-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FTBtFbrg2YaohGr6e6hEw4wt4R4qnFqScHZLlcv0pf8DGokEHkwLNbaAgoX0ET2J du0fBI3Sq1WVtjHSray06g== 0000950152-04-004195.txt : 20040520 0000950152-04-004195.hdr.sgml : 20040520 20040520103502 ACCESSION NUMBER: 0000950152-04-004195 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20040520 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUBRIZOL CORP CENTRAL INDEX KEY: 0000060751 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 340367600 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-115662 FILM NUMBER: 04820291 BUSINESS ADDRESS: STREET 1: 29400 LAKELAND BLVD CITY: WICKLIFFE STATE: OH ZIP: 44092 BUSINESS PHONE: 2169434200 MAIL ADDRESS: STREET 1: 29400 LAKELAND BLVD CITY: WICKLIFFE STATE: OH ZIP: 44092 S-3 1 l07377asv3.txt THE LUBRIZOL CORPORATION FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 2004 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 THE LUBRIZOL CORPORATION (Exact Name of Registrant as Specified in Its Charter) OHIO 34-0367600 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization)
29400 Lakeland Boulevard Wickliffe, Ohio 44092-2298 (440) 943-4200 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) --------------------- Joseph W. Bauer Vice President and General Counsel 29400 Lakeland Boulevard Wickliffe, Ohio 44092-2298 (440) 943-4200 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) COPIES TO: James R. Carlson Michael J. Schiavone Thompson Hine LLP Shearman & Sterling LLP 3900 Key Center 599 Lexington Avenue 127 Public Square New York, New York 10022 Cleveland, Ohio 44114 (212) 848-4000 (216) 566-5500
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after this registration statement becomes effective. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE OFFERING REGISTRATION SECURITIES TO BE REGISTERED TO BE REGISTERED(1) PER UNIT(1)(2) PRICE(1) FEE(3) - --------------------------------------------------------------------------------------------------------------------------------- Common shares(4)(5).......................... (2) -- (2) (2) Debt securities(5)........................... (2) -- (2) (2) Total........................................ $2,000,000,000 -- $2,000,000,000 $253,400 - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) An indeterminate aggregate principal amount or number of securities is being registered as may from time to time be issued hereunder at indeterminate prices. In no event will the aggregate initial offering price of the common shares and debt securities issued hereunder exceed $2,000,000,000. The proposed maximum offering prices per unit will be determined from time to time by the registrant in connection with the issuance by the registrant of the securities registered hereunder. (Continued on other side) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Continued from other side) (2) Not specified as to each class of securities to be registered pursuant to General Instruction II.D. of Form S-3. (3) Calculated, pursuant to Rule 457(o) under the Securities Act of 1933, by multiplying 0.00012670 by the proposed maximum aggregate offering price. (4) Includes the associated common share purchase rights. (5) Includes such indeterminate number of common shares and such indeterminate principal amount of debt securities as may be offered pursuant to this registration statement. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED , 2004 PROSPECTUS $2,000,000,000 THE LUBRIZOL CORPORATION COMMON SHARES DEBT SECURITIES This prospectus provides you with a general description of the common shares and debt securities that we may offer and sell from time to time. Each time we offer securities for sale we will provide a prospectus supplement that contains specific information about the terms of the offered securities and may add to, update or change the information contained in this prospectus. We will also describe in the prospectus supplement any material risk factors that an investor should consider before purchasing our securities. This prospectus may not be used to consummate sales of our securities unless it is accompanied by a prospectus supplement describing the terms of the offering. Our common shares are listed for trading on the New York Stock Exchange under the symbol "LZ." The mailing address and telephone number of our principal executive offices are 29400 Lakeland Boulevard, Wickliffe, Ohio 44092-2298 and (440) 943-4200. You should read this prospectus, the documents that are incorporated herein by reference and the applicable prospectus supplement carefully before you decide to invest in our securities. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is , 2004. TABLE OF CONTENTS About this Prospectus....................................... 1 About The Lubrizol Corporation.............................. 1 Where You Can Find More Information......................... 1 Forward-Looking Statements.................................. 2 Use of Proceeds............................................. 3 Ratio of Earnings to Fixed Charges.......................... 3 Description of Common Shares................................ 3 Description of Debt Securities.............................. 6 Plan of Distribution........................................ 20 Legal Matters............................................... 22 Experts..................................................... 22
ABOUT THIS PROSPECTUS This prospectus is part of a registration statement that we filed with the SEC utilizing a shelf registration process. Under this shelf process, we may sell any combination of the securities described in this prospectus in one or more offerings up to a total dollar amount of $2,000,000,000. This prospectus provides you with a general description of the securities that we may offer. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. This prospectus may not be used to consummate sales of our securities unless it is accompanied by a prospectus supplement describing the terms of the offering. You should read both this prospectus and any applicable prospectus supplement together with the additional information described below under the heading "Where You Can Find More Information." ABOUT THE LUBRIZOL CORPORATION We are a leading global fluid technology company that develops, produces and sells high-performance chemicals, systems and services for transportation and industry. We create these products by applying advanced chemical and mechanical technologies to enhance the performance, quality and value and reduce the environmental impact of the customer products in which our products are used. Our product lines consist of three principal segments: fluid technologies for transportation, fluid technologies for industry, and all other, which is comprised of advanced fluid systems and emulsified products. On April 16, 2004, we announced that we have entered into an agreement and plan of merger to acquire Noveon International, Inc. in a transaction valued at $1.84 billion. Noveon is a leading global producer and marketer of technologically advanced specialty materials and chemicals used in a broad range of consumer and industrial applications. Noveon's businesses include a number of industry-leading product franchises marketed under some of the industry's most recognized brand names, including Carbopol(R), TempRite(R), Estane(R) and Hycar(R). The acquisition of Noveon is expected to be completed by June 30, 2004. WHERE YOU CAN FIND MORE INFORMATION We are subject to the reporting requirements of the Securities Exchange Act of 1934, and we file annual, quarterly and current reports and other information with the SEC. Our reports filed with the SEC may be inspected, without charge, and copies may be obtained at prescribed rates, at the public reference facility maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information regarding the SEC's public reference facility by calling 1-800-SEC-0330. Our reports and other information filed by us with the SEC are also available at the SEC's website on the Internet located at www.sec.gov. Our common shares are listed for trading on the NYSE under the symbol "LZ." We maintain a website on the Internet located at www.lubrizol.com. The information on our website is not incorporated by reference in this prospectus. The SEC allows us to incorporate by reference in this prospectus the information that we file with them. Incorporation by reference means that we can disclose important information to you by referring you to other documents that are considered to be part of this prospectus, and later information that we file with the SEC will automatically update and supersede the information in this prospectus and the documents listed below. We hereby incorporate by reference our filings listed below and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this prospectus until all of the securities offered under this prospectus are sold: - Our Annual Report on Form 10-K for the fiscal year ended December 31, 2003; - Our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004; - Our Current Reports on Form 8-K filed with the SEC on April 16 and May 20, 2004; - The description of our common shares contained in Item 2 of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1991; 1 - Our Registration Statement on Form 8-A filed with the SEC on October 1, 1997; and - Our Registration Statement on Form 8-A/A filed with the SEC on August 17, 1999. We will provide without charge to each person to whom a copy of this prospectus is delivered, including any beneficial owner, upon the written or oral request of such person, a copy of any or all of the documents incorporated by reference in this prospectus (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into the information that this prospectus incorporates). Requests should be directed to: The Lubrizol Corporation 29400 Lakeland Boulevard Wickliffe, Ohio 44092-2298 (440) 943-4200 Attn: Joanne Wanstreet You should only rely on the information contained in this prospectus, any prospectus supplement or any document incorporated by reference. We have not authorized anyone else to provide you with different or additional information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus, any prospectus supplement or any document incorporated by reference is accurate as of any date other than the date of the applicable document. FORWARD-LOOKING STATEMENTS This prospectus contains, each prospectus supplement may contain and the documents incorporated by reference herein contain or will contain forward-looking statements within the meaning of the federal securities laws. As a general matter, forward-looking statements are those focused upon future plans, objectives or performance as opposed to historical items and include statements of anticipated events or trends and expectations and beliefs relating to matters not historical in nature. Forward-looking statements are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These uncertainties and factors could cause our actual results to differ materially from those matters expressed in or implied by any forward-looking statements. We believe that the following factors, among others, could affect our future performance and cause our actual results to differ materially from those expressed or implied by the forward-looking statements made by us: - the overall global economic environment and the overall demand for our products on a worldwide basis; - the demand for our products in developing regions such as China and India, which geographic areas are an announced focus of our activities; - technology developments that affect longer-term trends for our products; - the extent to which we are successful in expanding our business in new and existing markets; - our ability to identify, complete and integrate acquisitions for profitable growth; - our success at continuing to develop proprietary technology to meet or exceed new industry performance standards and individual customer expectations; - our ability to continue to reduce complexities and conversion costs and modify our cost structure to maintain and enhance our competitiveness; - our success in retaining and growing the business that we do with our largest customers; - the cost, availability and quality of raw materials, including petroleum-based products; - the cost and availability of energy, including natural gas and electricity; 2 - the effects of fluctuations in currency exchange rates upon our reported results from international operations, together with non-currency risks of investing in and conducting significant operations in foreign countries, including those relating to political, social, economic and regulatory factors; - the extent to which we achieve market acceptance of our commercial development programs; - significant changes in government regulations affecting environmental compliance; and - the ability to identify, understand and manage risks inherent in new markets in which we choose to expand. USE OF PROCEEDS Unless otherwise disclosed in the applicable prospectus supplement, we intend to use the net proceeds from the sale of our securities to repay outstanding indebtedness, including debt that we expect to incur or assume in connection with the acquisition of Noveon. RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth our consolidated ratio of earnings to fixed charges on an historical basis for the periods indicated.
YEAR ENDED DECEMBER 31, THREE MONTHS ------------------------------------- ENDED 1999 2000 2001 2002 2003 MARCH 31, 2004 ----- ----- ----- ----- ----- -------------- Ratio of earnings to fixed charges(1)...................... 7.71X 7.66X 6.97X 9.29X 6.19X 10.12X
- --------------- (1) Our ratio of earnings to fixed charges has been computed by dividing earnings (including distributed income of equity investees) before income taxes plus fixed charges (excluding capitalized interest expense) by fixed charges. Fixed charges consist of interest expense on debt (including amortization of debt expense and capitalized interest). DESCRIPTION OF COMMON SHARES COMMON SHARES The following is a summary of the provisions of our common shares. The rights of our common shares are defined by our Amended Articles of Incorporation and our Code of Regulations, as amended, and the provisions of the Ohio General Corporation Law. You should refer to those documents and provisions for more complete information regarding our common shares. Holders of our common shares are entitled to one vote per share on all matters upon which our shareholders are entitled to vote, including the election of directors. The holders of common shares are entitled to dividends when, as and if declared by our Board of Directors out of legally available funds. In the event of any liquidation, dissolution or winding up of our business, each holder of common shares is entitled to share ratably in all of our assets remaining after the payment of liabilities. Holders of common shares have no preemptive right to purchase any of our securities or any securities that are convertible into or exchangeable for any of our securities. The common shares are not subject to any provisions relating to redemption. The common shares have no conversion rights and are not subject to further calls or assessments by us. All of our common shares now outstanding, and all of our common shares that are issued in an offering under this prospectus, are or will be when issued fully paid and non-assessable. As of the date hereof, we have 120,000,000 common shares authorized for issuance under our Amended Articles of Incorporation, common shares issued and outstanding, and common shares reserved for issuance pursuant to our Employees' Profit Sharing and Savings Plan. 3 Our common shares are listed for trading on the NYSE under the symbol "LZ." As of the date hereof, we have shareholders of record. This number excludes beneficial owners of common shares held in street name. Based on requests from brokers and other nominees, we estimate there are approximately an additional beneficial owners of our common shares. PROVISIONS RELATING TO TAKEOVER MATTERS Our Board of Directors must have at least nine, and no more than thirteen, directors and is currently fixed at eleven directors, who are divided into three classes. Two classes have four directors, and the other class has three directors. Directors of each class serve for three-year terms, with one class being elected each year. The authorized number of directors and the number of directors in each class may be changed only by the affirmative vote of the holders of at least a majority of the shares entitled to vote for the election of directors that are represented at a meeting of shareholders called for the purpose of electing directors or by the affirmative vote of a majority of the directors then in office. Under the Ohio General Corporation Law, if a corporation's Board of Directors is divided into classes, then directors may be removed by the shareholders only for cause. Under our Code of Regulations, a director may be removed upon the vote of the holders of two-thirds of the shares that are represented at an annual meeting or any special meeting of shareholders duly called for that purpose. Unless all of the directors of a class are removed, a director may not be removed if the number of shares voted against the director's removal would be sufficient, if cumulatively voted at an election of all of the directors or all of the directors of a particular class, to elect one director. If any director is removed, the resulting vacancy may be filled by a majority vote of the Board of Directors. Any director elected to fill a vacancy will hold office until the expiration of the term of office for the class to which the director was elected. Nominations of persons for election as directors may be made at a meeting of shareholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors, or by any shareholder entitled to vote for the election of directors who gives timely notice. To be timely, a shareholder's notice must be received at our principal executive offices not less than 60 days nor more than 90 days prior to the meeting; except that, if less than 75 days' notice or prior public disclosure of the date of the meeting is given to shareholders, notice by the shareholder will be timely if it is received not later than the 15th day following the earlier of the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A special meeting of shareholders may be called by the chairman of the board, the president, a majority of the directors acting with or without a meeting, or by shareholders holding 50% or more of the outstanding shares entitled to vote at the special meeting. Our Code of Regulations provides that holders of shares entitling them to exercise at least a majority of our voting power will constitute a quorum at any meeting of shareholders; except that, whether or not a quorum is present, the holders of a majority of the voting shares represented at a meeting may adjourn the meeting without notice other than by announcement at the meeting. Our Code of Regulations may be amended, repealed or superseded by new regulations by the affirmative vote of the holders of a majority of the shares represented at an annual meeting or any special meeting of shareholders duly called for that purpose. The provisions of our Code of Regulations regarding the number, classification and removal of directors, however, may be amended or repealed only with the affirmative vote of the holders of at least two-thirds of our voting power, unless the amendment or repeal has been recommended by at least two-thirds of the directors then in office. Section 1704.02 of the Ohio General Corporation Law (also known as the Merger Moratorium Law) prohibits Chapter 1704 transactions (as defined below) for a period of three years from the date on which a shareholder first becomes an interested shareholder unless the directors of the corporation prior to the shareholder becoming an interested shareholder approved the transaction or approved the transaction pursuant to which the shareholder became an interested shareholder. "Chapter 1704 transactions" include mergers, consolidations, combinations, majority share acquisitions or sales of substantial assets between an Ohio corporation and an 4 interested shareholder or an affiliate or associate of an interested shareholder. An "interested shareholder" is defined generally as any person that beneficially owns 10% or more of the outstanding voting shares of the corporation. After the three-year period, a Chapter 1704 transaction is prohibited unless certain fair price provisions are complied with or the shareholders of the corporation approve the transaction by the affirmative vote of two-thirds of the voting power of the corporation, including at least a majority of the disinterested shareholders. Under Ohio securities law, any person making a "control bid" pursuant to a tender offer for the securities of certain publicly held companies, including our company, must file upon commencement of the bid certain information relating to the bid with the Ohio Division of Securities. The Division may within five calendar days suspend the bid if the required information has not been filed, if material information regarding the bid has not been provided to the shareholders of the company, or if there has been any other violation of the Ohio Securities Act. Under the Ohio General Corporation Law, the approval by the affirmative vote of holders of two-thirds of the voting power of a corporation entitled to vote on the matter is required for mergers, consolidations, majority share acquisitions, combinations involving the issuance of shares with one-sixth or more of the voting power of the corporation, and any transfers of all or substantially all of the assets of a corporation unless the articles of incorporation of the corporation specify a different proportion (which cannot be less than a majority). Our Amended Articles of Incorporation provide that these actions generally can be authorized by the holders of a majority of the outstanding shares. Our Amended Articles of Incorporation include provisions that require prior shareholder approval for any acquisition of shares in which a person or group obtains voting power of our company in one of the following ranges: one-fifth or more but less than one-third, one-third or more but less than a majority, or a majority. Any such acquisition must be approved at a special meeting of shareholders, at which a quorum is present, by the affirmative vote of both (1) the holders of a majority of the outstanding voting shares and (2) the holders of a majority of the outstanding voting shares after excluding interested shares. For this purpose, "interested shares" includes shares held by the directors who are employees and certain officers of our company and shares held by the person or group acquiring the shares. Our company has "opted out" of a similar provision that is set forth in the Ohio General Corporation Law. Our Amended Articles of Incorporation contain provisions that require certain related-party transactions to be approved by the affirmative vote of the holders of both a majority of the outstanding voting shares and a majority of such shares after excluding the shares owned by the related party involved in the transaction, unless certain fair price provisions are complied with. For this purpose, a "related party" means any person that beneficially owns 10% or more, but less than 90%, of our outstanding voting shares and any of such person's affiliates or associates. A "related-party transaction" includes any merger or consolidation, any sale, purchase, lease, exchange or transfer of substantial assets, the issuance or transfer of any securities, any reclassification of securities or recapitalization or the adoption of any plan or proposal for liquidation or dissolution, in each case with, to or for the benefit of a related party. Our Amended Articles of Incorporation may be amended, repealed or superseded by new articles of incorporation by the affirmative vote of the holders of at least two-thirds of the outstanding voting shares. Our company has a shareholder rights plan. Under that plan, rights have been distributed to all of our shareholders. If any person or group acquires 20% or more of our common shares, these rights will "flip in" and permit all holders, other than the acquiring person, to purchase additional shares at a discounted price. Some or all of these provisions of our Amended Articles of Incorporation, Code of Regulations and Ohio law and our shareholder rights plan may have the effect of delaying, hindering or preventing a change in control of our company that is not supported by our Board of Directors, including a change in control that might result in the receipt by shareholders of a purchase price in excess of then current market prices. 5 DESCRIPTION OF DEBT SECURITIES The following description of the debt securities sets forth the material terms and provisions of the debt securities to which any prospectus supplement may relate. The debt securities are to be issued under an indenture (the "indenture") among Lubrizol and Wells Fargo Bank, National Association, as trustee, the form of which is filed as an exhibit to the registration statement of which this prospectus forms a part. The particular terms of the debt securities offered by any prospectus supplement, and the extent to which the general provisions described below may apply to the offered debt securities, will be described in the prospectus supplement. Because the following is a summary of the material terms and provisions of the indenture and the debt securities, you should refer to the indenture and the debt securities for complete information regarding the terms and provisions of the indenture and the debt securities, including the definitions of some of the terms used below. You should also refer to the Trust Indenture Act of 1939, certain terms of which are made a part of the indenture by reference. Wherever particular articles, sections or defined terms of the indenture are referred to, such articles, sections or defined terms are incorporated herein by reference, and the statement in connection with which such reference is made is qualified in its entirety by such reference. For purposes of this description of debt securities, references to "Lubrizol" include only The Lubrizol Corporation and not its subsidiaries. GENERAL The indenture does not limit the aggregate principal amount of debt securities which Lubrizol may issue thereunder and provides that Lubrizol may issue debt securities thereunder from time to time in one or more series. (Section 3.1) The indenture does not limit the amount of other Debt (as defined below) or debt securities, other than certain secured Debt as described below, which Lubrizol or its subsidiaries may issue. Unless otherwise provided in a prospectus supplement, the debt securities will be unsecured obligations of Lubrizol, ranking senior in right of payment to all future obligations of Lubrizol that are, by their terms, expressly subordinated in right of payment to the debt securities and equally in right of payment with all existing and future unsecured obligations of Lubrizol that are not so subordinated. The prospectus supplement relating to the particular debt securities offered thereby will describe the following terms of the offered debt securities: - the title of such debt securities and the series in which such debt securities will be included, which may include medium-term notes; - any limit upon the aggregate principal amount of such debt securities; - the date or dates, or the method or methods, if any, by which such date or dates will be determined, on which the principal of such debt securities will be payable; - the rate or rates at which such debt securities will bear interest, if any, which rate may be zero in the case of certain debt securities issued at an issue price representing a discount from the principal amount payable at maturity, or the method by which such rate or rates will be determined (including, if applicable, any remarketing option or similar method), and the date or dates from which such interest, if any, will accrue or the method by which such date or dates will be determined; - the date or dates on which interest, if any, on such debt securities will be payable and any regular record dates applicable to the date or dates on which interest will be so payable; - whether and under what circumstances additional amounts in respect of certain taxes, fees, duties, assessments or governmental charges that might be imposed on holders of such debt securities will be payable and, if so, whether and on what terms Lubrizol will have the option to redeem such debt securities in lieu of paying such additional amounts (and the terms of such option); - the place or places where the principal of, any premium or interest on or any additional amounts with respect to such debt securities will be payable, any of such debt securities that are issued in registered form may be surrendered for registration of transfer or exchange, and any such debt securities may be surrendered for conversion or exchange; 6 - whether any of such debt securities are to be redeemable at the option of Lubrizol and, if so, the date or dates on which, the period or periods within which, the price or prices at which and the other terms and conditions upon which such debt securities may be redeemed, in whole or in part, at the option of Lubrizol; - whether Lubrizol will be obligated to redeem or purchase any of such debt securities pursuant to any sinking fund or analogous provision or at the option of any holder thereof and, if so, the date or dates on which, the period or periods within which, the price or prices at which and the other terms and conditions upon which such debt securities will be redeemed or purchased, in whole or in part, pursuant to such obligation, and any provisions for the remarketing of such debt securities so redeemed or purchased; - if other than denominations of $1,000 and any integral multiple thereof, the denominations in which any debt securities to be issued in registered form will be issuable and, if other than a denomination of $5,000, the denominations in which any debt securities to be issued in bearer form will be issuable; - whether the debt securities will be convertible into other securities of Lubrizol and/or exchangeable for securities of other issuers and, if so, the terms and conditions upon which such debt securities will be so convertible or exchangeable; - if other than the principal amount, the portion of the principal amount (or the method by which such portion will be determined) of such debt securities that will be payable upon declaration of acceleration of the maturity thereof; - if other than United States dollars, the currency of payment, including composite currencies, of the principal of, any premium or interest on or any additional amounts with respect to any of such debt securities; - whether the principal of, any premium or interest on or any additional amounts with respect to such debt securities will be payable, at the election of Lubrizol or a holder, in a currency other than that in which such debt securities are stated to be payable and the date or dates on which, the period or periods within which, and the other terms and conditions upon which, such election may be made; - any index, formula or other method used to determine the amount of payments of principal of, any premium or interest on or any additional amounts with respect to such debt securities; - whether such debt securities are to be issued in the form of one or more global securities and, if so, the identity of the depositary for such global security or securities; - any deletions from, modifications of or additions to the Events of Default or covenants of Lubrizol with respect to such debt securities; - whether the provisions described below under "Discharge, Defeasance and Covenant Defeasance" will be applicable to such debt securities; - whether any of such debt securities are to be issued upon the exercise of warrants, and the time, manner and place for such debt securities to be authenticated and delivered; and - any other terms of such debt securities and any other deletions from or modifications or additions to the indenture in respect of such debt securities. (Section 3.1) Lubrizol will have the ability under the indenture to "reopen" a previously issued series of debt securities and issue additional debt securities of that series or establish additional terms of that series. Lubrizol is also permitted to issue debt securities with the same terms as previously issued debt securities. (Section 3.1) Unless otherwise provided in the related prospectus supplement, principal, premium, interest and additional amounts, if any, with respect to any debt securities will be payable at the office or agency maintained by Lubrizol for such purposes (initially the designated corporate trust office of the trustee). In the case of debt securities issued in registered form, interest may be paid by check mailed to the persons entitled thereto at their addresses appearing on the security register or by transfer to an account maintained by the payee with a bank located in the United States. Interest on debt securities issued in registered form will be payable on any interest payment date to 7 the persons in whose names the debt securities are registered at the close of business on the regular record date with respect to such interest payment date. All paying agents initially designated by Lubrizol for the debt securities will be named in the related prospectus supplement. Lubrizol may at any time designate additional paying agents or rescind the designation of any paying agent or approve a change in the office through which any paying agent acts, except that Lubrizol will be required to maintain a paying agent in each place where the principal of, any premium or interest on or any additional amounts with respect to the debt securities are payable. (Sections 3.7 and 10.2) Unless otherwise provided in the related prospectus supplement, the debt securities may be presented for transfer (duly endorsed or accompanied by a written instrument of transfer, if so required by Lubrizol or the security registrar) or exchanged for other debt securities of the same series (containing identical terms and provisions, in any authorized denominations, and of a like aggregate principal amount) at the office or agency maintained by Lubrizol for such purposes (initially the designated corporate trust office of the trustee). Such transfer or exchange will be made without service charge, but Lubrizol may require payment of a sum sufficient to cover any tax or other governmental charge and any other expenses then payable. Lubrizol will not be required to (1) issue, register the transfer of, or exchange, debt securities during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption of any such debt securities and ending at the close of business on the day of such mailing or (2) register the transfer of or exchange any debt security so selected for redemption in whole or in part, except the unredeemed portion of any debt security being redeemed in part. (Section 3.5) Lubrizol has appointed the trustee as security registrar. Any transfer agent (in addition to the security registrar) initially designated by Lubrizol for any debt securities will be named in the related prospectus supplement. Lubrizol may at any time designate additional transfer agents or rescind the designation of any transfer agent or approve a change in the office through which any transfer agent acts, except that Lubrizol will be required to maintain a transfer agent in each place where the principal of, any premium or interest on or any additional amounts with respect to the debt securities are payable. (Section 10.2) Unless otherwise provided in the related prospectus supplement, the debt securities will be issued only in fully registered form without coupons in minimum denominations of $1,000 and any integral multiple thereof. (Section 3.2) The debt securities may be represented in whole or in part by one or more global debt securities registered in the name of a depositary or its nominee and, if so represented, interests in such global debt security will be shown on, and transfers thereof will be effected only through, records maintained by the designated depositary and its participants as described below. Where debt securities of any series are issued in bearer form, the special restrictions and considerations, including special offering restrictions and special United States federal income tax considerations, applicable to such debt securities and to payment on and transfer and exchange of such debt securities will be described in the related prospectus supplement. The debt securities may be issued as original issue discount securities (bearing no interest or bearing interest at a rate which at the time of issuance is below market rates) to be sold at a substantial discount below their principal amount. Special United States federal income tax and other considerations applicable to original issue discount securities will be described in the related prospectus supplement. If the purchase price of any debt securities is payable in one or more foreign currencies or currency units or if any debt securities are denominated in one or more foreign currencies or currency units or if the principal of, or any premium or interest on, or any additional amounts with respect to, any debt securities is payable in one or more foreign currencies or currency units, the restrictions, elections, certain United States federal income tax considerations, specific terms and other information with respect to such debt securities and such foreign currency or currency units will be set forth in the related prospectus supplement. Lubrizol will comply with Section 14(e) of the Exchange Act and any tender offer rules under the Exchange Act, to the extent applicable, in connection with any obligation of Lubrizol to purchase debt securities at the option of the holders. Any such obligation applicable to a series of debt securities will be described in the related prospectus supplement. Unless otherwise described in a prospectus supplement relating to any debt securities, other than as described below under "-- Limitation on Liens" and "-- Limitation on Sale/Leaseback Transactions," the indenture does not contain any provisions that would limit the ability of Lubrizol to incur indebtedness or that 8 would afford holders of debt securities protection in the event of a sudden and significant decline in the credit quality of Lubrizol or a takeover, recapitalization or highly leveraged or similar transaction involving Lubrizol. Accordingly, Lubrizol could in the future enter into transactions that could increase the amount of indebtedness outstanding at that time or otherwise affect Lubrizol's capital structure or credit rating. You should refer to the prospectus supplement relating to a particular series of debt securities for information regarding any deletions from, modifications of or additions to the Events of Defaults described below or covenants of Lubrizol contained in the indenture, including any addition of a covenant or other provisions providing event risk or similar protection. CONVERSION AND EXCHANGE The terms, if any, on which debt securities of any series are convertible into or exchangeable for other securities, whether or not issued by Lubrizol, property or cash, or a combination of any of the foregoing, will be set forth in the related prospectus supplement. Such terms may include provisions for conversion or exchange, either mandatory, at the option of the holder, or at the option of Lubrizol, in which the securities, property or cash to be received by the holders of the debt securities would be calculated according to the factors and at such time as described in the related prospectus supplement. GLOBAL SECURITIES The debt securities of a series may be issued in whole or in part in the form of one or more global debt securities that will be deposited with, or on behalf of, a depositary identified in the prospectus supplement relating to such series. The specific terms of the depositary arrangement with respect to a series of debt securities will be described in the prospectus supplement relating to such series. Lubrizol anticipates that the following provisions will apply to all depositary arrangements. Upon the issuance of a global security, the depositary for such global security or its nominee will credit, on its book-entry registration and transfer system, the respective principal amounts of the debt securities represented by such global security. Such accounts will be designated by the underwriters or agents with respect to such debt securities, or by Lubrizol if such debt securities are offered and sold directly by Lubrizol. Ownership of beneficial interests in a global security will be limited to persons that may hold interests through participants. Ownership of beneficial interests in such global security will be shown on, and the transfer of that ownership will be effected only through, records maintained by the depositary or its nominee (with respect to interests of participants) and on the records of participants (with respect to interests of persons other than participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a global security. So long as the depositary for a global security, or its nominee, is the registered owner of such global security, such depositary or such nominee, as the case may be, will be considered the sole owner or holder of the debt securities represented by such global security for all purposes under the indenture. Except as described below, owners of beneficial interests in a global security will not be entitled to have debt securities of the series represented by such global security registered in their names and will not receive or be entitled to receive physical delivery of debt securities of that series in definitive form. Principal of, any premium and interest on, and any additional amounts with respect to, debt securities registered in the name of a depositary or its nominee will be made to the depositary or its nominee, as the case may be, as the registered owner of the global security representing such debt securities. None of Lubrizol, the trustee, any paying agent or the security registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of the global security for such debt securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Lubrizol expects that the depositary for a series of debt securities or its nominee, upon receipt of any payment with respect to such debt securities, will credit immediately participants' accounts with payments in 9 amounts proportionate to their respective beneficial interest in the principal amount of the global security for such debt securities as shown on the records of such depositary or its nominee. Lubrizol also expects that payments by participants to owners of beneficial interests in such global security held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in "street name," and will be the responsibility of such participants. The indenture provides that if (1) the depositary for a series of debt securities notifies Lubrizol that it is unwilling or unable to continue as depositary or if such depositary ceases to be eligible under the indenture and a successor depositary is not appointed by Lubrizol within 90 days of written notice or (2) Lubrizol determines that debt securities of a particular series will no longer be represented by global securities and executes and delivers to the trustee a company order to such effect, the global securities will be exchanged for debt securities of such series in definitive form of like tenor and of an equal aggregate principal amount, in authorized denominations. Such definitive debt securities will be registered in such name or names as the depositary shall instruct the trustee. (Section 3.5) It is expected that such instructions may be based upon directions received by the depositary from participants with respect to ownership of beneficial interests in global securities. CERTAIN COVENANTS LIMITATION ON LIENS Under the indenture, Lubrizol will covenant that, so long as any debt securities are outstanding, it will not, nor will it permit any Restricted Subsidiary to, create, incur, assume, guarantee or otherwise permit to exist any Debt secured by any mortgage, pledge, lien, security interest or other encumbrance (a "Lien") on any property (including shares of capital stock or Debt) of Lubrizol or any Restricted Subsidiary, whether now owned or hereafter acquired, without in any such case effectively providing, concurrently with the creation, incurrence, assumption or guarantee of any such Debt, that the debt securities (and, if Lubrizol shall so determine, any other Debt of Lubrizol or any Restricted Subsidiary that is not subordinate to the debt securities and with respect to which the governing instruments require, or pursuant to which Lubrizol or such Restricted Subsidiary is otherwise obligated to provide, such security) shall be secured equally and ratably with or prior to such Debt for at least the time period such other Debt is so secured; provided that Debt secured by such Liens may be created, incurred, assumed or guaranteed, without equally and ratably securing outstanding debt securities, if the aggregate principal amount of all Debt then outstanding secured by Liens on property (including shares of capital stock and Debt) of Lubrizol and of any Restricted Subsidiary (not including Debt described in clauses (1) through (8) below) plus Attributable Debt of Lubrizol and its Restricted Subsidiaries in respect of sale/leaseback transactions described under "-- Limitation on Sale/Leaseback Transactions" below that would otherwise be subject to the restrictions described under "-- Limitation on Sale/Leaseback Transactions," does not at the time the principal amount of such Debt is incurred exceed 10% of Consolidated Net Tangible Assets. If a secured revolving credit facility is established or increased without equally and ratably securing outstanding debt securities in compliance with the proviso in the immediately preceding sentence, then all subsequent borrowings under such revolving credit facility shall be deemed to be permissible under the limitation contained in the proviso in the immediately preceding sentence. (Section 10.5) The foregoing restrictions shall not apply to Debt secured by: (1) Liens on property of Lubrizol or any Restricted Subsidiary existing on the date of original issuance of the applicable series of debt securities or such other date as may be specified for such series in accordance with the indenture; (2) Liens on property acquired by Lubrizol or any Restricted Subsidiary (including acquisition through merger or consolidation), provided that such Liens were in existence prior to and were not created in contemplation of such acquisition and shall not extend to any other property of Lubrizol or any Restricted Subsidiary; (3) Liens on property (including in the case of a plant or facility, the land on which it is erected and fixtures comprising a part thereof) of Lubrizol or any Restricted Subsidiary securing the payment of all or any part of the purchase price or construction cost thereof or securing any Debt created, incurred, assumed 10 or guaranteed prior to, at the time of or within 120 days after the latest of the acquisition of such property or the completion of such construction, for the purpose of financing all or any portion of the purchase price or construction cost thereof (provided, in the case of Liens securing the payment of all or any part of the purchase price of property of Lubrizol or any Restricted Subsidiary, as the case may be, or securing any Debt created, incurred, assumed or guaranteed for the purposes of financing all or any part of such purchase price, such Liens are limited to the property then being acquired and fixed improvements thereon and the capital stock of any Person formed to acquire such property and provided further, in the case of Liens securing the payment of all or any part of the construction cost of any property of Lubrizol or any Restricted Subsidiary, as the case may be, or securing Debt created, incurred, assumed or guaranteed for the purpose of financing all or any part of such construction cost, such Liens are limited to the assets or property then being constructed and the land on which such property is erected and fixtures comprising a part thereof); (4) Liens on property of Lubrizol or any Restricted Subsidiary to secure all or any part of the cost of development, construction, alteration, repair or improvement of all or any part of such property, or to secure Debt created, incurred, assumed or guaranteed prior to, at the time of or within 120 days after the latest of the completion of such development, construction, alteration, repair or improvement, for the purpose of financing all or any part of such cost (provided such Liens do not extend to or cover any property of Lubrizol or any Restricted Subsidiary other than the property then being developed, constructed, altered, repaired or improved and the land on which such property is erected and fixtures comprising a part thereof); (5) Liens in favor of Lubrizol or a Restricted Subsidiary securing Debt of Lubrizol or a Restricted Subsidiary; (6) Liens created in connection with tax assessments or legal proceedings and mechanic's and materialman's liens and other similar liens created in the ordinary course of business; (7) Liens on property of Lubrizol or any Restricted Subsidiary (except Liens on the capital stock or Debt of Lubrizol or any Restricted Subsidiary) in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of either, or in favor of any other country, or any department, agency or instrumentality or political subdivision thereof, in each case to secure payments pursuant to contract or statute or to secure Debt created, incurred, assumed or guaranteed for the purpose of financing all or any part of the purchase price or the cost of construction or improvement of the property subject to such Liens, including Liens created in connection with pollution control, industrial revenue bond or other similar financing; and (8) Certain permitted extensions, renewals or replacements (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred to in the foregoing clauses (1) through (7), inclusive. For purposes of the "Limitation on Liens" covenant described above, the creation of a Lien on property (including shares of capital stock or Debt) of Lubrizol or any Restricted Subsidiary to secure Debt which existed prior to the creation of such Lien will be deemed to involve the creation of Debt secured by a Lien in an amount equal to the principal amount secured by such Lien. LIMITATION ON SALE/LEASEBACK TRANSACTIONS The indenture provides that neither Lubrizol nor any Restricted Subsidiary will enter into any arrangement after the date of original issuance of the applicable series of debt securities, or such other date as may be specified for such series in accordance with the indenture, with any Person (other than Lubrizol or a Restricted Subsidiary) providing for the leasing to Lubrizol or a Restricted Subsidiary for a period of more than three years of any property which has been, or is to be, sold or transferred by Lubrizol or such Restricted Subsidiary to such Person or to any Person (other than Lubrizol or a Restricted Subsidiary) to which funds have been or are to be advanced by such Person on the security of the leased property unless: (a) Lubrizol or such Restricted Subsidiary would be permitted, pursuant to the provisions described under "-- Limitation on Liens" above, to incur Debt in a principal amount equal to or exceeding the Attributable Debt in respect of such sale/leaseback transaction, secured by a Lien on the 11 property to be leased, without equally and ratably securing all outstanding debt securities issued under the indenture; (b) since the date of the indenture and within a period commencing within six months prior to the consummation of such arrangement and ending six months after the consummation thereof, Lubrizol or such Restricted Subsidiary has expended or will expend for any property (including amounts expended for the acquisition thereof and for additions, alterations, improvements and repairs thereto) an amount up to the net proceeds of such arrangement and Lubrizol elects to designate such amount as a credit against such arrangement (with any such amount not being so designated to be applied as set forth in (c) below); or (c) Lubrizol, during or immediately after the expiration of the 12 months after the consummation of such transaction, applies or causes such Restricted Subsidiary to apply to the voluntary retirement, redemption or defeasance of debt securities of any series or other Funded Debt of Lubrizol (other than Funded Debt subordinated to the debt securities) or Funded Debt of such Restricted Subsidiary an amount equal to the greater of the net proceeds of the sale or transfer of the property leased in such transaction and the fair value, in the opinion of the Board of Directors of Lubrizol, of such property at the time of entering into such transaction (in either case adjusted to reflect the remaining term of the lease and any amount utilized by Lubrizol as set forth in (b) above), less an amount equal to the principal amount of any such Funded Debt of Lubrizol or such Restricted Subsidiary, other than debt securities, voluntarily retired by Lubrizol or such Restricted Subsidiary during such 12 month period. (Section 10.6) ISSUANCE OF SUBSIDIARY GUARANTEES Lubrizol will not cause or permit any of its Restricted Subsidiaries, directly or indirectly, to guarantee any Debt of Lubrizol unless such Restricted Subsidiary: (1) executes and delivers to the trustee a supplemental indenture in form reasonably satisfactory to the trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of Lubrizol's obligations under the debt securities and the indenture on the terms set forth in the indenture; and (2) delivers to the trustee an opinion of counsel (which may contain customary exceptions) that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a guarantor for all purposes of the indenture until such guarantee is released in accordance with the provisions of the indenture. Lubrizol may cause any other Restricted Subsidiary of Lubrizol to become a guarantor under the indenture. (Section 10.7) CONSOLIDATION, MERGER AND SALE OF ASSETS The indenture provides that Lubrizol may not, in a single transaction or a series of related transactions, (1) consolidate or merge with or into any Person or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of Lubrizol's properties and assets (determined on a consolidated basis for Lubrizol and its Restricted Subsidiaries) to any Person, unless (a) Lubrizol shall be the surviving or continuing corporation or the Person (if other than Lubrizol) formed by such consolidation or into which Lubrizol is merged or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition has been made shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by supplemental indenture satisfactory in form and substance to the trustee, the due and punctual payment of the principal of, any premium and interest on and any additional amounts with respect to all of the debt securities issued thereunder, and the performance of Lubrizol's obligations under such indenture and the debt securities issued thereunder, and provides for conversion or exchange rights in accordance with the provisions of the debt securities of any series that are convertible or exchangeable into common stock or other securities; (b) immediately before and after giving effect to such transaction and treating 12 any Debt which becomes an Obligation of Lubrizol or one of its Subsidiaries as a result of such transaction as having been incurred by Lubrizol or such Subsidiary at the time of such transaction, no Event of Default, and no event which after notice or lapse of time or both would become an Event of Default, shall have happened and be continuing; and (c) certain other conditions are met. (Section 8.1) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties and assets of one or more Restricted Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of Lubrizol shall be deemed to be the transfer of all or substantially all of the properties and assets of Lubrizol. No guarantor (other than any guarantor whose guarantee is to be released in accordance with the terms of the guarantee and the indenture) will, and Lubrizol will not cause or permit any guarantor to, consolidate or merge with or into any Person other than Lubrizol or any other guarantor unless (a) the entity formed by or surviving any such consolidation or merger (if other than the guarantor) is a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by supplemental indenture satisfactory in form and substance to the trustee, all of the obligations of the guarantor under the indenture and such guarantor's guarantee; (b) immediately after giving effect to such transaction, no Event of Default, and no event which after notice or lapse of time or both would become an Event of Default, shall have happened and be continuing; and (c) certain other conditions are met. (Section 8.3) DEFINITION OF CERTAIN TERMS The term "Attributable Debt" as used in the indenture means, in respect of any sale/leaseback transaction described under "-- Limitation on Sale/Leaseback Transactions" above, at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by the lessee of the property subject to such sale/leaseback transaction under the lease included in such transaction during the remaining term thereof (including any period for which such lease has been extended), discounted from the respective due dates thereof to such date at the rate per annum equal to the weighted average of the interest rate(s) of the debt securities, or, in the case of original issue discount securities, the yield to maturity, compounded semi-annually. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of the rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of maintenance and repairs, services, insurance, taxes, assessments, water rates and similar charges and contingent rents (such as those based on sales). In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount of rent shall include the lesser of (i) the total discounted net amount of rent required to be paid from the later of the first date upon which such lease may be so terminated or the date of the determination of such amount of rent, as the case may be, and (ii) the amount of such penalty (in which event no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated). (Section 1.1) The term "Capital Stock" as used in the indenture means (1) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of common stock and preferred stock of such Person, and (2) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. (Section 1.1) The term "Capitalized Lease Obligation" as used in the indenture means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capitalized lease obligations under generally accepted accounting principles and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with generally accepted accounting principles. (Section 1.1) The term "Consolidated Net Tangible Assets" as used in the indenture means, as of any particular time, the aggregate amount of the Consolidated Assets (as defined in the indenture) of Lubrizol and its Subsidiaries (less depreciation, amortization and other applicable reserves and other items deductible therefrom under generally accepted accounting principles) after deducting therefrom (i) all current liabilities (excluding any which are by their terms extendible or renewable at the option of the obligor to a time more than 12 months after the time as of 13 which the amount is being computed), (ii) all goodwill, tradenames, trademarks, patents and other intangibles, in each case net of applicable amortization, and (iii) appropriate adjustments on account of minority interests of other Persons holding stock of Subsidiaries, all as would be shown on a consolidated balance sheet of Lubrizol and its Subsidiaries, prepared in accordance with generally accepted accounting principles, as of the date of the most recent quarterly consolidated balance sheet of Lubrizol and its Subsidiaries, prepared in accordance with generally accepted accounting principles, provided that, in the case of the balance sheet as of the end of the first, second or fourth quarterly fiscal periods of Lubrizol, the date of such balance sheet is not more than 125 days prior to the date of determination (130 days for quarterly fiscal periods for fiscal years ending on or after December 15, 2004 and before December 15, 2005) and, in the case of a balance sheet as of the end of the third quarterly fiscal period of Lubrizol, the date of such balance sheet is not more than 150 days prior to the date of determination (165 days for quarterly fiscal periods for fiscal years ending on or after December 15, 2004 and before December 15, 2005). (Section 1.1) The term "Debt" as used in the indenture means, with respect to any Person, without duplication (1) Obligations of such Person for money borrowed (2) Obligations of such Person evidenced by notes, debentures, bonds or other similar instruments; (3) all Capitalized Lease Obligations of such Person; (4) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business); (5) all Obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than Obligations with respect to letters of credit securing Obligations (other than Obligations described in (1) through (4) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (6) all Obligations under Hedging Obligations of such Person, (7) all Obligations of the type referred to in clauses (1) through (6) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable as obligor, guarantor or otherwise; (8) all Obligations of the type referred to in clauses (1) through (7) of other Persons secured by any mortgage, pledge, lien, security interest or other encumbrance on any property or asset of such Person (whether or not such Obligation is assumed by such Person), the amount of such Obligation being deemed to be the lesser of the value of such property or assets or the amount of the Obligation so secured; and (9) any amendments, modifications, refundings, renewals or extensions of any indebtedness or obligation described as Debt in clauses (1) through (8) above. (Section 1.1) The term "Funded Debt" as used in the indenture means indebtedness created, assumed or guaranteed by a Person for money borrowed which matures by its terms, or is renewable by the borrower to a date, more than 12 months after the date of original creation, assumption or guarantee. (Section 1.1) The term "Hedging Obligations" as used in the indenture means, with respect to any Person, the obligations of such Person under (1) any interest rate protection agreements including, without limitation, interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, (2) any foreign exchange contracts, currency swap agreements or other agreements or arrangements designed to protect such Person against fluctuations in interest rates or foreign exchange rates, (3) any commodity futures contract, commodity option or other similar agreement or arrangement designed to protect such Person against fluctuations in prices of commodities; and (4) indemnity agreements and arrangements entered into in connection with the agreements and arrangements described in clauses (1), (2) and (3). (Section 1.1) The term "Obligations" as used in the indenture means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Debt. (Section 1.1) The term "Person" as used in the indenture means an individual, partnership, limited liability company, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. (Section 1.1) The term "Restricted Subsidiary" as used in the indenture means (1) any Wholly Owned Subsidiary of Lubrizol substantially all of the assets of which are located in the United States (excluding territories or 14 possessions) and (2) any Wholly Owned Subsidiary of Lubrizol which owns, directly or indirectly, any stock or indebtedness of any other Restricted Subsidiary. (Section 1.1) The term "Subsidiary" as used in the indenture means, with respect to any Person, (1) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person and (2) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. (Section 1.1) The term "Wholly Owned Subsidiary" means, with respect to Lubrizol, any Subsidiary of which all the outstanding voting securities are owned by Lubrizol or any other Wholly Owned Subsidiary of Lubrizol. (Section 1.1) EVENTS OF DEFAULT Each of the following events will constitute an Event of Default under the indenture with respect to any series of debt securities issued thereunder (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest on any debt security of such series, or any additional amounts payable with respect thereto, when such interest becomes or such additional amounts become due and payable, and continuance of such default for a period of 30 days; (2) default in the payment of the principal of or any premium on any debt security of such series, or any additional amounts payable with respect thereto, when such principal or premium becomes or such additional amounts become due and payable either at maturity, upon any redemption, by declaration of acceleration or otherwise; (3) default in the deposit of any sinking fund payment, when and as due by the terms of any debt security of such series; (4) default in the performance, or breach, of any covenant or warranty contained in the indenture for the benefit of such series or in the debt securities of such series, and the continuance of such default or breach for a period of 60 days after there has been given written notice as provided in the indenture; (5) if any event of default as defined in any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any Debt of Lubrizol or any of its Restricted Subsidiaries (or the payment of which is guaranteed by Lubrizol or any of its Restricted Subsidiaries), including an Event of Default under any other series of debt securities, whether such Debt now exists or is hereafter created or incurred, happens and consists of default in the payment of more than $50,000,000 in principal amount of such Debt at the maturity thereof (after giving effect to any applicable grace period) or results in such Debt in principal amount in excess of $50,000,000 becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, and such default is not cured or such acceleration is not rescinded or annulled within a period of 30 days after there has been given written notice as provided in the indenture; (6) Lubrizol shall fail within 60 days to pay, bond or otherwise discharge any uninsured judgment or court order for the payment of money in excess of $50,000,000, which is not stayed on appeal or is not otherwise being appropriately contested in good faith; (7) certain events in bankruptcy, insolvency or reorganization of Lubrizol; (8) any guarantee of any guarantor ceases to be in full force and effect or any guarantee of such guarantor is declared to be null and void and unenforceable or any guarantee of such guarantor is found to be invalid or any guarantor denies its liability under its guarantee (other than the release of such guarantor in accordance with the terms of the indenture); and 15 (9) any other Event of Default provided in or pursuant to the indenture with respect to debt securities of such series. (Section 5.1) If an Event of Default with respect to the debt securities of any series (other than an Event of Default described in (7) of the preceding paragraph) occurs and is continuing, either the trustee or the holders of not less than 25% in principal amount of the outstanding debt securities of such series by written notice as provided in the indenture may declare the principal amount (or such lesser amount as may be provided for in the debt securities of such series) of all outstanding debt securities of such series to be due and payable immediately. At any time after a declaration of acceleration has been made, but before a judgment or decree for payment of money has been obtained by the trustee, and subject to applicable law and certain other provisions of the indenture, the holders of not less than a majority in principal amount of the outstanding debt securities of such series may, under certain circumstances, rescind and annul such declaration of acceleration. An Event of Default described in (7) of the preceding paragraph shall cause the principal amount and accrued interest (or such lesser amount as provided for in the debt securities of such series) to become immediately due and payable without any declaration or other act by the trustee or any holder. (Section 5.2) The indenture provides that, within 90 days after the occurrence of any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to the debt securities of any series (a "default"), the trustee must transmit, in the manner set forth in such indenture, notice of such default to the holders of the debt securities of such series unless such default has been cured or waived; provided, however, that except in the case of a default in the payment of principal of, or premium, if any, or interest, if any, on, or additional amounts or any sinking fund installment with respect to, any debt security of such series, the trustee may withhold such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or responsible officers of the trustee in good faith determine that the withholding of such notice is in the best interest of the holders of debt securities of such series; and provided, further, that in the case of any default of the character described in (4) of the second preceding paragraph, no such notice to holders will be given until at least 30 days after the default occurs. (Section 6.2) If an Event of Default occurs and is continuing with respect to the debt securities of any series, the trustee may in its discretion proceed to protect and enforce its rights and the rights of the holders of debt securities of such series by all appropriate judicial proceedings. (Section 5.3) The indenture provides that, subject to the duty of the trustee during any default to act with the required standard of care, the trustee will be under no obligation to exercise any of its rights or powers under such indenture at the request or direction of any of the holders of debt securities, unless such holders shall have offered to the trustee reasonable indemnity. (Section 6.1) Subject to such provisions for the indemnification of the trustee, and subject to applicable law and certain other provisions of the indenture, the holders of a majority in principal amount of the outstanding debt securities of any series will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee, or exercising any trust or power conferred on the trustee, with respect to the debt securities of such series. (Section 5.12) MODIFICATION AND WAIVER Lubrizol and the trustee may modify or amend the indenture with the consent of the holders of not less than a majority in principal amount of the outstanding debt securities of each series affected thereby; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding debt security affected thereby, - change the stated maturity of the principal of, or any premium or installment of interest on, or any additional amounts with respect to, any debt security, - reduce the principal amount of, or the rate (or modify the calculation of such rate) of interest on, or any additional amounts with respect to, or any premium payable upon the redemption of, any debt security, - change the obligation of Lubrizol to pay additional amounts with respect to any debt security, - reduce the amount of the principal of an original issue discount security that would be due and payable upon a declaration of acceleration of the maturity thereof or the amount thereof provable in bankruptcy, 16 - change the redemption provisions of any debt security or the right of repayment at the option of any holder of any debt security, in either case, in a manner adverse to the holder, - change the place of payment or the coin or currency in which the principal of, any premium or interest on or any additional amounts with respect to any debt security is payable, - impair the right to institute suit for the enforcement of any payment on or after the stated maturity of any debt security (or, in the case of redemption, on or after the redemption date or, in the case of repayment at the option of any holder, on or after the repayment date), - reduce the percentage in principal amount of the outstanding debt securities, the consent of whose holders is required in order to take specific actions, - reduce the requirements for quorum or voting by holders of debt securities in Section 15.4 of the indenture, - modify any of the provisions in the indenture regarding the waiver of past defaults and the waiver of certain covenants by the holders of debt securities except to increase any percentage vote required or to provide that other provisions of such indenture cannot be modified or waived without the consent of the holder of each debt security affected thereby, - make any change that adversely affects the right to convert or exchange any debt security into or for other securities of Lubrizol or other securities, cash or property in accordance with its terms, - release any guarantor from any of its obligations under its guarantee or the indenture otherwise in accordance with the terms of the indenture, or - modify any of the above provisions. (Section 9.2) Lubrizol and the trustee may modify or amend the indenture and the debt securities of any series without the consent of any holder in order to, among other things: - provide for a successor to Lubrizol or a guarantor pursuant to a consolidation, merger or sale of assets; - add to the covenants of Lubrizol for the benefit of the holders of all or any series of debt securities or to surrender any right or power conferred upon Lubrizol by the indenture; - provide for a successor trustee with respect to the debt securities of all or any series; - cure any ambiguity or correct or supplement any provision in the indenture which may be defective or inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under the indenture which will not materially adversely affect the interests of the holders of debt securities of any series; - change the conditions, limitations and restrictions on the authorized amount, terms or purposes of issue, authentication and delivery of debt securities under the indenture; - add any additional Events of Default with respect to all or any series of debt securities; - secure the debt securities; - provide for conversion or exchange rights of the holders of any series of debt securities; or - make any other change that does not materially adversely affect the interests of the holders of any debt securities then outstanding under the indenture. (Section 9.1) The holders of at least a majority in principal amount of the outstanding debt securities of any series may, on behalf of the holders of all debt securities of that series, waive compliance by Lubrizol with certain covenants of the indenture. (Section 10.8) The holders of not less than a majority in principal amount of the outstanding debt securities of any series on behalf of the holders of all debt securities of that series may waive any past default and its consequences under the indenture with respect to the debt securities of that series, except a default (1) in the payment of principal, any premium or interest on or any additional amounts with respect to debt securities of such 17 series or (2) in respect of a covenant or provision of the indenture that cannot be modified or amended without the consent of the holder of each outstanding debt security of any series affected. (Section 5.13) Under the indenture, Lubrizol is required to furnish the trustee annually a statement as to its performance of certain of its obligations under that indenture and as to any default in such performance. Lubrizol is also required to deliver to the trustee, within five days after knowledge of the occurrence thereof, written notice of any Event of Default, or any event which after notice or lapse of time or both would constitute an Event of Default, resulting from the failure to perform or breach of any covenant or warranty contained in the indenture or the debt securities of any series. (Sections 10.9 and 10.10) DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE Lubrizol and/or any guarantors may discharge certain obligations to holders of any series of debt securities that have not already been delivered to the trustee for cancellation and that either have become due and payable or will become due and payable within one year (or scheduled for redemption within one year) by depositing with the trustee, in trust, funds in U.S. dollars or in the Foreign Currency in which such debt securities are payable in an amount sufficient to pay the entire indebtedness on such debt securities with respect to principal and any premium, interest and additional amounts to the date of such deposit (if such debt securities have become due and payable) or to the maturity thereof, as the case may be. (Section 4.1) The indenture provides that, unless the provisions of Section 4.2 thereof are made inapplicable to the debt securities of or within any series pursuant to Section 3.1 thereof, Lubrizol may elect either (1) to defease and discharge itself and each guarantor from any and all obligations with respect to such debt securities (except for, among other things, obligations to register the transfer or exchange of such debt securities, to replace temporary or mutilated, destroyed, lost or stolen debt securities, to maintain an office or agency with respect to such debt securities and to hold moneys for payment in trust) ("defeasance") or (2) to release itself from its obligations with respect to such debt securities under certain covenants as described in the related prospectus supplement, and any omission or failure to comply with such obligations shall not constitute a default or an Event of Default with respect to such debt securities ("covenant defeasance"). Defeasance or covenant defeasance, as the case may be, shall be conditioned upon the irrevocable deposit by Lubrizol with the Trustee, in trust, of an amount in U.S. dollars or in the Foreign Currency in which such debt securities are payable at stated maturity, or Government Obligations (as defined below), or both, applicable to such debt securities which through the scheduled payment of principal and interest in accordance with their terms will provide money in an amount sufficient to pay the principal of, any premium and interest on, and any additional amounts with respect to, such debt securities on the scheduled due dates. (Section 4.2) Such a trust may only be established if, among other things, (1) the applicable defeasance or covenant defeasance does not result in a breach or violation of, or constitute a default under, the indenture or any other material agreement or instrument to which Lubrizol is a party or by which it is bound, (2) no Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to the debt securities to be defeased shall have occurred and be continuing on the date of establishment of such a trust and, with respect to defeasance only, at any time during the period ending on the 123rd day after such date and (3) Lubrizol has delivered to the trustee an opinion of counsel (as specified in the indenture) to the effect that the holders of such debt securities will not recognize income, gain or loss for United States federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred, and such opinion of counsel, in the case of defeasance, must refer to and be based upon a letter ruling of the Internal Revenue Service received by Lubrizol, a Revenue Ruling published by the Internal Revenue Service or a change in applicable United States federal income tax law occurring after the date of the indenture. (Section 4.2) "Foreign Currency" means any currency, currency unit or composite currency, including, without limitation, the euro, issued by the government of one or more countries other than the United States of America or by any recognized confederation or association of such governments. (Section 1.1) 18 "Government Obligations" means debt securities which are (1) direct obligations of the United States of America or the government or the governments which issued the Foreign Currency in which the debt securities of a particular series are payable, for the payment of which its full faith and credit is pledged or (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such government or governments which issued the Foreign Currency in which the debt securities of such series are payable, the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government or governments, and which, in the case of clauses (1) and (2), are not callable or redeemable at the option of the issuer or issuers thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of or any other amount with respect to any such Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian with respect to the Government Obligation or the specific payment of interest on or principal of or any other amount with respect to the Government Obligation evidenced by such depository receipt. (Section 1.1) If after Lubrizol has deposited funds and/or Government Obligations to effect defeasance or covenant defeasance with respect to debt securities of any series, (1) the holder of a debt security of that series is entitled to, and does, elect pursuant to Section 3.1 of the indenture or the terms of such debt security to receive payment in a currency other than that in which such deposit has been made in respect of such debt security, or (2) a Conversion Event occurs in respect of the Foreign Currency in which such deposit has been made, the indebtedness represented by such debt security shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of, any premium and interest on, and any additional amounts with respect to, such debt security as such debt security becomes due out of the proceeds yielded by converting the amount or other properties so deposited in respect of such debt security into the currency in which such debt security becomes payable as a result of such election or such Conversion Event based on (a) in the case of payments made pursuant to clause (1) above, the applicable market exchange rate for such currency in effect on the second business day prior to such payment date, or (b) with respect to a Conversion Event, the applicable market exchange rate for such Foreign Currency in effect (as nearly as feasible) at the time of the Conversion Event. (Section 4.2) "Conversion Event" means the cessation of use of (1) a Foreign Currency both by the government of the country or countries which issued such Foreign Currency and for the settlement of transactions by a central bank or other public institutions of or within the international banking community or (2) any currency unit or composite currency for the purposes for which it was established. All payments of principal of, any premium and interest on, and any additional amounts with respect to, any debt security that are payable in a Foreign Currency that ceases to be used by the government or governments of issuance shall be made in U.S. dollars. (Section 1.1) In the event Lubrizol effects covenant defeasance with respect to any debt securities and such debt securities are declared due and payable because of the occurrence of any Event of Default other than an Event of Default with respect to any covenant as to which there has been covenant defeasance, the amount in such Foreign Currency in which such debt securities are payable, and Government Obligations on deposit with the trustee, will be sufficient to pay amounts due on such debt securities at the time of the stated maturity but may not be sufficient to pay amounts due on such debt securities at the time of the acceleration resulting from such Event of Default. However, Lubrizol would remain liable to make payment of such amounts due at the time of acceleration. NEW YORK LAW TO GOVERN The indenture, the debt securities and any guarantees will be governed by, and construed in accordance with, the laws of the State of New York applicable to agreements made or instruments entered into and, in each case, performed in that state. (Section 1.13). 19 PLAN OF DISTRIBUTION We may sell our securities from time to time by any method permitted by the Securities Act of 1933, including in the following ways: - through one or more underwriters on a firm commitment or best-efforts basis; - directly to one or more purchasers; - through agents; - through broker-dealers, who may act as agents or principals, including a block trade in which a broker or dealer so engaged will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; - in privately negotiated transactions; and - in any combination of these methods of sale. We may also make direct sales through subscription rights distributed to our shareholders on a pro rata basis, which may or may not be transferable. In any distribution of subscription rights to shareholders, if all of the underlying securities are not subscribed for, we may then sell the unsubscribed securities directly to third parties or may engage the services of one or more underwriters, dealers or agents, including standby underwriters, to sell the unsubscribed securities to third parties. The applicable prospectus supplement will set forth the specific terms of the offering of our securities including the name or names of any underwriters, dealers or agents; the purchase price of the securities and the proceeds to us from the sale; any underwriting discounts and commissions or agency fees and other items constituting underwriters' or agents' compensation; the initial offering price to the public and any discounts or concessions allowed or reallowed or paid to dealers; and any securities exchange on which the securities may be listed. Any public offering price, discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time. Unless otherwise specified in the applicable prospectus supplement, each series of securities will be a new issue with no established trading market, other than our common shares, which are currently listed on the NYSE. We expect that any common shares sold pursuant to a prospectus supplement will be listed on the NYSE. We may elect to list any series of debt securities on an exchange, but we are not obligated to do so. It is possible that one or more underwriters may make a market in a series of securities, but such underwriters will not be obligated to do so and may discontinue any market making at any time without notice. Therefore, no assurance can be given as to the liquidity of, or the trading market for, any series of debt securities that we may issue. The distribution of the securities may be effected from time to time in one or more transactions at a fixed price or prices (which may be changed), at market prices prevailing at the time of sale, at prices related to the prevailing market prices or at negotiated prices. Offers to purchase our securities may be solicited by agents designated by us from time to time. Broker-dealers or agents may receive compensation in the form of commissions, discounts or concessions from us. Broker-dealers or agents may also receive compensation from the purchasers of the securities for whom they sell as principals. Each particular broker-dealer will receive compensation in amounts negotiated in connection with the sale, which might be in excess of customary commissions. Broker-dealers or agents and any other participating broker-dealers participating in the distribution of our securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the securities may be deemed to be underwriting discounts and commissions. If required under applicable state securities laws, we will sell the securities only through registered or licensed brokers or dealers. In addition, in some states, we may not sell securities unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and complied with. 20 If the securities are sold by means of an underwritten offering, we will execute an underwriting agreement with an underwriter or underwriters, and the names of the specific managing underwriter or underwriters, as well as any other underwriters, and the terms of the transaction, including commissions, discounts and any other compensation of the underwriters and dealers, if any, will be set forth in the applicable prospectus supplement, which will be used by the underwriters to make resales of the securities. Under agreements into which we may enter, underwriters, dealers and agents who participate in the distribution of the securities may be entitled to indemnification by us against some liabilities, including liabilities under the Securities Act of 1933. If we use underwriters for an offering of securities, the underwriters may acquire the securities for their own accounts. The underwriters may resell the securities from time to time in one or more transactions at a fixed price or prices, which may be changed, at varying prices determined by the underwriters at the time of sale, or at negotiated prices. We also may, from time to time, authorize underwriters acting as our agents to offer and sell the securities upon the terms and conditions as will be set forth in the applicable prospectus supplement. In connection with the sale of the securities, underwriters may be deemed to have received compensation from us in the form of underwriting discounts or commissions and also may receive commissions from purchasers of the securities. Underwriters may sell the securities to or through dealers, who may receive compensation in the form of discounts, concessions from the underwriters and/or commissions from the purchasers of the securities. Any underwriting compensation paid by us to underwriters or agents in connection with any offering of the securities and any discounts, concessions or commissions allowed by underwriters to participating dealers will be set forth in the applicable prospectus supplement. Underwriters, dealers and agents participating in the distribution of our securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the securities may be deemed to be underwriting discounts and commissions. If so indicated in the applicable prospectus supplement, we may authorize underwriters, dealers or agents to solicit offers from certain types of institutions to purchase securities from us at the public offering price set forth in the applicable prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on a future date. Institutions with which delayed delivery contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions, and other institutions. The applicable prospectus supplement will set forth the commission payable for solicitation of such offers. Our securities may be offered to the public either through underwriting syndicates represented by managing underwriters or directly by the managing underwriters. If any underwriters are utilized in the sale of the securities, the underwriting agreement will provide that the obligations of the underwriters are subject to specified conditions precedent. If we sell our securities to one or more underwriters on a firm commitment basis, then the underwriters will be obligated to purchase all of the securities offered if any are purchased. We may grant to the underwriters options to purchase additional securities to cover over-allotments, if any, at the public offering price with additional underwriting discounts or commissions, as may be set forth in the applicable prospectus supplement. If we grant any over-allotment option, the terms of the over-allotment option will be set forth in the applicable prospectus supplement. In connection with any offering, persons participating in the offering, such as any underwriters, may purchase and sell the securities in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with the offering. Stabilizing transactions consist of bids or purchases for the purpose of preventing or retarding a decline in the market price of the securities and syndicate short positions involve the sale by underwriters of a greater number of securities than they are required to purchase from us in the offering. Underwriters also may impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers in respect of the securities sold in the offering for their account may be reclaimed by the syndicate if the securities are repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the securities, which may be higher than the price that might prevail in the open market, and these activities, if commenced, may be discontinued at any time. 21 Any underwriters, dealers or agents involved in any distribution or sale of our securities may be customers of, engage in transactions with or perform services for us from time to time. We will bear all costs, expenses and fees in connection with the registration of the securities as well as the expense of all commissions and discounts, if any, attributable to the sales of the securities by us. LEGAL MATTERS The validity of the securities that we are offering has been passed upon for us by Thompson Hine LLP. Shearman & Sterling LLP, New York, New York, may pass upon legal matters for the underwriters with respect to any underwritten offering of common shares or debt securities. Shearman & Sterling LLP will rely upon Thompson Hine LLP with respect to matters of Ohio law. EXPERTS The financial statements incorporated in this prospectus by reference from The Lubrizol Corporation's Annual Report on Form 10-K for the year ended December 31, 2003 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 142 in 2002), and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. Ernst & Young LLP, independent auditors, have audited the consolidated financial statements of Noveon International, Inc. at December 31, 2003 and 2002 and for the years ended December 31, 2003 and 2002 and for the ten months ended December 31, 2001, and the consolidated financial statements of BFGoodrich Performance Materials (a segment of The Goodrich Corporation) for the two months ended February 28, 2001, as set forth in their reports, included in The Lubrizol Corporation's Current Report (Form 8-K) dated May 20, 2004, which is incorporated by reference in this prospectus. Such consolidated financial statements are incorporated by reference in reliance on Ernst & Young's reports given on their authority as experts in accounting and auditing. 22 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth an estimate of the expenses, other than underwriting discounts and commissions, payable in connection with the sale and distribution of the securities being registered. All such expenses will be borne by us.
AMOUNTS TO ITEM BE PAID - ---- ---------- SEC Registration Fee........................................ $ 253,400 Accountants Fees and Expenses............................... 300,000 Legal Fees and Expenses..................................... 1,000,000 Printing Fees and Expenses.................................. 100,000 Rating Agency Fees.......................................... 1,000,000 Miscellaneous............................................... 100,000 ---------- Total....................................................... 2,753,400 ==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Code of Regulations of the registrant provides that the registrant shall indemnify any present or former director or officer of the registrant against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by such person by reason of the fact that such person was a director or officer, in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to the full extent permitted by applicable law. Ohio Revised Code Section 1701.13 permits indemnification of such persons with respect to such matters, other than an action by or in the right of the registrant, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. In the case of an action brought by or in the right of the registrant, such Ohio Revised Code section permits indemnification of such persons against expenses, including attorneys' fees, actually and reasonably incurred by such person in connection with the settlement or defense of such action if such person acted in good faith and in a manner that such person reasonably believed to be in or not opposed to the best interests of the registrant, subject to certain exceptions, including an exception for a matter as to which such person is adjudged to be liable for negligence or misconduct in the performance of such person's duty to the registrant, unless the court in which such action was brought determines that such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. Each director and officer of the registrant is a party to an indemnification agreement with the registrant, which agreement provides that the registrant will indemnify such officer or director against expenses, including, without limitation, attorneys' fees, judgments, fines and amounts paid in settlement, in connection with any claim against such officer or director arising out of such person's being an officer or director of the registrant, to the full extent provided by (i) the registrant's bylaws, regulations or articles of incorporation, as in effect on the date of the agreement or at the time expenses are incurred, (ii) Ohio law or the law governing the registrant at the time the expenses are incurred, or (iii) insurance maintained by the registrant, at the option of such officer or director. The registrant has also agreed to maintain directors' and officers' liability insurance so long as such insurance is available on a basis acceptable to the registrant, and to advance funds for expenses, provided the officer or director agrees to reimburse the registrant if such officer or director is ultimately found not to be entitled to such indemnifications. The registrant maintains insurance policies that insure the registrant's directors and officers against certain liabilities (excluding fines and penalties imposed by law) which might be incurred by them in such capacities and II-1 insure the registrant for amounts which may be paid by it (up to the limits of such policies) to indemnify the directors and officers covered by the policies. ITEM 16. EXHIBITS See Exhibit Index. ITEM 17. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Securities and Exchange Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers, and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer, or controlling person of us in the successful defense of any action, suit or proceeding) is asserted by such II-2 director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (d) The undersigned registrant hereby undertakes that: (i) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (ii) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (e) The undersigned registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Securities and Exchange Commission under Section 305(b)(2) of the Trust Indenture Act. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Wickliffe, State of Ohio, on May 20, 2004. THE LUBRIZOL CORPORATION By: /s/ JAMES L. HAMBRICK ------------------------------------ Name: James L. Hambrick Title: Chief Executive Officer and President Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
NAME/SIGNATURE TITLE - -------------- ----- /s/ JAMES L. HAMBRICK* Chief Executive Officer, President ------------------------------------------------ and Director James L. Hambrick (Principal Executive Officer) /s/ CHARLES P. COOLEY* Vice President and Chief Financial ------------------------------------------------ Officer Charles P. Cooley (Principal Financial Officer) /s/ JOHN R. AHERN* Controller -- Accounting and ------------------------------------------------ Financial Reporting John R. Ahern (Principal Accounting Officer) /s/ WILLIAM G. BARES* Chairman of the Board and Director ------------------------------------------------ William G. Bares /s/ JERALD A. BLUMBERG* Director ------------------------------------------------ Jerald A. Blumberg /s/ FOREST J. FARMER SR.* Director ------------------------------------------------ Forest J. Farmer Sr. /s/ GORDON D. HARNETT* Director ------------------------------------------------ Gordon D. Harnett /s/ VICTORIA F. HAYNES* Director ------------------------------------------------ Victoria F. Haynes /s/ DAVID H. HOAG* Director ------------------------------------------------ David H. Hoag /s/ WILLIAM P. MADAR* Director ------------------------------------------------ William P. Madar
II-4
NAME/SIGNATURE TITLE - -------------- ----- /s/ PEGGY GORDON MILLER* Director ------------------------------------------------ Peggy Gordon Miller /s/ RONALD A. MITSCH* Director ------------------------------------------------ Ronald A. Mitsch /s/ DANIEL E. SOMERS* Director ------------------------------------------------ Daniel E. Somers *By: /s/ JAMES L. HAMBRICK May 20, 2004 ----------------------------------------- James L. Hambrick, Attorney-in-Fact for the Officers and Directors signing in the capacities indicated
II-5 EXHIBIT INDEX
1.1 Form of Underwriting Agreement.* 2.1 Agreement and Plan of Merger, dated April 15, 2004, by and among The Lubrizol Corporation, Lubrizol Acquisition Corporation and Noveon International, Inc. 3.1 Amended Articles of Incorporation of The Lubrizol Corporation, adopted as of September 23, 1991 (incorporated by reference to Exhibit (3)(a) of the Annual Report on Form 10-K of The Lubrizol Corporation for the year ended December 31, 1999). 3.2 Code of Regulations of The Lubrizol Corporation, as amended effective April 27, 1992 (incorporated by reference to Exhibit (3)(b) of the Annual Report on Form 10-K of The Lubrizol Corporation for the year ended December 31, 1999). 3.3 Amendment to Article Fourth of the Amended Articles of Incorporation of The Lubrizol Corporation (incorporated by reference to Exhibit (4)(a) of the Annual Report on Form 10-K of The Lubrizol Corporation for the year ended December 31, 1999). 4.1 Amended and Restated Rights Agreement, dated as of July 26, 1999, by and between The Lubrizol Corporation and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.l of the Registration Statement on Form 8-A/A of The Lubrizol Corporation filed with the SEC on August 17, 1999). 4.2 Form of Indenture for Debt Securities of The Lubrizol Corporation.** 4.3 Form of Debt Security of The Lubrizol Corporation.* 5.1 Opinion of Thompson Hine LLP. 12.1 Calculation of Ratio of Earnings to Fixed Charges. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Ernst & Young LLP. 23.3 Consent of Thompson Hine LLP (included in Exhibit 5.1). 24.1 Power of Attorney. 25.1 Statement of Eligibility of Trustee for Debt Securities of The Lubrizol Corporation on Form T-1.***
- --------------- * To be filed by post-effective amendment to this registration statement or incorporated by reference from a Current Report on Form 8-K. ** To be filed by amendment to this registration statement. *** To be filed separately pursuant to Section 305(b)(2) of the Trust Indenture Act. EX-2.1 2 l07377aexv2w1.txt EXHIBIT 2.1 Exhibit 2.1 ================================================================================ AGREEMENT AND PLAN OF MERGER BY AND AMONG NOVEON INTERNATIONAL, INC., THE LUBRIZOL CORPORATION AND LUBRIZOL ACQUISITION CORPORATION APRIL 15, 2004 ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITIONS...................................................................................1 Section 1.1 Definitions............................................................................1 Section 1.2 Terms Generally........................................................................7 ARTICLE II. THE MERGER....................................................................................8 Section 2.1 The Merger.............................................................................8 Section 2.2 Conversion of Securities...............................................................8 Section 2.3 Payment of Cash for Merger Shares......................................................9 Section 2.4 Treatment of Options..................................................................11 Section 2.5 Dissenting Company Stock..............................................................11 ARTICLE III. THE SURVIVING CORPORATION....................................................................12 Section 3.1 Articles of Incorporation.............................................................12 Section 3.2 Bylaws................................................................................12 Section 3.3 Directors and Officers................................................................12 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................12 Section 4.1 Corporate Existence and Power.........................................................12 Section 4.2 Corporate Authorization...............................................................13 Section 4.3 Governmental Authorization............................................................14 Section 4.4 Non-Contravention.....................................................................14 Section 4.5 Capitalization........................................................................14 Section 4.6 Company Subsidiaries..................................................................15 Section 4.7 Reports and Financial Statements......................................................15 Section 4.8 Absence of Certain Changes or Events..................................................16 Section 4.9 Litigation............................................................................18 Section 4.10 Taxes.................................................................................18 Section 4.11 ERISA.................................................................................20 Section 4.12 Labor Matters.........................................................................22 Section 4.13 Compliance with Laws..................................................................22 Section 4.14 Finders' Fees.........................................................................23 Section 4.15 Environmental Matters.................................................................23 Section 4.16 Insurance.............................................................................24 Section 4.17 Contracts.............................................................................24 Section 4.18 Legal Matters.........................................................................26 Section 4.19 Intellectual Property.................................................................26 Section 4.20 Related Party Transactions............................................................27 Section 4.21 Real Property.........................................................................28 Section 4.22 No Other Information..................................................................28 ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB......................................29 Section 5.1 Corporate Existence and Power.........................................................29
-i-
Section 5.2 Corporate Authorization...............................................................29 Section 5.3 Governmental Authorization............................................................29 Section 5.4 Non-Contravention.....................................................................30 Section 5.5 Finders' Fees.........................................................................30 Section 5.6 Adequate Funds........................................................................30 ARTICLE VI. COVENANTS OF THE COMPANY.....................................................................30 Section 6.1 Conduct of the Company and Subsidiaries...............................................30 Section 6.2 Other Actions by the Company..........................................................32 Section 6.3 Access to Information; Right of Inspection............................................32 Section 6.4 Other Potential Acquirers.............................................................33 Section 6.5 Resignation of Directors..............................................................34 Section 6.6 ISRA Filings..........................................................................34 Section 6.7 FIRPTA Certificate....................................................................34 ARTICLE VII. COVENANTS OF PARENT AND MERGER SUB...........................................................34 Section 7.1 Director and Officer Liability........................................................34 ARTICLE VIII. COVENANTS OF THE PARTIES.....................................................................35 Section 8.1 Reasonable Best Efforts...............................................................35 Section 8.2 Certain Filings.......................................................................36 Section 8.3 Public Announcements..................................................................37 Section 8.4 Further Assurances....................................................................37 Section 8.5 Notices of Certain Events.............................................................37 Section 8.6 Disposition of Litigation.............................................................38 Section 8.7 Employee Matters......................................................................38 Section 8.8 Confidentiality Agreement.............................................................39 ARTICLE IX. CONDITIONS TO THE MERGER.....................................................................39 Section 9.1 Conditions to the Obligations of Each Party...........................................39 Section 9.2 Conditions to the Obligations of Parent and Merger Sub................................40 Section 9.3 Conditions to the Obligations of the Company..........................................40 ARTICLE X. TERMINATION..................................................................................41 Section 10.1 Termination...........................................................................41 Section 10.2 Effect of Termination.................................................................42 ARTICLE XI. MISCELLANEOUS................................................................................42 Section 11.1 Notices...............................................................................42 Section 11.2 Survival of Representations and Warranties............................................43 Section 11.3 Amendments No Waivers.................................................................43 Section 11.4 Expenses..............................................................................43 Section 11.5 Transfer Taxes........................................................................43 Section 11.6 Successors and Assigns................................................................44 Section 11.7 Governing Law.........................................................................44 Section 11.8 Counterparts; Effectiveness; Third Party Beneficiaries................................44 Section 11.9 Severability..........................................................................44
-ii- Section 11.10 Specific Performance..................................................................44 Section 11.11 Entire Agreement......................................................................44 Section 11.12 Jurisdiction; Waiver of Jury Trial....................................................44 Section 11.13 Authorship............................................................................45
-iii- AGREEMENT AND PLAN OF MERGER ---------------------------- This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and entered into as of this 15th day of April, 2004 by and among Noveon International, Inc., a Delaware corporation (the "COMPANY"), The Lubrizol Corporation, an Ohio corporation ("PARENT"), and Lubrizol Acquisition Corporation, a Delaware corporation and direct or indirect subsidiary of Parent ("MERGER SUB"). RECITALS -------- A. The parties intend that Merger Sub be merged with and into the Company (the "MERGER"), with the Company surviving the Merger as a direct or indirect subsidiary of Parent (the "SURVIVING CORPORATION"). B. The Board of Directors of the Company has unanimously determined that the Merger and this Agreement are fair to and in the best interests of the Company. C. The Board of Directors of the Company also has unanimously (i) approved this Agreement and declared its advisability and (ii) resolved to recommend that the Company shareholders adopt this Agreement. D. The shareholders of the Company, by the vote or written consent of the holders of at least a majority of the outstanding Common Shares of the Company, have adopted this Agreement and approved and authorized the Merger. E. The Board of Directors of Merger Sub has approved this Agreement and declared its advisability. Parent, as the sole shareholder of Merger Sub, has adopted this Agreement and has approved the Merger and the transactions contemplated hereby. F. The Company, Parent and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe certain conditions to the Merger, as set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I. DEFINITIONS Section 1.1 Definitions. For purposes of this Agreement, the following terms have the respective meanings set forth below: "AFFILIATE" means, with respect to any Person, any other Person, directly or indirectly, controlling, controlled by, or under common control with, such Person. For purposes of this definition, the term "CONTROL" (including the correlative terms "CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "AFFILIATED ENTITY" of a Person means any joint venture, corporation or other entity, including a Subsidiary, of which securities or other ownership interests representing 10% or more of the total outstanding securities or other ownership interests, or having 10% or more of the ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions, are at the time directly or indirectly owned by such Person. "BALANCE SHEET" means the consolidated balance sheet of the Company as of December 31, 2003 (and the notes thereto) set forth in the Company S-1. "BALANCE SHEET DATE" means December 31, 2003. "BUSINESS DAY" means any day on which banks are not required or authorized to close in the City of New York. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act. "CLOSING" has the meaning set forth in Section 2.1(d). "CLOSING DATE" has the meaning set forth in Section 2.1(d). "CODE" means the Internal Revenue Code of 1986, as amended. "COMMON SHARES" means the shares of Common Stock. "COMMON STOCK" means the common stock of the Company, par value $0.01 per share. "COMPANY" has the meaning set forth in the Preamble. "COMPANY EMPLOYEES" has the meaning set forth in Section 8.7(a). "COMPANY OPTIONS" means outstanding options to acquire Common Shares, whether vested or unvested. "COMPANY SEC REPORTS" has the meaning set forth in Section 4.7(a). "COMPANY SECURITIES" has the meaning set forth in Section 4.5(b). "COMPANY S-1" means Amendment No. 1 to the registration statement of the Company on Form S1/A as filed with the SEC (Commission File No. 333-112991). "CONFIDENTIALITY AGREEMENT" means, the Confidentiality Agreement dated March 24, 2004, between the Company and Parent. "CONTRACTS" has the meaning set forth in Section 4.17(b). -2- "CURRENT COMPANY SEC REPORTS" means Noveon, Inc.'s annual report on Form 10-K for the fiscal year ended December 31, 2003, and the Company S-1. "CURRENT POLICIES" has the meaning set forth in Section 7.1(a). "DELAWARE LAW" means the General Corporation Law of the State of Delaware. "DESIGNATED PRODUCTS" has the meaning set forth in Section 4.15(f). "DISBURSING AGENT" has the meaning set forth in Section 2.3(b). "DISCLOSURE LETTER" has the meaning set forth in the preamble to Article IV. "EFFECTIVE TIME" has the meaning set forth in Section 2.1(b). "EMPLOYEE BENEFIT PLAN" has the meaning set forth in Section 4.11(a). "EMPLOYMENT AGREEMENT" means a contract, offer letter or agreement of the Company or any of its Subsidiaries with or addressed to any individual who is rendering or has rendered services thereto as an employee or consultant pursuant to which the Company or any of its Subsidiaries has any liability or obligation to provide compensation and/or benefits in consideration for past, present or future services. "END DATE" means July 15, 2004. "ENVIRONMENTAL LAWS" means any and all applicable federal, state, local, municipal and foreign Laws relating to the protection of the environment or to Releases of Hazardous Substances or the notification, investigation or remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" means, with respect to any entity, any trade or business (whether or not incorporated) that is a member of a controlled group including such entity or that is under common control with such entity within the meaning of Section 414 of the Code. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "EXECUTIVE CHANGE OF CONTROL AGREEMENTS" means the executive change of control agreements provided to Parent. "EXISTING CONTRACTS" has the meaning set forth in Section 6.1(b). "GAAP" means United States generally accepted accounting principles. "GOODRICH" has the meaning set forth in Section 4.17(e). "GOODRICH AGREEMENTS" has the meaning set forth in Section 4.17(e). -3- "GOODRICH APA" has the meaning set forth in Section 4.17(e). "GOVERNMENTAL AUTHORITY" means any agency, public or regulatory authority, instrumentality, department, commission, court, arbitrator, ministry, tribunal or board of any nation or government or political subdivision thereof, whether foreign or domestic and whether national, supranational, federal, tribal, provincial, state, regional, local or municipal. "HAZARDOUS SUBSTANCES" means any wastes, substances or materials which are defined as "hazardous materials," "hazardous wastes," "hazardous substances," "wastes" or other similar designations in any Environmental Laws, including, without limitation, asbestos and asbestos-containing materials, polychlorinated biphenyls, lead-based paints and petroleum or petroleum products (including, without limitation, crude oil). "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "INSURANCE POLICIES" means all material fire and casualty, general liability, business interruption, workers compensation, product liability, and sprinkler and water damage insurance policies and other forms of insurance or bonds currently maintained by the Company or any of its Subsidiaries. "INTELLECTUAL PROPERTY" means all material patents, patent applications, including utility and design patents and patent applications, trademark registrations and applications for registration thereof, including service mark and trade name registrations and applications, and registered copyrights that are owned and currently in use by the Company or its Subsidiaries. "INTELLECTUAL PROPERTY AGREEMENT" means all material agreements relating to the use by the Company or any of its Subsidiaries of the intellectual property rights of others, or the use by any third party of the Intellectual Property rights. "KNOWLEDGE," when used in reference to the Company, shall mean the actual knowledge of the following officers and employees of the Company: (i) Mr. Steven J. Demetriou, (ii) Mr. Christopher R. Clegg, (iii) Mr. Michael D. Friday, (iv) Mr. Kumar Shah, (v) Mr. Sean M. Stack, (vi) Mr. Scott McKinley and (vii) Mr. Kenneth Willings. "LAW" means applicable statutes, common laws, rules, ordinances, regulations, codes, orders, judgments, injunctions, writs, decrees, licenses, permits, rules and bylaws, in each case, of a Governmental Authority. "LEASED REAL PROPERTY" has the meaning set forth in Section 4.21(b). "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. "MANAGEMENT AND ADVISORY SERVICES AGREEMENTS" means the Amended and Restated Management Agreement dated as of June 26, 2001 by and between Noveon, Inc. (formerly PMD Group, Inc.) and DLJ Merchant Banking Partners III, LP, the Management Agreement dated as of February 5, 2001 by and between Noveon, Inc. and MidOcean Capital/PMD Investors LLC -4- (formerly DB Capital/PMD Investors, LLC), the Management Agreement dated as of February 5, 2001 by and between Noveon, Inc. and AEA Investors, Inc. and the Advisory Services Letter Agreement dated as of February 5, 2001 executed by Noveon, Inc. and Credit Suisse First Boston Corporation, as the same may be assigned or amended from time to time. "MATERIAL ADVERSE EFFECT ON THE COMPANY" has the meaning set forth in Section 4.8(a). "MATERIAL EMPLOYMENT AGREEMENT" means (i) an Employment Agreement pursuant to which the Company or any of its Subsidiaries has or could reasonably be expected to have any obligation to provide base salary compensation in an amount in excess of $200,000 per year and (ii) the Executive Change of Control Agreements. "MERGER" has the meaning set forth in the Recitals. "MERGER CONSIDERATION" means an amount per Common Share equal to the result obtained by dividing (a) $920.2 million, plus the aggregate exercise price of all of the Company Options, minus (i) the amount of payments made or required to be made at or before the Effective Time by the Company or any of its Subsidiaries pursuant to the last sentence of Section 6.1 of this Agreement, including all payments that are to be made at or before the Effective Time pursuant to the Executive Change of Control Agreements, and (ii) Transaction Costs in excess of $2.5 million by (b) the number of Common Shares outstanding as at the Effective Time plus the number of Common Shares issuable upon exercise of all then outstanding Company Options, without interest thereon. "MERGER SHARES" has the meaning set forth in Section 2.2(c). "MERGER SUB" has the meaning set forth in the Preamble. "MERGER SUB COMMON SHARES" means the common stock of Merger Sub, par value $0.01 per share. "MULTIEMPLOYER PLAN" has the meaning set forth in Section 4.11(c). "NEW PLANS" has the meaning set forth in Section 8.7(b). "NJDEP" has meaning set forth in Section 6.6. "NOVEON, INC." means Noveon, Inc., a Delaware corporation and a wholly owned subsidiary of the Company. "OLD PLANS" has the meaning set forth in Section 8.7(b). "OTHER ANTITRUST LAWS" means any Law enacted by any Governmental Authority relating to antitrust matters or regulating competition, including Council Regulation No. 4064/89 of the European Community and any analogous or similar Laws of any foreign jurisdiction. "OWNED REAL PROPERTY" has the meaning set forth in Section 4.21(b). -5- "PARENT" has the meaning set forth in the Preamble. "PERMITS" means any governmental licenses, franchises, permits, certificates, consents, approvals or other similar authorizations required under applicable Law. "PERMITTED LIENS" means (i) the liens and security interests set forth in Section 4.21 of the Disclosure Letter, (ii) liens for taxes not yet due and payable or that are being contested in good faith and by appropriate proceedings and for which the Company has maintained adequate reserves, (iii) mechanics', materialmen's or other liens or security interests arising in the ordinary course of business for sums that are immaterial in amount and not yet due and payable, or (iv) any other liens, encumbrances, security interests, easements, rights-of-way, encroachments, restrictions, conditions and similar encumbrances arising in the ordinary course of business that are not material in amount and do not materially detract from the value of or materially impair the existing use of the property affected by such encumbrance. "PERSON" means any individual, corporation, limited liability company, partnership, association, trust or any other entity or organization, including any government or political subdivision or any agency or instrumentality thereof. "PROCEEDING" has the meaning set forth in Section 4.9. "RELATED PARTIES" has the meaning set forth in Section 4.20. "RELEASE" means any emission, spill, seepage, leak, escape, leaching, discharge, injection, ejection, pumping, pouring, emptying, dumping, disposal, or release of Hazardous Substances into or upon the environment, including the air, soil, surface water or groundwater. "REPLACEMENT POLICIES" has the meaning set forth in Section 7.1(a). "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "SINGLE EMPLOYER PLAN" has the meaning set forth in Section 4.11(g). "SUBSIDIARY" of a Person means any corporation or other entity of which securities or other ownership interests representing 50% or more of the total outstanding securities or other ownership interests is owned, directly or indirectly, by such Person and/or of which securities or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions are at the time owned, directly or indirectly, by such Person. "SURVIVING CORPORATION" has the meaning set forth in the Recitals. "TAX" (including "TAXES") means (i) all federal, state, local, foreign and other taxes of any kind, levies or other like kind assessments, customs, duties, imposts, charges or fees, including net income, gross income, gross receipts, gains, ad valorem, value added, excise, -6- import, export, registration duties, real or personal property, asset, sales, use, stock transfer, real estate transfer, documentary, stamp, recording, license, payroll, transaction, capital, net worth, franchise, estimated, employment, social security, workers compensation, occupation, utility, severance, production, unemployment compensation, occupation, premium, environmental, windfall profits and withholding taxes, together with any interest and any penalties, additions to tax or additional amounts imposed by any Governmental Authority responsible for the imposition of any such tax (a "TAX AUTHORITY" or "TAXING AUTHORITY"), (ii) any liability for payment of amounts described in clause (i) whether as a result of transferee liability, joint and several liability for being a member of an affiliated, consolidated, combined or unitary group for any period, or otherwise by operation of law and (iii) any liability for the payment of amounts described in clause (i) or (ii) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to pay or indemnify any other person. "TAX RETURN" means any return, report or statement filed with any Governmental Authority with respect to Taxes. "THIRD PARTY" means any Person (which includes a "person" as such term is defined in Section 13(d)(3) of the Exchange Act) other than Parent, Merger Sub or their respective Affiliates. "THIRD PARTY ACQUISITION" means the occurrence of any of the following events: (i) the acquisition of the Company by merger or otherwise by any Third Party, (ii) the acquisition by a Third Party of twenty percent (20%) or more of the assets of the Company and its Subsidiaries taken as a whole, other than the sale of products in the ordinary course of business or (iii) the acquisition by a Third Party of twenty percent (20%) or more of the outstanding Common Shares or the issuance by the Company of preferred stock of a new series. "TRANSACTION COSTS" means any fees, costs and expenses incurred by the Company or any of its Subsidiaries to third parties relating to the transactions contemplated by this Agreement and in connection with the Company's proposed initial public offering (including fees and disbursements of counsel, accountants and other advisors), other than, for the avoidance of doubt, the fees, costs and expenses to be paid pursuant to the last sentence of Section 6.1. "TRANSFER TAXES" has the meaning set forth in Section 11.5. Section 1.2 Terms Generally. The definitions in Section 1.1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation," unless the context expressly provides otherwise. All references herein to Sections, paragraphs, subparagraphs, clauses, Exhibits or Schedules shall be deemed references to Sections, paragraphs, subparagraphs or clauses of, or Exhibits or Schedules to this Agreement, unless the context requires otherwise. Unless otherwise expressly defined, terms defined in this Agreement have the same meanings when used in any Exhibit or Schedule hereto, including when used in the Disclosure Letter. The words "herein," "hereof," "hereto" and "hereunder" and other words of similar import refer to this Agreement as a whole (including the Schedules and Exhibits) and not to any particular provision of this Agreement. -7- ARTICLE II. THE MERGER Section 2.1 The Merger. (a) At the Effective Time, in accordance with the Delaware Law, and upon the terms and subject to the conditions set forth in this Agreement, Merger Sub shall be merged with and into the Company, at which time the separate existence of Merger Sub shall cease and the Company shall survive the Merger as a direct or indirect subsidiary of Parent. (b) As soon as reasonably practicable on the Closing Date, the Company and Merger Sub will file a certificate of merger meeting the requirements of the Delaware Law with the Secretary of State of the State of Delaware. The Merger shall become effective at such time as the certificate of merger is duly filed with the Secretary of State of the State of Delaware, or at such later time as the Company and Merger Sub may agree and specify in the certificate of merger (such time as the Merger becomes effective, the "EFFECTIVE TIME"). (c) From and after the Effective Time, the Surviving Corporation shall possess all the rights, powers, privileges and franchises and be subject to all of the obligations, liabilities, restrictions and disabilities of the Company and Merger Sub, all as provided under the Delaware Law. (d) The closing of the Merger (the "CLOSING") shall take place (i) at the offices of Fried, Frank, Harris, Shriver & Jacobson LLP located at One New York Plaza, New York, New York, as soon as practicable (but in any event no later than the second Business Day) after the day on which the last condition to the Merger is satisfied or validly waived (other than those conditions that by their nature cannot be satisfied until the Closing, but subject to the satisfaction or valid waiver of such conditions) or (ii) at such other place and time or on such other date as the Company and Merger Sub may agree in writing (the actual date of the Closing, the "CLOSING DATE"). Section 2.2 Conversion of Securities. At the Effective Time, pursuant to this Agreement and by virtue of the Merger and without any action on the part of the Company, Parent, Merger Sub or the holders of the Common Stock: (a) Each share of Common Stock held by the Company as treasury stock or owned by Parent, Merger Sub or any Company Subsidiary immediately prior to the Effective Time, if any, shall be canceled and retired and shall cease to exist, and no payment or distribution shall be made or delivered with respect thereto. (b) Each Merger Sub Common Share issued and outstanding immediately prior to the Effective Time shall be converted into and become one newly issued, fully paid and non-assessable share of common stock of the Surviving Corporation, and the foregoing shall constitute the only outstanding shares of capital stock of the Surviving Corporation. (c) Each Common Share issued and outstanding immediately prior to the Effective Time, other than Common Shares to be canceled pursuant to Section 2.2(a), automatically shall be canceled and converted into the right to receive the Merger Consideration, -8- payable to the holder thereof upon surrender of the stock certificate formerly representing such Common Share in the manner provided in Section 2.3. Such Common Shares, other than those canceled pursuant to Section 2.2(a), sometimes are referred to herein as the "MERGER SHARES." (d) If between the date of this Agreement and the Effective Time, the number of outstanding Common Shares is changed into a different number of shares or a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split-up, combination, exchange of shares or the like, other than pursuant to the Merger, the amount of Merger Consideration payable per Common Share shall be correspondingly adjusted. (e) The Company Options shall be treated as provided in Section 2.4 below. Section 2.3 Payment of Cash for Merger Shares. (a) Parent and the Company will use good faith efforts to agree upon a form of letter of transmittal promptly after the date hereof, in accordance with the provisions set forth in Section 2.3(c). If the Company determines to do so, it may mail the agreed form of letter of transmittal to each or any record holder of Merger Shares prior to the Closing Date. No later than five days prior to the Closing Date, the Company may deliver to Parent a schedule (the "Section 2.3 Schedule") setting forth the names of those Persons who have returned duly executed letters of transmittal, the number of Merger Shares held by those Persons and wire instructions for those Persons. At the Closing and upon surrender by the Person(s) named in the Section 2.3 Schedule of the stock certificate or certificates representing the Merger Shares held by such Person(s) and a properly completed and duly executed letter of transmittal and any other documents Parent may reasonably request, Parent shall pay (by wire transfer in immediately available funds to the account specified in the Section 2.3 Schedule) to the Persons complying with the foregoing, the Merger Consideration payable in exchange for the Merger Shares so surrendered, less any amounts required to be withheld under any applicable Tax Law. (b) Prior to the Closing Date, Parent shall designate a bank or trust company that is reasonably satisfactory to the Company, that is organized and doing business under the laws of the United States or any state thereof and that has a combined capital and surplus of at least $1,000,000,000 to serve as the disbursing agent for the Merger Consideration and payments in respect of Company Options (the "DISBURSING AGENT"). At or prior to the Closing, Parent will cause to be deposited with the Disbursing Agent cash in the aggregate amount sufficient to pay the Merger Consideration in respect of all Merger Shares outstanding immediately prior to the Effective Time (less any amount to be paid at Closing pursuant to Section 2.3(a)), and any cash necessary to pay for Company Options pursuant to Section 2.4. Pending distribution of the cash deposited with the Disbursing Agent and subject to the completion of the Merger, such cash shall be held in trust for the benefit of the holders of Merger Shares and such Company Options and shall not be used for any other purposes; provided however, that Parent may direct the Disbursing Agent to invest such cash in obligations of or guaranteed by the United States of America, as long as no such investments have maturities that could prevent or delay payments to be made pursuant to Section 2.3(c) or Section 2.4 hereof. (c) As promptly as practicable after the Effective Time (but no later than two Business Days after the Effective Time), the Surviving Corporation shall send, or cause the -9- Disbursing Agent to send, to each record holder of Merger Shares as of immediately prior to the Effective Time which have not already returned a letter of transmittal under Section 2.3(a) a letter of transmittal and instructions for exchanging their Merger Shares for the Merger Consideration payable therefor. The letter of transmittal will be in customary form and will specify that delivery of Merger Shares will be effected, and risk of loss and title will pass, only upon delivery of the stock certificates representing the Merger Shares to the Disbursing Agent. In addition to the terms and conditions set forth in this Section 2.3, the letter of transmittal will include other customary terms and conditions applicable to the surrender of stock certificates and payment of the Merger Consideration, including, without limitation, as may be required under the Delaware Law, notice of appraisal rights to such holders of Common Shares entitled thereto. Upon surrender of such stock certificate or certificates to the Disbursing Agent together with a properly completed and duly executed letter of transmittal and any other documentation as the Disbursing Agent may reasonably require, the record holder thereof shall be entitled to receive the Merger Consideration payable in exchange therefor, less any amounts required to be withheld under any applicable Tax Law. Until so surrendered and exchanged, each such certificate shall, after the Effective Time, be deemed to represent only the right to receive the Merger Consideration, and until such surrender and exchange, no cash shall be paid to the holder of such outstanding certificate in respect thereof. (d) If payment is to be made to a Person other than the registered holder of the Merger Shares represented by the certificate or certificates surrendered in exchange therefor, it shall be a condition to such payment that the certificate or certificates so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such payment shall pay to the Parent or Disbursing Agent (as the case may be) any applicable stock transfer taxes or establish to the satisfaction of the Parent or Disbursing Agent (as the case may be) that such stock transfer taxes have been paid or are not payable. (e) After the Effective Time, there shall be no further transfers on the stock transfer books of the Surviving Corporation of the Common Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates representing Merger Shares are presented to the Surviving Corporation, such shares shall be canceled and exchanged for the consideration provided for, and in accordance with the procedures set forth, in this Article II. (f) If any cash deposited with the Disbursing Agent remains unclaimed six months after the Effective Time, such cash shall be returned to the Surviving Corporation upon demand, and any such holder who has not surrendered his Merger Shares certificates for the Merger Consideration prior to that time shall thereafter look only to the Surviving Corporation for payment of the Merger Consideration. Notwithstanding the foregoing, the Surviving Corporation shall not be liable to any holder of Merger Shares for an amount paid to a public official pursuant to any applicable unclaimed property laws. Any amounts remaining unclaimed by holders of Merger Shares, as of a date immediately prior to such time that such amounts would otherwise escheat to or become property of any Governmental Authority, shall to the extent permitted by applicable Law, become the property of the Surviving Corporation free and clear of any claims or interest of any Person previously entitled thereto. -10- (g) No dividends or other distributions with respect to capital stock of the Surviving Corporation with a record date after the Effective Time shall be paid to the holder of any unsurrendered certificate for Common Shares. (h) From and after the Effective Time, the holders of Common Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Common Shares, other than the right to receive the Merger Consideration as provided in this Agreement. (i) In the event that any Merger Share certificate has been lost, stolen or destroyed, and upon the making of an affidavit of that fact by the Person claiming such Merger Share certificate to be lost, stolen or destroyed, in addition to the posting by such holder of any bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against the Surviving Corporation with respect to such Merger Share certificate, the Disbursing Agent will issue in exchange for such lost, stolen or destroyed Merger Share certificate the proper amount of the Merger Consideration. (j) Parent, Surviving Corporation and the Disbursing Agent shall be entitled to deduct and withhold from the Merger Consideration otherwise payable hereunder any amounts required to be deducted and withheld under any applicable Tax Law. To the extent any amounts are so withheld, such withheld amounts shall be treated for all purposes as having been paid to the holder from whose Merger Consideration the amounts were so deducted and withheld. Section 2.4 Treatment of Options. (a) As of the Effective Time, each Company Option will be cancelled, and the holder thereof will receive an amount equal to the excess of (A) the Merger Consideration times the number of Common Shares subject to the Company Option over (B) the aggregate exercise price of such Company Option, without interest and less any amounts required to be deducted and withheld under any applicable Tax Law. All payments with respect to canceled Company Options shall be made by the Disbursing Agent as promptly as reasonably practicable after the Effective Time from funds deposited with the Disbursing Agent by or at the direction of Parent to pay such amounts. (b) Prior to the Effective Time, the Company (i) will cause the Company's stock option plans to be terminated effective at or prior to the Effective Time and to otherwise make any amendments permitted by such plans and the agreements thereunder to the terms of such stock option plans or the grants made thereunder necessary to effectuate the actions contemplated by this Section 2.4 and (ii) will effectuate the actions contemplated by this Section 2.4. Section 2.5 Dissenting Company Stock. Notwithstanding any provision of this Agreement to the contrary, Common Shares that are issued and outstanding immediately prior to the Effective Time and which are held by holders of such Common Shares who have properly exercised appraisal rights with respect thereto in accordance with Section 262 of the Delaware Law (the "Dissenting Company Stock") will not be exchangeable for the right to receive the Merger Consideration, and holders of such shares of Dissenting Company Stock will be entitled -11- to receive payment of the appraised value of such Common Shares in accordance with the provisions of such Section 262 unless and until such holders fail to perfect or effectively withdraw or lose their rights to appraisal and payment under the Delaware Law. If, after the Effective Time, any such holder fails to perfect or effectively withdraws or loses such rights, such Common Shares will thereupon be treated as if they had been converted into and to have become exchangeable for, at the Effective Time, the right to receive the Merger Consideration, without any interest thereon. The Company will give Parent prompt notice of any demands received by the Company for appraisals of Common Shares prior to the Effective Time. The Company shall not, except with the prior written consent of Parent, make any payment with respect to any demands for appraisal or offer to settle or settle any such demands. ARTICLE III. THE SURVIVING CORPORATION Section 3.1 Articles of Incorporation. The articles of incorporation of Merger Sub as in effect immediately prior to the Effective Time shall be the articles of incorporation of the Surviving Corporation until thereafter amended in accordance with the terms thereof and as provided by applicable Law. Section 3.2 Bylaws. The bylaws of Merger Sub in effect at the Effective Time shall be the bylaws of the Surviving Corporation until thereafter amended in accordance with the terms thereof and as provided by applicable Law. Section 3.3 Directors and Officers. From and after the Effective Time, (i) the directors of Merger Sub at the Effective Time shall be the directors of the Surviving Corporation, and (ii) the officers of the Company at the Effective Time shall be the officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified in accordance with applicable Law. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in this Agreement, the Current Company SEC Reports (other than the matters described under the caption "Risk Factors" in the Company S-1 and other similar general cautionary language set forth in the Current Company SEC Reports) or in the corresponding sections of the Disclosure Letter delivered to Merger Sub by the Company concurrently with entering into this Agreement (the "DISCLOSURE LETTER") (it being understood that any information set forth in a particular section of the Disclosure Letter shall be deemed to be disclosed to each other section thereof to which the relevance of such information is reasonably apparent and on which a reasonably clear cross reference is made), the Company hereby represents and warrants to Parent and Merger Sub: Section 4.1 Corporate Existence and Power. (a) Each of the Company and its Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company has all corporate powers and authority required to own, lease and operate its properties and to carry on its business as now conducted. The Subsidiaries of the -12- Company have all corporate powers and authority required to own, lease and operate their respective properties and to carry on their business as now conducted. (b) Each of the Company and its Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. (c) The Company has made available to Parent and Merger Sub true and complete copies of the currently effective articles of incorporation and bylaws or similar organizational and governing documents of the Company and its material domestic Subsidiaries. (d) Section 4.1(d) of the Disclosure Letter sets forth a list of all the directors and officers of the Company and Noveon, Inc. Section 4.2 Corporate Authorization. (a) The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the Merger and the other transactions contemplated hereby have been duly and validly authorized by the Board of Directors and shareholders of the Company, and no Company corporate or shareholder action is necessary to authorize this Agreement or to consummate the Merger and the other transactions contemplated hereby, except for the filing of the certificate of merger as provided in Section 2.1(b). The only Company shareholder action required to adopt this Agreement is an affirmative vote in favor, or approval, of this Agreement by the holders of a majority of the outstanding Common Shares, which shareholder action has been duly taken. (b) This Agreement has been duly and validly executed and delivered by the Company and, assuming the due and valid execution and delivery by Parent and Merger Sub, constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except (i) as rights to indemnity hereunder may be limited by federal or state securities Laws or the public policies embodied therein, (ii) as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or similar Laws affecting the enforcement of creditors' rights generally and (iii) as the remedy of specific performance and other forms of injunctive relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) On or prior to the date hereof, the Board of Directors of the Company, has unanimously adopted resolutions (i) approving this Agreement and declaring that the Merger and the other transactions contemplated by this Agreement are advisable and (ii) resolving to recommend that the Company shareholders adopt this Agreement. All such resolutions are in full force and effect and have not been amended or superseded as of the date hereof. (d) The shareholders who have voted in favor of adoption of this Agreement as of the date hereof are holders of at least 98% of the Common Shares outstanding as of the date hereof, and no such shareholder shall have taken any action to rescind or revoke its vote prior to the Effective Time. -13- Section 4.3 Governmental Authorization. The execution, delivery and performance by the Company of this Agreement and the consummation of the Merger by the Company require no action by the Company in respect of, or filing by the Company with, any Governmental Authority other than (i) the filing of the certificate of merger described in Section 2.1(b), (ii) compliance with any applicable requirements of the HSR Act and any applicable Other Antitrust Laws specified on Section 4.3 of the Disclosure Letter, (iii) compliance with any applicable requirements of the Exchange Act and Securities Act, (iv) compliance with any applicable foreign or state securities or Blue Sky Laws, (v) the filing of appropriate documents with the relevant authorities of the jurisdictions in which the Company and its Subsidiaries are qualified to do business and (vi) other actions or filings, which if not taken or made, would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the Company and would not, individually or in the aggregate, reasonably be expected to adversely affect in any material respect, or materially to delay, the Company's ability to observe and perform its obligations hereunder. Section 4.4 Non-Contravention. The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby do not and will not (i) contravene or conflict with the organizational or governing documents of the Company or any of its Subsidiaries, (ii) assuming compliance with the matters referenced in Section 4.3, contravene or conflict with or constitute a violation of any provision of any Law binding upon or applicable to the Company or any of its Subsidiaries or any of their respective properties or assets, (iii) constitute a default under or give rise to a right of termination, cancellation or acceleration of any right or obligation of the Company or any of its Subsidiaries or to a loss of any benefit to which the Company or any of its Subsidiaries is entitled under any provision of any agreement, contract or other instrument applicable to or binding upon the Company or any of its Subsidiaries except those set forth on Section 4.4(iii) of the Disclosure Letter or (iv) result in the creation or imposition of any Lien on any material asset of the Company or any of its Subsidiaries (other than any such Lien arising from any actions taken by Parent or Merger Sub), except, in the case of clauses (ii), (iii) and (iv), as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the Company. Section 4.5 Capitalization. (a) The authorized capital stock of the Company consists of (i) 4,100,000 Common Shares, of which, as of the date hereof, there are 3,606,133 shares issued and outstanding. As of the date hereof, there are outstanding Company Options to purchase an aggregate of 350,611 Common Shares. Section 4.5(a) of the Disclosure Letter sets forth a list of all of the outstanding Company Options, indicating the holder of each Company Option, the number of Common Shares corresponding to each Company Option and the exercise prices applicable to each Company Option. All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable and were not issued in violation of any preemptive or similar rights. (b) Except as set forth in this Section 4.5 and except for changes after the date hereof resulting from the exercise of Company Options outstanding on such date, there are no outstanding, and there have not been reserved for issuance, any (i) shares of capital stock or other voting securities of the Company, (ii) securities of the Company or any Subsidiary convertible -14- into or exchangeable for shares of capital stock or voting securities of the Company or its Subsidiaries, (iii) Company Options or other rights or options to acquire from the Company or its Subsidiaries, or obligations of the Company or its Subsidiaries to issue, any shares of capital stock, voting securities or securities convertible into or exchangeable for shares of capital stock or voting securities of the Company or such Subsidiaries or (iv) equity equivalent interests in the ownership or earnings of the Company or its Subsidiaries or other similar rights (the items in clauses (i) through (iv) collectively, "COMPANY SECURITIES"). There are no outstanding obligations of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any Company Securities. Except as set forth in Section 4.5(b) of the Disclosure Letter, there are no stockholder agreements, voting trusts or other agreements or understandings to which the Company or any of its Subsidiaries is a party or by which it is bound relating to the voting or registration of any shares of capital stock of the Company or any of its Subsidiaries or preemptive rights with respect thereto. Except as set forth in Section 4.5(b) of the Disclosure Letter, to the Knowledge of the Company, there are no agreements among the stockholders of the Company relating to the transfer or voting of any shares of capital stock of the Company or the management of the business and affairs of the Company. (c) Other than the issuance of Common Shares upon exercise of Company Options, and except as set forth in Section 4.5(c) of the Disclosure Letter, since the Balance Sheet Date, the Company has not declared or paid any dividend or distribution in respect of any Company Securities, and neither the Company nor any Subsidiary of the Company has issued, sold, repurchased, redeemed or otherwise acquired any Company Securities, and their respective Boards of Directors have not authorized any of the foregoing. Section 4.6 Company Subsidiaries. (a) Except for such Company Subsidiaries and the investments described in Section 4.6(a) of the Disclosure Letter, (i) each of the Company Subsidiaries is wholly owned (directly or indirectly) by the Company and (ii) the Company does not directly or indirectly own any equity interest in any other Person. (b) All equity interests held by the Company or any of its Subsidiaries in any Affiliated Entity of the Company or any of its Subsidiaries are fully paid and non-assessable and were not issued in violation of any preemptive or similar rights. Except as described on Section 4.6(b) of the Disclosure Letter, all such equity interests are free and clear of any Liens or any other limitations or restrictions on such equity interests (including any limitation or restriction on the right to vote, pledge or sell or otherwise dispose of such equity interests). Section 4.7 Reports and Financial Statements. (a) The Company has filed, or has caused Noveon, Inc. to file, with or otherwise furnished to the SEC all forms, reports, schedules, statements, certifications and other documents required to be filed or furnished by it or Noveon, Inc. under the Securities Act or the Exchange Act since February 28, 2001 (such documents, as supplemented or amended since the time of filing, the "COMPANY SEC REPORTS"). No Company Subsidiary, other than Noveon, Inc., is required to file with or furnish to the SEC any such forms, reports, schedules, statements, certifications or other documents. As of their respective dates, the Company SEC Reports, -15- including any financial statements or schedules included or incorporated by reference therein, at the time filed (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively) (i) complied as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) The audited consolidated financial statements and unaudited consolidated interim financial statements included in the Company S-1 (including any related notes and schedules) fairly present, in all material respects, the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods set forth therein, and in each case were prepared in accordance with GAAP consistently applied during the periods involved (except as otherwise disclosed in the notes thereto and subject, in the case of financial statements for quarterly periods, to normal year-end adjustments that would not be material in amount). (c) There are no liabilities or obligations of the Company or any Company Subsidiary (whether accrued, contingent, absolute, determined, determinable or otherwise) which would be required by GAAP to be reflected on a consolidated balance sheet (or in the notes thereto) of the Company other than (i) liabilities or obligations disclosed or provided for in the Company Balance Sheet or disclosed in the notes thereto, (ii) liabilities or obligations incurred after the Balance Sheet Date in the ordinary course of business consistent with past practice, (iii) liabilities or obligations under this Agreement or incurred in connection with the transactions contemplated hereby or disclosed in Section 4.14 of the Disclosure Letter and (iv) other liabilities or obligations that do not, individually or in the aggregate, have a Material Adverse Effect on the Company. (d) The Quarterly Report on Form 10-Q of Noveon, Inc. for the quarterly period ended March 31, 2004, when filed with the SEC, including any financial statements or schedules included or incorporated by reference therein (i) will comply as to form in all material respects with the applicable requirements of the Exchange Act and (ii) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements included in such Quarterly Report on Form 10-Q (including any related notes and schedules), when filed with the SEC, will fairly present, in all material respects, the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods set forth therein, and in each case will have been prepared in accordance with GAAP consistently applied during the periods involved (except as otherwise disclosed in the notes thereto and subject to normal year-end adjustments that would not be material in amount). Section 4.8 Absence of Certain Changes or Events. (a) Except as set forth in Section 4.8 of the Disclosure Letter, since the Balance Sheet Date and prior to the date hereof, the business of the Company and its -16- Subsidiaries has been conducted in all material respects in the ordinary course of business consistent with past practice. Since the Balance Sheet Date, there has not been any event, occurrence or development that, individually or in the aggregate, has had, or would reasonably be expected to have, a Material Adverse Effect on the Company. For purposes of this Agreement, "MATERIAL ADVERSE EFFECT ON THE COMPANY" means any circumstance, event, change, development or occurrence that, either individually or in the aggregate with all other circumstances, events, changes, developments or occurrences, has had, constitutes or would reasonably be expected to result in a material adverse effect on (i) the business, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole, but excluding any such circumstance, event, change, development or occurrence resulting from or arising out of (A) general national, international or regional economic, financial or business conditions, (B) conditions (including changes in economic, financial market, regulatory or political conditions and any change in Law or GAAP) affecting generally the industries in which the Company and its Subsidiaries participate or (C) the execution, announcement and performance of this Agreement, or any actions taken, delayed or omitted to be taken by the Company in accordance with the terms and conditions of this Agreement or at the written request of Parent, Merger Sub or any of their representatives or (ii) the ability of the Company to consummate the Merger in accordance with the terms and conditions of this Agreement. (b) Without limiting the generality of the foregoing Section 4.8(a), since the Balance Sheet Date and prior to the date hereof, other than in the ordinary course of business, there has not been: (i) any material damage, destruction or loss to any of the material assets or properties of the Company or any of its material Subsidiaries (whether or not insured); (ii) any amendment or change in the Company's organizational or governing documents; (iii) any declaration, setting aside or payment of any dividend or distribution or capital return in respect of any shares of the Company's capital stock or any redemption, purchase or other acquisition by the Company or any of its Subsidiaries of any shares of the Company's capital stock or any amendment of any material term of any outstanding capital stock of the Company or any of its Subsidiaries; (iv) any sale, assignment, transfer, lease or other disposition or agreement to sell, assign, transfer, lease or otherwise dispose of any Owned Real Property, Leased Real Property or any other asset of the Company that is material, individually or in the aggregate, other than the sale of inventory in the ordinary course of business; (v) any acquisition (by merger, consolidation, or acquisition of stock or assets) by the Company or any of its Subsidiaries of any corporation, partnership or other business organization or division thereof or any equity interest therein; -17- (vi) any (A) incurrence of or guarantee with respect to or provision of credit support for any indebtedness for borrowed money by the Company or any of its Subsidiaries, other than pursuant to the Company's or any Company Subsidiary's existing credit facilities in the ordinary course of business, (B) event of default or default under the Company's or any Company Subsidiary's existing credit facilities or outstanding loans, or (C) creation, sufferance or assumption by the Company or any of its Subsidiaries of any material Lien on any material asset, other than Permitted Liens; (vii) any change in any method of accounting or accounting principle or practice used by the Company or any of its Subsidiaries, other than such changes required by Law or a change in GAAP; (viii) any material Tax election or the institution of or any compromise or settlement of any proceeding or proposed adjustment with respect to any material Tax liability of the Company and its Subsidiaries; (ix) any material loan, advance or capital contribution made by the Company or any of its Subsidiaries to, or investment in, any Person other than loans, advances or capital contributions made to a Company Subsidiary or by a Company Subsidiary to the Company; (x) any amendment, alteration or modification in any material term of any currently outstanding Company Options, or any issuance by the Company or any of its Subsidiaries of any options, warrants or other rights to purchase any capital stock or other equity interests in the Company or such Subsidiaries (as the case may be) or any securities exchangeable or exercisable for or convertible into the same; or (xi) any agreement to take any actions specified in this Section 4.8(b), except for this Agreement. Section 4.9 Litigation. Except as set forth in Section 4.9 of the Disclosure Letter, there is no material action, material suit, material claim, material investigation, material arbitration or material proceeding pending or, to the Knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or their respective assets or properties before any arbitrator or Governmental Authority (a "PROCEEDING"). No grand jury proceedings or criminal indictments are pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries or any of the Company's directors or officers relating to the actions or omissions of any such individuals in connection with their respective roles as directors or officers of the Company. Section 4.10 Taxes. (a) The Company and each of its Subsidiaries have timely filed or caused to be timely filed or will timely file or cause to be timely filed with the appropriate Taxing Authorities all material Tax Returns that are required to be filed on or prior to the Closing Date (taking into account extensions) by, or with respect to, the Company and its Subsidiaries. The Tax Returns have accurately reflected and will accurately reflect all material liability for Taxes of the Company and its Subsidiaries for the periods covered thereby. -18- (b) All material Taxes of the Company and each of its Subsidiaries for all taxable years or periods that end as of or before the Effective Time, and, with respect to any taxable year or period beginning before and ending after the Effective Time, the portion of such taxable year or period ending as of the Effective Time, have been timely paid or accrued on the books and records of the Company in accordance with GAAP. The provision for Taxes in the Balance Sheet is sufficient in all material respects to cover all Tax liabilities, fixed or contingent, attributable to all taxable years or periods ending on or prior to the Balance Sheet Date. (c) Except as set forth in Section 4.10 of the Disclosure Letter, since the date of formation of the Company, neither the Company nor any of its Subsidiaries has been included in any "consolidated," "unitary" or "combined" Tax Return provided for under the law of the United States or any nation, state, locality or other jurisdiction with respect to Taxes for any taxable period for which the statute of limitations has not expired, other than a "consolidated," "unitary" or "combined" group of which the Company or any of its Subsidiaries was the common parent. (d) All material Taxes which the Company or any of its Subsidiaries is (or was) required by law to withhold or collect have been duly withheld or collected and have been timely paid over to the proper authorities to the extent due and payable. (e) The Company has not been a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. (f) There are no tax sharing, allocation, indemnification or similar agreements or arrangements in effect as between the Company or any predecessor or Affiliate or Subsidiary thereof and any other party (including any of the Company's shareholders, but excluding the Company and its Subsidiaries) under which the Company or any of its Subsidiaries could be liable for any Taxes or other claims of any such other party. (g) Neither the Company nor any of its Subsidiaries has applied for, been granted, or agreed to any accounting method change for which it will be required to take into account any adjustment under Section 481 of the Code (or, to the Knowledge of the Company, any similar provision of the Code or the corresponding tax laws of any nation, state, locality or other jurisdiction). (h) There are no Liens for Taxes upon the assets of the Company or any of its Subsidiaries except Liens for current Taxes not yet due. (i) Except for those transactions fully disclosed in Section 4.10 of the Disclosure Letter for which full documentation has been provided to Parent, to the Knowledge of the Company, neither the Company nor any of its Subsidiaries has participated in a reportable transaction under Section 6011 of the Code and Treasury Regulations promulgated thereunder. (j) Except as set forth in Section 4.10(j) of the Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to any agreement that would require it to make any payment that would constitute an "excess parachute payment" for purposes of Sections 280G and 4999 of the Code. -19- (k) Since March 1, 2001, excluding the transactions contemplated by this Agreement, to the Knowledge of the Company, there has not been an ownership change (within the meaning of Section 382 of the Code) of the Company. Section 4.11 ERISA. (a) Section 4.11(a) of the Disclosure Letter contains an accurate and complete list of (i) all material domestic "employee benefit plans," within the meaning of Section 3(3) of ERISA, (ii) all material domestic bonus, stock option, stock purchase, restricted stock, incentive, profit-sharing, pension, retirement, deferred compensation, medical, life, disability, severance and supplemental retirement plans, programs and/or arrangements (whether or not insured) (other than the Executive Change of Control Agreements) and (iii) all Material Employment Agreements (other than the Executive Change of Control Agreements) for active, retired or former employees or directors that are maintained or contributed to (or with respect to which an obligation to contribute has been undertaken) and with respect to which any potential liability is borne by the Company or any of its Subsidiaries (each such plan or program an "EMPLOYEE BENEFIT PLAN"). Except for the Executive Change of Control Agreements and the agreements and arrangements set forth in Section 4.11(a) of the Disclosure Letter, neither the Company nor its Subsidiaries is a party to any Material Employment Agreement. (b) Except as set forth in Section 4.11(b) of the Disclosure Letter, and except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, each Employee Benefit Plan has at all times been maintained and operated in compliance in all material respects with its terms and the requirements of all applicable Laws, including, without limitation, ERISA and the Code. Except as set forth in Section 4.11(b) of the Disclosure Letter, neither the Company nor any of its Subsidiaries has any commitment, intention or understanding to create, modify or terminate any Employee Benefit Plan. (c) Except as set forth in Section 4.11(c) of the Disclosure Letter, and except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, neither the Company nor any of its ERISA Affiliates has incurred any withdrawal liability (including any contingent or secondary withdrawal liability) within the meaning of Section 4201 or 4204 of ERISA to any Employee Benefit Plan which is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA) ("MULTIEMPLOYER PLAN") and no event has occurred and no condition or circumstance has existed that presents a material risk of the occurrence of any withdrawal from or the partition, termination, reorganization or insolvency of any such Multiemployer Plan which could result in any liability of the Company or any of its Subsidiaries to any such Multiemployer Plan. (d) Except as set forth in Section 4.11(d) of the Disclosure Letter or as described in the Company SEC Reports, neither the Company nor any of its ERISA Affiliates maintains any Employee Benefit Plan (whether qualified or nonqualified within the meaning of Section 401(a) of the Code) providing for retiree health and/or life benefits. (e) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (i) there are no actions, suits or claims pending, or, to the Knowledge of the Company, threatened, anticipated or expected to be asserted against any -20- Employee Benefit Plan or the assets of any such plan (other than routine claims for benefits and appeals of denied routine claims), (ii) no civil or criminal action brought pursuant to the provisions of Title I, Subtitle B, Part 5 of ERISA is pending, threatened, anticipated, or expected to be asserted against the Company or any of its Subsidiaries or any fiduciary of any Employee Benefit Plan, in any case with respect to any Employee Benefit Plan and (iii) and except as set forth in Section 4.11(e) of the Disclosure Letter, no Employee Benefit Plan or any fiduciary thereof has been the direct or indirect subject of an audit, investigation or examination by any governmental or quasi-governmental agency. (f) Except as set forth in Section 4.11(f) of the Disclosure Letter, full payment has been made of all amounts which the Company or any of its Subsidiaries is required, under applicable Law or under any Employee Benefit Plan or any agreement relating to any Employee Benefit Plan to which the Company or any of its Subsidiaries is a party, to have paid as contributions thereto as of the last day of the most recent fiscal year of such Employee Benefit Plan ended prior to the date hereof. (g) Except as set forth in Section 4.11(g) of the Disclosure Letter, since the Balance Sheet Date, there has been (i) no material adverse change in the financial condition of any Employee Benefit Plan which is covered by Title IV of ERISA and which is a "Single Employer Plan" (as such term is defined in Section 4001(a)(15) of ERISA) ("SINGLE EMPLOYER PLAN") by reason of any increase in benefits, (ii) no change in the actuarial assumptions with respect to any Single Employer Plan and (iii) no increase in benefits under any Single Employer Plan as a result of plan amendments, written interpretations or announcements (whether written or not), change in applicable Law or otherwise. (h) Neither the Company nor any of its ERISA Affiliates sponsors, maintains or contributes to or has any obligation to contribute to any Multiemployer Plan. (i) Each Employee Benefit Plan intended to be qualified under Section 401(a) of the Code has been determined to be so qualified, as to form, by the Internal Revenue Service. Each trust established in connection with any Employee Benefit Plan which is intended to be exempt from Federal income taxation under Section 501(a) of the Code has been determined to be so exempt by the Internal Revenue Service. Since the date of each most recent determination referred to in this paragraph (i), to the Knowledge of the Company, no event has occurred and no condition or circumstance has existed that resulted or is reasonably likely to result in the revocation of any such determination or that could adversely affect the qualified status of any such Employee Benefit Plan or the exempt status of any such trust in a manner that cannot be corrected without material liability. (j) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, neither the Company nor any of its Subsidiaries nor any of their respective directors, officers, employees or, to the Knowledge of the Company, other persons who participate in the operation of any Employee Benefit Plan or related trust or funding vehicle has engaged in any transaction with respect to any Employee Benefit Plan or breached any applicable fiduciary responsibilities or obligations under Title I of ERISA that (i) would subject any of them to a tax, penalty or liability for prohibited transactions under ERISA or the -21- Code or (ii) would result in any claim being made under, by or on behalf of any such Employee Benefit Plan by any party with standing to make such claim. (k) Except as set forth in Section 4.11(k) of the Disclosure Letter (i) the execution of this Agreement and the consummation of the transactions contemplated hereby do not constitute a triggering event under any Employee Benefit Plan, policy, arrangement, statement, commitment or agreement, whether or not legally enforceable, which (either alone or upon the occurrence of any additional or subsequent event) will or may result in any payment (whether of severance pay or otherwise), acceleration, vesting or increase in benefits to any employee or former employee or director of the Company or any of its Subsidiaries or (ii) no Employee Benefit Plan provides for the payment of severance benefits upon the termination of an employee's employment. (l) The Company has made available to Parent true and complete copies of all material plan documents in connection with each Employee Benefit Plan, including, without limitation (where applicable): (i) all Employee Benefit Plans as in effect on the date hereof, together with all amendments thereto, including, in the case of any Employee Benefit Plan not set forth in writing, a written description thereof, (ii) all current summary plan descriptions and summaries of material modifications, (iii) all current trust agreements, declarations of trust and other documents establishing other funding arrangements (and all amendments thereto), (iv) the most recent Internal Revenue Service determination letter obtained with respect to each Employee Benefit Plan intended to be qualified under Section 401(a) of the Code or exempt under Section 501(a) of the Code, (v) the annual report on Internal Revenue Service Form 5500-series for the last year for each Employee Benefit Plan required to file such form, (vi) the most recently prepared actuarial valuation report for each Employee Benefit Plan covered by Title IV of ERISA and (vii) the most recently prepared financial statements. Section 4.12 Labor Matters. (a) Except as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the Company (i) the Company and each of its Subsidiaries is in material compliance with all federal, state and other applicable Laws, domestic or foreign, respecting employment and employment practices, terms and conditions of employment and wages and hours. No material unfair labor practice complaint against the Company or any of its Subsidiaries is pending or, to the Knowledge of the Company, threatened before the National Labor Relations Board or any comparable Governmental Authority in any nation, state or other jurisdiction. (b) Except as set forth in Section 4.12 of the Disclosure Letter (i) there is no labor strike, dispute, slowdown or stoppage actually pending against, or, to the Knowledge of the Company, threatened against or involving, the Company or any of its Subsidiaries, and during the past year there has not been any such action and (ii) in respect of the United States only, neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement and no collective bargaining agreement is currently being negotiated by the Company or any of its Subsidiaries. Section 4.13 Compliance with Laws. -22- (a) Except as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the Company, the Company and each of its Subsidiaries are in compliance with all Laws applicable to the Company, its Subsidiaries and their respective businesses and activities. Except as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the Company, neither the Company nor any of its Subsidiaries has Knowledge of its being under investigation with respect to, or has it been threatened in writing to be charged with or been given notice of any violation of, any applicable Law. (b) Except as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the Company, (i) the Company and each Company Subsidiary has and maintains in full force and effect, and is in compliance with, all Permits necessary for the Company and each Subsidiary to carry on their respective businesses as currently conducted and (ii) neither the Company nor any Subsidiary has received notice that the Person issuing or authorizing any such Permit intends to terminate or will refuse to renew or reissue any such Permit upon its expiration. Section 4.14 Finders' Fees. Except as set forth in Section 4.14 of the Disclosure Letter, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of the Company or any of its Subsidiaries and that might be entitled to any fee or commission from the Company or any of its Affiliates in connection with the transactions contemplated by this Agreement. The Company has provided Parent with true and complete copies of all engagement letters or other agreements providing for the payment of the fees and commissions described in Section 4.14 of the Disclosure Letter, and no such letters or agreements have been amended or superseded. Section 4.15 Environmental Matters. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company, and except as disclosed in Section 4.15 of the Disclosure Letter: (a) the Company and each of its Subsidiaries are in compliance with all applicable Environmental Laws and have no liability, fixed or contingent, for a violation of any Environmental Law, except for such noncompliance and/or liabilities that are adequately reserved against in the Balance Sheet; (b) there are no pending or, to the Company's Knowledge, threatened actions, suits, requests for information, orders, judgments, investigations, claims or proceedings by or before any Governmental Authority or any other Person against the Company or any of its Subsidiaries that pertain to (i) any obligations or liabilities under any Environmental Law, (ii) any alleged violations of any Environmental Law or (iii) responsibility, or potential responsibility, for the clean-up of any Hazardous Substances, including off site contamination; (c) (i) all Permits required to be obtained or filed by the Company or any of its Subsidiaries under any Environmental Laws have been duly obtained or filed and are in full force and effect and (ii) the Company and each of its Subsidiaries are in compliance with all such Permits applicable to it; -23- (d) to the Company's Knowledge, none of the real property currently owned or leased by the Company or any of its Subsidiaries is listed or proposed to be listed on the National Priorities List pursuant to CERCLA or on an equivalent state or foreign list of sites required to be investigated or cleaned up under any Environmental Law; (e) to the Company's Knowledge, no Person has treated, stored, disposed of, transported to or released any Hazardous Substances on or under any real property currently owned or leased by the Company or any of its Subsidiaries, in each case, except in material compliance with applicable Environmental Laws; (f) (i) since February 28, 2001, neither the Company nor any of its Subsidiaries has manufactured or sold any asbestos, lead or products that incorporate asbestos or lead ("DESIGNATED PRODUCTS") and (ii) no claim is pending or, to the Company's Knowledge, threatened against the Company or any of its Subsidiaries with respect to the use of, handling of, exposure to or the manufacture, sale or disposal of any Designated Products; or (g) neither the Company nor any of its Subsidiaries has taken or caused to be taken any action that (i) is reasonably likely pursuant to Section 11.3(g)(ii) of the Goodrich APA to limit or impair in any material respect the rights of the Company against Goodrich under Section 11.3(e) or Section 11.3(f) of the Goodrich APA, (ii) is reasonably likely pursuant to Section 11.3(d)(v) of the Goodrich APA to limit or impair in any material respect the rights of the Company against Goodrich under Section 11.3(d) of the Goodrich Agreements, or (iii) is reasonably likely to limit or impair in any material respect the rights of the Company against third parties, or any rights of the Company against Goodrich, in connection with any indemnification obligation that is the subject of Section 11.3(k) of the Goodrich APA. Section 4.16 Insurance. All Insurance Policies are with reputable insurance carriers and are in character and amount and with such deductibles and exclusions at least equivalent to that carried by persons engaged in similar businesses and subject to the same or similar perils or hazards. A correct and accurate list of all Insurance Policies has been made available to Parent. To the Company's Knowledge, each Insurance Policy is in full force and effect, valid and enforceable, and sufficient for compliance by the Company and its Subsidiaries with all requirements of applicable Law. Except as set forth in Section 4.16 of the Disclosure Letter, in the period from February 28, 2001 until the date hereof, no material claim on any Insurance Policy has been made by the Company or any of its Subsidiaries. Section 4.17 Contracts. (a) The Company has made available to Parent the following contracts (other than purchase orders and ordinary course vendor contracts): (i) contracts for the sale of goods and services with the ten customers with the highest dollar volume of purchases from the Company and its Subsidiaries, taken as a whole, during 2003; (ii) contracts for the purchase of goods or services with the ten suppliers with the highest dollar volume of sales to the Company and its Subsidiaries, taken as a whole, during 2003; -24- (iii) each partnership or joint venture agreement to which the Company or any of its Subsidiaries is a party (other than such agreements where the Company or its Subsidiaries are the only partners); and (iv) contracts for the acquisition or sale of a material business or line of products (other than in the ordinary course of business), whether through the purchase of stock, assets or otherwise, under which the Company or any of its Subsidiaries or any other party thereto has continuing rights or obligations. (b) Neither the Company nor any of its Subsidiaries is a party to or bound by, as of the date hereof, any material contract, undertaking, commitment or agreement (other than the material contracts, undertakings, commitments or agreements set forth in Section 4.17 of the Disclosure Letter (collectively with the contracts referred to in clause (a) of this Section 4.17, the "CONTRACTS"), the employee benefit matters set forth in Section 4.11(a) of the Disclosure Letter, the real property leases set forth in Section 4.21 of the Disclosure Letter and any vendor contracts entered in the ordinary course of business) of the following categories: (i) promissory notes, loans, agreements, indentures, evidences of indebtedness or other instruments providing for the borrowing or lending of money, whether as a borrower, lender or guarantor in excess of $1,000,000; (ii) contracts containing covenants that materially limit the freedom of the Company or any of its material Subsidiaries to engage in any line of business or compete with any Person in any product line or line of business, or to operate at any location other than distributorship agreements entered into in the ordinary course of business; (iii) contracts between the Company or any of its Subsidiaries and any of the Company's stockholders other than an Employee Benefit Plan or Material Employment Agreement; or (iv) any other contract, agreement, arrangement or understanding that is material to the Company or any of its respective material Subsidiaries, the termination, or breach or default of which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. (c) As of the date hereof, each of the Contracts (which defined term shall include the Goodrich Agreements) is a valid and binding obligation of the Company (or the Subsidiaries party thereto), and to the Company's Knowledge, the other parties thereto, enforceable against the Company and its Subsidiaries and, to the Company's Knowledge, the other parties thereto in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization, arrangement or similar laws affecting creditors' rights generally and by general principles of equity. (d) As of the date hereof, neither the Company nor any of its Subsidiaries is, nor to the Knowledge of the Company is any other party, in material breach, default or violation (and no event has occurred or not occurred through the Company's action or inaction or, to the Knowledge of the Company, through the action or inaction of any third parties, which with -25- notice or the lapse of time or both could constitute a material breach, default or violation) of any term, condition or provision of any Contract to which the Company or any of its Subsidiaries is now a party, or by which any of them or any of their respective properties or assets may be bound. (e) Without limiting the foregoing, the Agreement for Sale and Purchase of Assets, dated as of November 28, 2000, between The B.F. Goodrich Company ("GOODRICH") and the Company (the "GOODRICH APA") relating to the acquisition by the Company of the Performance Materials business segment of Goodrich, the "Confidentiality Agreement" (as defined therein) and the other documents contained in the transaction "bible" relating to such acquisition (together the "GOODRICH AGREEMENTS)," that the Company made available to Parent constitute the entire agreement among the parties to the Goodrich Agreement pertaining to such transaction. Copies of the Phase I environmental studies performed by URS for or on behalf of the Company in connection with the aforementioned Goodrich transaction have been made available to Parent. Other than the amendments and supplements included in the "bible" or set forth in Section 4.17(e) of the Disclosure Letter, the Goodrich Agreements have not been amended or supplemented in any material respect. All of the pending indemnity claims made pursuant to the Goodrich Agreements have been made available to Parent. Section 4.18 Legal Matters. The Company has taken all action necessary to exempt the Merger, this Agreement and the transactions contemplated hereby from Section 203 of the Delaware Law, and, accordingly, neither such Section nor any other antitakeover or similar statute or regulation in effect as of the date hereof applies or purports to apply to any such transactions. Section 4.19 Intellectual Property. (a) A list of all of the Intellectual Property has been made available to Parent. (b) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company, and except as specified in Section 4.19 of the Disclosure Letter: (i) the Company or it Subsidiaries own or have a right to use all of the Intellectual Property; (ii) there are no material restrictions on the Company's or the relevant Subsidiary's right to use any Intellectual Property; (iii) the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby do not and will not constitute a default giving rise to a right of termination, cancellation or acceleration of any right or obligation of the Company or any of its Subsidiaries or to a loss of any material benefit to which the Company or any of its Subsidiaries is entitled under any of the Intellectual Property Agreements; (iv) to the Company's Knowledge, neither the Company nor any of its Subsidiaries is infringing or misappropriating, and has not infringed or misappropriated, -26- any intellectual property rights of others, and neither the Company nor any of its Subsidiaries has received written notice of any such infringement or misappropriation; (v) there is no pending or, to the Company's Knowledge, threatened legal or governmental Proceeding challenging the validity of any Intellectual Property, and, to the Company's Knowledge, the Company has not received any written notice from a third party alleging that any Intellectual Property is invalid; (vi) neither the Company nor any of its Subsidiaries have entered into any material contract or made any material arrangement pursuant to which any third party is entitled to any royalty or other compensation for the use of any of the Intellectual Property; (vii) each Intellectual Property Agreement is a valid and binding obligation of the Company or the relevant Subsidiary and, to the Company's Knowledge, is a valid and binding obligation of the other parties thereto; (viii) to the Company's Knowledge, each Intellectual Property Agreement is in full force and effect and is enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or other laws relating to or limiting creditors' rights generally or by general principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity; or (ix) to the Company's Knowledge, neither the Company nor any of its Subsidiaries is in material breach of or in material default of its obligations under any of the Intellectual Property Agreements and none of the other parties to the Intellectual Property Agreements are in material breach of or material default under any of their obligations under the Intellectual Property Agreements. Section 4.20 Related Party Transactions. Except for (i) the Executive Change of Control Agreements, (ii) the Noveon, Inc. 11% senior subordinated notes, (iii) as will not continue after the Effective Time and (iv) arms-length arrangements between the Company or its Subsidiaries on the one hand and any "portfolio company" of any Related Party on the other hand, none of (a) any beneficial owner of 10% or more of the Company's outstanding capital stock, (b) any officer or director of the Company or (c) any Person (other than the Company) in which any such beneficial owner, officer or director owns any beneficial interest (other than a publicly held corporation whose stock is traded on a national securities exchange or in the over-the-counter market and less than 5% of the stock of which is beneficially owned by all such Persons) ((a) through (c) collectively, "RELATED PARTIES") has any interest in: (i) any contract, agreement, arrangement or understanding with, or relating to, the business or operations of, the Company or any of its Subsidiaries, (ii) any loan, arrangement, understanding, agreement or contract for or relating to indebtedness of the Company or any of its Subsidiaries or (iii) any property (real, personal or mixed), tangible or intangible, used in the business or operations of the Company or any of its Subsidiaries, or any property that benefits from a contract or other arrangement by which the Company or any of its Subsidiaries provides services or facilities or other benefits to such property, excluding any such contract, arrangement, understanding or -27- agreement constituting an Employee Benefit Plan. Following the Effective Time, except for (i) the Executive Change of Control Agreements, (ii) the Noveon, Inc. 11% senior subordinated notes, (iii) obligations expressly disclosed in Section 4.20 of the Disclosure Letter and (iv) any arrangements with Parent or its Affiliated Entities, neither the Company nor any of its Subsidiaries will have any obligations to any Related Party. As of the date hereof, neither the Company nor any of its Subsidiaries is party to any engagement letter with any investment bank that would entitle that investment bank or its Affiliates to a fee from the Company or its Affiliates after the Effective Time. Section 4.21 Real Property. (a) Section 4.21(a) of the Disclosure Letter sets forth a complete and accurate list of all real property owned in fee or real property leased as of the date hereof by each of the Company or any of its Subsidiaries. (b) Except as set forth in Section 4.21(b) of the Disclosure Letter and except as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the affected property: (x) as to the real property shown in Section 4.21(a) of the Disclosure Letter as owned in fee by the Company and/or its Subsidiaries (the "OWNED REAL PROPERTY"), (i) the Company and/or its Subsidiaries has good and marketable fee title to the Owned Real Property, (ii) the Owned Real Property is not subject to any mortgages, deeds of trust or other security instruments of a similar nature and (iii) since February 28, 2001, the Company or its Subsidiaries have not sold any material portion of the Owned Real Property and (y) as to the real property shown on Section 4.21(a) of the Disclosure Letter as leased by the Company and/or its Subsidiaries (the "LEASED REAL PROPERTY"), (i) the Leased Real Property is not subject to any mortgages, deeds of trust or other security instruments of a similar nature securing any indebtedness of the Company or its Subsidiaries, (ii) the Company and/or its Subsidiaries is in possession of the Leased Real Property and there are no subleases, subtenancies or other occupancies affecting the Leased Real Property in any material respect and (iii) the Company has made available to Parent true, correct and complete copies of all the leases or subleases which create the Leased Real Property located in the United States. (c) Except as set forth in Section 4.21(c) of the Disclosure Letter, neither the Company nor any of its Subsidiaries has received written notice of any pending or proposed condemnation or eminent domain proceedings affecting in any material respect any Owned Real Property and, to the Company's Knowledge, there are no such proceedings threatened. (d) Section 4.21(d) of the Disclosure Letter indicates those parcels of Owned Real Property that are the subject of any agreements pursuant to which the Company or its Subsidiaries is supplied with material utility services by another Person whose primary line of business is not supplying utility services. As of the date hereof, the plant services agreements to which the Company and its Subsidiaries are a party provide the Company and its Subsidiaries with the access to the plant services necessary for the conduct of their respective businesses as currently conducted. Section 4.22 NO OTHER INFORMATION. NEITHER THE COMPANY NOR ANY OTHER PERSON HAS MADE OR MAKES ANY REPRESENTATION OR WARRANTY -28- EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, AND SPECIFICALLY NEITHER THE COMPANY NOR ANY OTHER PERSON HAS MADE OR MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO ANY PROJECTIONS, ESTIMATES OR BUDGETS DELIVERED TO OR MADE AVAILABLE TO PARENT OR MERGER SUB OR TO ANY OF THEIR RESPECTIVE AFFILIATES OR ANY REPRESENTATION OF FUTURE REVENUES, FUTURE RESULTS OF OPERATIONS (OR ANY COMPONENT THEREOF), FUTURE CASH FLOWS OR FUTURE FINANCIAL CONDITION (OR ANY COMPONENT THEREOF) OF THE COMPANY AND ITS SUBSIDIARIES OR OF THE FUTURE BUSINESS AND OPERATIONS OF THE COMPANY AND ITS SUBSIDIARIES. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub hereby jointly and severally represent and warrant to the Company that: Section 5.1 Corporate Existence and Power. Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all corporate powers and authority required to execute and deliver this Agreement and to consummate the Merger and the other transactions contemplated hereby and to perform each of its obligations hereunder. Section 5.2 Corporate Authorization. The execution, delivery and performance by Parent and Merger Sub of this Agreement and the consummation by Parent and Merger Sub of the transactions contemplated hereby are within the respective corporate powers of Parent and Merger Sub and have been duly authorized by all necessary corporate and shareholder action. This Agreement has been duly and validly executed and delivered by Parent and Merger Sub and, assuming the due and valid execution and delivery of the Agreement by the Company, constitutes a valid and binding agreement of each of Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance with its terms, except (i) as rights to indemnity hereunder may be limited by federal or state securities Laws or the public policies embodied therein, (ii) as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or similar Laws affecting the enforcement of creditors' rights generally and (iii) as the remedy of specific performance and other forms of injunctive relief may be subject to equitable defenses and subject to the discretion of any court before which any proceeding therefor may be brought. Section 5.3 Governmental Authorization. The execution, delivery and performance by Parent and Merger Sub of this Agreement and the consummation by Parent and Merger Sub of the transactions contemplated by this Agreement will not require any action by Parent or Merger Sub in respect of, or filing by Parent or Merger Sub with, any Governmental Authority other than (i) the filing of the certificate of merger in accordance with Delaware Law, (ii) compliance with any applicable requirements of the HSR Act and any applicable Other Antitrust Law, (iii) compliance with the applicable requirements of the Exchange Act, (iv) compliance with the -29- applicable requirements of the Securities Act, (v) compliance with any applicable foreign or state securities or Blue Sky laws and (vi) such other items the failure of which to do or be obtained would not, individually or in the aggregate, reasonably be expected to adversely affect in any material respect, or materially to delay, Parent's or Merger Sub's ability to observe and perform the respective obligations of each hereunder. Section 5.4 Non-Contravention. The execution, delivery and performance by Parent and Merger Sub of this Agreement and the consummation by Parent and Merger Sub of the transactions contemplated hereby do not and will not (i) contravene or conflict with the organizational or governing documents of Parent or Merger Sub, (ii) assuming compliance with the items specified in Section 5.3, contravene, conflict with or constitute a violation of any provision of Law binding upon Parent or Merger Sub or (iii) constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of Parent or Merger Sub or to a loss of any material benefit to which Parent or Merger Sub is entitled under any agreement, contract or other instrument. Section 5.5 Finders' Fees. Except as otherwise disclosed in writing to the Company, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Parent or Merger Sub or any of their respective Affiliates and that would be entitled to any fee or commission from Parent, Merger Sub, the Company, any Subsidiary of the Company or from any of their respective Affiliates in connection with the transactions contemplated by this Agreement. Section 5.6 Adequate Funds. Parent will have at the Effective Time sufficient funds for the payment of the aggregate Merger Consideration and to perform its obligations under this Agreement. ARTICLE VI. COVENANTS OF THE COMPANY Section 6.1 Conduct of the Company and Subsidiaries. Except for matters set forth in Section 6.1 of the Disclosure Letter or as specifically provided in this Agreement, unless Parent shall otherwise consent in writing (which consent shall not be unreasonably withheld, conditioned or delayed), from the date of this Agreement to the Effective Time, the Company shall, and shall cause its Subsidiaries to, conduct their respective businesses in all material respects in the ordinary and usual course consistent with past practice and shall use its reasonable best efforts to (i) preserve substantially intact the present business organization of the Company and its Subsidiaries, (ii) maintain in effect all material Permits that are required for the Company or any of its Subsidiaries to carry on their respective businesses, (iii) keep available the services of present officers and key employees (as a group) of the Company and its Subsidiaries and (iv) maintain the current relationships with its lenders, suppliers and other Persons with which the Company or its Subsidiaries have significant business relationships. Without limiting the generality of the foregoing, and except for matters set forth in Section 6.1 of the Disclosure Letter or in the ordinary and usual course of business consistent with past practice or as expressly contemplated or permitted by this Agreement, without the prior written consent of Parent (which consent shall not be unreasonably withheld, conditioned or delayed), the Company shall not, and shall not permit its Subsidiaries to: -30- (a) enter into any new line of business, discontinue any line of business or, change in its organizational or governing documents; (b) except for transactions among the Company and its Subsidiaries, (i) acquire (by merger, consolidation, acquisition of stock or assets, joint venture or otherwise) any Person or a material amount of assets, or sell, lease or otherwise dispose of a material amount of assets (other than the purchase and sale of inventory and raw materials in the ordinary course of business), (ii) waive, release, grant, or transfer any rights of material value, (iii) modify or change in any material respect, allow to expire or lapse or fail to renew any material Permit or material Insurance Policy, (iv) incur, assume or prepay any indebtedness for borrowed money except pursuant to its existing credit facilities in the ordinary course of business, consistent with past practice, (v) assume, guarantee, endorse or take any action to otherwise become liable or responsible (whether directly, contingently or otherwise) for any indebtedness for borrowed money or trade payables of any other Person, except in the ordinary course of business consistent with past practice, (vi) make any loans, advances or capital contributions to, or investments in, any other Person, except in the ordinary course of business consistent with past practice or as required by existing contracts to which the Company or any of its Subsidiaries is a party ("EXISTING CONTRACTS"), (vii) authorize any material capital expenditures not designated on Section 6.1(b)(vii) of the Disclosure Letter, (viii) pledge or otherwise encumber shares of capital stock or other voting securities of any of the Company's Subsidiaries, (ix) mortgage or pledge any of its material assets, tangible or intangible, or create any Lien thereupon (other than Permitted Liens), (x) enter into any contract or agreement other than in the ordinary course of business consistent with past practice that would be material to the Company and its Subsidiaries, taken as a whole or (xi) amend, modify or waive in any material respects any material right under any material Existing Contract; (c) (i) split, combine or reclassify any Company Securities or amend the terms of any Company Securities, (ii) declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of Company Securities other than any distribution by a wholly owned Company Subsidiary to its parent corporation in the ordinary course of business, or (iii) redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any Company Securities, or issue any Company Options or other Company Securities, other than in connection with the exercise of Company Options outstanding on the date hereof; (d) adopt or materially amend any Employee Benefit Plan or any agreement with any director or employee of the Company or any of its Subsidiaries or materially increase in any manner the compensation or fringe benefits of any such director or employee, in each case, except as required by ERISA or other applicable Law or by existing contract in accordance with the terms of such contract in effect as of the date hereof; (e) (i) pay any bonus to any director or employee of the Company or any of its Subsidiaries, except pursuant to the terms of any existing agreement in accordance with the terms of such agreement as in effect as of the date hereof and except as contemplated by the Executive Change of Control Agreements, (ii) enter into any agreement, commitment or obligation to pay any bonus, change-of-control payment or severance payment to any director or employee of the Company or any of its Subsidiaries or (iii) enter into any employment -31- agreement with any director or officer of the Company or any of its Subsidiaries or with any employee of the Company or any of its Subsidiaries that provides for annual base salary in excess of $100,000; (f) pay, discharge or satisfy any material claims, liabilities or obligations (whether absolute, accrued, asserted or unasserted, contingent or otherwise) except as permitted by clause (i) below; (g) make any election relating to Taxes or settle or compromise any material Tax liability; (h) make any change in accounting methods, principles or practices materially affecting the reported consolidated assets, liabilities or results of operations of the Company and its Subsidiaries, except insofar as may have been required by a change in GAAP or Regulation S-X of the Exchange Act and after consulting with independent accountants; (i) alter the corporate structure or ownership of any of its Subsidiaries, through merger, liquidation, reorganization, restructuring or any other fashion; (j) settle, pay or discharge, any litigation, investigation, arbitration, proceeding or other claim, liability or obligation arising from the conduct of business except in the ordinary course; or (k) authorize, agree or commit to do any of the foregoing. Notwithstanding the foregoing, at Closing the Company shall, or shall cause Noveon, Inc. to, make the payments described in the letter delivered to Parent on or prior to the date hereof. Section 6.2 Other Actions by the Company. The Company will, and will cause its Subsidiaries to, at the request of Parent, provide such cooperation as Parent may reasonably request so that, at or as soon as practicable at or after the Effective Time, Parent can refinance the Noveon, Inc. 11% senior subordinated notes, the Company's 13% senior subordinated notes and any other indebtedness for borrowed money of the Company and its Subsidiaries. Section 6.3 Access to Information; Right of Inspection. (a) The Company will provide and will cause its Subsidiaries and its and their respective representatives to provide Parent and Merger Sub and their respective authorized representatives, during normal business hours and upon reasonable advance notice (i) access to the offices, properties, personnel (including without limitation the managers in charge of operations and the managers responsible for environmental, intellectual property, human resources, tax, insurance, accounting and treasury), books and records of the Company (so long as such access does not unreasonably interfere with the operations of the Company) as Parent or Merger Sub may reasonably request, (ii) access to the Owned Real Property and Leased Real Property (including any facilities located thereon) of the Company and each of its Subsidiaries for purposes of performing Phase I environmental site assessments as Parent shall determine to be necessary or appropriate in connection with its due diligence review (provided, however, that in no event shall Parent be permitted to conduct any sampling or intrusive investigation of air, -32- soil, sediment, groundwater or surface water in connection with such assessments) and (iii) all documents that Parent or Merger Sub may reasonably request relating to the Company or any of its Subsidiaries or any of their respective businesses including, without limitation, a list of all of the directors and officers of the Company's Subsidiaries and each representative of the Company or any of its Subsidiaries serving as a director or officer of any Affiliated Entity of the Company or any of its Subsidiaries and all Insurance Policies. Notwithstanding the foregoing, Parent, Merger Sub and their representatives shall not have access to any books, records and other information the disclosure of which would, in the Company's good faith opinion after consultation with legal counsel, result in the loss of attorney-client privilege with respect to such books, records and other information or cause the Company or any of its Subsidiaries or their representatives to violate Law or any contracts to which they are party (provided that, in the case of any contract that restricts the Company or its Subsidiaries from permitting third parties to review such contract, the Company shall use its reasonable best efforts to obtain the consent of the applicable parties under the contract to the review of such agreement by Parent and its representatives and provided further that the Company will not invoke the attorney-client privilege to prevent Parent from gaining access to the Company's environmental reports and assessments). Any information provided to Parent or Merger Sub or their representatives pursuant to this Section 6.3 shall be subject to the Confidentiality Agreement. (b) If Parent elects to obtain updated surveys of any or all of the Owned Real Property or the Leased Real Property, the Company shall provide access to the sites to be surveyed and shall cooperate with the Parent in arrangement for expeditious completion of the survey work on site. (c) At the request of the Parent, the Company shall request estoppel certificates, in form and substance reasonably acceptable to the Parent and the Company, from any party other than the Company and its Subsidiaries to the lease documents for Leased Real Properties, and shall use its reasonable efforts to assist the Parent in obtaining such estoppel certificates. (d) Between the date of this Agreement and the Closing, the Company shall from time to time, during normal business hours and upon the reasonable request of Parent, provide details to Parent and its officers regarding the operations and financial performance of the Company and its Subsidiaries. Section 6.4 Other Potential Acquirers. (a) The Company shall immediately terminate, and shall cause its Subsidiaries and its and their representatives to immediately terminate, all existing discussions or negotiations, if any, with any Person (other than Parent and Merger Sub) with respect to, or that would reasonably be expected to lead to, a Third Party Acquisition. (b) Neither the Company nor any of its Subsidiaries or controlled Affiliates shall, nor shall the Company authorize or permit any of its or their respective officers and directors to, and the Company shall use its reasonable best efforts to cause its and their respective non-controlled Affiliates, employees, representatives and agents not to, directly or indirectly, knowingly encourage, solicit or engage in discussions or negotiations with or provide -33- any non-public information to, or afford access to any of the properties, books or records of the Company or its Subsidiaries to, any Third Party or its representatives concerning any Third Party Acquisition. The Company shall promptly notify Parent and Merger Sub in the event it receives any proposal or inquiry concerning (or that would reasonably be expected to lead to) a Third Party Acquisition, including (to the extent permitted) the material terms and conditions thereof and the identity of the party making such proposal or inquiry, and shall keep them reasonably apprised as to the status and any material developments concerning the same. Section 6.5 Resignation of Directors. Prior to the Effective Time, the Company shall deliver to Parent and Merger Sub evidence reasonably satisfactory to Parent and Merger Sub of the resignations (effective as of the Effective Time) of (i) all directors of the Company and each of its Subsidiaries and (ii) the officers of the Company and each of its Subsidiaries, as shall be requested by Parent prior to the Effective Time. Section 6.6 ISRA Filings. Prior to Closing, the Company shall use reasonable efforts to cooperate to obtain, or cause to be obtained, in connection with the transactions contemplated by this Agreement, from the New Jersey Department of Environmental Protection ("NJDEP"), in accordance with the provisions of the New Jersey Industrial Site Recovery Act, N.J.S.A. Section 13:1K-6 et seq., (i) a "Negative Declaration," (ii) "No Further Action Letter," (iii) a "remedial action workplan," (iv) a "remediation agreement," (v) approval of an expedited review application under N.J.S.A. 13:1K-11.2, (vi) approval of a remediation in progress waiver application under N.J.S.A. 13:1K-11.5, or (vii) a determination that the transactions contemplated by this Agreement may proceed without further approvals by NJDEP and without further actions by the Company; in each case, with respect to the Owned Real Property and Leased Real Property, as the case may be, located in New Jersey. Section 6.7 FIRPTA Certificate. Prior to the Effective Time, (i) the Company shall deliver to Parent and Merger Sub a certificate signed under penalties of perjury by an officer of the Company to the effect that the Company is not or has not been a United States real property holding company, as defined in Section 897(c)(2) of the Code, during the applicable period described in Section 897(c)(1)(A)(ii) of the Code. ARTICLE VII. COVENANTS OF PARENT AND MERGER SUB Section 7.1 Director and Officer Liability. (a) The Surviving Corporation shall, and after the Effective Time Parent shall cause the Surviving Corporation to, comply with all of the Company's and its respective Subsidiaries' obligations to indemnify and hold harmless (including any obligations to advance funds for expenses) the present and former officers and directors thereof in respect of acts or omissions occurring prior to or at the Effective Time to the extent provided under the Company's or such Subsidiaries' respective organizational and governing documents in effect on the date hereof, and such obligations shall survive the Merger and shall continue in full force and effect in accordance with the terms of the Surviving Corporation's articles of incorporation and bylaws from the Effective Time until the expiration of the applicable statue of limitations with respect to any claims against such directors or officers arising out of such acts or omissions. Any -34- determination required to be made with respect to whether the conduct of an individual seeking indemnification has complied with the standards set forth under applicable Law shall be made by independent counsel mutually acceptable to the Surviving Corporation and such individual. For a period of six years after the Effective Time, the Surviving Corporation shall cause to be maintained in effect the current policies of officers' and directors' liability insurance maintained by the Company and its respective Subsidiaries (the "CURRENT POLICIES"); provided however, that the Surviving Corporation may, and in the event of the cancellation or termination of such policies the Surviving Corporation shall, substitute such policies with equally reputable and financially sound carriers and that are reasonably satisfactory to the covered persons providing at least the same coverage and amount and containing terms and conditions that are no less favorable to the covered persons (the "REPLACEMENT POLICIES") in respect of claims arising from facts or events that existed or occurred prior to or at the Effective Time under the Current Policies; provided further however, that in no event will the Surviving Corporation be required to expend annually in excess of 200% of the annual premium currently paid by the Company for such coverage (or to provide more than that amount of coverage as is available for no more than 200% of such current annual premium); provided further however, that in lieu of the foregoing insurance coverage, with the consent of Parent (which consent shall not be unreasonably withheld), the Company may purchase "tail" insurance coverage that provides coverage no less favorable than the coverage described above. (b) This Section 7.1 shall survive the consummation of the Merger and is intended to be for the benefit of, and shall be enforceable by, present or former directors or officers of the Company or its Subsidiaries, their respective heirs and personal representatives and shall be binding on the Surviving Corporation, Parent and their respective successors and assigns, and the agreements and covenants contained herein shall not be deemed to be exclusive of any other rights to which any such present or former director or officer is entitled, whether pursuant to Law, contract or otherwise. Nothing in this Agreement is intended to, shall be construed to or shall release, waive or impair any rights to directors' and officers' insurance claims under any policy that is or has been in existence with respect to the Company or any of its Subsidiaries or their respective officers, directors and employees, it being understood and agreed that the indemnification provided for in this Section 7.1 is not prior to or in substitution for any such claims under any such policies. (c) If Parent or the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity or (ii) transfers or conveys substantially all of its properties and assets to any person, then and in each case to the extent reasonably necessary, proper provision shall be made so that the successors and assigns of Parent or the Surviving Corporation shall assume the obligations set forth in this Section 7.1. ARTICLE VIII. COVENANTS OF THE PARTIES The parties hereto agree that: Section 8.1 Reasonable Best Efforts. Subject to the terms and conditions of this Agreement, each party will (and will cause its Affiliates to) use its reasonable best efforts to take, -35- or cause to be taken, all actions, to file, or cause to be filed, all documents and to do, or cause to be done, all things necessary, proper or advisable to consummate the transactions contemplated by this Agreement, including obtaining all necessary consents, waivers, approvals, authorizations, Permits or orders from all Governmental Authorities or other Persons; provided that in no event shall the Company or any of its Affiliates be required to pay prior to the Effective Time any material fee, penalties or other consideration to any third party to obtain any consent or approval required for the consummation of the Merger under any material contracts. Each party shall also (and will cause its Affiliates to) refrain from taking, directly or indirectly any action (including making acquisitions), that would be reasonably likely to result in a failure of any of the conditions to the Merger in this Agreement being satisfied or restrict such party's ability to consummate the Merger and the other transactions contemplated hereby. Without limiting the foregoing, the Company shall use its reasonable best efforts (i) to take all action necessary so that no takeover, anti-takeover, moratorium, "fair price," "control share" or other similar statute or regulation is or becomes applicable to the Merger or any of the other transactions contemplated by this Agreement and (ii) if any such Law is or becomes applicable to any of the foregoing, to take all action necessary so that the Merger and the other transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Merger and the other transactions contemplated by this Agreement. Section 8.2 Certain Filings. (a) The parties shall cooperate with one another (i) in determining whether any action by or in respect of, or filing with, any Governmental Authority is required, or any actions, consents, approvals or waivers are required to be obtained from any parties to any material contracts, in connection with the consummation of the transactions contemplated by this Agreement and (ii) in seeking and obtaining any such actions, consents, approvals or waivers or making any such filings, furnishing information required in connection therewith; provided that the conditions to the parties' respective obligations to consummate the transactions contemplated hereby shall be limited to those conditions specified in Article IX. The parties shall have the right to review in advance, and to the extent reasonably practicable each will consult the other on, all the information relating to the other and each of their respective Subsidiaries that appears in any filing made with, or written materials submitted to, any Governmental Authority in connection with the Merger and the other transactions contemplated by this Agreement. Each of the Company and Parent shall promptly notify and provide a copy to the other party of any written communication received from any Governmental Authority with respect to any filing or submission or with respect to the Merger and the other transactions contemplated by this Agreement. Each of the Company and Parent shall give the other reasonable prior notice of any communication with, and any proposed understanding, undertaking or agreement with, any Governmental Authority regarding any such filing or any such transaction. Neither the Company nor Parent shall, nor shall they permit their respective representatives to, participate independently in any meeting or engage in any substantive conversation with any Governmental Authority in respect of any such filing, investigation or other inquiry without giving the other party prior notice of such meeting or conversation and without giving, unless prohibited by such Governmental Authority, the opportunity of the other party to attend or participate. The parties to this Agreement will consult and cooperate with one another in connection with any analyses, appearance, presentations, memoranda, briefs, arguments, opinions, and proposals made or -36- submitted by or on behalf of any party to this Agreement in connection with proceedings under or related to the HSR Act or Other Antitrust Laws. (b) The parties (i) shall use their respective reasonable best efforts to take or cause to be taken such actions as may be required to be taken under the Exchange Act and state securities or applicable Blue Sky Laws in connection with the Merger and (ii) shall promptly prepare and file all necessary documentation, effect all necessary applications, notices, petitions and filings, and use all reasonable efforts to obtain all necessary consents from any Governmental Authorities necessary to consummate the Merger (including, without limitation, any filing under the HSR Act or any applicable Other Antitrust Law). (c) If required, each of the Company, Parent and Merger Sub shall take all reasonable action necessary (i) to file as soon as practicable notifications or other required items under the HSR Act and any applicable Other Antitrust Law, (ii) to respond as promptly as practicable to any inquiries from the Federal Trade Commission and the Antitrust Division of the Department of Justice for additional information or documentation, (iii) to comply with the requirements of, and respond as promptly as reasonably practicable to all inquiries and requests for additional information received from any Governmental Authority in connection with, the HSR Act or Other Antitrust Laws related to the Merger or the other transactions contemplated by this Agreement and (iv) to use reasonable best efforts to avoid or eliminate each and every impediment under the HSR Act or any Other Antitrust Law that may be asserted by any Governmental Authority with respect to the Merger so as to enable the Closing to occur as soon as reasonably possible and in any event no later than the End Date. Section 8.3 Public Announcements. So long as this Agreement is in effect, the parties will use reasonable best efforts to consult with each other before issuing any press release or making any public statement with respect to this Agreement or the transactions contemplated hereby and, except for any press release or public statement a party determines may be required by applicable Law or the New York Stock Exchange, will not issue any such press release or make any such public statement without the consent of the other parties (not to be unreasonably delayed, conditioned or withheld). Section 8.4 Further Assurances. At and after the Effective Time, the officers and directors of the Surviving Corporation will be authorized to execute and deliver, in the name on behalf of the Company or Merger Sub, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the Company or Merger Sub, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets of the Company. Section 8.5 Notices of Certain Events. Each of the parties hereto shall reasonably promptly notify the other party of: (a) the receipt by such party of any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; -37- (b) the receipt by such party of any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and (c) its learning of any actions, suits, claims, investigations or proceedings commenced against, or affecting such party that, if they were pending on the date of this Agreement, would have been required to be disclosed pursuant to this Agreement or which relate to the consummation of the transactions contemplated by this Agreement. (d) its learning of any events, circumstances, developments or facts that would make any of the representations and warranties of such party contained in this Agreement untrue or any of the covenants or conditions contained in this Agreement incapable of being satisfied. Section 8.6 Disposition of Litigation. The Company will consult with Parent and Merger Sub with respect to any action by any Third Party to restrain or prohibit or otherwise oppose the Merger or the other transactions contemplated by this Agreement and will use reasonable best efforts to resist any such effort to restrain or prohibit or otherwise oppose the Merger or the other transactions contemplated by this Agreement. In addition, the Company will not encourage or cooperate with any Third Party to restrain or prohibit or otherwise oppose the Merger or the other transactions contemplated by this Agreement, and the Company will reasonably cooperate with Parent and Merger Sub to resist any such effort to restrain or prohibit or otherwise oppose the Merger or the other transactions contemplated by this Agreement. Section 8.7 Employee Matters. (a) From and after the Effective Time, Parent shall assume and honor, or shall cause the Company and its Subsidiaries to honor, all Employee Plans and all Employment Agreements in accordance with their terms as in effect immediately before the Effective Time. For a period of not less than one year following the Effective Time, Parent shall provide, or shall cause to be provided, to current and former employees of the Company and its Subsidiaries (the "COMPANY EMPLOYEES") employee benefits that are, in the aggregate, substantially comparable to those provided to the Company Employees immediately before the Effective Time, with the exception of those changes collectively bargained with authorized union representatives. The foregoing shall not be construed to prevent (i) the amendment or termination of any particular Employee Benefit Plan or Employment Agreement to the extent permitted by, and in accordance with, its terms and the terms of any contract related thereto, as in effect immediately before the Effective Time or (ii) the termination of employment of any individual Company Employee. (b) For all purposes (other than benefit accrual under defined benefit pension plans) under the employee benefit plans of Parent and its Subsidiaries providing benefits to any Company Employees after the Effective Time (the "NEW PLANS"), except as would result in a duplication of benefits, each Company Employee shall be credited with all years of service for which such Company Employee was credited before the Effective Time under any similar Employee Benefit Plans. In addition and without limiting the generality of the foregoing: (i) each Company Employee shall be immediately eligible to participate, without any waiting time or satisfaction of any other eligibility requirements, in any and all New Plans to the extent coverage under such New Plan replaces coverage under a comparable Employee Benefit Plan in -38- which such Company Employee participated immediately before the Effective Time (such plans, collectively, the "OLD PLANS") and (ii) for purposes of each New Plan providing medical, dental, pharmaceutical and/or vision benefits to any Company Employee, Parent shall cause all pre-existing condition exclusions and actively-at-work requirements of such New Plan to be waived for such employee and his or her covered dependents, and any expenses incurred by any Company Employee and his or her covered dependents during the portion of the plan year of the Old Plan ending on the date such employee's participation in the corresponding New Plan begins to be taken into account under such New Plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such New Plan. Section 8.8 Confidentiality Agreement. The parties acknowledge that the Company and Parent entered into the Confidentiality Agreement, which agreement shall be deemed incorporated herein as if it were set forth in its entirety, and shall continue in full force and effect in accordance with its terms until the earlier of (i) the Effective Time or (ii) the expiration of that Confidentiality Agreement according to its terms. Notwithstanding the foregoing or anything herein or in the Confidentiality Agreement to the contrary, any party to this Agreement (and their employees, representatives or other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all material of any kind (including opinions or other tax analysis) that are provided to such party relating to such tax treatment and tax structure; provided however, that this sentence shall not permit any disclosure that otherwise is prohibited by this Agreement, the Confidentiality Agreement or any other confidentiality agreement between or among the parties as of the date hereof or where such disclosure would result in a violation of federal or state securities Laws or to the extent not related to the tax aspects of the transactions contemplated hereby. Moreover, nothing in this Agreement shall be construed to limit in any way any party's ability to consult any tax advisor regarding the tax treatment or tax structure of the transactions contemplated hereby. ARTICLE IX. CONDITIONS TO THE MERGER Section 9.1 Conditions to the Obligations of Each Party. The obligations of the Company, Parent and Merger Sub to consummate the Merger are subject to the satisfaction or, where permitted, waiver of the following conditions: (a) any applicable waiting period (and any extension thereof) applicable to the Merger under the HSR Act shall have expired or been terminated and any other consents, approvals or authorizations applicable to the Merger under the Other Antitrust Laws specified as Closing Conditions on Section 4.3 of the Disclosure Letter shall have been received or waived by the appropriate Governmental Authority or the applicable waiting period shall have expired or been terminated; and (b) no Law shall have been adopted, promulgated, issued or entered, which is then in effect and which prohibits, enjoins or renders illegal the consummation of the Merger. -39- Section 9.2 Conditions to the Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver of the following further conditions: (a) (i) the Company shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Effective Time, (ii) the representations and warranties of the Company contained in Article IV of this Agreement shall be true and correct (without giving effect to any qualification therein as to "materiality" or as to whether any matter would or would be expected to have a Material Adverse Effect on the Company) as of the Closing Date (except that representations and warranties made as of a specific date are required to be true and correct only as of such date), except where the failure to be so true and correct would not, individually or in the aggregate, have, constitute or reasonably be expected to have a Material Adverse Effect on the Company and (iii) Parent and Merger Sub shall have received a certificate signed by a senior officer of the Company to the foregoing effect; (b) since the Balance Sheet Date, no event, change, development or occurrence shall have occurred that, individually or in the aggregate, has had or would be reasonably likely to have a Material Adverse Effect on the Company, and Parent and Merger Sub shall have received a certificate signed by a senior officer of the Company to the foregoing effect; (c) Parent shall have received (i) written confirmation from the Company regarding the amount of the payments required to be made pursuant to the Executive Change of Control Agreements, (ii) written confirmations from the Company's shareholders (or their Affiliates) and financial advisors regarding the amount of fees required to be paid to them by the Company or any of its Subsidiaries in connection with the transactions contemplated by this Agreement, and (iii) written confirmation from the Company that all such fees and expenses have been paid pursuant to the last sentence of Section 6.1; (d) the Management and Advisory Services Agreements and the Stockholders Agreement, dated November 28, 2000, between Noveon International, Inc. (formerly know as PMD Group Holdings, Inc.), PMD Investors I LLC, PMD Investors II LLC, DLJMB Funding III, Inc. and MidOcean Capital/PMD Investors, LLC (formerly known as DB Capital/PMD Investors, LLC) (the "STOCKHOLDERS AGREEMENT")shall have been terminated; and (e) Parent shall have received a certificate from the chief financial officer of the Company certifying as to the total amount of the Transaction Costs. Section 9.3 Conditions to the Obligations of the Company. The obligation of the Company to consummate the Merger is subject to the satisfaction or waiver of the following further conditions: (a) Each of Parent and Merger Sub shall have performed in all material respects all of its respective obligations hereunder required to be performed by it at or prior to the Effective Time; -40- (b) the representations and warranties of Parent and Merger Sub contained in this Agreement and in any certificate or other writing delivered by them pursuant hereto that are qualified as to materiality shall be true and correct in accordance with their terms as of the Closing Date, and those that are not qualified as to materiality will be true and correct in all material respects as of the Closing Date as if made at and as of such date (provided that representations made as of a specific date shall be required to be true as of such date only); and (c) the Company shall have received a certificate signed by a senior officer of each of Parent and Merger Sub to the foregoing effect. ARTICLE X. TERMINATION Section 10.1 Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any prior approval of this Agreement by the shareholders of the Company): (a) by mutual written consent of the Company, on the one hand, and Parent and Merger Sub, on the other hand; (b) by any of the Company, Parent or Merger Sub, if: (i) the Merger has not been consummated by the End Date, provided that the failure of the Merger to be consummated by such date is not the result of, or caused by, the failure of the party seeking to exercise such termination right to fulfill any of its obligations under this Agreement; or (ii) there shall be any Law that makes consummation of the Merger illegal or otherwise permanently prohibited, provided that, in the case of any such Law issued by a court, it shall be final and non-appealable; provided however, that the right to terminate this Agreement pursuant to this Section 10.1(b)(ii) shall not be available to any party whose breach of any provision of this Agreement results in the application or imposition of such Law; (c) by the Company, if a breach of or failure to perform any representation, warranty, covenant or agreement on the part of Parent or Merger Sub set forth in this Agreement shall have occurred which would cause any of the conditions set forth in Sections 9.3(a) or (b) to be unable to be satisfied by the End Date; provided however, that the Company is not then in material breach of this Agreement; or (d) by Parent or Merger Sub, if a breach of or failure to perform any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement shall have occurred which would cause the condition set forth in Section 9.2(a) to be unable to be satisfied by the End Date; provided however, that Parent or Merger Sub is not then in material breach of this Agreement. -41- The party desiring to terminate this Agreement pursuant to Sections 10.1(b) through (d) shall give written notice of such termination to the other party in accordance with Section 11.1 of this Agreement. Section 10.2 Effect of Termination. If this Agreement is terminated pursuant to Section 10.1, this Agreement shall forthwith become null and void, and there shall be no liability or obligation on the part of the Company, Parent, Merger Sub or their respective Subsidiaries or Affiliates, except (i) Sections 10.2 and Article XI (other than Sections 11.2, 11.9 and 11.10) will survive the termination hereof and (ii) with respect to any liabilities for damages incurred or suffered by a party as a result of the breach by any other party of any of its representations, warranties, covenants or other agreements set forth in this Agreement. ARTICLE XI. MISCELLANEOUS Section 11.1 Notices. All notices, requests and other communications to any part hereunder shall be in writing (including facsimile or similar writing) and shall be given: if to Parent or Merger Sub, to: The Lubrizol Corporation 29400 Lakeland Boulevard Wickliffe, Ohio 44092-2298 Attention: Joseph W. Bauer Facsimile: 440-943-9063 with a copy (which shall not constitute notice) to: Thompson Hine LLP 3900 Key Center 127 Public Center Cleveland, Ohio 44114 Attention: James R. Carlson Facsimile: 216-566-5800 if to the Company, to: Noveon International, Inc. 9911 Brecksville Road Cleveland, Ohio 44141-3247 Attention: Christopher Clegg, Esq. Facsimile: 216-447-5730 with a copy (which shall not constitute notice) to: -42- Fried, Frank, Harris, Shriver & Jacobson LLP One New York Plaza New York, New York 1004 Attention: Christopher Ewan, Esq. Facsimile: (212) 859-4000 or such other address or facsimile number as such party may hereafter specify for by notice to the other parties hereto. Each such notice, request or other communication shall be effective (i) if given by facsimile, when such telecopy is transmitted to the telecopy number specified above and the appropriate facsimile confirmation is received or (ii) if given by any other means, when delivered at the address specified in this Section 11.1. Section 11.2 Survival of Representations and Warranties. The representations and warranties contained herein and in any certificate or other writing delivered pursuant hereto shall survive until (but not beyond) the Effective Time, such survival being the case prior to the Effective Time irrespective of whether any party undertakes any investigation into the subject matter of any representation or warranty. This Section 11.2 shall not limit any covenant or agreement of the parties that by its terms contemplates performance in whole or in part after the Effective Time. For the avoidance of doubt, the parties agree that the shareholders of the Company will have no liability to Parent or its Affiliates with respect to the transactions contemplated by this Agreement. Section 11.3 Amendments No Waivers. (a) Any provision of this Agreement may be amended or waived prior to the Effective Time only by amendment or waiver in writing and signed: (i) in the case of an amendment to this Agreement, by the Company, Parent and Merger Sub or (ii) in the case of a waiver, by the party against whom the waiver is to be effective; provided however, that any proposed amendment that by Law requires further approval by the shareholders of the Company shall not be effective without such further shareholder approval. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any other rights or remedies herein provided or available at Law or in equity. Section 11.4 Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense. Section 11.5 Transfer Taxes. Subject to Section 2.3(c), all stock transfer, real estate transfer, documentary, stamp, recording and other similar taxes (including interest, penalties and additions to any such taxes) ("TRANSFER TAXES") incurred in connection with the transactions contemplated by this Agreement shall be paid by either Parent, Merger Sub or the Surviving Corporation, and such parties shall cooperate with each other in preparing, executing and filing any returns with respect to such Transfer Taxes. -43- Section 11.6 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties hereto. Any purported assignment in violation of this provisions shall be null and void ab initio. Section 11.7 Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of Delaware, without giving effect to the conflicts or choice of law principles of those states. Section 11.8 Counterparts; Effectiveness; Third Party Beneficiaries. This Agreement may be executed by facsimile signatures and in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective only when actually signed by each party hereto and each such party has received counterparts hereof signed by all of the other parties hereto. No provision of this Agreement is intended to or shall confer upon any Person other than the parties hereto any rights or remedies hereunder or with respect hereto, except with respect to the matters provided in Section 2.3 and Section 7.1. Section 11.9 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by virtue of any Law, or due to any public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby are fulfilled to the extent possible. Section 11.10 Specific Performance. The parties hereby acknowledge and agree that the failure of any party to perform its agreements and covenants hereunder, including its failure to take all actions as are necessary on its part to consummate the Merger, will cause irreparable injury to the other parties, for which damages, even if available, will not be an adequate remedy. Accordingly, each party hereby consents to the issuance of injunctive relief by any court of competent jurisdiction to compel performance of such party's obligations and to the granting by any court of the remedy of specific performance of its obligations hereunder, in addition to any other rights or remedies available hereunder or at law or in equity. Section 11.11 Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto with respect to its subject matter and supersedes all oral or written prior or contemporaneous agreements and understandings among the parties with respect to such subject matter. Section 11.12 Jurisdiction; Waiver of Jury Trial. Except as otherwise expressly provided in this Agreement, the parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought exclusively in the Court of -44- Chancery of the State of Delaware, County of New Castle or, if such court does not have jurisdiction over the subject matter of such proceeding or if such jurisdiction is not available, in the United State District Court for the District of Delaware, and each of the parties hereby irrevocably consents to the exclusive jurisdiction of those courts (and of the appropriate appellate courts therefrom) in any suit, action or proceeding and irrevocably waives, to the fullest extent permitted by Law, any objection that such party may now or hereafter have to the laying of the venue of any suit, action or proceeding in any of those courts or that any suit, action or proceeding that is brought in any of those courts has been brought in an inconvenient forum. Process in any suit, action or proceeding may be served on any party at the applicable address provided in Section 11.1, whether within or without the jurisdiction of any of the named courts. Without limiting the foregoing, each party agrees that service of process on it by notice as provided in Section 11.1 shall be deemed effective service of process. Each of the parties to this Agreement hereby irrevocably waives any right it may have to trial by jury in any court or jurisdiction in respect to any matter arising out of or relating to this Agreement or the transactions contemplated hereby. Section 11.13 Authorship. The parties agree that the terms and language of this Agreement were the result of negotiations between the parties, and as a result, there shall be no presumption that any ambiguities in this Agreement shall be resolved against any party. Any controversy over construction of this Agreement shall be decided without regard to events of authorship. [signature page follows] -45- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. THE COMPANY NOVEON INTERNATIONAL, INC. By: /s/ Steven J. Demetriou --------------------------------------- Name: Steven J. Demetriou Title: President & CEO PARENT THE LUBRIZOL CORPORATION By: /s/ W. G. Bares --------------------------------------- Name: W. G. Bares Title: Chairman and Chief Executive Officer MERGER SUB LUBRIZOL ACQUISITION CORPORATION By: /s/ James L. Hambrick ----------------------------------------- Name: James L. Hambrick Title: President -46- EX-5.1 3 l07377aexv5w1.txt EXHIBIT 5.1 EXHIBIT 5.1 [Letterhead of Thompson Hine LLP] May 20, 2004 The Lubrizol Corporation 29400 Lakeland Boulevard Wickliffe, Ohio 44092-2298 Re: Registration Statement on Form S-3 Ladies and Gentlemen: The Lubrizol Corporation (the "Company") is filing with the Securities and Exchange Commission on or about the date hereof a Registration Statement on Form S-3 (the "Registration Statement") relating to the offering from time to time, pursuant to Rule 415 promulgated under the Securities Act of 1933, as amended (the "Securities Act"), by the Company of the following securities with an aggregate offering price of up to $2.0 billion: (i) certain debt securities (the "Debt Securities") and (ii) Common Shares, without par value (the "Common Shares"), including Common Shares that may be issued upon conversion of the Debt Securities. The offering of the Debt Securities and the Common Shares will be as set forth in the prospectus contained in the Registration Statement, as supplemented by one or more supplements to such prospectus (the "Prospectus"). Item 601 of Regulation S-K requires that an opinion of counsel concerning the legality of the securities to be registered be filed as an exhibit to the Registration Statement. This opinion is provided in satisfaction of that requirement. In rendering this opinion, we have examined the originals, or copies identified to our satisfaction, of such corporate records of the Company, certificates of public officials, officers of the Company and other persons, and such other documents, agreements and instruments as we have deemed relevant and necessary for the basis of our opinions hereinafter expressed. In such examination, we have assumed the following: (a) the authenticity of original documents and the genuineness of all signatures; (b) the conformity to the originals of all documents submitted to us as copies; and (c) the truth, accuracy and completeness of the information, representations and warranties contained in the records, documents, instruments and certificates we have reviewed. Based on and subject to the foregoing, we are of the opinion that: 1. The Debt Securities will be valid and legally binding obligations of the Company at such time as: (a) the terms of the Debt Securities and of their issuance and sale have been duly authorized by all necessary actions of the Company, and have been established so as not to violate any applicable law; (b) the Debt Securities have been duly executed, authenticated and delivered in accordance with the applicable indenture or supplemental indenture; (c) the Registration Statement has become effective; (d) an indenture relating to the Debt Securities has been duly qualified under the Trust Indenture Act of 1939, as amended (the "TIA"); and (e) the Debt Securities have been duly issued and sold as contemplated by the Registration Statement, the Prospectus and the indentures or any applicable supplemental indentures that have been qualified under the TIA. 1 2. The Common Shares will be validly issued, fully paid and nonassessable at such time as: (a) the terms of the issuance and sale of the Common Shares have been duly authorized by all necessary actions of the Company; (b) the Common Shares have been duly issued and sold as contemplated by the Registration Statement and the Prospectus; and (c) the Company has received the consideration for the Common Shares as approved by the Board. The information set forth herein is as of the date hereof. We assume no obligation to advise you of changes that may hereafter be brought to our attention. Our opinion is based on statutory laws and judicial decisions that are in effect on the date hereof, and we do not opine with respect to any law, regulation, rule or governmental policy that may be enacted or adopted after the date hereof, nor do we assume any responsibility to advise you of future changes in our opinion. Our opinion is intended solely for the benefit of the Company, and may not be relied upon for any other purpose or by any other person or entity or made available to any other person or entity without our prior written consent, except that we hereby consent to the use and filing of this opinion as an exhibit to the Registration Statement as filed with the Securities and Exchange Commission and to the reference to us under the heading "Legal Matters" in the Prospectus and the Registration Statement. Very truly yours, /s/ Thompson Hine LLP 2 EX-12.1 4 l07377aexv12w1.txt EXHIBIT 12.1 Exhibit 12.1 THE LUBRIZOL CORPORATION Computation of Ratio of Earnings to Fixed Charges (all amounts except ratios are shown in thousands)
Three Months Ended March 31, 2004 2003 2002 2001 2000 1999 --------- --------- --------- --------- --------- --------- Pretax income $ 56,856 $ 129,071 $ 180,388 $ 139,949 $ 170,348 $ 195,350 Add (deduct) earnings of less than 50% owned affiliates (net of distributed earnings) included in pretax income (118) 773 1,676 (558) 1,135 (3,195) Add losses of less than 50% owned affiliates included in pretax income -- 140 -- 2,162 1,818 18 Add fixed charges net of capitalized interest 6,178 25,114 23,298 25,041 26,869 29,696 Add previously capitalized interest amortized during period 271 1,312 1,159 1,634 1,255 1,446 --------- --------- --------- --------- --------- --------- "Earnings" $ 63,187 $ 156,410 $ 206,521 $ 168,228 $ 201,425 $ 223,315 ========= ========= ========= ========= ========= ========= Gross interest expense including capitalized interest ("Fixed Charges") $ 6,245 $ 25,272 $ 22,239 $ 24,142 $ 26,282 $ 28,953 Ratio of earnings to fixed charges 10.12 6.19 9.29 6.97 7.66 7.71
EX-23.1 5 l07377aexv23w1.txt EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of The Lubrizol Corporation on Form S-3 of our report dated February 6, 2004 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 142 in 2002), appearing in the Annual Report on Form 10-K of The Lubrizol Corporation for the year ended December 31, 2003 and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. DELOITTE & TOUCHE LLP Cleveland, Ohio May 17, 2004 EX-23.2 6 l07377aexv23w2.txt EXHIBIT 23.2 Exhibit 23.2 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3 No. 333-XXXXXX) and related Prospectus of The Lubrizol Corporation and to the incorporation by reference therein of our reports, as listed below, included in The Lubrizol Corporation's Current Report (Form 8-K) filed with the Securities and Exchange Commission on May 20, 2004: - - Our report dated February 17, 2004, with respect to the consolidated financial statements of Noveon International, Inc. and - - Our report dated September 5, 2002, with respect to the consolidated financial statements of BFGoodrich Performance Materials (a segment of The BFGoodrich Company). /S/ ERNST & YOUNG LLP Cleveland, Ohio May 19, 2004 EX-24.1 7 l07377aexv24w1.txt EXHIBIT 24.1 Exhibit 24.1 POWER OF ATTORNEY Each person whose name is signed hereto has made, constituted and appointed, and does hereby make, constitute and appoint, JAMES L. HAMBRICK, CHARLES P. COOLEY and LESLIE M. REYNOLDS as his or her true and lawful attorney, for him or her and in his or her name, place and stead to affix, as attorney-in-fact, his or her signature as a director or officer or both, as the case may be, of The Lubrizol Corporation, an Ohio corporation, to the Registration Statement on Form S-3 pertaining to the universal shelf registration of up to $2.0 billion in aggregate amount of securities, including any and all amendments or modifications to such registration statement to be filed with the Securities and Exchange Commission, giving and granting unto such attorney-in-fact full power and authority to do and perform every act and thing whatsoever necessary to be done in connection with any such filing, as fully as he or she might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact shall lawfully do or cause to be done by virtue hereof. In witness whereof, this Power of Attorney, which may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which shall together constitute but one and the same instrument, has been signed as of May 17, 2004. /s/ James L. Hambrick Chief Executive Officer, President and Director - ------------------------------------ (Principal Executive Officer) JAMES L. HAMBRICK /s/ Charles P. Cooley Vice President and Chief Financial Officer - ------------------------------------ (Principal Financial Officer) CHARLES P. COOLEY /s/ John R. Ahern Controller-Accounting and Financial Reporting - ------------------------------------ (Principal Accounting Officer) JOHN R. AHERN /s/ William G. Bares Chairman of the Board and Director - ------------------------------------ WILLIAM G. BARES /s/ Jerald A. Blumberg Director - ------------------------------------ JERALD A. BLUMBERG /s/ Forest J. Farmer Sr. Director - ------------------------------------ FOREST J. FARMER SR. /s/ Gordon D. Harnett Director - ------------------------------------ GORDON D. HARNETT /s/ Victoria F. Haynes Director - ------------------------------------ VICTORIA F. HAYNES /s/ David H. Hoag Director - ------------------------------------ DAVID H. HOAG /s/ William P. Madar Director - ------------------------------------ WILLIAM P. MADAR /s/ Peggy Gordon Miller Director - ------------------------------------ PEGGY GORDON MILLER /s/ Ronald A. Mitsch Director - ------------------------------------ RONALD A. MITSCH /s/ Daniel E. Somers Director - ------------------------------------ DANIEL E. SOMERS
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