).

 

(a) Lease Agreement, dated as of December 31, 1990, between State Street Bank and Trust Company of Connecticut, National Association, as lessor, and Ashland Inc., (formerly Ashland Oil, Inc.), as lessee.

 

4. Bluegrass Funding, Inc. Master Lease Program (15 SuperAmerica properties are currently in the program).

 

(a) Amended, Restated and Consolidated Lease Agreement, dated as of October 22, 1993, between Bluegrass Funding, Inc. and Ashland Oil, Inc.;

 

(b) Amendment No. 1, dated as of October 31, 1994 to Amended, Restated and Consolidated Lease Agreement between Bluegrass Funding, Inc. and Ashland Oil, Inc.; and

 

(c) Amendment No. 2, dated as of March 17, 1995, to Amended, Restated and Consolidated Lease Agreement dated as of October 22, 1993, between Bluegrass funding, Inc. and Ashland Inc.

 

5. Fayette Funding, Limited Partnership master Lease Program (172 SuperAmerica and Rich Oil properties are currently in the program that will be contributed to the Company).

 

(a) Second Amended, Restated and Consolidated Lease Agreement, dated as of November 14, 1995, between Fayette Funding, Limited Partnership and Ashland Inc.; and

 

(b) Amendment No. 1 to Second Amended, Restated and Consolidated Agreement for Lease, dated as of July 9, 1996, between Fayette Funding, Limited Partnership and Ashland Inc.

 


 

LIMITED LIABILITY COMPANY AGREEMENT

 

Schedule 4.01(c)

 

Marathon Subleased Property

 

Subleased Property is described in the Sublease Schedules to the Marathon Designated Sublease Agreements attached as Exhibit E to the Asset Transfer and Contribution Agreement.

 

1. Service/Truck Stations under the following leases:

 

(a) Lease Agreement dated as of September 15, 1987 between Wilmington Trust Company and William J. Wade, not in their respective individual capacities, but solely as owner trustees under a Trust Agreement dated as of September 15, 1987, Lessor and Marathon Oil Company, as assignee of Emro Marketing Company, Lessee.

 

(b) Lease for each Original Lease identified on a Sublease Schedule, which Lease is one of a series of lease agreements between Station Associates Venture, an Indiana general partnership, as Landlord, and Marathon Oil Company, an Ohio corporation, as assignee of Emro Marketing Company, a Delaware corporation, as successor by merger to R. I. Marketing, Inc., and Indiana corporation, as Tenant.

 

2. Hydrotreater-Penex Units under the following leases:

 

(a) Equipment Lease Agreement dated as of December 1, 1985, as amended effective October 11, 1995, between State Street Bank and Trust Company not in its individual capacity but solely as Trustee (“Lessor”), as successor Trustee to the original Trustee, The First National Bank of Boston, under that certain Trust Agreement dated as of December 1, 1985 with BNY Capital Resources Corporation (“Trustor”), as successor in interest to BNY One Leasing Corporation (formerly BNY Leasing, Inc.) and Marathon Oil Company (“Lessee”), as successor by merger to Marathon Petroleum Company.

 

(b) Equipment Lease (“Lease”) dated as of November 1, 1986 between Sequa Capital Corporation, formerly Forsun Leasing Corp., as Lessor and Marathon Oil Company, successor by merger to Marathon Petroleum Company, as Lessee.

 


 

SCHEDULE 4.01(c)

to

Limited Liability Company Agreement

 

1. Double-Skin Barge Program – PNC Leasing Corp., Kentucky and Pitney Bowes Credit Corporation (35 barges are currently in the program).

 

(a) Charter Agreement between PNC Leasing Corp., Kentucky, as Owner, and Ashland Inc., as Charterer, dated as of January 19, 1996, as amended by First Amendment thereto dated as of October 28, 1997.

 

(b) Charter Agreement between Pitney Bowes Credit Corporation, as Owner, and Ashland Inc., as Charterer, dated as of January 19, 1996, as amended by First Amendment thereto dated as of October 28, 1997.

 

2. Sale & Leaseback of 125 DOT 112J340W Pressure Tank Cars between Signet Leasing & Financial Corporation and Ashland Inc.

 

(a) Master Lease Agreement, dated as of April 26, 1995, between Signet Leasing and Financial Corporation, as lessor, and Ashland Inc., as lessee.

 

3. SuperAmerica- Goldman Sachs Sale & Leaseback (24 properties).

 

(a) Lease Agreement, dated as of December 31, 1990, between State Street Bank and Trust Company of Connecticut, National Association, as lessor, and Ashland Inc. (formerly Ashland Oil, Inc.), as lessee.

 


 

LIMITED LIABILITY COMPANY AGREEMENT

 

Schedule 4.02(a)-1

 

Marathon Funded Capital Expenditure

 

1. The work necessary to restore the Patoka to Lima Pipe Line to the operating pressure and throughput conditions that existed prior to the release of crude oil from such pipeline on August 24, 1997.

 


 

LIMITED LIABILITY COMPANY AGREEMENT

 

SCHEDULE 4.02(a)-2

MEMBER FUNDED CAPITAL EXP.

 

See Schedule 7.2(k) of the Asset Transfer and Contribution Agreement

 

12/10/97

 


 

LIMITED LIABILITY COMPANY AGREEMENT

 

SCHEDULE 8.08(k)i(a)

CLOSING DATE AFFILIATE TRANSACTIONS

 

Put/Call, Registration Rights, and Standstill Agreement by and among Marathon Oil Company, USX Corporation, Ashland Inc. and Marathon Ashland Petroleum LLC

 

Intellectual Property License Agreement from Ashland Inc. to Marathon Ashland Petroleum LLC

 

Trademark License Agreement from Ashland Inc. to Marathon Ashland Petroleum LLC

 

Office Lease Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC of Lexington, KY office building

 

Office Lease Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC for lease of Russell, KY office building

 

Lease Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC for lease of the Louisville, KY Terminal

 

Lease Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LCC for lease of the Findlay, OH Terminal

 

Lease Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC for lease of Heath, OH Terminal

 

Lease Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC for lease of the Cincinnati, OH Asphalt Terminal

 

Lease Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC for lease of the Ashland Brand Bulk Plants

 

Goldman Sachs Master Sublease Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC

 

Pitney Bowes Credit Corporation Master Subcharter Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC

 


PNC Leasing Corp. Kentucky Master Subcharter Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC

 

Signet Leasing and Financing Corporation Master Sublease Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC

 

Pass-Through Sublease Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC for sublease of BLC Corporation vehicles and railcars

 

Pass-Through Sublease Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC for sublease of First Union Commercial Corporation vehicles and trailers

 

Lube Oils and Chemicals Supplement Agreement between Marathon Oil Company and Ashland Inc. (Valvoline Lube Purchase Contract)

 

Hydrocarbon Supply Agreement between Industrial Chemicals and Solvents Division of Ashland Chemical Company, a division of Ashland Inc. and Ashland Petroleum Company, a division of Ashland Inc. (Ashland Chemical Agreement)

 

Joint Services Agreement by and between Marathon Ashland Petroleum LLC and Ashland Chemical Company, a division of Ashland Inc. (Ashland Chemical Interplant Services Agreement)

 

Supplier Cooperation Agreement by and between Marathon Ashland Petroleum LLC and The Drew Industrial Division of Ashland Chemical Company, Division of Ashland Inc. (Wastewater Treatment Agreement)

 

License Agreement by and between Ashland Inc. and Marathon Ashland Petroleum LLC (Caverns/Neal, West Virginia)

 

Insurance Indemnity Agreement by and among Marathon Oil Company, Ashland Inc., USX Corporation and Marathon Ashland Petroleum LLC

 

Services Agreement by and among Marathon Ashland Petroleum LLC, Marathon Oil Company and Ashland Inc.

 

Revolving Credit Agreement among Ashland Inc., Marathon Oil Company, and Marathon Ashland Petroleum LLC

 

Possible subcharter of M/V Kentucky and M/F West Virginia

 


 

LIMITED LIABILITY COMPANY AGREEMENT

 

Schedule 8.08(k)(i)(A)

 

Marathon’s Closing Date Affiliate Transactions

 

The following Affiliate Transactions:

 

Marathon Intellectual Property Agreement

 

Marathon Trademark License Agreement

 

Findlay Office Lease Agreement

 

Indianapolis Terminal Lease Agreement

 

Emro Marketing Sublease Agreement

 

Garyville Hydrotreater Sublease Agreement

 

Robinson Hydrotreater Sublease Agreement

 

SAV Sublease Agreement

 

Marathon Other Sublease Agreement

 

Marathon Pipe Line Operating Agreements

 

Joint Defense Agreement

 

Crude Oil & NGL Agreement

 

Indemnity Agreement

 

Shared Services Agreement

 

Revolving Credit Facility

 

Put/Call, Registration Rights and Standstill Agreement

 


EXECUTION COPY

 

Schedule 8.14

 

Company Leverage Policy

 

For purposes of the Limited Liability Company Agreement dated as of January 1, 1998, of Marathon Ashland Petroleum LLC (the “Company”), by and among Marathon Oil Company, an Ohio corporation and Ashland Inc., a Kentucky corporation (the “LLC Agreement”), the Company Leverage Policy shall be as set forth below. Unless otherwise indicated, Section and Article references in this Schedule 8.14 are to Sections and Articles of the LLC Agreement.

 

The Company Leverage Policy is based on the following general principals:

 

(1) It is the intent of Marathon and Ashland that the Company and its subsidiaries operate without financial leverage, either on balance sheet (through Indebtedness) or off balance sheet (through lease programs, receivable financing programs and similar financing methods).

 

(2) It is the intent of Marathon and Ashland that the Company and its subsidiaries have available to them on an on-going basis one or more revolving credit facilities, uncommitted money market credit facilities or other comparable debt facilities in such amount to provide adequate liquidity to fund the normal operation of the Company and that the company and its subsidiaries promptly repay any amounts borrowed under such facilities at the time of, and to the extent of, any collected or available bank cash balances other than Incidental Cash and any cash balances that represent uncollected funds that are not otherwise included in Incidental Cash (collectively “Surplus Cash”).

 

(3) It is the intent of Marathon and Ashland that increases in Ordinary Course Lease Expenses over time shall not exceed the rate of inflation (it being understood that notwithstanding the foregoing, the $80 million limitation on Ordinary Course Lease Expenses in Section 8.08(f)(ii) of the LLC Agreement exceeds the historical average lease expense of certain specified leases of both Marathon’s Business and Ashland’s Business).

 


Accordingly, the parties hereto hereby agree as follows:

 

SECTION 1. Definitions. Capitalized terms used but not defined in this Schedule 8.14 shall have the meanings set forth in the LLC Agreement. In addition the following terms used herein have the following meanings:

 

Permitted Capital Projects/Acquisitions” means one or more capital improvement projects or acquisitions, each approved by the Board of Managers on or prior to December 31, 2004, pursuant to a vote in accordance with Section 8.07(c) of the LLC Agreement, following a vote of the Board of Managers in accordance with Section 8.07(b) of the LLC Agreement with respect to such capital improvement projects or acquisitions in circumstances where such capital improvement project or acquisition was not approved and a majority of the Marathon Representatives voted in favor of such capital improvement or acquisition; provided however, that each such capital improvement project or acquisition has a discounted cash flow rate of return of at least 15%, based upon such economic assumptions and methodology as are mutually acceptable to Marathon and Ashland, acting in good faith; provided further, however, that the aggregate amount of all Capital Expenditures and Acquisition Expenditures of the Company and its subsidiaries made with respect to Permitted Capital Projects/Acquisitions shall not exceed $300 million.

 

Permitted Capital Project/Acquisition Indebtedness” means the actual or notional amount of any Indebtedness that is designated for, and is incurred for the specific purpose of, funding a Permitted Capital Project/Acquisition.

 

Permitted Intercompany Debt” mean (i) Indebtedness owed by the Company to any of its Wholly Owned Subsidiaries, (ii) Indebtedness owed by a Wholly Owned Subsidiary of the Company to the Company and (iii) Indebtedness owed by a Wholly Owned Subsidiary of the Company to another Wholly Owned Subsidiary of the Company.

 

Special Project” means (a) a Capital Expenditure of, or an acquisition by, the Company or any of its subsidiaries that is designated by the Board of Managers as a “Special Project” pursuant to a vote in accordance with Section 8.07(b) of the LLC Agreement or (b) any acquisition of assets or stock resulting in the incurrence of Indebtedness in an amount of less than $15 million pursuant to Section 2(d) hereto.

 

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Special Project Indebtedness” means the actual or notional amount of any Indebtedness that is designated for, and is incurred for the specific purpose of funding, a Special Project.

 

SECTION 2. Limitation on Incurrence of Indebted-ness. (a) The Company and its subsidiaries shall not incur any indebtedness other than: (1) borrowings under one or more revolving credit facilities, uncommitted money market credit facilities or other comparable debt facilities (including under the Revolving Credit Agreement) to fund cash deficiencies in an amount not to exceed $500 million in the aggregate, (ii) Permitted Intercompany Debt, (iii) Permitted Capital Project/Acquisition Indebtedness, (iv) any Special Project Indebtedness and (v) the Indebtedness assumed by the Company pursuant to Section 2.3(d) of the Asset Transfer and Contribution Agreement.

 

(b) The Company shall promptly repay any amounts borrowed under clause (a)(i) above at the time of, and to the extent of any Surplus Cash.

 

(c) The Company and its subsidiaries shall not be permitted to incur Indebtedness under clause (a)(i) above to fund Special Projects or Permitted Capital Projects/Acquisitions.

 

(d) Any Indebtedness incurred by the Company and it s subsidiaries under clause (a)(i) above in excess of $500 million shall be approved by the Board of Managers pursuant to a vote in accordance with Section 8.07(b) of the LLC Agreement. Any Indebtedness incurred by the company and its subsidiaries under clause (a)(ii) above shall not require approval of the Board of Managers. Any Indebtedness incurred by the company and its subsidiaries under clause (a)(iii) above shall be approved in accordance with the provisions of Section 4 hereto. Any Indebtedness incurred by the Company and its subsidiaries under clause (a)(iv) above shall be approved by the Board of Managers pursuant to a vote in accordance with Section 8.07(b) of the LLC Agreement; provided however, that Special Indebtedness incurred in an amount less than $15 million in any transaction to purchase assets or stock that is payable to the seller on an installment basis or that is otherwise assumed as a result of an acquisition of assets or stock shall be approved by: (a) The Board of managers pursuant to a vote in accordance with Section 8.07(c) of the LLC Agreement if the amount of the Indebtedness is more than $5 million or (b) the Senior Vice President Finance and Commercial Services if the amount of Indebtedness in $5 million or less. Any Special Project

 

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Indebtedness incurred pursuant to the foregoing proviso shall be paid as promptly as in economically attractive given the terms of the Indebtedness and the transaction documents.

 

(e) It is understood and agreed that with respect to operating leases, the amount of rental or lease expense stated in Section 8.08(f)(ii) of the LLC Agreement shall be considered Ordinary Course Lease Expenses rather than off balance sheet financial leverage.

 

SECTION 3. Special Project Indebtedness. At the time of and in connection with its approval of any Special Project Indebtedness, the Board of managers shall also establish and approve pursuant to a vote in accordance with Section 8.07(b) of the LLC Agreement a notional repayment schedule with respect to such Special Project Indebtedness; provided, however, that any notional repayment schedule of such Special Project Indebtedness incurred pursuant to the proviso in Section 2(d) hereto shall be established and approved by the Board of Managers pursuant to a vote in accordance with Section 8.07(c) of the LLC Agreement if the amount of Indebtedness is more than $5 million or by the Senior Vice President of Finance and Commercial Services if the amount of Indebtedness in $5 million or less.

 

SECTION 4. Permitted Capital Project/Acquisition Indebtedness. (a) During Fiscal Years 1998 through 20004, the Company and its subsidiaries shall be permitted to incur up to $300 million in the aggregate in Permitted Capital Project/Acquisition Indebtedness to the extent such Permitted Capital Project/Acquisition Indebtedness is approved by the Board of Managers pursuant to a vote in accordance with Section 8.07(c) of the LLC Agreement.

 

(b) At the time of and in connection with is approval of any Permitted Catlettsburg Capital Project/Acquisition Indebtedness, the Board of Managers shall also establish and approve pursuant to a cote in accordance with Section 8.07(c) of the LLC Agreement a notional repayment schedule with respect to such Permitted Capital Project/Acquisition Indebtedness which reflects the payback of the Permitted Capital Project/Acquisition.

 

(c) The 20% threshold set forth in the definition of “Permitted Catlettsburg Capital Project/Acquisition” shall be periodically adjusted to reflect changes in the cost of capital as Marathon and Ashland shall mutually agree.

 

(d) To the extent that there is a disagreement between Ashland and Marathon over the economic assumptions

 

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or methodology to be use to determine the discounted cash flow rate of return of a Permitted Capital Project/Acquisition, such disagreement shall be resolved pursuant to the Procedures for Dispute Resolution set forth in Exhibit B to the LLC Agreement, but with any arbitration proceeding being conducted by a sole arbitrator who is qualified industry-recognized expert in the petroleum refining business.

 

SECTION 5. Amendments. The Company Leverage Policy set forth herein, and any notional repayment schedule established and approved by the Board of Manager in accordance with Section 3 hereto, may be modified, altered or amended only with the approval of the Board of Manager pursuant to a vote in accordance with Section 8.07(b) of the LLC Agreement. Notwithstanding the above, any notional repayment schedule established and approved by the Board of Managers in accordance with Section 4 hereto may be modified, altered or amended only with the approval of the Board of Managers pursuant to a vote in accordance with Section 8.07(c) of the LLC Agreement. Any notional repayment schedule associated with Special Project Indebtedness established and approved pursuant to the proviso in Section 3 may be modified, altered or amended only with the approval of the Board of Managers pursuant to a vote in accordance with Section 8.07(c) of the LLC Agreement if the amount of Indebtedness is more than $5 million or by the Senior Vice President Finance and Commercial Services if the amount of Indebtedness is $5 million or less.

 

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Schedule 8.15

 

Investment Guidelines

 

Marathon Ashland Petroleum LLC (MAP)

Short-Term Investment Guidelines

 

Policy Statement

 

Funds which are deemed to be surplus after meeting daily requirements shall be invested in money market instruments. Surplus funds shall always be invested with safety of principal and liquidity foremost in mind. Yield is important but secondary to safety and liquidity considerations.

 

Investment Committee

 

The Investment Committee shall plan the general strategy for the management of the short-term investment portfolio. The Committee will discuss from time to time market conditions and general strategy and will have the authority to change policy as deemed needed. The Committee shall be composed of the Senior Vice President, Finance and Administration; Vice President Finance and Controller; and the Treasurer. The guidelines may be changed upon writt