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

 
 

 
FORM 10-Q

 
 
 
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2009
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to ___________
 
 
Commission file number 1-32532
 
ASHLAND INC.
 
(a Kentucky corporation)
I.R.S. No. 20-0865835
 
50 E. RiverCenter Boulevard
P.O. Box 391
Covington, Kentucky 41012-0391
Telephone Number (859) 815-3333
 

 
 
Indicate by check  mark  whether the Registrant: (1)  has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ    No  o     
 
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).      Yes o     No ¨
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.   See the definitions of  “large accelerated filer,” “accelerated filer” and “smaller reporting company”  in Rule 12b-2 of the Exchange Act.  (Check One):
 
 Large Accelerated Filer þ  Accelerated Filer o   
  Non-Accelerated Filer o   Smaller Reporting Company o
  (Do not check if a smaller reporting company.)
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o     No  þ
 
At June 30, 2009, there were 74,430,476 shares of Registrant’s Common Stock outstanding.
 


 
 
 
 

PART I - FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS
 
                         
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
                       
STATEMENTS OF CONSOLIDATED INCOME
                       
                         
   
Three months ended
   
Nine months ended
 
   
June 30
   
June 30
 
(In millions except per share data - unaudited)
 
2009
   
2008
   
2009
   
2008
 
                         
SALES AND OPERATING REVENUES
  $ 2,037     $ 2,201     $ 5,993     $ 6,166  
                                 
COSTS AND EXPENSES
                               
Cost of sales and operating expenses (a)
    1,544       1,844       4,716       5,158  
Selling, general and administrative expenses (a) (b)
    353       283       1,049       856  
      1,897       2,127       5,765       6,014  
EQUITY AND OTHER INCOME
    12       13       29       33  
                                 
OPERATING INCOME
    152       87       257       185  
Gain on the MAP Transaction (c)
    1       1       2       23  
Net interest and other financing (expense) income
    (62 )     5       (144 )     26  
Other expenses (d)
    -       -       (86 )     -  
INCOME FROM CONTINUING OPERATIONS
                               
BEFORE INCOME TAXES
    91       93       29       234  
Income tax expense - Note J
    40       27       49       58  
INCOME (LOSS) FROM CONTINUING OPERATIONS
    51       66       (20 )     176  
Income (loss) from discontinued operations (net of income taxes) - Note D
    (1 )     6       (2 )     1  
NET INCOME (LOSS)
  $ 50     $ 72     $ (22 )   $ 177  
                                 
BASIC EARNINGS PER SHARE - Note K
                               
Income (loss) from continuing operations
  $ .69     $ 1.04     $ (.27 )   $ 2.80  
Income (loss) from discontinued operations
    (.02 )     .11       (.03 )     .01  
Net income (loss)
  $ .67     $ 1.15     $ (.30 )   $ 2.81  
                                 
DILUTED EARNINGS PER SHARE - Note K
                               
Income (loss) from continuing operations
  $ .68     $ 1.03     $ (.27 )   $ 2.77  
Income (loss) from discontinued operations
    (.02 )     .10       (.03 )     .01  
Net income (loss)
  $ .66     $ 1.13     $ (.30 )   $ 2.78  
                                 
DIVIDENDS PAID PER COMMON SHARE
  $ .075     $ .275     $ .225     $ .825  
                                 
 
(a) The three and nine months ended June 30, 2009 include $9 million and $13 million, respectively, within the cost of sales and operating expenses caption and $4 million and $39 million, respectively, within the selling, general and administrative expenses caption for restructuring charges related to the ongoing integration and reorganization from the Hercules acquisition and other cost reduction programs.  In addition, a charge of $37 million for the nine months ended June 30, 2009 was recorded within the cost of sales and operating expenses caption for a one-time fair value assessment of Hercules inventory as of the date of the transaction.
(b) The nine months ended June 30, 2009 includes a $10 million charge related to the original valuation of the ongoing research and development projects at Hercules Incorporated (Hercules) as of the merger date.  In accordance with applicable GAAP and SEC accounting regulations, these purchased in-process research and development costs should be expensed upon acquisition. 
(c) “MAP Transaction” refers to the June 30, 2005 transfer of Ashland’s 38% interest in Marathon Ashland Petroleum LLC (MAP) and two other businesses to Marathon Oil Corporation.  The income for the nine months ended June 30, 2008 is primarily due to a $23 million gain associated with a tax settlement agreement entered into with Marathon Oil Corporation, relating to four specific tax areas, that supplement the original Tax Matters Agreement from the initial MAP Transaction.  The gain in the remaining periods presented reflects adjustments in the recorded receivable for future estimated tax deductions related primarily to environmental and other postretirement reserves. 
(d)
The  nine months ended June 30, 2009 includes a $54 million loss on currency swaps related to the Hercules acquisition and a $32 million realized loss on auction rate securities, of which $7 million relates to securities sold. 
 
 
 
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 
2
 
 
 
 
 
 
                   
                   
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
                 
CONDENSED CONSOLIDATED BALANCE SHEETS
                 
                   
   
June 30
   
September 30
   
June 30
 
(In millions - unaudited)
 
2009
   
2008
   
2008
 
 
ASSETS
                 
                   
CURRENT ASSETS
                 
Cash and cash equivalents
  $ 256     $ 886     $ 853  
Accounts receivable - (less allowance for doubtful accounts of  $43 million
                       
at June 30, 2009 and 2008 and $33 million at September 30, 2008)
    1,420       1,441       1,520  
Inventories - Note H
    546       476       521  
Deferred income taxes
    95       97       74  
Other current assets
    64       79       79  
Current assets held for sale - Note C
    45       47       46  
      2,426       3,026       3,093  
INVESTMENTS AND OTHER NONCURRENT ASSETS
                       
Auction rate securities - Note E
    188       243       267  
Goodwill - Note I
    2,150       283       291  
Intangibles - Note I
    1,178       109       114  
Asbestos insurance receivable (noncurrent portion) - Note O
    464       428       438  
Deferred income taxes
    -       153       131  
Other noncurrent assets
    565       388       397  
Noncurrent assets held for sale - Note C
    41       46       49  
      4,586       1,650       1,687  
PROPERTY, PLANT AND EQUIPMENT
                       
Cost
    3,492       2,271       2,243  
Accumulated depreciation and amortization
    (1,339 )     (1,176 )     (1,179 )
      2,153       1,095       1,064  
                         
TOTAL ASSETS
  $ 9,165     $ 5,771     $ 5,844  
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY
                       
                         
CURRENT LIABILITIES
                       
Short-term debt - Note F
  $ 44     $ -     $ -  
Current portion of long-term debt - Note F
    71       21       20  
Trade payables
    790       918       910  
Accrued expenses and other liabilities
    455       278       264  
Current liabilities held for sale - Note C
    10       13       10  
      1,370       1,230       1,204  
NONCURRENT LIABILITIES
                       
Long-term debt (noncurrent portion) - Note F
    1,878       45       45  
Employee benefit obligations - Note L
    657       344       262  
Asbestos litigation reserve (noncurrent portion) - Note O
    828       522       530  
Deferred income taxes
    147       -       -  
Other noncurrent liabilities
    578       428       445  
      4,088       1,339       1,282  
                         
STOCKHOLDERS’ EQUITY
    3,707       3,202       3,358  
                         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 9,165     $ 5,771     $ 5,844  

 
 
 
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS .
 
3
 
 

 
 
 
 
 
 
 
 
  ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
  STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY
 
                      Accumulated         
                      other         
    Common     Paid-in     Retained     comprehensive         
 (In millions - unaudited)   stock     capital     earnings     income  (a)    Total  
                               
BALANCE AT SEPTEMBER 30, 2007
  $ 1     $ 16     $ 3,040     $ 97     $ 3,154  
Total comprehensive income (b)
                    177       71       248  
Cash dividends, $.825 per common share
                    (52 )             (52 )
Issued 131,453 common shares under
                                       
   stock incentive and other plans (c)
            8                       8  
BALANCE AT JUNE 30, 2008
  $ 1     $ 24     $ 3,165     $ 168     $ 3,358  
                                         
                                         
BALANCE AT SEPTEMBER 30, 2008
  $ 1     $ 33     $ 3,138     $ 30     $ 3,202  
Total comprehensive income (loss) (b)
                    (22 )     71       49  
Cash dividends, $.225 per common share
                    (17 )             (17 )
Issuance of common shares - Note M
            450                       450  
Issued 922,920 common shares under employee
                                       
   savings, stock incentive and other plans (d)
            26                       26  
Other
            (3 )                     (3 )
BALANCE AT JUNE 30, 2009
  $ 1     $ 506     $ 3,099     $ 101     $ 3,707  
                                         
 
(a)
At June 30, 2009 and 2008, the accumulated other comprehensive income (after-tax) of $101 million for 2009 and $168 million for 2008 was comprised of pension and postretirement obligations of $107 million for 2009 and $55 million for 2008, net unrealized translation gains of $208 million for 2009 and $228 million for 2008, and net unrealized losses on available-for-sale securities of $5 million for 2008.
(b)
Reconciliations of net income (loss) to total comprehensive income follow.
 
                           
                           
     
Three months ended
   
Nine months ended
 
     
June 30
   
June 30
 
 
(In millions)
 
2009
   
2008
   
2009
   
2008
 
                           
 
Net income (loss)
  $ 50     $ 72     $ (22 )   $ 177  
 
Pension and postretirement obligation adjustments, net of tax
    (2 )     -       -       -  
 
Unrealized translation gain, net of tax
    112       4       51       76  
 
Unrealized gain (loss) on investment securities, net of tax
    -       (1 )     20       (5 )
 
Total comprehensive income
  $ 160     $ 75     $ 49     $ 248  
                                   
 

(c)  
Includes income tax benefits resulting from the exercise of stock options of $2 million for the nine months ended June 30, 2008.
(d)  
Includes $10 million from the fair value of Hercules stock options converted into stock options for Ashland shares.
 
                                         
 
                                           
 
 
 
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 
 
4
 
 
 
 
 
 
             
 
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
           
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
           
             
   
Nine months ended
 
   
June 30
 
(In millions - unaudited)
 
2009
   
2008
 
 
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
           
Net (loss) income
  $ (22 )   $ 177  
Loss (income) from discontinued operations (net of income taxes)
    2       (1 )
Adjustments to reconcile income from continuing operations to cash flows from operating activities
               
Depreciation and amortization
    244       105  
Debt issuance cost amortization
    35       -  
Purchased in-process research and development amortization
    10       -  
Deferred income taxes
    33       20  
Equity income from affiliates
    (9 )     (17 )
Distributions from equity affiliates
    13       7  
Gain from the sale of property and equipment
    -       (2 )
Stock based compensation expense
    6       8  
Stock contributions to qualified savings plans
    8       -  
Gain on the MAP Transaction
    (2 )     (23 )
Inventory fair value adjustment
    37       -  
Loss on currency swaps related to Hercules acquisition
    54       -  
Loss on auction rate securities
    32       -  
Change in operating assets and liabilities (a)
    208       55  
      649       329  
CASH FLOWS USED BY INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
               
Additions to property, plant and equipment
    (107 )     (118 )
Proceeds from the disposal of property, plant and equipment
    5       10  
Purchase of operations - net of cash acquired
    (2,080 )     (128 )
Proceeds from sale of operations
    7       35  
Settlement of currency swaps related to Hercules acquisition
    (95 )     -  
Purchases of available-for-sale securities
    -       (435 )
Proceeds from sales and maturities of available-for-sale securities
    55       314  
      (2,215 )     (322 )
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM
               
CONTINUING OPERATIONS
               
Proceeds from issuance of long-term debt
    2,628       -  
Repayment of long-term debt
    (1,502 )     (4 )
Proceeds from/repayments of issuance of short-term debt
    3       -  
Debt issuance/modification costs
    (161 )     -  
Cash dividends paid
    (17 )     (52 )
Proceeds from the exercise of stock options
    2       3  
Excess tax benefits related to share-based payments
    -       1  
      953       (52 )
CASH USED BY CONTINUING OPERATIONS
    (613 )     (45 )
Cash used by discontinued operations
               
Operating cash flows
    (1 )     (2 )
Effect of currency exchange rate changes on cash and cash equivalents - Note A
    (16 )     3  
DECREASE IN CASH AND CASH EQUIVALENTS
    (630 )     (44 )
                 
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR
    886       897  
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
  $ 256     $ 853  
                 
 
(a)     Excludes changes resulting from operations acquired or sold.
 
 
 
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 
 
5
 

 
 
 
 




ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE A   BASIS OF PRESENTATION
 
 

 
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and Securities and Exchange Commission regulations.  In the opinion of management all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  These statements omit certain information and footnote disclosures required for complete annual financial statements and, therefore, should be read in conjunction with Ashland’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008.  Included within these Condensed Consolidated Financial Statements is a variable interest entity, acquired as part of the Hercules Incorporated (Hercules) acquisition, in which Ashland has a 40% ownership interest and has been deemed to be the primary beneficiary.  As of June 30, 2009, the variable interest entity had an equity position of $29 million.  Results of operations for the period ended June 30, 2009, are not necessarily indicative of results to be expected for the year ending September 30, 2009.  Certain prior period data has been reclassified in the Condensed Consolidated Financial Statements and accompanying footnotes to conform to current period presentation.  The effect of currency exchange rate changes on cash and cash equivalents, which previously had been classified within operating activities of the Statements of Condensed Consolidated Cash Flows during 2008, has been reclassified as a separate caption within these financial statements.  This reclassification had no impact on operating income, net income, earnings per share or the net change in cash and cash equivalents, as previously reported.
 
In November 2008, Ashland completed the acquisition of Hercules.  Ashland’s reporting structure, incorporating the former Hercules businesses, is now composed of five reporting segments:  Ashland Aqualon Functional Ingredients (Functional Ingredients), previously Hercules’ Aqualon Group, Ashland Hercules Water Technologies (Water Technologies), which includes Hercules’ Paper Technologies and Ventures segment as well as Ashland’s legacy Water Technologies segment , Ashland Performance Materials (Performance Materials), Ashland Consumer Markets (Consumer Markets), previously Ashland’s Valvoline segment, and Ashland Distribution (Distribution).  Functional Ingredients is a manufacturer and supplier of specialty additives and functional ingredients derived from renewable resources that are designed to manage the properties of water-based systems.  The restructured Water Technologies business is a global supplier of functional and process chemicals for the paper industry in addition to water treatment chemicals.  See Notes C and P for additional information.
 
The preparation of Ashland’s Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities as well as qualifying subsequent events, which have been assessed up to the filing date of this Form 10-Q.  Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill and intangible assets), employee benefit obligations, income taxes, other liabilities and associated receivables for asbestos litigation, environmental remediation and asset retirement obligations.  Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.  Ashland has evaluated the period from June 30, 2009, the date of the financial statements, through August 5, 2009, the date of the issuance and filing of the financial statements, and determined that no material subsequent events have occurred that would affect the information presented in these financial statements nor require additional disclosure.

NOTE B – NEW ACCOUNTING STANDARDS
 
In September 2006, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard (FAS) No. 157 (FAS 157), “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and requires expanded disclosures about fair value measurements.  This Statement applies to all other accounting

 
6

 
 
 
 



ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

 
NOTE B – NEW ACCOUNTING STANDARDS (continued)
 


pronouncements that require or permit fair value measurements because the FASB has previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.  FAS 157 became effective for financial assets and liabilities of Ashland on October 1, 2008.  The provisions of FAS 157 related to nonfinancial assets and liabilities will be effective for Ashland on October 1, 2009 in accordance with FSP FAS 157-2, Effective Date of FASB Statement No. 157, and will be applied prospectively.  Ashland is currently evaluating the impact that these additional provisions will have on the Condensed Consolidated Financial Statements.  Fair value disclosures for financial assets and liabilities in connection with the initial adoption of FAS 157 are provided in Note E.
 
In June 2007, the FASB’s Emerging Issues Task Force issued EITF Issue No. 06-11 (EITF 06-11), “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.”  EITF 06-11 states that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units and outstanding equity share options should be recognized as an increase to additional paid-in capital.  The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards.  EITF 06-11 was effective for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years.  Ashland has prospectively applied EITF 06-11 to applicable dividends declared on or after October 1, 2008.  The adoption of this consensus did not have a material impact on the Condensed Consolidated Financial Statements.
 
In December 2007, the FASB issued FAS No. 141(R) (FAS 141R), “Business Combinations” which replaces FAS No. 141 (FAS 141), “Business Combinations.”  As did FAS 141, this revised Statement provides that the acquisition method of accounting (formerly referred to as purchase method) be used for all business combinations and that an acquirer be identified for each business combination.  In addition, FAS 141R establishes revised principles and requirements for how Ashland will recognize and measure assets, liabilities and expenses related to a business combination.  This Statement becomes effective for Ashland on October 1, 2009.
 
In December 2007, the FASB issued FAS No. 160 (FAS 160), “Noncontrolling Interests in Consolidated Financial Statements—an Amendment to ARB No. 51.”  This Statement establishes new accounting and reporting standards that require the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled and presented in the Condensed Consolidated Balance Sheet within equity, but separate from the parent’s equity.  FAS 160 also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income.  In addition, when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary shall be initially measured at fair value, with the gain or loss on the deconsolidation of the subsidiary measured using the fair value of any noncontrolling equity investment rather than the carrying amount of that retained investment.  FAS 160 also clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest.  The Statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest.  This Statement becomes effective for Ashland on October 1, 2009.  Ashland does not anticipate FAS 160 will have a material impact on the Condensed Consolidated Financial Statements.
 
In April 2008, the FASB issued Staff Position No. FAS 142-3 (FSP 142-3), “Determination of the Useful Life of Intangible Assets,” which amends the list of factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FAS No. 142 (FAS 142), “Goodwill and Other Intangible Assets.”  The new guidance applies to (1) intangible assets that are acquired individually or with a group of other assets and (2) intangible assets acquired in both business combinations and asset acquisitions.  FSP 142-3 becomes effective for Ashland on October 1, 2009.


 
7
 
 
 
 
 


ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE B – NEW ACCOUNTING STANDARDS (continued)
 


Ashland is currently in the process of determining the effect, if any, the adoption of FSP 142-3 will have on the Condensed Consolidated Financial Statements.
 
In December 2008, the FASB issued Staff Position No. FAS 132(R)-1 (FSP 132(R)-1) “Employers’ Disclosures about Postretirement Benefit Plan Assets” which requires additional disclosures such as significant risks within plan assets, investment allocation decisions, fair values by major category of plan assets and valuation techniques.  FSP 132(R)-1 becomes effective for Ashland on January 1, 2010.  Ashland is currently in the process of determining the effect, if any, the adoption of FSP 132(R)-1 will have on the financial statement disclosures.
 
In May 2009, FASB issued FAS No. 165 (FAS 165), “Subsequent Events” which gives guidance on when  to record and disclose events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued.  This Statement was effective for Ashland on June 30, 2009 and did not have an impact on the Condensed Consolidated Financial Statements.
 
In June 2009, FASB issued FAS No. 167 (FAS 167), “Amendments to FASB Interpretation No. 46(R),” which alters how an entity determines whether it has a controlling financial interest in a variable interest entity.  This Statement also requires ongoing reassessments of the analysis and provides for enhanced disclosures about an entity’s involvement in a variable interest entity.  This Statement becomes effective for Ashland on October 1, 2010.  Ashland does not anticipate FAS 167 will have a material impact on the Condensed Consolidated Financial Statements.
 
In July 2009, FASB issued FAS No. 168 (FAS 168), “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles,” which identifies the sources of accounting principles and the framework for selecting the principles used in preparation of financial statements.  FAS 168 establishes The FASB Standards Codification™ and interpretative releases of the SEC as the only sources of authoritative U.S. GAAP.  This statement is effective for Ashland on September 15, 2009 and will affect any references made to authoritative U.S. GAAP standards in future filings.

NOTE C – ACQUISITIONS, DIVESTITURES AND RESTRUCTURING
 
Acquisitions
 
On November 13, 2008, Ashland completed its acquisition of Hercules.  The acquisition creates a defined core for Ashland composed of three specialty chemical businesses which includes specialty additives and ingredients, paper and water technologies, and specialty resins.  The acquisition also creates a leadership position in attractive and growing renewable/sustainable chemistries.
 
The merger was recorded by Ashland using the purchase method of accounting in accordance with FAS 141 whereby the total purchase price, including qualifying transaction-related expenses, were allocated to tangible and intangible assets and liabilities acquired based upon their respective fair values.
 
The total merger consideration for outstanding Hercules Common Stock was $2,096 million in cash and $450 million in Ashland Common Stock.  Each share of Hercules Common Stock issued and outstanding immediately prior to the effective time of the Hercules acquisition was converted into the right to receive $18.60 in cash and 0.0930 of a share of Ashland Common Stock, subject to the payment of cash in lieu of fractional shares of Ashland Common Stock.  Ashland exchanged 10.5 million Ashland common shares for the 112.7 million shares of outstanding Hercules Common Stock on November 13, 2008.
 
The Hercules acquisition was financed in part through $2,600 million in secured financing from Bank of America Securities LLC, Scotia Capital (USA) Inc. and other lenders consisting of a $400 million revolving credit facility, a $400 million term loan A facility, an $850 million term loan B facility, a $200 million accounts receivable securitization facility, and a $750 million bridge loan which was subsequently replaced in May 2009 by $650 million senior unsecured notes, see Note F for further information.  The total debt

 
8
 
 
 
 



ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE C – ACQUISITIONS, DIVESTITURES AND RESTRUCTURING (continued)
 

drawn upon the closing of the completed merger was approximately $2,300 million with the remaining cash consideration for the transaction paid from Ashland’s existing cash, which was used in part to extinguish $594 million of existing Hercules debt and to pay transaction fees associated with the financing facilities.
 
The purchase price of Hercules, excluding debt assumed, was $2,594 million, including expenses incurred in connection with the transaction, and consisted of the following items:
 
             
 
Purchase price (in millions)
         
  Cash consideration for stock  
$
2,096
 (a)
 
  Stock consideration    
450
 (b)
 
  Cash consideration for Restricted Stock Units (RSUs)    
5
(c)
 
  Options          
        Cash-out options    
15
(d)
 
        Fair value of Hercules stock options converted  into stock options for Ashland shares    
10
(e)
 
  Transaction costs    
18
(f)
 
  Total purchase price  
$
2,594
   
               
               
 
(a)  
The cash portion ($18.60) of the merger consideration paid per outstanding share of Hercules Common Stock.  
  (b)
The stock portion of the merger consideration was based on 0.0930 of a share of Ashland Common Stock for each share of Hercules Common Stock.  A price of $42.93 per Ashland common share was assumed, which represents the average closing price per share of Ashland Common Stock on the NYSE on the announcement date two days immediately prior to and immediately subsequent to the announcement date of the proposed acquisition in accordance with GAAP.
 
  (c)
The cash payment for RSUs was calculated by multiplying the number of shares of Hercules Common Stock underlying the RSUs by the cash-out amount, which is the sum of $18.60 and the product of 0.0930 and the average closing price of Ashland Common Stock on the NYSE for the ten trading days preceding the completion of the merger.  Hercules RSUs represented the equivalent of approximately 240 thousand shares.
 
  (d)
The cash payment for certain stock options was equal to the product of the number of Hercules shares subject to the option and the amount by which the exercise price of the Hercules option is exceeded by the sum of $18.60 and the amount calculated by multiplying 0.0930 by the average closing price of Ashland Common Stock on the NYSE for the ten trading days preceding the completion of the merger.
 
  (e)
Approximately one million of Hercules’ stock options were converted into options to purchase shares of Ashland Common Stock based on the option exchange ratio set forth in the merger agreement.  The fair value of Hercules’ stock options that were converted into options to purchase shares of Ashland Common Stock were recognized as a component of the purchase price, based on the fair value of the options, as described below.  The additional purchase price was calculated using the Black-Scholes option pricing model, which considered a price of $42.93 per Ashland common share assumed and the following weighted-average assumptions.
 
             
   
 
Black-Scholes
       
   
Expected option life (in years)
    1.3    
   
Volatility
    26.0 %  
   
Risk-free rate
    0.7 %  
   
Dividend yield
    1.2 %  
               
               
   
The expected life of the options was determined by taking into account the contractual life of the options (of which a significant amount were less than one year), the accelerated vesting of all Hercules options at the date of the acquisition, and estimated attrition of the option holders.  The volatility, dividend yield, and risk-free interest rate assumptions used were derived using the closing date of the acquisition and were impacted by the short-term expected option life.  Ashland believes the fair value of the converted stock options approximates the fair value of the Hercules stock options.  Accordingly, the fair value of the converted stock options was recognized as a component of the purchase price and no additional amounts have been reflected as compensation expense.
 
  (f)
Ashland’s costs for various legal and financial services associated with the transaction.
 
 
9

 
 
 
 


ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

 
NOTE C – ACQUISITIONS, DIVESTITURES AND RESTRUCTURING (continued)
 
The following table summarizes the values of the assets acquired and liabilities assumed at the date of acquisition, as well as adjustments that have been made as a result of ongoing valuations.
 
         
 
Purchase price allocation (in millions)
 At
November 13
2008
   
 
Assets:
     
 
Cash
$ 54    
 
Accounts receivable
  355    
 
Inventory
  261    
 
Other current assets
  32    
 
Intangible assets
  1,082    
 
Goodwill
  1,785    
 
Asbestos receivable
  58    
 
Property, plant and equipment
  1,116    
 
Purchased in-process research and development
  10    
 
Other noncurrent assets
  169    
 
Liabilities:
       
 
Accounts payable
  (232 )  
 
Accrued expenses
  (237 )  
 
Debt
  (786 )  
 
Pension and other postretirement obligations
  (309 )  
 
Environmental
  (100 )  
 
Asbestos
  (373 )  
 
Deferred tax - net
  (198 )  
 
Other noncurrent liabilities
  (93 )  
 
Total purchase price
$ 2,594    
 

The purchase price allocation for the acquisition is preliminary and still ongoing.  Since the November 13, 2008 acquisition date of Hercules, adjustments to the purchase price allocation have consisted of an accrual adjustment for transaction costs, deferred taxes and other ongoing fair value valuation adjustments.  The fair value estimates for the purchase price allocation will continue to change as valuations and assessments are completed, primarily within taxes, pensions and other postretirement obligations, asbestos, environmental, property, plant and equipment, and intangible assets, and such changes could take up to one year from the acquisition date.
 
Purchased in-process research and development (IPR&D) represents the value assigned in a business combination to acquired research and development projects that, as of the date of the acquisition, had not established technological feasibility and had no alternative future use.  Amounts assigned to IPR&D meeting these criteria must be charged to expense as part of the allocation of the purchase price of the business combination.  Ashland recorded within the selling, general and administrative expenses caption in the Statement of Consolidated Income pretax charges totaling $10 million in the December 2008 quarter associated with the Hercules acquisition.  The estimated values assigned to the IPR&D projects were determined based on a discounted cash flow model assigned to the following projects:
 
           
 
 
(In millions)
       
 
Functional Ingredients
Corebond
$ 2    
 
Water Technologies
Biofilm Sensor
$ 2    
 
Water Technologies
Surface Dry Strength
$ 2    
 
Functional Ingredients / Water Technologies
Other
$ 4    
             

10

 
 
 
 


ASHLAND INC . AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE C – ACQUISITIONS, DIVESTITURES AND RESTRUCTURING (continued)
 
Ashland has identified approximately $255 million of certain trade names, primarily related to the Hercules and Aqualon brands that have been designated as indefinite lived assets.  Ashland’s designation of an indefinite life for these assets took many factors into consideration, including the current market leadership position of the brands as well as their recognition worldwide in the industry.  The remaining $827 million identified finite-lived intangible assets are being amortized over the estimated useful life in proportion to the economic benefits consumed.  Ashland considered the useful lives of the customer relationships, developed technology and product trade names to be 10 to 24 years, 5 to 20 years and 20 years, respectively.  The determination of the useful lives is based upon various accounting studies, historical acquisition experience, economic factors, and future cash flows of the combined company.  In addition, Ashland reviewed certain technological trends and also considered the relative stability in the current Hercules customer base.  The following details the total intangible assets identified.
               
         
Life
 
 
Intangible asset type (in millions)
Value
   
(years)
 
 
Customer relationships - Functional Ingredients
$ 288       10 - 24    
 
Customer relationships - Water Technologies
  234       12    
 
Developed technology - Functional Ingredients
  217       15    
 
Developed technology - Water Technologies
  56       5 - 20    
 
Product trade names - Functional Ingredients
  32       20    
 
Product trade names - Functional Ingredients
  104    
Indefinite
 
 
Product trade names - Water Technologies
  151    
Indefinite
 
 
Total
$ 1,082            
 
 
The results of Hercules’ operations have been included in Ashland’s Condensed Consolidated Financial Statements since the November 13, 2008 closing date.   The following unaudited pro forma information assumes the acquisition of Hercules occurred at the beginning of the respective periods presented and excludes certain nonrecurring charges, such as purchase accounting adjustments and other nonrecurring charges associated with the Hercules acquisition, that were deemed necessary to exclude for comparability purposes.
                             
     
Three months ended
   
Nine months ended
   
 
Unaudited pro forma information
 
June 30
   
June 30
   
 
(In millions, except per share amounts)
 
2009
   
2008
   
2009
   
2008
   
 
Revenues
  $ 2,037     $ 2,814     $ 6,260     $ 7,877    
 
Income from continuing operations
  $ 75     $ 76     $ 155     $ 137    
 
Net income
  $ 73     $ 108     $ 153     $ 171    
                                     
 
Basic earnings per share
                                 
 
Income from continuing operations
  $ 1.02     $ 1.04     $ 2.09     $ 1.87    
 
Net income
  $ .99     $ 1.48     $ 2.07     $ 2.34    
                                     
 
Diluted earnings per share
                                 
 
Income from continuing operations
  $ 1.01     $ 1.02     $ 2.07     $ 1.83    
 
Net income
  $ .98     $ 1.45     $ 2.04     $ 2.29    
 
 
The unaudited pro forma information is presented above for illustrative purposes only and does not purport to be indicative of the results of future operations of Ashland or the results that would have been attained had the operations been combined during the periods presented.  
 

On June 30, 2008, Ashland acquired the assets of the pressure-sensitive adhesive business and atmospheric emulsions business of Air Products and Chemicals, Inc.  The $92 million transaction included manufacturing
 
11
 
 
 
 
 


ASHLAND INC . AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE C – ACQUISITIONS, DIVESTITURES AND RESTRUCTURING (continued)
 

facilities in Elkton, Maryland and Piedmont, South Carolina.  The purchased operations, which were merged into Performance Materials, had sales of $126 million in calendar year 2007, principally in North America.
 
Divestitures

 

In June 2009, Ashland signed a definitive agreement to sell its global marine services business known as Drew Marine, a business unit of Water Technologies, to J.F. Lehman & Co. in a transaction valued at approximately $120 million before tax.  The Drew Marine business, with annual revenues of approximately $140 million a year, has approximately 325 employees, 28 offices and 98 stocking locations in 47 countries.  The business is a recognized global leader in providing technical solutions, high value products and services to the global marine industry, including chemicals and testing equipment, water treatment, tank cleaners and corrosion inhibitors, sealing and welding products, refrigerants and refrigeration services, engineered systems and products, fuel management programs, and fire safety and rescue products and services.  The transaction is expected to close during the September 2009 quarter.
 
The assets and liabilities of this business were reflected as assets and liabilities held for sale in the Condensed Consolidated Balance Sheets and are comprised of the following components:
 
                       
     
June 30
   
September 30
   
June 30
   
 
(In millions - unaudited)
 
2009
   
2008
   
2008
   
                       
 
Accounts receivable
  $ 26     $ 28     $ 29    
 
Inventories
    18       19       17    
 
Other current assets
    1       -       -    
 
Current assets
  $ 45     $ 47     $ 46    
 
 
                         
 
Property, plant and equipment, net 
  $ 2     $ 2     $ 2    
 
Goodwill and intangible assets
    15       16       17    
 
Deferred income tax
    1       1       1    
 
Other noncurrent assets
    5       5       6    
 
Noncurrent assets
  $ 23     $ 24     $ 26    
 
 
                         
 
Trade payables
  $ 9     $ 12     $ 9    
 
Accrued expenses and other liabilities
    1       1       1    
 
Current liabilities
  $ 10     $ 13     $ 10    
 
In addition to the Drew Marine assets, Ashland held for sale noncurrent assets of $18 million, $23 million and $22 million as of June 30, 2009 and 2008 and September 30, 2008, respectively, related to corporate aviation and Consumer Markets.
 
In December 2008, Ashland completed the sale of its indirectly held 33.5 percent ownership interest in FiberVisions Holdings, LLC (FiberVisions), which was acquired by Ashland as part of the Hercules acquisition, to Snow Phipps Group, LLC (Snow Phipps), a New York-based private equity firm and the majority owner of FiberVisions.  Ashland received $7 million as the purchase price and also has generated a significant capital loss of approximately $220 million for tax purposes that could be used to offset future capital gains.  This capital loss benefit was fully offset by a deferred tax asset valuation allowance because Ashland is not permitted to anticipate additional future capital gains, therefore, no tax benefit was recognized on this transaction.  FiberVisions is a leading global producer of specialty fibers for nonwoven fabrics and textile fibers used in consumer and industrial products.
 
 
12
 
 
 
 
 


ASHLAND INC . AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

 
NOTE C – ACQUISITIONS, DIVESTITURES AND RESTRUCTURING (continued)
 

In June 2008, Ashland and Süd-Chemie AG signed a nonbinding memorandum of understanding to form a new, global joint venture to serve the foundries and metal casting industry.  Under the terms of the memorandum, each parent company would hold a 50-percent share of the joint venture.  The new enterprise would combine three businesses:  Ashland’s Casting Solutions, a business unit of Performance Materials, the foundry-related businesses of Süd-Chemie, and Ashland-Südchemie-Kernfest GmbH (ASK), which currently operates as a joint venture.  Ashland and ASK businesses to be contributed recorded revenues of approximately $650 million for fiscal year 2008.  The foundry-related businesses of Süd-Chemie AG to be contributed to the joint venture generated revenues of approximately $400 million for the year ended December 31, 2007.  Preliminary due diligence has been completed; however, due to the current global economic environment, alternative arrangements and structures for the transaction are being considered.
 
Restructuring
 
As a result of the Hercules acquisition and the current economic environment, Ashland has implemented an organizational restructuring designed to integrate operational processes and streamline various resource groups and functions to produce greater efficiencies throughout Ashland.
 
Since the closing date of the Hercules acquisition, Ashland has commenced integration activities, focusing on reducing resources and facilities while maximizing operational efficiencies.  The cumulative effect of the integration and restructuring as of June 30, 2009 has resulted in the elimination of approximately 1,300 employee positions and six facility closings.  As of June 30, 2009, the total restructuring reserve charges under the program, related to the Hercules integration, was $49 million, of which $26 million for the nine month period ended June 30, 2009, has been charged as an expense within the Unallocated and Other category and classified within the selling, general and administrative expense caption, with an additional $2 million charged to the cost of sales and operating expense caption relating to accelerated depreciation for plant closings formally approved by management.  The remaining reserve of $21 million related to severance associated with Hercules personnel and various plant closing costs, which qualified for the purchase method of accounting in accordance with FAS 141, and had no effect on the Statements of Consolidated Income.  Additional costs from reductions in resources or facilities may occur in future periods; which could include charges related to additional severance, plant closings, reassessed pension plan valuations or other items.  Ashland anticipates completing these restructuring activities during fiscal year 2010.
 
The following table details at June 30, 2009 the amount of restructuring reserves related to the Hercules integration included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets and the related activity in these reserves during the nine months ended June 30, 2009. 
 
                       
           
Plant
         
           
closure/
         
 
(In millions)
 
Severance
   
other costs
   
Total
   
 
Balance as of September 30, 2008
  $ -     $ -     $ -    
 
Restructuring reserve
    39       -       39    
 
Balance as of December 31, 2008
    39       -       39    
 
Restructuring reserve
    3       4       7    
 
Utilization (cash paid or otherwise settled)
    (5 )     (4 )     (9 )  
 
Balance at March 31, 2009
    37       -       37    
  Restructuring reserve     3       -       3    
  Utilization (cash paid or otherwise settled)     (10 )     -       (10 )  
  Balance at June 30, 2009   $ 30     $ -     $ 30    
 
In addition, Ashland incurred selling, general and administrative expenses of $4 million and $13 million for the three and nine months ended June 30, 2009 for severance charges with an additional $9 million and
13
 
 
 
 
 


ASHLAND INC . AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

 
NOTE C – ACQUISITIONS, DIVESTITURES AND RESTRUCTURING (continued)
 
$11 million for the three and nine months ended June 30, 2009 charged to the cost of sales and operating expense caption relating to accelerated depreciation for plant or facility closures, not included in the table above because these programs were associated with other specific operating segment programs and were not individually significant.  Additionally, Ashland inherited Hercules restructuring plans with reserves of $9 million as of November 13, 2008, of which $7 million remained as of June 30, 2009.

NOTE D – DISCONTINUED OPERATIONS
 
On August 28, 2006, Ashland completed the sale of the stock of APAC to Oldcastle Materials, Inc. (Oldcastle) for $1.3 billion.  The operating results and assets and liabilities related to APAC have been previously reflected as discontinued operations in the Condensed Consolidated Financial Statements.  Such adjustments may continue to occur in future periods.  Ashland has made adjustments to the gain on the sale of APAC, relating to the tax effects of the sale, during the three and nine month periods ended June 30, 2008.  Adjustments to the gain are reflected in the period they are determined and recorded in the discontinued operations caption in the Statements of Consolidated Income.
 
Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos.  Such claims result primarily from indemnification obligations undertaken in 1990 in connection with the sale of Riley Stoker Corporation (Riley), a former subsidiary.  During the three and nine month periods ended June 30, 2009 and 2008, Ashland recorded income from asbestos-related items, primarily due to an increase in the insurance receivable as a result of Ashland’s ongoing assessment of these matters.  See Note O for further discussion of Ashland’s asbestos-related activity including inherited Hercules obligations.
 
Components of amounts in the Statements of Consolidated Income related to discontinued operations are presented in the following table for the three and nine months ended June 30, 2009 and 2008. 
 
 
                   
             
Three months ended
  Nine month s ended
             
June 30
 
June 30
 
(In millions)
            2009       2008       2009         2008  
   Income from discontinued operations (net of tax)                                  
           Asbestos-related litigation reserves and expenses   3     $ 7     $ 3       $ 7  
  Loss on disposal of discontinued operations (net of tax)                                  
 
APAC
              (1     (1     (2       (6
          Electronic Chemicals              (3     -       (3       -  
  Total income (loss) from discontinued operations (net of tax)     $ (1   $ 6     $ (2     $ 1  
 
 
NOTE E – FAIR VALUE MEASUREMENTS

 
Ashland adopted FAS 157 as of October 1, 2008.  This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures for instruments measured at fair value.  This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements.  FAS 157 establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  An instrument’s categorization within the fair value hierarchy is based upon the lowest level on input that is significant to the instrument ’s fair value measurement.  The three levels within the fair value hierarchy are described as follows.
 

Level 1 —Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities.
 
 
14
 
 
 
 
 
 
 


ASHLAND INC . AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE E – FAIR VALUE MEASUREMENTS (continued)
 

Level 2 —Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
 
Level 3 —Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date.  Unobservable inputs reflect Ashland’s own assumptions about what market participants would use to price the asset or liability.  The inputs are developed based on the best information available in the circumstances, which might include Ashland’s own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.
 
 
For assets that are measured using quoted prices in active markets (Level 1), the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs.  Assets and liabilities that are measured using significant other observable inputs (Level 2) are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability.  For all other assets and liabilities for which unobservable inputs are used (Level 3), fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models that Ashland deems reasonable.
 
The following table summarizes financial asset instruments subject to recurring fair value measurements as of June 30, 2009.  Ashland did not have any financial liability instruments subject to recurring fair value measurements as of June 30, 2009.
 
 
                             
            Quoted prices                
           
in active
   
Significant
         
           
markets for
   
other
   
Significant
   
     
Total
   
identical
   
observable
   
unobservable
   
     
fair
   
assets
   
inputs
   
inputs
   
 
(In millions)
 
value
   
Level 1
   
Level 2
   
Level 3
   
 
Assets
                         
 
Cash and cash equivalents
  $ 256     $ 256     $ -     $ -    
 
Auction rate securities
    188       -       -       188    
 
Deferred compensation investments (a)
    170       70       100       -    
 
Investments (a)
    2       2       -       -    
 
Total assets at fair value
  $ 616     $ 328     $ 100     $ 188    
                                     
 
  (a) 
Included in other noncurrent assets in the Condensed Consolidated Balance Sheet.
 
 
 
Level 3 instruments
 
 
At June 30, 2009, Ashland held at par value $213 million student loan auction rate securities for which there was not an active market with consistent observable inputs.  In February 2008, the auction rate securities market became largely illiquid, as there was not enough demand to purchase all of the securities that holders desired to sell at par value during certain auctions.  Since this time the market for auction rate securities has failed to achieve equilibrium.  As of September 30, 2008, Ashland had recorded, as a component of stockholders’ equity, a temporary $32 million unrealized loss on the portfolio.  As of that date, all the student loan instruments held by Ashland were AAA rated and collateralized by student loans which are substantially guaranteed by the U.S. government under the Federal Family Education Loan Program.  Ashland’s estimate of fair value for auction rate securities as of September 30, 2008 was based on various internal discounted cash flow models and relevant observable market prices and quotes.  The assumptions within the models include credit quality, liquidity, estimates on the probability of each valuation model and the impact due to extended periods of maximum auction rates.
 

15
 
 
 
 
 
 


ASHLAND INC . AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE E – FAIR VALUE MEASUREMENTS (continued)
 

In December 2008, Ashland sold $20 million (par value) auction rate securities for $18 million in cash proceeds and realized a loss of $2 million, which was the recorded book value of these instruments.  As a result of this sale, as well as Ashland’s debt structure following the Hercules acquisition and the ongoing impact from the global economic downturn, Ashland determined in December 2008 that it no longer had the intent to hold these instruments until their maturity date.  As a result, Ashland recorded the remaining $30 million temporary unrealized loss as a permanent realized loss in the other expenses caption of the Statement of Consolidated Income.  A full valuation allowance was established for this tax benefit at December 31, 2008 because for tax purposes Ashland did not have capital gains to offset this capital loss.  For further information on income taxes see Note J.
 
During the March 2009 quarter, Ashland sold $13 million (par value) auction rate securities for $11 million in cash proceeds which approximated book value.  During the June 2009 quarter, Ashland sold $29 million (par value) auction rate securities for $26 million in cash proceeds which approximated book value.  In addition, during March 2009, Ashland signed an agreement with UBS Financial Services, Inc. agreeing to sell a $5 million (par value) auction rate instrument at its par value on or before June 30, 2010.  As a result, Ashland recorded a minimal unrealized gain associated with this settlement.
 
At June 30, 2009, auction rate securities totaled $188 million and were classified as noncurrent assets in the Condensed Consolidated Balance Sheet.  Due to the uncertainty as to when active trading will resume in the auction rate securities market, Ashland believes the recovery period for certain of these securities may extend beyond a twelve-month period.  As a result, Ashland has classified these instruments as noncurrent at June 30, 2009 in the Condensed Consolidated Balance Sheet.
 
The following table provides a reconciliation of the beginning and ending balances of Ashland’s auction rate securities, as these are Ashland’s only assets measured at fair value using significant unobservable inputs (Level 3).
           
           
 
 
(In millions)
 
Level 3
   
 
Balance as of October 1, 2008 (par value)
  $ 275    
 
Unrealized losses as of October 1, 2008 included in other comprehensive income
    (32 )  
 
Recorded balance as of October 1, 2008
    243    
 
Transfers in and/or (out) of Level 3
    -    
 
Total losses charged in the Consolidated Statement of Income
    (32 )  
 
Total reversal of losses included in other comprehensive income
    32    
 
Sales
    (55 )  
 
Balance as of June 30, 2009
  $ 188    
             
 
Derivative and hedging activities
 
Ashland’s derivative instruments are summarized as follows.
 
Currency Hedges
 


Ashland conducts business in a variety of foreign currencies.  Accordingly, Ashland regularly uses foreign currency derivative instruments to manage exposure on certain transactions denominated in foreign currencies to prevent changes in the value of short-term assets and liabilities denominated in currencies other than Ashland’s functional currency (the U.S. dollar) which may create undue earnings volatility.
 
Ashland contracts with counter-parties to buy and sell foreign currencies to offset the impact of exchange rate changes on transactions denominated in non-functional currencies, including short-term inter-company loans.  These contracts generally require exchange of one foreign currency for another at a fixed rate at a

 
 
 
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ASHLAND INC . AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE E – FAIR VALUE MEASUREMENTS (continued)
 
 
future date and generally have maturities of less than twelve months.  All contracts are marked-to-market with net changes in fair value recorded within the selling, general and administrative expenses caption.  For the three and nine months ended June 30, 2009, losses of less than $1 million and gains of $2 million, respectively, were recorded in the Statement of Consolidated Income for these contracts.  The impacts of these contracts were largely offset by gains and losses resulting from the impact of changes in exchange rates on transactions denominated in non-functional currencies.  The net gain position on foreign currency derivatives outstanding in the Condensed Consolidated Balance Sheet as of June 30, 2009 was less than $1 million (consisting of a gain of $1 million with a notional amount of $61 million offset by a loss of $1 million with a notional amount of $44 million) and was included in other noncurrent assets.  As of June 30, 2009 there were no open foreign currency derivatives which qualified for hedge accounting treatment.
 
Interest Rate Hedges
 
During the March 2009 quarter Ashland purchased a three year interest rate cap on a notional amount of $300 million of variable rate debt.  This interest rate cap fixes Ashland’s interest rate on that outstanding variable interest rate debt when LIBOR interest rates equal or exceed 7% on a reset date.  Pursuant to the senior credit agreement (described in more detail in Note F – Debt), within 90 days of November 13, 2008, Ashland was required to enter into and maintain interest rate swap contracts in an amount sufficient to result in not less than 50% of the aggregated outstanding indebtedness for borrowed money (excluding amounts borrowed under the revolving credit facility) being subject to interest at a fixed rate until the maturity thereof, whether by the terms of such indebtedness or by the terms of such interest rate swap contracts for an initial period of no less than three years.  This interest rate cap qualifies as an interest rate swap within the provisions of the senior credit agreement.
 
This instrument does not qualify for hedge accounting and therefore gains or losses reflecting changes in fair value, along with the amortization of the upfront premium paid by Ashland to purchase the instrument, are reported in the Statement of Consolidated Income within the net interest and other financing (expense) income caption.  As of June 30, 2009, the fair value on the interest rate cap was less than $1 million and recorded within the other noncurrent assets caption of the Condensed Consolidated Balance Sheet.
 
NOTE F – DEBT
 
In conjunction with the acquisition of Hercules on November 13, 2008, Ashland secured $2,600 million in financing from Bank of America Securities LLC, Scotia Capital (USA) Inc. and other lenders consisting of a $400 million revolving credit facility, a $400 million term loan A facility, an $850 million term loan B facility, a $200 million accounts receivable securitization facility and a $750 million bridge loan.  The total debt drawn upon the closing of the acquisition was $2,300 million which included amounts used to fund the $594 million extinguishment of certain debt instruments that Hercules held as of the closing date.  The remaining Hercules debt inherited as part of the acquisition was recorded at its fair value of $205 million as of the acquisition date.  The following table summarizes Ashland’s current and long-term debt as of the reported Condensed Consolidated Balance Sheet dates.
 
 
 
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ASHLAND INC . AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE F – DEBT (continued)

                       
     
June 30
   
September 30
   
June 30
   
   
2009
   
2008
   
2008
   
 
Term loan A, due 2013 (a)
  $ 340     $ -     $ -    
 
Term loan B, due 2014 (a)
    780       -       -    
 
6.60% notes, due 2027 (b)
    12       -       -    
 
9.125% notes, due 2017
    628       -       -    
 
Medium-term notes, due 2013-2019, interest at a weighted-
                         
 
average rate of 8.4% at March 31, 2009 (7.7% to 9.4%)
    21       21       21    
 
8.80% debentures, due 2012
    20       20       20    
 
6.86% medium-term notes, Series H, due 2009
    -       17       17    
 
Hercules Tianpu - term notes, due through 2011 (b)
    19       -       -    
 
Hercules Jiangmen - term notes, due through 2010 (b)
    1       -       -    
 
6.50% junior subordinated notes, due 2029 (b)
    124       -       -    
 
International revolver agreements
    45       -       -    
 
Other
    3       8       7    
 
Total debt
    1,993       66       65    
 
Short-term debt
    (44 )     -       -    
 
Current portion of long-term debt
    (71 )     (21 )     (20 )  
 
Long-term debt (less current portion)
  $ 1,878     $ 45     $ 45    
                             
                             
 
(a)
Senior credit facilities.
 
 
(b)  
Hercules retained instruments.
 
 
 

The scheduled aggregate maturities of debt by fiscal year are as follows: $38 million in 2009, $93 million in 2010, $92 million in 2011, $95 million in 2012 and $128 million in 2013.  Total borrowing capacity remaining under the $400 million revolving credit facility was $261 million, which was reduced by $139 million for letters of credit outstanding at June 30, 2009.  Total short-term debt at June 30, 2009 was $44 million, which primarily related to draws on revolving credit facilities among international operations.
 

The following summarizes each new credit facility Ashland entered into or inherited from Hercules during the nine months ended June 30, 2009:
 
Senior credit facilities
 
The senior credit agreement provides for an aggregate principal amount of $1,650 million in senior credit facilities, consisting of a $400 million five-year term loan A facility, an $850 million five and one-half year term loan B facility and a $400 million five-year revolving credit facility.
 
The term loan A facility was drawn in full on November 13, 2008 and is required to be repaid by Ashland in consecutive quarterly installments commencing with the installment due on March 31, 2009, with approximately 15% of the outstanding principal amount to be repaid during each of years one and two, approximately 20% of the outstanding principal amount to be repaid during year three, and approximately 25% of the outstanding principal amount to be repaid during each of years four and five, with a final payment of any outstanding principal and interest on November 13, 2013.  The term loan B facility was drawn in full on November 13, 2008 and is required to be repaid by Ashland in consecutive quarterly installments which commenced on March 31, 2009, with an aggregate annual amount equal to approximately 1% of the outstanding principal amount of the term loan B facility to be repaid in each of the first five years, approximately 0.25% of the outstanding principal amount of the term loan B facility to be repaid in the first quarter of the sixth year, with the final payment of any outstanding principal and interest on May 13, 2014.  The senior credit facilities have been secured by a first priority security interest in substantially all of the personal property assets, and certain of the real property assets, of Ashland and the subsidiaries who have guaranteed the loans made under the credit agreement, including the capital stock or other equity interests of certain of Ashland’s U.S. and first-tier foreign subsidiaries and a portion of the stock of certain of Ashland’s other first-tier foreign subsidiaries.

 
 
 
 

 
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ASHLAND INC . AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE F – DEBT (continued)

 
At Ashland’s option, the term loan A and B facilities will bear interest at either the alternate base rate or LIBOR, plus the applicable interest margin.  The alternate base rate will be the highest of (1) the Federal Funds Rate as published by the Federal Reserve Bank of New York plus one-half of 1%, (2) the prime commercial lending rate of Bank of America, National Association, as established from time to time and (3) the one-month LIBOR rate.  Interest on alternate base rate loans will be payable quarterly in arrears.  LIBOR will be the British Banker’s Association LIBOR Rate, as published by Reuters (or other commercially available source) and if such rate is not available, then it will be determined by the Administrative Agent at the start of each interest period and will be fixed through such period.  Interest on LIBOR loans will be paid at the end of each interest period, but if any interest period exceeds three months, then interest on LIBOR loans also will be paid every three months.  The alternative base rate can never be lower than 4.25% and LIBOR can never be lower than 3.25%, effectively establishing a floor on the interest rates to be paid.  The applicable margin for the revolving credit facility and the term loan A ranges from 1.75% to 2.75% per annum in the case of base rate loans and 2.75% to 3.75% per annum for LIBOR loans, based upon the Consolidated Leverage Ratio (as defined in the senior credit agreement) with the initial applicable margin of 2.50% in the case of base rate loans and 3.50% in the case of LIBOR loans.  The applicable margin for the term loan B is 3% per annum in the case of base rate loans and 4% for LIBOR loans.  As of June 30, 2009 the interest rate on the term loan A and term loan B were 6.75% and 7.65%, respectively.
 
In April 2009, the senior credit facility was amended to increase the applicable margin for term B loans from 3% to 3.40% for base rate loans and from 4% to 4.40% for LIBOR loans.  Ashland agreed to this increase in exchange for reduced flexibility on behalf of the lenders to convert a portion of the term B loans to interim loans or long-term securities.  In May 2009, the senior credit facility was amended to revise the definition of “Consolidated EBITDA” to include an adjustment for “noncash equity compensation expense” and to also provide for more integration costs associated with the Hercules acquisition during the first year after the acquisition.  In exchange, Ashland agreed to limit Capital Expenditures in fiscal 2010 to no more than $250 million.
 
The term loan A facility and the revolving credit facility may be prepaid at any time without penalty.  If Ashland refinances or makes an optional prepayment of all or any portion of the term loan B facility, Ashland must pay a prepayment premium equal to either 2% of the principal amount of the term loan B facility prepaid if such prepayment is made on or prior to November 13, 2009, or 1% of the principal amount of the term loan B facility prepaid if such prepayment is made after November 13, 2009 but on or prior to November 13, 2010.  The senior credit facilities are subject to mandatory prepayment with specified percentages of the net cash proceeds of certain asset dispositions, casualty events, extraordinary receipts and debt and equity issuances and, in certain circumstances, with excess cash flow, in each case subject to certain conditions.  During the current June quarter and year-to-date period, Ashland repaid $22 million and $31 million of the term loan A facility and $48 million and $66 million of the term loan B facility, respectively.  Because these payments qualified as mandatory prepayments, no premium was paid.
 
Senior unsecured notes
 
In May 2009, Ashland issued $650 million aggregate principal amount of 9.125% senior unsecured notes due 2017.  The notes were issued at 96.577% of the aggregate principal amount to yield 9.75%.  Ashland may redeem some or all of the notes at any time on or after June 1, 2013 at certain fixed redemption prices.  The notes will mature on June 1, 2017 and rank equally with other unsecured and unsubordinated senior obligations.  Ashland used the net proceeds from this issuance, together with available liquidity, to repay the $750 million bridge loan facility entered into as part of the interim credit agreement in connection with the closing of the Hercules acquisition on November 13, 2008.  The interim credit agreement for the bridge loan facility provided $750 million of unsecured senior interim loans at a rate of 9% per annum through November 13, 2009, the interim loan maturity date.  Upon termination of the bridge facility, Ashland

 
 
 
 
19

 
 
 
 


ASHLAND INC . AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE F – DEBT (continued)
 

expensed the remaining $10 million of debt issuance cost related to the loan fees paid to originate the bridge loan facility and was included in the net interest and other financing (expense) income caption in the Statements of Consolidated Income.
 
Hercules retained instruments
 
Upon completion of the Hercules acquisition, Ashland assumed the following Hercules debt facilities:  6.60% notes due 2027, 6.50% junior subordinated deferrable interest debentures due 2029, term loans of Hercules Tianpu at rates ranging from 2.97% to 6.58% through 2011, and term loans of Hercules Jiangmen at rates ranging from 4.62% to 6.97% through 2010.
 
The 6.5% junior subordinated deferrable interest debentures due 2029 (the 6.5% debentures) had an initial issue price of $741.46 and have a redemption price of $1,000.  The 6.5% debentures were initially issued to Hercules Trust II (Trust II), a subsidiary trust established in 1999.  Trust II had issued, in an underwritten public offering, 350,000 CRESTS SM Units, each consisting of a 6.5% preferred security of Trust II and a warrant (exercisable through 2029) to purchase 23.4192 shares of the Hercules Common Stock for the equivalent of $42.70 per share.  The preferred securities and the warrants were separable and were initially valued at $741.46 and $258.54, respectively.  In connection with the Hercules dissolution and liquidation of Trust II in December 2004, Trust II distributed the 6.5% debentures to the holders of the preferred securities and the preferred securities were cancelled.  The CRESTS SM Units now consist of the 6.5% debentures and the warrants, both of which were fair valued in conjunction with the Hercules acquisition.  Ashland will accrete the difference between the $282 million par value and the $124 million recorded fair value of the 6.5% debentures over the remaining term.
 
Hercules Tianpu, a joint venture, and Hercules Jiangmen are consolidated within Ashland’s Condensed Consolidated Financial Statements.  Loans issued by Hercules Tianpu are guaranteed by Ashland for approximately 55% of the outstanding balances.  The loans are denominated in Renminbi and U.S. dollar equivalents.
 
Receivables facility
 
Ashland entered into a $200 million accounts receivable securitization facility.  As a part of this facility Ashland may sell, on an ongoing basis, a portion of its accounts receivable to obtain up to $200 million in cash or letters of credit.  For further information on this facility see Note G.
 
Covenants and other related items
 
As a result of the financing and subsequent debt issued to complete the Hercules acquisition, Standard & Poor’s downgraded Ashland’s corporate credit rating to BB- and Moody’s Investor Services downgraded Ashland’s corporate credit rating to Ba2.  In addition, Ashland is now subject to certain restrictions from various debt covenants.  These covenants include certain affirmative covenants such as various internal certifications, maintenance of property, preferential security interest in acquired property and applicable insurance coverage as well as negative covenants that include financial covenant restrictions associated with leverage and fixed charge coverage ratios, total net worth and capital expenditure levels and restrictions on future dividend payments and stock repurchases.  As of June 30, 2009, Ashland is in compliance with all credit facility covenant restrictions.  The financial covenant restrictions are summarized in the following tables.
 
The following describes the maximum consolidated leverage ratio permitted under Ashland’s senior credit agreement by associated period:
 
 
 
20
 
 
 
 


ASHLAND INC . AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


 
NOTE F – DEBT (continued)
 
             
         
Maximum
 
         
consolidated
 
         
leverage ratio
 
 
For fiscal quarters ending:
   
   
Funding date through September 30, 2009
3.75:1.00
 
   
December 31, 2009 through September 30, 2010
3.50:1.00
 
   
December 31, 2010 through September 30, 2011
3.00:1.00
 
   
December 31, 2011 through September 30, 2012
2.75:1.00
 
   
December 31, 2012 and each fiscal quarter thereafter
2.50:1.00
 
             
 
The following describes Ashland’s June 2009 calculation of the consolidated leverage ratio per the senior credit agreement as previously disclosed in a Form 8-K filed on November 21, 2008 and reconciliation of Consolidated EBITDA (as defined by the senior credit agreement, as amended) to net income:  Ashland has included certain non-GAAP information below to assist in the understanding of various financial debt covenant calculations.
 
                                             
                                       
Covenant
   
 
(In millions, except ratios) (a)
Q4'08
 
(b)
 
Q1'09
 
 
 
Q2'09
 
 
 
Q3'09
   
Total
   
ratio
   
 
Debt/EBITDA
                                         
 
Consolidated EBITDA
$ 193       $ 155       $ 227       $ 266     $ 841            
 
Debt
            2,473         2,266         2,021       2,021            
 
Debt/EBITDA
                                        2.4 x     3.75 x  
                                                 
max.  
 
                                                     
 
 
 
Reconciliation of Consolidated EBIDTA:
                                         
 
(In millions)
 
 
 
 
Q1'09 
 
 
  
Q2'09
 
 
  
Q3'09
   
 
     
 
   
 
Net (loss) income
           $ (119 )     $ 48       $ 50                    
 
Key items excluded (c)
            82         (1 )       3                    
 
Consolidated interest charges
            35         56         64                    
  Income taxes (benefit) expense               (1 )       9         40            
 
 
  Depreciation and amortization             63         93         88                
  Hercules stub-period results (d)             34         -         -                
  Other nonrecurring or noncash charges (e)             61         22         21                
  Total consolidated EBITDA           $ 155       $ 227       $ 266                
                                                     
             
    Reconciliation of Debt:                                          
 
(In millions)
 
 
 
 
Q1'09 
 
 
  
Q2'09
 
 
  
Q3'09
   
 
     
 
   
 
Total debt (long-term and short-term)
           $ 2,468       $ 2,262       $ 1,993                    
 
Defeased debt
            (31 )       (31 )       (13 )                  
 
Guarantees (bank and third party)
            36         35         41                    
              $ 2,473       $ 2,266       $ 2,021                
                                                     
 
  (a) 
All numbers adjusted to reflect terminology and calculation methodology governing the senior credit agreement, included in a Form 8-K filed on November 21, 2008, as amended.
 
  (b)
Amounts for Q4’08 are as prescribed in the senior credit agreement, as amended.
 
  (c) Excludes certain income or costs that have been specifically identified within the senior credit agreement, as amended.  
  (d) I n accordance with the senior credit agreement, Hercules’ financial results from October 1, 2008 through November 13, 2008, which is the period of time during Ashland’s first quarter that it did not own Hercules, have been included within this calculation.  
  (e) I ncludes certain nonrecurring or noncash transactions, including restructuring and integration charges, defined within the senior credit agreement.  Allowable restructuring and integration charges are capped, per the senior credit agreement, as amended, not to exceed $80 million during the three fiscal year period ending September 30, 2011.  Ashland has incurred approximately $44 million of qualifying restructuring and integration expenses to date in fiscal year 2009.  
 
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ASHLAND INC . AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE F – DEBT (continued)

 
 
The permitted consolidated fixed charge coverage ratio as of the end of any fiscal quarter for Ashland is as follows under Ashland’s senior credit agreement.

             
         
Minimum
 
         
consolidated
 
         
fixed charge
 
          coverage ratio  
 
For fiscal quarters ending:
   
   
Funding date through September 30, 2010
1.25:1.00
 
   
December 31, 2010 through each fiscal quarter thereafter
1.50:1.00
 
             
 
The following describes Ashland’s June 2009 calculation of the fixed charge coverage ratio per the senior credit agreement included in a Form 8-K filed on November 21, 2008:

                                             
                                       
Covenant
   
 
(In millions, except ratios) (a)
Q4'08
 
(b)
 
Q1'09
 
 
 
Q2'09
 
 
 
Q3'09
   
Total
   
ratio
   
 
Fixed charge coverage
                                         
 
Consolidated EBITDA
$ 193       $ 155       $ 227       $ 266     $ 841            
 
Capital expenditures
  116         57         42         27       242            
 
Adjusted interest expense
  47         51         45         45       188            
 
Scheduled debt payments
  -         -         17         17       34            
 
Adjusted dividend payment
  5         5         6         6       22            
 
Fixed charge coverage ratio
                                        2.5 x     1.25 x  
                                                 
min.  
 
                                                         
                                                         
  (a) 
All numbers adjusted to reflect terminology and calculation methodology governing the senior credit agreement, included in a Form 8-K filed on November 21, 2008, as amended. 
 
  (b)
Amounts for Q4’08 are as prescribed in the senior credit agreement, as amended.
 
 
Under Ashland’s financing facilities, the minimum consolidated net worth covenant at the end of any fiscal quarter ending after December 31, 2008 must not be less than 85% of Ashland’s consolidated net worth as of December 31, 2008, after giving effect to any purchase accounting adjustments relating to the Hercules acquisition subsequent to December 31, 2008, increased on a cumulative basis for each subsequent quarter commencing with January 1, 2009 by an amount equal to 50% of Ashland’s U.S. GAAP reported net income (to the extent positive with no deduction for net losses) plus 100% of net cash proceeds of any issuance of equity interests (other than disqualified equity interests).  As of June 30, 2009 Ashland’s consolidated net worth covenant was $3,732 million versus the minimum consolidated net worth covenant of $3,109 million, a difference of $623 million.  As outlined above, this difference would be adversely impacted by any future operating losses, impairment (including goodwill, intangible assets and property, plant and equipment), pension remeasurement, severance or other related charges that reduce Ashland’s consolidated net worth.
 
As part of the financing arrangements to acquire Hercules, Ashland is now subject to the following capital expenditure limits:  $300 million in fiscal year 2009, $250 million in fiscal year 2010, $330 million in fiscal year 2011, $360 million in fiscal year 2012, $370 million in fiscal year 2013 and $375 million in fiscal year 2014.  Per the senior credit agreement, 50% of any amount set forth above that is not expended in the fiscal year for which it is permitted above may be carried over for expenditure in the next following fiscal year.

 
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE G – ACCOUNTS RECEIVABLE SECURITIZATION
 

As described in Note F, on November 13, 2008, Ashland entered into a $200 million accounts receivable securitization facility pursuant to: (1) a sale agreement between Ashland and CVG Capital II LLC (CVG), a wholly-owned special purpose subsidiary consolidated within Ashland and (2) a transfer and administration agreement among CVG, Ashland, certain conduit investors and uncommitted investors, each of Bank of America, National Association and The Bank of Nova Scotia, as a letter of credit issuer, a managing agent, an administrator and a committed investor, and Bank of America, National Association, as agent for various secured parties.
 
As part of the receivables securitization facility, Ashland may sell, on an ongoing basis, a portion of its accounts receivable, certain related assets and the right to the collections on those accounts receivable to CVG.  Under the terms of the transfer and administration agreement, CVG may, from time to time, obtain up to $200 million (in the form of cash or letters of credit for the benefit of Ashland and its other subsidiaries) from the conduit investors, the uncommitted investors and/or the committed investors through the sale of its interest in such receivables, related assets and collections or by financing those receivables, related assets and rights to collection.  The transfer and administration agreement has an initial term of 364 days and is renewable at the discretion of the investors.  As a result, Ashland classified this borrowing as a short-term debt instrument within its Condensed Consolidated Balance Sheet.  All transfers are accounted for as secured borrowings and the receivables sold pursuant to the securitization facility are included in the Condensed Consolidated Balance Sheet as accounts receivable.  Fundings under the transfer and administration agreement are repaid as accounts receivable are collected, with new fundings being advanced (through daily reinvestments) as new accounts receivable are originated by Ashland and sold to CVG, with settlement generally occurring monthly.  Once accounts receivable are sold to CVG by Ashland, the receivables, related assets and rights to collection are separate and distinct from Ashland’s own assets and are not available to creditors of Ashland.  At June 30, 2009, the outstanding amount of accounts receivable sold by Ashland to CVG was $288 million for which Ashland had no outstanding draws on the approximate $184 million in available funding from qualifying receivables.

NOTE H – INVENTORIES
 
Inventories are carried at the lower of cost or market.  Certain chemicals, plastics and lubricants are valued at cost using the last-in, first-out (LIFO) method.  The remaining inventories are stated at cost using the average cost method.  During the three and nine month periods ended June 30, 2009 and 2008 certain inventory quantities valued under the LIFO method were reduced.  This reduction resulted in a liquidation of LIFO quantities carried at lower costs prevailing in prior years as compared with the cost of purchases within the periods presented, the effect of which decreased cost of goods sold for the three months ended June 30, 2009 and 2008 by $3 million and $1 million, respectively, and $14 million and $5 million for the nine months ended June 30, 2009 and 2008, respectively.  The following table summarizes Ashland’s inventories as of the reported Condensed Consolidated Balance Sheet dates.
 

 
                     
   
June 30
   
September 30
   
June 30
   
 
(In millions)
2009
   
2008
   
2008
   
 
Chemicals and plastics
$ 537     $ 531     $ 555    
 
Lubricants
  111       127       135    
 
Other products and supplies
  17       18       16    
 
Excess of replacement costs over LIFO carrying values
  (119 )     (200 )     (185 )  
    $ 546     $ 476     $ 521    
                           
 
 
23

 
 
 
 



ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


NOTE I – GOODWILL AND OTHER INTANGIBLES
 

In accordance with FAS 142, Ashland reviews goodwill and other intangible assets for impairment either annually or when events and circumstances indicate an impairment may have occurred.  This annual assessment is performed as of July 1.  Due to the global economic environment and the related impacts within the industries Ashland conducts business, as well as the significant decline in Ashland’s market capitalization compared to the June 30, 2009 equity value, Ashland determined that there was a potential indicator to perform an interim impairment analysis.  Ashland performed a review of the current and projected financial performance of its reporting units to determine if specific events or circumstances existed to perform an interim impairment assessment as of June 30, 2009.  Ashland’s evaluation by reporting unit as of June 30, 2009 was as follows:
 
For the Performance Materials segment, which consists of two reporting units, Ashland analyzed the interim impairment assessment performed as of March 31, 2009, as the two reporting units experienced a decline in short-term demand, which has caused revenue to decrease by a similar level.  This analysis was performed to ensure no interim impairment was necessary as of June 30, 2009.  Based on current forecasts, including the long-term assumptions, Ashland continues to believe the two reporting units in Performance Materials have sufficient cushion between the enterprise value of the business and net book value and their interim results would not trigger an interim impairment assessment as of June 30, 2009.
 
The Consumer Markets reporting unit was deemed to not require an interim impairment assessment based on its performance since Ashland’s July 1, 2008 annual impairment test and the reporting unit’s projected cash flows.
 
Ashland concluded that an interim impairment assessment was not necessary for the Functional Ingredients and Water Technologies reporting units as of June 30, 2009 due to the recent acquisition of Hercules which created the majority of goodwill relating to these reported units.  However, to validate the continued appropriateness of the valuation of the reporting units following the transaction, Ashland updated the models used to value the Hercules businesses prior to the acquisition with the most recent financial results and forecasted assumptions.  This update included the short-term decline in performance as a result of the current economic environment, as well as the additional synergy savings and reductions to or delays in capital expenditures which have been identified after the acquisition announcement through Ashland’s continued integration efforts.  These additional synergies and changes in capital expenditures have essentially offset the recent decline in the reporting units’ volume.  Upon updating these models, Ashland concluded there was no indication of a decline in fair value for these reporting units which would require an interim impairment analysis as of June 30, 2009.
 
Because market prices of Ashland’s reporting units are not readily available, Ashland makes various estimates and assumptions in determining the estimated fair values of those units.  Historically, Ashland has used a market multiples valuation technique.  Fair values were based principally on EBITDA (earnings before interest, taxes, depreciation and amortization) multiples of industry peer group companies for each of these reporting units and, as deemed necessary, a discounted cash flow model.  Based upon the current market conditions, Ashland determined that a discounted cash flow model was a more representative valuation model to currently determine a business’ fair value, including the June 30, 2009 event-driven/interim impairment assessment of the Performance Materials reporting units.  The discounted cash flow models are highly reliant on various assumptions, some of which include:  projected business results and future industry direction, long-term growth factors and discount rates.  Ashland uses assumptions that it deems to be conservative estimates of likely future events.   Based on the assumptions used for the one Performance Materials reporting unit that was not significantly over the carrying value, a 1% negative change in any one of the assumptions made would have resulted in a fair value at, or slightly below, Ashland’s current carrying value of this reporting unit.
 
 
24

 
 
 
 
 


ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


 
NOTE I – GOODWILL AND OTHER INTANGIBLES (continued)
 

Ashland’s assessment of an event that could cause an impairment charge could change in future periods if any or all of the following events were to occur with respect to a particular reporting unit: divestiture decision, negative change in discount rates, growth rates or other assumptions, continued economic deterioration that is more severe or of a longer duration than anticipated, or another significant economic event.  Ashland recognizes that its current market capitalization at June 30, 2009 is significantly below the carrying value of equity.  However, Ashland believes that the assumptions and determinations used to fair value Ashland’s reporting units have been based on valuation methodologies, principles and practices standard within the current market place for valuing businesses.
 
Based on global economic uncertainty and the ability to successfully integrate the Hercules businesses within this environment, Ashland’s valuation assumptions could potentially change in the future and result in an impairment charge on any of these assets classified currently as having indefinite lives, including goodwill.  Significant future charges for impairments could impact Ashland’s ability to comply with the minimum consolidated net worth covenant, which is disclosed further in Note F.
 
The following is a progression of goodwill by segment for the nine months ended June 30, 2009 and 2008.

                                         
   
Functional
   
Water
   
Performance
     
Consumer
               
 
(In millions)
Ingredients
   
Technologies
   
Materials
 
(a)
 
Markets
   
Distribution
   
Total
   
 
Balance at September 30, 2008
$ -     $ 56     $ 196       $ 30     $ 1     $ 283    
 
Acquisitions
  1,214       571       -         -       -       1,785    
 
Currency translation adjustment
  61       24       (3 )       -       -       82    
 
Balance at June 30, 2009
$ 1,275     $ 651     $ 193       $ 30     $ 1     $ 2,150    
                                                     
                                                     
  (a) 
Goodwill consisted of $34 million and $159 million, respectively, for the Castings Solutions and Composite Polymers/Specialty Polymers and Adhesives reporting units.
 
 
                                         
   
Functional
   
Water
   
Performance
     
Consumer
               
 
(In millions)
Ingredients
   
Technologies
   
Materials
 
 
 
Markets
   
Distribution
   
Total
   
 
Balance at September 30, 2007
$ -     $ 54     $ 166       $ 30     $ 1     $ 251    
  Acquisitions   -       1       28         -       -       29    
 
Currency translation adjustment
  -       3       8         -       -       11    
 
Balance at June 30, 2008
$ -     $ 58     $ 202       $ 30     $ 1     $ 291    
                                                     
 
Intangible assets consist of trademarks and trade names, patents and licenses, non-compete agreements, sale contracts, customer lists and intellectual property.  Intangibles are amortized on a straight-line basis over their estimated useful lives.  The cost of trademarks and trade names is amortized principally over 15 to 25 years, intellectual property over 5 to 20 years, customer relationships over 10 to 24 years and other intangibles over 2 to 30 years.  As part of recording the Hercules acquisition during the December 2008 quarter, Ashland recorded $1,082 million in intangible assets of which $255 million were related to indefinite-lived assets.  Ashland reviews amortizable intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.  Intangible assets were comprised of the following as of June 30, 2009 and 2008.
 
           
     2009   2008  
      Gross                Net        Gross                Net    
       carrying        Accumulated        carrying        carrying        Accumulated        carrying    
 
(In millions)
   amount       amortization        amount       amount        amortization        amount    
 
Trademarks and trade names
$ 353     $ (23 )   $ 330     $ 66     $ (21 )   $ 45    
 
Intellectual property
  327       (35 )     292       54       (20 )     34    
 
Customer relationships
  563       (28 )     535       13       (2     11    
 
Other intangibles
  43       (22 )     21       38       (14 )     24    
 
Total intangible assets
$ 1,286     $ (108 )   $ 1,178     $ 171     $ (57 )   $ 114    
                                                   

 
 
25

 
 
 
 


ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


 
NOTE I – GOODWILL AND OTHER INTANGIBLES (continued)
 

Amortization expense recognized on intangible assets for the nine months ended June 30 was $46 million for 2009 and $8 million for 2008 and is primarily included in the selling, general and administrative expense caption of the Statements of Consolidated Income.
 
As of June 30, 2009, all of Ashland’s intangible assets that had a carrying value were being amortized except for certain trademarks and trade names that currently have been determined to have indefinite lives.  These assets had a balance of $290 million and $32 million as of June 30, 2009 and 2008, respectively.  Ashland annually, or as deemed necessary, reviews these assets to determine whether events and circumstances continue to support the indefinite useful life designation.
 
Estimated amortization expense for future periods is $72 million in 2009 (includes nine months actual and three months estimated), $65 million in 2010, $63 million in 2011, $62 million in 2012 and $61 million in 2013.  See Note C for further discussion of Ashland’s goodwill and intangible asset activity.

NOTE J – INCOME TAXES
 
For the three months ended June 30, 2009 and 2008, Ashland’s effective tax rates were 44.3% and 29.4%, respectively.  For the nine months ended June 30, 2009 and 2008, Ashland’s effective tax rate was 168.5% and 24.7%, respectively.  The significant items that generated the variance between the U.S. federal statutory rate and the effective rates are included in the following table.
 
               
   
Three months ended
   
Nine months ended
   
   
June 30
   
June 30
   
 
(In millions)
2009
   
2008
   
2009
   
2008
   
 
Income from continuing operations before income taxes
$ 91     $ 93     $ 29     $ 234    
 
Income tax expense computed at U.S. Federal
                               
 
statutory rates (35%)
$  32     $ 33     $ 10     $ 82    
 
Increase (decrease) in amount computed resulting from:
                               
 
Adjustment of statutory rates for projected
                               
 
annual income
  (14 )     (5 )     (22 )     (7 )  
  Unused net operating losses   12       -       12        -    
 
Resolution, evaluation and re-evaluation of tax positions
  8       (1 )     19       (11 )  
 
Gain on MAP Transaction
  -       -       -       (8 )  
 
Nondeductible life insurance loss
  (3 )     -       5       -    
 
Nondeductible in-process research and development costs
  -       -       3       -    
 
APB 23 repatriated earnings (a)
  -       -       14       -    
 
Auction rate securities valuation allowance
  (2 )     -       9       -    
 
Research and development tax credits
  -       -       (3 )     -    
 
Other
  7       -       2       2    
 
Income tax expense
$ 40     $ 27     $ 49     $ 58    
                                   
  (a)  Represents repatriation of historical earnings of certain foreign subsidiaries.                    
 

 
During the nine month period ended June 30, 2009, Ashland increased its liability for unrecognized tax benefits for continuing operations by $22 million, primarily due to the Hercules acquisition, and decreased its liability for unrecognized tax benefits for discontinued operations by $1 million.  It is reasonably possible that the amount of the unrecognized tax benefits may increase or decrease within the next twelve months as the result of settlement of ongoing audits.  However, Ashland does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the Condensed Consolidated Financial Statements.
 
 
 
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


 
NOTE J – INCOME TAXES (continued)
 
Changes in unrecognized tax benefits are summarized as follows for the nine months ended June 30, 2009.
 
           
           
 
(In millions)
       
 
Balance at October 1, 2008
  $ 79    
 
Increases related to positions taken on items from prior years
    13    
 
Decreases related to positions taken on items from prior years
    (5 )  
 
Increases related to assumed Hercules positions in the current year
    35    
 
Increases related to positions taken in the current year
    8    
 
Lapse of statute of limitations
    (9 )  
 
Settlement of uncertain tax positions with tax authorities
    (21 )  
 
Balance at June 30, 2009
  $ 100    
 
NOTE K – EARNINGS PER SHARE
 
 

 

The following is the computation of basic and diluted earnings per share (EPS) from continuing operations.  Stock options, SARs and warrants (assumed as part of the Hercules acquisition) available to purchase shares outstanding for each reporting period whose grant price was greater than the average market price of Ashland Common Stock for each applicable period were not included in the computation of income from continuing operations per diluted share because the effect of these instruments would be antidilutive.  The total number of these shares outstanding was approximately 2 million for June 30, 2009 and 2008, respectively.

                 
     
Three months ended
   
Nine months ended
   
     
June 30
   
June 30
   
 
(In millions except per share data)
 
2009
   
2008
   
2009
   
2008
   
 
Numerator
                         
 
Numerator for basic and diluted EPS – Income (loss)
                         
 
from continuing operations
  $ 51     $ 66     $ (20 )   $ 176    
 
Denominator
                                 
 
Denominator for basic EPS –  Weighted-average
                                 
 
common shares outstanding
    74       63       72       62    
 
Share based awards convertible to common shares
    1       1       -       1    
 
Denominator for diluted EPS – Adjusted weighted-
                                 
 
average shares and assumed conversions
    75       64       72       63    
                                     
 
EPS from continuing operations
                                 
 
Basic
  $ .69     $ 1.04     $ (.27 )   $ 2.80    
 
Diluted
  $ .68     $ 1.03     $ (.27 )   $ 2.77    
 
NOTE L – EMPLOYEE BENEFIT PLANS
 

For the nine months ended June 30, 2009, $22 million had been contributed to the U.S. plans and $19 million had been contributed to the non-U.S. plans.  Ashland expects to make approximately $3 million in contributions to the U.S. plans and approximately $6 million in contributions to the non-U.S. plans during the remainder of fiscal year 2009.  The following table details the components of pension and other postretirement benefit costs.

 
 
 
27

 
 
 
 



ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE L – EMPLOYEE BENEFIT PLANS (continued)
 
                       
                 
Other postretirement
 
     
Pension benefits
 
benefits
 
 
(In millions)
 
2009
   
2008
   
2009
   
2008
   
 
Three months ended June 30
                         
 
Service cost
  $ 11     $ 8     $ 1     $ 1    
 
Interest cost
    64       22       6       2    
 
Expected return on plan assets
    (58 )     (28 )     -       -    
 
Amortization of prior service credit
    -       -       (1 )     (1 )  
 
Amortization of net actuarial loss (gain)
    4       1       (1 )     -    
      $ 21     $ 3     $ 5     $ 2    
                                     
 
Nine months ended June 30
                                 
 
Service cost
  $ 32     $ 26     $ 3     $ 3    
 
Interest cost
    163       67       17       8    
 
Expected return on plan assets
    (147 )     (82 )     -       -    
 
Amortization of prior service credit
    -       -       (3 )     (3 )  
 
Amortization of net actuarial loss (gain)
    12       4       (4 )     (2 )  
      $ 60     $ 15     $ 13     $ 6    
 

As a result of the Hercules acquisition, Ashland assumed pension and other postretirement obligations with an estimated fair value of $1,422 million and $121 million, respectively.  The net liabilities assumed, after fair value adjustment, for pension and other postretirement obligations recognized in the Condensed Consolidated Balance Sheets were $188 million and $121 million, respectively.  See Note C for the purchase price allocations to pension and other postretirement obligations.

NOTE M – CAPITAL STOCK
 

On November 13, 2008, Ashland completed its acquisition of Hercules.  As part of the consideration to acquire the 112.7 million shares of outstanding Hercules Common Stock on that date, Ashland issued 10.5 million shares of Ashland Common Stock valued, as of the announcement date, at $450 million.
 
During the first, second and third quarters of fiscal 2009 the Board of Directors of Ashland announced and paid quarterly cash dividends of 7.5 cents per share to eligible shareholders of record.  The previous quarterly dividend in prior fiscal years had been 27.5 cents per share.  In conjunction with Ashland’s new debt facilities discussed in Note F, Ashland is now subject to various covenants that may restrict certain future payments, which could include quarterly dividend payments, if certain qualifying net income levels are not reached.

NOTE N – EQUITY AWARDS
 
 

 
Ashland has stock incentive plans under which key employees or directors are granted stock options, stock-settled stock appreciation rights (SARs), performance share awards or nonvested stock awards.  Each program is typically a long-term incentive plan designed to link employee compensation with increased shareholder value over time or reward superior performance and encourage continued employment with Ashland.  Ashland began expensing stock awards on October 1, 2002 and recognizes compensation expense for the grant date fair value of stock-based awards over the applicable vesting period.  Stock-based compensation expense was $3 million and $3 million for the three months ended June 30, 2009 and 2008, respectively, and $6 million and $8 million for the nine month periods ended June 30, 2009 and 2008, respectively, and is included in the selling, general and administrative expense caption of the Statements of Consolidated Income.
 
 
 
28

 
 
 
 



ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE N – EQUITY AWARDS (continued)
 

Stock options and SARs
 
Stock options and SARs are granted to employees at a price equal to the fair market value of the stock on the date of grant and become exercisable over periods of one to three years.  Unexercised stock options and SARs lapse ten years after the date of grant.  SARs granted for the nine months ended June 30, 2009 and 2008 were 2.3 million and 0.4 million, respectively.  In addition, on November 13, 2008, approximately one million options were converted from previous Hercules stock options into stock options for Ashland shares.  These shares vested upon closing of the acquisition and the fair value of the converted stock options were recognized as a component of the purchase price with no additional amounts recorded as future compensation expense.  See Note C for additional information on the purchase price calculation for Hercules.  As of June 30, 2009 there was $5 million of total unrecognized compensation costs related to SARs.  That cost is expected to be recognized over a weighted-average period of 1.8 years.  In accordance with FAS 123(R) Ashland estimates the fair value of stock options and SARs granted using the Black-Scholes option-pricing model.  This model requires several assumptions, which Ashland has developed and updates based on historical trends and current market observations.  The accuracy of these assumptions is critical to the estimate of fair value for these equity instruments.
 
Nonvested stock awards
 
Nonvested stock awards are granted to employees or directors at a price equal to the fair market value of the stock on the date of grant and generally vest over a one to seven year period.  However, such shares are subject to forfeiture upon termination of service before the vesting period ends.  Nonvested stock awards entitle employees or directors to vote the shares and to receive any dividends upon grant.  Nonvested stock awards granted for the nine months ended June 30, 2009 and 2008 were 166,500 and less than 20,000 shares, respectively.  As of June 30, 2009 there was $3 million of total unrecognized compensation costs related to nonvested stock awards.  That cost is expected to be recognized over a weighted-average period of 2.4 years.
 
Performance shares/units
 
Performance shares/units are awarded to certain key employees that are tied to Ashland’s overall financial performance relative to the financial performance of a selected industry peer group.  Performance measures used to determine the actual number of performance shares/units issuable upon vesting include an equal weighting of Ashland’s total shareholder return (TSR) performance and Ashland’s return on investment (ROI) performance as compared to the performance peer group over a three-year performance cycle.  TSR relative to peers is considered a market condition while ROI is considered a performance condition under applicable accounting guidance.  Nonvested performance shares/units do not entitle employees to vote the shares or receive any dividends thereon.  Performance shares/units granted for the nine months ended June 30, 2009 and 2008 were 0.3 million and 0.1 million, respectively.  As of June 30, 2009 there was $3 million of total unrecognized compensation costs related to performance shares/units.  That cost is expected to be recognized over a weighted-average period of 1.5 years. 
 
 

NOTE O – LITIGATION, CLAIMS AND CONTINGENCIES
 
Asbestos litigation
 
Ashland and  Hercules, a wholly  owned  subsidiary  of  Ashland, have  liabilities  from  claims alleging personal injury caused by exposure to asbestos.  To assist in developing and annually updating independent reserve estimates for future asbestos claims and related costs given various assumptions, Ashland retained Hamilton, Rabinovitz & Associates, Inc. (HR&A).  The methodology used by HR&A to project future asbestos costs is based largely on recent experience, including claim-filing and settlement rates, disease mix, enacted legislation, open claims, and litigation defense and claim settlement costs.  The claim experience of Ashland and Hercules are separately compared to the results of previously conducted third party epidemiological
 
 
29

 
 
 
 



ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE O – LITIGATION, CLAIMS AND CONTINGENCIES  (continued)
 

studies estimating the number of people likely to develop asbestos-related diseases.  Those studies were undertaken in connection with national analyses of the population expected to have been exposed to asbestos.  Using that information, HR&A estimates a range of the number of future claims that may be filed, as well as the related costs that may be incurred in resolving those claims.
 
Ashland asbestos-related litigation
 
The claims alleging personal injury caused by exposure to asbestos asserted against Ashland result primarily from indemnification obligations undertaken in 1990 in connection with the sale of Riley, a former subsidiary.
 
Because claims are frequently filed and settled in large groups, the amount and timing of settlements and number of open claims can fluctuate significantly from period to period.  A summary of Ashland asbestos claims activity, excluding that related to the acquisition of Hercules, follows.
 
                           
   
Nine months ended
                     
   
June 30
   
Years ended September 30
   
 
(In thousands)
2009
   
2008
   
2008
   
2007
   
2006
   
 
Open claims - beginning of period
115       134       134       162       184    
 
New claims filed
2       3       4       4       6    
 
Claims settled
(1 )     (2 )     (2 )     (2 )     (3 )  
 
Claims dismissed
(13 )     (20 )     (21 )     (30 )     (25 )  
 
Open claims - end of period
103       115       115       134       162    
 
A progression of activity in the asbestos reserve is presented in the following table.
 
                           
   
Nine months ended
                     
   
June 30
   
Years ended September 30
   
 
(In millions)
2009
   
2008
   
2008
   
2007
   
2006
   
 
Asbestos reserve - beginning of period
$ 572     $ 610     $ 610     $ 635     $ 571    
 
Reserve adjustment
  5       2       2       5       104    
 
Amounts paid
  (26 )     (32 )     (40 )     (30 )     (40 )  
 
Asbestos reserve - end of period
$ 551     $ 580     $ 572     $ 610     $ 635    
                                           
 

From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs.  Ashland reviews this estimate and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 50-year model developed with the assistance of HR&A.  During the most recent annual update of this estimate, completed during the June 2009 quarter, it was determined that the reserve adjustment for asbestos claims should be increased by $5 million.  Total reserves for asbestos claims were $551 million at June 30, 2009 compared to $572 million at September 30, 2008 and $580 million at June 30, 2008.
 
Excluding the Hercules asbestos claims further described below, Ashland has insurance coverage for most of the litigation defense and claim settlement costs incurred in connection with its asbestos claims, and coverage-in-place agreements exist with the insurance companies that provide most of the coverage currently being accessed.  As a result, increases in the asbestos reserve have been largely offset by probable insurance recoveries.  The amounts not recoverable generally are due from insurers that are insolvent, rather than as a result of uninsured claims or the exhaustion of Ashland’s insurance coverage.
 
For the Ashland asbestos-related obligations, Ashland has estimated the value of probable insurance recoveries associated with its asbestos reserve based on management’s interpretations and estimates

 

30

 
 
 
 
 


ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE O – LITIGATION, CLAIMS AND CONTINGENCIES (continued) 

 
surrounding the available or applicable insurance coverage, including an assumption that all solvent insurance carriers remain solvent.  Approximately 64% of the estimated receivables from insurance companies are expected to be due from domestic insurers, of which approximately 82% have a credit rating of B+ or higher by A. M. Best, as of June 30, 2009.  The remainder of the insurance receivable is due from London insurance companies, which generally have lower credit quality ratings, and from Underwriters at Lloyd’s, which is reinsured by Equitas Limited (Equitas).  Ashland discounts a substantial portion of this piece of the receivable based upon the projected timing of the receipt of cash from those insurers unless likely settlement amounts can be determined.
 
At June 30, 2009, Ashland’s receivable for recoveries of litigation defense and claim settlement costs from insurers amounted to $437 million (excluding the Hercules receivable for asbestos claims), of which $71 million relates to costs previously paid.  Receivables from insurers amounted to $458 million at September 30, 2008 and $468 million at June 30, 2008.  During the June 2009 quarter, the model used for purposes of valuing the asbestos reserve described above, and its impact on valuation of future recoveries from insurers, was updated.  This model update along with likely settlement adjustments caused an additional $8 million net increase in the receivable for probable insurance recoveries.
 
Hercules asbestos-related litigation
 
Hercules, a wholly owned subsidiary of Ashland, has liabilities from claims alleging personal injury caused by exposure to asbestos.  Such claims typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products which were sold by one of Hercules’ former subsidiaries to a limited industrial market.  Because claims are frequently filed and settled in large groups, the amount and timing of settlements and number of open claims can fluctuate significantly from period to period.  A summary of Hercules’ asbestos claims activity follows.
 
 
         
 
(In thousands)
November 13,
2008 through
June 30, 2009
   
 
Open claims - November 13, 2008
  27    
 
New claims filed
  1    
 
Claims settled
  -    
 
Claims dismissed
  (4 )  
 
Open claims - end of period
  24    
 
      A progression of activity in the asbestos reserve is presented in the following table.

         
 
(In millions)
November 13,
2008 through
June 30, 2009
   
 
Asbestos reserve - November 13, 2008
$ 233    
 
Purchase accounting reserve adjustment
  140    
 
Amounts paid
  (8 )  
 
Asbestos reserve - end of period
$ 365    
 

In November 2008, Ashland completed its acquisition of Hercules.  At that time, Hercules’ recorded reserve for asbestos claims was $233 million for indemnity costs.  Ashland’s accounting policy in recording reserves for asbestos claims is to include amounts for both projected indemnity and defense costs.  As a result, Ashland recorded a $105 million increase to the asbestos reserve for Hercules to include projected defense costs.  To do so, Ashland utilized several internal models that it employs to estimate defense costs associated with asbestos claims.  During the June 2009 quarter Ashland included the Hercules claims within its annual

 
 
 
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



 
NOTE O – LITIGATION, CLAIMS AND CONTINGENCIES (continued)
 
assessment of these matters, which includes running various non-inflated, non-discounted approximate 50-year models developed with the assistance of HR&A and determining from the range of estimates in the models the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs.  Based on this most recent assessment Ashland increased the reserve for this estimated Hercules liability by $35 million which was accounted for as an adjustment to Hercules’ November 2008 opening balance sheet since the adjustment was limited to claims that had been incurred as of the acquisition date, and therefore did not affect the income statement.  Total reserves for Hercules asbestos claims were $365 million at June 30, 2009.
 
As of Ashland’s acquisition date of Hercules, all of the cash recovered and placed into a trust from the settlements with certain of Hercules’ insurance carriers had been exhausted.  With the addition of estimated defense costs, the total Hercules asbestos reserve exceeded the amount needed to obtain reimbursements pursuant to coverage-in-place agreements with certain other insurance carriers.  Accordingly, Ashland initially estimated at the acquisition date the amount of future projected costs that will be reimbursable by such insurance using a similar methodology as performed on the historical Ashland asbestos liability and recorded a $35 million receivable within the noncurrent asbestos insurance receivable caption of the Condensed Consolidated Balance Sheet.  Upon completion of the annual update during the June 2009 quarter, the receivable was increased by $22 million reflecting the increase in liability from the updated model incorporated within Ashland’s complete valuation process.  As of June 30, 2009 the receivables from insurers amounted to $57 million.
 
Asbestos litigation cost projection
 
Projecting future asbestos costs is subject to numerous variables that are extremely difficult to predict.  In addition to the significant uncertainties surrounding the number of claims that might be received, other variables include the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, costs of medical treatment, the impact of bankruptcies of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards.  Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens.  In light of these inherent uncertainties, Ashland believes that the asbestos reserves for Ashland and Hercules represent the best estimate within a range of possible outcomes.  As a part of the process to develop these estimates of future asbestos costs, a range of long-term cost models was developed.  These models are based on national studies that predict the number of people likely to develop asbestos-related diseases and are heavily influenced by assumptions regarding long-term inflation rates for indemnity payments and legal defense costs, as well as other variables mentioned previously.  Ashland has estimated in various current approximate 50-year models that it is reasonably possible that total future litigation defense and claim settlement costs on an inflated and undiscounted basis could range as high as approximately $800 million for the Ashland asbestos-related litigation and approximately $600 million for the Hercules asbestos-related litigation (or approximately $1.4 billion in the aggregate), depending on the combination of assumptions selected in the various models.  If actual experience is worse than projected relative to the number of claims filed, the severity of alleged disease associated with those claims or costs incurred to resolve those claims, Ashland may need to increase further the estimates of the costs associated with asbestos claims and these increases could potentially be material over time.
 
Environmental remediation and asset retirement obligations
 
Ashland and Hercules are subject to various federal, state and local environmental laws and regulations that require environmental assessment or remediation efforts (collectively environmental remediation) at multiple locations.  At June 30, 2009, such locations included 96 waste treatment or disposal sites where Ashland and/or Hercules have been identified as a potentially responsible party under Superfund or similar state laws,


 
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE O – LITIGATION, CLAIMS AND CONTINGENCIES ( continued )
 

162 current and former operating facilities (including certain operating facilities conveyed to MAP) and about 1,220 service station properties, of which 160 are being actively remediated.
 
Ashland’s reserves for environmental remediation and asset retirement obligations amounted to $233 million at June 30, 2009 compared to $149 million at September 30, 2008 and $160 million at June 30, 2008, of which $186 million at June 30, 2009, $112 million at September 30, 2008 and $127 million at June 30, 2008 were classified in other noncurrent liabilities on the Condensed Consolidated Balance Sheets.  As a result of the Hercules acquisition on November 13, 2008, Ashland assumed all Hercules’ environmental and asset retirement obligation contingencies.  Hercules’ obligations assumed by Ashland were $100 million, which includes an adjustment of $23 million for different remediation approaches and discount rates previously assumed under Hercules’ valuation models.
 
The following table provides a reconciliation of the changes in the environmental contingencies and asset retirement obligations during the nine months ended June 30, 2009.
 

           
 
(In millions)
       
 
Balance at October 1, 2008
$
149
   
 
Inherited Hercules obligations
 
100
   
 
Disbursements, net of cost recoveries
 
(28
)  
 
Revised obligation and accretion estimates
 
12
   
 
Balance at June 30, 2009
$
233
   

 
The total reserves for environmental remediation reflect Ashland’s estimates of the most likely costs that will be incurred over an extended period to remediate identified conditions for which the costs are reasonably estimable, without regard to any third-party recoveries.  Engineering studies, probability techniques, historical experience and other factors are used to identify and evaluate remediation alternatives and their related costs in determining the estimated reserves for environmental remediation.  Ashland regularly adjusts its reserves as environmental remediation continues.  Ashland has estimated the value of its probable insurance recoveries associated with its environmental reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage.  At June 30, 2009, September 30, 2008 and June 30, 2008, Ashland’s recorded receivable for these probable insurance recoveries was $36 million, $40 million and $42 million, respectively.  Environmental remediation expense is included within the selling, general and administrative expense caption of the Statements of Consolidated Income and on an aggregate basis amounted to $14 million and $10 million for the nine months ended June 30, 2009 and 2008, respectively.  Environmental remediation expense, net of receivable activity, was $12 million and $6 million for the nine months ended June 30, 2009 and 2008, respectively.
 
Environmental remediation reserves are subject to numerous inherent uncertainties that affect Ashland’s ability to estimate its share of the costs.  Such uncertainties involve the nature and extent of contamination at each site, the extent of required cleanup efforts under existing environmental regulations, widely varying costs of alternate cleanup methods, changes in environmental regulations, the potential effect of continuing improvements in remediation technology, and the number and financial strength of other potentially responsible parties at multiparty sites.  Although it is not possible to predict with certainty the ultimate costs of environmental remediation, Ashland currently estimates that the upper end of the reasonably possible range of future costs for identified sites could be as high as approximately $350 million, which includes the Hercules sites.  No individual remediation location is material, as the largest reserve for any site is less than 10% of the remediation reserve.
 
Other legal proceedings and claims
 
During the June quarter, Ashland Consumer Markets announced an engine guarantee associated with its Valvoline ® product line.  Consumers are beginning to register their vehicles to qualify for the guarantee.

 
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


 
NOTE O – LITIGATION, CLAIMS AND CONTINGENCIES (continued)
 


Ashland has established an estimation methodology for quantifying the future potential reserves related to this guarantee program.  As of June 30, 2009, the reserve associated with this guarantee was not significant.
 
In addition to the matters described above, there are other various claims, lawsuits and administrative proceedings pending or threatened against Ashland and its current and former subsidiaries.  Such actions are with respect to commercial matters, product liability, toxic tort liability, and other environmental matters, which seek remedies or damages, some of which are for substantial amounts.  While these actions are being contested, their outcome is not predictable.

NOTE P – SEGMENT INFORMATION
 
Following the Hercules acquisition, Ashland’s businesses are managed along five industry segments:  Functional Ingredients, Water Technologies, Performance Materials, Consumer Markets and Distribution.  For additional information see Note A.
 
Functional Ingredients provides specialty additives and functional ingredients that manage the physical properties of both aqueous and nonaqueous systems.  The majority of Functional Ingredients’ products are derived from renewable and natural raw materials.
 
Water Technologies supplies specialty chemicals to the pulp and paper, industrial and institutional, mining, municipal and marine industries.  Water Technologies’ functional, process and water management chemistries are used to improve operational efficiencies, to enhance product quality, to protect plant assets, and to ensure environmental compliance.
 
Performance Materials is a worldwide manufacturer and supplier of specialty chemicals and customized services to the building and construction, packaging and converting, transportation, marine and metal casting industries.  Performance Materials is a technology leader in metal casting consumables and design services; unsaturated polyester and vinyl ester resins and gelcoats; and high-performance adhesives and specialty resins.
 
Consumer Markets is a marketer and supplier of premium-branded automotive and commercial oils, automotive chemicals, automotive appearance products and automotive services, with sales in more than 100 countries under the trademark Valvoline ® .  The Valvoline ® trademark was federally registered in 1873 and is the oldest trademark for lubricating oil in the United States.  Consumer Markets is also engaged in the “fast oil change” business through owned and franchised service centers operating under the Valvoline Instant Oil Change ® name.
 
Distribution distributes chemicals, plastics and composite raw materials in North America and plastics in Europe and China.  Distribution also provides environmental services in North America.  Deliveries are made in North America through a network of owned or leased facilities, third-party warehouses, rail terminals and tank terminals and locations that perform contract packaging activities for Distribution.  Distribution of thermoplastic resins in Europe is conducted primarily through third-party warehouses.
 
The following table presents for each segment the sales and operating revenue and operating income for the three and nine months ended June 30, 2009 and 2008, and total assets as of June 30, 2009 and 2008, and September 30, 2008.  Results of Ashland’s operating segments are presented based on its management structure and accounting practices.  The structure and practices are specific to Ashland; therefore, the financial results of Ashland’s business segments are not necessarily comparable with similar information for other comparable companies.  Ashland refines its expense allocation methodologies to the operating segments from time to time as internal accounting practices are improved, more refined information becomes available and businesses change.  Revisions to Ashland’s methodologies that are deemed insignificant are applied on a prospective basis.  During fiscal 2009, Ashland began fully allocating significant corporate costs, except for certain significant company-wide restructuring activities, such as the current restructuring

 
34

 
 
 
 
   


ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


 
NOTE P – SEGMENT INFORMATION (continued)
 

plan related to the Hercules acquisition described in Note C, and other costs or adjustments that relate to former businesses that Ashland no longer operates.

 
                             
     
Three months ended
   
Nine months ended
   
     
June 30
   
June 30
   
 
(In millions - unaudited)
 
2009
   
2008
   
2009
   
2008
   
 
SALES AND OPERATING REVENUES
                         
 
Functional Ingredients
  $ 233     $ -     $ 575     $ -    
 
Water Technologies
    436       244       1,187       667    
 
Performance Materials
    256       425       839       1,194    
 
Consumer Markets
    441       428       1,236       1,209    
 
Distribution
    698       1,151       2,249       3,223    
 
Intersegment sales (a)
    (27 )     (47 )     (93 )     (127 )  
      $ 2,037     $ 2,201     $ 5,993     $ 6,166    
 
OPERATING INCOME (LOSS)
                                 
 
Functional Ingredients
  $ 24     $ -     $ 13     $ -    
 
Water Technologies
    31       12       38       16    
 
Performance Materials
    (5 )     19       6       50    
 
Consumer Markets
    95       26       180       70    
 
Distribution
    3       20       44       39    
 
Unallocated and other
    4       10       (24 )     10    
      $ 152     $ 87     $ 257     $ 185    
                                     
                                     
  (a) Intersegment sales are accounted for at prices that approximate market value.  
       
 
                                     
                                     
             
June 30
   
September 30
   
June 30
   
 
(In millions - unaudited)
            2009       2008       2008    
 
TOTAL ASSETS
                                 
 
Functional Ingredients
          $ 2,965     $ -     $ -    
 
Water Technologies
            1,987       495       531    
 
Performance Materials
            908       1,080       1,130    
 
Consumer Markets
            755       750       745    
 
Distribution
            733       1,090       1,160    
 
Unallocated and other
            1,817       2,356       2,278    
              $ 9,165     $ 5,771     $ 5,844    
                                     
 
 
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES


 
FORWARD-LOOKING STATEMENTS
 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These forward-looking statements are based upon a number of assumptions, including those mentioned within this report.  Performance estimates are also based upon internal forecasts and analyses of current and future market conditions and trends; management plans and strategies; operating efficiencies and economic conditions, such as prices, supply and demand, and cost of raw materials; legal proceedings and claims (including environmental and asbestos matters); and weather.  These risks and uncertainties may cause actual operating results to differ materially from those stated, projected or implied.  Other risks and uncertainties include the possibility that the benefits anticipated from Ashland’s acquisition of Hercules will not be fully realized; Ashland’s substantial indebtedness may impair its financial condition; the restrictive covenants under the debt instruments may hinder the successful operation of Ashland’s business; future cash flow may be insufficient to repay the debt; and other risks that are described in filings made by Ashland with the Securities and Exchange Commission (the “SEC”).  Although Ashland believes its expectations are based on reasonable assumptions, it cannot assure the expectations reflected herein will be achieved.  This forward-looking information may prove to be inaccurate and actual results may differ significantly from those anticipated if one or more of the underlying assumptions or expectations proves to be inaccurate or is unrealized or if other unexpected conditions or events occur.  Other factors, uncertainties and risks affecting Ashland are contained in Ashland’s periodic filings made with the SEC, including its Form 10-K for the fiscal year ended September 30, 2008 and Form 10-Q for the quarters ended December 31, 2008 and March 31, 2009, which are available on Ashland’s Investor Relations website at http://investor.ashland.com or the SEC’s website at www.sec.gov.  Ashland undertakes no obligation to subsequently update or revise the forward-looking statements made in this report to reflect events or circumstances after the date of this report.
 
 

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 


The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements herein.

BUSINESS OVERVIEW
 
Ashland profile
 
Ashland is a global specialty chemicals company that provides products, services and solutions that meet customer needs throughout a variety of industries.  With approximately 15,000 employees worldwide, Ashland serves customers in more than 100 countries.
 
During the past several years, Ashland has been focused on the objective to create a dynamic, global specialty chemicals company.  In that process, Ashland has divested noncore businesses, redesigned business models, and acquired businesses in growth markets like water and adhesives to enhance Ashland’s specialty chemicals offerings.  Ashland’s acquisition of Hercules Incorporated (Hercules), in November 2008, propels the combined new company to a global leadership position with expanded capabilities and promising growth potential in specialty additives and functional ingredients, paper and water technologies, and specialty resins.
 
Sales and operating revenues (revenues) by region expressed as a percentage of total consolidated revenue was as follows:
 
                       
     
Three months ended
 
Nine months ended
 
     
June 30
 
June 30
 
 
Revenues by Geography (a)
   
2009
 
2008
 
2009
 
2008
 
 
North America
   
66%
 
69%
 
69%
 
69%
 
 
Europe
   
21%
 
22%
 
20%
 
22%
 
 
Asia Pacific
   
9%
 
6%
 
7%
 
6%
 
 
Latin America & other
   
4%
 
3%
 
4%
 
3%
 
       
100%
 
100%
 
100%
 
100%
 
                       
 
  (a) 
Revenues from the acquired operations of Hercules are included herein from November 14, 2008 through June 30, 2009.
 
 
Business segments
 

As discussed above, Ashland completed the acquisition of Hercules in November 2008.  Following the acquisition, Ashland’s reporting structure, incorporating the former Hercules businesses, is now composed of five reporting segments:  Ashland Aqualon Functional Ingredients (Functional Ingredients), previously Hercules’ Aqualon Group, Ashland Hercules Water Technologies (Water Technologies), which includes Hercules’ Paper Technologies and Ventures segment as well as Ashland’s legacy Water Technologies segment, Ashland Performance Materials (Performance Materials), Ashland Consumer Markets (Consumer Markets), previously Ashland’s Valvoline   segment, and Ashland Distribution (Distribution).  Functional Ingredients is a manufacturer and supplier of specialty additives and functional ingredients derived from renewable resources that are designed to manage the properties of water-based systems.  The restructured Water Technologies business is a global supplier of functional and process chemicals for the paper industry in addition to water treatment chemicals.

 
 
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 


The contribution to revenue by each business segment expressed as a percentage of total consolidated revenue was as follows:
 
                       
     
Three months ended
 
Nine months ended
 
     
June 30
 
June 30
 
 
Revenues by Business Segment (a)
   
2009
 
2008
 
2009
 
2008
 
 
Functional Ingredients
   
11%
 
n/a
 
9%
 
n/a
 
 
Water Technologies
   
21%
 
11%
 
20%
 
11%
 
 
Performance Materials
   
13%
 
19%
 
14%
 
19%
 
 
Consumer Markets
   
21%
 
19%
 
20%
 
19%
 
 
Distribution
   
34%
 
51%
 
37%
 
51%
 
       
100%
 
100%
 
100%
 
100%
 
                       
 
 
 
(a)
Revenues from the acquired operations of Hercules are included herein as of November 14, 2008, through June 30, 2009.
 

KEY FISCAL 2009 DEVELOPMENTS

 
During fiscal 2009, the following operational decisions and economic developments had an impact on Ashland’s current and future cash flows, results of operations and financial position.
 
Hercules acquisition
 
Ashland’s completion of the Hercules acquisition in November 2008 was a significant step in achieving Ashland’s objective to create a leading, global specialty chemicals company.  The new combined company comprises a core of three specialty chemical businesses: specialty additives and functional ingredients, paper and water technologies, and specialty resins, which will drive Ashland both strategically and financially.  This acquisition positions Ashland to deliver more stable and predictable earnings, generate stronger cash flows and gain access to higher growth markets worldwide.
 
The transaction was valued at $2,594 million and included $786 million of debt assumed in the acquisition.  As part of the financing arrangement for the transaction, Ashland borrowed $2,300 million, which included $100 million drawn on the $400 million revolving credit facility, a $400 million term loan A facility, an $850 million term loan B facility, a $200 million accounts receivable securitization facility and a $750 million bridge loan that was repaid primarily with the issuance of $650 million senior unsecured bonds in May 2009, and retained $205 million in existing debt.
 
As a result of the financing and subsequent debt incurred to complete the Hercules acquisition, Standard & Poor’s downgraded Ashland’s corporate credit rating to BB- and Moody’s Investor Services downgraded Ashland’s corporate credit rating to Ba2.  In addition, Ashland is now subjected to certain restrictions from various debt covenants.  These covenants include certain affirmative covenants such as various internal certifications, maintenance of property, preferential security interest in acquired property, restriction on future dividend payments and applicable insurance coverage as well as negative covenants that include financial covenant restrictions associated with leverage and fixed charge coverage ratios and total net worth and capital expenditure levels.  As a result of these new covenant restrictions, Ashland’s near-term priorities are to pay down debt by focusing on generating cash and savings from:  increased profitability from sales; reductions in operating expenses, working capital, capital expenditures and dividends; and the sales of non-strategic assets, primarily business divestitures and auction rate securities.
 
Drew Marine divestiture
 
In June 2009, Ashland signed a definitive agreement to sell its global marine services business known as Drew Marine, a business unit of Water Technologies, to J.F. Lehman & Co. in a transaction valued pretax at approximately $120 million.  This sale reflects Ashland’s strategy to strengthen its core specialty chemicals businesses while reducing Ashland’s investment in non-core or non-strategic businesses.  The Drew Marine business is a recognized global leader in providing technical solutions, high value products and services to
 
 
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
the global marine industry, including chemicals and testing equipment, water treatment, tank cleaners and corrosion inhibitors, sealing and welding products, refrigerants and refrigeration services, engineered systems and products, fuel management programs, and fire safety and rescue products and services.  The transaction is expected to close during the fourth quarter.
 
Economic environment
 
Ashland’s financial performance in fiscal 2009 has continued to be hindered by a significant decline in demand within the markets it conducts business, a direct result of continued weakness in the global economy, especially within North America and Europe.  Ashland has experienced significant volume declines of approximately 10% to 40% across all of its business segments during fiscal 2009.  Despite this pressure, Ashland was able to manage pricing and reduce costs, resulting in an overall improved gross profit margin.  This is particularly evident for Consumer Markets, where the gross profit as a percent of sales increased significantly during the three and nine months ended June 30, 2009, compared to the same periods of the prior year.
 
Cost-structure efficiency programs
 
As a result of the Hercules acquisition, the related financing agreements and current global economic environment, Ashland is implementing an organizational restructuring designed to integrate operational processes and streamline various resource groups and functions to produce greater efficiencies and reduce the overall cost structure.
 
Ashland is targeting approximately $390 million of run rate cost reductions, compared with a base line of April 1, 2008, with over $250 million in actual savings (including one-time savings) expected to be realized during the current fiscal year within the Statement of Consolidated Income.  Ashland has made significant progress on its cost reduction initiatives and, as of June 30, 2009, total run rate cost savings were $287 million.
 
Actions announced in January 2009 to immediately reduce costs includes:
 
·  
freezing wage and salaries globally for 2009, except where legally mandated otherwise, with estimated savings of approximately $25 million;
 
 
·  
implementing a two-week furlough program for most U.S. and Canadian based employees, that was completed in June of 2009, and several other job and benefits related actions.  Furlough program savings during the third quarter were $18 million with a total benefit of approximately $25 million for the program year to date; and
 
 
·  
carrying out other cost reduction measures previously announced as $30 million that has been expanded to total nearly $100 million globally, including various plant and operational efficiencies and a significant reduction in travel and entertainment expenses.
 
 
In July 2009 Ashland announced that it is targeting an additional $100 million of cost reductions.  Specifically, a $27 million cost reduction program within Distribution was announced to realign the cost structure of the business.  The additional $73 million will come from continued efforts to resize Ashland to match the current market environment.
 
Previously announced cost reduction actions include:
 
·  
an $85 million cost structure efficiency initiative, essentially all of which has already been achieved, primarily within the Performance Materials and Water Technologies businesses; and
 
 
·  
$130 million of synergies resulting from the Hercules acquisition by the end of fiscal 2010, of which $105 million in total run rate cost savings have been realized.
 
 
The cumulative effect of these restructuring activities has resulted in the elimination of approximately 1,300 employee positions and six facility closings through the end of the June 2009 quarter and in total is currently expected to reduce the global workforce (excluding Valvoline retail employees) by a total of approximately 1,800, or 12% by the end of fiscal 2010.  As of June 30, 2009, the total restructuring reserve incurred under


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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
the cost-structure efficiency programs was $73 million, of which $52 million for the nine month period ended June 30, 2009 has been charged as an expense within the Statement of Consolidated Income, consisting of $39 million classified within the selling, general and administrative expense caption and $13 million of accelerated depreciation charged to the cost of sales and operating expenses caption.  The remaining reserve of $21 million related to severance associated with Hercules personnel and various plant closing costs, which qualified for purchase method of accounting in accordance with FAS 141, and had no effect on the Statement of Consolidated Income.   Additional costs from reductions in resources or facilities may occur in future periods; which could include charges related to additional severance, plant closings, reassessed pension plan valuations or other items.  Ashland anticipates completing these restructuring activities during fiscal year 2010.

RESULTS OF OPERATIONS – CONSOLIDATED REVIEW
 
Current Quarter – Ashland recorded net income of $50 million, or $.66 per diluted earnings per share, for the three months ended June 30, 2009 as compared to net income of $72 million, or $1.13 per diluted earnings per share, for the three months ended June 30, 2008.  The current quarter included a loss from discontinued operations in the amount of $1 million, or $.02 per diluted earnings per share, as compared to income of $6 million, or $.10 per diluted earnings per share, for the prior quarter.  Both periods’ discontinued operations results included net favorable adjustments to the asbestos receivable for insurance recoveries as a result of Ashland’s ongoing assessment of these matters; however, the current quarter’s benefit was more than offset by tax adjustments associated with the previous sale of former Ashland divisions.  Operating income was $152 million for the current quarter as compared to $87 million of operating income for the prior quarter.  Operating income for the current quarter as compared to the prior quarter included an additional $37 million of operating income within the acquired businesses of Hercules (on November 13, 2008) and Air Products (on June 30, 2008).  Certain items during the current quarter impacting operating income include $16 million for severance, asset impairment and accelerated depreciation charges for the ongoing integration and reorganization from the Hercules acquisition and other cost reduction programs related to the global economic downturn.
 
Ashland incurred net interest and other financing expense of $62 million for the June 2009 quarter, which includes an additional $10 million of accelerated amortization for debt issuance costs associated with the bridge loan facility payoff in May of 2009, as compared to net interest and other financing income of $5 million in the prior quarter.  The current quarter increase in expense relates to interest attributable to the debt issued in conjunction with the financing of the Hercules acquisition.  Ashland’s effective tax rate was 44.3% for the three months ended June 30, 2009 and included an unfavorable $8 million tax judgment in a foreign jurisdiction as compared to 29.4% for the prior quarter.  The current quarter’s income tax expense was also significantly affected by an unfavorable adjustment related to a projected shift to more U.S. sourced earnings for the year.
 
Year-to-Date – Ashland recorded a net loss of $22 million, or $.30 per diluted earnings per share, for the nine months ended June 30, 2009 as compared to net income of $177 million, or $2.78 per diluted earnings per share, for the nine months ended June 30, 2008.  The current period included a loss from discontinued operations in the amount of $2 million, or $.03 per diluted earnings per share, for the nine months ended June 30, 2009 as compared to income of $1 million, or $.01 per diluted earnings per share, for the nine months ended June 30, 2008.  Both periods’ discontinued operations results included favorable net adjustments to the asbestos receivable for insurance recoveries as a result of Ashland’s ongoing assessment of these matters which were both offset by tax adjustments associated with the previous sales of former Ashland divisions.  Loss from continuing operations for the nine months ended June 30, 2009 was $20 million, as compared to income from continuing operations of $176 million in the nine months ended June 30, 2008.  During the current period, Ashland incurred a $54 million loss related to cross-currency swaps and a $32 million loss on auction rate securities, which were both reported within the other expense caption of the Statement of Consolidated Income.  In addition, Ashland incurred net interest and other


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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
financing expense of $144 million during the current period as compared to net interest and other financing income of $26 million in the prior period, with the current year expense due to interest attributable to the debt issued in conjunction with the financing of the Hercules acquisition.  The prior period also included a one-time $23 million gain from the partial resolution of certain tax related matters with Marathon Oil Corporation related to the MAP Transaction, which was reported in the gain on the MAP Transaction caption of the Statement of Consolidated Income.  Income taxes were affected by the other expense items previously identified that were not deductible for income tax purposes as well as the negative effect of certain other tax items, which increased Ashland’s net loss by $47 million compared to the prior period’s effective tax rate of 24.7%.
 
Operating income for the nine months ended June 30, 2009 was $257 million, an increase of $72 million compared to the $185 million in operating income earned during the nine months ended June 30, 2008.  The acquisition of Hercules businesses increased operating income by approximately $15 million for the nine months ended June 30, 2009, despite $47 million in nonrecurring purchase accounting adjustments related to inventory and in-process research and development.  In addition, Ashland incurred $52 million for severance charges for the ongoing integration and reorganization from the Hercules acquisition and other cost reduction programs.  These key items, along with significant volume declines across all business segments, hindered operating results as compared to the prior period, but were more than offset by aggressive cost reductions, lower raw materials costs and the affects of pricing improvements, particularly within the Consumer Markets segment.
 
A comparative analysis of the Statement of Consolidated Income by caption is provided as follows for the three and nine months ended June 30, 2009 and 2008.
 
                                         
      Three months      Nine months    
 
(In millions)
 
2009
   
2008
   
Change
   
2009
   
2008
   
Change
   
 
Sales and operating revenues
  $ 2,037     $ 2,201     $ (164 )   $ 5,993     $ 6,166     $ (173 )  
                                                     

 
Current Quarter – Revenues for the three months ended June 30, 2009 decreased $164 million, or 7%, compared to the June 2008 quarter primarily due to significant volume declines of $461 million, or 21%, as operating segments, other than Consumer Markets, reported volume declines anywhere from 15% to 40% as a result of the global economic slowdown, particularly within the automotive, construction and recreational marine industries.  Unfavorable currency exchange rates decreased revenue $83 million, or 4%, while price and mix decreased revenue by an additional $128 million, or 5%.  These declines were partially offset by a $483 million, or 22%, increase in revenues related to the acquired Hercules businesses recorded during the current quarter.  Revenues from the acquisition of Air Products’ pressure sensitive adhesive business and atmospheric emulsions business (Air Products) on June 30, 2008 contributed an additional $25 million, or 1%, in the current quarter.
 
Year-to-Date – Revenues for the nine months ended June 30, 2009 decreased $173 million compared to the prior period.  The current period included $1,193 million, or 19%, in additional revenues related to the acquired Hercules businesses.  Significant volume declines decreased revenue by $1,255 million, or 20%, with unfavorable currency exchange rates decreasing revenue by $236 million, or 4%, compared to the prior period.  These declines were partially offset by price and mix increases of $43 million, or 1%, across almost all operating segments as a result of successful price management throughout the current period.  Revenues from the acquisition of Air Products contributed an additional $82 million, or 1%, in the current period.
 
                                         
      Three months      Nine months    
 
(In millions)
 
2009
   
2008
   
Change
   
2009
   
2008
   
Change
   
 
Cost of sales and operating expenses
  $ 1,544     $ 1,844     $ (300 )   $ 4,716     $ 5,158     $ (442 )  
 
Gross profit as a percent of sales
    24.2 %      16.2 %              21.3 %      16.3 %          
                                                     
 
 
 

 
 
 
 
 
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
 
Current Quarter – Cost of sales and operating expenses (cost of sales) for the June 2009 quarter decreased $300 million, or 16%, compared to the June 2008 quarter as increases related to the acquisitions of Hercules and Air Products were more than offset by significant declines in volume and raw material costs and a positive currency exchange impact in the current quarter as compared to the prior quarter.  The acquisitions of Hercules and Air Products represented a $368 million, or 20%, increase in cost of sales for the three months ended June 30, 2009, with change in product mix adding an additional $4 million.  Significant volume declines reduced cost of sales by $371 million, or 20%, while currency exchange, due to the strengthening of the U.S. dollar as compared to the prior quarter, reduced cost of sales by $62 million, or 3%.  Declining raw material costs decreased cost of sales by $239 million, or 13%, compared to the prior quarter.  Gross profit as a percent of sales (gross profit margin) increased by 8.0 percentage points compared to the prior quarter as a result of the acquisition of higher margin businesses, the mix of revenue by operating segment and a realization of improved gross profit margins, particularly within Consumer Markets.
 
Year-to-Date – Cost of sales for the nine months ended June 30, 2009 decreased $442 million, or 9%, compared to the prior period as increases related to the acquisitions of Hercules and Air Products were more than offset by significant declines in volume and a positive currency exchange impact in the current period as compared to the prior period.  The acquisitions of Hercules and Air Products represented a $965 million, or 18%, increase in cost of sales for the current period, which includes a nonrecurring charge of $37 million associated with the inventory fair value adjustment of Hercules’ acquired inventory, with change in product mix adding an additional $12 million.  Significant volume declines reduced cost of sales by $1,003 million, or 19%, while currency exchange, due to the strengthening of the U.S. dollar as compared to the prior period, reduced cost of sales by $183 million, or 4%.  Decreases in raw material costs contributed an additional $233 million, or 4%, decline in cost of sales.  Gross profit margin increased by 5.0 percentage points compared to the prior period as a result of the acquisition of higher margin businesses, the mix of revenue by operating segment and a realization of improved gross profit margins, particularly within Consumer Markets.
 
                                         
     
Three months
   
Nine months
   
 
(In millions)
 
2009
   
2008
   
Change
   
2009
   
2008
   
Change
   
 
Selling, general and administrative
                                 
 
expenses
  $ 353     $ 283     $ 70     $ 1,049     $ 856     $ 193    
 
As a % of revenues
    17.3 %     12.9 %             17.5 %     13.9 %          

 

Current Quarter – Selling, general and administrative expenses for the June 2009 quarter increased 25% compared to the June 2008 quarter with selling, general and administrative expenses as a percent of revenue increasing 4.4 percentage points.  Nonrecurring items impacting the comparability of the June 2009 quarter compared to the June 2008 quarter included a $4 million charge for severance from various cost reduction programs.  The acquisitions of Hercules and Air Products added an additional $101 million in selling, general and administrative expenses (excluding the nonrecurring charges) as compared to the prior quarter.  Currency exchange effects reduced selling, general and administrative expenses by $13 million, while Ashland’s implemented cost reduction initiatives and other items reduced these same expenses by $22 million from the prior year June quarter.  For further information on cost cutting initiatives see the “Key Fiscal 2009 Developments” discussion within Management’s Discussion and Analysis as well as Note C in the Notes to Condensed Consolidated Financial Statements.
 
Year-to-Date – Selling, general and administrative expenses for the nine months ended June 30, 2009 increased 23% compared to the nine months ended June 30, 2008, with selling, general and administrative expenses as a percent of revenue increasing 3.6 percentage points.  Expenses impacting the comparability of the current period as compared to the prior period include a charge of $10 million related to the purchased in-process research and development projects at Hercules as of the acquisition date and $39 million in severance and restructuring charges, primarily due to the ongoing integration and reorganization from the Hercules acquisition.  These charges were partially offset by a currency gain on an intracompany loan of $5 million in 2009, while 2008 included a $5 million charge for costs related to the suspension of a joint venture project.  The acquisitions of Hercules and Air Products added an additional $273 million in selling,

 
 
 
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
 
general and administrative expenses (excluding the nonrecurring charges) as compared to the prior period.  Currency exchange effects reduced selling, general and administrative expenses by $39 million, while Ashland’s implemented cost reduction initiatives and other items reduced these same expenses by $80 million from the prior period.  For further information on cost cutting initiatives see the “Key Fiscal 2009 Developments” discussion within Management’s Discussion and Analysis as well as Note C in the Notes to Condensed Consolidated Financial Statements.
 
                                         
     
Three months
   
Nine months
   
 
(In millions)
 
2009
   
2008
   
Change
   
2009
   
2008
   
Change
   
 
Equity and other income
                                     
 
Equity income
  $ 2     $ 6     $ (4 )   $ 9     $ 16     $ (7 )  
 
Other income
    10       7       3       20       17       3    
      $ 12     $ 13     $ (1 )   $ 29     $ 33     $ (4 )  
 


Current Quarter – Total equity and other income decreased $1 million during the June 2009 quarter compared to the prior year same quarter.  The decrease in the current quarter primarily relates to decreased equity income from Performance Materials’ joint ventures impacted by the current global ec onomic downturn.
 
Year-to-Date – Total equity and other income decreased $4 million during the nine months ended June 30, 2009 compared to the prior period.  The decrease in the current period primarily relates to decreased equity income of joint ventures associated with Performance Materials as discussed above.

 
                                         
      Three months     Nine months    
 
(In millions)
 
2009
   
2008
   
Change
   
2009
   
2008
   
Change
   
 
Gain on the MAP Transaction
  $ 1     $ 1     $ -     $ 2     $ 23     $ (21 )  
 
 
 
Current Quarter and Year-to-Date “MAP Transaction” refers to the June 30, 2005 transfer of Ashland’s 38% interest in Marathon Ashland Petroleum LLC (MAP) and two other businesses to Marathon Oil Corporation.  The gain in the prior year nine month period relates to the settlement with Marathon of certain tax related matters associated with the MAP Transaction, which resulted in a $23 million gain.  The income recorded for the other periods primarily relate to an increase in the recorded receivable from Marathon for the estimated present value of future tax deductions related primarily to environmental and other postretirement obligations.

 
 
                                         
      Three months     Nine months    
 
(In millions)
 
2009
   
2008
   
Change
   
2009
   
2008
   
Change
   
 
Net interest and other financing
                                           
    (expense) income                                                  
    Interest income   $ 4     9     (5   16     35     (19  
    Interest expense     (63     (3      (60      (153      (7      (146  
    Other financing costs      (3     (1      (2      (7      (2      (5  
      (62    5     $  (67   $  (144   $ 26     $  (170  
 
 
 

 
 
Current Quarter The increase in interest expense of $67 million compared to the prior quarter primarily represents interest charges associated with the $2,300 million debt drawn upon the closing of the Hercules acquisition.  Interest expense for the current quarter includes an additional $10 million of accelerated amortization for deferred debt issuance costs associated with the bridge loan payoff in May of 2009.  In conjunction with the acquisition, interest income also declined as the remaining funding to complete the merger was paid from Ashland’s existing liquid investments.  For further information on this transaction see the “Liquidity” discussion within Management’s Discussion and Analysis as well as Note C in the Notes to Condensed Consolidated Financial Statements.  More information on Ashland debt, including rates paid and scheduled maturities can be found in Note F in the Notes to Condensed Consolidated Financial Statements.
 
 

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
Year-to-Date – The increase in interest expense of $170 million from the prior period primarily represents interest charges associated with the $2,300 million debt drawn upon the closing, on November 13, 2008, of the Hercules acquisition which also increased other financing costs as compared to the prior period.  Interest expense for the current period includes an additional $10 million of accelerated amortization for deferred debt issuance costs associated with the bridge loan payoff in May of 2009.  In conjunction with the acquisition, interest income also declined as the remaining funding to complete the merger was paid from Ashland’s existing liquid investments.
 
                                         
     
Three months
   
Nine months
   
 
(In millions)
 
2009
   
2008
   
Change
   
2009
   
2008
   
Change
   
 
Other expenses
                                     
 
Loss on currency swaps
  $ -     $ -     $ -     $ 54     $ -     $ 54    
 
Loss on auction rate securities
    -       -       -       32       -       32    
      $ -     $ -     $ -     $ 86     $ -     $ 86    

 
Year-to-Date – The other expenses caption included two significant one-time items, both incurred in the December 2008 quarter of fiscal 2009.  The first was a $54 million loss on currency swaps related to the Hercules acquisition which was a hedge against Hercules’ open currency swap positions prior to the acquisition.  The second was a $32 million charge on auction rate securities.  For further information on auction rate securities see the “Liquidity” discussion within Management’s Discussion and Analysis as well as Note E in the Notes to Condensed Consolidated Financial Statements.
 
                                         
      Three months      Nine months  
 
(In millions)
 
2009
   
2008
   
Change
   
2009
   
2008
   
Change
   
 
Income tax expense
  $ 40     $ 27     $ 13     $ 49     $ 58     $ (9 )  
 
Effective tax rate
    44.3 %     29.4 %             168.5 %     24.7 %          
 
Current Quarter  –  The effective tax rate of 44.3% for the current quarter includes an unfavorable $8 million tax judgment in a foreign jurisdiction.  In addition, the current quarter also reflects an adjustment to income tax expense related to a projected shift to more U.S. sourced earnings for the year.  Ashland currently expects the effective tax rate for the September 2009 quarter to be 27%, which includes certain net operating losses that will not be deductible.
 
Year-to-Date – The overall effective tax rate was significantly increased during the first nine months of fiscal 2009 due to several key factors.  Using a 35% statutory federal tax rate applied to the loss and income from continuing operations for the nine months ended June 30, 2009 and 2008, income taxes would have been an expense of $10 million in 2009 and $82 million in 2008.  Significant discrete items reducing the benefit for fiscal 2009 included income tax on repatriated foreign earnings of $14 million, a $9 million valuation allowance on auction rate security losses and increases in FIN 48 reserves of $19 million.  In addition, the current year was negatively affected by nondeductible life insurance losses of $5 million.  See Note J in the Notes to Condensed Consolidated Financial Statements for further information on adjustments during the current and prior year.
 
 
 


 

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
 
 
                                         
      Three months      Nine months  
 
(In millions)
 
2009
   
2008
   
Change
   
2009
   
2008
   
Change
   
 
Income from discontinued operations
                                               
 
(net of tax)
                                                 
 
      Asbestos-related litigation
                                                 
 
 
                reserves and expenses $ 3     $ 7     $ (4 )   $ 3     $ 7     $ (4 )  
                                                   
 
Loss on disposal of discontinued
                                               
       o perations (net of tax)                                                
 
          APAC loss on sale of operations
  (1 )      (1 )      -       (2 )     (6 )     4    
 
         Electronic Chemicals loss on
                                               
                sale of operations   (3 )     -        (3 )     (3 )     -       (3 )  
 
Total income (loss) from
                                               
      discontinued operations (net of tax) $ (1 )   $ 6     $ (7 )   $ (2 )   $ 1     $ (3 )  
 

Current Quarter – Loss from discontinued operations was $1 million for the three months ended June 30, 2009 as compared to income of $6 million for the three months ended June 30, 2008.  Income for both periods was primarily due to favorable net adjustments of $3 million and $7 million, respectively, to the asbestos receivable for insurance recoveries as a result of Ashland’s ongoing assessment of these matters.  This income for both periods was offset by post-closing tax adjustments to the gain on the sale of APAC and environmental adjustments to the gain on the sale of Electronic Chemicals.  For further information on results from discontinued operations see Note D in the Notes to Condensed Consolidated Financial Statements.
 
Year-to-Date – Loss from discontinued operations was $2 million for the nine months ended June 30, 2009 as compared to income $1 million for the nine months ended June 30, 2008.  Income for both periods was primarily due to favorable net adjustments of $3 million and $7 million, respectively, to the asbestos receivable for insurance recoveries as a result of Ashland’s ongoing assessment of these matters.  This income for both periods was offset by post-closing tax adjustments to the gain on the sale of APAC and environmental adjustments to the gain on the sale of Electronic Chemicals.
 
RESULTS OF OPERATIONS –BUSINESS SEGMENTS
 

Results of Ashland’s business segments are presented based on its management structure and accounting practices.  The structure and practices are specific to Ashland; therefore, the financial results of Ashland’s business segments are not necessarily comparable with similar information for other comparable companies.  Ashland refines its expense allocation methodologies to the operating segments from time to time as internal accounting practices are improved, more refined information becomes available and businesses change.  Revisions to Ashland’s methodologies that are deemed insignificant are applied on a prospective basis.  During fiscal 2009, Ashland began fully allocating significant corporate costs, except for certain significant company wide restructuring activities, such as the current restructuring plan related to the Hercules acquisition described in Note C, and other costs or adjustments that relate to former businesses that Ashland no longer operates.
 
As previously discussed, Ashland’s businesses are managed along five industry segments:  Functional Ingredients, Water Technologies, Performance Materials, Consumer Markets and Distribution.  For additional information see Notes A and P in the Notes to Condensed Consolidated Financial Statements.
 
The following table shows revenues, operating income and operating information by business segment for the three and nine months ended June 30, 2009 and 2008.


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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
                             
     
Three months ended
   
Nine months ended
   
     
June 30
   
June 30
   
 
(In millions)
 
2009
   
2008
   
2009
   
2008
   
 
Sales and operating revenues
                         
 
Functional Ingredients
  $ 233     $ -     $ 575     $ -    
 
Water Technologies
    436       244       1,187       667    
 
Performance Materials
    256       425       839       1,194    
 
Consumer Markets
    441       428       1,236       1,209    
 
Distribution
    698       1,151       2,249       3,223    
 
Intersegment sales
    (27 )     (47 )     (93 )     (127 )  
      $ 2,037     $ 2,201     $ 5,993     $ 6,166    
 
Operating income (loss)
                                 
 
Functional Ingredients
  $ 24     $ -     $ 13     $ -    
 
Water Technologies
    31       12       38       16    
 
Performance Materials
    (5 )     19       6       50    
 
Consumer Markets
    95       26       180       70    
 
Distribution
    3       20       44       39    
 
Unallocated and other
    4       10       (24 )     10    
      $ 152     $ 87     $ 257     $ 185    
 

                             
                             
     
Three months ended
   
Nine months ended
   
     
June 30
 
June 30
   
 
(In millions)
 
2009
   
2008
   
2009
   
2008
   
 
Operating information
                         
 
Functional Ingredients (a) (b)
                         
 
Sales per shipping day
  $ 3.7     $ -     $ 3.7     $ -    
 
Metric tons sold (thousands)
    41.2       -       112.0       -    
 
Gross profit as a percent of sales
    27.6 %     -       23.1 %     -    
 
Water Technologies (a) (b)
                                 
 
Sales per shipping day
  $ 6.9     $ 3.8     $ 6.3     $ 3.5    
 
Gross profit as a percent of sales
    34.7 %     37.2 %     32.8 %     37.9 %  
 
Performance Materials (a)
                                 
 
Sales per shipping day
  $ 4.1     $ 6.6     $ 4.5     $ 6.3    
 
Pounds sold per shipping day
    3.8       4.9       3.9       4.7    
 
Gross profit as a percent of sales
    16.9 %     17.5 %     17.3 %     17.9 %  
 
Consumer Markets (a)
                                 
 
Lubricant sales (gallons)
    45.7       43.8       116.4       125.7    
 
Premium lubricants (percent of U.S. branded volumes)
    29.0 %     24.9 %     28.5 %     24.6 %  
 
Gross profit as a percent of sales
    37.5 %     23.9 %     30.8 %     24.4 %  
 
Distribution (a)
                                 
 
Sales per shipping day
  $ 11.1     $ 18.0     $ 12.0     $ 17.1    
 
Pounds sold per shipping day
    14.1       19.0       14.6       18.9    
 
Gross profit as a percent of sales (c)
    10.1 %     7.8 %     10.4 %     7.6 %  
                                     
 
  (a)  Sales are defined as sales and operating revenues.  Gross profit as a percent of sales is defined as sales and operating revenues, less cost of sales and operating expenses divided by sales.   
  (b)  Industry segment results from November 14, 2008 forward include operations acquired from Hercules Incorporated.   
  (c) 
Distribution’s gross profit as a percentage of sales for the three months ended June 30, 2009 and 2008 include a LIFO quantity credit of $3 million and $1 million, respectively, and $14 million and $5 million for the nine months ended June 30, 2009 and 2008, respectively. 
 
 

 
 

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
 
As previously discussed, Ashland’s financial performance during the current three and nine months ended June 30, 2009 have been hindered by declining demand, a direct result of continued weakness in the global economy, especially within the North American and European automotive, construction and recreational marine industries.  Volume levels were down across all businesses, with the exception of Consumer Markets in the June 2009 quarter, including operations acquired from Hercules on November 13, 2008, decreasing anywhere from 10% to 40% versus the same three and nine month periods of the prior year.  Despite this pressure Ashland has been implementing pricing process improvements and has aggressively reduced excess capacity over current market demands, which has helped mitigate the effects of the declining volume, as average selling prices are generally higher versus a year ago.  This coupled with reductions in selling, general and administrative expenses from the cost-structure efficiency programs previously described curtailed the effects of the lost volume during the current three and nine months ended period.
 
Functional Ingredients
 
Functional Ingredients provides specialty additives and functional ingredients that manage the physical properties of both aqueous and nonaqueous systems.  The majority of Functional Ingredients’ products are derived from renewable and natural raw materials.
 
Current Quarter – Functional Ingredients, consisting primarily of Hercules’ acquired Aqualon Group, reported operating income of $24 million for the June 2009 quarter.  Revenues for the quarter were $233 million with sales per shipping day of $3.7 million on metric tons sold of 41.2 thousand for the quarter.  Gross profit as a percentage of sales increased 5.2 percentage points to 27.6% on a sequential quarter basis as the March 2009 quarter was negatively impacted by a significant nonrecurring charge of $16 million for an inventory fair value adjustment associated with the Hercules acquisition and a one-time sales transaction to an oilfield chemical supplier in the amount of $17 million.  In addition, the decision to reduce inventory $23 million at below replacement levels during the current quarter negatively impacted gross profit by $7 million, or 3% of sales.  Selling, general and administrative expenses incurred during the quarter were $39 million and represented 17% of sales, a 25% decline from the March 2009 quarter as the furlough program savings and other cost reduction initiatives contributed to the overall cost structure decline.
 
Year-to-Date – Functional Ingredients reported operating income of $13 million for the period ended June 30, 2009 since Ashland’s acquisition of Hercules on November 13, 2008.  Current period significant nonrecurring charges included:  a $30 million inventory fair value adjustment and a $5 million charge for purchased in-process research and development associated with the Hercules acquisition.  Revenues reported were $575 million and included a significant one-time sales transaction to an oilfield chemical supplier in the amount of $17 million, which represented 8% of the product volume for the current period.  Sales per shipping day for the current period were $3.7 million and metric tons sold were 112.0 thousand.  Gross profit margin of 23.1% was negatively impacted by 5.6% due to the significant one-time sales transaction and nonrecurring purchase accounting inventory charge.  Selling, general and administrative expenses incurred during the current period were $119 million and represented 21% of revenues.
 
Water Technologies
 
Water Technologies supplies specialty chemicals to the pulp and paper, industrial and institutional, mining, municipal and marine industries.  Water Technologies’ functional, process and water management chemistries are used to improve operational efficiencies, to enhance product quality, to protect plant assets, and to ensure environmental compliance.
 
As discussed in Note C of Notes to Condensed Consolidated Financial Statements, in June 2009 Ashland signed a definitive agreement to sell its global marine services business known as Drew Marine, a business unit of Water Technologies, to J.F. Lehman & Co. in a transaction valued pre-tax at approximately $120 million.  The Drew Marine business, with annual revenues of approximately $140 million a year, has approximately 325 employees, 28 offices and 98 stocking locations in 47 countries.  The transaction is expected to close during the September 2009 quarter.
 

 


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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
Current Quarter – Water Technologies reported operating income of $31 million during the June 2009 quarter as compared to $12 million reported during the June 2008 quarter.   Significant volume declines related to the global economic downturn and slight decreases in pricing were more than offset by reductions within selling, general and administrative expenses, reductions to costs of goods, improved product mix and the addition of the paper business from the Hercules acquisition.  Revenues increased 79% to $436 million compared to $244 million during the June 2008 quarter, a direct result of the Hercules acquisition, which contributed revenues of $257 million, or 105% combined with a favorable mix of $6 million, or 3%.  The impact of these revenue increases was partially offset by a $50 million, or 20%, decline in volume, a $17 million, or 7%, decline attributable to foreign currency, and unfavorable pricing of $4 million, or 2% as compared to the June 2008 quarter.
 
Gross profit margin decreased 2.5 percentage points to 34.7% for the June 2009 quarter, primarily due to the inclusion of the acquired Hercules Paper Technologies and Ventures business, which has historically been a lower gross profit margin business.  The acquired Hercules business contributed $74 million to gross profit.   Additionally, favorable cost of goods sold, including raw materials, and product mix improvements more than offset unfavorable pricing contributing an additional $13 million to gross profit.  The significant raw material inflation experienced throughout fiscal 2008 continued to moderate during the current quarter and was favorable versus prior year quarter, more than offsetting any price decreases in the period.  These increases in gross profit were partially offset by a $20 million decline in volume and a $7 million decrease attributable to foreign currency.  Selling, general and administrative expenses increased $41 million during the June 2009 quarter primarily due to a $62 million increase from the acquired operations of Hercules, which was partially offset by reduced selling and administrative expense of $16 million, principally related to operational cost savings from restructuring the business subsequent to the Hercules acquisition, and a $5 million reduction attributable to foreign currency.
 
Year-to-Date – Water Technologies reported operating income of $38 million for the current period compared to $16 million reported during the prior period.   Significant volume declines related to the global economic downturn were more than offset by reductions within selling, general and administrative expenses, reductions to costs of goods, improved product mix and pricing, and the addition of the paper business from the Hercules acquisition.   Current period results also included several one-time charges related to the Hercules acquisition that included; a $7 million inventory fair value adjustment recorded within the cost of sales caption, a $5 million charge for purchased in-process research and development recorded within the selling, general and administrative caption and a severance charge of $2 million recorded within the selling, general and administrative caption.   Revenues increased 78% to $1,187 million compared to $667 million, a direct result of the Hercules acquisition, which contributed revenues of $635 million, or 95%.  This increase was partially offset by a $95 million, or 14%, decline in volume and a $41 million, or 6%, decline attributable to foreign currency, while improved pricing and mix contributed an additional $21 million, or 3%, as compared to the prior period.
 
Gross profit margin decreased 5.1 percentage points to 32.8% for the current period, partially due to the $7 million of previously mentioned nonrecurring purchase accounting charges to cost of sales as well as inclusion of the former Hercules Paper Technologies and Ventures business, which has historically been a lower gross profit business.   The acquired Hercules business contributed $169 million to gross profit while price increases, mix improvements and reduced cost of goods sold spending contributed an additional $22 million to gross profit.   Other items affecting the gross profit margin included a $36 million decrease in volume and a $20 million decrease attributable to foreign currency.  Overall raw material inflation was experienced throughout the period, peaking in October with sequential moderation through June; however, this was more than offset by successfully negotiated full service and municipal contracts that recaptured the increased raw material costs during the period.  Selling, general and administrative expenses increased $113 million during the current period, primarily due to a $165 million increase from the acquired operations of Hercules, which included a $5 million nonrecurring charge for purchased in-process research and development.  This increase was partially offset by a $36 million reduction in selling expense, principally

 
   

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MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
 
related to operational cost savings from restructuring the business subsequent to the Hercules acquisition, and a $16 million reduction attributable to foreign currency.
 
Performance Materials
 
Ashland Performance Materials is a worldwide manufacturer and supplier of specialty chemicals and customized services to the building and construction, transportation, marine, metal casting, marine and packaging and converting markets.  It is a technology leader in metal casting consumables and design services; unsaturated polyester and vinyl ester resins and gelcoats; and high-performance adhesives and specialty resins.
 
Current Quarter – Performance Materials reported an operating loss of $5 million during the June 2009 quarter, compared to income of $19 million reported during the June 2008 quarter.  Significant volume declines during the quarter, primarily due to the global economic downturn, and various restructuring costs of $13 million contributed to the loss during the current quarter.  Revenues decreased 40% to $256 million compared to $425 million during the prior quarter.  Decreases in volume of $139 million, or 33%, due to significant weakness in demand in the automotive, construction and recreational marine markets, currency exchange of $28 million, or 7%, and price of $27 million, or 6%, were the primary factors in the decrease in revenue.  These decreases were partially offset by revenues from the acquisition of Air Products in June 2008, which contributed $25 million, or 6%, to the current quarter revenues.  Excluding the effect of the Air Products acquisition in the June 2009 quarter, revenue decreased 46% and volume decreased 36%.
 
Gross profit margin during the June 2009 quarter decreased 0.6 percentage points to 16.9%, partially as a result of accelerated depreciation related to plant closures of $9 million.  Price margin contributed a $12 million increase in gross profit; however, this was not sufficient to overcome the significant volume declines, which resulted in a $41 million decrease in gross profit.  Foreign currency decreased gross profit by $6 million, but was largely offset by gross profit earned from the acquired operations of Air Products, which added $4 million.  Selling, general and administrative expenses decreased $12 million, or 21%, as compared to the prior quarter, primarily due to a $6 million decrease related to various cost saving initiatives and a $6 million decline in reduced corporate allocations and foreign currency.  Equity and other income decreased $5 million during the June 2009 quarter compared to the June 2008 quarter, primarily due to a $3 million charge during the current quarter from a joint venture that closed a significant manufacturing facility.
 
Year-to-Date – Performance Materials reported operating income of $6 million for the current period, an 88% decrease from the $50 million reported during the prior period.  Significant volume declines during the period, primarily due to the global economic downturn, were partially offset by lower selling, general and administrative expenses.  Revenues decreased 30% to $839 million compared to $1,194 million in the prior period.  Decreases in volume of $355 million, or 30%, due to significant weakness in demand in the automotive, construction and recreational marine markets, currency exchange of $71 million, or 6%, and price of $11 million, or 1%, were the primary factors in the decrease in revenue.  These decreases were partially offset by revenues from the acquisition of Air Products which contributed $82 million, or 7%, and to current period revenues.  Excluding the effect of Air Products for the current period, revenue decreased 37%.
 
Gross profit margin during the current period decreased 0.6 percentage points to 17.3%, primarily due to volume declines, which resulted in a $110 million decrease in gross profit, while foreign currency decreased gross profit by $15 million.  However, disciplined price management and aggressive reductions in manufacturing costs mitigated the gross profit margin decline from lost volume as price increases coupled with raw material cost decreases added $44 million to gross profit, which included a $14 million charge for plant closure costs.  The acquisition of Air Products also contributed $13 million to gross profit.  Selling, general and administrative expenses decreased $30 million, or 17%, during the current period as compared to the prior period, primarily due to a $16 million decrease related to various cost saving initiatives and a $12 million decline in reduced corporate allocations.  Equity and other income decreased $6 million during the current period compared to the prior period, primarily due to reduced equity income from various joint

 



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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
ventures impacted by the current global economic conditions as well as a $3 million charge from a joint venture that closed a significant manufacturing facility.
 
Consumer Markets
 
Consumer Markets sells premium packaged automotive lubricants, chemicals, appearance products, antifreeze and filters.  In addition, Consumer Markets is engaged in the “fast oil change” business through outlets operating under the Valvoline Instant Oil Change ® name.
 
Current Quarter – Consumer Markets reported record operating income of $95 million during the June 2009 quarter, nearly quadrupling operating income of $26 million reported during the June 2008 quarter.  Gross profit margin improvement led to Consumer Markets’ record performance as well as successful implementation of various cost saving initiatives within operations and selling, general and administrative costs.  Revenues increased 3% to $441 million compared to $428 million in the prior quarter.  Volumes increased revenue by $9 million, or 2%, as lubricant volume increased 4% to 45.7 million gallons during the current quarter, which was primarily driven by the Do-It-Yourself market channel.  Increases in pricing of $11 million, or 3%, and a change in product mix of more premium lubricants sold during the quarter contributed $6 million, or 1%, compared to the June 2008 quarter, also contributed to the revenue increase.  Currency exchange decreases reduced revenue by $13 million, or 3%.  Valvoline Instant Oil Change ® continued to post strong results as company-owned stores increased car counts, increasing same store sales by 6%.
 
Gross profit margin during the June 2009 quarter increased 13.6 percentage points to 37.5%.  The combination of pricing actions that began in fiscal 2008, lower raw material costs and cost saving initiatives continued to positively impact results causing an increase in gross profit of $62 million.  Net volume and mix increases also contributed an additional $5 million to gross profit, but was largely offset by a foreign currency decline of $4 million.  Selling, general and administrative expenses decreased $4 million, or 5%, during the current quarter primarily due to currency exchange decreases of $3 million and reduced advertising, travel and entertainment of $3 million.  Equity and other income increased by $2 million during the June 2009 quarter compared to the June 2008 quarter, primarily due to increased equity and royalty income.
 
Year-to-Date – Consumer Markets reported record operating income of $180 million for the current period, a 157% increase compared to $70 million reported during the prior period.  Profit margin improvement led to Consumer Markets’ record performance as well as successful implementation of various cost saving initiatives within operations and selling, general and administrative costs.  Revenues increased 2% to $1,236 million compared to $1,209 million in the prior period.  Increased pricing of $138 million, or 11%, and a favorable change in product mix of more premium lubricants sold during the period of $18 million, or 2%, offset volume declines in revenue of $85 million, or 7%, as lubricant volume decreased 7%, to 116.4 million gallons as compared to the prior period.  Foreign currency declines also reduced revenue by an additional $44 million, or 4%, as compared to the prior period.
 
Gross profit margin during the current period increased 6.4 percentage points to 30.8%.  The combination of pricing actions that began in fiscal 2008, lower raw material costs and cost saving initiatives positively impacted results causing an increase in gross profit of $109 million.  This increase in gross profit was offset by net volume and mix decreases reducing gross profit by $10 million and foreign currency declines of $12 million compared to the prior period.  Selling, general and administrative expenses decreased $21 million, or 9%, during the current period primarily due to currency exchange decreases of $9 million and reduced advertising, travel and entertainment of $8 million.  Equity and other income increased by $2 million during the current period, primarily due to equity and royalty income.
 
Distribution
 
Distribution distributes chemicals, plastics and composite raw materials in North America and plastics in Europe and China.  Distribution also provides environmental services in North America.
 


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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
Current Quarter – Distribution reported operating income of $3 million during the June 2009 quarter, an 85% decrease from the $20 million reported during the June 2008 quarter.  Improved gross margin and successful cost savings initiatives within selling, general and administrative expenses were not able to offset the significant declines in volume, which were primarily due to the weakness in North American industrial output.  Revenues decreased 39% to $698 million compared to $1,151 million in the prior quarter.  Pounds sold per shipping day decreased 26% to 14.1 million compared to 19.0 million in the prior quarter as both the plastics line of business and chemicals line of business were affected by overages in market supply as a result of the current global economic downturn.  Overall, volume decreases resulted in a $309 million decline in revenue with price and currency exchange decreases causing an additional $119 million, or 10%, and $25 million, or 2%, decline, respectively, as price increase announcements have been met with limited success during the current quarter.
 
Gross profit margin during the June 2009 quarter increased 2.3 percentage points to 10.1% and benefited from a favorable $3 million quantity LIFO adjustment.  Raw material price decreases resulted in a favorable contribution of $16 million to gross profit.  This increase was offset by a $36 million decline in gross profit due to volume declines.  Currency exchange caused an additional $2 million decline to gross profit in the current quarter as compared to the June 2008 quarter.  Selling, general and administrative expenses decreased $2 million, or 2%, during the current quarter and included a $3 million charge related to severance which was more than offset by decreases in corporate allocations of $4 million and incentive compensation, salaries and benefits of $2 million.
 
Year-to-Date   Distribution reported operating income of $44 million for the current period, a 13% increase from the $39 million reported during the prior year same period.  Significant declines in volume, primarily due to the weakness in North American industrial output, was more than offset by an improved gross margin and successful cost savings initiatives within selling, general and administrative expenses.  Revenues decreased 30% to $2,249 million compared to $3,223 million in the prior period primarily as a result of volume declines.  Pounds sold per shipping day decreased 23% to 14.6 million compared to 18.9 million in the prior period, causing a $770 million, or 24%, decline in revenues.  Decreases in foreign currency and price added an additional $204 million, or 6%, decline in revenues as compared to the prior period as price increase announcements have been met with limited success during the current period.
 
Gross profit margin during the current period increased 2.8 percentage points to 10.4% and benefited from a favorable $14 million quantity LIFO adjustment.  Raw material price decreases resulted in a favorable contribution of $67 million to gross profit.  This increase was offset by an $87 million decrease in gross profit due to volume declines and a $7 million decrease in currency exchange compared to the prior period.  Selling, general and administrative expenses decreased $18 million, or 8%, during the current period as compared to the prior period with decreases in corporate allocations of $8 million, incentive compensation, salaries and benefits of $3 million, and currency exchange of $6 million as the primary factors.  These increases were partially offset by severance charges of $4 million incurred during the current period.
 
Unallocated and other
 
Unallocated and other recorded income of $4 million for the June 2009 quarter compared to $10 million in income for the June 2008 quarter.  The income in the June 2009 quarter was primarily due to lower direct support costs, particularly within the acquired operations of Hercules.  The income recorded in the June 2008 quarter was primarily due to lower incentive compensation and direct support costs.
 
Unallocated and other costs were $24 million for the nine months ended June 30, 2009 compared to income of $10 million for the nine months ended June 30, 2008.  Cost associated with the current period consisted of $28 million for severance and plant closure charges associated with the ongoing integration and reorganization of the Hercules acquisition and $3 million in due diligence costs associated with investment opportunities and other charges, which were partially offset by a currency gain on an intracompany loan of $5 million.  The nine months ended June 30, 2008 included an $8 million charge for costs associated with Ashland’s joint venture with Cargill to manufacture bio-based propylene glycol, which had been suspended



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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
due to persistently high glycerin input costs and other costs related to growth opportunities.  These costs were more than offset by lower incentive compensation and direct support costs.

FINANCIAL POSITION
 
Liquidity
 
Ashland’s cash flows from operating, investing and financing activities, as reflected in the Statements of Consolidated Cash Flows, are summarized as follows for the nine months ended June 30.
 
                 
 
(In millions)
 
2009
   
2008
   
 
Cash (used) provided by:
             
 
Operating activities from continuing operations
  $ 649     $ 329    
 
Investing activities from continuing operations
    (2,215 )     (322 )  
 
Financing activities from continuing operations
    953       (52 )  
 
Discontinued operations
    (1 )     (2 )  
 
Effect of currency exchange rate changes on cash and cash equivalents
    (16 )     3    
 
Net decrease in cash and cash equivalents
  $ (630 )   $ (44 )  
 
   

Cash provided by operating activities was $649 million for the nine months ended June 30, 2009 as compared to $329 million provided by operating activities in 2008.  The net loss of $22 million for the current nine months ended June 30, 2009 included significant noncash charges for the Hercules acquisition inventory fair value adjustment and purchased in-process research and development amortization of $37 million and $10 million, respectively, depreciation and amortization expense of $244 million, debt issuance cost amortization of $35 million, a currency swap loss of $54 million and a $32 million loss on auction rate securities.  Cash flows from changes in operating assets and liabilities contributed $208 million in operating cash flows for the current period, primarily attributable to changes within accounts receivable, inventory and accounts payable, and was a $153 million increase from the cash flows generated from operating assets and liabilities in the prior period of $55 million.  Operating cash flows for the prior year same period included net income of $177 million and a noncash adjustment of $105 million for depreciation and amortization.  The increase in depreciation and amortization expense as compared to the prior period relates to the additional depreciation and amortization associated with the valuation of the acquired Hercules operations and other acquisition related amortization.  The depreciation and amortization from these assets will be included in operations on an ongoing basis through the remainder of their useful lives as determined and as part of the purchase accounting fair value estimates discussed in Note C of the Notes to Condensed Consolidated Financial Statements.
 
Cash used in investing activities was $2,215 million for the nine months ended June 30, 2009 as compared to $322 million used by investing activities in 2008.  The significant cash investing activities for the current period included cash outflows of $2,080 million for the purchase of Hercules’ operations in November 2008, $95 million for the settlement of currency interest rate swap hedges related to the acquisition and $107 million for capital expenditures.  These significant cash investing activities were partially offset by sales of auction rate securities during the current period resulting in cash proceeds of $55 million.  Significant cash investing activities for the prior period included net purchases of available-for-sale securities of $121 million, $118 million for capital expenditures and $128 million for purchased operations offset by cash proceeds of $35 million associated with the MAP Transaction.
 
Cash provided by financing activities was $953 million for the nine months ended June 30, 2009 as compared to a $52 million cash usage for financing activities in 2008.  Significant cash financing activities for the current period included cash inflows of $2,631 million associated with short-term and long-term financing secured with Bank of America Securities LLC, Scotia Capital (USA) Inc. and other lenders for the acquisition of Hercules, including the subsequent 9.125% Senior Notes due 2017 issued in May 2009 for which the proceeds were used to extinguish the bridge loan facility under the interim credit agreement

 


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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
 
 
associated with the financing of the acquisition of Hercules discussed further in Note F of the Notes to Condensed Consolidated Financial Statements.  This cash inflow for the current period was partially offset by cash used for the extinguishment of certain debt instruments that Hercules held as of the closing date of the acquisition, the extinguishment of the bridge loan facility, previously discussed, and other debt payments made subsequent to the Hercules acquisition in November 2008, that totaled $1,502 million as well as $161 million in debt issue costs paid in connection with securing the financing for the Hercules acquisition and the subsequent 9.125% Senior Notes due 2017 issued to replace the bridge loan facility.  Cash dividends paid during the current period were $.225 per common share and totaled $17 million, a $35 million reduction as compared to the prior period as a result of the reduction in the $.825 per common share dividend paid during the first nine months of 2008.
 
At June 30, 2009, working capital (excluding debt due within one year) amounted to $1,127 million, compared to $1,816 million at September 30, 2008 and $1,909 million at June 30, 2008.  Ashland’s working capital is affected by its use of the LIFO method of inventory valuation that valued inventories below their replacement costs by $119 million at June 30, 2009, $200 million at September 30, 2008 and $185 million at June 30, 2008.  Liquid assets (cash, cash equivalents, current available-for-sale securities and accounts receivable) amounted to 122% of current liabilities at June 30, 2009, compared to 189% at September 30, 2008 and 197% at June 30, 2008.  The decrease in both working capital and liquid assets in the current period is primarily the result of cash on hand used to fund the acquisition of Hercules.
 
The following summary reflects Ashland’s cash, investment securities and debt as of June 30, 2009, September 30, 2008 and June 30, 2008.
                       
                       
     
June 30
   
September 30
   
June 30
   
 
(In millions)
 
2009
   
2008
   
2008
   
                       
 
Short-term debt
  $ 44     $ -     $ -    
 
Long-term debt (including current portion)
    1,949       66       65    
 
Total debt
  $ 1,993     $ 66     $ 65    
                             
 
Cash and cash equivalents
  $ 256     $ 886     $ 853    
 
Auction rate securities
  $ 188     $ 243     $ 267    
                           
 
 
 

The scheduled aggregate maturities of debt by fiscal year are as follows:  $38 million in 2009, $93 million in 2010, $92 million in 2011, $95 million in 2012 and $128 million in 2013.  Total borrowing capacity remaining under the $400 million revolving credit facility was $261 million, which was reduced by $139 million for letters of credit outstanding at June 30, 2009.  Total short-term debt at June 30, 2009 was $44 million, which primarily related to draws on revolving credit facilities among international operations.  No short-term debt was outstanding at September 30, 2008 or June 30, 2008.
 
The current portion of long-term debt was $71 million at June 30, 2009, $21 million at September 30, 2008 and $20 million at June 30, 2008.  Based on Ashland’s current debt structure included in Note F of the Notes to Condensed Consolidated Financial Statements and assuming interest rates remain somewhat stable, future interest expense could range from approximately $200 million to $220 million based on applicable fixed and floating interest rates.
 
As a result of the financing and subsequent debt issued to complete the acquisition of Hercules, Standard & Poor’s downgraded Ashland’s corporate credit rating to BB- and Moody’s Investor Services downgraded Ashland’s corporate credit rating to Ba2.
 
Financial Covenant Restrictions
 
Ashland is now subject to certain restrictions from various debt covenants.  These covenants include certain affirmative covenants such as various internal certifications, maintenance of property and applicable insurance coverage as well as negative covenants that include financial covenant restrictions, these include:

 
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leverage and fixed charge coverage ratios, total net worth and capital expenditure limitations.  The permitted consolidated leverage ratio at any time during any period of four fiscal quarters for Ashland is as follows under the new credit facility.
             
         
Maximum
 
         
consolidated
 
         
leverage ratio
 
 
For fiscal quarters ending:
   
   
Funding date through September 30, 2009
3.75:1.00
 
   
December 31, 2009 through September 30, 2010
3.50:1.00
 
   
December 31, 2010 through September 30, 2011
3.00:1.00
 
   
December 31, 2011 through September 30, 2012
2.75:1.00
 
   
December 31, 2012 and each fiscal quarter thereafter
2.50:1.00
 
             
 
The following describes Ashland’s June 2009 calculation of the consolidated leverage ratio per the senior credit agreement as previously disclosed in a Form 8-K filed on November 21, 2008 and reconciliation of Consolidated EBITDA (as defined by the senior credit agreement, as amended) to net income.  Ashland has included certain non-GAAP information below to assist in the understanding of various financial debt covenant calculations.
 
                                             
                                       
Covenant
   
 
(In millions, except ratios) (a)
Q4'08
 
(b)
 
Q1'09
 
 
 
Q2'09
 
 
 
Q3'09
   
Total
   
ratio
   
 
Debt/EBITDA
                                         
 
Consolidated EBITDA
$ 193       $ 155       $ 227       $ 266     $ 841            
 
Debt
            2,473         2,266         2,021       2,021            
 
Debt/EBITDA
                                        2.4 x     3.75 x  
                                                 
max.  
 
                                                     
 
 
  Reconciliation of Consolidated EBIDTA:
                                         
 
(In millions)
 
 
 
 
Q1'09 
 
 
  
Q2'09
 
 
  
Q3'09
   
 
     
 
   
 
Net (loss) income
           $ (119 )     $ 48       $ 50                    
 
Key items excluded (c)
            82         (1 )       3                    
 
Consolidated interest charges
            35         56         64                    
  Income taxes (benefit) expense               (1 )       9         40            
 
 
  Depreciation and amortization             63         93         88                
  Hercules stub-period results (d)             34         -         -                
  Other nonrecurring or noncash charges (e)             61         22         21                
  Total consolidated EBITDA           $ 155       $ 227       $ 266                
                                                     
             
    Reconciliation of Debt:                                          
 
(In millions)
 
 
 
 
Q1'09 
 
 
  
Q2'09
 
 
  
Q3'09
   
 
     
 
   
 
Total debt (long-term and short-term)
           $ 2,468       $ 2,262       $ 1,993                    
 
Defeased debt
            (31 )       (31 )       (13 )                  
 
Guarantees (bank and third party)
            36         35         41                    
              $ 2,473       $ 2,266       $ 2,021                
                                                     
 
 
  (a) 
All numbers adjusted to reflect terminology and calculation methodology governing the senior credit agreement, included in a Form 8-K filed on November 21, 2008, as amended. 
 
  (b)
Amounts for Q4’08 are as prescribed in the senior credit agreement, as amended. 
 
  (c) Excludes certain income or costs that have been specifically identified within the senior credit agreement, as amended.  
  (d) I n accordance with the senior credit agreement, Hercules’ financial results from October 1, 2008 through November 13, 2008, which is the period of time during Ashland’s first quarter that it did not own Hercules, have been included within this calculation.  
  (e) I ncludes certain nonrecurring or noncash transactions, including restructuring and integration charges, defined within the senior credit agreement.  Allowable restructuring and integration charges are capped, per the senior credit agreement, as amended, not to exceed $80 million during the three fiscal year period ending September 30, 2011.  Ashland has incurred approximately $44 million of qualifying restructuring and integration expenses to date in fiscal year 2009.  
 

 
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
The permitted consolidated fixed charge coverage ratio as of the end of any fiscal quarter for Ashland is as follows under Ashland’s senior credit agreement.

             
         
Minimum
 
         
consolidated
 
         
fixed charge
 
          coverage ratio  
 
For fiscal quarters ending:
   
   
Funding date through September 30, 2010
1.25:1.00
 
   
December 31, 2010 through each fiscal quarter thereafter
1.50:1.00
 
             
 
The following describes Ashland’s June 2009 calculation of the fixed charge coverage ratio per the senior credit agreement included in a Form 8-K filed on November 21, 2008:

                                             
                                       
Covenant
   
 
(In millions, except ratios) (a)
Q4'08
 
(b)
 
Q1'09
 
 
 
Q2'09
 
 
 
Q3'09
   
Total
   
ratio
   
 
Fixed charge coverage
                                         
 
Consolidated EBITDA
$ 193       $ 155       $ 227       $ 266     $ 841            
 
Capital expenditures
  116         57         42         27       242            
 
Adjusted interest expense
  47         51         45         45       188            
 
Scheduled debt payments
  -         -         17         17       34            
 
Adjusted dividend payment
  5         5         6         6       22            
 
Fixed charge coverage ratio
                                        2.5 x     1.25 x  
                                                 
min.  
 
                                                         
                                                         
  (a) 
All numbers adjusted to reflect terminology and calculation methodology governing the senior credit agreement, included in a Form 8-K filed on November 21, 2008, as amended. 
 
  (b)
Amounts for Q4’08 are as prescribed in the senior credit agreement, as amended.
 
 


Under Ashland’s financing facilities, the minimum consolidated net worth covenant at the end of any fiscal quarter ending after December 31, 2008 must not be less than 85% of Ashland’s consolidated net worth as of December 31, 2008, after giving effect to any purchase accounting adjustments relating to the Hercules acquisition subsequent to December 31, 2008, increased on a cumulative basis for each subsequent quarter commencing with January 1, 2009 by an amount equal to 50% of Ashland’s U.S. GAAP reported net income (to the extent positive with no deduction for net losses) plus 100% of net cash proceeds of any issuance of equity interests (other than disqualified equity interests).  As of June 30, 2009 Ashland’s consolidated net worth covenant was $3,732 million versus the minimum consolidated net worth covenant of $3,109 million, a difference of $623 million.  As outlined above, this difference would be adversely impacted by any future operating losses, impairment (including goodwill, intangible assets and property, plant and equipment), pension remeasurement, severance or other related charges that reduce Ashland’s consolidated net worth.
 
Ashland projects that cash flows from operations and other available financial resources such as cash on hand and revolving credit should be sufficient to meet investing and financing requirements to enable Ashland to comply with the covenants and other terms of each respective financing facility.  These model projections are based on various assumptions that include, but are not limited to:  operational results, working capital cash generation, capital expenditures, pension funding requirements and tax payment and receipts.  Any change in assumptions that would affect these cash flow projections by $100 million would have an approximate .4x effect on both the consolidated leverage and fixed charge coverage ratios, respectively.  Any change in debt of $100 million would affect the debt to EBITDA ratio by approximately .1x.
 
Ashland is committed to fulfilling its debt obligations under the credit agreement and will evaluate all potential options, including significant divestitures of operating segments, or certain businesses within these


 


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segments, that have been identified as non-core businesses of Ashland.  If an Event of Default (as defined in the senior credit agreement) were to occur and continue, the lenders under the credit agreement would have the right to declare the unpaid principal, interest and fees immediately due and payable.  Ashland would also be required to cash collateralize any letter of credit obligations outstanding and the bank could exercise any other rights granted to them within the senior credit agreement.  If this were to occur, Ashland would seek to amend the agreement.  There is no guaranty that the lenders would grant this amendment.  As of June 30, 2009, Ashland is in compliance with all covenants imposed by Ashland’s credit facilities.
 
Auction Rate Securities
 
At September 30, 2008, Ashland held at par value $275 million student loan auction rate securities for which there was not an active market with consistent observable inputs.  In February 2008, the auction rate securities market became largely illiquid, as there was not enough demand to purchase all of the securities that holders desired to sell at par value during certain auctions.  Since that time the market for auction rate securities has failed to achieve equilibrium.  As a result, Ashland determined that a temporary adjustment of $32 million to the par value of these high quality instruments was required as of September 30, 2008 until the liquidity of the market returns.
 
During the December 2008 quarter, Ashland liquidated $20 million (par value) auction rate securities for $18 million in cash proceeds and recognized a loss of $2 million, which was the recorded book value of this instrument.  As a result of this sale, as well as Ashland’s current debt structure following the Hercules acquisition and the ongoing impact from the current global economic downturn, Ashland determined in December 2008 that it no longer had the intent to hold these instruments until their maturity date.  As a result, Ashland recorded the remaining $30 million unrealized loss as a permanent realized loss in the other expenses caption of the Consolidated Statement of Income during the December 2008 quarter.   A full valuation allowance was established for this tax benefit at December 31, 2008 because for tax purposes Ashland did not have capital gains to offset this capital loss.
 
During the March 2009 quarter, Ashland sold $13 million (par value) auction rate securities for $11 million in cash proceeds which approximated book value.  During the June 2009 quarter, Ashland sold $29 million (par value) auction rate securities for $26 million in cash proceeds which approximated book value.  In addition, during March 2009, Ashland signed an agreement with UBS Financial Services, Inc. agreeing to sell a $5 million (par value) auction rate instrument at its par value on or before June 30, 2010.  As a result, Ashland recorded a minimal unrealized gain associated with this settlement.
 
Ashland’s current estimate of fair value for auction rate securities is   based on various internal discounted cash flow models and relevant observable market prices and quotes.  The assumptions within the models include credit quality, liquidity, estimates on the probability of each valuation model and the impact due to extended periods of maximum auction rates.  Any 25 basis point change in the discount rate or three month adjustment in the duration assumptions would impact the internal valuation model by approximately $1 million and $2 million, respectively.  At June 30, 2009, auction rate securities carrying value totaled $188 million and were classified as noncurrent assets in the Condensed Consolidated Balance Sheet.  Due to the uncertainty as to when active trading will resume in the auction rate securities market, Ashland believes the recovery period for certain of these securities may extend beyond a twelve-month period.  As a result, Ashland has classified these instruments as long-term auction rate securities at June 30, 2009 in Ashland’s Condensed Consolidated Balance Sheet.
 
Capital resources
 
During the nine months ended June 30, 2009, Ashland has increased total debt by $1,927 million to $1,993 million and stockholders’ equity increased by $505 million to $3,707 million.  The increase in debt, as discussed in Note F of the Condensed Consolidated Financial Statements, was a result of the $2,600 million in secured financing from Bank of America Securities LLC, Scotia Capital (USA) Inc. and other lenders for the acquisition of Hercules consisting of a $400 million revolving credit facility, a
 

 

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$400 million term loan A facility, an $850 million term loan B facility, a $200 million accounts receivable securitization facility and a $750 million bridge loan, which was subsequently extinguished in May 2009 upon the issuance of the $650 million 9.125% Senior Notes due 2017 discussed in Note F of the Notes to Condensed Consolidated Financial Statements.  The total debt drawn upon the closing of the completed merger was $2,300 million which included amounts used to fund the $594 million extinguishment of certain debt instruments that Hercules held as of the closing date.  The remaining Hercules debt assumed as part of the acquisition was fair valued at $205 million as of the closing date.
 
The increase in stockholders’ equity resulted from $450 million for the issuance of common shares for the acquisition of Hercules, $13 million from issuance of common shares under employee savings, stock incentive and other plans, Ashland options issued in lieu of Hercules options in the amount of $10 million and accumulated other comprehensive gains of $71 million.  These increases were offset by a $22 million net loss and regular cash dividends of $17 million.  Debt as a percent of capital employed was 35.0% at June 30, 2009, 2.0% at September 30, 2008 and 1.9% at June 30, 2008.
 
On May 13, 2009, the Board of Directors of Ashland declared a quarterly cash dividend of 7.5 cents per share, payable June 15, 2009, to shareholders of record at the close of business on May 28, 2009.  This dividend is consistent with the quarterly dividend paid during the first and second fiscal quarters of 2009 and a reduction from the 27.5 cents per share paid during the same quarter of the previous year.  In total, the reduction in the dividend is expected to decrease Ashland’s annual cash outflow for dividends by approximately $60 million.  In conjunction with Ashland’s new debt facilities, Ashland is now subject to various covenants that may restrict certain future payments, which could include quarterly dividend payments.
 
As part of the financing arrangements to acquire Hercules, Ashland is now subject to the following capital expenditure limits:  $300 million in fiscal year 2009, $250 million in fiscal year 2010 as amended in May 2009 from the previous agreement of $310 million, $330 million in fiscal year 2011, $360 million in fiscal year 2012, $370 million in fiscal year 2013 and $375 million in fiscal year 2014.
 
In accordance with the senior credit agreement, 50% of any capital expenditure amount set forth above that is not expended in the fiscal year for which it is permitted above may be carried over for expenditure in the next following fiscal year.  During fiscal 2009, Ashland expects total capital expenditures, including those related to the Hercules businesses, to be less than $200 million, which is more than $120 million below the combined actual capital expenditures of $320 million for the twelve months ending September 30, 2008 for both companies.  During the nine months ended June 30, 2009 Ashland recorded $107 million for capital expenditures.  Prior to Ashland’s acquisition of Hercules on November 13, 2008, the Hercules businesses incurred capital expenditures of $19 million from October 1 through November 13, 2008 which, in accordance with the senior credit agreement, are included in the covenant calculation for fiscal year 2009.
 
Contractual obligations and other commitments
 
The following table aggregates Ashland’s obligations and commitments, which includes the former Hercules businesses, to make future payments under existing contracts at June 30, 2009.  Contractual obligations for which the ultimate settlement of quantities or prices are not fixed and determinable have been excluded.
 

 

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                      2010-       2012-    
Later
   
 
(In millions)
 
Total
   
2009
 
(a)
    2011       2013    
Years
   
 
Contractual obligations
                                     
 
Raw material and service contract
                                     
 
purchase obligations (b)
  $ 3,529     $ 693       $ 1,384     $ 1,452     $ -    
 
Employee benefit obligations (c)
    477       82         85       87       223    
 
Operating lease obligations (d)
    307       63         101       71       72    
 
Debt   (e)
    1,993       38         185       223       1,547    
 
Unrecognized tax benefits   (f)
    100       -         -       -       100    
 
Total contractual obligations
  $ 6,406     $ 876       $ 1,755     $ 1,833     $ 1,942    
                                               
 
Other commitments
                                           
 
Letters of credit (g)
  $ 139     $ 1       $ 138     $ -     $ -    
                                               
 
 
(a)
Includes obligations paid for the current fiscal year. 
 
  (b)  In cludes raw material and service contracts where minimal committed quantities and prices are fixed.  
  (c)  Includes estimated funding of Ashland’s qualified U.S. and non-U.S. pension plans for 2009, as well as projected benefit payments through 2018 under Ashland’s unfunded pension and other postretirement benefit plans.  See Note L in the Notes to Condensed Consolidated Financial Statements for additional information.  
  (d) 
Includes leases for office buildings, retail outlets, transportation equipment, warehouses and storage facilities and other equipment.
 
  (e) Excludes expected interest charges due to the inherent limitations in projecting future variable interest rates and unscheduled debt payments.  Capitalized lease obligations are not significant and are included in debt.  For further information see Note F in the Notes to Condensed Consolidated Financial Statements.  
  (f)
Due to uncertainties in the timing of the effective settlement of tax positions with respect to taxing authorities, Ashland is unable to determine the timing of payments related to noncurrent unrecognized tax benefits.  Therefore, these amounts were principally included in the “Later Years” column.
 
  (g) Ashland issues various types of letters of credit as part of its normal course of business.  For further information see Note F in the Notes to Condensed Consolidated Financial Statements.  

APPLICATION OF CRITICAL ACCOUNTING POLICIES
 
Long-lived assets
 

As of June 30, 2009 Ashland recorded goodwill of approximately $1,785 million in connection with the purchase of Hercules in November 2008.  One new reporting unit, Functional Ingredients, was created as a result of this transaction, while the existing Water Technologies reporting unit had a significant business of Hercules added to it.  Functional Ingredients recorded $1,214 million of goodwill and Water Technologies recorded $571 million of goodwill.
 
Goodwill and intangible assets with indefinite lives are subject to an annual impairment test as of July 1 and whenever events or circumstances make it more likely than not that an impairment may have occurred.  Such tests are completed separately with respect to the goodwill and intangible assets with indefinite lives for each of Ashland’s reporting units, which are operating segments or business units within these operating segments.
 
Due to the global economic environment and the related impacts within the industries Ashland conducts business, as well as the significant decline in Ashland’s market capitalization compared to the June 30, 2009 equity value, Ashland determined that there was a potential indicator to perform an interim impairment analysis.  Ashland performed a review of the current and projected financial performance of its reporting units to determine if specific events or circumstances existed to perform an interim impairment assessment as of June 30, 2009.  Ashland’s evaluation by reporting unit as of June 30, 2009 was as follows:
 
For the Performance Materials segment, which consists of two reporting units, Ashland analyzed the interim impairment assessment performed as of March 31, 2009, as the two reporting units experienced a decline in


 

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MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
short-term demand, which has caused revenue to decrease by a similar level.  This analysis was performed to ensure no interim impairment was necessary as of June 30, 2009.  Based on the current forecasts, including the long-term assumptions, Ashland continues to believe the two reporting units in Performance Materials have sufficient cushion between the enterprise value of the business and net book value and their interim results would not trigger an interim impairment assessment as of June 30, 2009.
 
The Consumer Markets reporting unit was deemed to not require an interim impairment assessment based on its performance since Ashland’s July 1, 2008 annual impairment test and the reporting unit’s projected cash flows.
 
Ashland concluded that an interim impairment assessment was not necessary for the Functional Ingredients and Water Technologies reporting units as of June 30, 2009 due to the recent acquisition of Hercules which created the majority of goodwill relating to these reported units.  However, to validate the continued appropriateness of the valuation of the reporting units following the transaction, Ashland updated the models used to value the Hercules businesses prior to the acquisition with the most recent financial results and forecasted assumptions.  This update included the short-term decline in performance as a result of the current economic environment, as well as the additional synergy savings and reductions to or delays in capital expenditures which have been identified after the acquisition announcement through Ashland’s continued integration efforts.  These additional synergies and changes in capital expenditures have essentially offset the recent decline in the reporting units’ volume.  Upon updating these models, Ashland concluded there was no indication of a decline in fair value for these reporting units which would require an interim impairment analysis as of June 30, 2009.
 
Because market prices of Ashland’s reporting units are not readily available, Ashland makes various estimates and assumptions in determining the estimated fair values of those units.  Historically, Ashland has used a market multiples valuation technique.  Fair values were based principally on EBITDA (earnings before interest, taxes, depreciation and amortization) multiples of industry peer group companies for each of these reporting units and, as deemed necessary, a discounted cash flow model.  Based upon the current market conditions, Ashland determined that a discounted cash flow model was a more representative valuation model to currently determine a business’ fair value, including the June 30, 2009 event-driven/interim impairment assessment of the Performance Materials reporting units.  The discounted cash flow models are highly reliant on various assumptions, some of which include:  projected business results and future industry direction, long-term growth factors and discount rates.  Ashland uses assumptions that it deems to be conservative estimates of likely future events.   Based on the assumptions used for the one Performance Materials reporting unit that was not significantly over the carrying value, a 1% negative change in any one of the assumptions made would have resulted in a fair value at, or slightly below, Ashland’s current carrying value of this reporting unit.
 
Ashland’s assessment of an event that could cause an impairment charge could change in future periods if any or all of the following events were to occur with respect to a particular reporting unit: divestiture decision, unfavorable movements in discount rates, growth rates or other assumptions, continued economic deterioration that is more severe or of a longer duration than anticipated, or another significant economic event.  Ashland recognizes that its current market capitalization at June 30, 2009 is significantly below the carrying value of equity.  However, Ashland believes that the assumptions and determinations used to fair value Ashland’s reporting units have been based on valuation methodologies, principles and practices standard within the current market place for valuing businesses.
 
Employee benefit obligations
 
Ashland and its subsidiaries sponsor contributory and noncontributory qualified and non-qualified defined benefit pension plans that cover substantially all employees in the United States and in a number of other foreign countries.  In addition, the companies also sponsor unfunded postretirement benefit plans, which provide health care and life insurance benefits for eligible employees who retire or are disabled.  In


 
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
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November 2008, in conjunction with the purchase of Hercules, Ashland inherited approximately $188 million and $121 million of liabilities associated with qualified and non-qualified defined benefit pension plans and postretirement plans, respectively.  Ashland’s pension liability and annual expense calculations are based on a number of key assumptions including the discount rate at which obligations can be effectively settled and the expected long-term rate of return on plan assets.
 
Consistent with Ashland’s historical policy, fiscal 2009 expense for both legacy (non-Hercules) U.S. and legacy non-U.S. pension plans was determined using the discount rate as of the beginning of the fiscal year, which amounted to a weighted-average rate of 7.81% for 2009.  The weighted-average long-term expected rate of return on assets was assumed to be 7.62% for 2009.  As a result, Ashland estimated total legacy fiscal 2009 pension costs to be approximately $53 million.
 
At June 30, 2009, discount rates have modestly declined from the record levels experienced at September 30, 2008.  This potential change in discount rate could yield significant additional expense for fiscal 2010 if plan net asset investment returns continue to decline until remeasurement at September 30, 2009.  In addition, upon any remeasurement of Ashland’s current pension and other postretirement assumptions, significant additional liabilities could be recorded, which may impact certain financial covenants.
 
Based on provisions established by the Pension Protection Act of 2006, Ashland is required to maintain a 94% funded level for both its legacy and Hercules pension plans by September 30, 2009.  At the end of fiscal 2008, both the Ashland and Hercules pension trusts were 92% funded as required with credit balance reserves to use in future periods; therefore, no cash contribution for either plan is currently required in fiscal 2009.  While Ashland does not expect any significant cash contributions in fiscal year 2010, to the extent that asset returns continue to deteriorate or discount rates materially decline, a significant cash contribution may be required in fiscal 2010.
 
Other
 
During the December 2008 quarter, Ashland adopted the provisions of FAS 157 as discussed in Note B of Notes to Condensed Consolidated Financial Statements.  There have been no other material changes in the critical accounting policies described in Management’s Discussion and Analysis (MD&A) in Ashland’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008.  For a discussion of Ashland’s and Hercules’ asbestos-related litigation and environmental remediation matters, see Note O of Notes to the Condensed Consolidated Financial Statements.

OUTLOOK
 
Functional Ingredients will continue to be affected by the significant volume declines recently experienced within this business, with the North American geography having the greatest overall market decline.  Functional Ingredients has been focused on matching the cost structure for the business to this realigned market demand.  As a result, various fixed cost reduction initiatives have been implemented, primarily within the manufacturing environment.  These cost reduction initiatives have generated approximately $2 million of monthly run-rate savings since the beginning of the fiscal year and is expected in subsequent periods to improve overall profitability through increased gross profit margins.  While Functional Ingredients is focused on short-term cost reduction strategies, significant long-term opportunities in the market exist through core organic and adjacent market growth, with pharmaceutical, coatings and personal-care comprising the targeted growth segments.  Organic growth through new product development is a significant priority within this business as new products less than five years old are internally targeted to represent 21% of overall revenue.  
 
Water Technologies continues its focus on cost reduction and the rapid capture of savings from the integration of the Hercules paper and Ashland water businesses.  The restructuring activities within Ashland’s legacy water business, initiated in fiscal 2008 and continued in fiscal 2009, have continued to result in noticeable improvement in the cost structure.  In addition, the business has continued to experience signs that volume declines have stabilized, especially within Latin America and Europe.  Efforts will



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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
 


continue to be focused on improving product pricing with concentrated efforts on higher margin products and reducing manufacturing costs to improve the overall gross profit margin.  In the long-term, these focused efforts along with increased volumes should contribute to enhanced profitability.  
 
Performance Materials’ volume levels will continue to be challenged by the difficult global economic conditions in construction, transportation, and recreational marine markets, particularly within the Castings Solutions business which has the most exposure to the transportation markets.  In addition, the months of July and August typically experience seasonal declines in Europe and other key geographies.  Performance Materials did announce recent price increases of two to five percent in our North American and European composite markets, effective during July, which should fully offset recent raw material price increases received.  These efforts, along with aggressive cost reductions to resize the business based off current market demand, should position Performance Materials to maintain margins in the current weak demand environment.  
 
Consumer Markets reported record operating income in the June quarter despite persistent volume declines in the overall lubricant market, which have been mitigated through new business and strong execution in the Do-It-Yourself channel and the Valvoline Instant Oil Change ®   business.  Also, in June Consumer Markets announced an industry first engine guarantee up to 300,000 miles for motorist who regularly use Valvoline ® motor oil, which has received very strong and positive initial feedback from retailers, installers and customers.  Consumer Markets has successfully implemented over the past several years various cost reduction programs and strategies, particularly through its focus on product supply chain savings and efficiencies through business process improvements, which have contributed significantly to its record results.  In addition, the sluggish North American transportation market has been instrumental in softening the base oil market and related pricing during much of fiscal 2009.  However, base oil cost increases totaling 40 cents per gallon were announced in June and July.  This increase will impact overall margins in subsequent quarters compared to the unusually strong June quarter, although the Consumer Markets business still has momentum across its market segments and should report strong earnings compared to the comparable period in the prior year.  
 
Distribution’s future performance will continue to be affected by weakness in the North American industrial output, particularly from the core markets of building and construction, coatings, automotive and marine.  Volume in this business is predominantly contingent upon these U.S. industrial sectors, and continued demand reductions compared to prior year results are anticipated in the September quarter as the market still appears to be oversupplied.  However, volume declines appear to be stabilizing.  In response to the continued decline in volume levels, Distribution recently announced $27 million of cost reductions in a resizing across its entire organization to match the cost structure with current market demand.  
 
Ashland’s performance in the June 2009 quarter continued to demonstrate the ability to generate cash during a difficult demand environment.  Ashland’s focus continues to be on controllable aspects of the businesses, which include pricing and aggressive cost management, to offset the impact of the significant demand declines within our markets.  This focus has enabled Ashland to improve its financial results both sequentially and versus the prior year’s quarter and has generated strong operational cash flows that have been used to reduce debt over $600 million in the approximate eight months since Ashland’s purchase of Hercules in November of 2008.  In addition, Ashland has realized $287 million in run rate cost savings, three months earlier than our initial expectations, of the original announced plan of $265 million.  While Ashland has experienced recent stabilization of volume in its businesses, there are few signs of a significant rebound in the foreseeable future.  As a result, Ashland will continue to aggressively reduce its cost structure by targeting an additional $100 million in run rate savings to be achieved. 

 

 
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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Ashland’s market risk exposure at June 30, 2009 is generally consistent with the types and amounts of market risk exposures presented in Ashland’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008.


ITEM 4.  CONTROLS AND PROCEDURES
 
 
(a)
As of the end of the period covered by this quarterly report, Ashland, under the supervision and with the participation of its management, including Ashland’s Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of Ashland’s disclosure controls and procedures pursuant to Rule 13a-15(b) and 15d-15(b) promulgated under the Securities Exchange Act of 1934, as amended.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective.
 
 
 
(b)
During the quarter ended December 31, 2008, Ashland completed its purchase of Hercules.  Although management believes appropriate internal controls and procedures have been maintained, Hercules’ controls and procedures for the recording, processing, and summarizing of financial information have not been fully evaluated by Ashland’s management as of June 30, 2009.  As such, there is a risk that deficiencies may exist and not yet be identified that could constitute significant deficiencies or in the aggregate, a material weakness related to Hercules businesses.  Otherwise, there were no other significant changes in Ashland’s internal control over financial reporting, or in other factors, that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, Ashland’s internal control over financial reporting.
 

 
 
 
62
 
 
 
 
 

 
PART II – OTHER INFORMATION
 
   

ITEM 1.  LEGAL PROCEEDINGS
 

Asbestos-Related Litigation
 
Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos.  Such claims result primarily from indemnification obligations undertaken in 1990 in connection with the sale of Riley Stoker Corporation (“Riley”), a former subsidiary.  Although Riley was neither a producer nor a manufacturer of asbestos, its industrial boilers contained some asbestos-containing components provided by other companies.
 
Ashland’s wholly owned subsidiary, Hercules Incorporated (“Hercules”) is also subject to liabilities from asbestos-related personal injury lawsuits involving claims which typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products which were sold by one of the Hercules’ former subsidiaries to a limited industrial market.
 
Ashland and Hercules are also defendants in lawsuits alleging exposure to asbestos at facilities formerly or presently owned or operated by Ashland or Hercules.
 
For additional information regarding liabilities arising from asbestos-related litigation, see Note O of “Notes to Condensed Consolidated Financial Statements” in this quarterly report on Form 10-Q.
 
Environmental Proceedings
 
(1) CERCLA and Similar State Law Sites Under the federal Comprehensive Environmental Response, Compensation and Liability Act (as amended) (“CERCLA”) and similar state laws, Ashland and Hercules may be subject to joint and several liability for clean-up costs in connection with alleged releases of hazardous substances at sites where it has been identified as a “potentially responsible party” (“PRP”).  As of June 30, 2009, Ashland and Hercules have been identified as a PRP by U.S. federal and state authorities, or by private parties seeking contribution, for the cost of environmental investigation and/or cleanup at 96 waste treatment or disposal sites.  These sites are currently subject to ongoing investigation and remedial activities, overseen by the United States Environmental Protection Agency (“USEPA”) or a state agency, in which Ashland or Hercules is typically participating as a member of a PRP group.  Generally, the type of relief sought includes remediation of contaminated soil and/or groundwater, reimbursement for past costs of site clean-up and administrative oversight and/or long-term monitoring of environmental conditions at the sites.  The ultimate costs are not predictable with assurance.
 
(2) TSCA Audit On April 30, 2007, in an action initiated by Ashland, Ashland signed a Consent Agreement and Final Order (“CAFO”) with the USEPA pursuant to which Ashland conducted a compliance audit in accordance with Section 5 and Section 13 of the Toxic Substance Control Act (“TSCA”).  TSCA regulates activities with respect to manufacturing, importing and exporting chemical substances in the United States.  Ashland submitted its final report under the CAFO on June 24, 2009 and does not expect penalties, if any, to exceed $100,000 in the aggregate.
 
(3)   Multi-Media Environmental Compliance Investigation In April 2005, Hercules’ Franklin, Virginia manufacturing facilities were subject to a multi-media environmental compliance investigation by the USEPA and the Virginia Department of Environmental Quality (“VADEQ”), and in April 2007, Hercules’ Hopewell, Virginia manufacturing facilities were subject to a Clean Air Act compliance investigation by USEPA and the VADEQ.  In April 2008, the results of both investigations were provided to Hercules.  The results of both investigations uncovered areas of potential noncompliance with various environmental requirements which are being evaluated.  At this time, the potential liability, if any, with respect to these matters cannot reasonably be estimated.
 
(4)   Naval Weapons Industrial Reserve Plant The Naval Weapons Industrial Reserve Plant in McGregor, Texas (the “Site”), is a government-owned facility which was operated by various contractors on behalf of the U.S. Department of the Navy (the "Navy") from 1942 to 1995.  Hercules operated the
 
 
63
 

 
 
 
 
 
Site from 1978 to 1995.  The U.S. Department of Justice, on behalf of the Navy, has advised Hercules and other former contractors that, pursuant to CERCLA, the Government has incurred costs of over $50 million with respect to certain environmental liabilities which the Government alleges are attributable, at least in part, to Hercules’ and the other former contractors’ past operation of the Site.  Hercules and the other former contractors have executed a tolling agreement with the Government and have been engaged in discussions with the Government concerning the Site.  The investigation undertaken to date shows that there may be substantial defenses to the Government’s claims.  At this time, the potential liability, if any, with respect to this Site cannot reasonably be estimated.
 
For additional information regarding environmental matters and reserves, see Note O of “Notes to Condensed Consolidated Financial Statements” in this quarterly report on Form 10-Q.
 
MTBE Litigation
 
Ashland is a defendant along with many other companies in a small number of cases alleging methyl tertiary-butyl ether (“MTBE”) contamination in groundwater.  The plaintiffs generally are water providers or governmental authorities and they allege that refiners, manufacturers and sellers of gasoline containing MTBE are liable for introducing a defective product into the stream of commerce.  Ashland’s involvement in these cases relates to gasoline containing MTBE allegedly produced and sold by Ashland, or one or more of its subsidiaries, in the period prior to the formation of Marathon Ashland Petroleum LLC (“MAP”).  Ashland only distributed gasoline containing MTBE in a limited number of states and has been dismissed in a number of cases in which it was established that Ashland did not market gasoline containing MTBE in the state or region at issue.  The MTBE cases seek both compensatory and punitive damages under a variety of statutory and common law theories.  The potential impact of these cases and any future similar cases is uncertain.
 
Other Pending Legal Proceedings
 
In addition to the matters described above, there are various claims, lawsuits and administrative proceedings pending or threatened against Ashland and its current and former subsidiaries.  Such actions are with respect to commercial matters, product liability, toxic tort liability and other environmental matters, which seek remedies or damages, some of which are for substantial amounts.  While these actions are being contested, their outcome is not predictable.

ITEM 1A.  RISK FACTORS
 
During the period covered by this report, an additional risk factor not previously disclosed in Ashland’s Form 10-K for the year ended September 30, 2008, as updated in Ashland’s Form 10-Q for the quarter ended December 31, 2008, has been identified.  The new risk factor regarding implementation of Ashland’s enterprise resource planning project in the business units acquired as part of the Hercules transaction is reported as a risk factor below.
 
Ashland’s implementation of its SAP ® enterprise resource planning (“ERP”) project in the business units acquired as part of the Hercules transaction has the potential for business interruption and associated adverse impact on operating results as well as internal controls.
 
Ashland is proceeding with the project to implement its ERP within the business units acquired as part of the Hercules transaction during fiscal 2010.  Extensive planning is underway to support the effective implementation of the ERP system in those business units; however, such implementations carry certain risks, including potential for business interruption with the associated adverse impact on operating income.  In addition, internal controls that are modified or redesigned to support the ERP system implemented in those business units may result in deficiencies in the future that could constitute significant deficiencies, or in the aggregate, a material weakness in internal control over financial reporting.
 
 
64
 
 
 
 
 
 

ITEM 6.  EXHIBITS
 
 
(a)
Exhibits
 
 
4.1
Indenture by and among Ashland Inc., the Guarantors and U.S. Bank National Association, dated as of May 27, 2009.
 
 
4.2
Registration Rights Agreement by and among Ashland Inc., the Guarantors and Banc of America Securities, LLC and Scotia Capital (USA) Inc., dated as of May 27, 2009.
 
 
10.1
Purchase Agreement for the $650 Million 9 1/8% Senior Notes due 2017, between Ashland Inc. and Banc of America Securities LLC, Scotia Capital (USA) Inc. and SunTrust Robinson Humphrey, Inc., dated May 19, 2009.
 
 
10.2
Amendment No. 2 to Credit Agreement, dated as of May 20, 2009.

 
12
Computation of Ratio of Earnings to Fixed Charges.

 
31.1
Certificate of James J. O’Brien, Chief Executive Officer of Ashland pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
31.2
Certificate of Lamar M. Chambers, Chief Financial Officer of Ashland pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
32
Certificate of James J. O’Brien, Chief Executive Officer of Ashland, and Lamar M. Chambers, Chief Financial Officer of Ashland pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
 
65
 
 
 
 

SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
       Ashland Inc.  
      (Registrant)   
         
August 5, 2009
   
/s/  Lamar M. Chambers
 
 
   
Lamar M. Chambers
 
 
   
Senior Vice President and Chief Financial Officer
(on behalf of the Registrant and as principal
financial officer)
 
 
 
 
 
 
66
 
 
 
 
 

EXHIBIT INDEX
 
Exhibit
 
   No.   
Description
 
 
 
4.1
Indenture by and among Ashland Inc., the Guarantors and U.S. Bank National Association, dated as of May 27, 2009.
 
 
4.2
Registration Rights Agreement by and among Ashland Inc., the Guarantors and Banc of America Securities, LLC and Scotia Capital (USA) Inc., dated as of May 27, 2009.
 
 
10.1
Purchase Agreement for the $650 Million 9 1/8% Senior Notes due 2017, between Ashland Inc. and Banc of America Securities LLC, Scotia Capital (USA) Inc. and SunTrust Robinson Humphrey, Inc., dated May 19, 2009.
 
 
10.2
Amendment No. 2 to Credit Agreement, dated as of May 20, 2009.

 
12
Computation of Ratio of Earnings to Fixed Charges.

 
31.1
Certificate of James J. O’Brien, Chief Executive Officer of Ashland pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
31.2
Certificate of Lamar M. Chambers, Chief Financial Officer of Ashland pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
32
Certificate of James J. O’Brien, Chief Executive Officer of Ashland, and Lamar M. Chambers, Chief Financial Officer of Ashland pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
 
67
 
EXHIBIT 4.1
 
EXECUTION VERSION

 
ASHLAND INC.
 
as Issuer
 

 
and
 

 

 
THE GUARANTORS PARTY HERETO
 

 
____________________
 

 
9.125% SENIOR NOTES DUE 2017
 

 
____________________
 

 
INDENTURE
 

 
DATED AS OF MAY 27, 2009
 

 
____________________
 

 
U.S. BANK NATIONAL ASSOCIATION
 
as Trustee
 

 

 
 
 
 
 

CROSS-REFERENCE TABLE*
Trust Indenture
Act Section 
 
Indenture
Section
310
(a)(1)
7.1
 
(a)(2)
7.1
 
(a)(3)
N.A.
 
(a)(4)
N.A.
 
(a)(5)
7.1
 
(b)
7.3; 7.10
 
(c)
N.A.
311
(a)
7.11
 
(b)
7.11
 
(c)
N.A.
312
(a)
2.5
 
(b)
11.3
 
(c)
11.3
313
(a)
7.6
 
(b)(1)
7.6
 
(b)(2)
7.6; 7.7
 
(c)
7.6; 11.2
 
(d)
7.6
314
(a)
4.3; 11.5
 
(b)
N.A.
 
(c)(1)
11.4
 
(c)(2)
11.4
 
(c)(3)
N.A.
 
(d)
N.A.
 
(e)
11.5
 
(f)
N.A.
315
(a)
7.1
 
(b)
1.1, 7.5; 11.2
 
(c)
7.1
 
(d)
7.1
 
(e)
6.11
316
(a) (last sentence)
2.9
 
(a)(1)(A)
6.5
 
(a)(1)(B)
6.4
 
(a)(2)
N.A.
 
(b)
6.7
 
(c)
2.13
317
(a)(1)
6.8
 
(a)(2)
6.9
 
-i-
 
 
 
 
 
 
(b)
2.3
318
(a)
11.1
 
(b)
N.A.
 
(c)
11.1
 
 
________________________________
N.A. means not applicable.
 
*     This Cross-Reference Table is not part of the Indenture.
 
 
 
 
-ii-
 

 
 
 
 


TABLE OF CONTENTS
 
Page
ARTICLE I
 
DEFINITIONS AND INCORPORATION BY REFERENCE
 

SECTION 1.1
Definitions...................................................................................................................................................................
1
SECTION 1.2
Other Definitions..........................................................................................................................................................
37
SECTION 1.3
Incorporation by Reference of Trust Indenture Act........................................................................................................
38
SECTION 1.4
Rules of Construction...................................................................................................................................................
38
 
ARTICLE II
 
THE NOTES

 
SECTION 2.1
Form and Dating..........................................................................................................................................................
39
SECTION 2.2
Execution and Authentication........................................................................................................................................
41
SECTION 2.3
Registrar; Paying Agent...............................................................................................................................................
41
SECTION 2.4
Paying Agent to Hold Money in Trust............................................................................................................................
42
SECTION 2.5
Holder Lists.................................................................................................................................................................
42
SECTION 2.6
Book-Entry Provisions for Global Securities...................................................................................................................
42
SECTION 2.7
Replacement Notes......................................................................................................................................................
47
SECTION 2.8
Outstanding Notes........................................................................................................................................................
47
SECTION 2.9
Treasury Notes............................................................................................................................................................
48
SECTION 2.10
Temporary Notes.........................................................................................................................................................
48
SECTION 2.11
Cancellation.................................................................................................................................................................
48
SECTION 2.12
Defaulted Interest........................................................................................................................................................
49
SECTION 2.13
Record Date................................................................................................................................................................
49
SECTION 2.14
Computation of Interest................................................................................................................................................
49
SECTION 2.15
CUSIP Number...........................................................................................................................................................
49
SECTION 2.16
Special Transfer Provisions...........................................................................................................................................
49
SECTION 2.17
Issuance of Additional Notes........................................................................................................................................
52
 
ARTICLE III
 
REDEMPTION AND PREPAYMENT

SECTION 3.1
Notices to Trustee........................................................................................................................................................
53
SECTION 3.2
Selection of Notes to Be Redeemed..............................................................................................................................
53
SECTION 3.3
Notice of Redemption...................................................................................................................................................
54
SECTION 3.4
Effect of Notice of Redemption.....................................................................................................................................
54
SECTION 3.5
Deposit of Redemption of Purchase Price......................................................................................................................
55
SECTION 3.6
Notes Redeemed in Part...............................................................................................................................................
55

  -i-
 
 
 

SECTION 3.7
Optional Redemption....................................................................................................................................................
55
SECTION 3.8
Mandatory Redemption................................................................................................................................................
56
SECTION 3.9
Offer to Purchase........................................................................................................................................................
56
 
ARTICLE IV
 
COVENANTS

SECTION 4.1
Payment of Notes........................................................................................................................................................
58
SECTION 4.2
Maintenance of Office or Agency.................................................................................................................................
58
SECTION 4.3
Provision of Financial Information.................................................................................................................................
58
SECTION 4.4
Compliance Certificate.................................................................................................................................................
59
SECTION 4.5
Taxes..........................................................................................................................................................................
60
SECTION 4.6
Stay, Extension and Usury Laws...................................................................................................................................
60
SECTION 4.7
Limitation on Restricted Payments................................................................................................................................
60
SECTION 4.8
Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.................................................
64
SECTION 4.9
Limitation on Incurrence of Debt...................................................................................................................................
66
SECTION 4.10
Limitation on Asset Sales..............................................................................................................................................
68
SECTION 4.11
Limitation on Transactions with Affiliates......................................................................................................................
69
SECTION 4.12
Limitation on Liens.......................................................................................................................................................
71
SECTION 4.13
Limitation on Sale and Leaseback Transactions..............................................................................................................
71
SECTION 4.14
Offer to Purchase upon Change of Control....................................................................................................................
71
SECTION 4.15
Corporate Existence.....................................................................................................................................................
72
SECTION 4.16
Business Activities.......................................................................................................................................................
72
SECTION 4.17
Additional Note Guarantees..........................................................................................................................................
73
SECTION 4.18
Limitation on Creation of Unrestricted Subsidiaries.........................................................................................................
73
SECTION 4.19
Maintenance of Properties; Insurance; Books and Records.............................................................................................
73
 
ARTICLE V
 
SUCCESSORS
 
SECTION 5.1
Consolidation, Merger, Conveyance, Transfer or Lease..................................................................................................
74
SECTION 5.2
Successor Person Substituted........................................................................................................................................
76
 
ARTICLE VI
 
DEFAULTS AND REMEDIES
 
SECTION 6.1
Events of Default.........................................................................................................................................................
76
SECTION 6.2
Acceleration................................................................................................................................................................
78
SECTION 6.3
Other Remedies...........................................................................................................................................................
79
SECTION 6.4
Waiver of Past Defaults...............................................................................................................................................
79
SECTION 6.5
Control by Majority......................................................................................................................................................
79
SECTION 6.6
Limitation on Suits........................................................................................................................................................
79
 
 
-ii-
 
 
 
 
SECTION 6.7
Rights of Holders of Notes to Receive Payment.............................................................................................................
80
SECTION 6.8
Collection Suit by Trustee.............................................................................................................................................
80
SECTION 6.9
Trustee May File Proofs of Claim.................................................................................................................................
80
SECTION 6.10
Priorities......................................................................................................................................................................
81
SECTION 6.11
Undertaking for Costs..................................................................................................................................................
81
 
ARTICLE VII
 
TRUSTEE
 
SECTION 7.1
Duties of Trustee.........................................................................................................................................................
82
SECTION 7.2
Rights of Trustee.........................................................................................................................................................
83
SECTION 7.3
Individual Rights of Trustee..........................................................................................................................................
84
SECTION 7.4
Trustee's Disclaimer.....................................................................................................................................................
85
SECTION 7.5
Notice of Defaults........................................................................................................................................................
85
SECTION 7.6
Reports by Trustee to Holders of the Notes...................................................................................................................
85
SECTION 7.7
Compensation and Indemnity........................................................................................................................................
85
SECTION 7.8
Replacement of Trustee...............................................................................................................................................
86
SECTION 7.9
Successor Trustee by Merger, Etc................................................................................................................................
87
SECTION 7.10
Eligibility; Disqualification.............................................................................................................................................
88
SECTION 7.11
Preferential Collection of Claims Against the Issuer.......................................................................................................
88
SECTION 7.12
Trustee's Application for Instructions from the Issuer.....................................................................................................
88
 
ARTICLE VIII
 
DEFEASANCE AND COVENANT DEFEASANCE

SECTION 8.1
Option to Effect Defeasance or Covenant Defeasance...................................................................................................
88
SECTION 8.2
Defeasance and Discharge...........................................................................................................................................
89
SECTION 8.3
Covenant Defeasance..................................................................................................................................................
90
SECTION 8.4
Conditions to Defeasance or Covenant Defeasance........................................................................................................
91
SECTION 8.5
Deposited Money and Government Securities to Be Held in Trust; Other Miscellaneous Provisions...................................
92
SECTION 8.6
Repayment to Issuer....................................................................................................................................................
93
SECTION 8.7
Reinstatement..............................................................................................................................................................
93
 
 
ARTICLE IX
 
AMENDMENT, SUPPLEMENT AND WAIVER
 
SECTION 9.1
Without Consent of Holders of the Notes.......................................................................................................................
94
SECTION 9.2
With Consent of Holders of Notes.................................................................................................................................
95
SECTION 9.3
Compliance with Trust Indenture Act............................................................................................................................
96
SECTION 9.4
Revocation and Effect of Consents...............................................................................................................................
96
SECTION 9.5
Notation on or Exchange of Notes.................................................................................................................................
96
SECTION 9.6
Trustee to Sign Amendments, Etc..................................................................................................................................
97
 
-iii-
 
 
 
 
ARTICLE X
 
NOTE GUARANTEES
 
SECTION 10.1
Note Guarantees..........................................................................................................................................................
97
SECTION 10.2
Execution and Delivery of Note Guarantee....................................................................................................................
98
SECTION 10.3
Severability..................................................................................................................................................................
99
SECTION 10.4
Limitation of Guarantors' Liability..................................................................................................................................
99
SECTION 10.5
Guarantors May Consolidate, Etc., on Certain Terms......................................................................................................
99
SECTION 10.6
Releases Following Sale of Assets.................................................................................................................................
100
SECTION 10.7
Release of a Guarantor.................................................................................................................................................
101
SECTION 10.8
Benefits Acknowledged................................................................................................................................................
101
SECTION 10.9
Future Guarantors........................................................................................................................................................
101
 
ARTICLE XI
 
MISCELLANEOUS
 
SECTION 11.1
Trust Indenture Act Controls.........................................................................................................................................
101
SECTION 11.2
Notices........................................................................................................................................................................
102
SECTION 11.3
Communication by Holders of Notes with Other Holders of Notes...................................................................................
103
SECTION 11.4
Certificate and Opinion as to Conditions Precedent.........................................................................................................
103
SECTION 11.5
Statements Required in Certificate or Opinion................................................................................................................
103
SECTION 11.6
Rules by Trustee and Agents........................................................................................................................................
104
SECTION 11.7
No Personal Liability of Directors, Officers, Employees, Stockholders and the Trustee.....................................................
104
SECTION 11.8
Governing Law............................................................................................................................................................
104
SECTION 11.9
No Adverse Interpretation of Other Agreements............................................................................................................
105
SECTION 11.10
Successors...................................................................................................................................................................
105
SECTION 11.11
Severability..................................................................................................................................................................
105
SECTION 11.12
Counterpart Originals...................................................................................................................................................
105
SECTION 11.13
Table of Contents, Headings, Etc..................................................................................................................................
105
SECTION 11.14
Qualification of Indenture.............................................................................................................................................
105
 

EXHIBITS

Exhibit A
FORM OF 9.125% SENIOR NOTE
Exhibit B
FORM OF NOTATIONAL GUARANTEE
Exhibit C
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO RULE 144A
Exhibit D
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S

  -iv-
 
 
 

 
 
This Indenture, dated as of May 27, 2009, is by and among Ashland Inc., a Kentucky corporation (the “ Company ” or the “ Issuer ”), the Guarantors (as defined herein), and U.S. Bank National Association, as trustee (the “ Trustee ”).
 
Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the holders of (i) the Issuer’s 9.125% Senior Notes due 2017 issued on the date hereof that contain the restrictive legend in Exhibit A (the “ Initial Notes ”), (ii) Exchange Notes issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement or pursuant to an effective registration statement under the Securities Act without the restrictive legends in Exhibit A (the “ Exchange Notes ”) and (iii) Additional Notes issued from time to time as either Initial Notes or Exchange Notes (together with the Initial Notes and any Exchange Notes, the “ Notes ”).
 
ARTICLE I
 

 
DEFINITIONS AND INCORPORATION BY REFERENCE
 
 
SECTION 1.1
Definitions .
 
Acquired Debt   means Debt (1) of a Person (including an Unrestricted Subsidiary) existing at the time such Person becomes a Restricted Subsidiary or (2) assumed in connection with the acquisition of assets from such Person.  Acquired Debt shall be deemed to have been Incurred, with respect to clause (1) of the preceding sentence, on the date such Person becomes a Restricted Subsidiary and, with respect to clause (2) of the preceding sentence, on the date of consummation of such acquisition of assets.
 
Additional Interest   means all additional interest owing on the Notes pursuant to the Registration Rights Agreement.
 
Additional Notes ” means Notes (other than the Initial Notes or the Exchange Notes) issued pursuant to Article II hereof and otherwise in compliance with the provisions of this Indenture.
 
Affiliate   of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person.  For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings that correspond to the foregoing.  For purposes of Section 4.11, any Person directly or indirectly owning 15% or more of the outstanding Capital Interests of the Company will be deemed an Affiliate.
 

 
 
 
 

Agent ” means any Registrar, Paying Agent (so long as Trustee serves in such capacity) or co-registrar.
 
Asset Acquisition ” means:
 
(a)           an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Restricted Subsidiary, or shall be merged with or into the Company or any Restricted Subsidiary; or
 
(b)           the acquisition by the Company or any Restricted Subsidiary of the assets of any Person which constitute all or substantially all of the assets of such Person, any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business and consistent with past practices.
 
Asset Sale   means any transfer, conveyance, sale, lease or other disposition (including, without limitation, dispositions pursuant to any consolidation or merger) by the Company or any of its Restricted Subsidiaries to any Person (other than to the Company or one or more of its Restricted Subsidiaries) in any single transaction or series of transactions of:
 
(i)           Capital Interests in another Person (other than directors’ qualifying shares or shares or interests required to be held by foreign nationals pursuant to local law); or
 
(ii)           any other property or assets (other than in the normal course of business, including any sale or other disposition of obsolete or permanently retired equipment);
 
provided, however ,   that the term “Asset Sale” shall exclude:
 
(a)           any asset disposition permitted by Article V that constitutes a disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole;
 
(b)           any transfer, conveyance, sale, lease or other disposition of property or assets, the gross proceeds of which (exclusive of indemnities) do not exceed in any one or related series of transactions $5.0 million;
 
(c)           sales or other dispositions of cash or Eligible Cash Equivalents;
 
(d)           sales of interests in Unrestricted Subsidiaries;
 
(e)           the sale and leaseback of any assets within 90 days of the acquisition thereof;
 
(f)           the disposition of assets that, in the good faith judgment of the Company, are no longer used or useful in the business of such entity;
 
(g)           a Restricted Payment or Permitted Investment that is otherwise permitted by this Indenture;
 

 
-2-
 
 

(h)           any trade-in of equipment in exchange for other equipment; provided that in the good faith judgment of the Company, the Company or such Restricted Subsidiary receives equipment having a Fair Market Value equal to or greater than the equipment being traded in;
 
(i)           the concurrent purchase and sale or exchange of Related Business Assets or a combination of Related Business Assets between the Company or any of its Restricted Subsidiaries and another Person to the extent that the Related Business Assets received by the Company or its Restricted Subsidiaries are of equivalent or better market value than the Related Business Assets transferred;
 
(j)           the creation of a Lien (but not the sale or other disposition of the property subject to such Lien);
 
(k)           leases or subleases in the ordinary course of business to third persons not interfering in any material respect with the business of the Company or any of its Restricted Subsidiaries and otherwise in accordance with the provisions of this Indenture;
 
(l)           any disposition by a Subsidiary to the Company or by the Company or a Subsidiary to a Restricted Subsidiary;
 
(m)           dispositions of accounts receivable in connection with the collection or compromise thereof in the ordinary course of business and consistent with past practice;
 
(n)           licensing or sublicensing of intellectual property or other general intangibles in accordance with industry practice in the ordinary course of business;
 
(o)           any transfer of accounts receivable, or a fractional undivided interest therein, by a Receivable Subsidiary in a Qualified Receivables Transaction;
 
(p)           sales of accounts receivable to a Receivable Subsidiary pursuant to a Qualified Receivables Transaction for the Fair Market Value thereof; including cash or other financial accommodation, such as the provision of letters of credit by such Receivable Subsidiary on behalf of or for the benefit of the transferor of such accounts receivable,  in an amount at least equal to 75% of the Fair Market Value thereof (for the purposes of this clause (p), Purchase Money Notes will be deemed to be cash); 
 
(q)           any transfer, conveyance, sale or other disposition of property or assets in connection with the Castings Joint Venture Transaction;
 
(r)           any transfer, conveyance, sale or other disposition of property or assets consisting of auction rate securities; or
 
(s)           foreclosures on assets to the extent it would not otherwise result in a Default or Event of Default.
 

 
-3-
 
 

For purposes of this definition, any series of related transactions that, if effected as a single transaction, would constitute an Asset Sale, shall be deemed to be a single Asset Sale effected when the last such transaction which is a part thereof is effected.
 
Asset Sale Offer ” means an Offer to Purchase required to be made by the Company pursuant to Section 4.10 to all Holders.
 
Attributable Debt ” in respect of a Sale and Leaseback Transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been or may be extended).
 
Average Life ” means, as of any date of determination, with respect to any Debt, the quotient obtained by dividing (i) the sum of the products of (x) the number of years from the date of determination to the dates of each successive scheduled principal payment (including any sinking fund or mandatory redemption payment requirements) of such Debt multiplied by (y) the amount of such principal payment by (ii) the sum of all such principal payments.
 
Bankruptcy Law ” means Title 11, U.S. Code or any similar federal or state law for the relief of debtors.
 
Beneficial Owner ” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person,” as such term is used in Section 13(d)(3) of the Exchange Act, such “person” shall be deemed to have beneficial ownership of all securities that such “person” has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition.
 
Board of Directors ” means (i) with respect to the Company or any Restricted Subsidiary, its board of directors or any duly authorized committee thereof; (ii) with respect to a corporation, the board of directors of such corporation or any duly authorized committee thereof; and (iii) with respect to any other entity, the board of directors or similar body of the general partner or managers of such entity or any duly authorized committee thereof.
 
Board Resolution ” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company or any Restricted Subsidiary to have been duly adopted by the Board of Directors, unless the context specifically requires that such resolution be adopted by a majority of the Disinterested Directors, in which case by a majority of such Disinterested Directors, and to be in full force and effect on the date of such certification and delivered to the Trustee.
 
Bridge Loan Agreement ” means the Interim Credit Agreement dated as of November 13, 2008 among the Company and the lenders and agents named therein, including any notes, security or guarantee agreement related thereto, in each case as amended, restated or modified from time to time.
 

 
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Business Day ” means any day other than a Legal Holiday.
 
Capital Interests ” in any Person means any and all shares, interests (including Preferred Interests), participations or other equivalents in the equity interest (however designated) in such Person and any rights (other than Debt securities convertible into an equity interest), warrants or options to acquire an equity interest in such Person.
 
Capital Lease Obligations ” means any obligation of a Person under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP; and the amount of Debt represented by such obligation shall be the capitalized amount of such obligations determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty.
 
 “ Castings Joint Venture ” means the joint venture or joint ventures created in connection with the Castings Joint Venture Transaction and the Capital Interests of which are to be owned 50% by designated Affiliates of the Company and 50% by designated Affiliates of Süd-Chemie AG.
 
Castings Joint Venture Transaction ” means that series of transactions pursuant to which the Company and certain Subsidiaries of the Company will transfer the Castings Solutions’ Business, including interests in Ashland-Südchemie-Kernfest GmbH and Ashland-Avébène S.A.S. representing no more than $36.0 million of EBITDA for the twelve-month period ended September 30, 2008 and $184.0 million of tangible assets as of September 30, 2008, to one or more joint venture companies the Capital Interests of which are to be owned 50% by designated Affiliates of the Company and 50% by designated Affiliates of Süd-Chemie AG.
 
Castings Solutions’ Business ” means the business of supplying consumables (such as binders, coatings, additives, filters and sleeves) to the metal castings’ industry and related businesses as currently operated by the Company’s Castings’ Solutions business unit.
 
CFC ” means a Person that is a controlled foreign corporation under Section 957 of the Code.
 
Certificated Notes ” means Notes that are in the form of Exhibit A attached hereto, other than the Global Notes.
 
Change of Control ” means:
 
(1)           the Company becomes aware of (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) the acquisition by any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), that is or becomes the ultimate “beneficial owner” (as such term is used in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (1) such person or group shall be deemed to have “beneficial ownership” of all shares that any such person or group has the right to acquire, whether such right is ex-
 

 
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ercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the Voting Interests in the Company,
 
(2)           during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by the Board of Directors or whose nomination for election by the equityholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Company’s Board of Directors then in office or
 
(3)           the Company sells, conveys, transfers or leases (either in one transaction or a series of related transactions) all or substantially all of its assets to, or merges or consolidates with, a Person other than a Restricted Subsidiary of the Company.
 
Code ” means the Internal Revenue Code of 1986, as amended from time to time and the regulations promulgated thereunder.
 
Commission ” means the Securities and Exchange Commission and any successor thereto.
 
Common Interests ” of any Person means Capital Interests in such Person that do not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to Capital Interests of any other class in such Person.
 
Company ” or “ Issuer ” has the meaning set forth in the preamble hereto until a successor replaces it in accordance with the applicable provisions of this Indenture and, thereafter, means the successor thereto.
 
Consolidated Cash Flow Available for Fixed Charges ” means, with respect to any Person for any period:
 
                (i) the sum of, without duplication, the amounts for such period, taken as a single accounting period, of:
 
(a)           Consolidated Net Income;
 
(b)           Consolidated Non-cash Charges;
 
(c)           Consolidated Interest Expense to the extent the same was deducted in computing Consolidated Net Income;
 
(d)           Consolidated Income Tax Expense;
 
(e)           restructuring expenses and charges related to the Transactions;
 

 
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(f)           any expenses or charges related to any equity offering, Permitted Investment, recapitalization or Incurrence of Debt permitted to be made under this Indenture (whether or not successful) or related to the offering of the Initial Notes issued on the Issue Date;
 
(g)           the amount of any interest expense attributable to minority equity interests of third parties in any non-wholly owned Subsidiary to the extent deducted in such period in computing Consolidated Net Income;
 
(h)           any net loss from discontinued operations; and
 
(i)           any costs or expenses incurred by the Company or a Restricted Subsidiary pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement, any stock subscription or shareholder agreement, to the extent that such costs or expenses are funded with cash proceeds contributed to the capital of the Company or net cash proceeds of an issuance of Capital Interests of the Company (other than Redeemable Capital Interests); less
 
                (ii) (x) net income from discontinued operations and (y) the amount of extraordinary, non-recurring or unusual gains.
 
Consolidated Fixed Charge Coverage Ratio ” means, with respect to any Person, the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of such Person for the four full fiscal quarters, treated as one period, for which financial information in respect thereof is available immediately preceding the date of the transaction (the “ Transaction Date ”) giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the “ Four Quarter Period ”) to the aggregate amount of Consolidated Fixed Charges of such Person for the Four Quarter Period.  In addition to and without limitation of the foregoing, for purposes of this definition, “Consolidated Cash Flow Available for Fixed Charges” and “Consolidated Fixed Charges” shall be calculated after giving effect (i) to the cost of any compensation, remuneration or other benefit paid or provided to any employee, consultant, Affiliate or equity owner of the entity involved in any Asset Acquisition to the extent such costs are eliminated or reduced (or public announcement has been made of the intent to eliminate or reduce such costs) prior to the date of such calculation and not replaced; and (ii) on a pro forma basis for the period of such calculation, to any Asset Sales or other dispositions or Asset Acquisitions, investments, mergers, consolidations and discontinued operations (as determined in accordance with GAAP) occurring during the Four Quarter Period or any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or other disposition or Asset Acquisition (including the Incurrence or assumption of any such Acquired Debt), investment, merger, consolidation or disposed operation occurred on the first day of the Four Quarter Period.  For purposes of this definition, pro forma calculations shall be made in accordance with Article 11 of Regulation S-X promulgated under the Securities Act, except that such pro forma calculations may also include operat-
 

 
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ing expense reductions for such period resulting from the Asset Sale or other disposition or Asset Acquisition, investment, merger, consolidation or discontinued operation (as determined in accordance with GAAP) for which pro forma effect is being given (A) that have been realized or (B) for which steps have been taken or are reasonably expected to be taken within six (6) months of the date of such transaction and are supportable and quantifiable and, in each case, including, but not limited to, (a) reduction in personnel expenses, (b) reduction of costs related to administrative functions, (c) reduction of costs related to leased or owned properties and (d) reductions from the consolidation of operations and streamlining of corporate overhead, provided that, in either case, such adjustments are set forth in an Officers’ Certificate signed by the Company’s chief financial or similar officer that states (i) the amount of such adjustment or adjustments and (ii) that such adjustment or adjustments are based on the reasonable good faith belief of the Officers executing such Officers’ Certificate at the time of such execution.
 
Furthermore, in calculating “Consolidated Fixed Charges” for purposes of determining the denominator (but not the numerator) of this “Consolidated Fixed Charge Coverage Ratio”:
 
                (i) interest on outstanding Debt determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Debt in effect on the Transaction Date; and
 
                (ii) if interest on any Debt actually Incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period.
 
If such Person or any of its Restricted Subsidiaries directly or indirectly Guarantees Debt of a third Person, the above clause shall give effect to the Incurrence of such Guaranteed Debt as if such Person or such Subsidiary had directly Incurred or otherwise assumed such Guaranteed Debt.
 
Consolidated Fixed Charges ” means, with respect to any Person for any period, the sum of, without duplication, the amounts for such period of:
 
                (i) Consolidated Interest Expense; and
 
                (ii) the product of (a) all dividends and other distributions paid or accrued during such period in respect of Redeemable Capital Interests of such Person and its Restricted Subsidiaries (other than dividends paid in Qualified Capital Interests), times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal.
 
Consolidated Income Tax Expense ” means, with respect to any Person for any period,  (x) if such Person is not a corporation, the permitted tax payments of such Person for such period, or (y) if such Person is a corporation, the provision for federal, state, local and foreign income taxes of such Person and its Restricted Subsidiaries for such period as determined on a
 

 
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consolidated basis in accordance with GAAP paid or accrued during such period, including any penalties and interest related to such taxes or arising from any tax examinations, to the extent the same were deducted in computing Consolidated Net Income.
 
Consolidated Interest Expense ” means, with respect to any Person for any period, without duplication, the sum of:
 
                (i) the total interest expense of such Person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation:
 
(a)           any amortization of debt discount;
 
(b)           the net cost under any Hedging Obligation or Swap Contract in respect of interest rate protection (including any amortization of discounts);
 
(c)           the interest portion of any deferred payment obligation;
 
(d)           all commissions, discounts and other fees and charges owed with respect to financing activities or similar activities; and
 
(e)           all accrued interest;
 
                (ii) the interest component of Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period determined on a consolidated basis in accordance with GAAP; and
 
                (iii) all capitalized interest of such Person and its Restricted Subsidiaries for such period;
 
less interest income of such Person and its Restricted Subsidiaries for such period; provided , however , that Consolidated Interest Expense will exclude (I) the amortization or write-off of debt issuance costs and deferred financing fees, commissions, fees and expenses and (II) any expensing of interim loan commitment and other financing fees.
 
Consolidated Net Income ” means, with respect to any Person for any period, the consolidated net income (or loss) of such Person and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income, by:
 
(A)           excluding, without duplication
 
                (i) all extraordinary gains or losses (net of fees and expenses relating to the transaction giving rise thereto), income, expenses or charges;
 
                (ii) the portion of net income of such Person and its Restricted Subsidiaries allocable to minority interest in unconsolidated Persons or Investments in
 

 
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Unrestricted Subsidiaries to the extent that cash dividends or distributions have not actually been received by such Person or one of its Restricted Subsidiaries; provided that for the avoidance of doubt, Consolidated Net Income shall be increased in amounts equal to the amounts of cash actually received;
 
                (iii) gains or losses in respect of any Asset Sales by such Person or one of its Restricted Subsidiaries (net of fees and expenses relating to the transaction giving rise thereto), on an after-tax basis;
 
                (iv) the net income (loss) from any disposed or discontinued operations or any net gains or losses on disposed or discontinued operations, on an after-tax basis;
 
                (v) solely for purposes of determining the amount available for Restricted Payments under clause (c) of the first paragraph of Section 4.7, the net income of any Restricted Subsidiary (other than a Guarantor) or such Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulations applicable to that Restricted Subsidiary or its stockholders; provided that for the avoidance of doubt, Consolidated Net Income shall be increased in amounts equal to the amounts of cash actually received;
 
                (vi) any gain or loss realized as a result of the cumulative effect of a change in accounting principles;
 
                (vii) any fees and expenses paid in connection with the issuance of the Initial Notes on the Issue Date;
 
                (viii) non-cash compensation expense Incurred with any issuance of equity interests to an employee of such Person or any Restricted Subsidiary;
 
                (ix) any net after-tax gains or losses attributable to the early extinguishment or conversion of Debt;
 
                (x) any non-cash impairment charges or asset write-off or write-down resulting from the application of Statement of Financial Accounting Standards No. 142 or Statement of Financial Accounting Standards No. 144, and the amortization of intangibles arising pursuant to Statement of Financial Accounting Standards No. 141 or any related subsequent Statement of Financial Accounting Standards;
 
                (xi) non-cash gains, losses, income and expenses resulting from fair value accounting required by Statement of Financial Accounting Standards No. 133 or any related subsequent Statement of Financial Accounting Standards;
 

 
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                (xii)   accruals and reserves that are established within twelve (12) months after the Issue Date that are so required to be established as a result of the Transactions (or within twelve months after the closing of any acquisition that are so required to be established as a result of such acquisition) in accordance with GAAP;
 
(xiii)           any fees, expenses, charges or Integration Costs Incurred during such period, or any amortization thereof for such period, in connection with any acquisition, Investment, Asset Sale, disposition, Incurrence or repayment of Debt (including such fees, expenses or charges related to any Credit Facility), issuance of Capital Interests, refinancing transaction or amendment or modification of any debt instrument, and including, in each case, any such transaction undertaken but not completed, and any charges or non-recurring merger or acquisition costs Incurred during such period as a result of any such transaction, in each case whether or not successful;
(xiv)           any net unrealized gain or loss (after any offset) resulting from currency translation gains or losses related to currency remeasurements of Debt (including any net gain or loss resulting from obligations under Hedging Obligations for currency exchange risk) and any foreign currency translation gains or losses;
(xv)           any accruals and reserves that are established for expenses and losses, in respect of equity-based awards compensation expense ( provided that if any such non-cash charges represent an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period shall reduce Consolidated Net Income to such extent, and excluding amortization of a prepaid cash item that was paid in a prior period);
(xvi)           any expenses, charges or losses that are covered by indemnification or other reimbursement provisions in connection with any Permitted Investment or any sale, conveyance, transfer or other disposition of assets permitted under this Indenture, to the extent actually reimbursed, or, so long as the Issuer has made a determination that a reasonable basis exists for indemnification or reimbursement and only to the extent that such amount is in fact indemnified or reimbursed within 365 days of such determination (with a deduction in the applicable future period for any amount so added back to the extent not so indemnified or reimbursed within such 365 days);
(xvii)          to the extent covered by insurance and actually reimbursed, or, so long as the Company has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to the extent that such amount is in fact reimbursed within 365 days of the date of such determination (with a deduction in the applicable future period for any amount so added back to the extent not so reimbursed within such 365 days), expenses, charges or losses with respect to liability or casualty events or business interruption;
(xviii)         any capital loss suffered as a result of the sale of auction rate securities held by the Company or any Subsidiary on November 13, 2008; and
(xix)           net obligations under Swap Contracts terminated on or about November 13, 2008; and

 
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(B)           including, without duplication, dividends and distributions from joint ventures actually received in cash by the Company.
 
Consolidated Non-cash Charges ” means, with respect to any Person for any period, the aggregate depreciation, amortization (including amortization of goodwill, other intangibles, deferred financing fees, debt issuance costs, commissions, fees and expenses) and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss and excluding any such charges constituting an extraordinary item or loss or any charge which requires an accrual of or a reserve for cash charges for any future period).
 
Consolidated Secured Leverage Ratio ” means, with respect to any Person, the ratio of the aggregate amount of all Debt (other than Defeased Debt) secured by Liens of such Person and its Restricted Subsidiaries at the end of the most recent fiscal period for which financial information in respect thereof is available immediately preceding the date of the transaction (the “ Transaction Date ”) giving rise to the need to calculate the Consolidated Secured Leverage Ratio to the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of such Person for the four full fiscal quarters, treated as one period, for which financial information in respect thereof is available immediately preceding the Transaction Date (such four full fiscal quarter period being referred to herein as the “ Four Quarter Period ”).  In addition to and without limitation of the foregoing, for purposes of this definition, this ratio shall be calculated after giving effect (i) to the cost of any compensation, remuneration or other benefit paid or provided to any employee, consultant, Affiliate or equity owner of the entity involved in any Asset Acquisition to the extent such costs are eliminated or reduced (or public announcement has been made of the intent to eliminate or reduce such costs) prior to the date of such calculation and not replaced; and (ii) on a pro forma basis for the period of such calculation to any Asset Sales or other dispositions or Asset Acquisitions, investments, mergers, consolidations and discontinued operations (as determined in accordance with GAAP) occurring during the Four Quarter Period or any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or other disposition or Asset Acquisition (including the Incurrence or assumption of any such Acquired Debt), investment, merger, consolidation or disposed operation occurred on the first day of the Four Quarter Period.  For purposes of this definition, pro forma calculations shall be made in accordance with Article 11 of Regulation S-X promulgated under the Securities Act; except that such pro forma calculations may also include operating expense reductions for such period resulting from the Asset Sale or other disposition or Asset Acquisition, investment, merger, consolidation or discontinued operation (as determined in accordance with GAAP) for which pro forma effect is being given (A) that have been realized or (B) for which steps have been taken or are reasonably expected to be taken within six (6) months of the date of such transaction and are supportable and quantifiable and, in each case, including, but not limited to, (a) reduction in personnel expenses, (b) reduction of costs related to administrative functions, (c) reduction of costs related to leased or owned properties and (d) reductions from the consolidation of operations and streamlining of corporate overhead, provided that, in either case, such adjustments are set forth in an Officers’ Certificate signed by the Company’s chief financial or similar officer that states (i) the amount of such adjustment or adjustments and (ii) that such ad-
 

 
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justment or adjustments are based on the reasonable good faith belief of the Officers executing such Officers’ Certificate at the time of such execution.
 
Corporate Trust Office of the Trustee ” shall be at the address of the Trustee specified in Section 11.2 hereof or such other address as to which the Trustee may give notice to the Company.
 
Credit Agreement ” means the Company’s senior credit facilities, dated as of November 13, 2008, between the Company and guarantors named therein and Bank of America, N.A., as administrative agent, and the other agents and lenders named therein, together with all related notes, letters of credit, collateral documents, guarantees, and any other related agreements and instruments executed and delivered in connection therewith, in each case as amended, modified, supplemented, restated, refinanced, refunded or replaced in whole or in part from time to time including by or pursuant to any agreement or instrument that extends the maturity of any Debt thereunder, or increases the amount of available borrowings thereunder ( provided that such increase in borrowings is permitted under clause (i) or (xv) of the definition of the term “Permitted Debt”), or adds Subsidiaries of the Company as additional borrowers or guarantors thereunder, in each case with respect to such agreement or any successor or replacement agreement and whether by the same or any other agent, lender, group of lenders, purchasers or debt holders.
 
Credit Facilities ” means one or more credit facilities (including the Credit Agreement) with banks or other lenders providing for revolving loans or term loans or the issuance of letters of credit or bankers’ acceptances; provided, however, no term debt issued by any Person pursuant to an Indenture qualified under the TIA shall constitute a “Credit Facility.”
 
Debt ” means at any time (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person, or non-recourse, the following:  (i) all indebtedness of such Person for money borrowed or for the deferred purchase price of property, excluding any trade payables or other current liabilities Incurred in the normal course of business; (ii) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments; (iii) all reimbursement obligations of such Person with respect to letters of credit (other than letters of credit that are secured by cash or Eligible Cash Equivalents), bankers’ acceptances or similar facilities (excluding obligations in respect of letters of credit or bankers’ acceptances issued in respect of trade payables) issued for the account of such Person; provided that such obligations shall not constitute Debt except to the extent drawn and not repaid within five Business Days; (iv) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property or assets acquired by such Person; (v) all Capital Lease Obligations of such Person; (vi) the maximum fixed redemption or repurchase price of Redeemable Capital Interests in such Person at the time of determination; (vii) any Swap Contracts and Hedging Obligations of such Person at the time of determination; (viii) Attributable Debt with respect to any Sale and Leaseback Transaction to which such Person is a party; and (ix) all obligations of the types referred to in clauses (i) through (viii) of this definition of another Person, the payment of which, in either case, (A) such Person has Guaranteed or (B) is secured by (or the holder of such Debt or the recipient of such dividends or other distributions has an existing right, whether contingent or otherwise, to be secured by) any Lien upon the property or other assets of such Person, even though such Person has not assumed or become liable for the

 
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payment of such Debt.  For purposes of the foregoing:  (a) the maximum fixed repurchase price of any Redeemable Capital Interests that do not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Interests as if such Redeemable Capital Interests were repurchased on any date on which Debt shall be required to be determined pursuant to this Indenture; provided , however , that, if such Redeemable Capital Interests are not then permitted to be repurchased, the repurchase price shall be the book value of such Redeemable Capital Interests; (b) the amount outstanding at any time of any Debt issued with original issue discount is the principal amount of such Debt less the remaining unamortized portion of the original issue discount of such Debt at such time as determined in conformity with GAAP, but such Debt shall be deemed Incurred only as of the date of original issuance thereof; (c) the amount of any Debt described in clause (vii) is the net amount payable (after giving effect to permitted set-off) if such Swap Contracts or Hedging Obligations are terminated at that time due to default of such Person; (d) the amount of any Debt described in clause (ix)(A) above shall be the maximum liability under any such Guarantee; (e) the amount of any Debt described in clause (ix)(B) above shall be the lesser of (I) the maximum amount of the obligations so secured and (II) the Fair Market Value of such property or other assets; and (f) interest, fees, premium and expenses and additional payments, if any, will not constitute Debt.
 
Notwithstanding the foregoing, in connection with the purchase by the Company or any Restricted Subsidiary of any business, the term “Debt” will exclude (x) customary indemnification obligations and (y) post-closing payment adjustments to which the seller may become entitled to the extent such payment is determined by a final closing balance sheet or such payment is otherwise contingent; provided , however , that, at the time of closing, the amount of any such payment is not determinable and, to the extent such payment thereafter becomes fixed and determined, the amount is paid within 60 days thereafter.
 
The amount of Debt of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, only upon the occurrence of the contingency giving rise to the obligations, of any contingent obligations at such date; provided , however , that in the case of Debt sold at a discount, the amount of such Debt at any time will be the accreted value thereof at such time.  If such Person or any of its Restricted Subsidiaries directly or indirectly Guarantees Debt of a third Person, the amount of Debt of such Person shall give effect to the Incurrence of such Guaranteed Debt as if such Person or such Subsidiary had directly Incurred or otherwise assumed such Guaranteed Debt.
 
Default ” means any event that is, or after notice or passage of time, or both, would be, an Event of Default.
 
Defeased Debt ” means (a) the Debt of the Company ($5,000,000 as of June 30, 2008) for its 9.35% medium-term notes due 2019 that is the subject of a covenant defeasance pursuant to Section 4.03 of the indenture therefor dated August 15, 1989, as amended and restated as of August 15, 1990, (b) the Debt of the Company ($8,500,000 as of June 30, 2008) for its 8.38% medium-term notes due 2015 that is the subject of a covenant defeasance pursuant to Section 4.03 of the indenture therefor dated August 15, 1989, as amended and restated as of August 15, 1990, and (c) the Debt of the Company ($17,105,000 as of June 30, 2008) for its 6.86% medium

 
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-term notes due 2009 that is the subject of a covenant defeasance pursuant to Section 4.03 of the indenture therefor dated August 15, 1989, as amended and restated as of August 15, 1990.
 
Depositary ” means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.3 hereof as the Depositary with respect to the Notes, until a successor shall have been appointed and become such pursuant to Section 2.6 hereof, and, thereafter, “Depositary” shall mean or include such successor.
 
Disinterested Director ” means, with respect to any proposed transaction between (i) the Company or a Restricted Subsidiary, as applicable, and (ii) an Affiliate thereof (other than the Company or a Restricted Subsidiary), a member of the Board of Directors of the Company or such Restricted Subsidiary, as applicable, who would not be a party to, or have a financial interest in, such transaction and is not an officer, director or employee of, and does not have a financial interest in, such Affiliate.  For purposes of this definition, no person would be deemed not to be a Disinterested Director solely because such person holds Capital Interests in the Company or is an employee of the Company.
 
 “ DTC ” means The Depository Trust Company.
 
Eligible Bank ” means a bank or trust company that (i) is licensed, chartered or organized and existing under the laws of the United States of America or Canada, or any state, territory, province or possession thereof, (ii) as of the time of the making or acquisition of an Investment in such bank or trust company, has combined capital and surplus in excess of $500.0 million and (iii) the senior Debt of which is rated at least “A-2” by Moody’s or at least “A” by S&P.
 
Eligible Cash Equivalents ” means any of the following Investments:  (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof ( provided that the full faith and credit of the United States is pledged in support thereof) maturing not more than one year after the date of acquisition; (ii) time deposits in and certificates of deposit of any Eligible Bank, provided that such Investments have a maturity date not more than two years after date of acquisition and that the Average Life of all such Investments is one year or less from the respective dates of acquisition; (iii) repurchase obligations with a term of not more than 180 days for underlying securities of the types described in clause (i) above entered into with any Eligible Bank; (iv) direct obligations issued by any state of the United States or any political subdivision or public instrumentality thereof, provided that such Investments mature, or are subject to tender at the option of the holder thereof, within 365 days after the date of acquisition and, at the time of acquisition, have a rating of at least A from S&P or A-2 from Moody’s (or an equivalent rating by any other nationally recognized rating agency); (v) commercial paper of any Person other than an Affiliate of the Company and other than structured investment vehicles, provided that such Investments have one of the two highest ratings obtainable from either S&P’s or Moody’s and mature within 180 days after the date of acquisition; (vi) overnight and demand deposits in and bankers’ acceptances of any Eligible Bank and demand deposits in any bank or trust company to the extent insured by the Federal Deposit Insurance Corporation against the Bank Insurance Fund; (vii) money market funds substantially all of the assets of which comprise Investments of the types described in clauses (i) through (vi); and (viii) instruments equivalent to those referred to in clauses (i) through (vi)

 
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above or funds equivalent to those referred to in clause (vii) above denominated in U.S. dollars, Euros or any other foreign currency comparable in credit quality and tender to those referred to in such clauses and customarily used by corporations for cash management purposes in jurisditions outside the United States to the extent reasonably required in connection with any business conducted by any Restricted Subsidiary organized in such jurisdiction, all as determined in good faith by the Company.
 
ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time.  References to sections of ERISA shall be construed also to refer to any successor sections.
 
Exchange Act ” means the Securities Exchange Act of 1934, as amended.
 
Exchange Notes ” has the meaning set forth in the Preamble.
 
Exchange Offer ” means an offer that may be made by the Issuer pursuant to the Registration Rights Agreement to exchange Initial Notes for the Exchange Notes.
 
 “ Expiration Date ” has the meaning set forth in the definition of “Offer to Purchase.”
 
Fair Market Value ” means, with respect to the consideration received or paid in any transaction or series of transactions, the fair market value thereof as determined in good faith by the Company.  In the case of a transaction between the Company or a Restricted Subsidiary, on the one hand, and a Receivable Subsidiary, on the other hand, if the Company determines in its sole discretion that such determination is appropriate, a determination as to Fair Market Value may be made at the commencement of the transaction and be applicable to all dealings between the Receivable Subsidiary and the Company or such Restricted Subsidiary during the course of such transaction.
 
Foreign Holdco ” means Ashland International Holdings, Inc., Valvoline International, Inc., Hercules Paper Holdings, Inc., AshOne CV, Hercules Investments Sarl and any other Subsidiary substantially all business and purpose of which is the holding of stock of Subsidiaries that are CFC’s, which shall be disclosed in writing by the Company to the Trustee as being a “Foreign Holdco” from time to time after the Issue Date and which, in all cases, do not engage in any business or activity other than (a) the ownership of CFCs, (b) maintaining its corporate existence, (c) participating in tax, accounting and other administrative activities as the parent of a CFC, (d) the execution and delivery of any agreements or other documents related to or entered into in connection with any Credit Facilities or the performance of its obligations under any such agreement or document, (e) the execution and delivery of this Indenture and the Note Guarantee to which it is a party and the performance of its obligations thereunder, (f) in the case of Ashland International Holdings, Inc., Valvoline International, Inc., Hercules Paper Holdings, Inc., AshOne C.V., Hercules Investments Sarl and any other Foreign Holdco existing on the Issue Date the continuation of activities being conducted by them on the Issue Date so long as there is no material change in the nature or material increase in the relative quantity of such activities

 
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thereafter and (g) activities incidental to the businesses or activities described in clauses (a) through (f) of this definition.
 
Four Quarter Period ” has the meaning set forth in the definition of “Consolidated Fixed Charge Coverage Ratio” or the definition of “Consolidated Secured Leverage Ratio”, as applicable.
 
GAAP ” means generally accepted accounting principles in the United States, consistently applied, as set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date.
 
Global Note Legend ” means the legend identified as such in Section 2.6(e)(ii) hereto.
 
Global Notes ” means the Notes in global form and registered in the name of the Depositary or its nominee that are in the form of Exhibit A attached hereto.
 
Guarantee ” means, as applied to any Debt of another Person, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the normal course of business), direct or indirect, in any manner, of any part or all of such Debt, (ii) any direct or indirect obligation, contingent or otherwise, of a Person guaranteeing or having the effect of guaranteeing the Debt of any other Person in any manner and (iii) an agreement of a Person, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment (or payment of damages in the event of non-payment) of all or any part of such Debt of another Person (and “ Guaranteed ” and “ Guaranteeing ” shall have meanings that correspond to the foregoing).
 
Guarantor ” means any Person that executes a Note Guarantee in accordance with the provisions of this Indenture and its respective successors and assigns.
 
Hedging Obligations ” of any Person means the obligations of such Person pursuant to any interest rate agreement, currency agreement or commodity agreement, excluding commodity agreements relating to raw materials used in the ordinary course of the Company’s business.
 
Holder ” means a Person in whose name a Note is registered in the security register.
 
Immaterial Subsidiary ” means as of any date of determination, any Subsidiary that, together with its Subsidiaries on a consolidated basis, during the twelve months preceding such date of determination accounts for (or to which may be attributed) 2.5% or less of the net income or assets (determined on a consolidated basis) of the Company and its Subsidiaries; provided that the aggregate consolidated income or assets for all Immaterial Subsidiaries shall not at any time exceed 5.0% of the total net income or assets of the Company and its Subsidiaries.
 
Incur ” means, with respect to any Debt or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, Guarantee or otherwise become liable in respect of such Debt or other obligation or the recording, as required pursuant to GAAP 
 
 
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or otherwise, of any such Debt or other obligation on the balance sheet of such Person; provided , however, that a change in GAAP or an interpretation thereunder that results in an obligation of such Person that exists at such time becoming Debt shall not be deemed an Incurrence of such Debt.  Debt otherwise Incurred by a Person before it becomes a Subsidiary of the Company shall be deemed to be Incurred at the time at which such Person becomes a Subsidiary of the Company.  “ Incurrence ,” “ Incurred ,” “ Incurrable ” and “ Incurring ” shall have meanings that correspond to the foregoing.  A Guarantee by the Company or a Restricted Subsidiary of Debt Incurred by the Company or a Restricted Subsidiary, as applicable, shall not be a separate Incurrence of Debt.  In addition, the following shall not be deemed a separate Incurrence of Debt:
 
(1)           amortization of debt discount or accretion of principal with respect to a non-interest-bearing or other discount security;
 
(2)           the payment of regularly scheduled interest in the form of additional Debt of the same instrument or the payment of regularly scheduled dividends on Capital Interests in the form of additional Capital Interests of the same class and with the same terms;
 
(3)           the obligation to pay a premium in respect of Debt arising in connection with the issuance of a notice of redemption or making of a mandatory offer to purchase such Debt; and
 
(4)           unrealized losses or charges in respect of Hedging Obligations.
 
Indenture ” means this Indenture, as amended or supplemented from time to time.
 
Initial Purchasers ” means Banc of America Securities LLC, Scotia Capital (USA) Inc., and such other initial purchasers party to the Purchase Agreement entered into in connection with the offer and sale of the Notes on the Issue Date and any similar purchase agreement in connection with any Additional Notes.
 
Integration Costs ” means, with respect to any acquisition, all costs relating to the integration of the acquired business or operations into the Company’s, including labor costs, consulting fees, travel costs and any other expenses relating to the integration process.
 
Investment ” by any Person means any direct or indirect loan, advance, guarantee for the benefit of (or other extension of credit) or capital contribution to (by means of any transfer of cash or other property or assets to another Person or any other payments for property or services for the account or use of another Person) another Person, including, without limitation, the following:  (i) the purchase or acquisition of any Capital Interest or other evidence of beneficial ownership in another Person; (ii) the purchase, acquisition or Guarantee of the Debt of another Person; and (iii) the purchase or acquisition of the business or assets of another Person substantially as an entirety but shall exclude:  (a) accounts receivable and other extensions of trade credit in accordance with the Company’s customary practices; (b) the acquisition of property and assets from suppliers and other vendors in the normal course of business; and (c) prepaid expenses and workers’ compensation, utility, lease and similar deposits, in the normal course of business.
 
Issue Date ” means May 27, 2009.
 

 
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Issuer ” or “ Company ” has the meaning set forth in the preamble hereto until a successor replaces it in accordance with the applicable provisions of this Indenture and, thereafter, means the successor thereto.
 
Legal Holiday ” means a Saturday, a Sunday or a day on which banking institutions in The City of New York, the city in which the principal Corporate Trust Office of the Trustee is located or at a place of payment are authorized or required by law, regulation or executive order to remain closed.  If a payment date in a place of payment is a Legal Holiday, payment shall be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period.
 
 “ Lien ” means, with respect to any property or other asset, any mortgage, deed of trust, deed to secure debt, pledge, hypothecation, assignment, deposit arrangement, security interest, lien (statutory or otherwise), charge, easement, encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or other asset (including, without limitation, any conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing).
 
Merger ” means the merger of Ashland Sub One, Inc. and Hercules Incorporated pursuant to the Merger Agreement.
 
Merger Agreement ” means the Agreement and Plan of Merger, dated as of July 10, 2008, among Ashland Inc., Ashland Sub One, Inc. and Hercules Incorporated.
 
Moody’s ” means Moody’s Investors Service, Inc. and any successor to its rating agency business.
 
Net Cash Proceeds ” means, with respect to Asset Sales of any Person, cash and Eligible Cash Equivalents received, net of:  (i) all reasonable out-of-pocket costs and expenses of such Person incurred in connection with such a sale, including, without limitation, all legal, accounting, title and recording tax expenses, commissions and other fees and expenses incurred and all federal, state, foreign and local taxes arising in connection with such an Asset Sale that are paid or required to be accrued as a liability under GAAP by such Person; (ii) all payments made by such Person on any Debt that is secured by such properties or other assets in accordance with the terms of any Lien upon or with respect to such properties or other assets or that must, by the terms of such Lien or such Debt, or in order to obtain a necessary consent to such transaction or by applicable law, be repaid to any other Person (other than the Company or a Restricted Subsidiary thereof) in connection with such Asset Sale; and (iii) all contractually required distributions and other payments made to minority interest holders in Restricted Subsidiaries of such Person as a result of such transaction; provided , however , that:  (a) in the event that any consideration for an Asset Sale (which would otherwise constitute Net Cash Proceeds) is required by (I) contract to be held in escrow pending determination of whether a purchase price adjustment will be made or (II) GAAP to be reserved against other liabilities in connection with such Asset Sale, such consideration (or any portion thereof) shall become Net Cash Proceeds only at such time as it is released to such Person from escrow or otherwise; and (b) any non-cash considera-
 

 
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tion received in connection with any transaction, which is subsequently converted to cash, shall become Net Cash Proceeds only at such time as it is so converted.
 
Non-Recourse Receivable Subsidiary Indebtedness ” has the meaning set forth in the definition of “Receivable Subsidiary.”
 
Note Custodian ” means the Trustee when serving as custodian for the Depositary with respect to the Global Notes, or any successor entity thereto.
 
Note Guarantee ” means any guarantee of the Notes by any Guarantor pursuant to this Indenture.
 
Notes ” has the meaning set forth in the preamble to this Indenture.
 
Obligations ” means any principal, premium, interest (including any interest accruing subsequent to the filing of a petition in bankruptcy, reorganization or similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable state, federal or foreign law), penalties, fees, indemnifications, reimbursements (including reimbursement obligations with respect to letters of credit and bankers’ acceptances), damages and other liabilities, and guarantees of payment of such principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities, payable under the documentation governing any Debt.
 
Offer ” has the meaning set forth in the definition of “Offer to Purchase.”
 
Offer to Purchase ” means a written offer (the “ Offer ”) sent by the Company by first class mail, postage prepaid, to each Holder at its address appearing in the Note Register on the date of the Offer, offering to purchase up to the aggregate principal amount of Notes set forth in such Offer at the purchase price set forth in such Offer (as determined pursuant to this Indenture).  Unless otherwise required by applicable law, the offer shall specify an expiration date (the “ Expiration Date ”) of the Offer to Purchase which shall be, subject to any contrary requirements of applicable law, not less than 30 days or more than 60 days after the date of mailing of such Offer and a settlement date (the “ Purchase Date ”) for purchase of Notes within five Business Days after the Expiration Date.  The Company shall notify the Trustee at least 15 days (or such shorter period as is acceptable to the Trustee) prior to the mailing of the Offer of the Company’s obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company’s request, by the Trustee in the name and at the expense of the Company.  The Offer shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Offer to Purchase.  The Offer shall also state:
 
(1)           the Section of this Indenture pursuant to which the Offer to Purchase is being made;
 
(2)           the Expiration Date and the Purchase Date;
 
(3)           the aggregate principal amount of the outstanding Notes offered to be purchased pursuant to the Offer to Purchase (including, if less than 100%, the manner by
 

 
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which such amount has been determined pursuant to Indenture covenants requiring the Offer to Purchase) (the “ Purchase Amount ”);
 
(4)           the purchase price to be paid by the Company for each $2,000 principal amount of Notes (and integral multiples of $1,000 in excess thereof) accepted for payment (as specified pursuant to this Indenture) (the “ Purchase Price ”);
 
(5)           that the Holder may tender all or any portion of the Notes registered in the name of such Holder and that any portion of a Note tendered must be tendered in a minimum amount of $2,000 principal amount (and integral multiples of $1,000 in excess thereof);
 
(6)           the place or places where Notes are to be surrendered for tender pursuant to the Offer to Purchase, if applicable;
 
(7)           that, unless the Company defaults in making such purchase, any Note accepted for purchase pursuant to the Offer to Purchase will cease to accrue interest on and after the Purchase Date, but that any Note not tendered or tendered but not purchased by the Company pursuant to the Offer to Purchase will continue to accrue interest at the same rate;
 
(8)           that, on the Purchase Date, the Purchase Price will become due and payable upon each Note accepted for payment pursuant to the Offer to Purchase;
 
(9)           that each Holder electing to tender a Note pursuant to the Offer to Purchase will be required to surrender such Note or cause such Note to be surrendered at the place or places set forth in the Offer prior to the close of business on the Expiration Date (such Note being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing);
 
(10)           that Holders will be entitled to withdraw all or any portion of Notes tendered if the Company (or its paying agent) receives, not later than the close of business on the Expiration Date, a facsimile transmission or letter setting forth the name of the Holder, the aggregate principal amount of the Notes the Holder tendered, the certificate number of the Note the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender;
 
(11)           that (a) if Notes having an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Notes and (b) if Notes having an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Notes having an aggregate principal amount equal to the Purchase Amount on a pro rata basis (with such adjustments as may be deemed appropriate so that only Notes in denominations of $2,000 principal amount or integral multiples of $1,000 in excess thereof shall be purchased); and
 

 
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(12)           if applicable, that, in the case of any Holder whose Note is purchased only in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in the aggregate principal amount equal to and in exchange for the unpurchased portion of the aggregate principal amount of the Notes so tendered.
 
Offering Memorandum ” means the offering memorandum related to the issuance of the Initial Notes on the Issue Date, dated May 27, 2009.
 
Officer ” means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, any Assistant Secretary or any Vice-President of such Person.
 
Officers’ Certificate ” means a certificate signed by two Officers of the Company or a Guarantor, as applicable, one of whom must be the principal executive officer, the principal financial officer or the principal accounting officer of the Company or such Guarantor, as applicable.
 
Opinion of Counsel ” means an opinion from legal counsel who is reasonably acceptable to the Trustee, and which opinion shall be addressed to the Trustee in its capacity as such, and shall comply with any applicable provisions herein.  The counsel may be an employee of or counsel to the Company or any Subsidiary of the Company.
 
Original Issue Discount Legend ” means the legend identified as such in Section 2.6(e)(v).
 
Participant ” means, with respect to DTC, a Person who has an account with DTC.
 
Paying Agent ” means any Person authorized by the Issuer to pay the principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance, covenant defeasance or similar payment with respect to, any Notes on behalf of the Issuer.
 
Permitted Business ” means any business similar in nature to any business conducted by the Company and the Restricted Subsidiaries on the Issue Date and any business reasonably ancillary, incidental, complementary or related to, or a reasonable extension, development or expansion of, the business conducted by the Company and the Restricted Subsidiaries on the Issue Date, in each case, as determined in good faith by the Company.
 
Permitted Debt ” means
 
                (i) Debt Incurred pursuant to any Credit Facilities in an aggregate principal amount at any one time outstanding not to exceed (x) $2,100.0 million minus (y) (A) any amounts Incurred and outstanding pursuant to a Qualified Receivables Transaction permitted under clause (xvi) below and (B) with respect to clause (x) above any amount used
 

 
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to permanently repay such Obligations (or permanently reduce commitments with respect thereto) pursuant to Section 4.10;
 
                (ii) Debt under the Notes issued on the Issue Date (and any Exchange Notes pursuant to the Registration Rights Agreement) and contribution, indemnification and reimbursement obligations owed by the Company or any Guarantor to any of the other of them in respect of amounts paid or payable on such Notes;
 
                (iii) Guarantees of the Notes (and any Exchange Notes pursuant to the Registration Rights Agreement);
 
                (iv) Debt of the Company or any Restricted Subsidiary outstanding on the Issue Date (other than (A) clause (i), (ii) or (iii) above and (B) Debt being repaid with the proceeds of the offering of the Initial Notes issued on the Issue Date);
 
                (v) Debt owed to and held by the Company or a Restricted Subsidiary;
 
                (vi) Guarantees Incurred by the Company of Debt of a Restricted Subsidiary otherwise permitted to be Incurred under this Indenture;
 
                (vii) Guarantees by any Restricted Subsidiary of Debt of the Company or any Restricted Subsidiary, including Guarantees by any Restricted Subsidiary of Debt under the Credit Agreement, provided that (a) such Debt is Permitted Debt or is otherwise Incurred in accordance with Section 4.9 hereof and (b) such Guarantees are subordinated to the Notes to the same extent as the Debt being guaranteed;
 
                (viii) Debt Incurred in respect of workers’ compensation claims and self-insurance obligations, and, for the avoidance of doubt, indemnity, bid, performance, warranty, release, appeal, surety and similar bonds, letters of credit for operating purposes and completion guarantees provided or Incurred (including Guarantees thereof) by the Company or a Restricted Subsidiary in the ordinary course of business;
 
                (ix) Debt under Swap Contracts and Hedging Obligations;
 
                (x) Debt owed by the Company to any Restricted Subsidiary, or by any Restricted Subsidiary to the Company or to any other Restricted Subsidiary, provided that if for any reason such Debt ceases to be held by the Company or a Restricted Subsidiary, as applicable, such Debt shall cease to be Permitted Debt and shall be deemed Incurred as Debt of the Company for purposes of this Indenture;
 
                (xi) Debt of the Company or any Restricted Subsidiary pursuant to Capital Lease Obligations, Synthetic Lease Obligations and Purchase Money Debt, provided that the aggregate principal amount of such Debt outstanding at any time may not exceed $250.0 million in the aggregate;
 
                (xii) Debt arising from agreements of the Company or a Restricted Subsidiary providing for indemnification, contribution, earnout, adjustment of purchase price or
 

 
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similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business, assets or Capital Interests of a Restricted Subsidiary otherwise permitted under this Indenture;
 
                (xiii) the issuance by any of the Company’s Restricted Subsidiaries to the Company or to any of its Restricted Subsidiaries of shares of Preferred Interests; provided , however , that:
 
(a)           any subsequent issuance or transfer of Capital Interests that results in any such Preferred Interests being held by a Person other than the Company or a Restricted Subsidiary; and
 
(b)           any sale or other transfer of any such Preferred Interests to a Person that is not either the Company or a Restricted Subsidiary;
 
shall be deemed, in each case, to constitute an issuance of such Preferred Interests by such Restricted Subsidiary that was not permitted by this clause (xiii);
 
                (xiv) Debt arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided , however , that such Debt is extinguished within five Business Days of Incurrence;
 
                (xv) Debt of the Company or any Restricted Subsidiary not otherwise permitted pursuant to this definition, in an aggregate principal amount not to exceed $150.0 million at any time outstanding;
 
                (xvi) Purchase Money Notes Incurred by any Receivable Subsidiary that is a Restricted Subsidiary in a Qualified Receivables Transaction and Non-Recourse Receivable Subsidiary Indebtedness; and
 
                (xvii) Refinancing Debt.
 
Notwithstanding anything herein to the contrary, Debt permitted under clauses (i), (ii), (xi) and (xv) of this definition of “Permitted Debt” shall not constitute “Refinancing Debt” under clause (xvii) of this definition of “Permitted Debt.”
 
Permitted Investments ” means:
 
(a)           Investments in existence on the Issue Date;
 
(b)           Investments required pursuant to any agreement or obligation of the Company or a Restricted Subsidiary, in effect on the Issue Date, to make such Investments;
 
(c)           Investments in cash and Eligible Cash Equivalents;
 

 
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(d)           Investments in property and other assets, owned or used by the Company or any Restricted Subsidiary in the normal course of business;
 
(e)           Investments by the Company or any of its Restricted Subsidiaries in the Company or any Restricted Subsidiary;
 
(f)           Investments by the Company or any Restricted Subsidiary in a Person, if as a result of such Investment (A) such Person becomes a Restricted Subsidiary or (B) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated or wound-up into, the Company or a Restricted Subsidiary;
 
(g)           Swap Contracts and Hedging Obligations;
 
(h)           receivables owing to the Company or any of its Subsidiaries and advances to suppliers, in each case if created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms;
 
(i)           Investments received in settlement of obligations owed to the Company or any Restricted Subsidiary and as a result of bankruptcy or insolvency proceedings or upon the foreclosure or enforcement of any Lien in favor of the Company or any Restricted Subsidiary;
 
(j)           Investments by the Company or any Restricted Subsidiary not otherwise permitted under this definition, in an aggregate amount not to exceed $150.0 million at any one time outstanding;
 
(k)           loans and advances to officers, directors and employees of the Company and Subsidiaries in an aggregate amount not to exceed $10.0 million in the aggregate at any one time outstanding, for travel, entertainment, relocation and analogous ordinary business purposes ;
 
 (l)           Investments the payment for which consists solely of Capital Interests of the Company;
 
(m)           any Investment in any Person to the extent such Investment represents the non-cash portion of the consideration received in connection with an Asset Sale consummated in compliance with Section 4.10 or any other disposition of property not constituting an Asset Sale, including transfers of property to the Castings Joint Venture in connection with the Castings Joint Venture Transaction;
 
(n)           payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business and consistent with past practice;
 

 
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(o)           guarantees by the Company or any Restricted Subsidiary of Debt of the Company or a Restricted Subsidiary (other than a Receivable Subsidiary) of Debt otherwise permitted by Section 4.9; and
 
(p)           any Investment by the Company or any Restricted Subsidiary in a Receivable Subsidiary or any Investment by a Receivable Subsidiary in any other Person in connection with a Qualified Receivables Transaction, so long as any Investment in a Receivable Subsidiary is in the form of a Purchase Money Note or an Investment in Capital Interests.
 
Permitted Liens ” means:
 
(a)           Liens existing at the Issue Date;
 
(b)           Liens that secure (A) Credit Facilities Incurred pursuant to clause (i) of the definition of “Permitted Debt” and/or the provisions described in the first paragraph of Section 4.9 in an aggregate principal amount not to exceed the greater of (x) $2,100.0 million and (y) an amount that does not cause the Consolidated Secured Leverage Ratio to exceed 2.5 to 1.0, (B) Hedging Obligations and Swap Contracts relating to such Credit Facilities and permitted under the agreements related thereto and (C) fees, expenses and other amounts payable under such Credit Facilities or payable pursuant to cash management agreements or agreements with respect to similar banking services relating to such Credit Facilities and permitted under the agreements related thereto;
 
 (c)           any Lien for taxes or assessments or other governmental charges or levies not then due and payable (or which, if due and payable, are being contested in good faith and for which adequate reserves are being maintained, to the extent required by GAAP);
 
(d)           any warehousemen’s, materialmen’s, landlord’s or other similar Liens arising by law for sums not then due and payable (or which, if due and payable, are being contested in good faith and with respect to which adequate reserves are being maintained, to the extent required by GAAP);
 
(e)           survey exceptions, encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other similar restrictions as to the use of real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which do not individually or in the aggregate materially adversely affect the value of the Company or materially impair the operation of the business of such Person;
 
(f)           pledges or deposits (i) in connection with workers’ compensation, unemployment insurance and other types of statutory obligations or the requirements of any official body; (ii) to secure the performance of tenders, bids, surety or performance bonds, leases, purchase, construction, sales or servicing contracts (including utility contracts) and other similar obligations Incurred in the normal course of business consistent with
 

 
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industry practice; (iii) to obtain or secure obligations with respect to letters of credit, Guarantees, bonds or other sureties or assurances given in connection with the activities described in clauses (i) and (ii) above, in each case not Incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property or services or imposed by ERISA or the Code in connection with a “plan” (as defined in ERISA); or (iv) arising in connection with any attachment unless such Liens shall not be satisfied or discharged or stayed pending appeal within 60 days after the entry thereof or the expiration of any such stay;
 
(g)           Liens on property or assets of a Person existing at the time such Person is merged with or into or consolidated with the Company or a Restricted Subsidiary, or becomes a Restricted Subsidiary (and not created or Incurred in anticipation of such transaction), provided that such Liens are not extended to the property and assets of the Company and its Restricted Subsidiaries other than the property or assets acquired;
 
(h)           Liens securing Debt of a Restricted Subsidiary owed to and held by the Company or a Restricted Subsidiary thereof;
 
(i)           for the avoidance of doubt, other Liens (not securing Debt) incidental to the conduct of the business of the Company or any of its Restricted Subsidiaries, as the case may be, or the ownership of their assets which do not individually or in the aggregate materially adversely affect the value of the Company or materially impair the operation of the business of the Company or its Restricted Subsidiaries;
 
(j)           Liens to secure any permitted extension, renewal, refinancing or refunding (or successive extensions, renewals, refinancings or refundings), in whole or in part, of any Debt secured by Liens referred to in clauses (a), (b), (g) and (w) hereof; provided that such Liens do not extend to any other property or assets and the principal amount of the obligations secured by such Liens is not increased;
 
(k)           Liens in favor of customs or revenue authorities arising as a matter of law to secure payment of custom duties in connection with the importation of goods incurred in the ordinary course of business;
 
(l)           licenses of intellectual property granted in the ordinary course of business;
 
(m)           Liens to secure Capital Lease Obligations, Synthetic Lease Obligations and Purchase Money Debt permitted to be Incurred pursuant to clause (xi) of the definition of “Permitted Debt”; provided that such Liens do not extend to or cover any assets other than such assets acquired or constructed after the Issue Date with the proceeds of such Capital Lease Obligation, Synthetic Lease Obligation or Purchase Money Debt;
 
(n)           Liens in favor of the Company or any Guarantor;
 
(o)           Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person’s obligation in respect of banker’s acceptances issued or
 
 

 
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created in the ordinary course of business for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;

       (p)           Liens securing Debt Incurred to finance the construction, purchase or lease of, or repairs, improvements or additions to, property, plant or equipment of such Person; provided , however , that the Lien may not extend to any property owned by such Person or any of its Restricted Subsidiaries at the time the Lien is Incurred (other than assets and property affixed or appurtenant thereto and any proceeds thereof), and the Debt (other than any interest thereon) secured by the Lien may not be Incurred more than 180 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to the Lien;
 
(q)           Liens on property or shares of Capital Interests of another Person at the time such other Person becomes a Subsidiary of such Person; provided , however , that (i) the Liens may not extend to any other property owned by such Person or any of its Restricted Subsidiaries (other than assets and property affixed or appurtenant thereto) and (ii) such Liens are not created or incurred in connection with, or in contemplation of, such other Person becoming such a Restricted Subsidiary;
 
(r)           Liens (i) that are contractual rights of set-off (A) relating to the establishment of depository relations with banks not given in connection with the issuance of Debt, (B) relating to pooled deposit or sweep accounts of the Company or any of its Restricted Subsidiaries to permit satisfaction of overdraft or similar obligations and other cash management activities incurred in the ordinary course of business of the Company and/or any of its Restricted Subsidiaries or (C) relating to purchase orders and other agreements entered into with customers of the Company or any of its Restricted Subsidiaries in the ordinary course of business and (ii) of a collection bank arising under Section 4-210 of the Uniform Commercial Code on items in the course of collection, (Y) encumbering reasonable customary initial deposits and margin deposits and attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business, and (Z) in favor of banking institutions arising as a matter of law or pursuant to customary account agreements encumbering deposits (including the right of set-off) and which are within the general parameters customary in the banking industry;
 
(s)           Liens securing judgments for the payment of money not constituting an Event of Default under clause (7) of Section 6.1 so long as such Liens are adequately bonded and any appropriate legal proceedings that may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired;
 
(t)           leases, subleases, licenses or sublicenses granted to others in the ordinary course of business which do not materially interfere with the ordinary conduct of the business of the Company or any Restricted Subsidiaries and do not secure any Debt;
 
(u)           any interest of title of an owner of equipment or inventory on loan or consignment to the Company or any of its Restricted Subsidiaries and Liens arising from
 

 
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Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company or any Restricted Subsidiary in the ordinary course of business;
 
(v)           deposits in the ordinary course of business to secure liability to insurance carriers;
 
(w)            Liens securing the Notes and the Note Guarantees;
 
(x)           Liens on the Capital Interests of a Receivable Subsidiary and accounts receivable and related assets described in the definition of Qualified Receivables Transaction, in each case, Incurred in connection with a Qualified Receivables Transaction;
 
(y)           Liens securing Hedging Obligations and Swap Contracts so long as any related Debt is permitted to be Incurred under this Indenture;
 
(z)           options, put and call arrangements, rights of first refusal and similar rights relating to Investments in joint ventures, partnerships and the like permitted to be made under this Indenture;
 
(aa)           Liens attaching to earnest money deposits (or equivalent deposits otherwise named) made in connection with proposed acquisitions in an amount not to exceed $5.0 million;
 
(bb)           (i) set-off rights not otherwise set forth in clause (r) above, or (ii) Liens arising in connection with repurchase agreements that constitute Investments;
 
(cc)           Liens relating to the Defeased Debt; and
 
(dd)           Liens not otherwise permitted under this Indenture in an aggregate amount not to exceed $150.0 million.
 
 “ Person ” means any individual, corporation, limited liability company, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof.
 
Preferred Interests ,” as applied to the Capital Interests in any Person, means Capital Interests in such Person of any class or classes (however designated) that rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Common Interests in such Person.
 
Purchase Agreement ” means the purchase agreement dated May 19, 2009 by and among the Company, the Initial Purchasers and the Guarantors named therein.
 
Purchase Amount ” has the meaning set forth in the definition of “Offer to Purchase.”
 
Purchase Date ” has the meaning set forth in the definition of “Offer to Purchase.”
 

 
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Purchase Money Debt ” means Debt
 
                (i) Incurred to finance the purchase or construction (including additions and improvements thereto) of any assets (other than Capital Interests) of such Person or any Restricted Subsidiary; and
 
                (ii) that is secured by a Lien on such assets where the lender’s sole security is to the assets so purchased or constructed; and
 
in either case that does not exceed 100% of the cost and to the extent the purchase or construction prices for such assets are or should be included in “addition to property, plant or equipment” in accordance with GAAP.
 
Purchase Money Note ” means a promissory note of a Receivable Subsidiary to the Company or any Restricted Subsidiary, which note must be repaid from cash available to the Receivable Subsidiary, other than amounts required to be established as reserves pursuant to agreements, amounts paid to investors in respect of interest, principal and other amounts owing to such investors and amounts paid in connection with the purchase of newly generated receivables.  The repayment of a Purchase Money Note may be subordinated to the repayment of other liabilities of the Receivable Subsidiary on terms determined in good faith by the Company to be substantially consistent with market practice in connection with Qualified Receivables Transactions.
 
Purchase Price ” has the meaning set forth in the definition of “Offer to Purchase.”
 
Qualified Capital Interests ” in any Person means a class of Capital Interests other than Redeemable Capital Interests.
 
Qualified Equity Offering ” means (i) an underwritten public equity offering of Qualified Capital Interests pursuant to an effective registration statement under the Securities Act yielding gross proceeds to either of the Company, or any direct or indirect parent company of the Company, of at least $25.0 million or (ii) a private equity offering of Qualified Capital Interests of the Company, or any direct or indirect parent company of the Company other than (x) any such public or private sale to an entity that is an Affiliate of the Company and (y) any public offerings registered on Form S-8; provided that, in the case of an offering or sale by a direct or indirect parent company of the Company, such parent company contributes to the capital of the Company the portion of the net cash proceeds of such offering or sale necessary to pay the aggregate Redemption Price (plus accrued interest to the redemption date) of the Notes to be redeemed pursuant to Section 3.7(ii).
 
Qualified Receivables Transaction ” means any transaction or series of transactions entered into by the Company or any of its Restricted Subsidiaries pursuant to which the Company or such Restricted Subsidiary transfers to (a) a Receivable Subsidiary (in the case of a transfer by the Company or any of its Restricted Subsidiaries) or (b) any other Person (in the case of a transfer by a Receivable Subsidiary), or grants a security interest in, any accounts receivable (whether now existing or arising in the future) of the Company or any of its Restricted Subsidiaries, and any assets related thereto, including, without limitation, all collateral securing such accounts re-
 

 
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ceivable, all contracts and all Guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with an accounts receivable financing transaction; provided such transaction is on market terms as determined in good faith by the Company at the time the Company or such Restricted Subsidiary enters into such transaction.
 
Rating Agencies ” means Moody’s and S&P or if Moody’s or S&P or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Company which shall be substituted for Moody’s or S&P or both, as the case may be.
 
Receivable Subsidiary ” means a Subsidiary of the Company:
 
(1)           that is formed solely for the purpose of, and that engages in no activities other than activities in connection with, financing accounts receivable of the Company and/or its Restricted Subsidiaries, including providing letters of credit on behalf of or for the benefit of the Company and/or its Restricted Subsidiaries;
 
(2)           that is designated by the Board of Directors as a Receivable Subsidiary pursuant to an Officers’ Certificate that is delivered to the Trustee;
 
(3)           that is either (a) a Restricted Subsidiary or (b) an Unrestricted Subsidiary designated in accordance with Section 4.18, including providing letters of credit on behalf of or for the benefit of the Company and/or its Restricted Subsidiaries;
 
(4)           no portion of the Debt or any other obligation (contingent or otherwise) of which (a) is at any time Guaranteed by the Company or any Restricted Subsidiary (excluding Guarantees of obligations (other than any Guarantee of Debt) pursuant to Standard Securitization Undertakings), (b) is at any time recourse to or obligates the Company or any Restricted Subsidiary in any way, other than pursuant to Standard Securitization Undertakings, or (c) subjects any asset of the Company or any other Restricted Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings (such Debt, “ Non-Recourse Receivable Subsidiary Indebtedness ”);
 
(5)           with which neither the Company nor any Restricted Subsidiary has any material contract, agreement, arrangement or understanding other than (a) contracts, agreements, arrangements and understandings entered into in the ordinary course of business on terms no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company in connection with a Qualified Receivables Transaction as determined in good faith by the Board of Directors of the Company, (b) fees payable in the ordinary course of business in connection with servicing accounts receivable in connection with such a Qualified Receivables Transaction as determined in good faith by the Board of Directors of the Company and (c) any Purchase Money Note issued by such Receivable Subsidiary to the
 
 

 
-31-
 
 
 
Company or a Restricted Subsidiary or any letters of credit provided by such Receivable Subsidiary on behalf of or for the benefit of the Company or any Restricted Subsidiary; and
 
(6)           with respect to which neither the Company nor any other Restricted Subsidiary has any obligation (a) to subscribe for additional shares of Capital Interests therein or make any additional capital contribution or similar payment or transfer thereto except in connection with a Qualified Receivables Transaction or (b) to maintain or preserve the solvency or any balance sheet term, financial condition, level of income or results of operations thereof.
 
Redeemable Capital Interests ” in any Person means any equity security of such Person that by its terms (or by terms of any security into which it is convertible or for which it is exchangeable), or otherwise (including the passage of time or the happening of an event), is required to be redeemed, is redeemable at the option of the holder thereof in whole or in part (including by operation of a sinking fund), or is convertible or exchangeable for Debt of such Person at the option of the holder thereof, in whole or in part, at any time prior to the Stated Maturity of the Notes; provided that only the portion of such equity security which is required to be redeemed, is so convertible or exchangeable or is so redeemable at the option of the holder thereof before such date will be deemed to be Redeemable Capital Interests.  Notwithstanding the preceding sentence, any equity security that would constitute Redeemable Capital Interests solely because the holders of the equity security have the right to require the Company to repurchase such equity security upon the occurrence of a Change of Control or an Asset Sale will not constitute Redeemable Capital Interests if the terms of such equity security provide that the Company may not repurchase or redeem any such equity security pursuant to such provisions unless such repurchase or redemption complies with Section 4.7.  The amount of Redeemable Capital Interests deemed to be outstanding at any time for purposes of this Indenture will be the maximum amount that the Company and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Redeemable Capital Interests or portion thereof, exclusive of accrued dividends.
 
Redemption Price ,” when used with respect to any Note to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
 
Refinancing Debt ” means Debt that refunds, refinances, renews, replaces or extends any Debt permitted to be Incurred by the Company or any Restricted Subsidiary pursuant to the terms of this Indenture, whether involving the same or any other lender or creditor or group of lenders or creditors, but only to the extent that
 
                (i) the Refinancing Debt is subordinated to the Notes to at least the same extent as the Debt being refunded, refinanced or extended, if such Debt was subordinated to the Notes,
 
                (ii) the Refinancing Debt is scheduled to mature either (a) no earlier than the Debt being refunded, refinanced or extended or (b) at least 91 days after the maturity date of the Notes,
 

 
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                (iii) the Refinancing Debt has an Average Life at the time such Refinancing Debt is Incurred that is equal to or greater than the Average Life of the Debt being refunded, refinanced, renewed, replaced or extended,
 
                (iv) such Refinancing Debt is in an aggregate principal amount that is less than or equal to the sum of (a) the aggregate principal or accreted amount (in the case of any Debt issued with original issue discount, as such) then outstanding under the Debt being refunded, refinanced, renewed, replaced or extended, (b) the amount of accrued and unpaid interest, if any, and premiums owed, if any, not in excess of preexisting prepayment provisions on such Debt being refunded, refinanced, renewed, replaced or extended and (c) the amount of reasonable and customary fees, expenses and costs related to the Incurrence of such Refinancing Debt, and
 
                (v) such Refinancing Debt is Incurred by the same Person (or its successor) that initially Incurred the Debt being refunded, refinanced, renewed, replaced or extended, except that the Company may Incur Refinancing Debt to refund, refinance, renew, replace or extend Debt of any Restricted Subsidiary of the Company.
 
Registration Rights Agreement ” means the Registration Rights Agreement, to be dated the date of this Indenture, among the Company, the Guarantors and the Initial Purchasers and any similar agreement entered into in connection with any Additional Notes.
 
Regulated Subsidiary ” means any Subsidiary of the Company that is (i) created primarily for the purposes of, and whose primary activities shall consist of financing or insuring risks of the Company or the Company’s other Subsidiaries or (ii) prohibited by applicable law from entering into a Note Guarantee.
 
Related Business Assets ” means assets (other than cash or Eligible Cash Equivalents) used or useful in a Permitted Business, provided that any assets received by the Company or a Restricted Subsidiary in exchange for assets transferred by the Company or a Restricted Subsidiary shall not be deemed to be Related Business Assets if they consist of securities of a Person, unless upon receipt of the securities of such Person, such Person would become a Restricted Subsidiary.
 
Responsible Officer ” means, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person’s knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.
 
Restricted Global Note ” means a Global Note that is a Restricted Note.
 
Restricted Note ” has the meaning set forth in Rule 144(a)(3) under the Securities Act for the term “restricted securities”; provided , however , that the Trustee shall be entitled to request
 
 

 
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and conclusively rely upon an Opinion of Counsel with respect to whether any Note is a Restricted Note.  Restricted Notes are required to bear the Restricted Notes Legend.
 
Restricted Notes Legend ” means the legend identified as such in Section 2.6(e)(i) hereto.
 
Restricted Payment ” is defined to mean any of the following:
 
(a)           any dividend or other distribution declared and paid on the Capital Interests in the Company or on the Capital Interests in any Restricted Subsidiary of the Company that are held by, or declared and paid to, any Person other than the Company or a Restricted Subsidiary of the Company (other than
 
                (i) dividends, distributions or payments made solely in Qualified Capital Interests in the Company and
 
                (ii) dividends or distributions payable to the Company or a Restricted Subsidiary of the Company or to other holders of Capital Interests of a Restricted Subsidiary on a pro rata basis);
 
(b)           any payment made by the Company or any of its Restricted Subsidiaries to purchase, redeem, acquire or retire any Capital Interests in the Company (including the conversion into, or exchange for, Debt of any Capital Interests) other than any such Capital Interests owned by the Company or any Restricted Subsidiary (other than a payment made solely in Qualified Capital Interests in the Company);
 
(c)           any payment made by the Company or any of its Restricted Subsidiaries (other than a payment made solely in Qualified Capital Interests in the Company) to redeem, repurchase, defease (including an in substance or legal defeasance) or otherwise acquire or retire for value (including pursuant to mandatory repurchase covenants), prior to any scheduled maturity, scheduled sinking fund or mandatory redemption payment, Debt of the Company or any Guarantor that is subordinate in right of payment to the Notes or Note Guarantees (excluding any Debt owed to the Company or any Restricted Subsidiary); except payments of principal and interest in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case, within one year of the due date thereof;
 
(d)           any Investment by the Company or a Restricted Subsidiary in any Person, other than a Permitted Investment; and
 
(e)           any designation of a Restricted Subsidiary as an Unrestricted Subsidiary;
 
provided , however , the payments in connection with the Transactions shall not constitute “Restricted Payments.”
 
Restricted Subsidiary ” means any Subsidiary that has not been designated as an “Unrestricted Subsidiary” in accordance with this Indenture.
 

 
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S&P ” means Standard & Poor’s, a division of The McGraw-Hill Companies, Inc., and any successor to its rating agency business.
 
 “ Sale and Leaseback Transaction ” means any direct or indirect arrangement pursuant to which property is sold or transferred by the Company or a Restricted Subsidiary and is thereafter leased back as a capital lease by the Company or a Restricted Subsidiary.
 
Securities Act ” means the Securities Act of 1933, as amended.
 
Significant Subsidiary ” has the meaning set forth in Rule 1-02 of Regulation S-X under the Securities Act and Exchange Act, but shall not include any Unrestricted Subsidiary.
 
 “ Special Purpose Financing Subsidiary ” means any Subsidiary of the Company created solely for the purposes of, and whose sole activities shall consist of, acquiring and financing securitization transferred assets pursuant to a receivables facility, and any other activity incidental thereto.
 
Standard Securitization Undertakings ” means representations, warranties, covenants and indemnities entered into by the Company or any Restricted Subsidiary which are reasonably customary in an accounts receivable securitization transaction as determined in good faith by the Company, including Guarantees by the Company or any Restricted Subsidiary of any of the foregoing obligations of the Company or a Restricted Subsidiary.
 
Stated Maturity ,” when used with respect to (i) any Note or any installment of interest thereon, means the date specified in such Note as the fixed date on which the principal amount of such Note or such installment of interest is due and payable and (ii) any other Debt or any installment of interest thereon, means the date specified in the instrument governing such Debt as the fixed date on which the principal of such Debt or such installment of interest is due and payable.
 
Subsidiary ” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.
 
 “ Subsidiary Guarantor ” means each Subsidiary of the Company that is a Guarantor.
 
Successor Entity ” means a corporation or other entity that succeeds to and continues the business of Ashland Inc.
 
Swap Contract ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions,
 

 
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collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including, without limitation, any fuel price caps and fuel price collar or floor agreements and similar agreements or arrangements designed to protect against or manage fluctuations in fuel prices and any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “ Master Agreement ”), including any such obligations or liabilities under any Master Agreement.
 
Synthetic Lease Obligations ” means any monetary obligation of a Person under (i) a so-called synthetic, off-balance sheet or tax retention lease, or (ii) an agreement for the use or possession of property (including Sale and Leaseback Transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any bankruptcy or insolvency laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
 
TIA ” means the Trust Indenture Act of 1939 (15 U.S. Code §§ 77aaa-77bbbb), as amended, as in effect on the date hereof.
 
Transaction Date ” has the meaning set forth in the definition of “Consolidated Fixed Charge Coverage Ratio” or the definition of “Consolidated Secured Leverage Ratio”, as applicable.
 
Transactions ” means (i) the Company’s acquisition of Hercules Incorporated pursuant to the Merger Agreement, (ii) the borrowing of $750.0 million under the Bridge Loan Agreement, (iii) the borrowing of up to $1,450 million under the Credit Agreement, (iv) the issuance of 0.093 shares of the common stock of the Company for each share of common stock of Hercules Incorporated and (v) the repayment of certain existing indebtedness of the Company and Hercules Incorporated, and the transactions related thereto.
 
 “ Trustee ” has the meaning set forth in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and, thereafter, means the successor.
 
 “ Unrestricted Global Note ” means a Global Note that is an Unrestricted Note.
 
Unrestricted Notes ” means one or more Notes that do not and are not required to bear the Restricted Notes Legend including, without limitation, the Exchange Notes and any Notes registered under the Securities Act pursuant to and in accordance with the Registration Rights Agreement.
 

 
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Unrestricted Subsidiary ” means:
 
(1)           any Subsidiary designated as such by an Officers’ Certificate as set forth below where neither the Company nor any of its Restricted Subsidiaries (i) provides credit support for, or Guarantee of, any Debt of such Subsidiary or any Subsidiary of such Subsidiary (including any undertaking, agreement or instrument evidencing such Debt, but excluding in the case of a Receivable Subsidiary any Standard Securitization Undertakings and further excluding other Debt under which the lender has recourse to the Company or any Restricted Subsidiary or to any of their assets that does not exceed $15.0 million in the aggregate) or (ii) is directly or indirectly liable for any Debt of such Subsidiary or any Subsidiary of such Subsidiary (except in the case of a Receivable Subsidiary any Standard Securitization Undertakings); and
 
(2)           any Subsidiary of an Unrestricted Subsidiary.
 
 “ Voting Interests ” means, with respect to any Person, securities of any class or classes of Capital Interests in such Person entitling the holders thereof generally to vote on the election of members of the Board of Directors or comparable body of such Person.
 
 
SECTION 1.2
Other Definitions .
 
Term
 
Defined in Section
 
“Affiliate Transaction”
4.11
“Agent Members”
2.6
“Change of Control Offer”
4.14
“Change of Control Payment”
4.14
“covenant defeasance”
8.3
“defeasance”
8.2
“Discharge”
8.2
“Event of Default”
6.1
“Excess Proceeds”
4.10
“Expiration Date”
3.9
“Note Register”
2.3
“Offer Amount”
3.9
“Purchase Date”
3.9
“QIB”
2.1
“QIB Global Note”
2.1
“redemption date”
3.1
“Registrar”
2.3
“Regulation S”
2.1
“Regulation S Global Note”
2.1
“Rule 144A”
2.1
“Surviving Entity”
5.1


 
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SECTION 1.3          Incorporation by Reference of Trust Indenture Act.
 
Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in, and made a part of, this Indenture.
 
The following TIA term used in this Indenture has the following meaning:
 
obligor ” on the Notes means the Issuer, the Guarantors and any successor obligor upon the Notes.
 
All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by the Commission rule under the TIA have the meanings so assigned to them therein.
 
SECTION 1.4
Rules of Construction .
 
Unless the context otherwise requires:
 
(1)           a term has the meaning assigned to it herein;
 
(2)           an accounting term not otherwise defined herein has the meaning assigned to it in accordance with GAAP or a successor to GAAP;
 
(3)           “or” is not exclusive;
 
(4)           words in the singular include the plural, and in the plural include the singular;
 
(5)           unless otherwise specified, any reference to a Section or an Article refers to such Section or Article of this Indenture;
 
(6)           provisions apply to successive events and transactions;
 
(7)           references to sections of or rules under the Securities Act, the Exchange Act or the TIA shall be deemed to include substitute, replacement or successor sections or rules adopted by the Commission from time to time; and
 
(8)           for the avoidance of doubt, any references to “interest” shall include any Additional Interest that may be payable.
 

 
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ARTICLE II
 

 
THE NOTES
 
 
SECTION 2.1
Form and Dating .
 
(a)           The Notes and the Trustee’s certificate of authentication shall be substantially in the form of Exhibit A attached hereto, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture.  The Notes may have notations, legends or endorsements required by law, stock exchange agreements to which the Company or any Subsidiary Guarantor is subject or usage.  Each Note shall be dated the date of its authentication.  The Notes initially shall be issued only in denominations of $2,000 and any integral multiple of $1,000 in excess thereof.    The Trustee shall authenticate the Notes, upon a written order of the Company for the authentication and delivery of such Notes, which order shall set forth the number of separate notes, the principal amount of each such Note to be authenticated, the date on which the original issue of Notes is to be authenticated, the registered holders of each of the said Notes and delivery instructions.
 
(b)           The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Issuer, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby.  However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.
 
The Notes shall be issued initially in the form of one or more Global Notes substantially in the form attached as Exhibit A hereto and shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee as Note Custodian, and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Issuer and authenticated by the Trustee as hereinafter provided.
 
Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, redemptions and transfers of interests.  Any endorsement of a Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.6 hereof.
 
Except as set forth in Section 2.6 hereof, the Global Notes may be transferred, in whole and not in part, only to another nominee of the Depositary or to a successor of the Depositary or its nominee.
 
(c)           The Initial Notes are being issued by the Issuer only (i) to “qualified institutional buyers” (as defined in Rule 144A under the Securities Act (“ Rule 144A ”)) (“ QIBs ”) and (ii) in reliance on Regulation S under the Securities Act (“ Regulation S ”).  After such initial offers, In
 

 
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tial Notes that are Restricted Notes may be transferred to QIBs, in reliance on Rule 144A, outside the United States pursuant to Regulation S or to the Company, in accordance with certain transfer restrictions.  Initial Notes that are offered in reliance on Rule 144A shall be issued in the form of one or more permanent Global Notes substantially in the form set forth in Exhibit A (the “ QIB Global Note ”) deposited with the Trustee, as Note Custodian, duly executed by the Company and authenticated by the Trustee as hereinafter provided.  Initial Notes that are offered in offshore transactions in reliance on Regulation S shall be issued in the form of one or more Global Notes substantially in the form set forth in Exhibit A (the “ Regulation S Global Note ”) deposited with the Trustee, as Note Custodian, duly executed by the Company and authenticated by the Trustee as hereinafter provided.  The QIB Global Note and the Regulation S Global Note shall each be issued with separate CUSIP numbers.  The aggregate principal amount of each Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as Note Custodian.  Transfers of Notes between QIBs and to or by purchasers pursuant to Regulation S shall be represented by appropriate increases and decreases to the respective amounts of the appropriate Global Notes, as more fully provided in Section 2.16.
 
(d)           Section 2.1(c) shall apply only to Global Notes deposited with or on behalf of the Depositary.
 
The Issuer shall execute and the Trustee shall, in accordance with Section 2.1(c) and this Section 2.1(d), authenticate and deliver the Global Notes that (i) shall be registered in the name of the Depositary or the nominee of the Depositary and (ii) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary’s instructions or held by the Trustee as Note Custodian.
 
Participants shall have no rights either under this Indenture with respect to any Global Note held on their behalf by the Depositary or by the Note Custodian or under such Global Note, and the Depositary may be treated by the Issuer, the Trustee and any agent of the Issuer or the Trustee as the absolute owner of such Global Note for all purposes whatsoever.  Notwithstanding the foregoing, nothing herein shall prevent the Issuer, the Trustee or any Agent or other agent of the Issuer or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Participants, the operation of customary practices of such Depositary governing the exercise of the rights of an owner of a beneficial interest in any Global Note.
 
The Trustee shall have no responsibility or obligation to any Holder, any member of (or a participant in) DTC or any other Person with respect to the accuracy of the records of DTC (or its nominee) or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery of any notice (including any notice of redemption) or the payment of any amount or delivery of any Notes (or other security or property) under or with respect to the Notes.  The Trustee may rely (and shall be fully protected in relying) upon information furnished by DTC with respect to its members, participants and any Beneficial Owners in the Notes.
 
(e)           Notes issued in certificated form, including Global Notes, shall be substantially in the form of Exhibit A attached hereto.
 

 
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SECTION 2.2        Execution and Authentication.
 
An Officer shall sign the Notes for the Issuer by manual or facsimile signature.
 
If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid.
 
A Note shall not be valid until authenticated by the manual signature of an authorized signatory of the Trustee.  The signature shall be conclusive evidence that the Note has been authenticated under this Indenture.
 
The Trustee shall, upon a written order of the Issuer signed by one Officer directing the Trustee to authenticate and deliver the Notes and certifying that all conditions precedent to the issuance of the Notes contained herein have been complied with, authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes.  The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.17 hereof.
 
The Trustee may appoint an authenticating agent reasonably acceptable to the Issuer to authenticate Notes.  Unless limited by the terms of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so.  Each reference in this Indenture to authentication by the Trustee includes authentication by such agent.  An authenticating agent has the same rights as an Agent to deal with Holders or the Issuer or an Affiliate of the Issuer.
 
 
SECTION 2.3
Registrar; Paying Agent .
 
The Issuer shall maintain (i) an office or agency where Notes may be presented for registration of transfer or for exchange (“ Registrar ”) and (ii) an office or agency where Notes may be presented for payment to a Paying Agent.  The Registrar shall keep a register of the Notes (the “ Note Register ”) and of their transfer and exchange.  The Issuer may appoint one or more co-registrars and one or more additional paying agents; provided , however , that at all times there shall be only one Note Register.  The term “Registrar” includes any co-registrar and the term “Paying Agent” includes any additional paying agent.  The Issuer may change any Paying Agent or Registrar without notice to any Holder.  The Issuer shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture.  The Issuer or any of its Restricted Subsidiaries may act as Paying Agent or Registrar.
 
The Issuer shall notify the Trustee and the Holders of the name and address of any Agent not a party to this Indenture.  The Issuer or any Guarantor may act as Paying Agent or Registrar.  The Issuer shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of Section 317(b) of the TIA.  The agreement shall implement the provisions of this Indenture that relate to such Agent.  The Issuer shall notify the Trustee of the name and address of any such Agent.
 
The Issuer initially appoints the Trustee to act as the Registrar and Paying Agent and initially appoints the Corporate Trust Office of the Trustee as the office or agency of the Company for such purposes and as the office or agency of the Company where notices  and demands to or
 

 
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upon the Issuer in respect of the Notes and this Indenture may be served and the Trustee as the agent of the Issuer to receive such notices and demands.
 
The Issuer initially appoints DTC to act as the Depositary with respect to the Global Notes.
 
 
SECTION 2.4
Paying Agent to Hold Money in Trust .
 
The Issuer shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, or interest on the Notes, and shall notify the Trustee of any Default by the Issuer in making any such payment.  While any such Default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee.  The Issuer at any time may require a Paying Agent to pay all money held by it to the Trustee.  Upon payment over to the Trustee, the Paying Agent (if other than the Issuer or a Subsidiary) shall have no further liability for the money.  If the Issuer or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent.  Upon the occurrence of events specified in Section 6.1(8) hereof, the Trustee shall serve as Paying Agent for the Notes.
 
SECTION 2.5
Holder Lists .
 
The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA § 312(a).  If the Trustee is not the Registrar, the Issuer shall furnish to the Trustee at least seven (7) Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders, including the aggregate principal amount of the Notes held by each Holder thereof, and the Issuer shall otherwise comply with TIA § 312(a).
 
SECTION 2.6
Book-Entry Provisions for Global Securities .
 
(a)           Each Global Note constituting a Restricted Note shall (i) be registered in the name of the Depositary for such Global Notes or the nominee of such Depositary, (ii) be delivered to the Trustee as Note Custodian and (iii) bear legends as required by Section 2.6(e).
 
Members of, or participants in, the Depositary (“ Agent Members ”) shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever.  Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note.
 

 
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(b)           Transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to the Depositary, its successors or their respective nominees.  Interests of Beneficial Owners (or the requesting Beneficial Owners in the case of clause (ii) immediately below) in a Global Note may be transferred in accordance with Section 2.16 and the rules and procedures of the Depositary.  In addition, Certificated Notes shall be transferred to all Beneficial Owners in exchange for their beneficial interests if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the Global Notes or the Depositary ceases to be a “clearing agency” registered under the Exchange Act and a successor depositary is not appointed by the Company within ninety (90) days of such notice or (ii) an Event of Default of which a Responsible Officer of the Trustee has actual notice has occurred and is continuing and the Registrar has received a request from the Depositary or a Beneficial Owner in a Global Note to issue such Certificated Notes.
 
(c)           In connection with the transfer of the entire Global Note to beneficial owners pursuant to clause (b) of this Section, such Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each Beneficial Owner identified by the Depositary in exchange for its beneficial interest in such Global Note an equal aggregate principal amount of Certificated Notes of authorized denominations.
 
(d)           The registered holder of a Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interest through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes.
 
(e)            Legends .  The following legends shall appear on the face of all Global Notes and Certificated Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture:
 
(i)        Private Placement Legend .
 
(1)           Unless and until (x) a Note is exchanged for an Exchange Note or sold in connection with an effective registration statement pursuant to the Registration Rights Agreement or (y) the Company determines and there is delivered to the Trustee an Opinion of Counsel reasonably satisfactory to the Trustee and a letter of representation of the Company reasonably satisfactory to the Trustee to the effect that the following legend and the related restrictions on transfer are not required in order to maintain compliance with the provisions of the Securities Act, each Global Note and each Certificated Note (and all Notes issued in exchange therefor or substitution therefor) shall bear the legend in substantially the following form:
 
“THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE

 
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TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) (a) TO A PERSON WHO IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO NON-U.S. PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS), (ii) TO THE ISSUER, OR (iii) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE OF THE SECURITY EVIDENCED HEREBY.”

(ii)        Global Note Legend .  Each Global Note, whether or not an Exchange Note, Restricted Global Note or Unrestricted Global Note, shall bear a legend in substantially the following form:
 
“THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.6(e)(vi) OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.6(b) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUER.  UNLESS AND UNTIL IT IS EXCHANGED IN
 

 
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WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.  UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (“DTC”) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.”
 
(iii)       Each Global Note shall bear the Global Note Legend on the face thereof.
 
(iv)        Regulation S Temporary Global Note Legend .  Each temporary Note that is a Global Note issued pursuant to Regulation S shall bear a legend in substantially the following form:
 
“THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE NOTES, ARE AS SPECIFIED IN THE INDENTURE.  THE HOLDER OF THIS NOTE BY ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IF IT IS A PURCHASER IN A SALE THAT OCCURS OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S OF THE SECURITIES ACT, IT ACKNOWLEDGES THAT, UNTIL EXPIRATION OF THE “40-DAY DISTRIBUTION COMPLIANCE PERIOD” WITHIN THE MEANING OF RULE 903 OF REGULATION S, ANY OFFER OR SALE OF THIS NOTE SHALL NOT BE MADE BY IT TO A U.S. PERSON TO OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON WITHIN THE MEANING OF RULE 902(k) UNDER THE SECURITIES ACT.”
 
(v)        Original Issue Discount Legend.   Each Global Note will bear a legend in substantially the following form:
 
“THIS NOTE HAS BEEN ISSUED WITH “ORIGINAL ISSUE DISCOUNT” (WITHIN THE MEANING OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED). UPON WRITTEN REQUEST, THE ISSUER WILL PROMPTLY MAKE AVAIL-
 

 
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ABLE TO ANY HOLDER OF THIS NOTE THE FOLLOWING INFORMATION: (1) THE ISSUE PRICE AND ISSUE DATE OF THE NOTE, (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THE NOTE AND (3) THE YIELD TO MATURITY OF THE NOTE.”
 
(vi)       At such time as all beneficial interests in Global Notes have been exchanged for Certificated Notes, redeemed, repurchased or cancelled, all Global Notes shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof.  At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for Certificated Notes, redeemed, repurchased or cancelled, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note, by the Trustee or the Note Custodian, at the direction of the Trustee, to reflect such reduction.
 
(f)            General Provisions Relating to Transfers and Exchanges .
 
(i)       To permit registrations of transfers and exchanges, the Issuer shall execute and the Trustee shall authenticate Global Notes and Certificated Notes at the Registrar’s request.
 
(ii)       No service charge shall be made to a Holder for any registration of transfer or exchange, but the Issuer may require payment of a sum sufficient to cover any stamp or transfer tax or similar governmental charge payable in connection therewith (other than any such stamp or transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.2, 2.10, 3.6, 4.10, 4.14 and 9.5 hereto).
 
(iii)       All Global Notes and Certificated Notes issued upon any registration of transfer or exchange of Global Notes or Certificated Notes shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Certificated Notes surrendered upon such registration of transfer or exchange.
 
(iv)       The Registrar shall not be required (A) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of fifteen (15) days before the day of any selection of Notes for redemption under Section 3.2 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part, or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date.
 
(v)       [Reserved].
 
(vi)       Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Issuer may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and neither the Trustee, any Agent nor the Issuer shall be affected by notice to the contrary.
 

 
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(vii)                  The Trustee shall authenticate Global Notes and Certificated Notes in accordance with the provisions of Section 2.2 hereof.  Except as provided in Section 2.6(b), neither the Trustee nor the Registrar shall authenticate or deliver any Certificated Note in exchange for a Global Note.
 
(viii)                  Each Holder agrees to provide reasonable indemnity to the Issuer and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder’s Note in violation of any provision of this Indenture and/or applicable United States federal or state securities law.
 
(ix)       The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Agent Members or Beneficial Owners of interests in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.
 
(x)       Affiliates of the Company are prohibited from taking beneficial interest in one or more Restricted Global Notes.
 
SECTION 2.7
Replacement Notes .
 
If any mutilated Note is surrendered to the Trustee, or the Issuer and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Issuer shall issue and the Trustee, upon the written order of the Issuer signed by an Officer of the Issuer, shall authenticate a replacement Note if the Trustee’s requirements are met.  If required by the Trustee or the Issuer, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Issuer to protect the Issuer, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced.  The Issuer and the Trustee may charge for their expenses in replacing a Note.
 
Every replacement Note is an additional obligation of the Issuer and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.
 
SECTION 2.8
Outstanding Notes .
 
The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section 2.8 as not outstanding.  Except as set forth in Section 2.9 hereof, a Note does not cease to be outstanding because the Issuer or an Affiliate of the Issuer holds the Note.
 
If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser.
 

 
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If the principal amount of any Note is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue.
 
If the Paying Agent (other than the Issuer, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest.
 
SECTION 2.9
Treasury Notes .
 
In determining whether the Holders of the required aggregate principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuer or by any Affiliate of the Issuer shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes shown on the register as being owned shall be so disregarded.  Notwithstanding the foregoing, Notes that are to be acquired by the Issuer or an Affiliate of the Issuer pursuant to an exchange offer, tender offer or other agreement shall not be deemed to be owned by such entity until legal title to such Notes passes to such entity.
 
SECTION 2.10
Temporary Notes .
 
Until Certificated Notes are ready for delivery, the Issuer may prepare and the Trustee shall authenticate temporary Notes upon a written order of the Issuer signed by two Officers of the Issuer.  Temporary Notes shall be substantially in the form of Certificated Notes but may have variations that the Issuer considers appropriate for temporary Notes.  Without unreasonable delay, the Issuer shall prepare and the Trustee shall upon receipt of a written order of the Issuer signed by two Officers authenticate Certificated Notes in exchange for temporary Notes.
 
Holders of temporary Notes shall be entitled to all of the benefits of this Indenture.
 
SECTION 2.11
Cancellation .
 
The Issuer at any time may deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder or which the Issuer may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly cancelled by the Trustee.  All Notes surrendered for registration of transfer, exchange or payment, if surrendered to any Person other than the Trustee, shall be delivered to the Trustee.  The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation.  Subject to Section 2.7 hereof, the Issuer may not issue new Notes to replace Notes that they have redeemed or paid or that have been delivered to the Trustee for cancellation.  All cancelled Notes held by the Trustee shall be disposed of in accordance with its customary practice, and certification of their disposal delivered to the Issuer, unless by a written order, signed by an Officer of the Issuer, the Issuer shall direct that cancelled Notes be returned to it.
 

 
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SECTION 2.12         Defaulted Interest .
 
If the Issuer defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five (5) Business Days prior to the payment date, in each case at the rate provided in the Notes and in Section 4.1 hereof.  The Issuer shall fix or cause to be fixed each such special record date and payment date and shall promptly thereafter notify the Trustee of any such date.  At least fifteen (15) days before the special record date, the Issuer (or the Trustee, in the name and at the expense of the Issuer) shall deliver or cause to be delivered to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.
 
SECTION 2.13
Record Date .
 
The record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided for in TIA § 316 (c).
 
SECTION 2.14
Computation of Interest .
 
Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months.
 
SECTION 2.15
CUSIP Number .
 
The Issuer in issuing the Notes may use a “CUSIP” and/or ISIN or other similar number, and if it does so, the Company may use the CUSIP and/or ISIN or other similar number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP and/or ISIN or other similar number printed in the notice or on the Notes and that reliance may be placed only on the other identification numbers printed on the Notes.  The Issuer shall promptly notify the Trustee of any change in the CUSIP and/or ISIN or other similar number.
 
SECTION 2.16
Special Transfer Provisions .
 
Unless and until (i) a Restricted Note is exchanged for an Exchange Note or sold in connection with an effective shelf registration statement pursuant to the Registration Rights Agreement or (ii) the Restricted Notes Legend is no longer required pursuant to Section 2.6(e), the following provisions shall apply:
 
(a)            Transfers to QIBs .  The following provisions shall apply with respect to the registration of any proposed transfer of a Restricted Note (other than pursuant to Regulation S):
 
(i)       The Registrar shall register the transfer of a Restricted Note by a Holder to a QIB if such transfer is being made by a proposed transferor who has
 

 
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provided the Registrar with (a) an appropriately completed certificate of transfer in the form attached to the Note and (b) a letter substantially in the form set forth in Exhibit C hereto.
 
(ii)       If the proposed transferee is an Agent Member and the Restricted Note to be transferred consists of an interest in the Regulation S Global Note, upon receipt by the Registrar of (x) the items required by paragraph (i) above and (y) instructions given in accordance with the Depositary’s and the Registrar’s procedures therefor, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the QIB Global Note in an amount equal to the principal amount of the beneficial interest in the Regulation S Global Note to be so transferred, and the Registrar shall reflect on its books and records the date and an appropriate decrease in the principal amount of such Regulation S Global Note.
 
(b)            Transfers Pursuant to Regulation S .  The following provisions shall apply with respect to registration of any proposed transfer of a Restricted Note pursuant to Regulation S:
 
(i)       The Registrar shall register any proposed transfer of a Restricted Note pursuant to Regulation S by a Holder upon receipt of (a) an appropriately completed certificate of transfer in the form attached to the Note and (b) a letter substantially in the form set forth in Exhibit D hereto from the proposed transferor.
 
(ii)       If the proposed transferee is an Agent Member holding a beneficial interest in a QIB Global Note and the Restricted Note to be transferred consists of an interest in a QIB Global Note, upon receipt by the Registrar of (x) the letter, if any, required by paragraph (i) above and (y) instructions in accordance with the Depositary’s and the Registrar’s procedures therefor, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Regulation S Global Note in an amount equal to the principal amount of the beneficial interest in the QIB Global Note to be transferred, and the Registrar shall reflect on its books and records the date and an appropriate decrease in the principal amount of the QIB Global Note.
 
(c)            Exchange Offer .  Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Issuer shall issue and, upon receipt of an authentication order in accordance with Section 2.2, the Trustee shall authenticate, one or more Global Notes not bearing the Restricted Notes Legend in an aggregate principal amount equal to the principal amount of the beneficial interests in the Global Notes that are Restricted Notes tendered for acceptance in accordance with the Exchange Offer and accepted for exchange in the Exchange Offer.  Concurrently with the issuance of such Global Notes, the Registrar shall cause the aggregate principal amount of the applicable Restricted Notes to be reduced accordingly, and the Registrar shall deliver to the Persons
 

 
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designated by the Holders of Restricted Notes so accepted Global Notes not bearing the Restricted Notes Legend in the appropriate principal amount.
 
(d)            Restricted Notes Legend .  Upon the transfer, exchange or replacement of Unrestricted Notes, the Registrar shall deliver Unrestricted Notes that do not bear the Restricted Notes Legend.  Upon the transfer, exchange or replacement of Restricted Notes, the Registrar shall deliver only Restricted Notes that bear the Restricted Notes Legend unless the Restricted Notes Legend is no longer required by Section 2.6(e), or the Company determines and there is delivered to the Trustee an Opinion of Counsel reasonably satisfactory to the Trustee and a letter of representation of the Issuer reasonably satisfactory to the Trustee to the effect that neither such legend nor the related restrictions on transfer are required or appropriate in order to ensure that subsequent transfers of the Notes are effected in compliance with the Securities Act.  Upon receipt of such Opinion of Counsel and letter of representation as provided above, the Trustee shall direct the Registrar to exchange the Restricted Notes for Unrestricted Notes with such exchange to occur in accordance with Section 2.16(f) (in the case of Global Notes).
 
(e)            General .  By its acceptance of any Note bearing the Restricted Notes Legend, each Holder of such a Note acknowledges receipt of a Restricted Note with restrictions on transfer of such Note set forth in this Indenture and in the Restricted Notes Legend and agrees that it shall transfer such Note only as provided in this Indenture until such time as the Restricted Note Legend is no longer required pursuant to Section 2.6(e) and such Holder transfers such a Restricted Note to an Unrestricted Note. The Registrar shall not register a transfer of any Note unless such transfer complies with the restrictions on transfer of such Note set forth in this Indenture. In connection with any transfer of Notes, each Holder agrees by its acceptance of the Notes to furnish the Registrar or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act until such time as the Restricted Note Legend is no longer required pursuant to Section 2.6(e) and such Holder transfers such a Restricted Note to an Unrestricted Note; provided that the Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information.
 
(f)            Mandatory Exchange from Restricted Global Note to Unrestricted Global Note .  Upon compliance with the following procedures, all of the beneficial interests in a Restricted Global Note shall be exchanged for beneficial interests in the Unrestricted Global Note.  In order to effect such exchange, the Company shall provide written notice to the Trustee no later than 30 days prior to the date of such mandatory exchange instructing the Trustee to (i) direct the Depository to transfer all of the outstanding beneficial interests in a particular Restricted Global Note to the Unrestricted Global Note and provide the Depository with all such information as is necessary for the Depository to appropriately credit and debit the relevant Holder accounts and (ii) provide prior written notice to all Holders no later than 30 days prior to the date of such mandatory exchange, which notice must include the date such exchange is to occur, the CUSIP number of the relevant
 

 
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Restricted Global Note and the CUSIP number of the Unrestricted Global Note into which such Holders’ beneficial interests will be exchanged.  As a condition to any such exchange pursuant to this Section 2.16(f), the Trustee shall be entitled to receive from the Company, and rely upon conclusively, without liability, an officers’ certificate and an opinion of counsel to the Company, in form and in substance reasonably satisfactory to the Trustee, to the effect that such transfer of beneficial interests to the Unrestricted Global Note shall be effected in compliance with the Securities Act.  Upon such exchange of beneficial interests pursuant to this Section 2.16(f), the Registrar shall endorse Schedule A to the relevant Notes and reflect on its books and records the date of such transfer and a decrease and increase, respectively, in the principal amount of the applicable Restricted Global Note(s) and the Unrestricted Global Note, respectively, equal to the principal amount of beneficial interests transferred.  Following any such transfer pursuant to this Section 2.16(f), the relevant Restricted Global Note shall be cancelled.
 
The Registrar shall retain copies of all letters, notices and other written communications received pursuant to this Section 2.16(f).  The Company, at its sole cost and expense, shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar.
 
SECTION 2.17
Issuance of Additional Notes .
 
The Company shall be entitled to issue Additional Notes under this Indenture that shall have identical terms as the Initial Notes, other than with respect to the date of issuance, issue price, amount of interest payable on the first interest payment date applicable thereto and any customary escrow provisions (and, if such Additional Notes shall be issued in the form of Restricted Notes, other than with respect to transfer restrictions, any Registration Rights Agreement and additional interest with respect thereto); provided that such issuance is not prohibited by the terms of this Indenture, including Section 4.9.  The Initial Notes and any Additional Notes and all Exchange Notes shall be, without limitation, treated as a single class for all purposes under this Indenture.
 
With respect to any Additional Notes, the Company shall set forth in a resolution of its Board of Directors and in an Officers’ Certificate, a copy of each of which shall be delivered to the Trustee, the following information:
 
(1)           the aggregate principal amount of such Additional Notes to be authenticated and delivered pursuant to this Indenture;
 
(2)           the issue price, the issue date, the CUSIP number of such Additional Notes, the first interest payment date and the amount of interest payable on such first interest payment date applicable thereto and the date from which interest shall accrue; and
 
(3)           whether such Additional Notes shall be Restricted Notes.
 

 
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ARTICLE III
 

 
REDEMPTION AND PREPAYMENT
 
SECTION 3.1
Notices to Trustee .
 
If the Issuer elects to redeem Notes pursuant to the optional redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at least forty-five (45) days (or such shorter period as is acceptable to the Trustee) before a date fixed for redemption (the “ redemption date ”), an Officers’ Certificate setting forth (i) the section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the Redemption Price.
 
If the Issuer is required to make an Offer to Purchase pursuant to Section 4.10 or 4.14 hereof, it shall furnish to the Trustee, at least forty-five (45) days (or such shorter period as is acceptable to the Trustee) before the scheduled purchase date, an Officers’ Certificate setting forth (i) the section of this Indenture pursuant to which the offer to purchase shall occur, (ii) the terms of the offer, (iii) the principal amount of Notes to be purchased, (iv) the purchase price and (v) the purchase date and further setting forth a statement to the effect that (a) the Issuer or one of its Subsidiaries has effected an Asset Sale and there are Excess Proceeds aggregating more than $20.0 million or (b) a Change of Control has occurred, as applicable.
 
SECTION 3.2
Selection of Notes to Be Redeemed .
 
The Trustee shall select the Notes to be redeemed among the Holders in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate (and in a manner that complies with applicable requirements of the Depositary); provided that no Notes of $2,000 or less shall be redeemed in part.  Notices of redemption shall be sent electronically (to the extent permitted by applicable procedures or regulations) or mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address.  If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed.  A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the Holder thereof upon cancellation of the original Note.  Notes called for redemption become due on the date fixed for redemption.  On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption.  The Trustee shall make the selection from the Notes outstanding and not previously called for redemption and shall promptly notify the Issuer in writing of the Notes selected for redemption.  The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of the Notes that have denominations larger than $2,000.
 

 
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SECTION 3.3             Notice of Redemption.
 
Subject to the provisions of Section 3.9, at least 30 days but not more than 60 days before a redemption date, the Issuer shall send or cause to be sent by electronic transmission or by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed.
 
The notice shall identify the Notes to be redeemed and shall state:
 
(1)           the redemption date;
 
(2)           the Redemption Price;
 
(3)           if any Note is being redeemed in part, the portion of the principal amount of such Notes to be redeemed and that, after the redemption date, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note;
 
(4)           the name, telephone number and address of the Paying Agent;
 
(5)           that Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price;
 
(6)           that, unless the Issuer defaults in making such redemption payment, interest, if any, on Notes called for redemption ceases to accrue on and after the redemption date;
 
(7)           the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and
 
(8)           that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes.
 
At the Issuer’s request, the Trustee shall give the notice of redemption in the Issuer’s name and at the Issuer’s expense; provided , however , that the Issuer shall have delivered to the Trustee at least 45 days prior to the redemption date (or such shorter period as is acceptable to the Trustee), an Officer’s Certificate requesting that the Trustee give such notice and setting forth the information to be stated in the notices as provided in the preceding paragraph.  The notice sent in the manner herein provided shall be conclusively presumed to have been duly given whether or not a Holder receives such notice.  In any case, failure to give such notice by electronic transmission or by mail or any defect in the notice to the Holder of any Note shall not affect the validity of the proceeding for the redemption of any other Note.
 
SECTION 3.4
Effect of Notice of Redemption .
 
Once notice of redemption is sent in accordance with Section 3.3 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the Redemption Price
 

 
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plus accrued and unpaid interest, if any, to such date.  A notice of redemption may not be conditional.
 
SECTION 3.5
Deposit of Redemption of Purchase Price .
 
On or before 12:00 noon (New York City time) on each redemption date or the date on which Notes must be accepted for purchase pursuant to Section 4.10 or 4.14, the Issuer shall deposit with the Trustee or with the Paying Agent (other than the Issuer or an Affiliate of the Issuer) money sufficient to pay the Redemption Price of and accrued and unpaid interest, if any, on all Notes to be redeemed or purchased on that date.  The Trustee or the Paying Agent shall promptly return to the Issuer any money deposited with the Trustee or the Paying Agent by the Issuer in excess of the amounts necessary to pay the Redemption Price of (including any applicable premium), and accrued interest, if any, on, all Notes to be redeemed or purchased.
 
If Notes called for redemption or tendered in an Asset Sale Offer or Change of Control Offer are paid or if Issuer has deposited with the Trustee or Paying Agent money sufficient to pay the redemption or purchase price of, and unpaid and accrued interest, if any, on, all Notes to be redeemed or purchased, on and after the redemption or purchase date, interest, if any, shall cease to accrue on the Notes or the portions of Notes called for redemption or tendered and not withdrawn in an Asset Sale Offer or Change of Control Offer (regardless of whether certificates for such securities are actually surrendered).  If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest, if any, shall be paid to the Person in whose name such Note was registered at the close of business on such record date.  If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Issuer to comply with the preceding paragraph, interest shall be paid on the unpaid principal from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case, at the rate provided in the Notes and in Section 4.1 hereof.
 
SECTION 3.6
Notes Redeemed in Part .
 
Upon surrender of a Note that is redeemed in part, the Issuer shall issue and, upon the written request of an Officer of the Issuer, the Trustee shall authenticate for the Holder at the expense of the Issuer a new Note equal in principal amount to the unredeemed portion of the Note surrendered.
 
SECTION 3.7
Optional Redemption .
 
(i)       The Notes are subject to redemption, at the option of the Issuer, in whole or in part, at any time on or after June 1, 2013 upon not less than 30 nor more than 60 days’ notice at the following Redemption Prices (expressed as percentages of the principal amount to be redeemed) set forth below, plus accrued and unpaid interest, if any, to, but not including, the redemption date (subject to the right of Holders of record on the relevant regular record date to receive interest due on an interest payment date that is on or prior to the redemption date), if redeemed during the 12-month period beginning on June 1 of the years indicated below:
 

 
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Year
 
 
Redemption Price
 
 
2013...........................................................................................................................
         104.563%
 
2014...........................................................................................................................
         102.281 %
 
2015 and thereafter.....................................................................................................
         100.000%
 

 
(ii)       Prior to June 1, 2012, the Issuer may, with the net proceeds of one or more Qualified Equity Offerings, redeem up to 35% of the aggregate principal amount of the outstanding Notes (including Additional Notes) at a Redemption Price equal to 109.125% of the principal amount thereof, together with accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes then outstanding (including Additional Notes) remains outstanding immediately after the occurrence of any such redemption (excluding Notes held by the Company or its Subsidiaries) and that any such redemption occurs within 90 days following the closing of any such Qualified Equity Offering.
 
(iii)       The Issuer may, at any time and from time to time, purchase Notes in the open market or otherwise, subject to compliance with this Indenture and compliance with all applicable securities laws.
 
SECTION 3.8
Mandatory Redemption .
 
The Issuer shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
 
SECTION 3.9
Offer to Purchase .
 
In the event that the Issuer shall be required to commence an Offer to Purchase pursuant to an Asset Sale Offer or a Change of Control Offer, the Issuer shall follow the procedures specified below.
 
Unless otherwise required by applicable law, an Offer to Purchase shall specify an expiration date (the “ Expiration Date ”) of the Offer to Purchase, which shall be, subject to any contrary requirements of applicable law, not less than 30 days or more than 60 days after the date of delivering of such Offer, and a settlement date (the “ Purchase Date ”) for purchase of Notes within five Business Days after the Expiration Date.  On the Purchase Date, the Company shall purchase the aggregate principal amount of Notes required to be purchased pursuant to Section 4.10 hereof or Section 4.14 hereof (the “ Offer Amount ”), or if less than the Offer Amount has been tendered, all Notes tendered in response to the Offer to Purchase.  Payment for any Notes so purchased shall be made in the same manner as interest payments are made.  If the Purchase Date is on or after the interest record date and on or before the related interest payment date, any accrued and unpaid interest, if any, shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest, if any, shall be payable to the Holders who tender Notes pursuant to the Offer to Purchase.  The Company shall notify the Trustee at least 15 days (or such shorter period as is acceptable to the Trustee in its sole discretion) prior to the delivering of the Offer of the Company’s obligation to make an Offer to Purchase, and the Offer shall be sent electronically or mailed by the Company or, at the Com-
 

 
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pany’s request, by the Trustee in the name and at the expense of the Company.  The Offer shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Offer to Purchase.
 
On or before 12:00 noon (New York City time) on each Purchase Date, the Issuer shall irrevocably deposit with the Trustee or Paying Agent (other than the Issuer or an Affiliate of the Issuer) in immediately available funds the aggregate purchase price equal to the Offer Amount, together with accrued and unpaid interest, if any, thereon, to be held for payment in accordance with the terms of this Section 3.9.  On the Purchase Date, the Issuer shall, to the extent lawful, (i) accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Offer to Purchase, or if less than the Offer Amount has been tendered, all Notes tendered, (ii) deliver or cause the Paying Agent or depositary, as the case may be, to deliver to the Trustee Notes so accepted and (iii) deliver to the Trustee an Officers’ Certificate stating that such Notes or portions thereof were accepted for payment by the Issuer in accordance with the terms of this Section 3.9.  The Issuer, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than three (3) Business Days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Issuer for purchase, plus any accrued and unpaid interest, if any, thereon, and the Issuer shall promptly issue a new Note, and the Trustee, at the written request of the Issuer, shall authenticate and mail or deliver at the expense of the Issuer such new Note to such Holder, equal in principal amount to any unpurchased portion of such Holder’s Notes surrendered; provided that each such new Note will be in a principal amount of $2,000 or any integral multiple of $1,000 in excess thereof.  Any Note not so accepted shall be promptly mailed or delivered by the Issuer to the Holder thereof.  The Issuer shall publicly announce in a newspaper of general circulation or in a press release provided to a nationally recognized financial wire service the results of the Offer to Purchase on the Purchase Date.
 
The Issuer shall comply with the requirements of any applicable securities laws and any regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of an Asset Sale Offer or Change of Control Offer.  To the extent that the provisions of any securities laws or regulations conflict with Sections 3.9, 4.10 or 4.14 of this Indenture, the Company will comply with the applicable securities laws and regulations and will be deemed to have complied with its obligations under Section 3.9, 4.10 or 4.14, as applicable, by virtue of such compliance.
 
Other than as specifically provided in this Section 3.9, any purchase pursuant to this Section 3.9 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof.
 

 
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ARTICLE IV
 
COVENANTS
 
SECTION 4.1
Payment of Notes .
 
(a)           The Issuer shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes.  Principal, premium, if any, and interest shall be considered paid for all purposes hereunder on the date the Paying Agent, if other than the Issuer or a Subsidiary thereof, holds, as of 12:00 noon (New York City time), money deposited by the Issuer in immediately available funds and designated for and sufficient to pay all such principal, premium, if any, and interest then due.
 
(b)           The Issuer shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful.
 
SECTION 4.2
Maintenance of Office or Agency .
 
The Issuer shall maintain an office or agency (which may be an office of the Trustee or an affiliate of the Trustee or Registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Issuer in respect of the Notes and this Indenture may be served.  The Issuer shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency.  The Issuer hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Issuer in accordance with Section 2.3 hereof.  If at any time the Issuer shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee and the Company hereby appoints the Trustee its agent to receive all such presentations, surrenders, notices and demands.
 
The Issuer may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations.  The Issuer shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
 
SECTION 4.3
Provision of Financial Information .
 
Whether or not required by the Commission, so long as any Notes are outstanding, the Company will furnish to the Trustee, the Holders of Notes, or file electronically with the Commission through the Commission’s Electronic Data Gathering, Analysis and Retrieval System (or any successor system), within the time periods specified in the Commission’s rules and regulations:
 

 
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(1)           all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by the Company’s certified independent accountants; and
 
(2)           all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports.
 
In addition, whether or not required by the Commission, the Company will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the Commission for public availability within the time periods specified in the Commission’s rules and regulations (unless the Commission will not accept such a filing) and make such information available to prospective investors.  In addition, the Company and the Subsidiary Guarantors have agreed that, for so long as any Notes remain outstanding, they will furnish to the Holders and to prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
 
If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.
 
SECTION 4.4
Compliance Certificate .
 
The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers’ Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each has kept, observed, performed and fulfilled its obligations under this Indenture (including, with respect to any Restricted Payments made during such year, the basis upon which the calculations required by Section 4.7 hereof were computed, which calculations may be based upon the Company’s latest available financial statements), and further stating, as to each such Officer signing such certificate, that, to his or her knowledge, each entity is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that, to his or her knowledge, no event has occurred and remains in existence by reason of which payments on account of the principal of, premium, if any, or interest on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto.
 

 
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The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon becoming aware of any Default or Event of Default, an Officers’ Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto.
 
SECTION 4.5
Taxes .
 
The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency all material taxes, assessments and governmental levies, except such as are contested in good faith and by appropriate proceedings and with respect to which appropriate reserves have been taken in accordance with GAAP or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes.
 
SECTION 4.6
Stay, Extension and Usury Laws .
 
The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted.
 
SECTION 4.7
Limitation on Restricted Payments .
 
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment unless, at the time of and after giving effect to the proposed Restricted Payment:
 
(a)           no Default in the payment in respect of principal or interest or Event of Default shall have occurred and be continuing or will occur as a consequence thereof;
 
(b)           after giving effect to such Restricted Payment on a pro forma basis, the Company would be permitted to Incur at least $1.00 of additional Debt (other than Permitted Debt) pursuant to the provisions described in the first paragraph under Section 4.9; and
 
(c)           after giving effect to such Restricted Payment on a pro forma basis, the aggregate amount expended or declared for all Restricted Payments made on or after the Issue Date (excluding Restricted Payments permitted by clauses (ii) through (viii) of the next succeeding paragraph) shall not exceed the sum (without duplication) of:
 
(1)           50% of the Consolidated Net Income (or, if Consolidated Net Income shall be a deficit, minus 100% of such deficit) of the Company accrued on a cumulative basis during the period (taken as one accounting period) from the beginning of the first full fiscal quarter during which the Issue Date occurs and end-
 

 
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ing on the last day of the fiscal quarter immediately preceding the date of such proposed Restricted Payment, plus
 
(2)           100% of the aggregate net proceeds (including the Fair Market Value of property other than cash) received by the Company subsequent to the initial issuance of the Notes either (i) as a contribution to its common equity capital or (ii) from the issuance and sale (other than to a Subsidiary) of its Qualified Capital Interests, including Qualified Capital Interests issued upon the conversion of Debt or Redeemable Capital Interests of the Company, and from the exercise of options, warrants or other rights to purchase such Qualified Capital Interests (other than, in each case, Capital Interests or Debt sold to a Subsidiary of the Company), plus
 
(3)           to the extent that any Investment (other than Permitted Investments or Investments in Unrestricted Subsidiaries) that was made on and after the Issue Date is sold for cash or otherwise disposed of, liquidated or repaid for cash or other assets, the lesser of (i) the initial amount of such Investment, or (ii) to the extent not otherwise included in the calculation of Consolidated Net Income of the Company for such period, the net cash return of capital or net Fair Market Value of return of capital with respect to such Investment, less the cost of any such disposition or liquidation, plus
 
(4)           to the extent that any Unrestricted Subsidiary of the Company designated as such on and after the Issue Date is redesignated as a Restricted Subsidiary, the lesser of (i) the Fair Market Value of the Company’s Investment in such Subsidiary as of the date of such redesignation or (ii) such Fair Market Value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary, plus
 
(5)           50% of any dividends or interest payments received by the Company or a Restricted Subsidiary on and after the Issue Date from an Unrestricted Subsidiary, to the extent such dividends or interest payments were not otherwise included in the calculation of Consolidated Net Income of the Company for such period.
 
Notwithstanding whether the foregoing provisions would prohibit the Company and its Restricted Subsidiaries from making a Restricted Payment, the Company and its Restricted Subsidiaries may make the following Restricted Payments:
 
(i)       the payment of any dividend on Capital Interests in the Company or a Restricted Subsidiary within 60 days after declaration thereof if at the declaration date such payment was permitted by the foregoing provisions of this Section 4.7;
 
(ii)       the purchase, repurchase, redemption, defeasance or other acquisition or retirement of any Qualified Capital Interests of the Company by conversion into, or by or in exchange for, Qualified Capital Interests, or out of net cash proceeds of the substan-
 

 
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tially concurrent sale (other than to a Restricted Subsidiary of the Company) of other Qualified Capital Interests of the Company;
 
(iii)       the redemption, defeasance, repurchase or acquisition or retirement for value of any Debt of the Company or a Guarantor that is subordinate in right of payment to the Notes or the applicable Note Guarantee out of the net cash proceeds of a substantially concurrent issue and sale (other than to a Subsidiary of the Company) of (x) new subordinated Debt of the Company or such Guarantor, as the case may be, Incurred in accordance with this Indenture or (y) of Qualified Capital Interests of the Company;
 
(iv)       the purchase, redemption, retirement or other acquisition for value of Capital Interests in the Company or any direct or indirect parent of the Company (or any payments to a direct or indirect parent company of the Company for the purposes of permitting any such repurchase) held by employees or former employees of the Company or any Restricted Subsidiary (or their estates or beneficiaries under their estates) upon death, disability, retirement or termination of employment or alteration of employment status or pursuant to the terms of any agreement under which such Capital Interests were issued; provided that the aggregate cash consideration paid for such purchase, redemption, retirement or other acquisition of such Capital Interests does not exceed $5.0 million in any calendar year, provided , further , that any unused amounts in any calendar year may be carried forward to one or more future periods subject to a maximum aggregate amount of repurchases made pursuant to this clause (iv) not to exceed $10.0 million in any calendar year; provided , however , that such amount in any calendar year may be increased by an amount not to exceed (A) the cash proceeds received by the Company or any of its Restricted Subsidiaries from the sale of Qualified Capital Interests of the Company or any direct or indirect parent company of the Company (to the extent contributed to the Company) to employees of the Company and its Restricted Subsidiaries that occurs after the Issue Date; provided , however , that the amount of such cash proceeds utilized for any such repurchase, retirement, other acquisition or dividend will not increase the amount available for Restricted Payments under clause (c) of the first paragraph of this Section 4.7; plus (B) the cash proceeds of key man life insurance policies received by the Company and its Restricted Subsidiaries after the Issue Date ( provided , however , that the Company may elect to apply all or any portion of the aggregate increase contemplated by the proviso of this clause (iv) in any calendar year and, to the extent any payment described under this clause (iv) is made by delivery of Debt and not in cash, such payment shall be deemed to occur only when, and to the extent, the obligor on such Debt makes payments with respect to such Debt);
 
(v)       repurchase of Capital Interests deemed to occur upon the exercise of stock options, warrants or other convertible or exchangeable securities;
 
(vi)       to the extent no Default in any payment in respect of principal or interest under the Notes or the Credit Agreement or Event of Default has occurred and is continuing or will occur as a consequence thereof, the extension of credit that constitutes intercompany Debt owing from Unrestricted Subsidiaries or any joint ventures, the Incurrence of which was permitted pursuant to Section 4.9;
 

 
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(vii)      cash payment, in lieu of issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for the Capital Interests of the Company or a Restricted Subsidiary;
 
(viii)     the declaration and payment of dividends to holders of any class or series of Redeemable Capital Interests of the Company or any Restricted Subsidiary issued or Incurred in compliance with Section 4.9 to the extent such dividends are included in the definition of Consolidated Fixed Charges;
 
(ix)       to the extent no Default in any payment in respect of principal or interest under the Notes or the Credit Agreement or Event of Default has occurred and is continuing or will occur as a consequence thereof, upon the occurrence of a Change of Control or an Asset Sale, the defeasance, redemption, repurchase or other acquisition of any subordinated Debt pursuant to provisions substantially similar to those contained in Section 4.10 and Section 4.14 at a Purchase Price not greater than 101% of the principal amount thereof (in the case of a Change of Control) or at a percentage of the principal amount thereof not higher than the principal amount applicable to the Notes (in the case of an Asset Sale), plus any accrued and unpaid interest thereon; provided that prior to or contemporaneously with such defeasance, redemption, repurchase or other acquisition, the Company has made an Offer to Purchase with respect to the Notes and has repurchased all Notes validly tendered for payment and not withdrawn in connection therewith;
 
(x)       to the extent no Default in any payment in respect of principal or interest under the Notes or the Credit Agreement or Event of Default has occurred and is continuing or will occur as a consequence thereof, the payment of regular cash quarterly dividends on the Company’s common stock in an amount not to exceed $75.0 million in any calendar year; and
 
      (xi)           to the extent no Default in any payment in respect of principal or interest under the Notes or the Credit Agreement or Event of Default has occurred and is continuing or will occur as a consequence thereof, other Restricted Payments not in excess of $50.0 million in the aggregate.
 
If the Company makes a Restricted Payment which, at the time of the making of such Restricted Payment, in the good faith determination of the Company, would be permitted under the requirements of this Indenture, such Restricted Payment shall be deemed to have been made in compliance with this Indenture notwithstanding any subsequent adjustment made in good faith to the Company’s financial statements affecting Consolidated Net Income.
 
If any Person in which an Investment is made, which Investment constitutes a Restricted Payment when made, thereafter becomes a Restricted Subsidiary in accordance with this Indenture, all such Investments previously made in such Person shall no longer be counted as Restricted Payments for purposes of calculating the aggregate amount of Restricted Payments pursuant to clause (c) of the first paragraph under this Section 4.7, in each case to the extent such Investments would otherwise be so counted.
 

 
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If the Company or a Restricted Subsidiary transfers, conveys, sells, leases or otherwise disposes of an Investment in accordance with Section 4.10, which Investment was originally included in the aggregate amount expended or declared for all Restricted Payments pursuant to clause (c) of the definition of “Restricted Payments,” the aggregate amount expended or declared for all Restricted Payments shall be reduced by the lesser of (i) the net cash proceeds from the transfer, conveyance, sale, lease or other disposition of such Investment or (ii) the amount of the original Investment, in each case, to the extent originally included in the aggregate amount expended or declared for all Restricted Payments pursuant to clause (c) of the definition of “Restricted Payments.”
 
For purposes of this Section 4.7, if a particular Restricted Payment involves a non-cash payment, including a distribution of assets, then such Restricted Payment shall be deemed to be an amount equal to the cash portion of such Restricted Payment, if any, plus an amount equal to the Fair Market Value of the non-cash portion of such Restricted Payment.
 
SECTION 4.8
Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.
 
 
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, cause or suffer to exist or become effective or enter into any encumbrance or restriction (other than pursuant to this Indenture or any law, rule, regulation or order) on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Interests owned by the Company or any Restricted Subsidiary or pay any Debt or other obligation owed to the Company or any Restricted Subsidiary, (ii) make loans or advances to the Company or any Restricted Subsidiary thereof or (iii) transfer any of its property or assets to the Company or any Restricted Subsidiary.
 
However, the preceding restrictions will not apply to the following encumbrances or restrictions existing under or by reason of:
 
(a)           any encumbrance or restriction in existence on the Issue Date, including those required by the Credit Agreement or by any other agreement or documents entered into in connection with the Credit Agreement and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements, or refinancings, of any of the foregoing agreements or documents, provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings, in the good faith judgment of the Company, are no more restrictive, taken as a whole, with respect to such dividend or other payment restrictions than those contained in these agreements on the Issue Date or refinancings thereof;
 
(b)           any encumbrance or restriction pursuant to an agreement relating to an acquisition of property, so long as the encumbrances or restrictions in any such agreement relate solely to the property so acquired (and are not or were not created in anticipation of or in connection with the acquisition thereof);
 

 
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(c)           any encumbrance or restriction which exists with respect to a Person that becomes a Restricted Subsidiary or merges with or into a Restricted Subsidiary of the Company on or after the Issue Date, which is in existence at the time such Person becomes a Restricted Subsidiary, but not created in connection with or in anticipation of such Person becoming a Restricted Subsidiary, and which is not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person becoming a Restricted Subsidiary;
 
(d)           any encumbrance or restriction pursuant to an agreement effecting a permitted renewal, refunding, replacement, refinancing or extension of Debt issued pursuant to an agreement containing any encumbrance or restriction referred to in the foregoing clauses (a) through (c), so long as the encumbrances and restrictions contained in any such refinancing agreement are no less favorable in any material respect to the Holders than the encumbrances and restrictions contained in the agreements governing the Debt being renewed, refunded, replaced, refinanced or extended in the good faith judgment of the Company;
 
(e)           customary provisions restricting subletting or assignment of any lease, contract, or license of the Company or any Restricted Subsidiary or provisions in agreements that restrict the assignment of such agreement or any rights thereunder;
 
(f)           any encumbrance or restriction by reason of applicable law, rule, regulation or order;
 
(g)           any encumbrance or restriction under this Indenture, the Notes and the Note Guarantees;
 
(h)           any encumbrance or restriction under the sale of assets or Capital Interest, including, without limitation, any agreement for the sale or other disposition of a Subsidiary that restricts distributions by that Subsidiary pending its sale or other disposition;
 
(i)           restrictions on cash and other deposits or net worth imposed by customers under contracts entered into the ordinary course of business;
 
(j)           customary provisions with respect to the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, stock sale agreements, sale leaseback agreements and other similar agreements;
 
(k)           any instrument governing Debt or Capital Interests of a Person acquired by the Company or any of the Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Debt or Capital Interests were Incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Debt, such Debt was permitted by the terms of this Indenture to be Incurred;
 

 
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(l)           purchase money obligations (including Capital Lease Obligations) for property acquired in the ordinary course of business that impose restrictions on that property so acquired of the nature described in clause (iii) of the first paragraph of this Section 4.8;
 
(m)           Liens securing Debt otherwise permitted to be Incurred under this Indenture, including pursuant to Section 4.12, that limit the right of the debtor to dispose of the assets subject to such Liens;
 
(n)           any Non-Recourse Receivable Subsidiary Indebtedness or other contractual requirements of a Receivable Subsidiary that is a Restricted Subsidiary in connection with a Qualified Receivables Transaction; provided that such restrictions apply only to such Receivable Subsidiary or the receivables and related assets described in the definition of Qualified Receivables Transaction which are subject to such Qualified Receivables Transaction; and
 
(o)           any other agreement governing Debt entered into after the Issue Date that contains encumbrances and restrictions that are not materially more restrictive with respect to any Restricted Subsidiary than those in effect on the Issue Date with respect to that Restricted Subsidiary pursuant to agreements in effect on the Issue Date.
 
Nothing contained in this Section 4.8 shall prevent the Company or any Restricted Subsidiary from (i) creating, incurring, assuming or suffering to exist any Liens otherwise permitted under Section 4.12 or (ii) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Debt of the Company or any of its Restricted Subsidiaries Incurred in accordance with Section 4.9 and Section 4.12 hereof.
 
SECTION 4.9
Limitation on Incurrence of Debt .
 
The Company will not, and will not permit any of its Restricted Subsidiaries to, Incur any Debt (including Acquired Debt); provided that the Company and any of its Restricted Subsidiaries may Incur Debt (including Acquired Debt) if, immediately after giving effect to the Incurrence of such Debt and the receipt and application of the proceeds therefrom, (a) the Consolidated Fixed Charge Coverage Ratio of the Company and its Restricted Subsidiaries, determined on a pro forma basis as if any such Debt (including any other Debt, other than Debt Incurred under the revolving portion of a Credit Facility, being Incurred contemporaneously), and any other Debt Incurred since the beginning of the Four Quarter Period, had been Incurred and the proceeds thereof had been applied at the beginning of the Four Quarter Period, and any other Debt repaid (other than Debt Incurred under the revolving portion of a Credit Facility) since the beginning of the Four Quarter Period had been repaid at the beginning of the Four Quarter Period, would be greater than 2.25 to 1.00 and (b) no Default or Event of Default shall have occurred and be continuing at the time or as a consequence of the Incurrence of such Debt.
 
If, during the Four Quarter Period or subsequent thereto and prior to the date of determination, the Company or any of its Restricted Subsidiaries shall have engaged in any Asset Sale or Asset Acquisition, Investments, mergers, consolidations, discontinued operations (as determined
 

 
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in accordance with GAAP) or shall have designated any Restricted Subsidiary to be an Unrestricted Subsidiary or any Unrestricted Subsidiary to be a Restricted Subsidiary, Consolidated Cash Flow Available for Fixed Charges and Consolidated Interest Expense for the Four Quarter Period shall be calculated on a pro forma basis giving effect to such Asset Sale or Asset Acquisition, Investments, mergers, consolidations, discontinued operations or designation, as the case may be, and the application of any proceeds therefrom as if such Asset Sale or Asset Acquisition or designation had occurred on the first day of the Four Quarter Period.
 
If the Debt which is the subject of a determination under this provision is Acquired Debt, or Debt Incurred in connection with the simultaneous acquisition of any Person, business, property or assets, or Debt of an Unrestricted Subsidiary being designated as a Restricted Subsidiary, then such ratio shall be determined by giving effect (on a pro forma basis, as if the transaction had occurred at the beginning of the Four Quarter Period) to (x) the Incurrence of such Acquired Debt or such other Debt by the Company or any of its Restricted Subsidiaries and (y) the inclusion, in Consolidated Cash Flow Available for Fixed Charges, of the Consolidated Cash Flow Available for Fixed Charges of the acquired Person, business, property or assets or redesignated Subsidiary.
 
Notwithstanding the first paragraph above, the Company and its Restricted Subsidiaries may Incur Permitted Debt.
 
For purposes of determining any particular amount of Debt under this Section 4.9, (x) Debt Incurred under the Credit Agreement on the Issue Date shall at all times be treated as Incurred pursuant to clause (i) of the definition of “Permitted Debt,” and (y) Guarantees or obligations with respect to letters of credit supporting Debt otherwise included in the determination of such particular amount shall not be included.  For purposes of determining compliance with this Section 4.9, in the event that an item of Debt meets the criteria of more than one of the types of Debt described above, including categories of Permitted Debt and under the first paragraph of this Section 4.9, the Company, in its sole discretion, shall classify, and from time to time may reclassify, all or any portion of such item of Debt.  For purposes of determining compliance of any non-U.S. dollar-denominated Debt with this Section 4.9, the amount outstanding under U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall at all times be calculated based on the relevant currency exchange rate in effect on the date such Debt was Incurred, in the case of the term Debt, or first committed, in the cases of the revolving credit Debt, provided, however , that if such Debt is Incurred to refinance other Debt denominated in the same or different currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such Refinancing Debt does not exceed the principal amount of such indebtedness being refinanced.
 
The accrual of interest, the accretion or amortization of original issue discount and the payment of interest on Debt in the form of additional Debt or payment of dividends on Capital Interests in the forms of additional shares of Capital Interests with the same terms will not be deemed to be an Incurrence of Debt or issuance of Capital Interests for purposes of this Section 4.9.
 

 
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The Company and any Guarantor will not Incur any Debt that pursuant to its terms is subordinate or junior in right of payment to any Debt unless such Debt is subordinated in right of payment to the Notes and the Note Guarantees to the same extent; provided that Debt will not be considered subordinate or junior in right of payment to any other Debt solely by virtue of being unsecured or secured to a greater or lesser extent or with greater or lower priority or by virtue of structural subordination.
 
SECTION 4.10
Limitation on Asset Sales .
 
The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
 
(1)           the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Capital Interests issued or sold or otherwise disposed of; and
 
(2)           at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash or Eligible Cash Equivalents.  For purposes of this provision, each of the following will be deemed to be cash:
 
(a)           any liabilities, as shown on the most recent consolidated balance sheet of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Note Guarantee) that are assumed by the transferee of any such assets pursuant to a customary assignment and assumption agreement that releases the Company or such Restricted Subsidiary from further liability; and
 
(b)           any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash within 180 days of their receipt to the extent of the cash received in that conversion.
 
Within 360 days after the receipt of any Net Cash Proceeds from an Asset Sale, the Company (or the applicable Restricted Subsidiary, as the case may be) may apply such Net Cash Proceeds at its option:
 
(i)           to permanently repay Debt under the Credit Facilities and, if the Obligation repaid is revolving credit Debt, to correspondingly reduce commitments with respect thereto;
 
(ii)           to acquire all or substantially all of the assets of, or any Capital Interests of, another Permitted Business, if, after giving effect to any such acquisition of Capital Interests, the Permitted Business is or becomes a Restricted Subsidiary of the Company;
 
(iii)           to make a capital expenditure in or that is used or useful in a Permitted Business or to make expenditures for maintenance, repair or improvement of existing properties and assets in accordance with the provisions of this Indenture;
 

 
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(iv)           to acquire other assets (other than inventory) that are used or useful in a Permitted Business;
 
(v)           to repay or repurchase Debt secured by the assets of the Company or any Restricted Subsidiaries; or
 
(vi)           any combination of the foregoing.
 
Any Net Cash Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph of this Section 4.10 will constitute “ Excess Proceeds .”  When the aggregate amount of Excess Proceeds exceeds $50.0 million, the Company will, within 30 days, make an Offer to Purchase to all Holders of Notes (on a pro rata basis to each series of Notes), and to all holders of other Debt ranking pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to assets sales, equal to the Excess Proceeds.  The offer price in any Offer to Purchase will be equal to 100% of the principal amount plus accrued and unpaid interest to the date of purchase, and will be payable in cash.  If any Excess Proceeds remain after consummation of an Offer to Purchase, the Company may use those funds for any purpose not otherwise prohibited by this Indenture and they will no longer constitute Excess Proceeds.  If the aggregate principal amount of Notes and other pari passu Debt tendered into such Offer to Purchase exceeds the amount of Excess Proceeds, the Trustee will select the Notes to be purchased on a pro rata basis among each series.  Upon completion of each Offer to Purchase, the amount of Excess Proceeds will be reset at zero.
 
The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other applicable securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Offer to Purchase.  To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of this Indenture, the Company will comply with the applicable securities laws and regulations and will be deemed to have complied with its obligations under the Asset Sale provisions of this Indenture by virtue of such compliance.
 
SECTION 4.11
Limitation on Transactions with Affiliates .
 
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction or series of related transactions, contract, agreement, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Company (each of the foregoing, an “ Affiliate Transaction ”) involving aggregate consideration in excess of $5.0 million, unless:
 
(i)       such Affiliate Transaction is on terms that are not materially less favorable to the Company or the relevant Subsidiary than those that could reasonably have been obtained in a comparable arm’s length transaction by the Company or such Subsidiary with an unaffiliated party; and
 
(ii)       with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $30.0 million, the Company
 

 
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delivers to the Trustee a resolution adopted in good faith by the majority of the Board of Directors of the Company approving such Affiliate Transaction and set forth in an Officers’ Certificate certifying that such Affiliate Transaction complies with clause (i) above; and
 
(iii)       with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $50.0 million, the Company must obtain and deliver to the Trustee a written opinion of a nationally recognized investment banking, accounting or appraisal firm stating that the transaction is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view.
 
The foregoing limitations do not limit, and shall not apply to:
 
(1)           Restricted Payments that are permitted by the provisions of this Indenture pursuant to Section 4.7 and Permitted Investments permitted under this Indenture;
 
(2)           the payment of reasonable and customary compensation and indemnities and other benefits to members of the Board of Directors of the Company or a Restricted Subsidiary who are outside directors;
 
(3)           the payment of reasonable and customary compensation and other benefits (including retirement, health, option, deferred compensation and other benefit plans) and indemnities to officers and employees of the Company or any Restricted Subsidiary as determined by the Board of Directors thereof in good faith;
 
(4)           transactions between or among the Company and/or its Restricted Subsidiaries;
 
(5)           any agreement or arrangement as in effect on the Issue Date and any amendment or modification thereto so long as such amendment or modification is not more disadvantageous to the Holders of the Notes in any material respect;
 
(6)           the Transactions and the payment of all fees and expenses in connection therewith;
 
(7)           any contribution of capital to the Company;
 
(8)           transactions permitted by, and complying with, Article V and Section 10.5 hereof;
 
(9)           any transaction with a joint venture, partnership, limited liability company or other entity, including the Castings Joint Venture, that would constitute an Affiliate Transaction solely because the Company or a Restricted Subsidiary owns an equity interest in such joint venture, partnership, limited liability company or other entity;
 

 
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(10)           transactions with customers, clients, suppliers or purchasers or sellers of goods or services, in each case, in the ordinary course of business and on terms that are not materially less favorable to the Company or such Restricted Subsidiary, as the case may be, as determined in good faith by the Company, than those that could be obtained in a comparable arm’s length transaction with a Person that is not an Affiliate of the Company; and
 
(11)           transactions effected as part of a Qualified Receivables Transaction.
 
SECTION 4.12
Limitation on Liens .
 
The Company will not, and will not permit any of its Restricted Subsidiaries, directly or indirectly, to enter into, create, incur, assume or suffer to exist any Liens of any kind (other than Permitted Liens) on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom, which Liens secure Debt, without securing the Notes and all other amounts due under this Indenture equally and ratably with (or prior to) the Debt secured by such Lien until such time as such Debt is no longer secured by such Lien; provided that if the Debt so secured is subordinated by its terms to the Notes or a Note Guarantee, the Lien securing such Debt will also be so subordinated by its terms to the Notes and the Guarantees at least to the same extent.
 
SECTION 4.13
Limitation on Sale and Leaseback Transactions .
 
The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale and Leaseback Transaction unless:
 
(i)       the consideration received in such Sale and Leaseback Transaction is at least equal to the Fair Market Value of the property sold, as confirmed by an Officers’ Certificate,
 
(ii)       prior to and after giving effect to the Attributable Debt in respect of such Sale and Leaseback Transaction, the Company and such Restricted Subsidiary comply with Section 4.9, and
 
(iii)       at or after such time the Company and such Restricted Subsidiary also comply with Section 4.10.
 
SECTION 4.14
Offer to Purchase upon Change of Control .
 
Upon the occurrence of a Change of Control, unless the Company has exercised its rights to redeem all of the Notes in accordance with Section 3.7, the Company will make an Offer to Purchase (the “ Change of Control Offer ”) all of the outstanding Notes at a Purchase Price in cash equal to 101% of the principal amount tendered, together with accrued interest, if any, to but not including the Purchase Date (the “ Change of Control Payment ”).  For purposes of the foregoing, an Offer to Purchase shall be deemed to have been made if (i) within 60 days following the date of the consummation of a transaction or series of transactions that constitutes a Change of Control, the Company commences an Offer to Purchase all outstanding Notes at the Purchase Price
 

 
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( provided that the running of such 60-day period shall be suspended, for up to a maximum of 30 days, during any period when the commencement of such Offer to Purchase is delayed or suspended by reason of any court’s or governmental authority’s review of or ruling on any materials being employed by the Company to effect such Offer to Purchase, so long as the Company has used and continues to use its commercially reasonable efforts to make and conclude such Offer to Purchase promptly) and (ii) all Notes properly tendered pursuant to the Offer to Purchase are purchased on the terms of such Offer to Purchase.
 
The Change of Control provisions described above will be applicable whether or not any other provisions of this Indenture are applicable.  Except as described above with respect to a Change of Control, this Indenture does not contain provisions that permit the Holders to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.
 
The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer contemporaneously with or upon a Change of Control, in the manner, at the times and otherwise in compliance with the requirements set forth herein applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
 
To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of this Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached their obligations under the Change of Control provisions of this Indenture by virtue of such conflict.
 
In addition, an Offer to Purchase may be made in advance of a Change of Control, conditional upon such Change of Control, if a definitive agreement is in place for the Change of Control at the time of launching the Offer to Purchase.
 
SECTION 4.15
Corporate Existence .
 
Subject to Section 4.14 and Article V hereof, as the case may be, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership, limited liability company or other existence of each of its Subsidiaries in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders.
 
SECTION 4.16
Business Activities .
 
The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than a Permitted Business.
 

 
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SECTION 4.17          Additional Note Guarantees .
 
If the Company or any of its Restricted Subsidiaries acquires or creates another Subsidiary after the Issue Date, then that newly acquired or created Subsidiary shall become a Guarantor within 60 days of the date on which it was acquired or created; provided, that all Subsidiaries that are Immaterial Subsidiaries, CFCs, Special Purpose Financing Subsidiaries or Regulated Subsidiaries, existing on the Issue Date or acquired or created thereafter, shall not be required to become Guarantors only if such Subsidiaries continue to constitute Immaterial Subsidiaries, CFCs, Special Purpose Financing Subsidiaries or Regulated Subsidiaries, as the case may be.
 
SECTION 4.18
Limitation on Creation of Unrestricted Subsidiaries .
 
The Company may designate any Subsidiary of the Company to be an “Unrestricted Subsidiary” as provided below, in which event such Subsidiary and each other Person that is then or thereafter becomes a Subsidiary of such Subsidiary will be deemed to be an Unrestricted Subsidiary.
 
The Company may designate any Subsidiary to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Interests of, or owns or holds any Lien on any property of, any other Restricted Subsidiary of the Company, provided that either:
 
(x)           the Subsidiary to be so designated has total assets of $1,000 or less; or
 
(y)           the Company could make a Restricted Payment at the time of designation in an amount equal to the greater of the Fair Market Value or book value of such Subsidiary pursuant to Section 4.7 and such amount is thereafter treated as a Restricted Payment for the purpose of calculating the amount available for Restricted Payments thereunder.
 
An Unrestricted Subsidiary may be designated as a Restricted Subsidiary if (i) all the Debt of such Unrestricted Subsidiary could be Incurred pursuant to Section 4.9 and (ii) all the Liens on the property and assets of such Unrestricted Subsidiary could be incurred pursuant to Section 4.12.
 
SECTION 4.19
Maintenance of Properties; Insurance; Books and Records .
 
(a)           Subject to, and in compliance with, the provisions of Article X, the Issuer shall cause all material properties used or useful in the conduct of its business or the business of any of the Guarantors to be maintained and kept in good operating condition, repair and working order (ordinary wear and tear and casualty loss excepted) and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereto; provided that the Issuer shall not be obligated to make such repairs, renewals, replacements, betterments and improvements that would not result in a material adverse effect on the ability of the Issuer and the Guarantors to satisfy their obligations under the Notes, the Guarantees and this Indenture.
 
(b)           The Issuer shall maintain, and shall cause the Guarantors to maintain, insurance with responsible carriers against such risks and in such amounts, and with such deductibles, re-
 

 
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tentions, self-insured amounts and co-insurance provisions, as are customarily carried by similar businesses or similar size in the locations which such business is conducted, including property and casualty loss, workers’ compensation and interruption of business insurance.
 
(c)           The Issuer shall, and shall cause each Guarantor to, keep proper books of record and account, in which full and correct entries shall be made of all financial transactions of the Issuer and each of the Guarantors, in accordance with GAAP.
 
SECTION 4.20
Calculation of Original Issue Discount.
 
The Issuer shall provide to the Trustee on a timely basis such information as the Trustee reasonably requests to enable the Trustee to prepare and file any form required to be submitted to the Internal Revenue Service or the Holders of the Notes relating to original issue discount, including, without limitation, Form 1099-OID or any successor form.
 
ARTICLE V
 
 
SUCCESSORS
 
SECTION 5.1
Consolidation, Merger, Conveyance, Transfer or Lease .
 
The Company will not in any transaction or series of transactions, consolidate with or merge into any other Person (other than a merger of a Restricted Subsidiary into the Company in which the Company is the continuing Person or the merger of a Restricted Subsidiary into or with another Restricted Subsidiary or another Person that as a result of such transaction becomes or merges into a Restricted Subsidiary), or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of the assets of the Company and its Restricted Subsidiaries (determined on a consolidated basis), taken as a whole, to any other Person, unless:
 
(i)       either:  (a) the Company shall be the continuing Person or (b) the Person (if other than the Company) formed by such consolidation or into which the Company is merged, or the Person that acquires, by sale, assignment, conveyance, transfer, lease or other disposition, all or substantially all of the property and assets of the Company (such Person, the “ Surviving Entity ”), (1) shall be a corporation, partnership, limited liability company or similar entity organized and validly existing under the laws of the United States, any political subdivision thereof or any state thereof or the District of Columbia and (2) shall expressly assume, by a supplemental indenture, the due and punctual payment of all amounts due in respect of the principal of (and premium, if any) and interest on all the Notes and the performance of the covenants and obligations of the Company under this Indenture; provided that at any time the Company or its successor is not a corporation, there shall be a co-issuer of the Notes that is a corporation;
 
(ii)       immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Debt Incurred or anticipated to be Incurred in connection with or in respect of such transaction or series of transactions), no
 

 
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Default or Event of Default shall have occurred and be continuing or would result therefrom;
 
(iii)       immediately after giving effect to any such transaction or series of transactions on a pro forma basis (including, without limitation, any Debt Incurred or anticipated to be Incurred in connection with or in respect of such transaction or series of transactions) as if such transaction or series of transactions had occurred on the first day of the determination period, the Company (or the Surviving Entity if the Company is not continuing) could Incur $1.00 of additional Debt (other than Permitted Debt) under the provisions described in the first paragraph of Section 4.9; and
 
(iv)       the Company delivers, or causes to be delivered, to the Trustee, in form satisfactory to the Trustee, an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, conveyance, assignment, transfer, lease or other disposition complies with the requirements of this Indenture.
 
Notwithstanding the foregoing, failure to satisfy the requirements of the preceding clauses (ii) and (iii) will not prohibit:
 
(a)           a merger between the Company and a Restricted Subsidiary that is a wholly owned Subsidiary of the Company; or
 
(b)           a merger between the Company and an Affiliate incorporated solely for the purpose of converting the Company into a corporation organized under the laws of the United States or any political subdivision or state thereof;
 
so long as, in each case, the amount of Debt of the Company and its Restricted Subsidiaries is not increased thereby.
 
For all purposes of this Indenture and the Notes, Subsidiaries of any Surviving Entity will, upon such transaction or series of transactions, become Restricted Subsidiaries or Unrestricted Subsidiaries as provided pursuant to this Indenture and all Debt, and all Liens on property or assets, of the Surviving Entity and its Subsidiaries that was not Debt, or were not Liens on property or assets, of the Company and its Subsidiaries immediately prior to such transaction or series of transactions shall be deemed to have been Incurred upon such transaction or series of transactions.
 
Upon any transaction or series of transactions that are of the type described in, and are effected in accordance with, conditions described in this Section 5.1, the Surviving Entity shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer, under this Indenture with the same effect as if such Surviving Entity had been named as the Issuer therein; and when a Surviving Person duly assumes all of the obligations and covenants of the Issuer pursuant to this Indenture and the Notes, except in the case of a lease, the predecessor Person shall be relieved of all such obligations.
 

 
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SECTION 5.2         Successor Person Substituted .
 
Upon any consolidation or merger, or any sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1 hereof, the successor corporation formed by such consolidation or into or with which the Company (and, if necessary, any co-issuer) is merged or to which such sale, assignment, conveyance, transfer, lease or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the “Company” shall refer instead to the successor corporation and not to the Company), and shall exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein and when such successor Person duly assumes all the obligations and covenants of the Company pursuant to this Indenture and the Notes the predecessor Person shall be relieved of all such obligations; provided , however , that in the event of a transfer or lease, the predecessor shall not be released from the payment of principal and interest or other obligations on the Notes.
 
ARTICLE VI
 

 
DEFAULTS AND REMEDIES
 
SECTION 6.1
Events of Default .
 
Each of the following constitutes an “ Event of Default ”:
 
(1)           default in the payment in respect of the principal of (or premium, if any, on) any Note when due and payable (whether at Stated Maturity or upon repurchase, acceleration, optional redemption or otherwise);
 
(2)           default in the payment of any interest upon any Note when it becomes due and payable, and continuance of such default for a period of 30 days;
 
(3)           failure to perform or comply with Section 4.3 and continuance of such failure to perform or comply for a period of 120 days after written notice thereof has been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the outstanding Notes;
 
(4)           except as permitted by this Indenture, any Note Guarantee of any Significant Subsidiary (or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary) shall for any reason cease to be, or it shall be asserted by any Guarantor or the Company not to be, in full force and effect and enforceable in accordance with its terms;
 
(5)           default in the performance, or breach, of any covenant or agreement of the Company or any Guarantor in this Indenture (other than a covenant or agreement a default in whose performance or whose breach is specifically dealt with in clauses (1), (2)
 

 
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(3) or (4) above), and continuance of such default or breach for a period of 60 days after written notice thereof has been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the outstanding Notes;
 
(6)           a default or defaults under any bonds, debentures, notes or other evidences of Debt (other than the Notes) by the Company or any Restricted Subsidiary having, individually or in the aggregate, a principal or similar amount outstanding of at least $75.0 million, whether such Debt now exists or shall hereafter be created, which default or defaults shall have resulted in the acceleration of the maturity of such Debt prior to its express maturity or shall constitute a failure to pay at least $75.0 million of such Debt when due and payable after the expiration of any applicable grace period with respect thereto;
 
(7)           the entry against the Company or any Restricted Subsidiary that is a Significant Subsidiary of a final judgment or final judgments for the payment of money in an aggregate amount in excess of $75.0 million, by a court or courts of competent jurisdiction, which judgments remain undischarged, unwaived, unstayed, unbonded or unsatisfied for a period of 60 consecutive days; or
 
(8)           (i) the Company, any Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, pursuant to or within the meaning of any Bankruptcy Law:
 
(a)           commences a voluntary case,
 
(b)           consents to the entry of an order for relief against it in an involuntary case,
 
(c)           consents to the appointment of a custodian of it or for all or substantially all of its property,
 
(d)           makes a general assignment for the benefit of its creditors, or
 
(e)           generally is not paying its debts as they become due; or
 
                (ii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
 
(a)           is for relief against the Company or any Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, in an involuntary case;
 
(b)           appoints a custodian of the Company or any Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Restricted Subsidiaries; or
 

 
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(c)           orders the liquidation of the Company or any Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary
 
 
and the order or decree remains unstayed and in effect for 60 consecutive days.
 
SECTION 6.2
Acceleration .
 
If an Event of Default (other than an Event of Default specified in clause (8) of Section 6.1 with respect to the Company) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the outstanding Notes may declare the principal of the Notes and any accrued interest on the Notes to be due and payable immediately by a notice in writing to the Company (and to the Trustee if given by Holders); provided , however , that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of the outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the nonpayment of accelerated principal of or interest on the Notes, have been cured or waived as provided in this Indenture.
 
In the event of a declaration of acceleration of the Notes solely because an Event of Default described in clause (6) of Section 6.1 has occurred and is continuing, the declaration of acceleration of the Notes shall be automatically rescinded and annulled if the event of default or payment default triggering such Event of Default pursuant to clause (6) of Section 6.1 shall be remedied or cured by the Company or a Restricted Subsidiary of the Company or waived by the holders of the relevant Debt within 20 Business Days after the declaration of acceleration with respect thereto and if the rescission and annulment of the acceleration of the Notes would not conflict with any judgment or decree of a court of competent jurisdiction obtained by the Trustee for the payment of amounts due on the Notes.
 
If an Event of Default specified in clause (8) of Section 6.1 occurs with respect to the Company, the principal of and any accrued interest on the Notes then outstanding shall ipso facto become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder.  The Trustee may withhold from Holders notice of any Default (except Default in payment of principal of, premium, if any, and interest) if the Trustee determines that withholding notice is in the interests of the Holders to do so.
 
No Holder of any Note will have any right to institute any proceeding with respect to this Indenture or for any remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing Event of Default and unless also the Holders of at least 25% in aggregate principal amount of the outstanding Notes shall have made written request to the Trustee, and provided indemnity reasonably satisfactory to the Trustee, to the Trustee to institute such proceeding as Trustee, and the Trustee shall not have received from the Holders of a majority in aggregate principal amount of the outstanding Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days.  Such limitations do not apply, however, to a suit instituted by a Holder of a Note directly (as opposed to through
 

 
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the Trustee) for enforcement of payment of the principal of (and premium, if any) or interest on such Note on or after the respective due dates expressed in such Note.
 
The Issuer will be required to furnish to the Trustee annually a statement as to the performance of certain obligations under this Indenture and as to any default in such performance.  The Issuer also is required to notify the Trustee if it becomes aware of the occurrence of any Default or Event of Default.
 
SECTION 6.3
Other Remedies .
 
If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.
 
The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding.  A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default.  All remedies are cumulative to the extent permitted by law.
 
Pursuant to Section 4.4, the Company is required to deliver to the Trustee annually a statement regarding compliance with this Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
 
SECTION 6.4
Waiver of Past Defaults .
 
The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under this Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes (other than as a result of an acceleration), which shall require the consent of all of the Holders of the Notes then outstanding.
 
SECTION 6.5
Control by Majority .
 
The Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust power conferred on it.  However, (i) the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders or that may involve the Trustee in personal liability, and (ii) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.
 
SECTION 6.6
Limitation on Suits .
 
A Holder may pursue a remedy with respect to this Indenture or the Notes only if:
 

 
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(a)           the Holder gives to the Trustee written notice of a continuing Event of Default or the Trustee receives such notice from the Company;
 
(b)           the Holders of at least 25% in aggregate principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy;
 
(c)           such Holder or Holders offer and, if requested, provide to the Trustee indemnity or security reasonably satisfactory to the Trustee against any loss, liability or expense;
 
(d)           the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of such indemnity or security; and
 
(e)           during such 60-day period the Holders of a majority in aggregate principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request.
 
A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder.
 
SECTION 6.7
Rights of Holders of Notes to Receive Payment .
 
Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal, premium, if any, and interest on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.
 
SECTION 6.8
Collection Suit by Trustee .
 
If an Event of Default specified in Section 6.1(1) or (2) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Issuer for the whole amount of principal of, premium and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
 
SECTION 6.9
Trustee May File Proofs of Claim .
 
The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Issuer (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other securities or property payable or deliverable upon the conversion or exchange of the Notes or on any such claims and any custodian in any
 

 
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such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof.  To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise.  Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
 
SECTION 6.10
Priorities .
 
Any money collected by the Trustee pursuant to this Article VI and any money or other property distributable in respect of the Company’s obligations under this Indenture after an Event of Default shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, if any, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
 
First :  to the Trustee (including any predecessor Trustee), its agents and attorneys for amounts due under Section 7.7 hereof, including payment of all reasonable compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection;
 
Second :  to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and interest ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any, and interest respectively; and
 
Third :  to the Issuer or to such party as a court of competent jurisdiction shall direct.
 
The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10.
 
SECTION 6.11
Undertaking for Costs .
 
In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees,
 

 
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against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant.  This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes.
 
ARTICLE VII
 
TRUSTEE
 
SECTION 7.1
Duties of Trustee .
 
(a)           If an Event of Default of which the Trustee has knowledge has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.
 
(b)           Except during the continuance of an Event of Default of which the Trustee has knowledge:
 
(i)       the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the TIA and the Trustee need perform only those duties that are specifically set forth in this Indenture or the TIA and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
 
(ii)       in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture.  However, the Trustee shall be under a duty of reasonable care to examine the certificates and opinions specifically required to be furnished to it to determine whether or not they conform as to form with the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts or conclusions stated therein).
 
(c)           The Trustee may not be relieved from liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that:
 
(i)       this paragraph does not limit the effect of paragraphs (b) or (e) of this Section 7.1;
 
(ii)       the Trustee shall not be liable for any error of judgment made in good faith by an officer of the Trustee, unless it is proved that the Trustee was grossly negligent in ascertaining the pertinent facts; and
 

 
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(iii)       the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5 hereof.
 
(d)           Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c), (e) and (f) of this Section 7.1.
 
(e)           No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability.  The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request or direction of any Holders, unless such Holder shall have offered to the Trustee security or indemnity reasonably satisfactory to it against any loss, liability or expense.
 
(f)           The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuer.  Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust pursuant to Article VIII.
 
(g)           The Trustee shall not be charged with knowledge of any Event of Default unless either (1) a Responsible Officer shall have actual knowledge of such Event of Default or (2) written notice of such Event of Default shall have been received by a Responsible Officer in accordance with the provisions of this Indenture.
 
SECTION 7.2
Rights of Trustee .
 
(a)           The Trustee, as Trustee and acting in each of its capacities hereunder, may conclusively rely and shall be fully protected in acting or refraining from acting on any document believed by it to be genuine and to have been signed or presented by the proper Person.  The Trustee need not investigate any fact or matter stated in any such document.
 
(b)           Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate or an Opinion of Counsel or both.  The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers’ Certificate or Opinion of Counsel.  The Trustee may consult with counsel of the Trustee’s own choosing and the Trustee shall be fully protected from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance on the advice or opinion of such counsel or on any Opinion of Counsel.
 
(c)           The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care.
 
(d)           The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.  Any request or direction of the Issuer mentioned herein shall be sufficiently evidenced by an Officers’ Certificate and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution.  Whenever in the administration of this Indenture the Trustee
 

 
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shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officers’ Certificate.
 
(e)           Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or a Guarantor shall be sufficient if signed by an Officer of the Company or such Guarantor.
 
(f)           The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee security and indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction.
 
(g)           The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or documents, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine during normal business hours the books, records and premises of the Company or any Guarantor, personally or by agent or attorney at the sole cost of the Company, and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.
 
(h)           The rights, privileges, protections and benefits given to the Trustee, including, without limitation, its rights to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Persons employed to act hereunder.
 
(i)           The Trustee may request that the Company deliver an Officers’ Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers’ Certificate may be signed by any person authorized to sign an Officers’ Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded.
 
(j)           Delivery of reports, information and documents to the Trustee under Section 4.3 is for informational purposes only and the Trustee’s receipt of the foregoing shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of their covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officer’s Certificates).
 
SECTION 7.3
Individual Rights of Trustee .
 
The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuer or any Affiliate of the Issuer with the same rights it would have if it were not Trustee.  However, in the event that the Trustee acquires any conflicting interest as defined in Section 310(b) of the TIA, it must eliminate such conflict within 90
 

 
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days, apply to the Commission for permission to continue as Trustee or resign.  Any Agent may do the same with like rights and duties.  The Trustee is also subject to Sections 7.10 and 7.11 hereof.
 
SECTION 7.4
Trustee’s Disclaimer .
 
The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, and it shall not be accountable for the Issuer’s use of the proceeds from the Notes or any money paid to the Issuer’s or upon the Issuer’s direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes, any statement or recital in any document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication on the Notes.
 
SECTION 7.5
Notice of Defaults .
 
If a Default occurs and is continuing and if it is actually known to a Responsible Officer of the Trustee, the Trustee shall send electronically or mail to Holders a notice of the Default within 90 days after it occurs.  Except in the case of a Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as the Trustee in good faith determines that withholding the notice is in the interests of the Holders.
 
SECTION 7.6
Reports by Trustee to Holders of the Notes .
 
Within 60 days after each September 1 beginning with the September 1, 2009, and for so long as Notes remain outstanding, the Trustee shall send to the Holders a brief report dated as of such reporting date that complies with TIA § 313(a) (but if no event described in TIA § 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted).  The Trustee also shall comply with TIA § 313(b).  The Trustee shall also transmit by mail all reports as required by TIA § 313(c).
 
A copy of each report at the time of its delivery to the Holders shall be mailed or delivered to the Company and filed with the Commission and each stock exchange on which the Company has informed the Trustee in writing the Notes are listed in accordance with TIA § 313(d).  The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange and of any delisting thereof.
 
SECTION 7.7
Compensation and Indemnity .
 
The Issuer shall pay to the Trustee from time to time compensation for its acceptance of this Indenture and services hereunder as the parties will agree from time to time.  The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust.  The Issuer shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services.  Such expenses shall include, but not limited to, the reasonable compensation, disbursements and expenses of the Trustee’s agents and counsel.
 
 

 
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The Issuer and the Guarantors, jointly and severally, shall indemnify the Trustee (which for purposes of this Section 7.7 shall include its officers, directors, employees and agents) against any and all claims, damages, losses, liabilities or expenses (including attorneys’ fees) incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Issuer (including this Section 7.7) and defending itself against any claim (whether asserted by the Issuer or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder except to the extent any such loss, claim, damage, liability or expense may be attributable to its gross negligence, willful misconduct or bad faith.  The Trustee shall notify the Issuer promptly of any claim for which it may seek indemnity.  Failure by the Trustee to so notify the Issuer shall not relieve the Issuer of its obligations hereunder.  The Trustee may have separate counsel and the Issuer shall pay the reasonable fees and expenses of one such counsel.  The Issuer need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld.  Under no circumstances shall the Trustee be liable for any consequential or punitive damages of any kind.
 
The obligations of the Issuer and the Guarantors under this Section 7.7 shall survive the satisfaction and discharge or termination for any reason of this Indenture or the resignation or removal of the Trustee.
 
To secure the Issuer’s and the Guarantors’ obligations in this Section 7.7, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal or interest, if any, on particular Notes.  Such Lien shall survive the satisfaction and discharge or termination for any reason of this Indenture and the resignation or removal of the Trustee.
 
In addition, and without prejudice to the rights provided to the Trustee under any of the provisions of this Indenture, when the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(8) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.
 
“Trustee” for the purposes of this Section 7.7 shall include any predecessor Trustee and the Trustee in each of its capacities hereunder and each agent, custodian and other person employed to act hereunder; provided , however , that the negligence, willful misconduct or bad faith of any Trustee hereunder shall not affect the rights of any other Trustee hereunder.
 
The Trustee shall comply with the provisions of TIA § 313(b)(2) to the extent applicable.
 
SECTION 7.8
Replacement of Trustee .
 
A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee’s acceptance of appointment as provided in this Section 7.8.
 
The Trustee may resign at any time and be discharged from the trust hereby created by so notifying the Issuer in writing.  The Holders of a majority in principal amount of the then out-
 

 
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standing Notes may remove the Trustee by so notifying the Trustee and the Issuer in writing.  The Issuer may remove the Trustee if:
 
(a)           the Trustee fails to comply with Section 7.10 hereof;
 
(b)           the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
 
(c)           a Custodian or public officer takes charge of the Trustee or its property; or
 
(d)           the Trustee becomes incapable of acting.
 
If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Issuer shall notify each Holder of such event and shall promptly appoint a successor Trustee.  Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of all outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Issuer.
 
A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuer.  Promptly after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.7 hereof, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture.  A successor Trustee shall deliver notice of its succession to each Holder.
 
If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the Holders of at least 10% in aggregate principal amount of all outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.
 
If the Trustee fails to comply with Section 7.10 hereof, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
 
Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Issuer’s and Guarantors’ obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee.
 
SECTION 7.9
Successor Trustee by Merger, Etc .
 
If the Trustee or any Agent consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another Person, the successor Person without any further act shall be the successor Trustee or any Agent, as applicable.
 

 
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SECTION 7.10          Eligibility; Disqualification .
 
There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power and that is subject to supervision or examination by federal or state authorities.  The Trustee together with its affiliates shall at all times have a combined capital and surplus of at least $50.0 million as set forth in its most recent annual report of condition.
 
This Indenture shall always have a Trustee who satisfies the requirements of TIA §§ 310(a)(l), (2) and (5).  If this Indenture becomes qualified under the TIA, the Trustee shall be subject to TIA § 310(b) including the provision in § 310(b)(1); provided that there shall be excluded from the operation of TIA § 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Issuer or the Guarantors are outstanding if the requirements for exclusion set forth in TIA § 310(b)(1) are met.
 
SECTION 7.11
Preferential Collection of Claims Against the Issuer .
 
The Trustee is subject to TIA § 311(a), excluding any creditor relationship listed in TIA § 311(b).  A Trustee who has resigned or been removed shall be subject to TIA § 311(a) to the extent indicated therein.
 
SECTION 7.12
Trustee’s Application for Instructions from the Issuer .
 
Any application by the Trustee for written instructions from the Issuer may, at the option of the Trustee, set forth in writing any action proposed to be taken or omitted by the Trustee under this Indenture and the date on and/or after which such action shall be taken or such omission shall be effective.  The Trustee shall not be liable for any action taken by, or omission of, the Trustee in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than twenty Business Days after the date any officer of the Issuer actually receives such application, unless any such officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Trustee shall have received written instructions in response to such application specifying the action to be taken or omitted.
 
ARTICLE VIII
 

 
DEFEASANCE AND COVENANT DEFEASANCE
 
SECTION 8.1
Option to Effect Defeasance or Covenant Defeasance .
 
The Issuer may, at the option of its Board of Directors evidenced by a Board Resolution set forth in an Officers’ Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof applied to all outstanding Notes upon compliance with the conditions set forth below in this Article VIII.
 

 
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SECTION 8.2           Defeasance and Discharge .
 
Upon the Issuer’s exercise under Section 8.1 hereof of the option applicable to this Section 8.2, the Issuer shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, “ defeasance ”).  For this purpose, defeasance means that the Issuer shall be deemed to have paid and discharged the entire Debt represented by the outstanding Notes, which shall thereafter be deemed to be “outstanding” only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all of its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Issuer, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder:  (a) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest, if any, on such Notes when such payments are due from the trust referred to in Section 8.4(l); (b) the Issuer’s obligations with respect to such Notes under Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.10 and 4.2 hereof; (c) the rights, powers, trusts, benefits and immunities of the Trustee, including without limitation thereunder, under Section 7.7, 8.5 and 8.7 hereof and the Issuer’s obligations in connection therewith; (d) the Company’s rights pursuant to Section 3.7; and (e) the provisions of this Article VIII.  Subject to compliance with this Article VIII, the Issuer may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof.
 
The Issuer and the Guarantors may terminate the obligations under this Indenture when:
 
(1)           either:  (A) all Notes theretofore authenticated and delivered have been delivered to the Trustee for cancellation, or (B) all such Notes not theretofore delivered to the Trustee for cancellation (i) have become due and payable or (ii) will become due and payable within one year or are to be called for redemption within one year (a “ Discharge ”) under irrevocable arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire indebtedness on the Notes, not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest to the Stated Maturity or date of redemption;
 
(2)           the Issuer has paid or caused to be paid all other sums then due and payable under this Indenture by the Issuer;
 
(3)           the deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Issuer or any Guarantor is a party or by which the Issuer or any Guarantor is bound;
 
(4)           the Issuer has delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity or on the redemption date, as the case may be; and
 

 
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(5)           the Issuer has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel reasonably acceptable to the Trustee, each stating that all conditions precedent under this Indenture relating to the Discharge have been complied with.
 
The Issuer may elect, at its option, to have its obligations discharged with respect to the outstanding Notes.  Such defeasance means that the Issuer will be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for:
 
(1)           the rights of Holders of such Notes to receive payments in respect of the principal of and any premium and interest on such Notes when payments are due,
 
(2)           the Issuer’s obligations with respect to such Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust,
 
(3)           the rights, powers, trusts, duties and immunities of the Trustee,
 
(4)           the Company’s right of optional redemption, and
 
(5)           the defeasance provisions of this Indenture.
 
SECTION 8.3
Covenant Defeasance .
 
Upon the Issuer’s exercise under Section 8.1 hereof of the option applicable to this Section 8.3, the Issuer shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be released from its obligations under the covenants contained in Sections 4.3, 4.4, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.17 and 5.1 hereof with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, “ covenant defeasance ”), and the Notes shall thereafter be deemed not “outstanding” for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed “outstanding” for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes).  For this purpose, covenant defeasance means that, with respect to the outstanding Notes, the Issuer or any of its Subsidiaries may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby.  In addition, upon the Issuer’s exercise under Section 8.1 hereof of the option applicable to this Section 8.3, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(3) and (5) hereof shall not constitute Events of Default.
 

 
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SECTION 8.4       Conditions to Defeasance or Covenant Defeasance .
 
The following shall be the conditions to the application of either Section 8.2 or 8.3 hereof to the outstanding Notes:
 
In order to exercise either defeasance or covenant defeasance:
 
(1)           the Issuer must irrevocably have deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to the benefits of the Holders of such Notes:  (A) money in an amount, or (B) U.S. government obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount or (C) a combination thereof, in each case sufficient without reinvestment, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee to pay and discharge, the entire indebtedness in respect of the principal of and premium, if any, and interest on such Notes on the Stated Maturity thereof or (if the Issuer has made irrevocable arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name and at the expense of the Issuer) the redemption date thereof, as the case may be, in accordance with the terms of this Indenture and such Notes;
 
(2)           in the case of defeasance, the Issuer shall have delivered to the Trustee an Opinion of Counsel stating that (A) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable United States federal income tax law, in either case (A) or (B) to the effect that, and based thereon such opinion shall confirm that, the Holders of such Notes will not recognize gain or loss for United States federal income tax purposes as a result of the deposit, defeasance and discharge to be effected with respect to such Notes and will be subject to United States federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit, defeasance and discharge were not to occur;
 
(3)           in the case of covenant defeasance, the Issuer shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such outstanding Notes will not recognize gain or loss for United States federal income tax purposes as a result of the deposit and covenant defeasance to be effected with respect to such Notes and will be subject to federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit and covenant defeasance were not to occur;
 
(4)           no Default or Event of Default with respect to the outstanding Notes shall have occurred and be continuing at the time of such deposit after giving effect thereto (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien to secure such borrowing);
 

 
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(5)           such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest within the meaning of the TIA (assuming all Notes are in default within the meaning of the TIA);
 
(6)           such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or material instrument (other than this Indenture) to which the Company is a party or by which the Company is bound; and
 
(7)           the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent with respect to such defeasance or covenant defeasance have been complied with.
 
In the event of a defeasance or a Discharge, a Holder whose taxable year straddles the deposit of funds and the distribution in redemption to such Holder would be subject to tax on any gain (whether characterized as capital gain or market discount) in the year of deposit rather than in the year of receipt.  In connection with a Discharge, in the event the Issuer becomes insolvent within the applicable preference period after the date of deposit, monies held for the payment of the Notes may be part of the bankruptcy estate of the Issuer, disbursement of such monies may be subject to the automatic stay of the Bankruptcy Code and monies disbursed to Holders may be subject to disgorgement in favor of the Issuer’s estate.  Similar results may apply upon the insolvency of the Issuer during the applicable preference period following the deposit of monies in connection with defeasance.
 
Notwithstanding the foregoing, the Opinion of Counsel required by clause (2) above with respect to a defeasance need not to be delivered if all Notes not therefore delivered to the Trustee for cancellation (x) have become due and payable, or (y) will become due and payable at Stated Maturity within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company.
 
SECTION 8.5
Deposited Money and Government Securities to Be Held in Trust; Other Miscellaneous Provisions .
 
 
Subject to Section 8.6 hereof, all money and non-callable U.S. government obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.5, the “ Trustee ”) pursuant to Section 8.4 hereof in respect of the outstanding Notes shall be held in trust, shall not be invested, and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company or any Subsidiary acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law.
 
The Issuer shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable U.S. government obligations deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any
 

 
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such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes.
 
Anything in this Article VIII to the contrary notwithstanding, the Trustee shall deliver or pay to the Issuer from time to time upon the written request of the Issuer and be relieved of all liability with respect to any money or non-callable U.S. government obligations held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(1) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent defeasance or covenant defeasance.
 
SECTION 8.6
Repayment to Issuer .
 
Any money deposited with the Trustee or any Paying Agent, or then held by the Issuer, in trust for the payment of the principal of, premium, if any, or interest, if any, on any Note and remaining unclaimed for one year after such principal and premium, if any, or interest has become due and payable shall be paid to the Issuer on its written request or (if then held by the Issuer) shall be discharged from such trust; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Issuer as trustee thereof, shall thereupon cease; provided , however , that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Issuer cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Issuer.
 
SECTION 8.7
Reinstatement .
 
If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable U.S. government obligations in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Issuer under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof, as the case may be; provided , however , that, if the Issuer makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent.
 

 
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ARTICLE IX
 
AMENDMENT, SUPPLEMENT AND WAIVER
 
SECTION 9.1
Without Consent of Holders of the Notes .
 
Notwithstanding Section 9.2 of this Indenture, without the consent of any Holders, the Issuer, the Guarantors and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental to this Indenture and the Guarantees for any of the following purposes:
 
(1)           to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company in this Indenture, the Guarantees and the Notes;
 
(2)           to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Issuer;
 
(3)           to add additional Events of Default;
 
(4)           to provide for uncertificated Notes in addition to or in place of the certificated Notes;
 
(5)           to evidence and provide for the acceptance of appointment under this Indenture by a successor Trustee;
 
(6)           to provide for or confirm the issuance of Additional Notes in accordance with the terms of this Indenture;
 
(7)           to add a Guarantor or to release a Guarantor in accordance with this Indenture;
 
(8)           to cure any ambiguity, defect, omission, mistake or inconsistency;
 
(9)           to make any other provisions with respect to matters or questions arising under this Indenture, provided that such actions pursuant to this clause (9) shall not adversely affect the interests of the Holders in any material respect, as determined in good faith by the Board of Directors of the Company;
 
(10)           to conform the text of this Indenture or the Notes to any provision of the “Description of Notes” in the Offering Memorandum to the extent that the Trustee has received an Officers’ Certificate stating that such text constitutes an unintended conflict with the description of the corresponding provision in the “Description of Notes”; or
 
(11)           to effect or maintain the qualification of this Indenture under the TIA.
 

 
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SECTION 9.2          With Consent of Holders of Notes .
 
With the consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Notes, the Issuer, the Guarantors and the Trustee may enter into an indenture or indentures supplemental to this Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or the Notes or of modifying in any manner the rights of the Holders under this Indenture, including the definitions herein; provided , however , that no such supplemental indenture shall, without the consent of the Holder of each outstanding Note affected thereby:
 
(1)           change the Stated Maturity of any Note or of any installment of interest on any Note, or reduce the amount payable in respect of the principal thereof or the rate of interest thereon or any premium payable thereon, or reduce the amount that would be due and payable on acceleration of the maturity thereof, or change the place of payment where, or the coin or currency in which, any Note or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof, or change the date on which any Notes may be subject to redemption or reduce the Redemption Price therefor,
 
(2)           reduce the percentage in aggregate principal amount of the outstanding Notes, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture,
 
(3)           modify the obligations of the Company to make Offers to Purchase upon a Change of Control or from the Excess Proceeds of Asset Sales if such modification was done after the occurrence of such Change of Control or such Asset Sale,
 
(4)           modify or change any provision of this Indenture affecting the ranking of the Notes or any Note Guarantee in a manner adverse to the Holders of the Notes,
 
(5)           modify any of the provisions of this paragraph or provisions relating to waiver of defaults or certain covenants, except to increase any such percentage required for such actions or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Note affected thereby, or
 
(6)           release any Guarantees required to be maintained under this Indenture (other than in accordance with the terms of this Indenture).
 
The Holders of not less than a majority in aggregate principal amount of the outstanding Notes may on behalf of the Holders of all the Notes waive any past default under this Indenture and its consequences, except a default:
 

 
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(1)           in any payment in respect of the principal of (or premium, if any) or interest on any Notes (including any Note which is required to have been purchased pursuant to an Offer to Purchase which has been made by the Issuer), or
 
(2)           in respect of a covenant or provision hereof which under this Indenture cannot be modified or amended without the consent of the Holder of each outstanding Note affected,
 
each of which, for the avoidance of doubt, shall require the consent of all the Holders of the Notes outstanding.
 
SECTION 9.3
Compliance with Trust Indenture Act .
 
Every amendment or supplement to this Indenture or the Notes shall be set forth in an amended or supplemental indenture that complies with the TIA as then in effect.
 
SECTION 9.4
Revocation and Effect of Consents .
 
Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder and every subsequent Holder of that Note or portion of the Note that evidences the same debt as the consenting Holder’s Note, even if notation of the consent is not made on the Note.  However, any such Holder or subsequent Holder may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective.  When an amendment, supplement or waiver becomes effective in accordance with its terms, it thereafter binds every Holder.
 
The Issuer may, but shall not be obligated to, fix a record date for determining which Holders consent to such amendment, supplement or waiver.  If the Issuer fixes a record date, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished for the Trustee prior to such solicitation pursuant to Section 2.5 hereof or (ii) such other date as the Issuer shall designate.
 
SECTION 9.5
Notation on or Exchange of Notes .
 
The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated.  The Issuer in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver.
 
Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver.
 
After any amendment, supplement or waiver becomes effective, the Company shall mail to Holders a notice briefly describing such amendment, supplement or waiver.  The failure to give such notice shall not affect the validity and effect of such amendment, supplement or waiver.
 

 
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SECTION 9.6         Trustee to Sign Amendments, Etc .
 
The Trustee shall sign any amended or supplemental indenture authorized pursuant to this Article IX if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee.  In signing or refusing to sign any amendment or supplemental indenture the Trustee shall be entitled to receive and (subject to Section 7.1 hereof) shall be fully protected in relying upon an Officers’ Certificate and an Opinion of Counsel stating that the execution of such amendment or supplemental indenture is authorized or permitted by this Indenture, that all conditions precedent thereto have been met or waived, that such amendment or supplemental indenture is not inconsistent herewith, and that it will be valid and binding upon the Issuer and Guarantors in accordance with its terms.
 
ARTICLE X
 
NOTE GUARANTEES
 
SECTION 10.1
Note Guarantees .
 
(a)           Each Guarantor hereby jointly and severally, fully, unconditionally and irrevocably guarantees the Notes and obligations of the Issuer hereunder and thereunder, and guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee on behalf of such Holder, that:  (i) the principal of and premium, if any and interest on the Notes shall be paid in full when due, whether at Stated Maturity, by acceleration, call for redemption or otherwise (including, without limitation, the amount that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code), together with interest on the overdue principal, if any, and interest on any overdue interest, to the extent lawful, and all other obligations of the Issuer to the Holders or the Trustee hereunder or thereunder shall be paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or of any such other obligations, the same shall be paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or otherwise.  Each of the Note Guarantees shall be a guarantee of payment and not of collection.  In the case of any Guarantor which is a Foreign Holdco, recourse on its Note Guarantee will extend to all of such Foreign Holdco’s assets except that, with respect to such Foreign Holdco’s assets consisting of any Capital Interests in any CFC, such recourse will not extend to more than 65% of the total voting power of “all classes of stock entitled to vote” within the meaning of Treasury Regulation Section 1.956-2(c)(2) (promulgated under the Code) of any such CFC owned directly by such Foreign Holdco.
 
(b)           Each Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor.
 

 
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(c)           Each Guarantor hereby waives the benefits of diligence, presentment, demand for payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company or any other Person, protest, notice and all demands whatsoever and covenants that the Note Guarantee of such Guarantor shall not be discharged as to any Note except by complete performance of the obligations contained in such Note and such Note Guarantee or as provided for in this Indenture.  Each of the Guarantors hereby agrees that, in the event of a default in payment of principal or premium, if any or interest on such Note, whether at its Stated Maturity, by acceleration, call for redemption, purchase or otherwise, legal proceedings may be instituted by the Trustee on behalf of, or by, the Holder of such Note, subject to the terms and conditions set forth in this Indenture, directly against each of the Guarantors to enforce such Guarantor’s Note Guarantee without first proceeding against the Company or any other Guarantor.  Each Guarantor agrees that if, after the occurrence and during the continuance of an Event of Default, the Trustee or any of the Holders are prevented by applicable law from exercising their respective rights to accelerate the maturity of the Notes, to collect interest on the Notes, or to enforce or exercise any other right or remedy with respect to the Notes, such Guarantor shall pay to the Trustee for the account of the Holders, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Trustee or any of the Holders.
 
(d)           If any Holder or the Trustee is required by any court or otherwise to return to the Issuer or any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Issuer or any Guarantor, any amount paid by any of them to the Trustee or such Holder, the Note Guarantee of each of the Guarantors, to the extent theretofore discharged, shall be reinstated in full force and effect.  This paragraph (d) shall remain effective notwithstanding any contrary action which may be taken by the Trustee or any Holder in reliance upon such amount required to be returned.  This paragraph (d) shall survive the termination of this Indenture.
 
(e)           Each Guarantor further agrees that, as between each Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Section 6.2 hereof for the purposes of the Note Guarantee of such Guarantor, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Section 6.2 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of the Note Guarantee of such Guarantor.
 
SECTION 10.2
Execution and Delivery of Note Guarantee .
 
To evidence its Note Guarantee set forth in Section 10.1, each Guarantor agrees that a notation of such Note Guarantee substantially in the form attached hereto as Exhibit B shall be endorsed on each Note authenticated and delivered by the Trustee.  Such notation of Note Guarantee shall be signed on behalf of such Guarantor by an officer of such Guarantor (or, if an officer is not available, by a board member or director or another authorized person) on behalf of such Guarantor by manual or facsimile signature.  In case the officer, board member or director of such Guarantor who shall have signed such notation of Note Guarantee shall cease to be such
 

 
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officer, board member or director before the Note on which such Note Guarantee is endorsed shall have been authenticated and delivered by the Trustee, such Note nevertheless may be authenticated and delivered as though the Person who signed such notation of Note Guarantee had not ceased to be such officer, board member or director.
 
Each Guarantor agrees that its Note Guarantee set forth in Section 10.1 shall remain in full force and effect and apply to all the Notes notwithstanding any failure to endorse on each Note a notation of such Note Guarantee.  The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Note Guarantee set forth in this Indenture on behalf of the Guarantors.
 
The failure to endorse a Note Guarantee shall not affect or impair the validity thereof.
 
SECTION 10.3
Severability .
 
In case any provision of any Note Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
 
SECTION 10.4
Limitation of Guarantors’ Liability .
 
Each Guarantor and by its acceptance of Notes, each Holder, confirms that it is the intention of all such parties that the Note Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of the Federal Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law relating to fraudulent transfer or conveyance.  To effectuate the foregoing intention, the Trustee, the Holders and Guarantors hereby irrevocably agree that the obligations of such Guarantor under its Note Guarantee shall be limited to the maximum amount that will not, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Note Guarantee, result in the obligations of such Guarantor under its Note Guarantee constituting a fraudulent transfer or conveyance.
 
SECTION 10.5
Guarantors May Consolidate, Etc., on Certain Terms .
 
Except as otherwise provided in Section 10.6, a Guarantor may not sell or otherwise dispose of all or substantially all of its assets, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person unless:
 
(1)           immediately after giving effect to such transactions, no Default or Event of Default exists; and
 
(2)           either:
 
(A)           the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger assumes all
 

 
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the obligations of that Guarantor under this Indenture pursuant to a supplemental indenture satisfactory to the Trustee; or
 
(B)           the Net Cash Proceeds of any such sale or other disposition of a Guarantor are applied in accordance with the provisions of Section 4.10 hereof; and
 
(3)           the Company delivers, or causes to be delivered, to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such sale, other disposition, consolidation or merger complies with the requirements of this Indenture.
 
In case of any such consolidation, merger, sale or conveyance and, if applicable, upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor.  All the Note Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all such Note Guarantees had been issued at the date of the execution hereof.
 
Except as set forth in Articles IV and V hereof, and notwithstanding clauses (1) and (2) above, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Issuer or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Issuer or another Guarantor.
 
SECTION 10.6
Releases Following Sale of Assets .
 
Any Guarantor shall be released and relieved of any obligations under this Note Guarantee, (1) in connection with any sale or other disposition by the Issuer or any Subsidiary of the Issuer of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) a Subsidiary, if the Issuer or the Guarantor applies the Net Proceeds of that sale or other disposition in accordance with the provisions of Section 4.10 hereof; or (2) in connection with any sale of all of the Capital Stock of a Guarantor by the Issuer or any Subsidiary of the Issuer to a Person that is not (either before or after giving effect to such transaction) a Subsidiary, if the Issuer applies the Net Cash Proceeds of that sale in accordance with the provisions of Section 4.10 hereof.  Upon delivery to the Trustee of an Officers’ Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Issuer in accordance with the provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Note Guarantee.
 

 
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Any Guarantor not released from its obligations under this Note Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article X.
 
SECTION 10.7
Release of a Guarantor .
 
Any Guarantor that is designated by the Board of Directors of the Company as an Unrestricted Subsidiary in accordance with the terms of this Indenture shall, at such time, be deemed automatically and unconditionally released and discharged of its obligations under its Note Guarantee without any further action on the part of the Trustee or any Holder.  The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of the Company’s request for such release accompanied by an Officers’ Certificate certifying as to the compliance with this Section 10.7.  Any Guarantor not so released shall remain liable for the full amount of principal of and interest on the Notes as provided in its Note Guarantee.
 
SECTION 10.8
Benefits Acknowledged .
 
Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that its guarantee and waivers pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.
 
SECTION 10.9
Future Guarantors .
 
Each Person that is required to become a Guarantor after the Issue Date pursuant to Section 4.17 shall promptly execute and deliver to the Trustee a supplemental indenture pursuant to which such Person shall become a Guarantor. Concurrently with the execution and delivery of such supplemental indenture, the Company shall deliver to the Trustee an Opinion of Counsel and an Officers’ Certificate to the effect that such supplemental indenture has been duly authorized, executed and delivered by such Person and that, subject to the application of bankruptcy, insolvency, moratorium, fraudulent conveyance or transfer and other similar laws relating to creditors’ rights generally and to the principles of equity, whether considered in a proceeding at law or in equity, the Guarantee of such Guarantor is a legal, valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms and/or to such other matters as the Trustee may reasonably request.
 
ARTICLE XI
 
MISCELLANEOUS
 
SECTION 11.1
Trust Indenture Act Controls .
 
If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA § 318(c), the imposed duties shall control.
 

 
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SECTION 11.2            Notices .
 
Any notice or communication by the Issuer, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the others address:
 
If to the Issuer or any Guarantor:
 
Ashland Inc.
50 East RiverCenter Boulevard
P.O. Box 391
Covington, Kentucky 41012-0391
Facsimile: (859) 815-5053
Attention: David L. Hausrath, Esq.
 
With a copy to:
 
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, OH 44114
Facsimile:  (212) 479-8780
Attention:  Jeffrey J. Margulies, Esq.
 
If to the Trustee:
 
US. Bank National Association
CN-KY-0850
One Financial Square
Louisville, Kentucky 90202
Facsimile:  (502) 562-6371
Attention: Karolina K. Donlin, Vice President
 
The Issuer, the Guarantors and the Trustee, by notice to the others, may designate additional or different addresses for subsequent notices or communications.
 
All notices and communications (other than those sent to Holders and the Trustee) shall be deemed to have been duly given:  at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier promising next Business Day delivery.
 
Any notice or communication to a Holder shall be sent electronically or mailed by first class mail or by overnight air courier promising next Business Day delivery to its address shown on the register kept by the Registrar.  Any notice or communication shall also be so sent to any Person described in TIA § 313(c), to the extent required by the TIA.  Failure to send a notice or
 

 
-102-
 
 

communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders.
 
If a notice or communication is mailed or delivered in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it, except in the case of notices or communications given to the Trustee, which shall be effective only upon actual receipt.
 
If the Issuer mails or delivers a notice or communication to Holders, it shall mail or deliver a copy to the Trustee and each Agent at the same time.
 
SECTION 11.3
Communication by Holders of Notes with Other Holders of Notes .
 
Holders may communicate pursuant to TIA § 312(b) with other Holders with respect to their rights under this Indenture or the Notes.  The Issuer, the Guarantor, the Trustee, the Registrar and anyone else shall have the protection of TIA § 312(c).
 
SECTION 11.4
Certificate and Opinion as to Conditions Precedent .
 
Upon any request or application by the Issuer to the Trustee to take any action under this Indenture (other than the initial issuance of the Notes), the Issuer shall furnish to the Trustee upon request:
 
(a)           an Officers’ Certificate (which shall include the statements set forth in Section 11.5 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and
 
(b)           an Opinion of Counsel (which shall include the statements set forth in Section 11.5 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.
 
SECTION 11.5
Statements Required in Certificate or Opinion .
 
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA § 314(a)(4)) shall comply with the provisions of TIA § 314(e) and shall include:
 
(a)           a statement that the Person making such certificate or opinion has read such covenant or condition;
 
(b)           a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
 

 
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(c)           a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and
 
(d)           a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied.
 
SECTION 11.6
Rules by Trustee and Agents .
 
The Trustee may make reasonable rules for action by or at a meeting of Holders.  The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.
 
SECTION 11.7
No Personal Liability of Directors, Officers, Employees, Stockholders and the Trustee .
 
 
No director, officer, employee, stockholder, general or limited partner or incorporator, past, present or future, of the Company or any of its Subsidiaries, as such or in such capacity, shall have any personal liability for any obligations of the Issuer under the Notes, any Note Guarantee or this Indenture by reason of his, her or its status as such director, officer, employee, stockholder, general or limited partner or incorporator.  Each Holder of the Notes by accepting a Note waives and releases all such liability.  The waiver and release are part of the consideration for the issuances of the Notes.
 
No recourse may, to the full extent permitted by applicable law, be taken, directly or indirectly, with respect to the obligations of the Company or the Guarantors on the Notes or under this Indenture or any related documents, any certificate or other writing delivered in connection therewith, against (i) the Trustee in its individual capacity, or (ii) any partner, owner, beneficiary, agent, officer, director, employee, agent, successor or assign of the Trustee, each in its individual capacity, or (iii) any holder of equity in the Trustee.
 
Each Holder of Notes by accepting a Note waives and releases all such liability.  The waiver and release are part of the consideration for the issuance of the Notes.
 
SECTION 11.8
Governing Law .
 
THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES, IF ANY.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES, THE NOTE GUARANTEES OR THE TRANSACTIONS CONTEMPLATED HEREBY.
 

 
-104-
 
 

SECTION 11.9          No Adverse Interpretation of Other Agreements .
 
This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Issuer or its Subsidiaries or of any other Person.  Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
 
SECTION 11.10
Successors .
 
All agreements of the Issuer and the Guarantors in this Indenture and the Notes and the Note Guarantees, as applicable, shall bind their respective successors and assigns.  All agreements of the Trustee in this Indenture shall bind its successors and assigns.
 
SECTION 11.11
Severability .
 
In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
 
SECTION 11.12
Counterpart Originals
 
The parties may sign any number of copies of this Indenture.  Each signed copy shall be an original, but all of them together represent the same agreement.
 
SECTION 11.13
Table of Contents, Headings, Etc .
 
The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof.
 
SECTION 11.14
Qualification of Indenture .
 
The Issuer and the Guarantors shall qualify this Indenture under the TIA in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys’ fees and expenses for the Issuer, the Guarantors and the Trustee) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of this Indenture and the Notes and printing this Indenture and the Notes.  The Trustee shall be entitled to receive from the Issuer and the Guarantors any such Officer’s Certificates, Opinions of Counsel or other documentation as it may reasonably request in connection with any such qualification of this Indenture under the TIA.
 
SECTION 11.15
Original Issue Discount “Accrual Periods”
 
For U.S. federal income tax purposes, the Issuer shall use semi-annual “accrual periods” (as described in Treasury Regulation Section 1.1272-1(b)(1)(ii)) for purposes of computing its accrual of original issue discount on the Notes, with the last day of an “accrual period” occurring on any date a payment of interest of the Notes is required to be made, except as otherwise required by applicable law.
 

 
-105-
 
 


 
 [Signatures on following page]
 

 
-106-
 
 

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first above written.
 
 
ASHLAND INC.
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  Treasurer  
       
 
 
 
[Issuer's Signature Page to Indenture]

 
 
 
 

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first above written.
 
 
ASHLAND INTERNATIONAL HOLDINGS
       INC.; and
ASH GP LLC, as Guarantors
 
       
 
By:
/s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
       
 
 
ASHPROP LLC;
ASHLAND LICENSING AND
      INTELLECTUAL PROPERTY LLC;
VALVOLINE INTERNATIONAL, INC.; and
HERCULES INCORPORATED, as Guarantors
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  Vice President-Finance  
       
 
 
AQUALON COMPANY,
      as Guarantor
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  Vice President & Controller  
       

 
ASHTHREE LLC,
       as Guarantor
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  President  
 
     
 
 
[Signature Page to Indenture]
 
 
 
 
 
 
 
 
EAST BAY REALTY SERVICES INC.; and
HERCULES PAPER HOLDINGS, INC.,
       as Guarantors
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  President and Controller  
       
 
 
ASHONE C.V.,
       as Guarantor
 
By:  ASHLAND INTERNATIONAL
HOLDINGS, INC., as General Partner
 
       
 
 
By:  /s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
       
 
  By:  ASH GP LLC, as General Partner  
       
 
 
By:  /s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
       
 
 
 
[Signature Page to Indenture]

 
 
 
 
 
HERCULES INVESTMENTS S.A.R.L.,
       as Guarantor
 
       
 
By:
/s/  Jo-Ann T. Lawler  
    Name:  Jo-Ann T. Lawler  
    Title:  Type A Manager  
       
 
 
 
[Signature Page to Indenture]
 
 
 
 
 
 
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
 
       
 
By:
/s/  Karolina K. Donlin  
    Name:  Karolina K. Donlin  
    Title:  Vice President  
       
 
 
[Signature Page to Indenture]
 
 
 
 
 

EXHIBIT A
 
FORM OF 9.125% SENIOR NOTE
 
(Face of Note)
9.125% Senior Notes due 2017
 
[Global Notes Legend]
 
[Insert the Global Note Legend, if applicable, pursuant to the provisions of the Indenture]
 
[Restricted Notes Legend]
 
[Insert the Restricted Notes Legend, if applicable, pursuant to the provisions of the Indenture]

[Regulation S Temporary Global Note Legend]

[Insert the Regulation S Temporary Global Note Legend from Section 2.6(e)(iv), if applicable, pursuant to the provisions of the Indenture]
 
[Original Issue Discount Legend]

[Insert the Original Issue Discount Legend, if applicable, pursuant to the provisions of the Indenture]
 


A-1
 
 
 
 

ASHLAND INC
9.125 % SENIOR NOTES DUE 2017
 
No. ____                                                                                  144A CUSIP:
144A ISIN:
 
REG S CUSIP:
REG S ISIN:
 
Ashland Inc. promises to pay to Cede & Co., or registered assigns, the principal sum of               Dollars ($          ) on June 1, 2017.
 
Interest Payment Dates:  June 1 and December 1, beginning December 1, 2009
 
Record Dates:  May 15 and November 15
 
Reference is made to further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as set forth at this place.
 
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefits under the Indenture referred to on the reverse hereof or be valid or obligatory for any purpose.
 


A-2
 
 
 
 

In WITNESS HEREOF, the Issuer has caused this instrument to be duly executed.
 
Dated: May 27, 2009
 
ASHLAND INC.
 

 

 
By:    ____________________________________    
 
Name:
Title:
 


A-3
 
 
 

TRUSTEE’S CERTIFICATE OF AUTHENTICATION
This is one of the Notes
referred to in the within-mentioned Indenture:
Dated:  May 27, 2009
 
U.S. BANK NATIONAL ASSOCIATION,
 
as Trustee
 
By:  ______________________________________
 
 
Authorized Signatory


A-4
 
 
 

(Reverse of Note)
9.125% Senior Notes due 2017
ASHLAND INC.
 
Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
 
(1)            Interest .
 
(a)           Ashland Inc., a Kentucky corporation, or its successor (together, “ Ashland ”), promises to pay interest on the principal amount of this Note (the “ Notes ”) at a fixed rate.  Ashland will pay interest in United States dollars (except as otherwise provided herein) semiannually in arrears on June 1 and December 1 of each year, commencing on December 1, 2009 or, if any such day is not a Business Day, on the next succeeding Business Day (each an “ Interest Payment Date ”).  Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from and including December 1, 2009; provided that if there is no existing Default or Event of Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date (but after December 1, 2009), interest shall accrue from such next succeeding Interest Payment Date, except in the case of the original issuance of the Notes, in which case interest shall accrue from the date of authentication.  Ashland shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful.  Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months.  The interest rate on the Notes will in no event be higher than the maximum rate permitted by New York law as the same may be modified by United States law of general application.
 
(b)            Registration Rights Agreement .  The Holder of this Note is entitled to the benefits of a Registration Rights Agreement, dated as of May 27, 2009, among the Issuer, the Guarantors party thereto and the Initial Purchasers. 1
 
(2)            Method of Payment .  Ashland  will pay interest on the Notes (except defaulted interest) on the applicable Interest Payment Date to the Persons who are registered Holders of the Notes at the close of business on the May 15 and November 15 preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest.

____________________________
 
1
To be included only in the Initial Notes on the Issue Date and any Additional Notes that bear the Restricted Note Legend.
 


A-5
 
 
 

The Notes shall be payable as to principal, premium and interest at the office or agency of Ashland  maintained for such purpose within or without the City and State of New York, or, at the option of Ashland, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds shall be required with respect to principal of, premium, if any, and interest on, all Global Notes and all other Notes the Holders of which shall have provided written wire transfer instructions to Ashland  and the Paying Agent.  Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
 
Any payments of principal of and interest on this Note prior to Stated Maturity shall be binding upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon.  The amount due and payable at the maturity of this Note shall be payable only upon presentation and surrender of this Note at an office of the Trustee or the Trustee’s agent appointed for such purposes.
 
(3)            Paying Agent and Registrar .  Initially, U.S. Bank National Association, the Trustee under the Indenture, shall act as Paying Agent and Registrar.  Ashland  may change any Paying Agent or Registrar without notice to any Holder.  Ashland  or any of its Restricted Subsidiaries may act in any such capacity.
 
(4)            Indenture .  Ashland  issued the Notes under an Indenture, dated as of May 27, 2009 (the “ Indenture ”), among Ashland, the Guarantors and the Trustee.  The terms of the Notes include those stated in the Indenture and those made a part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code §§ 77aaa-77bbbb) (the “ TIA ”).  To the extent the provisions of this Note are inconsistent with the provisions of the Indenture, the Indenture shall govern.  The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms.  The Notes issued on the Issue Date are senior unsecured Obligations of Ashland limited to $650,000,000 in aggregate principal amount, plus amounts, if any, sufficient to pay premium and interest on outstanding Notes as set forth in Paragraph 2 hereof.  The Indenture permits the issuance of Additional Notes subject to compliance with certain conditions.
 
The payment of principal and interest on the Notes is unconditionally guaranteed on a senior basis by the Guarantors.
 
(5)            Optional Redemption .
 
(i)       The Notes are subject to redemption, at the option of the Issuer, in whole or in part, at any time on or after June 1, 2013 upon not less than 30 nor more than 60 days’ notice at the following Redemption Prices (expressed as percentages of the principal amount to be redeemed) set forth below, plus accrued and unpaid interest, if any, to, but not including, the redemption date (subject to the right of Holders of record on the relevant regular record date to receive interest due on an interest payment date that is on or prior to the redemption date), if redeemed during the 12-month period beginning on June 1 of the years indicated below:
 


A-6
 
 
 
 
 
Year
 
 
Redemption Price
 
 
2013.........................................................................................................................................................................
 104.563%
 
2014.........................................................................................................................................................................
 102.281%
 
2015 and thereafter...................................................................................................................................................
 100.000%
 

 
(ii)       Prior to June 1, 2012, the Issuer may, with the net proceeds of one or more Qualified Equity Offerings, redeem up to 35% of the aggregate principal amount of the outstanding Notes (including Additional Notes) at a Redemption Price equal to 109.125% of the principal amount thereof, together with accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes then outstanding (including Additional Notes) remains outstanding immediately after the occurrence of any such redemption (excluding Notes held by the Company or its Subsidiaries) and that any such redemption occurs within 90 days following the closing of any such Qualified Equity Offering.
 
 (6)            Mandatory Redemption .  Ashland  shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
 
(7)            Repurchase at Option of Holder .
 
(a)           Upon the occurrence of a Change of Control, Ashland  will make an Offer to Purchase for all of the outstanding Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to but not including the date of purchase.  Within 60 days following any Change of Control, Ashland  will mail or deliver a notice to each Holder describing the transaction or transactions that constitute the Change of Control setting forth the procedures governing the Change of Control Offer required by the Indenture.
 
(b)           Upon the occurrence of certain Asset Sales, Ashland may be required to offer to purchase the Notes.
 
(c)           Holders of the Notes that are the subject of an Offer to Purchase will receive notice of an Offer to Purchase pursuant to an Asset Sale or a Change of Control from Ashland prior to any related Purchase Date and may elect to have such Notes purchased by completing the form titled “Option of Holder to Elect Purchase” appearing below.
 
(8)            Notice of Redemption .  Notice of redemption shall be delivered at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address.  Notes in denominations larger than $2,000 may be redeemed in part but only in a minimum amount of $2,000 principal amount (and integral multiples of $1,000 in excess thereof), unless all of the Notes held by a Holder are to be redeemed.  On and after the redemption date, interest ceases to accrue on the Notes or portions hereof called for redemption.
 
(9)            Denominations, Transfer, Exchange .  The Notes are in registered form without coupons in initial denominations of $2,000 and any integral multiple of $1,000 in excess thereof.  The transfer of the Notes may be registered and the Notes may be exchanged as provided in the
 


A-7
 
 
 

Indenture.  The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and Ashland may require a Holder to pay any taxes and fees required by law or permitted by the Indenture.  Ashland need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part.  Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
 
(10)            Persons Deemed Owners .  The registered holder of a Note may be treated as its owner for all purposes.
 
(11)            Amendment, Supplement and Waiver .  Subject to the following paragraphs, the Indenture and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Notes, including, without limitation, consents obtained in connection with a purchase of or tender offer or exchange offer for Notes, and any existing Default or Event of Default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes, including consents obtained in connection with a tender offer or exchange offer for the Notes.
 
Without the consent of any Holders, Ashland, the Guarantors and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental to the Indenture and the Note Guarantees, if any, for any of the following purposes:
 
(1)           to evidence the succession of another Person to Ashland and the assumption by any such successor of the covenants of Ashland in the Indenture, the Guarantees and the Notes;
 
(2)           to add to the covenants of Ashland for the benefit of the Holders, or to surrender any right or power herein conferred upon Ashland;
 
(3)           to add additional Events of Default;
 
(4)           to provide for uncertificated Notes in addition to or in place of the certificated Notes;
 
(5)           to evidence and provide for the acceptance of appointment under the Indenture by a successor Trustee;
 
(6)           to provide for or confirm the issuance of Additional Notes in accordance with the terms of the Indenture;
 
(7)           to add a Guarantor or to release a Guarantor in accordance with the Indenture;
 
(8)           to cure any ambiguity, defect, omission, mistake or inconsistency;
 


A-8
 
 
 

(9)           to make any other provisions with respect to matters or questions arising under the Indenture, provided that such actions pursuant to this clause (9) shall not adversely affect the interests of the Holders in any material respect, as determined in good faith by the Board of Directors of Ashland;
 
(10)           to conform the text of the Indenture or the Notes to any provision of the “Description of Notes” in the Offering Memorandum to the extent that the Trustee has received an Officers’ Certificate stating that such text constitutes an unintended conflict with the description of the corresponding provision in the “Description of Notes”; or
 
(11)           to effect or maintain the qualification of the Indenture under the TIA.
 
With the consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Notes, Ashland, the Guarantors and the Trustee may enter into an indenture or indentures supplemental to the Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or the Notes or of modifying in any manner the rights of the Holders under the Indenture, including the definitions therein; provided , however , that no such supplemental indenture shall, without the consent of the Holder of each outstanding Note affected thereby:
 
(1)           change the Stated Maturity of any Note or of any installment of interest on any Note, or reduce the amount payable in respect of the principal thereof or the rate of interest thereon or any premium payable thereon, or reduce the amount that would be due and payable on acceleration of the maturity thereof, or change the place of payment where, or the coin or currency in which, any Note or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof, or change the date on which any Notes may be subject to redemption or reduce the Redemption Price therefor,
 
(2)           reduce the percentage in aggregate principal amount of the outstanding Notes, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of the Indenture or certain defaults thereunder and their consequences) provided for in the Indenture,
 
(3)           modify the obligations of Ashland to make Offers to Purchase upon a Change of Control or from the Excess Proceeds of Asset Sales if such modification was done after the occurrence of such Change of Control or such Asset Sale,
 
(4)           modify or change any provision of the Indenture affecting the ranking of the Notes or any Note Guarantee in a manner adverse to the Holders of the Notes,
 
(5)           modify any of the provisions of this paragraph or provisions relating to waiver of defaults or certain covenants, except to increase any such percentage required for such actions or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the Holder of each outstanding Note affected thereby, or
 


A-9
 
 
 

(6)           release any Guarantees required to be maintained under the Indenture (other than in accordance with the terms of the Indenture).
 
The Holders of not less than a majority in aggregate principal amount of the outstanding Notes may on behalf of the Holders of all the Notes waive any past default under the Indenture and its consequences, except a default:
 
(1)           in any payment in respect of the principal of (or premium, if any) or interest on any Notes (including any Note which is required to have been purchased pursuant to an Offer to Purchase which has been made by the Issuer), or
 
(2)           in respect of a covenant or provision hereof which under the Indenture cannot be modified or amended without the consent of the Holder of each outstanding Note affected.
 
(12)            Defaults and Remedies .  Events of Default include:
 
(1)           default in the payment in respect of the principal of (or premium, if any, on) any Note when due and payable (whether at Stated Maturity or upon repurchase, acceleration, optional redemption or otherwise);
 
(2)           default in the payment of any interest upon any Note when it becomes due and payable, and continuance of such default for a period of 30 days;
 
(3)           failure to perform or comply with the Indenture provisions described under Section 4.3 thereof and continuance of such failure to perform or comply for a period of 120 days after written notice thereof has been given to Ashland by the Trustee or to Ashland and the Trustee by the Holders of at least 25% in aggregate principal amount of the outstanding Notes;
 
(4)           except as permitted by the Indenture, any Note Guarantee of any Significant Subsidiary (or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary), shall for any reason cease to be, or it shall be asserted by any Guarantor or Ashland not to be, in full force and effect and enforceable in accordance with its terms;
 
(5)           default in the performance, or breach, of any covenant or agreement of Ashland or any Guarantor in the Indenture (other than a covenant or agreement a default in whose performance or whose breach is specifically dealt with in clause (1), (2) (3) or (4) above), and continuance of such default or breach for a period of 60 days after written notice thereof has been given to Ashland by the Trustee or to Ashland and the Trustee by the Holders of at least 25% in aggregate principal amount of the outstanding Notes;
 
(6)           a default or defaults under any bonds, debentures, notes or other evidences of Debt (other than the Notes) by Ashland or any Restricted Subsidiary having, individually or in the aggregate, a principal or similar amount outstanding of at least $75.0 million, whether such Debt now exists or shall hereafter be created, which default or defaults
 


A-10
 
 
 

shall have resulted in the acceleration of the maturity of such Debt prior to its express maturity or shall constitute a failure to pay at least $75.0 million of such Debt when due and payable after the expiration of any applicable grace period with respect thereto;
 
(7)           the entry against Ashland or any Restricted Subsidiary that is a Significant Subsidiary of a final judgment or final judgments for the payment of money in an aggregate amount in excess of $75.0 million, by a court or courts of competent jurisdiction, which judgments remain undischarged, unwaived, unstayed, unbonded or unsatisfied for a period of 60 consecutive days; or
 
(8)            (i) Ashland, any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, pursuant to or within the meaning of any Bankruptcy Law:
 
(a)           commences a voluntary case,
 
(b)           consents to the entry of an order for relief against it in an involuntary case,
 
(c)           consents to the appointment of a custodian of it or for all or substantially all of its property,
 
(d)           makes a general assignment for the benefit of its creditors, or
 
(e)           generally is not paying its debts as they become due; or
 
                (ii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
 
(a)           is for relief against Ashland or any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, in an involuntary case;
 
(b)           appoints a custodian of Ashland or any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary or for all or substantially all of the property of Ashland or any of its Restricted Subsidiaries; or
 
(c)           orders the liquidation of Ashland or any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary;
 
and the order or decree remains unstayed and in effect for 60 consecutive days.
 
If an Event of Default (other than an Event of Default specified in clause (8) above with respect to Ashland) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the outstanding Notes may declare
 


A-11
 
 
 

the principal of the Notes and any accrued interest on the Notes to be due and payable immediately by a notice in writing to Ashland (and to the Trustee if given by Holders); provided , however , that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of the outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the nonpayment of accelerated principal of or interest on the Notes, have been cured or waived as provided in the Indenture.
 
In the event of a declaration of acceleration of the Notes solely because an Event of Default described in clause (6) above has occurred and is continuing, the declaration of acceleration of the Notes shall be automatically rescinded and annulled if the event of default or payment default triggering such Event of Default pursuant to clause (6) shall be remedied or cured by Ashland or a Restricted Subsidiary of Ashland or waived by the holders of the relevant Debt within 20 Business Days after the declaration of acceleration with respect thereto and if the rescission and annulment of the acceleration of the Notes would not conflict with any judgment or decree of a court of competent jurisdiction obtained by the Trustee for the payment of amounts due on the Notes.
 
If an Event of Default specified in clause (8) above occurs with respect to Ashland, the principal of and any accrued interest on the Notes then outstanding shall ipso facto become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder.  For further information as to waiver of defaults, see Article IX of the Indenture.  The Trustee may withhold from Holders notice of any Default (except Default in payment of principal of, premium, if any, and interest) if the Trustee determines that withholding notice is in the interest of the Holders to do so.
 
(13)            Trustee Dealings with Ashland .  The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for Ashland, the Guarantors or their respective Affiliates, and may otherwise deal with Ashland, the Guarantors or their respective Affiliates, as if it were not the Trustee.
 
(14)            No Recourse Against Others .  No director, officer, employee, stockholder, general or limited partner or incorporator, past, present or future, of Ashland, the Guarantors or any of their respective Subsidiaries, as such or in such capacity, shall have any personal liability for any obligations of the Issuer under the Notes, any Guarantee or the Indenture by reason of his, her or its status as such director, officer, employee, stockholder, general or limited partner or incorporator.  Each Holder of the Notes by accepting the Note waives and releases all such liability.  The waiver and release are part of the consideration for the issuances of the Notes.
 
No recourse may, to the full extent permitted by applicable law, be taken, directly or indirectly, with respect to the obligations of Ashland or the Guarantors on the Notes or under the Indenture or any related documents, any certificate or other writing delivered in connection therewith, against (i) the Trustee in its individual capacity, or (ii) any partner, owner, beneficiary, agent, officer, director, employee, agent, successor or assign of the Trustee, each in its individual capacity, or (iii) any holder of equity in the Trustee.
 


A-12
 
 
 

Each Holder of Notes by accepting a Note waives and releases all such liability.  The waiver and release are part of the consideration for the issuance of the Notes.
 
(15)            Authentication .  This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
 
(16)            Abbreviations .  Customary abbreviations may be used in the name of a Holder or an assignee, such as:  TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
 
(17)            CUSIP, ISIN Numbers .  Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuer has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP, ISIN or other similar numbers in notices of redemption as a convenience to the Holders.  No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
 
(18)           THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES, IF ANY.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE INDENTURE, THE NOTES, THE NOTE GUARANTEES OR THE TRANSACTIONS CONTEMPLATED HEREBY
 
Ashland shall furnish to any Holder upon written request and without charge a copy of the Indenture.  Requests may be made to:
 
Ashland Inc.
50 East RiverCenter Boulevard
P.O. Box 391
Covington, Kentucky 41012-0391
Facsimile: (859) 815-5053
Attention: David L. Hausrath, Esq.
 

 


A-13
 
 
 

ASSIGNMENT FORM
 
To assign this Note, fill in the form below:  (I) or (we) assign and transfer this Note to
 
________________________
(Insert assignee’s soc. sec. or tax I.D. no.)
________________________
________________________
________________________
(Print or type assignee’s name, address and zip code)
 
and irrevocably appoint _________________________________________________________
to transfer this Note on the books of Ashland.  The agent may substitute another to act for him.
 
Date:  ________________
 
Your Signature:__________________________
(Sign exactly as your name appears on the
face of this Note)
 
 
Signature guarantee: ______________
 
 
(Signature must be guaranteed by a participant in a recognized signature guarantee medallion program)
 


A-14
 
 
 

OPTION OF HOLDER TO ELECT PURCHASE
 
If you want to elect to have this Note purchased by Ashland Inc. pursuant to Section 4.10 (Asset Sale) or 4.14 (Change of Control) of the Indenture, check the box below:
 
[   ] Section 4.10                                [   ] Section 4.14
 
If you want to elect to have only part of the Note purchased by Ashland Inc. pursuant to Section 4.10 or 4.14 of the Indenture, state the amount you elect to have purchased:
 
$_____________________
 
Date:  _______________            Your Signature:  _______________________                                                                       
   (Sign exactly as your name appears on the Note)
 

 
Tax Identification Number: _________________
 
Signature guarantee:______________
 
(Signature must be guaranteed by a participant in a recognized signature guarantee medallion program)
 


A-15
 
 
 

CERTIFICATE TO BE DELIVERED UPON
EXCHANGE OR REGISTRATION
OF RESTRICTED NOTES
 
Ashland Inc.
50 East RiverCenter Boulevard
P.O. Box 391
Covington, Kentucky 41012-0391
Attention: David L. Hausrath, Esq.
 
U.S. Bank National Association
CN-KY-0850
One Financial Square
Louisville, Kentucky 90202
Facsimile:  (502) 562-6371
Attention: Karolina K. Donlin, Vice President
 
 
Re:
Ashland Inc. 9.125% Senior Notes due 2017
CUSIP #
 
 
Reference is hereby made to that certain Indenture dated May 27, 2009 (the “ Indenture ”) among Ashland Inc. (“ Ashland ”), the Guarantors party thereto and U.S. Bank National Association, as trustee (the “ Trustee ”).  Capitalized terms used but not defined herein shall have the meanings set forth in the Indenture.
 
This certificate relates to $                 principal amount of Notes held in (check applicable space)                 book-entry or                 definitive form by the undersigned.
 
The undersigned                                      (transferor) (check one box below):
 
hereby requests the Registrar to deliver in exchange for its beneficial interest in the Global Note held by the Depositary a Note or Notes in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above), in accordance with Section 2.6 of the Indenture;
 
hereby requests the Trustee to exchange or register the transfer of a Note or Notes to                           (transferee).
 
In connection with any transfer of any of the Notes evidenced by this certificate occurring prior to the expiration of the periods referred to in Rule 144(d) under the Securities Act of 1933, as amended, the undersigned confirms that such Notes are being transferred in accordance with its terms:
 


A-16
 
 
 

CHECK ONE BOX BELOW:
 
(1)          to Ashland or any of its subsidiaries, subject to Section 2.6 of the Indenture; or
 
(2)          inside the United States to a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act of 1933, as amended) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A under the Securities Act of 1933, as amended, in each case pursuant to and in compliance with Rule 144A thereunder; or
 
(3)          outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act of 1933, as amended, in compliance with Rule 904 thereunder; or
 
(4)          pursuant to an effective registration statement under the Securities Act of 1933, as amended.
 


A-17
 
 
 

Unless one of the boxes is checked, the Registrar will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered holder thereof.
 
_________________________________
Signature
 
Signature Guarantee:  __________________________
(Signature must be guaranteed by a participant
in a recognized signature guarantee medallion program)
 
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
 
The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933, as amended (“ Rule 144A ”), and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.
 
[Name of Transferee]
 
Dated:   _____________________                             ______________________________________
 
NOTICE:  To be executed by an executive officer


A-18
 
 
 

SCHEDULE A
 
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
 
The following exchanges of a part of this Global Note for other 9.125% Senior Notes have been made:
 
Date of Exchange
 
 
 
Amount of
Decrease in
Principal Amount
of this Global Note
 
 
 
Amount of
Increase in
Principal Amount
of this Global Note
 
 
 
Principal Amount
of this Global Note
Following Such
Decrease (or
Increase)
 
 
 
Signature of
Authorized Officer
of Trustee or Note
Custodian
 
 
                 
                 
                 
                 
                 



A-19
 
 
 

EXHIBIT B
 
FORM OF NOTATIONAL GUARANTEE
 
Each Guarantor listed below (hereinafter referred to as the “ Guarantor ,” which term includes any successors or assigns under that certain Indenture, dated as of May 27, 2009, by and among Ashland Inc. (“ Ashland ”), the Guarantors party thereto and the Trustee (as amended and supplemented from time to time, the “ Indenture ”) and any additional Guarantors) has guaranteed the 9.125% Senior Notes due 2017 (the “ Notes ”) and the obligations of Ashland under the Indenture, which include (i) the due and punctual payment of the principal of, premium, if any, and interest on the Notes of Ashland, whether at stated maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and premium, if any, and (to the extent permitted by law) interest on any interest, if any, on the Notes, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article X of the Indenture, (ii) in case of any extension of time of payment or renewal of any Notes or any such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise, and (iii) the payment of any and all costs and expenses (including reasonable attorneys’ fees) incurred by the Trustee or any Holder in enforcing any rights under this Note Guarantee or the Indenture.
 
The obligations of each Guarantor to the Holders and to the Trustee pursuant to this Note Guarantee and the Indenture are expressly set forth in Article X of the Indenture and reference is hereby made to such Indenture for the precise terms of this Note Guarantee.
 
No stockholder, employee, officer, director or incorporator, as such, past, present or future of each Guarantor shall have any liability under this Note Guarantee by reason of his or its status as such stockholder, employee, officer, director or incorporator.
 
This is a continuing Note Guarantee and shall remain in full force and effect and shall be binding upon each Guarantor and its successors and assigns until full and final payment of all of Ashland’s obligations under the Notes and Indenture or until released in accordance with the Indenture and shall inure to the benefit of the successors and assigns of the Trustee and the Holders, and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof.  This is a Note Guarantee of payment and not of collection.
 
This Note Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Note Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers.  The Obligations of each Guarantor under its Note Guarantee shall be limited to the extent necessary to insure that it does not constitute a fraudulent conveyance or fraudulent transfer under applicable law.
 


B-1
 
 
 

THE TERMS OF ARTICLE X OF THE INDENTURE ARE INCORPORATED HEREIN BY REFERENCE.
 
Capitalized terms used herein have the same meanings given in the Indenture unless otherwise indicated.
 
Dated as of _________________
 
[NAME OF GUARANTOR]
 
 
By:  ______________________________
 
Name:
 
Title:





B-2
 
 
 

EXHIBIT C
 
[FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS PURSUANT TO RULE 144A]
 
Ashland Inc.
50 East RiverCenter Boulevard
P.O. Box 391
Covington, Kentucky 41012-0391
Attention: David L. Hausrath, Esq.

U.S. Bank National Association
CN-KY-0850
One Financial Square
Louisville, Kentucky 90202
Facsimile:  (502) 562-6371
Attention: Karolina K. Donlin, Vice President
 
 
Re:
Ashland Inc. 9.125% Senior Notes due 2017 (the “Notes”)
 
Ladies and Gentlemen:
 
In connection with our proposed sale of $________ aggregate principal amount at maturity of the Notes, we hereby certify that such transfer is being effected pursuant to and in accordance with Rule 144A (“Rule 144A”) under the United States Securities Act of 1933, as amended (the “Securities Act”), and, accordingly, we hereby further certify that the Notes are being transferred to a person that we reasonably believe is purchasing the Notes for its own account, or for one or more accounts with respect to which such person exercises sole investment discretion, and such person and each such account is a “qualified institutional buyer” within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Notes are being transferred in compliance with any applicable blue sky securities laws of any state of the United States.
 
You and Ashland Inc. are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.
 
    Very truly yours,
 

 
       
   [Name of Transferor]    
       
   By: ___________________________________  
        Authorized Signature    
 
 
 

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Signature guarantee:     ______________________                                                      
 
(Signature must be guaranteed by a participant in a recognized signature guarantee medallion program)


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EXHIBIT D
 
[FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S]
 
Ashland Inc.
50 East RiverCenter Boulevard
P.O. Box 391
Covington, Kentucky 41012-0391
Attention: David L. Hausrath, Esq.

U.S. Bank National Association
CN-KY-0850
One Financial Square
Louisville, Kentucky 90202
Facsimile:  (502) 562-6371
Attention: Karolina K. Donlin, Vice President
 
 
Re:
Ashland Inc. 9.125% Senior Notes due 2017 (the “Notes”)
 
Ladies and Gentlemen:
 
In connection with our proposed sale of $________ aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and, accordingly, we represent that:
 
(1)           the offer of the Notes was not made to a person in the United States;
 
(2)           either (a) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States;
 
(3)           no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and
 
(4)           the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act.
 
In addition, if the sale is made during a restricted period and the provisions of Rule 903(b) or Rule 904(b) of Regulation S are applicable thereto, we confirm that such sale has been
 


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made in accordance with the applicable provisions of Rule 903(b) or Rule 904(b), as the case may be.
 


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Ashland Inc. and you are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.  Terms used in this certificate have the meanings set forth in Regulation S.
 
    Very truly yours,
 

 
       
   [Name of Transferor]    
       
   By: ___________________________________  
        Authorized Signature    
 
 
Signature guarantee: _______________________________
 
(Signature must be guaranteed by a participant in a recognized signature guarantee medallion program)
 





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Exhibit 4.2
Execution Version





REGISTRATION RIGHTS AGREEMENT


by and among


Ashland Inc.,
the Guarantors party hereto


and


Banc of America Securities LLC
Scotia Capital (USA) Inc.
as Representatives of the several Initial Purchasers




Dated as of May 27, 2009



 
 
 
 
 

REGISTRATION RIGHTS AGREEMENT
 
This Registration Rights Agreement (this “Agreement”) is made and entered into as of May 27, 2009, by and among Ashland Inc., a Kentucky corporation (the “Company”), the Guarantors (as defined in the Purchase Agreement), and Banc of America Securities LLC and Scotia Capital (USA) Inc. (collectively, the “Representatives”) as representatives of the several Initial Purchasers listed on Schedule A to the Purchase Agreement (as defined below), each of whom has agreed to purchase the Company’s 9.125% Senior Notes due 2017 (the “Notes”) fully and unconditionally guaranteed by the Guarantors (the “Guarantees”) pursuant to the Purchase Agreement.  The Notes and the Guarantees attached thereto are herein collectively referred to as the “Securities.”
 
This Agreement is made pursuant to the Purchase Agreement, dated May 19, 2009 (the “Purchase Agreement”), among the Company, the Guarantors and the Representatives (i) for the benefit of the Initial Purchasers and (ii) for the benefit of the holders from time to time of Transfer Restricted Securities, including the Initial Purchasers.  In order to induce the Initial Purchasers to purchase the Securities, the Company has agreed to provide the registration rights set forth in this Agreement.  The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers set forth in Section 5(f) of the Purchase Agreement.
 
The parties hereby agree as follows:
 
SECTION 1.        Definitions .  As used in this Agreement, the following capitalized terms shall have the following meanings:
 
Additional Interest: As defined in Section 5 hereof.
 
Additional Interest Payment Date:   With respect to the Transfer Restricted Securities, each Interest Payment Date.
 
Advice: As defined in Section 6(c) hereof.
 
Broker-Dealer:   Any broker or dealer registered under the Exchange Act.
 
Business Day:   Any day other than a Saturday, Sunday or U.S. federal holiday or a day on which banking institutions or trust companies located in New York, New York are authorized or obligated to be closed.
 
Closing Date:   The date of this Agreement.
 
Commission:   The Securities and Exchange Commission.
 
Consummate:   A registered Exchange Offer shall be deemed “Consummated” for purposes of this Agreement upon the occurrence of (i) the filing and effectiveness under the Securities Act of the Exchange Offer Registration Statement relating to the Exchange Securities to be issued in the Exchange Offer, (ii) the maintenance of such Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the minimum pe-
 

 
 
 
 

riod required pursuant to Section 3(b) hereof, and (iii) the delivery by the Company to the Registrar under the Indenture of Exchange Securities in the same aggregate principal amount as the aggregate principal amount of Transfer Restricted Securities that were tendered by Holders thereof pursuant to the Exchange Offer.
 
Exchange Act:   The Securities Exchange Act of 1934, as amended.
 
Exchange Date:   As defined in Section 3(a) hereto.
 
Exchange Offer:   The offer by the Company to the Holders of all outstanding Transfer Restricted Securities of the opportunity to exchange all such outstanding Transfer Restricted Securities held by such Holders for Exchange Securities in an aggregate principal amount equal to the aggregate principal amount of the Transfer Restricted Securities tendered in such exchange offer by such Holders, such exchange offer being the subject of a Registration Statement of the Company registering the Exchange Securities under the Securities Act.
 
Exchange Offer Registration Statement:   The Registration Statement relating to the Exchange Offer, including the related Prospectus.
 
Exchange Securities:   The 9.125% Senior Notes due 2017, of the same series under the Indenture as the Transfer Restricted Securities, to be issued to Holders in exchange for Transfer Restricted Securities pursuant to this Agreement.
 
FINRA:   Financial Industry Regulatory Authority, Inc.
 
Freely Tradable:   Means, with respect to a Security, a Security that at any time of determination (i) may be sold to the public in accordance with Rule 144 under the Securities Act (“Rule 144”) by a person that is not an “affiliate” (as defined in Rule 144 under the Securities Act) of the Company where no conditions of Rule 144 are then applicable (other than the holding period requirement in paragraph (d) of Rule 144 so long as such holding period requirement is satisfied at such time of determination) and (ii) does not bear any restrictive legends relating to the Securities Act.
 
Holders:   As defined in Section 2(b) hereof.
 
Indemnified Holder:   As defined in Section 8(a) hereof.
 
Indenture:   The Indenture, dated as of May 27, 2009, by and among the Company, the Guarantors and U.S. Bank National Association, as trustee (the “Trustee”), pursuant to which the Securities are to be issued, as such Indenture is amended or supplemented from time to time in accordance with the terms thereof.
 
Initial Purchaser:   As defined in the preamble hereto.
 
Initial Placement:   The issuance and sale by the Company of the Securities to the Initial Purchasers pursuant to the Purchase Agreement.
 
Interest Payment Date:   As defined in the Indenture and the Securities.
 


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Person:   An individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof.
 
Prospectus:   The prospectus included in a Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus.
 
Registration Default:   As defined in Section 5 hereof.
 
Registration Statement:   Any registration statement of the Company relating to (a) an offering of Exchange Securities pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, which is filed pursuant to the provisions of this Agreement, in each case, including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein.
 
Securities:   As defined in the preamble hereto.
 
Securities Act:   The Securities Act of 1933, as amended.
 
Shelf Filing Deadline:   As defined in Section 4(a) hereof.
 
Shelf Registration Statement:   As defined in Section 4(a) hereof.
 
Transfer Restricted Securities:   The Securities; provided that the Securities shall cease to be Transfer Restricted Securities on the earliest to occur of (i) the date on which a Registration Statement with respect to such Securities has become effective under the Securities Act and such Securities have been exchanged in the Exchange Offer or disposed of pursuant to such Registration Statement, (ii) the date on which such Securities cease to be outstanding or (iii) the date on which such Securities are Freely Tradable.
 
Trust Indenture Act:   The Trust Indenture Act of 1939, as amended.
 
Underwritten Registration or Underwritten Offering:   A registration in which securities of the Company are sold to an underwriter for reoffering to the public.
 
SECTION 2.          Securities Subject to this Agreement .
 
(a)            Transfer Restricted Securities.   The securities entitled to the benefits of this Agreement are the Transfer Restricted Securities.
 
(b)            Holders of Transfer Restricted Securities.   A Person is deemed to be a holder of Transfer Restricted Securities (each, a “Holder”) whenever such Person owns Transfer Restricted Securities.
 


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SECTION 3.                       Registered Exchange Offer.
 
(a)           Unless the Exchange Offer shall not be permissible under applicable law or Commission policy (after the procedures set forth in Section 6(a) hereof have been complied with), or there are no Transfer Restricted Securities outstanding, each of the Company and the Guarantors shall (i) cause to be filed with the Commission, a Registration Statement under the Securities Act relating to the Exchange Securities and the Exchange Offer, (ii) use its commercially reasonable efforts to cause such Registration Statement to become effective, (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Registration Statement as may be necessary in order to cause such Registration Statement to become effective, (B) if applicable, file a post-effective amendment to such Registration Statement pursuant to Rule 430A under the Securities Act and (C) cause all necessary filings in connection with the registration and qualification of the Exchange Securities to be made under the state securities or blue sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) promptly following the effectiveness of such Registration Statement, commence the Exchange Offer. Each of the Company and the Guarantors shall use its commercially reasonable efforts to Consummate the Exchange Offer not later than 366 days following the Closing Date (or if such 366th day is not a Business Day, the next succeeding Business Day) (the “Exchange Date”); provided , however , that the Company shall not be required to Consummate such Exchange Offer if all of the Securities are Freely Tradable on or before the Exchange Date.  If the Exchange Offer is required pursuant to this Section 3(a), the Exchange Offer Registration Statement shall be on the appropriate form permitting registration of the Exchange Securities to be offered in exchange for the Transfer Restricted Securities and to permit resales of Transfer Restricted Securities held by Broker-Dealers as contemplated by Section 3(c) hereof.
 
(b)           If an Exchange Offer Registration Statement is required to be filed and is declared effective pursuant to Section 3(a) above, the Company and the Guarantors shall use their commercially reasonable efforts to cause the Exchange Offer Registration Statement to be effective continuously until the Exchange Offer is Consummated and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however , that in no event shall such period be less than 30 days after the date notice of the Exchange Offer is mailed to the Holders.  The Company shall cause the Exchange Offer to comply with all applicable federal and state securities laws.  No securities other than the Exchange Securities shall be included in the Exchange Offer Registration Statement.  The Company shall use its commercially reasonable efforts to cause the Exchange Offer to be Consummated by the Exchange Date; provided , however , that the Company shall not be required to Consummate the Exchange Offer if all of the Securities are Freely Tradable on or before the Exchange Date.
 
(c)           The Company shall indicate in a “Plan of Distribution” section contained in the Prospectus forming a part of the Exchange Offer Registration Statement that any Broker-Dealer who holds Transfer Restricted Securities that were acquired for its own account as a result of market-making activities or other trading activities (other than Transfer Restricted Securities acquired directly from the Company), may exchange such Transfer Restricted Securities pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be an “underwriter” within the meaning of the Securities Act and must, therefore, deliver a prospectus meeting the
 


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requirements of the Securities Act in connection with any resales of the Exchange Securities received by such Broker-Dealer in the Exchange Offer, which prospectus delivery requirement may be satisfied by the delivery by such Broker-Dealer of the Prospectus contained in the Exchange Offer Registration Statement.  Such “Plan of Distribution” section shall also contain all other information with respect to such resales by Broker-Dealers that the Commission may require in order to permit such resales pursuant thereto, but such “Plan of Distribution” shall not name any such Broker-Dealer or disclose the amount of Transfer Restricted Securities held by any such Broker-Dealer except to the extent required by the Commission as a result of a change in policy after the date of this Agreement.
 
Each of the Company and the Guarantors shall use its commercially reasonable efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 6(c) hereof to the extent necessary to ensure that it is available for resales of Transfer Restricted Securities acquired by Broker-Dealers for their own accounts as a result of market-making activities or other trading activities, and to ensure that it conforms in all material respects with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the Commission as announced from time to time, for a period ending on the earlier of (i) 180 days from the date on which the Exchange Offer Registration Statement is declared effective and (ii) the date on which a Broker-Dealer is no longer required to deliver a prospectus in connection with market-making or other trading activities; provided that the Company may for a period of up to 60 days in any three-month period, not to exceed 90 days in any calendar year determine that the Exchange Offer Registration Statement is not usable under certain circumstances relating to corporate developments, public filings with the Commission and similar events, and suspend the use of the prospectus that is part of the Exchange Offer Registration Statement.
 
The Company shall provide sufficient copies of the latest version of such Prospectus to Broker-Dealers promptly upon request at any time during such 180-day (or shorter as provided in the foregoing sentence) period in order to facilitate such resales.
 
Notwithstanding anything in this Section 3 to the contrary, the requirements to file and keep effective the Exchange Offer Registration Statement and to make all other filings contemplated by this Section 3 and the requirements to Consummate the Exchange Offer shall terminate at the earliest to occur of such time as (1) all the Securities are Freely Tradable or (2) a Shelf Registration Statement required by Section 4(a)(ii) has been filed in accordance with Section 4 with respect to all Transfer Restricted Securities for which information has been provided in accordance with Section 4(b), and such Shelf Registration Statement has been declared effective by the Commission.
 
SECTION 4.           Shelf Registration .
 
(a)            Shelf Registration.   If (i) the Company is not required to file an Exchange Offer Registration Statement or to consummate the Exchange Offer solely because the Exchange Offer is not permitted by applicable law or Commission policy (after the procedures set forth in Section 6(a) hereof have been complied with), (ii) for any reason the Exchange Offer is not Consummated by the Exchange Date and the Securities are not all Freely Tradable prior to such time, or (iii) (A) the Initial Purchasers request from the Company with respect to Transfer Restricted
 


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Securities not eligible to be exchanged for Exchange Securities in the Exchange Offer, (B) with respect to any Holder of Transfer Restricted Securities such Holder notifies the Company that (1) such Holder is prohibited by applicable law or Commission policy from participating in the Exchange Offer, (2) such Holder notifies the Company within 30 days of the consummation of the Exchange Offer that such Holder may not resell the Exchange Securities acquired by it in the Exchange Offer to the public without delivering a prospectus and that the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder, or (3) such Holder is a Broker-Dealer and holds Transfer Restricted Securities acquired directly from the Company or one of its affiliates, and requests from the Company with respect to such Securities or (C) in the case of any Initial Purchaser, such Initial Purchaser notifies the Company it will not receive Freely Tradable Exchange Securities in exchange for Transfer Restricted Securities constituting any portion of such Initial Purchaser’s unsold allotment, the Company and the Guarantor shall:
 
(x)           cause to be filed a shelf registration statement pursuant to Rule 415 under the Securities Act, which may be an amendment to the Exchange Offer Registration Statement (in either event, the “Shelf Registration Statement”) on or prior to the 30th day after the date such obligation arises but no earlier than the Exchange Date (such date being the “Shelf Filing Deadline”), which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities the Holders of which shall have provided the information required pursuant to Section 4(b) hereof; and
 
(y)           use their commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective by the Commission on or before the 60th day after the Shelf Filing Deadline (or if such 60th day is not a Business Day, the next succeeding Business Day).
 
Each of the Company and the Guarantors shall use its commercially reasonable efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is available for resales of Transfer Restricted Securities by the Holders of such Securities entitled to the benefit of this Section 4(a), and to ensure that it conforms in all material respects with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the Commission as announced from time to time, from the date on which the Shelf Registration Statement is declared effective by the Commission until the expiration of the one-year period referred to in Rule 144 applicable to securities held by non-affiliates under the Securities Act (or shorter period that will terminate when all the Transfer Restricted Securities covered by such Shelf Registration Statement have been sold pursuant to such Shelf Registration Statement or are Freely Tradable); provided that the Company may for a period of up to 60 days in any three-month period, not to exceed 90 days in any calendar year determine that the Shelf Registration Statement is not usable under certain circumstances relating to corporate developments, public filings with the Commission and similar events, and suspend the use of the prospectus that is part of the Shelf Registration Statement.  Notwithstanding anything in this Agreement to the contrary, the requirements to file a Shelf Registration Statement and to have such Shelf Registration Statement become effective and remain effective shall terminate at such time as all of the Securi-
 


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ties are Freely Tradable or, where such requirements were the result of the circumstances described under Section 4(a)(ii), such time as the Exchange Offer is Consummated.
 
(b)            Provision by Holders of Certain Information in Connection with the Shelf Registration Statement.   No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 Business Days after receipt of a request therefor, such information as the Company may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein.  Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading.
 
SECTION 5.       Additional Interest.   If any of the Securities are not Freely Tradable Securities by the Exchange Date and either (i) if required hereby, the Exchange Offer has not been Consummated on or prior to the Exchange Date, (ii) any Shelf Registration Statement, if required hereby, has not been declared effective by the Commission by the time provided in this Agreement, or (iii) any Registration Statement required by this Agreement has been declared effective but ceases to be effective at any time at which it is required to be effective under this Agreement (each such event referred to in clauses (i) through (iii), a “Registration Default”), the Company hereby agrees that the interest rate borne by the affected Transfer Restricted Securities shall be increased by 0.50% per annum during the 90-day period immediately following the occurrence of any Registration Default and shall increase by 0.50% per annum at the end of each subsequent 90-day period during which such Registration Default continues (such increase, “Additional Interest”), but in no event shall the amount of Additional Interest on any Transfer Restricted Securities exceed 1.50% per annum.  At the earlier of (i) the cure of all Registration Defaults relating to the particular Transfer Restricted Securities or (ii) the particular Transfer Restricted Securities having become Freely Tradable, the interest rate borne by the relevant Transfer Restricted Securities will be reduced to the original interest rate borne by such Transfer Restricted Securities; provided, however, that, if after any such reduction in interest rate, a different Registration Default occurs, the interest rate borne by the relevant Transfer Restricted Securities shall again be increased pursuant to the foregoing provisions; and provided, further, however that notwithstanding anything in this Agreement to the contrary, a Registration Default under (i) or (ii) above shall be deemed cured (among other circumstances under which it may be cured) at such time as the requirement to Consummate the Exchange Offer or the requirement that a Shelf Registration Statement be declared effective, as applicable, terminates in a manner provided in this Agreement.
 
All obligations of the Company and the Guarantors set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such security shall have been satisfied in full.
 
SECTION 6.     Registration Procedures .
 
(a)            Exchange Offer Registration Statement.   In connection with the Exchange Offer, if required pursuant to Section 3(a) hereof, the Company and the Guarantors shall comply with
 


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all of the provisions of Section 6(c) hereof, shall use their commercially reasonable efforts to effect such exchange to permit the sale of Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof, and shall comply with all of the following provisions:
 
(i)       If in the reasonable opinion of counsel to the Company there is a question as to whether the Exchange Offer is permitted by applicable law, each of the Company and the Guarantors hereby agrees to use their commercially reasonable efforts to seek a no-action letter or other favorable decision from the Commission allowing the Company and the Guarantors to Consummate an Exchange Offer for such Transfer Restricted Securities.  Each of the Company and the Guarantors hereby agrees to pursue the issuance of such a decision to the Commission staff level but shall not be required to take commercially unreasonable action to effect a change of Commission policy.  Subject to the immediately preceding two sentences, each of the Company and the Guarantors hereby agrees, however, to (A) participate in telephonic conferences with the Commission, (B) deliver to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursue a favorable resolution by the Commission staff of such submission.
 
(ii)       As a condition to its participation in the Exchange Offer pursuant to the terms of this Agreement, each Holder of Transfer Restricted Securities shall furnish, upon the request of the Company, prior to the Consummation thereof, a written representation to the Company (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any Person to participate in, a distribution of the Exchange Securities to be issued in the Exchange Offer and (C) it is acquiring the Exchange Securities in its ordinary course of business.  In addition, all such Holders of Transfer Restricted Securities shall otherwise cooperate in the Company’s preparations for the Exchange Offer.  Each Holder shall acknowledge and agree that any Broker-Dealer and any such Holder using the Exchange Offer to participate in a distribution of the securities to be acquired in the Exchange Offer (1) could not under Commission policy as in effect on the date of this Agreement rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission’s letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (which may include any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction and that such a secondary resale transaction should be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K if the resales are of Exchange Securities obtained by such Holder in exchange for Transfer Restricted Securities acquired by such Holder directly from the Company.
 


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         (b)        Shelf Registration Statement.   If required pursuant to Section 4, in connection with the Shelf Registration Statement, each of the Company and the Guarantors shall comply with all the provisions of Section 6(c) hereof and shall use its commercially reasonable efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof, and pursuant thereto each of the Company and the Guarantors will as expeditiously as is commercially reasonably practicable prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Securities Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof, in accordance with the provisions of Section 4.
 
(c)            General Provisions.   In connection with any Registration Statement and any related Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities (including, without limitation, any Registration Statement and the related Prospectus required to permit resales of Transfer Restricted Securities by Broker-Dealers), each of the Company and the Guarantors shall:
 
(i)       use its commercially reasonable efforts to keep such Registration Statement continuously effective and provide all requisite financial statements (it being understood that such financial statements shall be deemed provided to the extent filed with the Commission) and, if required by the Securities Act or any regulation thereunder, financial statements of the Guarantors for the period specified in Section 3 or 4 hereof, as applicable; upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company shall file promptly an appropriate amendment to such Registration Statement (or file with the Commission a document to be incorporated by reference into the Registration Statement), in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use its commercially reasonable efforts to cause such amendment to be declared effective and such Registration Statement and the related Prospectus to become usable for their intended purpose(s) as soon as practicable thereafter;
 
(ii)       prepare and file with the Commission such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as applicable, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold or are Freely Tradable; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to comply in all material respects with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner; and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus;
 


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(iii)       in the case of a Shelf Registration Statement, advise the underwriter(s), if any, and selling Holders named in any Registration Statement promptly and, if requested by such Persons, to confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Securities Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto, untrue, or that requires the making of any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading.  If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or blue sky laws, each of the Company and the Guarantors shall use its commercially reasonable efforts to obtain the withdrawal or lifting of such order at the earliest possible time;
 
(iv)       in the case of a Shelf Registration Statement, furnish without charge to each of the Initial Purchasers, each selling Holder named in any Registration Statement, and each of the underwriter(s), if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such Holders and underwriter(s) in connection with such sale, if any, for a period of at least five Business Days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (but shall not be required to amend any document previously filed with the Commission and incorporated by reference thereto) to which an Initial Purchaser of Transfer Restricted Securities covered by such Registration Statement or the underwriter(s), if any, shall reasonably object in writing within five Business Days after the receipt thereof (such objection to be deemed timely made upon confirmation of telecopy transmission within such period).  The objection of an Initial Purchaser or underwriter, if any, shall be deemed to be reasonable if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission;
 
(v)       in connection with an Underwritten Offering, make available at reasonable times for inspection by the Initial Purchasers, the managing underwriter(s), if any, participating in any disposition pursuant to such Registration Statement and any attorney or accountant retained by such Initial Purchasers or any of the underwriter(s), all financial


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and other records, pertinent corporate documents and properties of each of the Company and the Guarantors reasonably requested to be made available and cause the Company’s and the Guarantors’ officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney or accountant in connection with such Registration Statement or any post-effective amendment thereto subsequent to the filing thereof and prior to its effectiveness and to participate in meetings with investors to the extent reasonably requested by the managing underwriter(s), if any;
 
(vi)       in connection with an Underwritten Offering, if requested by any selling Holders or the underwriter(s), if any, promptly incorporate in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders and underwriter(s), if any, may reasonably request to have included therein, including, without limitation, information relating to the “Plan of Distribution” of the Transfer Restricted Securities, information with respect to the principal amount of Transfer Restricted Securities being sold to such underwriter(s), the purchase price being paid therefor and any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment;
 
(vii)       in connection with an Underwritten Offering, cause the Transfer Restricted Securities covered by the Registration Statement to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of Securities covered thereby or the underwriter(s), if any;
 
(viii)       in the case of a Shelf Registration Statement, furnish to each Initial Purchaser, each selling Holder and each of the underwriter(s), if any, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including financial statements and schedules, (but without documents incorporated by reference therein and all exhibits thereto, unless requested);
 
(ix)       in the case of a Shelf Registration Statement, deliver to each selling Holder and each of the underwriter(s), if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; each of the Company and the Guarantors hereby consents to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders and each of the underwriter(s), if any, in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto;
 
(x)       in the case of a Shelf Registration Statement, enter into such customary agreements (including underwriting agreements) and take all other customary and appro priate actions in order to expedite or facilitate the disposition of such Transfer Restricted Securities and if so requested by the holders of such Transfer Restricted Securities and in such connection whether or not an underwriting agreement is entered into and whether or not the registration is an Underwritten Registration:
 


 
-11-
 
 
 
 

 
(A)             make such representations and warranties to the Holders of such Transfer Restricted Securities and the underwriters, if any, as the Company and the Guarantors are able to make, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings as may be reasonably requested by them; provided, that if, between the applicable effective date of a Shelf Registration Statement (including, without limitation, any Registration Statement and the related Prospectus required to permit resales of Transfer Restricted Securities by Broker-Dealers) and the closing of any sale of Transfer Restricted Securities covered thereby, the certification of the officers of the Company and the Guarantors of the type set forth in Section 5(e) of the Purchase Agreement that is contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to an offering of such Transfer Restricted Securities, ceases to be true and correct, the Company or the Guarantors shall so advise the Initial Purchasers and the underwriter(s), if any, and each selling Holder promptly and, if requested by such Persons, shall confirm such advice in writing;

(B)             in connection with an Underwritten Registration, obtain opinions and, in the case of counsel to the Company, a negative assurance letter, of counsel to the Company and the Guarantors covering the matters customarily covered in opinions and, in the case of counsel to the Company, negative assurance letters, requested in sales of securities or underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters;

(C)             in connection with an Underwritten Registration, obtain “cold comfort” letters and updates thereof from the Company’s and the Guarantors’ independent certified public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement) addressed to the underwriters, if any, and use their commercially reasonable efforts to have such letter addressed to the selling Holders of Transfer Restricted Securities (to the extent consistent with Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accountants), such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters to underwriters in connection with similar underwritten offerings;

(D)             enter into a securities sales agreement with the Holders and an agent of the Holder providing for, among other things, the appointment of such agent for the selling Holders for the purpose of soliciting purchases of Transfer Restricted Securities, which agreement shall be in form, substance and scope customary for similar offerings;

(E)             if an underwriting agreement is entered into, cause the same to set forth indemnification provisions and procedures substantially equivalent to the indemnification provisions and procedures set forth in Section 8 hereof with re-


-12-
 
 
 
 

spect to the underwriters and all other parties to be indemnified pursuant to said Section or, at the request of any underwriters, in the form customarily provided to such underwriters in similar types of transactions; and

(F)             deliver such documents and certificates as may be reasonably requested and as are customarily delivered in similar offerings to the Holders of a majority in principal amount of the Transfer Restricted Securities being sold and the managing underwriters, if any.

The above shall be done at the closing of an offering under any underwriting or similar agreement as and to the extent required thereunder;

(xi)       prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders, the underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities under the state securities or blue sky laws of such jurisdictions as the selling Holders or underwriter(s), if any, may reasonably request and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however , that none of the Company or the Guarantors shall be required to register or qualify as a foreign corporation where it is not then so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not then so subject;
 
(xii)       issue, upon the request of any Holder of Transfer Restricted Securities covered by the Shelf Registration Statement, Exchange Securities having an aggregate principal amount equal to the aggregate principal amount of Transfer Restricted Securities surrendered to the Company by such Holder in exchange therefor or being sold by such Holder; such Exchange Securities to be registered in the name of such Holder or in the name of the purchaser(s) of such Securities, as the case may be; in return, the Transfer Restricted Securities held by such Holder shall be surrendered to the Company for cancellation;
 
(xiii)      cooperate with the selling Holders and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders or the underwriter(s), if any, may request at least two Business Days prior to any sale of Transfer Restricted Securities made by such Holders or underwriter(s);
 
(xiv)      use its commercially reasonable efforts to cause the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter(s), if any, to consummate the disposition of such


-13-
 
 
 
 
 
Transfer Restricted Securities, subject to the proviso contained in Section 6(c)(xii) hereof;
 
(xv)       if any fact or event contemplated by Section 6(c)(iii)(D) hereof shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus (or file with the Commission a document to be incorporated by reference into the Registration Statement) so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein not misleading;
 
(xvi)      provide a CUSIP number for all Securities not later than the effective date of the Registration Statement covering such Securities and provide the Trustee under the Indenture with certificates for such Securities which are in a form eligible for deposit with the Depository Trust Company and take all other action reasonably necessary to ensure that all such Securities are eligible for deposit with the Depository Trust Company;
 
(xvii)     cooperate and assist in any filings required to be made with the FINRA and in the performance of any due diligence investigation by any underwriter (including any “qualified independent underwriter”) that is required to be retained in accordance with the rules and regulations of the FINRA;
 
(xviii)    otherwise use its commercially reasonable efforts to comply in all material respects with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as practicable, a consolidated earnings statement covering at least 12 months (which need not be audited) and meeting the requirements of Section 11(a) of the Securities Act and Rule 158 under the Securities Act;
 
(xix)      cause the Indenture to be qualified under the Trust Indenture Act not later than the effective date of the first Registration Statement required by this Agreement, and, in connection therewith, cooperate with the Trustee and the Holders of Securities to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the Trust Indenture Act; and to execute and use its commercially reasonable efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; and
 
(xx)       in the case of a Shelf Registration Statement, cause all Securities covered by the Registration Statement to be listed on each securities exchange or automated quotation system on which similar securities issued by the Company are then listed if re quested by the Holders of a majority in aggregate principal amount of Securities or the managing underwriter(s), if any;
 
Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until such Holder’s receipt of the cop-
 


-14-
 
 
 
 

ies of the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof, or until it is advised in writing (the “Advice”) by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus.  If so directed by the Company, each Holder will deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice.  In the event the Company shall give any such notice, the time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 6(c)(iii)(D) hereof to and including the date when each selling Holder covered by such Registration Statement shall have received the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof or shall have received the Advice; provided, however, that no such extension shall be taken into account in determining whether Additional Interest is due pursuant to Section 5 hereof or the amount of such Additional Interest, it being agreed that the Company’s determination to suspend use of a Registration Statement pursuant to this paragraph shall be treated as a Registration Default for purposes of Section 5 hereof.
 
SECTION 7.                              Registration Expenses .
 
(a)           All expenses incident to the Company’s and the Guarantors’ performance of or compliance with this Agreement will be borne by the Company and the Guarantors, jointly and severally, regardless of whether a Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees and expenses (including filings made by any Initial Purchaser or Holder with the FINRA (and, if applicable, the fees and expenses of any “qualified independent underwriter” and its counsel that may be required by the rules and regulations of the FINRA)); (ii) all fees and expenses of compliance with federal securities and state securities or blue sky laws; (iii) all expenses of printing (including printing certificates for the Exchange Securities to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company, the Guarantors and, subject to Section 7(b) hereof, the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with listing the Exchange Securities on a securities exchange or automated quotation system pursuant to the requirements thereof; and (vi) all fees and disbursements of independent certified public accountants of the Company and the Guarantors (including the expenses of any special audit and comfort letters required by or incident to such performance); but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of a Holder’s Transfer Restricted Securities pursuant to the Shelf Registration Statement, which shall be the responsibility of each such Holder.
 
Each of the Company and the Guarantors will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company or the Guarantors.
 
(b)           In connection with any Shelf Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registra-
 


-15-
 
 
 
 

tion Statement), the Company and the Guarantors, jointly and severally, will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities being tendered in the Exchange Offer and/or resold pursuant to the “Plan of Distribution” contained in the Exchange Offer Registration Statement or registered pursuant to the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Cahill, Gordon & Reindel llp or such other counsel as may be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared.
 
SECTION 8.                              Indemnification .
 
(a)           The Company and the Guarantors, jointly and severally, agree to indemnify and hold harmless (i) each Holder and (ii) each Person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) any Holder (any of the Persons referred to in this clause (ii) being hereinafter referred to as a “controlling person”) and (iii) the respective officers, directors, partners, employees, representatives and agents of any Holder or any controlling person (any Person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an “Indemnified Holder”), to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including, without limitation, and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing, settling, compromising, paying or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Holder), that is directly or indirectly based upon, or arises out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (or any amendment or supplement thereto), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by an untrue statement or omission or alleged untrue statement or omission that is made in reliance upon and in conformity with information relating to any of the Holders furnished in writing to the Company by any of the Holders expressly for use therein.  This indemnity agreement shall be in addition to any liability which the Company or any of the Guarantors may otherwise have.
 
In case any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against any of the Indemnified Holders with respect to which indemnity may be sought against the Company or the Guarantors, such Indemnified Holder (or the Indemnified Holder controlled by such controlling person) shall promptly notify the Company and the Guarantors in writing; provided, however, that the failure to give such notice shall not relieve any of the Company or the Guarantors of its obligations pursuant to this Agreement to the extent they are not prejudiced as a proximate result of such failure.  In case any such action is brought against any Indemnified Holder and such Indemnified Holder seeks or intends to seek indemnity from the Company or the Guarantors, the Company or the Guarantors will be entitled to participate in and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the Indemnified Holder promptly after receiving the aforesaid notice from such Indemnified Holder, to assume the defense thereof with counsel reasonably satisfactory to such Indemnified Holder; provided, however, if the de-


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fendants in any such action include both the Indemnified Holder and the Company or the Guarantors and the Indemnified Holder shall have reasonably concluded, based upon advice from counsel, that a conflict may arise between the positions of the Company or the Guarantors and the Indemnified Holder in conducting the defense of any such action or that there may be legal defenses available to it and/or other Indemnified Holders which are different from or additional to those available to the Company or the Guarantors, the Indemnified Holder or Indemnified Holders shall have the right to select separate counsel, reasonably satisfactory to the Company or the Guarantors, to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such Indemnified Holder or Indemnified Holders.  Upon receipt of notice from the Company or the Guarantors to such Indemnified Holder of the Company’s or a Guarantor’s election so to assume the defense of such action and approval by the Indemnified Holder of counsel, the Company or the Guarantors will not be liable to such Indemnified Holder under this Section 8 for any legal or other expenses subsequently incurred by such Indemnified Holder in connection with the defense thereof unless (i) the Indemnified Holder shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the Company or the Guarantors shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the Company or the Guarantors, representing the Indemnified Holders who are parties to such action) or (ii) the Company or the Guarantors shall not have employed counsel satisfactory to the Indemnified Holder to represent the Indemnified Holder within a reasonable time after notice of commencement of the action, in each of which cases the fees and expenses of counsel shall be at the expense of the Company or the Guarantors.  The Company and the Guarantors shall be liable for any settlement of any such action or proceeding effected with the Company’s and the Guarantors’ prior written consent, which consent shall not be withheld unreasonably, and each of the Company and the Guarantors agrees to indemnify and hold harmless any Indemnified Holder from and against any loss, claim, damage, liability or expense by reason of any settlement of any action effected with the written consent of the Company and the Guarantors.  The Company and the Guarantors shall not, without the prior written consent of each Indemnified Holder, settle or compromise or consent to the entry of judgment in or otherwise seek to terminate any pending or threatened action, claim, litigation or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not any Indemnified Holder is a party thereto), unless such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Holder from all liability arising out of such action, claim, litigation or proceeding.

(b)           Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Company, the Guarantors and their respective directors, officers of the Company and the Guarantors who sign a Registration Statement, and any Person controlling (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) the Company or any of the Guarantors, and the respective officers, directors, partners, employees, representatives and agents of each such Person, to the same extent as the foregoing indemnity from the Company and the Guarantors to each of the Indemnified Holders, but only with respect to claims and actions based on information relating to such Holder furnished in writing by such Holder expressly for use in any Registration Statement.  In case any action or proceeding shall be brought against the Company, the Guarantors or their respective directors or officers or any such controlling person in respect of which indemnity may be sought against a Holder of Transfer Restricted Securities, such Holder shall have the rights and duties given the Company


-17-
 
 
 
 

and the Guarantors, and the Company, the Guarantors, their respective directors and officers and such controlling person shall have the rights and duties given to each Holder, by the preceding paragraph.
 
(c)           If the indemnification provided for in this Section 8 is unavailable to an indemnified party under Section 8(a) or (b) hereof (other than by reason of exceptions provided in those Sections) in respect of any losses, claims, damages, liabilities, judgments, actions or expenses referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors, on the one hand, and the Holders, on the other hand, from the Initial Placement (which in the case of the Company and the Guarantors shall be deemed to be equal to the total gross proceeds to the Company and the Guarantors from the Initial Placement), the amount of Additional Interest which did not become payable as a result of the filing of the Registration Statement resulting in such losses, claims, damages, liabilities, judgments actions or expenses, and such Registration Statement, or if such allocation is not permitted by applicable law, the relative fault of the Company and the Guarantors, on the one hand, and the Holders, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations.  The relative fault of the Company on the one hand and of the Indemnified Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or any of the Guarantors, on the one hand, or the Indemnified Holders, on the other hand, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in the second paragraph of Section 8(a) hereof, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim.
 
The Company, the Guarantors and each Holder of Transfer Restricted Securities agree that it would not be just and equitable if contribution pursuant to this Section 8(c) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph.  The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim.  Notwithstanding the provisions of this Section 8, none of the Holders (and its related Indemnified Holders) shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total discount received by such Holder with respect to the Transfer Restricted Securities exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.  The Holders’ obliga-
 


-18-
 
 
 
 

tions to contribute pursuant to this Section 8(c) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each of the Holders hereunder and not joint.
 
     SECTION 9.                              Rule 144A.   Each of the Company and the Guarantors hereby agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding, if the Company is no longer required to file reports under the Exchange Act, it will make available upon request to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A under the Securities Act.
 
     SECTION 10.                              Participation in Underwritten Registrations.   No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder’s Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements.
 
     SECTION 11.                              Selection of Underwriters.   The Holders of Transfer Restricted Securities covered by the Shelf Registration Statement who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering.  In any such Underwritten Offering, the investment banker(s) and managing underwriter(s) that will administer such offering will be selected by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in such offering; provided, however , that such investment banker(s) and managing underwriter(s) must be reasonably satisfactory to the Company.
 
     SECTION 12.                              Miscellaneous.
 
(a)            Remedies.   Each of the Company and the Guarantors hereby agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agree to waive the defense in any action for specific performance that a remedy at law would be adequate.
 
(b)            No Inconsistent Agreements.   Each of the Company and the Guarantors will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.  Neither the Company nor any of the Guarantors has previously entered into any agreement that remains in effect and grants any registration rights with respect to its securities to any Person.  The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company’s or any of the Guarantors’ securities under any agreement in effect on the date hereof.
 


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(c)            Adjustments Affecting the Securities.   The Company will not take any action, or permit any change to occur, with respect to the Securities that would materially and adversely affect the ability of the Holders to Consummate any Exchange Offer.
 
(d)            Amendments and Waivers.   The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless the Company has (i) in the case of Section 5 hereof and this Section 12(d)(i), obtained the written consent of Holders of all outstanding Transfer Restricted Securities and (ii) in the case of all other provisions hereof, obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding any Transfer Restricted Securities held by the Company or its Affiliates).  Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose securities are being tendered pursuant to the Exchange Offer and that does not affect directly or indirectly the rights of other Holders whose securities are not being tendered pursuant to such Exchange Offer may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities being tendered or registered; provided, however, that, with respect to any matter that directly or indirectly affects the rights of any Initial Purchaser hereunder, the Company shall obtain the written consent of each such Initial Purchaser with respect to which such amendment, qualification, supplement, waiver, consent or departure is to be effective.
 
(e)            Notices.   All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery:
 
(i)       if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and
 
(ii)       if to the Company and the Guarantors:
 

 
Ashland Inc.
50 E. RiverCenter Boulevard
 
      PO Box 391
    C ovington, Kentucky 41012-0391
Telecopier No.:  (859) 815-5053
Attention:  David L. Hausrath, Esq.
 
              with a copy to:
 
              Squire, Sanders & Dempsey L.L.P.
            4900 Key Tower
127 Public Square

 
 


-20-
 
 
 
 

 
Cleveland, Ohio 44114
Facsimile:  (212) 479-8780
Attention:  Jeffrey J. Margulies, Esq.

All such notices and communications shall be deemed to have been duly given:  at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery.
 
Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture.
 
(f)            Successors and Assigns.   This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without limitation, and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, however , that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder.
 
(g)            Counterparts.   This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
 
(h)            Headings.   The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
 
(i)            Governing Law.   THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW RULES THEREOF.
 
(j)            Severability.   In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.
 
(k)            Entire Agreement.   This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Transfer Restricted Securities.  This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.
 
 


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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
 
  ASHLAND INC.  
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  Treasurer  
       
 
 
ASHLAND INTERNATIONAL HOLDINGS,
       INC.; and
ASH GP LLC, as Guarantors
 
       
 
By:
/s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
       
 
 
ASHPROP LLC;
ASHLAND LICENSING AND
      INTELLECTUAL PROPERTY LLC;
VALVOLINE INTERNATIONAL, INC.; and
HERCULES INCORPORATED, as Guarantors
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  Vice President-Finance  
       
 
 
AQUALON COMPANY,
      as Guarantor
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  Vice President & Controller  
       

 
 
[Signature Page to Registration Rights Agreement]
 
 
 
ASHTHREE LLC,
       as Guarantor
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  President  
       
 
 
EAST BAY REALTY SERVICES, INC.; and
HERCULES PAPER HOLDINGS, INC.,
      as Guarantors
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  President and Controller  
       

 
ASHONE C.V.,
       as Guarantor
 
By:  ASHLAND INTERNATIONAL
HOLDINGS, INC., as General Partner
 
       
 
 
By:  /s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
       
 
  By:  ASH GP LLC, as General Partner  
       
 
 
By:  /s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
       
 
 
[Signature Page to Registration Rights Agreement]
 
 
 
HERCULES INVESTMENTS S.A.R.L.,
       as Guarantor
 
       
 
By:
/s/  Jo-Ann T. Lawler  
    Name:  Jo-Ann T. Lawler  
    Title:  Type A Manager  
       
 
 
 
 
[Signature Page to Registration Rights Agreement]
 
 
The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written:
 
BANC OF AMERICA SECURITIES LLC
 
 
By: 
Banc of America Securities LLC
Acting on behalf of itself and as a Representative of the several Initial Purchasers
 
     
By:
/s/  Michael Browne  
  Name:  Michael Browne  
  Title:  Managing Director  
     
 
 
 
[Signature Page to Registration Rights Agreement]
 
 
 
SCOTIA CAPITAL (USA) INC.
 
 
By: 
Scotia Capital (USA) Inc.
Acting on behalf of itself and as a Representative of the several Initial Purchasers
 
     
By:
/s/  Greg Greer  
  Name:  Greg Greer  
  Title:  Managing Director  
     
 
 
 
 
[Signature Page to Registration Rights Agreement] 
EXHIBIT 10.1
EXECUTION VERSION


 
Ashland Inc.
 

 
$650,000,000
 

 
9.125% Senior Notes due 2017
 

 

 

 
PURCHASE AGREEMENT
 

 
dated May 19, 2009
 
Banc of America Securities LLC
Scotia Capital (USA) Inc.
SunTrust Robinson Humphrey, Inc.



--
 
 
 
 

PURCHASE AGREEMENT
 
May 19, 2009
 
Banc of America Securities LLC
Scotia Capital (USA) Inc.
     As Representatives of the Initial Purchasers
c/o Banc of America Securities LLC
One Bryant Park
New York, New York  10036
 
Ladies and Gentlemen:
 
Introductory .  Ashland Inc., a Kentucky corporation (the “Company”), proposes to issue and sell to Banc of America Securities LLC, Scotia Capital (USA) Inc. and the several Initial Purchasers named in Schedule A (the “Initial Purchasers”), acting severally and not jointly, the respective amounts set forth in such Schedule A of $650,000,000 aggregate principal amount of the Company’s 9.125% Senior Notes due 2017 (the “Notes”).  Banc of America Securities LLC and Scotia Capital (USA) Inc. have agreed to act as the representatives of the several Initial Purchasers (the “Representatives”) in connection with the offering and sale of the Notes.
 
The Securities (as defined below) will be issued pursuant to an indenture, to be dated as of the Closing Date (as defined below)  (the “Indenture”), among the Company, the Guarantors (as defined below) and U.S. Bank National Association, as trustee (the “Trustee”).  Notes will be issued only in book-entry form in the name of Cede & Co., as nominee of The Depository Trust Company (the “Depositary”) pursuant to a letter of representations, to be dated on or before the Closing Date (as defined in Section 2 hereof) (the “DTC Agreement”), between the Company and the Depositary.
 
The holders of the Notes will be entitled to the benefits of a registration rights agreement, to be dated as of the Closing Date (the “Registration Rights Agreement”), among the Company, the Guarantors and the Initial Purchasers, pursuant to which the Company and the Guarantors may be required to file with the Commission (as defined below), under the circumstances set forth therein, (i) a registration statement under the Securities Act (as defined below) relating to another series of debt securities of the Company with terms substantially identical to the Notes (the “Exchange Notes”) to be offered in exchange for the Notes (the “Exchange Offer”) and (ii) to the extent required by the Registration Rights Agreement, a shelf registration statement pursuant to Rule 415 of the Securities Act relating to the resale by certain holders of the Notes, and in each case, to use its commercially reasonable efforts to cause such registration statements to be declared effective, in either case only if the Notes are not freely tradeable without a restrictive legend as of the 365th day after the Closing Date (as defined below) .  All references herein to the Exchange Notes and the Exchange Offer are only applicable if the Company and the Guarantors are in fact required to consummate the Exchange Offer pursuant to the terms of the Registration Rights Agreement.
 


 
 
 
 
 

The payment of principal of, premium, if any, and interest on the Notes and the Exchange Notes will be fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally by (i) the subsidiaries of the Company listed on Schedule B and (ii) any subsidiary of the Company formed or acquired after the Closing Date that executes an additional guarantee in accordance with the terms of the Indenture, and their respective successors and assigns (collectively, the “Guarantors”), pursuant to their guarantees (the “Guarantees”).  The Notes and the Guarantees attached thereto are herein collectively referred to as the “Securities”; and the Exchange Notes and the Guarantees attached thereto are herein collectively referred to as the “Exchange Securities.”
 
The Company understands that the Initial Purchasers propose to make an offering of the Securities on the terms and in the manner set forth herein and in the Pricing Disclosure Package (as defined below) and agrees that the Initial Purchasers may resell, subject to the conditions set forth herein, all or a portion of the Securities to purchasers (the “Subsequent Purchasers”) on the terms set forth in the Pricing Disclosure Package (the first time when sales of the Securities are made is referred to as the “Time of Sale ”) .  The Securities are to be offered and sold to or through the Initial Purchasers without being registered with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933 (as amended, the “Securities Act,” which term, as used herein, includes the rules and regulations of the Commission promulgated thereunder), in reliance upon exemptions therefrom.  Pursuant to the terms of the Securities and the Indenture, investors who acquire the Securities shall be deemed to have agreed that the Securities may only be resold or otherwise transferred, after the date hereof, if such Securities are registered for sale under the Securities Act or if an exemption from the registration requirements of the Securities Act is available (including the exemptions afforded by Rule 144A under the Securities Act (“Rule 144A”) or Regulation S under the Securities Act (“Regulation S”)).
 
The Company has prepared and delivered to each Initial Purchaser copies of a Preliminary Offering Memorandum, dated May 13, 2009 (the “Preliminary Offering Memorandum”), and has prepared and delivered to each Initial Purchaser copies of a Pricing Supplement, dated May 19, 2009 (the “Pricing Supplement”), describing the terms of the Securities, each for use by such Initial Purchaser in connection with its solicitation of offers to purchase the Securities.  The Preliminary Offering Memorandum and the Pricing Supplement are herein referred to as the “Pricing Disclosure Package.”  Promptly after this Purchase Agreement (this “Agreement”) is executed and delivered, the Company will prepare and deliver to each Initial Purchaser a final offering memorandum dated the date hereof (the “Final Offering Memorandum”).
 
All references herein to the terms “Pricing Disclosure Package” and “Final Offering Memorandum” shall be deemed to mean and include all information filed under the Securities Exchange Act of 1934 (as amended, the “Exchange Act,” which term, as used herein, includes the rules and regulations of the Commission promulgated thereunder) prior to the Time of Sale and incorporated by reference in the Pricing Disclosure Package (including the Preliminary Offering Memorandum) or the Final Offering Memorandum (as the case may be), and all references herein to the terms “amend,” “amendment” or “supplement” with respect to the Final Offering Memorandum shall be deemed to mean and include all information filed under the Exchange Act after the Time of Sale and incorporated by reference in the Final Offering Memorandum.
 


 
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The Company hereby confirms its agreements with the Initial Purchasers as follows:
 
SECTION 1.            Representations and Warranties . Each of the Company and the Guarantors, jointly and severally, hereby represents, warrants and covenants to each Initial Purchaser, as of the date hereof, and each of the Company and the Guarantors, jointly and severally, hereby represents, warrants and covenants to each Initial Purchaser, as of the Closing Date, as set forth in this Section 1.  References in this Section 1 to the “Offering Memorandum” are to (x) the Pricing Disclosure Package in the case of representations and warranties made as of the date hereof and (y) the Final Offering Memorandum in the case of representations and warranties made as of the Closing Date).
 
(a)            No Registration Required .   Subject to compliance by the Initial Purchasers with the representations and warranties set forth in Section 2 hereof and with the procedures set forth in Section 7 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers and to each Subsequent Purchaser in the manner contemplated by this Agreement and the Offering Memorandum to register the Securities under the Securities Act or, until such time as the Exchange Securities are issued pursuant to an effective registration statement, to qualify the Indenture under the Trust Indenture Act of 1939 (the “Trust Indenture Act,” which term, as used herein, includes the rules and regulations of the Commission promulgated thereunder).
 
(b)            No Integration of Offerings or General Solicitation .   None of the Company, its affiliates (as such term is defined in Rule 501 under the Securities Act) (each, an “Affiliate”), or any person acting on its or any of their behalf (other than the Initial Purchasers, as to whom the Company makes no representation or warranty) has, directly or indirectly, solicited any offer to buy or offered to sell, or will, directly or indirectly, solicit any offer to buy or offer to sell, in the United States or to any United States citizen or resident, any security which is or would be integrated with the sale of the Securities in a manner that would require the Securities to be registered under the Securities Act.  None of the Company, its Affiliates, or any person acting on its or any of their behalf (other than the Initial Purchasers, as to whom the Company makes no representation or warranty) has engaged or will engage, in connection with the offering of the Securities, in any form of general solicitation or general advertising within the meaning of Rule 502 under the Securities Act.  With respect to those Securities sold in reliance upon Regulation S, (i) none of the Company, its Affiliates or any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation or warranty) has engaged or will engage in any directed selling efforts within the meaning of Regulation S and (ii) each of the Company and its Affiliates and any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation or warranty) has complied and will comply with the offering restrictions set forth in Regulation S in connection with the offering of the Securities outside the United States and, in connection therewith, the Offering Memorandum will contain the disclosure required by Rule 902.  The Company is a “reporting issuer”, as defined in Rule 902 under the Securities Act.
 
(c)            Eligibility for Resale Under Rule 144A .   The Securities are eligible for resale pursuant to Rule 144A and will not be, at the Closing Date, of the same class as securities listed on a
 
-3-
 
 
 
 

national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated interdealer quotation system.
 
(d)            The Pricing Disclosure Package and Offering Memorandum .   Neither the Pricing Disclosure Package, as of the Time of Sale, nor the Final Offering Memorandum, as of its date or (as amended or supplemented in accordance with Section 3(a), as applicable) as of the Closing Date, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that this representation, warranty and agreement shall not apply to statements in or omissions from the Pricing Disclosure Package, the Final Offering Memorandum or any amendment or supplement thereto made in reliance upon and in conformity with information furnished to the Company in writing by any Initial Purchaser through the Representatives expressly for use in the Pricing Disclosure Package, the Final Offering Memorandum or amendment or supplement thereto, as the case may be.  The Pricing Disclosure Package contains, and the Final Offering Memorandum will contain, all the information specified in, and meeting the requirements of, Rule 144A.  The Company has not distributed and will not distribute, prior to the later of the Closing Date and the completion of the Initial Purchasers’ distribution of the Securities, any offering material in connection with the offering and sale of the Securities other than the Pricing Disclosure Package and the Final Offering Memorandum.
 
(e)            Company Additional Written Communications .  The Company has not prepared, made, used, authorized, approved or distributed and will not prepare, make, use, authorize, approve or distribute any written communication that constitutes an offer to sell or solicitation of an offer to buy the Securities (each such communication by the Company or its agents and representatives (other than a communication referred to in clauses (i) and (ii) below) a “Company Additional Written Communication”) other than (i) the Pricing Disclosure Package, (ii) the Final Offering Memorandum, and (iii) any electronic road show or other written communications, in each case used in accordance with Section 3(a).  Each such Company Additional Written Communication, when taken together with the Pricing Disclosure Package, did not, and at the Closing Date will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that this representation, warranty and agreement shall not apply to statements in or omissions from each such Company Additional Written Communication made in reliance upon and in conformity with information furnished to the Company in writing by any Initial Purchaser through the Representatives expressly for use in any Company Additional Written Communication.
 
(f)            Incorporated Documents .   The documents incorporated or deemed to be incorporated by reference in the Offering Memorandum at the time they were or hereafter are filed with the Commission (collectively, the “Incorporated Documents”) complied and will comply as to form in all material respects with the requirements of the Exchange Act.
 
(g)            The Purchase Agreement .   This Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of each of the Company and the Guarantors, enforceable in accordance with its terms, except as rights to indemnification or contribution hereunder may be limited by applicable law and except as the enforcement hereof may be limited
 
-4-
 
 
 
 

by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors generally or by general equitable principles.
 
(h)            The Registration Rights Agreement.   The Registration Rights Agreement has been duly authorized by the Company and each Guarantor and, when duly executed and delivered by the Company and the Guarantors, will constitute a valid and binding agreement of the Company and the Guarantors, enforceable in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors generally or by general equitable principles and except as rights to indemnification or contribution under the Registration Rights Agreement may be limited by applicable law.
 
(i)            Authorization of the Notes, the Guarantees and the Exchange Notes.   The Notes to be purchased by the Initial Purchasers from the Company are in the form contemplated by the Indenture, have been duly authorized for issuance and sale pursuant to this Agreement and the Indenture, and when duly executed and issued by the Company and authenticated in the manner provided for in the Indenture and delivered against payment of the purchase price therefor, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors generally or by general equitable principles, and will be entitled to the benefits of the Indenture.  The Exchange Notes, if any, have been duly authorized for issuance by the Company, and when issued and authenticated in accordance with the terms of the Indenture, the Registration Rights Agreement and the Exchange Offer, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting enforcement of the rights and remedies of creditors generally or by general principles of equity, and will be entitled to the benefits of the Indenture.  The Guarantees of the Notes and the Exchange Notes are in the respective forms contemplated by the Indenture and have been duly authorized for issuance and sale pursuant to this Agreement and the Indenture, and when such Guarantees have been duly executed by each of the Guarantors in accordance with the terms of the Indenture and when the Notes and the Exchange Notes, if any, have been duly executed and issued by the Company and authenticated in the manner provided for in the Indenture and delivered against payment of the purchase price therefor, or exchanged for the Notes in the Exchange Offer, as the case may be, the Guarantees of the Notes and the Exchange Notes, if any, will constitute valid and binding obligations of the Guarantors, enforceable against each Guarantor in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors generally or by general equitable principles, and will be entitled to the benefits of the Indenture.
 
(j)            Authorization of the Indenture .   The Indenture has been duly authorized by the Company and each Guarantor and, when duly executed and delivered by the Company and each Guarantor, will constitute a valid and binding agreement of the Company and each Guarantor, enforceable against the Company and each Guarantor in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
 
-5-

 
 
 
 
 

other similar laws relating to or affecting the rights and remedies of creditors generally or by general equitable principles.
 
(k)            The DTC Agreement.   The DTC Agreement has been duly authorized by the Company and, when duly executed and delivered by the Company, will constitute a valid and binding agreement of the Company, enforceable in accordance with its terms, except as the enforcement thereof may be limited to bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors generally by or by general equitable principles.
 
(l)            Description of the Securities and the Indenture .   The Securities, the Exchange Securities, if any, and the Indenture will conform in all material respects to the respective statements relating thereto contained in the Offering Memorandum.
 
(m)            No Material Adverse Change .   Except as otherwise disclosed in the Offering Memorandum, subsequent to the respective dates as of which information is given in the Offering Memorandum:  (i) there has been no material adverse change, or any development that could reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, the business, operations or prospects whether or not arising from transactions in the ordinary course of business, of the Company and its subsidiaries, taken as a whole (any such change is called a “Material Adverse Change”); (ii) the Company and its subsidiaries taken as a whole, have not incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business nor entered into any material transaction or agreement not in the ordinary course of business; and (iii) there has been no dividend or distribution of any kind declared, paid or made by the Company (except for regular quarterly dividends declared or paid by the Company) or, except for dividends paid to the Company or other subsidiaries, by any of its subsidiaries on any class of capital stock or repurchase, or redemption by the Company or any of its subsidiaries of any class of capital stock.
 
(n)            Independent Accountants .
 
(i)       Ernst & Young LLP, which expressed its opinion with respect to certain financial statements (which term as used in this Agreement includes the related notes thereto) and supporting schedules (the “ Company Financial Statements ”) included in the Offering Memorandum, is an independent registered public accounting firm within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act, and any non-audit services provided by Ernst & Young LLP to the Company or any of the Guarantors have been approved by the Audit Committee of the Board of Directors of the Company.
 
(ii)       PricewaterhouseCoopers LLP, which is the Company’s independent registered public accountant, is an independent registered public accounting firm within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act, and any non-audit services provided by PricewaterhouseCoopers LLP to the Company or any
 
-6- 

 
 
 
 

of the Guarantors have been approved by the Audit Committee of the Board of Directors of the Company.
 
(iii)       BDO Seidman, LLP, which expressed its opinion with respect to the financial statements of Hercules Incorporated (“Hercules”) (the “ Hercules Financial Statements ”) included in the Offering Memorandum, is an independent registered public accounting firm within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States).
 
(o)            Preparation of the Financial Statements .   The Company Financial Statements and, to the best of the Company’s knowledge, the Hercules Financial Statements, together with the related schedules and notes thereto, included in the Offering Memorandum present fairly the consolidated financial position of the entities as to which they relate as of and at the dates indicated and the results of their operations and cash flows for the periods specified.  Such financial statements  (to the best of the Company’s knowledge, with regard to Hercules Financial Statements for periods prior to September 30, 2008) have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto.  The financial data set forth in the Offering Memorandum under the captions “Summary Historical Consolidated Financial Data of Ashland,” “Summary Historical Consolidated Financial Data of Hercules,” “Selected Historical Consolidated Financial Data of Ashland” and “Selected Historical Consolidated Financial Data of Hercules” (to the best of the Company’s knowledge with regard to Hercules financial data for periods prior to September 30, 2008) fairly present the information set forth therein on a basis consistent with that of the audited financial statements contained in the Offering Memorandum.  The pro forma condensed financial statements of the Company and its subsidiaries and the related notes thereto included under the captions “Summary Unaudited Pro Forma Combined Condensed Financial Information of Ashland” and “Unaudited Pro Forma Combined Condensed Financial Information” present fairly (to the best of the Company’s knowledge with regard to Hercules financial data for periods prior to September 30, 2008) the information contained therein, have been prepared in accordance with the Commission’s rules and guidelines with respect to pro forma financial statements and have been properly presented on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein.
 
(p)            Incorporation and Good Standing of the Company and its Guarantors .   Each of the Company and the Guarantors is validly existing as a corporation, limited partnership or limited liability company, as applicable, is in good standing under the laws of the jurisdiction of its formation and has corporate, limited partnership or limited liability company power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum and to enter into and perform its obligations under each of this Agreement, the Registration Rights Agreement, the DTC Agreement, the Securities, the Exchange Securities and the Indenture, to the extent it is a party thereto.  The Company and each Guarantor is duly qualified as a foreign corporation, limited partnership or limited liability company to transact business and is in good standing or equivalent status in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not,
 
-7-
 

 
 
 
 

individually or in the aggregate, result in a Material Adverse Change.  All of the issued and outstanding capital stock of each Guarantor has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance or claim, except for liens for taxes that are not yet due and payable and except for liens that arise from the Company’s senior secured credit facilities.  Each of the Company’s “ significant subsidiaries” (as defined in Regulation S-X under the Act) is listed in Exhibit A hereto.
 
(q)            Capitalization and Other Capital Stock Matters .   At March 31, 2009, on a consolidated basis, after giving pro forma effect to the issuance and sale of the Notes pursuant hereto, the Company would have an authorized and outstanding capitalization as set forth in the Offering Memorandum under the caption “Capitalization” (other than for subsequent issuances of capital stock, if any, pursuant to employee benefit plans described in the documents incorporated by reference in the Offering Memorandum or upon exercise of outstanding options or stock appreciation rights or warrants or the conversion of convertible securities described in the documents incorporated by reference in the Offering Memorandum).  All of the outstanding shares of common stock of the Company (“Common Stock”) have been duly authorized and validly issued, are fully paid and nonassessable and have been issued in compliance with federal and state securities laws.  None of the outstanding shares of Common Stock were issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company.  There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any of its subsidiaries other than those accurately described in the documents incorporated by reference in the Offering Memorandum.  The description of the Company’s stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder in the documents incorporated by reference in the Offering Memorandum accurately and fairly describes such plans, arrangements, options and rights options or other rights granted and/or exercised under such Company stock option plans set forth in the documents incorporated by reference in the Offering Memorandum accurately and fairly describes such options and rights.
 
(r)            Non-Contravention of Existing Instruments; No Further Authorizations or Approvals Required .   Neither the Company nor any of its subsidiaries is in violation of its charter, bylaws, partnership agreement or limited liability company agreement, as applicable, or is in default (or, with the giving of notice or lapse of time, would be in default) (“Default”) under any indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject (each, an “Existing Instrument”), except for such Defaults as would not, individually or in the aggregate, result in a Material Adverse Change.  The Company’s and the Guarantors’ (to the extent a party thereto) execution, delivery and performance of this Agreement, the Registration Rights Agreement, the DTC Agreement and the Indenture and the issuance and delivery of the Securities or the Exchange Securities , and consummation of the transactions contemplated hereby and thereby and by the Offering Memorandum (i) will not result in any violation of the provisions of the charter, bylaws, partnership agreement or limited liability company agreement, as applicable, of the Company or any subsidiary, (ii) will not conflict with or constitute a breach
 
-8- 

 
 
 
 

of, or Default or a Debt Repayment Triggering Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, or require the consent of any other party to, any Existing Instrument, except for such conflicts, breaches, Defaults, liens, charges or encumbrances or lack of consents as would not, individually or in the aggregate, result in a Material Adverse Change and (iii) will not result in any violation of any law, administrative regulation or administrative or court decree applicable to the Company or any subsidiary.  No consent, approval, authorization or other order of, or registration or filing with, any court or other governmental or regulatory authority or agency, is required for the Company’s and (to the extent a party thereto) any Guarantor’s execution, delivery and performance of this Agreement, the Registration Rights Agreement, the DTC Agreement and the Indenture, or the issuance and delivery of the Securities or the Exchange Securities, or the consummation of the securities offerings or registrations contemplated hereby and thereby and by the Offering Memorandum, except such as have been obtained or made by the Company or any Guarantor and are in full force and effect under the Securities Act, applicable securities laws of the several states of the United States or provinces of Canada and except such as may be required by the securities laws of the several states of the United States or provinces of Canada with respect to the Company’s obligations under the Registration Rights Agreement.  As used herein, a “Debt Repayment Triggering Event” means any event or condition which gives, or with the giving of notice or lapse of time would give, the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its subsidiaries.
 
(s)            No Material Actions or Proceedings .   Except as described in reports filed by the Company with the Commission, there are no actions, suits, proceedings, claims or disputes pending or, to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any governmental authority, by or against the Company or any of its subsidiaries or against any of their properties or revenues that (i) would adversely affect the consummation of the transactions contemplated by this Agreement, or (ii) either individually or in the aggregate, if determined adversely, would reasonably be expected to result in a Material Adverse Change.
 
(t)            Intellectual Property Rights .   The Company and its subsidiaries own, or possess the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights that are reasonably necessary for the operation of their respective businesses as now conducted, without conflict with the rights of any other person, except where the failure to own or possess such right would not result in a Material Adverse Change.  To the best knowledge of the Company, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any of its subsidiaries infringes upon any rights held by any other person except where such infringements, individually or in the aggregate, would not result in a Material Adverse Change.
 
(u)            All Necessary Permits , etc .   The Company and each subsidiary possess such valid and current certificates, authorizations or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct their respective businesses as now con-
 
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ducted, except as would not, individually or in the aggregate, result in a Material Adverse Change. Neither the Company nor any subsidiary has received any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Change.
 
(v)            Title to Properties .   The Company and each of its subsidiaries has good and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its respective business, except for liens that arise from the Company’s senior secured credit facilities and except for such defects in title, such as security interests, mortgages, liens, encumbrances, equities and claims, as would not, individually or in the aggregate, result in a Material Adverse Change.
 
(w)            Tax Law Compliance .   The Company and its subsidiaries have filed all federal, state and other tax returns and reports required to be filed, and have paid all federal, state and other taxes (including satisfying withholding tax obligations), assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets that are due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted, which suspend enforcement or collection of the claim in question and for which adequate reserves have been provided in accordance with GAAP, and except, in each case, where the failure to do so would not, individually or in the aggregate, result in a Material Adverse Change.  The Company has made adequate charges, accruals and reserves in the Company Financial Statements referred to in Section 1 (o) hereof in respect of all material taxes for which tax liability of the Company or any of its consolidated subsidiaries has not been finally determined.
 
(x)            Company Not an “Investment Company” .   The Company has been advised of the rules and requirements under the Investment Company Act of 1940, as amended (the “Investment Company Act,” which term, as used herein, includes the rules and regulations of the Commission promulgated thereunder).  The Company is not, and after receipt of payment for the Securities will not be, an “investment company” within the meaning of the Investment Company Act and will conduct its business in a manner so that it will not become subject to the Investment Company Act.
 
(y)            Insurance .   The properties of the Company and the Guarantors are insured by recognized and reputable insurance companies in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or the applicable Guarantor operates.
 
(z)            No Price Stabilization or Manipulation .   None of the Company or any of its subsidiaries has taken and will not take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.
 
(aa)            Solvency .   The Company is, and immediately after the Closing Date will be, individually and together with its subsidiaries on a consolidated basis, Solvent.  As used herein, the term “Solvent” means, with respect to any person on a particular date, that on such date (i) the
 
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fair market value of the assets of such person is greater than the total amount of liabilities (including contingent liabilities) of such person, (ii) the present fair salable value of the assets of such person is greater than the amount that will be required to pay the probable liabilities of such person on its debts as they become absolute and matured, (iii) such person is able to realize upon its assets and pay its debts and other liabilities, including contingent obligations, as they mature in the ordinary course and (iv) such person is not engaged in business or a transaction for which such person’s property would constitute an unreasonably small capital.  The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that then meets the criteria for recognition contained in Statement of Financial Accounting Standards No. 5.
 
(bb)            Compliance with Sarbanes-Oxley.   The Company and its officers and directors are in material compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act,” which term, as used herein, includes the rules and regulations of the Commission promulgated thereunder).
 
(cc)            Company’s Accounting System.   The Company and its subsidiaries maintain a system of accounting controls that is in compliance with the Sarbanes-Oxley Act and is sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles  and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
 
(dd)            Disclosure Controls and Procedures .  Except as described under Part I, Item 4 of its Quarterly Report on Form 10-Q for the three months ended March 31, 2009 with regard to Hercules, the Company has established and maintains disclosure controls and procedures (as such term is defined in Rules 13a-15 and 15d-14 under the Exchange Act) for the Company and its subsidiaries; such disclosure controls and procedures are designed to ensure that material information relating to the Company and its subsidiaries is made known to the chief executive officer and chief financial officer of the Company by others within the Company or any of its subsidiaries, and such disclosure controls and procedures are reasonably effective to perform the functions for which they were established subject to the limitations of any such control system; the Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of the following, with respect to the Company and its subsidiaries:  (i) any significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting (as defined in Rules 13a-15 and 15d-15 under the Exchange Act) which are reasonably likely to adversely affect the Company’s ability to record, process, summarize, and report financial data; and (ii) any fraud, whether or not material, that involves management or other employees who have a role in the Company’s internal control over financial reporting; and since the date of the most recent evaluation of such disclosure controls and procedures, there have been no significant changes in internal control over financial reporting or in other factors that could significantly affect internal control over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
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(ee)            Compliance with Environmental Laws .   Except as  would not, individually or in the aggregate, result in a Material Adverse Change and except as described in reports filed by the Company with the Commission:  (i) neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign law or regulation relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum and petroleum products (collectively, “Materials of Environmental Concern”), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern (collectively, “Environmental Laws”), which violation includes, without limitation, noncompliance with any permits or other governmental authorizations required for the operation of the business of the Company or its subsidiaries under applicable Environmental Laws, or noncompliance with the terms and conditions thereof, nor has the Company or any of its subsidiaries received any written communication, whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Company or any of its subsidiaries is in violation of any Environmental Law; (ii) there is no claim, action or cause of action filed with a court or governmental authority, no investigation with respect to which the Company or any of its Subsidiaries has received written notice, and no written notice by any person or entity alleging potential liability for investigatory costs, cleanup costs, governmental responses costs, natural resources damages, property damages, personal injuries, attorneys’ fees or penalties arising out of, based on or resulting from the presence, or release into the environment, of any Material of Environmental Concern at any location owned, leased or operated by the Company or any of its subsidiaries, now or in the past (collectively, “Environmental Claims”), pending or, to the best of the Company’s knowledge, threatened against the Company or any of its subsidiaries or any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed either contractually or by operation of law; and (iii) to the best of the Company’s knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that would result in a violation of any Environmental Law or form the basis of a potential Environmental Claim against the Company or any of its subsidiaries or against any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed either contractually or by operation of law.
 
(ff)            Periodic Review of Costs of Environmental Compliance .   In the ordinary course of its business, the Company conducts a periodic review of the effect of Environmental Laws on the business, operations and properties of the Company and its subsidiaries, in the course of which it identifies and evaluates associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties).  On the basis of such review and the amount of its established reserves, the Company has concluded that such associated costs and liabilities would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change.
 
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(gg)            ERISA Compliance .   Each “employee benefit plan” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 (as amended, “ERISA,” which term, as used herein, includes the regulations and published interpretations thereunder) established or maintained by the Company, its subsidiaries or, with respect to any such plan that is subject to Section 412 of the Internal Revenue Code of 1986 (as amended, the “Code,” which term, as used herein, includes the regulations and published interpretations thereunder) or Title IV of ERISA, their “ERISA Affiliates” (a “Plan”) is in compliance in all material respects with the applicable provisions of ERISA. “ERISA Affiliate” means, with respect to the Company or a subsidiary, any member of any group of organizations described in Section 414 of the Code of which the Company or such subsidiary is a member.  No “reportable event” (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any Plan.  No Plan has been determined to be, or is expected to be, in “at risk” status (within the meaning of Section 430 of the Code), whose accumulated benefit obligation as determined under Financial Accounting Standard 87 is greater than or equal to $30,000,000.  Neither the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or reasonably expects to incur any liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any Plan or (ii) Sections 412, 4971, 4975 or 4980B of the Code.  Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by or will be timely filed according to the applicable determination letter cycle with the IRS with respect thereto and, to the best of the Company’s knowledge nothing has occurred which would prevent, or cause the loss of, such qualification.
 
(hh)            Compliance with Labor Laws .  Except as  would not, individually or in the aggregate, result in a Material Adverse Change, (i) there is (A) no unfair labor practice complaint pending or, to the best of the Company’s knowledge, threatened against the Company or any of its subsidiaries before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under collective bargaining agreements pending, or to the best of the Company’s knowledge, threatened, against the Company or any of its subsidiaries, (B) no strike, labor dispute, slowdown or stoppage pending or, to the best of the Company’s knowledge, threatened against the Company or any of its subsidiaries and (C) no union representation question existing with respect to the employees of the Company or any of its subsidiaries and, to the best of the Company’s knowledge, no union organizing activities taking place and (ii) there has been no violation of any federal, state or local law relating to discrimination in hiring, promotion or pay of employees or of any applicable wage or hour laws.
 
(ii)            Related Party Transactions .  No relationship, direct or indirect, exists between or among any of the Company or any affiliate of the Company, on the one hand, and any director, officer, member, stockholder, customer or supplier of the Company or any affiliate of the Company, on the other hand, which is required by the Securities Act to be disclosed in a registration statement on Form S-1 which is not so disclosed in the Offering Memorandum.  There are no outstanding loans, advances (except advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company or any affiliate of the Company to or for the benefit of any of the officers or directors of the Company or any affiliate of the Company or any of their respective family members.
 
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(jj)            No Unlawful Contributions or Other Payments .   Neither the Company nor any of its subsidiaries nor, to the best of the Company’s knowledge, any employee or agent of the Company or any such subsidiary, has made any contribution or other payment to any official of, or candidate for, any federal, state or foreign office in violation of any law or of the character necessary to be disclosed in the Offering Memorandum in order to make the statements therein not misleading.
 
(kk)            No Conflict with Money Laundering Laws.   The operations of the Company and its subsidiaries are and, to the best of the Company’s knowledge with regard to Hercules and its subsidiaries, prior to November 13, 2008, have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.
 
(ll)            No Conflict with OFAC Laws.   Neither the Company nor any of its subsidiaries nor, to the knowledge of the Company, any director, officer, agent, employee or affiliate of the Company or any of its subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the offering of the Securities, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
 
(mm)            Stock Options .  With respect to the stock options (the “Stock Options”) granted pursuant to the stock-based compensation plans of the Company (the “Company Stock Plans”), (i) each Stock Option intended to qualify as an “incentive stock option” under Section 422 of the Code so qualifies, (ii) each grant of an outstanding Stock Option was duly authorized no later than the date on which the grant of such Stock Option was by its terms to be effective (the “Grant Date”) by all necessary corporate action, including, as applicable, approval by the board of directors of the Company (or a duly constituted and authorized committee thereof) and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, (iii) each such grant was made in accordance with the terms of the Company Stock Plans, the Exchange Act and all other applicable laws and regulatory rules or requirements, including the rules of any securities exchange on which Company securities are traded, (iv) the per share exercise price of each Stock Option was equal to the fair market value of a share of common stock on the applicable Grant Date and (v) each such grant was properly accounted for in accordance with GAAP in the financial statements (including the related notes) of the Company and disclosed in the Company's filings with the Commission in accordance with the Exchange Act and all other applicable laws.  The Company has not knowingly granted, and there is no and has been no policy or practice of the Company of granting, Stock Options prior to, or otherwise
 
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coordinate the grant of Stock Options with, the release or other public announcement of material information regarding the Company or its subsidiaries or their results of operations or prospects.
 
Any certificate signed by an officer of the Company or any Guarantor and delivered to the Initial Purchasers or to counsel for the Initial Purchasers shall be deemed to be a representation and warranty by the Company or such Guarantor to each Initial Purchaser as to the matters set forth therein.
 
SECTION 2.                         Purchase, Sale and Delivery of the Securities .
 
(a)            The Securities .   Each of the Company and the Guarantors agrees to issue and sell to the Initial Purchasers, severally and not jointly, all of the Securities, and the Initial Purchasers agree, severally and not jointly, to purchase from the Company and the Guarantors the aggregate principal amount of Securities set forth opposite their names on Schedule A, at a purchase price of 94.327% of the principal amount thereof payable on the Closing Date, in each case, on the basis of the representations, warranties and agreements herein contained, and upon the terms, subject to the conditions thereto, herein set forth.
 
(b)            The Closing Date .   Delivery of certificates for the Securities in definitive form to be purchased by the Initial Purchasers and payment therefor shall be made at the offices of Cahill Gordon & Reindel llp (or such other place as may be agreed to by the Company and the Representatives) at 9:00 a.m. New York City time, on May 27, 2009 or such other time and date as the Representatives and the Company may agree in writing (the time and date of such closing are called the “Closing Date”).  The Company hereby acknowledges that circumstances under which the Representatives may provide notice to postpone the Closing Date as originally scheduled include, but are in no way limited to, any determination by the Company or the Initial Purchasers to recirculate to investors copies of an amended or supplemented Offering Memorandum or a delay as contemplated by the provisions of Section 17 hereof.
 
(c)            Delivery of the Securities .   The Company shall deliver, or cause to be delivered, to the Representatives for the accounts of the several Initial Purchasers certificates for the Notes at the Closing Date against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor.  The certificates for the Notes shall be in such denominations and registered in the name of Cede & Co., as nominee of the Depositary, pursuant to the DTC Agreement, and shall be made available for inspection on the business day preceding the Closing Date at a location in New York City, as the Representatives may designate.  Time shall be of the essence, and delivery at the time and place specified in this Agreement is a further condition to the obligations of the Initial Purchasers.
 
(d)            Initial Purchasers as Qualified Institutional Buyers .   Each Initial Purchaser severally and not jointly represents and warrants to, and agrees with, the Company that it is a “qualified institutional buyer” within the meaning of Rule 144A (a “Qualified Institutional Buyer”).
 
SECTION 3.                         Additional Covenants .   Each of the Company and the Guarantors further covenants and agrees with each Initial Purchaser as follows:
 
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(a)               Preparation of Final Offering Memorandum; Initial Purchasers’ Review of Proposed Amendments and Supplements and Company Additional Written Communications .  As promptly as practicable following the Time of Sale and in any event not later than the second business day following the date hereof, the Company will prepare and deliver to the Initial Purchasers the Final Offering Memorandum, which shall consist of the Preliminary Offering Memorandum as modified only by the information contained in the Pricing Supplement.  The Company will not amend or supplement the Preliminary Offering Memorandum or the Pricing Supplement.  The Company will not amend or supplement the Final Offering Memorandum prior to the Closing Date unless the Representatives shall previously have been furnished a copy of the proposed amendment or supplement reasonably in advance of the proposed use or filing, and shall not have objected to such amendment or supplement.   Before making, preparing, using, authorizing, approving or distributing any Company Additional Written Communication, the Company will furnish to the Representatives a copy of such written communication for review and will not make, prepare, use, authorize, approve or distribute any such written communication to which the Representatives reasonably objects.
 
(b)            Amendments and Supplements to the Final Offering Memorandum and Other Securities Act Matters .  If, prior to the later of (x) the Closing Date and (y) the completion of the placement of the Securities by the Initial Purchasers with the Subsequent Purchasers, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Final Offering Memorandum, as then amended or supplemented, in order to make the statements therein, in the light of the circumstances when the Final Offering Memorandum is delivered to a Subsequent Purchaser, not misleading, or if in the reasonable judgment of the Representatives or counsel for the Initial Purchasers it is otherwise necessary to amend or supplement the Final Offering Memorandum to comply with law, the Company agrees to promptly prepare (subject to Section 3 hereof), and furnish at its own expense to the Initial Purchasers, amendments or supplements to the Final Offering Memorandum so that the statements in the Final Offering Memorandum as so amended or supplemented will not, in the light of the circumstances at the time such amended or supplemented Final Offering Memorandum is delivered to a Subsequent Purchaser, be misleading or so that the Final Offering Memorandum, as amended or supplemented, will comply with all applicable law.
 
Following the consummation of any Exchange Offer or the effectiveness of an applicable shelf registration statement and for so long as the Securities are outstanding if, in the reasonable judgment of the Representatives, the Representatives or any of their affiliates (as such term is defined in the Securities Act) are required to deliver a prospectus in connection with sales of, or market-making activities with respect to, the Securities, to periodically amend the applicable registration statement so that the information contained therein complies with the requirements of Section 10 of the Securities Act, to amend the applicable registration statement or supplement the related prospectus or the documents incorporated therein when necessary to reflect any material changes in the information provided therein so that the registration statement and the prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing as of the date the prospectus is so delivered, not misleading and to provide the Initial Purchasers with copies of each amendment or supplement filed and such other documents as the Initial Purchasers may reasonably request.
 
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The Company and the Guarantors hereby expressly acknowledge that the indemnification and contribution provisions of Sections 8 and 9 hereof are specifically applicable and relate to each offering memorandum, registration statement, prospectus, amendment or supplement referred to in this Section 3.
 
(c)            Copies of the Offering Memorandum .   The Company agrees to furnish the Initial Purchasers, without charge, as many copies of the Pricing Disclosure Package and the Final Offering Memorandum and any amendments and supplements thereto as they shall reasonably request.
 
(d)            Blue Sky Compliance .   Each of the Company and the Guarantors shall cooperate with the Representatives and counsel for the Initial Purchasers to qualify or register (or to obtain exemptions from qualifying or registering) all or any part of the Securities for offer and sale under the securities laws of the several states of the United States, the provinces of Canada or any other jurisdictions designated by the Representatives, shall comply with such laws and shall continue such qualifications, registrations and exemptions in effect so long as required for the distribution of the Securities.  None of the Company or any of the Guarantors shall be required to qualify as a foreign corporation or to take any action that would subject it to general service of process in any such jurisdiction where it is not presently qualified or where it would be subject to taxation as a foreign corporation.  The Company will advise the Representatives promptly of the suspension of the qualification or registration of (or any such exemption relating to) the Securities for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any order suspending such qualification, registration or exemption, each of the Company and the Guarantors shall use its reasonable best efforts to obtain the withdrawal thereof at the earliest possible moment.
 
(e)            Use of Proceeds .   The Company shall apply the net proceeds from the sale of the Securities sold by it in the manner described under the caption “Use of Proceeds” in the Pricing Disclosure Package.
 
(f)            The Depositary .   The Company will cooperate with the Initial Purchasers and use its commercially reasonable efforts to permit the Securities to be eligible for clearance and settlement through the facilities of the Depositary.
 
(g)            Additional Issuer Information .   Prior to the completion of the placement of the Securities by the Initial Purchasers with the Subsequent Purchasers, the Company shall file, on a timely basis, with the Commission and the NYSE all reports and documents required to be filed under Section 13 or 15 of the Exchange Act.  Additionally, at any time when the Company is not subject to Section 13 or 15 of the Exchange Act, for the benefit of holders and beneficial owners from time to time of the Securities, the Company shall furnish, at its expense, upon request, to holders and beneficial owners of Securities and prospective purchasers of Securities information (“Additional Issuer Information”) satisfying the requirements of Rule 144A(d).
 
(h)            Agreement Not To Offer or Sell Additional Securities .   During the period of 90 days following the date hereof, the Company will not, without the prior written consent of Banc of America Securities LLC (which consent may be withheld at the sole discretion of Banc of America Securities LLC), directly or indirectly, sell, offer, contract or grant any option to sell,
 
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pledge, transfer or establish an open “put equivalent position” within the meaning of Rule 16a-1 under the Exchange Act, or otherwise dispose of or transfer, or announce the offering of, or file any registration statement under the Securities Act in respect of, any debt securities of the Company or securities exchangeable for or convertible into debt securities of the Company (other than as contemplated by this Agreement and to register the Exchange Securities).
 
(i)            Future Reports to the Initial Purchasers .   At any time when the Company is not subject to Section 13 or 15 of the Exchange Act and any Securities or Exchange Securities remain outstanding, the Company will furnish to the Representatives and, upon request, to each of the other Initial Purchasers :  (i) as soon as reasonably practicable after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholders’ equity and cash flows for the year then ended and the opinion thereon of the Company’s independent public or certified public accountants; (ii) as soon as reasonably practicable after the filing thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report filed by the Company with the Commission, the Financial Industry Regulatory Authority (“FINRA”) or any securities exchange; and (iii) as soon as available, copies of any report or communication of the Company mailed generally to holders of its capital stock or debt securities (including the holders of the Securities), if, in each case, such documents are not filed with the Commission within the time periods specified by the Commission’s rules and regulations under Section 13 or 15 of the Exchange Act.
 
(j)            No Integration .   The Company agrees that it will not and will cause its Affiliates not to make any offer or sale of securities of the Company of any class if, as a result of the doctrine of “integration” referred to in Rule 502 under the Securities Act, such offer or sale would render invalid (for the purpose of (i) the sale of the Securities by the Company to the Initial Purchasers, (ii) the resale of the Securities by the Initial Purchasers to Subsequent Purchasers or (iii) the resale of the Securities by such Subsequent Purchasers to others) the exemption from the registration requirements of the Securities Act provided by Section 4(2) thereof or by Rule 144A or by Regulation S thereunder or otherwise.
 
(k)            No Restricted Resales .  During the period of one year after the Closing Date, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to resell any of the Notes which constitute “restricted securities” under Rule 144 that have been reacquired by any of them.
 
(l)            Legended Securities .   Each certificate for a Note will bear the legend contained in “Notice to Investors” in the Preliminary Offering Memorandum for the time period and upon the other terms stated in the Preliminary Offering Memorandum.
 
The Representatives, on behalf of the several Initial Purchasers, may, in their sole discretion, waive in writing the performance by the Company or any Guarantor of any one or more of the foregoing covenants or extend the time for their performance.
 
SECTION 4.                         Payment of Expenses .   Each of the Company and the Guarantors agrees to pay all costs, fees and expenses incurred in connection with the performance of its obligations hereunder and in connection with the transactions contemplated hereby, including, without limi-
 
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tation, (i) all expenses incident to the issuance and delivery of the Securities (including all printing and engraving costs), (ii) all necessary issue, transfer, stamp and other similar taxes in connection with the issuance and sale of the Securities to the Initial Purchasers, (iii) all fees and expenses of the Company’s and the Guarantors’ counsel, independent public or certified public accountants and other advisors, (iv) all costs and expenses incurred in connection with the preparation, printing, filing, shipping and distribution of the Pricing Disclosure Package and the Final Offering Memorandum (including financial statements and exhibits), and all amendments and supplements thereto, this Agreement, the Registration Rights Agreement, the Indenture, the DTC Agreement and the Notes and Guarantees, (v) all filing fees, attorneys’ fees and expenses incurred by the Company, the Guarantors or the Initial Purchasers in connection with qualifying or registering (or obtaining exemptions from the qualification or registration of) all or any part of the Securities for offer and sale under the securities laws of the several states of the United States, the  provinces of Canada or other jurisdictions designated by the Initial Purchasers (including, without limitation, the cost of preparing, printing and mailing preliminary and final blue sky or legal investment memoranda and any related supplements to the Pricing Disclosure Package or the Final Offering Memorandum), (vi) the fees and expenses of the Trustee, including the fees and disbursements of counsel for the Trustee in connection with the Indenture, the Securities and the Exchange Securities, (vii) any fees payable in connection with the rating of the Securities or the Exchange Securities with the ratings agencies, (viii) any filing fees incident to, and any reasonable fees and disbursements of counsel to the Initial Purchasers in connection with the review by FINRA, if any, of the terms of the sale of the Securities or the Exchange Securities, (ix) all fees and expenses (including reasonable fees and expenses of counsel) of the Company and the Guarantors in connection with approval of the Securities by the Depositary for “book-entry” transfer, and the performance by the Company and the Guarantors of their respective other obligations under this Agreement and (x) all reasonable expenses incident to the “road show” for the offering of the Securities, including the cost of any chartered airplane or other transportation.  Except as provided in this Section 4 and Sections 6, 8 and 9 hereof, the Initial Purchasers shall pay their own expenses, including the fees and disbursements of their counsel.
 
SECTION 5.                         Conditions of the Obligations of the Initial Purchasers , the Company and the Guarantors.   The obligations of the several Initial Purchasers to purchase and pay for the Securities as provided herein on the Closing Date shall be subject to the accuracy of the representations and warranties on the part of the Company and the Guarantors set forth in Section 1 hereof as of the date hereof and as of the Closing Date as though then made and to the timely performance by the Company of its covenants and other obligations hereunder, and to each of the following additional conditions:
 
(a)            Accountants’ Comfort Letter .   On the date hereof, the Initial Purchasers shall have received from each of Ernst & Young LLP, the previous independent registered public accounting firm for the Company, PricewaterhouseCoopers LLP, the current independent registered public accounting firm for the Company and BDO Seidman, LLP, the independent registered public accounting firm for Hercules, a “comfort letter” dated the date hereof addressed to the Initial Purchasers, in form and substance satisfactory to the Representatives, covering the financial information in the Preliminary Offering Memorandum and the Pricing Supplement and other customary matters.  In addition, on the Closing Date, the Initial Purchasers shall have received from each such accountant, a “bring-down comfort letter” dated the Closing Date addressed to the Ini-

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tial Purchasers, in form and substance satisfactory to the Representatives, in the form of the “comfort letter” delivered on the date hereof, except that (i) it shall cover the financial information in the Final Offering Memorandum and any amendment or supplement thereto and (ii) procedures shall be brought down to a date no more than 5 days prior to the Closing Date.
 
(b)            No Material Adverse Change or Ratings Agency Change .   For the period from and after the date of this Agreement and prior to the Closing Date:
 
(i)       in the judgment of the Representatives there shall not have occurred any Material Adverse Change; and
 
(ii)       there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any securities or indebtedness of the Company or any of its subsidiaries by any “nationally recognized statistical rating organization” as such term is defined for purposes of Rule 436 under the Securities Act.
 
(c)            Opinion of Counsel for the Company .   On the Closing Date the Initial Purchasers shall have received the written opinions, dated as of such Closing Date, and in form and substance reasonably satisfactory to the Initial Purchasers, of (i) Squire, Sanders & Dempsey L.L.P., counsel for the Company, to the effect set forth in Exhibit B and (ii) David L. Hausrath, General Counsel of the Company, to the effect set forth in Exhibit C..
 
(d)            Opinion of Counsel for the Initial Purchasers .   On the Closing Date the Initial Purchasers shall have received the written opinion of Cahill Gordon & Reindel llp , counsel for the Initial Purchasers, dated as of such Closing Date, with respect to such matters as may be reasonably requested by the Initial Purchasers.
 
(e)            Officers’ Certificate .   On the Closing Date the Initial Purchasers shall have received a written certificate executed by the Chief Executive Officer and the Chief Financial Officer or Chief Accounting Officer of the Company and an appropriate executive officer of each Guarantor, dated as of the Closing Date, to the effect set forth in Section 5(b)(ii) hereof, and further to the effect that:
 
(i)       for the period from and after the date of this Agreement and prior to the Closing Date there has not occurred any Material Adverse Change;
 
(ii)       the representations, warranties and covenants of the Company set forth in Section 1 hereof were true and correct as of the date hereof and are true and correct as of the Closing Date with the same force and effect as though expressly made on and as of the Closing Date; and
 
(iii)       the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date.
 
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(f)        Registration Rights Agreement .   The Company shall have entered into the Registration Rights Agreement and the Initial Purchasers shall have received executed counterparts thereof.
 
(g)            Additional Documents .   On or before the Closing Date, the Initial Purchasers and counsel for the Initial Purchasers shall have received such information, documents and opinions as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Securities as contemplated herein, or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements, herein contained.
 
If any condition specified in this Section 5 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Representatives by notice to the Company, at any time on or prior to the Closing Date, which termination shall be without liability on the part of any party to any other party, except that Sections 4, 6, 8 and 9 hereof shall at all times be effective and shall survive such termination.
 
SECTION 6.                         Reimbursement of Initial Purchasers’ Expenses .   If this Agreement is terminated by the Representatives pursuant to Section 5 or 10 hereof, including if the sale to the Initial Purchasers of the Securities on the Closing Date is not consummated because of any refusal, inability or failure on the part of the Company or the Guarantors to perform any agreement herein or to comply with any provision hereof, the Company and the Guarantors agree to reimburse the Initial Purchasers, severally, upon demand for all out-of-pocket expenses that shall have been reasonably incurred by the Initial Purchasers in connection with the proposed purchase and the offering and sale of the Securities, including, without limitation, fees and disbursements of counsel, printing expenses, travel expenses, postage, facsimile and telephone charges.
 
SECTION 7.                         Offer, Sale and Resale Agreements and Procedures .   Each of the Initial Purchasers, on the one hand, and the Company and each of the Guarantors, on the other hand, hereby agree and represent as follows in connection with the offer and sale of the Securities:
 
(A)           Each Initial Purchaser is an accredited investor within the meaning of Rule 501(a) under the Securities Act, and offers and sales of the Securities have been and will be made only by the Initial Purchasers or Affiliates thereof qualified to do so in the jurisdictions in which such offers or sales are made.  Each such offer or sale has been and shall be made only to persons whom the offeror or seller reasonably believes to be Qualified Institutional Buyers and in accordance with Rule 144A under the Securities Act or to non-U.S. persons outside the United States to whom the offeror or seller reasonably believes offers and sales of the Securities may be made in reliance upon Regulation S upon the terms and conditions set forth in Annex I hereto, which Annex I is hereby expressly made a part hereof.
 
(B)           The Securities have been and will be offered by approaching prospective Subsequent Purchasers on an individual basis.  No general solicitation or general advertising (within the meaning of Rule 502 under the Securities Act) has been or will be used in the United States in connection with the offering of the Securities.
 
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(C)           The Securities offered and sold in reliance upon Regulation S have been and will be offered and sold only in offshore transactions, and none of the Initial Purchasers, the Company, the Guarantors or any person acting on its or their behalf have engaged or will engage in any directed selling efforts within the meaning of Regulation S with respect to the Securities.
 
(D)           Upon original issuance by the Company, and until such time as the same is no longer required under the applicable requirements of the Securities Act, the Notes (and all securities issued in exchange therefor or in substitution thereof, other than the Exchange Notes) shall bear the following legend:
 
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.  EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.  THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) (a) TO A PERSON WHO IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A NON-U.S. PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS), (ii) TO THE ISSUER, OR (iii) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY
 
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RULE 144 FOR RESALE OF THE SECURITY EVIDENCED HEREBY .
 
Following the sale of the Securities by the Initial Purchasers to Subsequent Purchasers pursuant to the terms hereof, the Initial Purchasers shall not be liable or responsible to the Company for any losses, damages or liabilities suffered or incurred by the Company, including any losses, damages or liabilities under the Securities Act, arising from or relating to any resale or transfer of any Security.
 
SECTION 8.          Indemnification .
 
(a)             Indemnification of the Initial Purchasers .   Each of the Company and the Guarantors, jointly and severally, agrees to indemnify and hold harmless each Initial Purchaser, its directors, affiliates, officers and employees, and each person, if any, who controls any Initial Purchaser within the meaning of the Securities Act and the Exchange Act against any loss, claim, damage, liability or expense, as incurred, to which such Initial Purchaser, director, officer, employee or controlling person may become subject, under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum, the Pricing Supplement, any Company Additional Written Communication (when taken together with the Pricing Disclosure Package) or the Final Offering Memorandum (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and to reimburse each Initial Purchaser and each such director, officer, employee or controlling person for any and all expenses (including the reasonable fees and disbursements of counsel chosen by the Representatives ) as such expenses are reasonably incurred by such Initial Purchaser or such director, officer, employee or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the foregoing indemnity agreement shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Representatives expressly for use in the Preliminary Offering Memorandum, the Pricing Supplement , any Company Additional Written Communication or the Final Offering Memorandum (or any amendment or supplement thereto).  The indemnity agreement set forth in this Section 8(a) shall be in addition to any liabilities that the Company may otherwise have.
 
(b)            Indemnification of the Company and the Guarantors.   Each Initial Purchaser agrees, severally and not jointly, to indemnify and hold harmless the Company, each Guarantor, each of their respective directors, officers and each person, if any, who controls the Company or any Guarantor within the meaning of the Securities Act or the Exchange Act, against any loss, claim, damage, liability or expense, as incurred, to which the Company, any Guarantor or any such director or controlling person may become subject, under the Securities Act, the Exchange
 
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Act, or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Initial Purchaser), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum, the Pricing Supplement , any Company Additional Written Communication or the Final Offering Memorandum (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Preliminary Offering Memorandum, the Pricing Supplement , any Company Additional Written Communication or the Final Offering Memorandum (or any amendment or supplement thereto), in reliance upon and in conformity with written information furnished to the Company by the Representatives expressly for use therein; and to reimburse the Company, any Guarantor and each such director, officer or controlling person for any and all expenses (including the fees and disbursements of counsel) as such expenses are reasonably incurred by the Company, any Guarantor or such director or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action.  Each of the Company and the Guarantors hereby acknowledges that the only information that the Initial Purchasers through the Representatives have furnished to the Company expressly for use in the Preliminary Offering Memorandum, the Pricing Supplement , any Company Additional Written Communication or the Final Offering Memorandum (or any amendment or supplement thereto) are the statements set forth in [         ] paragraph under the caption “Plan of Distribution” in the Preliminary Offering Memorandum and the Final Offering Memorandum.  The indemnity agreement set forth in this Section 8(b) shall be in addition to any liabilities that each Initial Purchaser may otherwise have.
 
(c)            Notifications and Other Indemnification Procedures .   Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise other than under the indemnity agreement contained in this Section 8 or to the extent it is not prejudiced as a proximate result of such failure.  In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded, based upon advice from counsel, that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel, rea-
 
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sonably satisfactory to the indemnifying party, to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties.  Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party’s election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the indemnifying party (Banc of America Securities LLC in the case of Sections 8(b) and 9 hereof), representing the indemnified parties who are parties to such action) or (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party.
 
(d)            Settlements .   The indemnifying party under this Section 8 shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment.  Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by this Section 8, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request or disputed in good faith the indemnified party’s entitlement to such reimbursement prior to the date of such settlement.  No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent (i) includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding and (ii) does not include any statements as to or any findings of fault, culpability or failure to act by or on behalf of any indemnified party.
 
SECTION 9.                         Contribution.   If the indemnification provided for in Section 8 hereof is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount paid or payable by such indemnified party, as incurred, as a result of any losses, claims, damages, liabilities or expenses referred to therein (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other hand, from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate
 
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to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations.  The relative benefits received by the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other hand, in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company, and the total discount received by the Initial Purchasers bear to the aggregate initial offering price of the Securities.  The relative fault of the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company and the Guarantors, on the one hand, or the Initial Purchasers, on the other hand, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
 
The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 8 hereof, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim.  The provisions set forth in Section 8 hereof with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this Section 9; provided, however, that no additional notice shall be required with respect to any action for which notice has been given under Section 8 hereof for purposes of indemnification.
 
The Company, the Guarantors and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 9.
 
Notwithstanding the provisions of this Section 9, no Initial Purchaser shall be required to contribute any amount in excess of the discount received by such Initial Purchaser in connection with the Securities distributed by it.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11 of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  The Initial Purchasers’ obligations to contribute pursuant to this Section 9 are several, and not joint, in proportion to their respective commitments as set forth opposite their names in Schedule A.  For purposes of this Section 9, each affiliate, director, officer and employee of an Initial Purchaser and each person, if any, who controls an Initial Purchaser within the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as such Initial Purchaser, and each director and officer of the Company or any Guarantor, and each person, if any, who controls the Company or any Guarantor with the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as the Company and the Guarantors.
 
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SECTION 10.                           Termination of this Agreement .   Prior to the Closing Date, this Agreement may be terminated by the Representatives by notice given to the Company if at any time:  (i) trading or quotation in any of the Company’s securities shall have been suspended or limited by the Commission or by the NYSE, or trading in securities generally on either the NASDAQ Stock Market or the NYSE shall have been suspended or limited, or minimum or maximum prices shall have been generally established on any of such quotation system or stock exchange by the Commission or FINRA; (ii) a general banking moratorium shall have been declared by any of federal, New York or Kentucky authorities; (iii) there shall have occurred any outbreak or escalation of national or international hostilities or any crisis or calamity or any change in the United States or international financial markets or any substantial change or development involving a prospective substantial change in United States’ or international political, financial or economic conditions, as in the judgment of the Representatives is material and adverse and makes it impracticable or inadvisable to proceed with the offering sale or delivery of the Securities in the manner and on the terms described in the Pricing Disclosure Package or to enforce contracts for the sale of securities; (iv) in the judgment of the Representatives there shall have occurred any Material Adverse Change; or (v) the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as in the judgment of the Representatives may interfere materially with the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured.  Any termination pursuant to this Section 10 shall be without liability on the part of (i) the Company or any Guarantor to any Initial Purchaser, except that the Company and the Guarantors shall be obligated to reimburse the expenses of the Initial Purchasers pursuant to Sections 4 and 6 hereof, (ii) any Initial Purchaser to the Company, or (iii) any party hereto to any other party except that the provisions of Sections 8 and 9 hereof shall at all times be effective and shall survive such termination.
 
SECTION 11.                         Representations and Indemnities to Survive Delivery .   The respective indemnities, agreements, representations, warranties and other statements of the Company, the Guarantors, their respective officers and the several Initial Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Initial Purchaser, the Company, any Guarantor or any of their partners, officers or directors or any controlling person, as the case may be, and will survive delivery of and payment for the Securities sold hereunder and any termination of this Agreement.
 
SECTION 12.                         Notices .   All communications hereunder shall be in writing and shall be mailed, hand delivered, couriered or facsimiled and confirmed to the parties hereto as follows:
 
 
If to the Initial Purchasers:
 
 
Banc of America Securities LLC
 
One Bryant Park
 
New York, NY  10036
 
Facsimile:  (212) 901-7897
 
Attention:  Legal Department
 
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with a copy to:
 
 
 
Cahill Gordon & Reindel llp
 
80 Pine Street
 
New York, NY  10005
 
Facsimile:  (212) 269-5420
 
Attention:  James J. Clark, Esq.
 
 
If to the Company or the Guarantors:
 
 
Ashland Inc.
 
50 East RiverCenter Boulevard
 
P.O. Box 391
 
Covington, Kentucky 41012-0391
 
Facsimile:  (859) 815-5053
 
Attention: David L. Hausrath, Esq.
 
 
with a copy to:
 
 
Squire, Sanders & Dempsey L.L.P.
 
4900 Key Tower
 
127 Public Square
 
Cleveland, OH 44114
 
Facsimile:  (212) 479-8780
 
Attention:  Jeffrey J. Margulies, Esq.
 
Any party hereto may change the address or facsimile number for receipt of communications by giving written notice to the others.
 
SECTION 13.                         Successors .   This Agreement will inure to the benefit of and be binding upon the parties hereto, and to the benefit of the indemnified parties referred to in Sections 8 and 9 hereof, and in each case their respective successors, and no other person will have any right or obligation hereunder.  The term “successors” shall not include any Subsequent Purchaser or other purchaser of the Securities as such from any of the Initial Purchasers merely by reason of such purchase.
 
SECTION 14.                         Authority of the Representatives .  Any action by the Initial Purchasers hereunder may be taken by Banc of America Securities LLC and Scotia Capital (USA) Inc. on behalf of the Initial Purchasers, and any such action taken by Banc of America Securities LLC and Scotia Capital (USA) Inc. shall be binding upon the Initial Purchasers.
 
SECTION 15.                         Partial Unenforceability .   The invalidity or unenforceability of any section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other section, paragraph or provision hereof.  If any section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.
 
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SECTION 16.                         Governing Law Provisions .   THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THEREOF.
 
(a)            Consent to Jurisdiction.   Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby (“Related Proceedings”) may be instituted in the federal courts of the United States of America located in the City and County of New York or the courts of the State of New York in each case located in the City and County of New York (collectively, the “Specified Courts”), and each party irrevocably submits to the exclusive jurisdiction (except for suits, actions, or proceedings instituted in regard to the enforcement of a judgment of any Specified Court in a Related Proceeding a “Related Judgment“, as to which such jurisdiction is non exclusive) of the Specified Courts in any Related Proceeding.  Service of any process, summons, notice or document by mail to such party’s address set forth above shall be effective service of process for any Related Proceeding brought in any Specified Court.  The parties irrevocably and unconditionally waive any objection to the laying of venue of any Specified Proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any Specified Court that any Related Proceeding brought in any Specified Court has been brought in an inconvenient forum.  Each party not located in the United States irrevocably appoints CT Corporation System, as its agent to receive service of process or other legal summons for purposes of any Related Proceeding that may be instituted in any Specified Court.
 
SECTION 17.                         Default of One or More of the Several Initial Purchasers .   If any one or more of the several Initial Purchasers shall fail or refuse to purchase Securities that it or they have agreed to purchase hereunder on the Closing Date, and the aggregate number of Securities which such defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase does not exceed 10% of the aggregate number of the Securities to be purchased on such date, the other Initial Purchasers shall be obligated, severally, in the proportions that the number of Securities set forth opposite their respective names on Schedule A bears to the aggregate number of Securities set forth opposite the names of all such non-defaulting Initial Purchasers, or in such other proportions as may be specified by the Initial Purchasers with the consent of the non-defaulting Initial Purchasers, to purchase the Securities which such defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase on the Closing Date.  If any one or more of the Initial Purchasers shall fail or refuse to purchase Securities and the aggregate number of Securities with respect to which such default occurs exceeds 10% of the aggregate number of Securities to be purchased on the Closing Date, and arrangements satisfactory to the Initial Purchasers and the Company for the purchase of such Securities are not made within 48 hours after such default, this Agreement shall terminate without liability of any party to any other party except that the provisions of Sections 4, 6, 8 and 9 hereof shall at all times be effective and shall survive such termination.  In any such case either the Initial Purchasers or the Company shall have the right to postpone the Closing Date, as the case may be, but in no event for longer than seven days in order that the required changes, if any, to the Final Offering Memorandum or any other documents or arrangements may be effected.
 
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As used in this Agreement, the term “Initial Purchaser” shall be deemed to include any person substituted for a defaulting Initial Purchaser under this Section 17.  Any action taken under this Section 17 shall not relieve any defaulting Initial Purchaser from liability in respect of any default of such Initial Purchaser under this Agreement.
 
SECTION 18.                         No Advisory or Fiduciary Responsibility.   Each of  the Company and the Guarantors acknowledges and agrees that: (i) the purchase and sale of the Securities pursuant to this Agreement, including the determination of the offering price of the Securities and any related discounts and commissions, is an arm’s-length commercial transaction between the Company and the Guarantors, on the one hand, and the several Initial Purchasers, on the other hand, and the Company and the Guarantors are capable of evaluating and understanding and understand and accept the terms, risks and conditions of the transactions contemplated by this Agreement; (ii) in connection with each transaction contemplated hereby and the process leading to such transaction each Initial Purchaser is and has been acting solely as a principal and is not the agent or fiduciary of the Company, the Guarantors or their respective affiliates, stockholders, creditors or employees or any other party; (iii) no Initial Purchaser has assumed or will assume an advisory or fiduciary responsibility in favor of the Company or the Guarantors with respect to any of the transactions contemplated hereby or the process leading thereto (irrespective of whether such Initial Purchaser has advised or is currently advising the Company or the Guarantors on other matters) or any other obligation to the Company and the Guarantors except the obligations expressly set forth in this Agreement; (iv) the several Initial Purchasers and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company and the Guarantors and that the several Initial Purchasers have no obligation to disclose any of such interests by virtue of any fiduciary or advisory relationship; and (v) the Initial Purchasers have not provided any legal, accounting, regulatory or tax advice with respect to the offering contemplated hereby and the Company and the Guarantors have consulted their own legal, accounting, regulatory and tax advisors to the extent they deemed appropriate.
 
This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company, the Guarantors and the several Initial Purchasers, or any of them, with respect to the subject matter hereof.  The Company and the Guarantors hereby waive and release, to the fullest extent permitted by law, any claims that the Company and the Guarantors may have against the several Initial Purchasers with respect to any breach or alleged breach of fiduciary duty in connection with the offering contemplated hereby.
 
SECTION 19.                         General Provisions .   This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof.  This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement may not be amended or modified unless in writing by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit.  The section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement.
 
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If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company the enclosed copies hereof, whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms.
 
 
Very truly yours,
 
ASHLAND INC.
 
       
 
By:
/s/  David L. Hausrath  
    Name:  David L. Hausrath  
    Title:  Senior Vice President  
       
 
 
 
ASHLAND INTERNATIONAL HOLDINGS
       INC.; and
ASH GP LLC, as Guarantors
 
       
 
By:
/s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
       
 
 
ASHLAND LICENSING AND
      INTELLECTUAL PROPERTY LLC;
VALVOLINE INTERNATIONAL, INC.; and
HERCULES INCORPORATED, as Guarantors
 
       
 
By:
/s/  Joseph R. Broce  
    Name: Joseph R. Broce  
    Title:  Treasurer  
       
 
 
AQUALON COMPANY;
EAST BAY REALTY SERVICES, INC.; and
HERCULES PAPER HOLDINGS, INC., as
      Guarantors
 
       
 
By:
/s/  Joseph R. Broce  
    Name:  Joseph R. Broce  
    Title:  Vice President, Treasurer and Assistant  
    Secretary  
 
[Signature Page to the Purchase Agreement]
 
 
 
 

 
ASHTHREE LLC,
       as Guarantor
 
       
 
By:
/s/  Joseph R. Broce  
    Name: Joseph R. Broce  
    Title:  Vice President-Finance and Treasurer  
       
 
 
 
ASHPROP LLC,
       as Guarantor
 
       
 
 
By:  /s/  David B. Mattingly  
    Name:  David B. Mattingly  
    Title:  Vice President and Secretary  
 
 
ASHONE C.V.,
       as Guarantor
 
By:  ASHLAND INTERNATIONAL
HOLDINGS, INC., as General Partner
 
       
 
 
By:  /s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
       
 
  By:  ASH GP LLC, as General Partner  
       
 
 
By:  /s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
       
 
[Signature Page to the Purchase Agreement]

 
 
 
 
 

 
HERCULES INVESTMENTS S.A.R.L.,
       as Guarantor
 
       
 
By:
/s/  Jo-Ann T. Lawler  
    Name:  Jo-Ann T. Lawler  
    Title:  Type A Manager  
       
 

 [Signature Page to the Purchase Agreement]
 
 
 
 

The foregoing Purchase Agreement is hereby confirmed and accepted by the Initial Purchasers as of the date first above written.
 
BANC OF AMERICA SECURITIES LLC
SCOTIA CAPITAL (USA) INC.
Acting on behalf of itself
and as the Representatives of
the several Initial Purchasers
 
 
 By:
BANK OF AMERICA SECURITIES LLC  
 
       
  By:
 /s/ Steven Jaeger
   
 
 
   
Name:  Steven Jaeger
   
 
 
   
Title:  Managing Director
   
 
 
 
 
[Signature Page to the Purchase Agreement]

 
 
 
 
 
 
 By:
SCOTIA CAPITAL (USA) INC.
 
       
  By:
 /s/ Greg Greer
   
 
 
   
Name:  Greg Greer
   
 
 
   
Title:  Managing Director
   
 
 
 
 
 
[Signature Page to the Purchase Agreement]
 
 
 
 

SCHEDULE A
 
Initial Purchasers
     
Aggregate
Principal
Amount of
Securities to
be Purchased
 
Banc of America Securities LLC
      $ 314,275,000  
Scotia Capital (USA) Inc
        314,275,000  
SunTrust Robinson Humphrey, Inc
        21,450,000  
             
                         Total
      $ 650,000,000  


 
 
 
 

SCHEDULE B
 
SUBSIDIARIES OF ASHLAND INC.
 
AS GUARANTORS
 

 

 
ASHLAND INTERNATIONAL HOLDINGS, INC.
ASH GP LLC
ASHLAND LICENSING AND INTELLECTUAL PROPERTY LLC
VALVOLINE INTERNATIONAL, INC.
HERCULES INCORPORATED
AQUALON COMPANY
EAST BAY REALTY SERVICES, INC.
HERCULES PAPER HOLDINGS, INC.
ASHTHREE LLC
ASHPROP LLC
ASHONE C.V.
HERCULES INVESTMENTS S.À.R.L.

 
 
 
 

EXHIBIT A
 
LIST OF SIGNIFICANT SUBSIDIARIES

“Significant subsidiaries” as defined in Regulation S-X under the Act comparing prescribed measures for subsidiaries to the equivalent measures for Ashland Inc. and its subsidiaries as of and for the 12 months ended March 31, 2009 include the companies listed below:

Aqualon Company
AshThree LLC
Hercules Incorporated
Hercules International GmbH


Exhibit A-1
 
 
 
 

EXHIBIT B
 
[Provided under supplemental cover].
 


Exhibit B-1
 
 
 
 

EXHIBIT C
 
FORM OF GENERAL COUNSEL OPINION
 

 

 
[Provided under supplemental cover].
 



Exhibit C-1
 
 
 
 

ANNEX I
 
  Resale Pursuant to Regulation S or Rule 144A . Each Initial Purchaser understands that:
 
Such Initial Purchaser agrees that it has not offered or sold and will not offer or sell the Securities in the United States or to, or for the benefit or account of, a U.S. Person (other than a distributor), in each case, as defined in Rule 902 of Regulation S (i) as part of its distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering of the Securities pursuant hereto and the Closing Date, other than in accordance with Regulation S or another exemption from the registration requirements of the Securities Act.  Such Initial Purchaser agrees that, during such 40-day restricted period, it will not cause any advertisement with respect to the Securities (including any “tombstone” advertisement) to be published in any newspaper or periodical or posted in any public place and will not issue any circular relating to the Securities, except such advertisements as are permitted by and include the statements required by Regulation S.
 
Such Initial Purchaser agrees that, at or prior to confirmation of a sale of Securities by it to any distributor, dealer or person receiving a selling concession, fee or other remuneration during the 40-day restricted period referred to in Rule 903 of Regulation S , it will send to such distributor, dealer or person receiving a selling concession, fee or other remuneration a confirmation or notice to substantially the following effect:
 
“The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of your distribution at any time or (ii) otherwise until 40 days after the later of the date the Securities were first offered to persons other than distributors in reliance upon Regulation S and the Closing Date, except in either case in accordance with Regulation S under the Securities Act (or in accordance with Rule 144A under the Securities Act or to accredited investors in transactions that are exempt from the registration requirements of the Securities Act), and in connection with any subsequent sale by you of the Securities covered hereby in reliance on Regulation S under the Securities Act during the period referred to above to any distributor, dealer or person receiving a selling concession, fee or other remuneration, you must deliver a notice to substantially the foregoing effect.  Terms used above have the meanings assigned to them in Regulation S under the Securities Act.”
 




Annex I-1
 
 
 
 

EXHIBIT 10.2

 
AMENDMENT NO. 2 TO
CREDIT AGREEMENT

AMENDMENT NO. 2, dated as of May 20, 2009 (this “ Amendment ”), among ASHLAND INC., a Kentucky corporation (the “ Borrower ”), BANK OF AMERICA, N.A., as Administrative Agent, and the Required Lenders listed on the signature pages hereto, to the Credit Agreement dated as of November 13, 2008, as amended as of April 17, 2009  (the “ Credit Agreement ”) among the Borrower, each lender from time to time party thereto (collectively, the “ Lenders ” and individually, a “ Lender ”), BANK OF AMERICA, N.A., as Administrative Agent, and THE BANK OF NOVA SCOTIA, as Syndication Agent.  Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
 
WHEREAS, Section 10.01 of the Credit Agreement permits the Credit Agreement to be amended from time to time;
 
NOW, THEREFORE, in consideration of the premises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
 
Section 1.                       Amendments .
 
Upon and subject to the date as of which this Amendment becomes effective (the “ Amendment No. 2 Effective Date ”), the Credit Agreement is amended as follows:
 
(a)          The definition of “Consolidated EBITDA”   in the Credit Agreement is hereby amended by:
 
(i)           replacing clause (viii) thereto with the following: “(viii) restructuring and integration charges not to exceed $80,000,000 in the aggregate during the three fiscal year period ending September 30, 2011 (and such amounts may be included pursuant to this clause (b) in the calculation of Consolidated EBITDA for any Measurement Period after September 30, 2011 that includes one or more quarters prior to September 30, 2011 in which such charges were incurred),”; and
 
(ii)           adding the following immediately prior to the comma in clause (ix) thereof: “and non-cash equity compensation expense”.
 
(b)           Section 7.12 of the Credit Agreement is hereby amended by replacing the second line in the table with the following:
 
 
 
 
 
-2-
 
Fiscal Year
Amount
2010
$250,000,000

 
Section 2.                       Representations and Warranties .
 
Borrower represents and warrants to the Lenders as of the date hereof and the Amendment No. 2 Effective Date that:
 
(a)           The execution, delivery and performance by each Loan Party of this Amendment have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or binding upon Such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.
 
(b)           Before and after giving effect to this Amendment, the representations and warranties of the Borrower and each other Loan Party contained in the Credit Agreement or any other Loan Document shall be true and correct on and as of the Amendment No. 2 Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date, and except that the representations and warranties contained in Section 5.05(a) and (b) of the Credit Agreement shall be deemed to refer to the most recent statements furnished pursuant to Section 6.01(a) and (b), respectively, of the Credit Agreement; provided that any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” shall be true and correct in all respects.
 
(c)           At the time of and before and after giving effect to this Amendment, no Default or Event of Default shall exist.
 
Section 3.                       Conditions to Effectiveness .
 
This Amendment shall become effective as of the date when  each of the following conditions is satisfied:
 
(a)           The Administrative Agent (or its counsel) shall have received from (i) Lenders constituting the Required Lenders and (ii) each of the other parties hereto, a counterpart of this Amendment signed on behalf of such party.
 
(b)           All corporate and other proceedings taken or to be taken in connection with this Amendment and all documents incidental thereto, whether or not referred to herein, shall be reasonably satisfactory in form and substance to the Administrative Agent.
 

 
 
 
 
-3-

(c)           The representations and warranties in Section 2 of this Amendment shall be true and correct.
 
Section 4.                       Miscellaneous .
 
(a)           This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  Delivery of an executed counterpart of a signature page of this Amendment by telecopy or electronic transmission (including in  .pdf or similar format) shall be effective as delivery of a manually executed counterpart of this Amendment.
 
(b)           Sections 10.14 and 10.15 of the Credit Agreement are incorporated herein, and shall apply hereto mutatis mutandis , as if a part hereof.
 
(c)           Section headings herein and in the Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Amendment or any Loan Document.
 
(d)           The Borrower shall pay on demand all fees and expenses of the Administrative Agent (or its Affiliates) in connection with this Amendment, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent.
 
(e)           On and after the Amendment No. 2 Effective Date, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Credit Agreement, and each reference in each of the Loan Documents to “the Credit Agreement,” “thereunder,” “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended by this Amendment.  The Credit Agreement and each of the other Loan Documents, as supplemented by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Lenders or the Administrative Agent under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other provision of the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect.  By executing and delivering a copy hereof, each applicable Loan Party hereby agrees and confirms that all Loans and Obligations shall be guaranteed and secured pursuant to the Loan Documents as provided therein.
 

 
 
 
 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.
 
  ASHLAND INC., as Borrower  
       
 
By:
/s/  Lamar M. Chambers  
    Name:  Lamar M. Chambers  
   
Title:  Senior Vice President and Chief Financial Officer
 
       
 
 
ASHONE C.V., as Guarantor
 
By:  ASHLAND INTERNATIONAL HOLD-
       INGS, INC., as General Partner
 
       
 
 
By:  /s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
       
 
  By:  ASH GP LLC, as General Partner  
       
 
 
By:  /s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
       
 
 
ASHLAND INTERNATIONAL HOLDINGS
       INC., as Guarantor
 
       
 
By:
/s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
     
 
 
 
ASHTHREE LLC, as Guarantor
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  President  
       
 
[Signature Page to the Ashland Credit Agreement Amendment No. 2]
 
 
 
 
 
 
 
ASHPROP LLC, as Guarantor
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  Vice President-Finance  
       
 
 
ASHLAND LICENSING AND
         INTELLECTUAL PROPERTY LLC, as Guarantor
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  Vice President-Finance  
       
 
 
ASH GP LLC, as Guarantor
 
       
 
By:
/s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  President  
       
 
 
VALVOLINE INTERNATIONAL, INC., as
     Guarantor
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  Vice President-Finance  
       
 
 
HERCULES INCORPORATED, as Guarantor
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  Vice President-Finance  
       
 
 
[Signature Page to the Ashland Credit Agreement Amendment No. 2]
 
 
 
 
 
 
 
AQUALON COMPANY, as Guarantor
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  Vice President  
       
 
 
HERCULES INVESTMENTS S.A.R.L.,  as
        Guarantor
 
       
 
By:
/s/  Linda L. Foss  
    Name:  Linda L. Foss  
    Title:  Type A Manager  
       
 
 
EAST BAY REALTY SERVICES, INC., as
        Guarantor
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  President  
       
 
 
HERCULES PAPER HOLDINGS, INC., as
    Guarantor
 
       
 
By:
/s/  J. Kevin Willis  
    Name:  J. Kevin Willis  
    Title:  President  
       
 
[Signature Page to the Ashland Credit Agreement Amendment No. 2]
 
 
 
 
 
 
 
BANK OF AMERICA, N.A.,  as Administrative
       Agent
 
       
 
By:
/s/  Irene Bertozzi Bartenstein  
    Name:  Irene Bertozzi Bartenstein  
    Title:  SVP  
       
 
 
BANK OF AMERICA, N.A., as a Lender and L/C
     Issuer
 
       
 
By:
/s/  Irene Bertozzi Bartenstein  
    Name:  Irene Bertozzi Bartenstein  
    Title:  SVP  
       
 
 
[Signature Page to the Ashland Credit Agreement Amendment No. 2]
 
 
 
 
 
 
 
THE BANK OF NOVA SCOTIA, as a Lender
 
       
 
By:
/s/  Todd S. Meller  
    Name:  Todd S. Meller  
    Title:  Managing Director  
       
 
 
[Signature Page to the Ashland Credit Agreement Amendment No. 2]
                                       
EXHIBIT 12
 
ASHLAND INC.
 
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
 
(In millions)
 
                                           
                                           
                                 
Nine months ended
 
   
Years ended September 30
   
June 30
 
   
2008
   
2007
   
2006
   
2005
   
2004
   
2009
   
2008
 
EARNINGS
                                         
                                           
Income (loss) from continuing operations
  $ 175     $ 201     $ 183     $ 1,958     $ 311     $ (20 )   $ 176  
Income tax expense (benefit)
    86       58       29       (230 )     100       49       58  
Interest expense
    9       9       8       87       112       118       7  
Interest portion of rental expense
    21       20       18       20       20       17       16  
Amortization of deferred debt expense
    -       1       -       3       2       35       -  
Distributions (less than) in excess of earnings
                                                       
    of unconsolidated affiliates
    (10 )     (5 )     (6 )     (246 )     (260 )     4       (10 )
    $ 281     $ 284     $ 232     $ 1,592     $ 285     $ 203     $ 247  
                                                         
FIXED CHARGES
                                                       
                                                         
Interest expense
  $ 9     $ 9     $ 8     $ 87     $ 112     $ 118     $ 7  
Interest portion of rental expense
    21       20       18       20       20       17       16  
Amortization of deferred debt expense
    -       1       -       3       2       35       -  
Capitalized interest
    -       2       3       1       -       3       -  
    $ 30     $ 32     $ 29     $ 111     $ 134     $ 173     $ 23  
                                                         
RATIO OF EARNINGS TO FIXED CHARGES
    9.37       8.88       8.00       14.34       2.13       1.17       10.74  
EXHIBIT 31.1
CERTIFICATIONS
 

 
I, James J. O’Brien, certify that:
 
1.  
I have reviewed this quarterly report on Form 10-Q of Ashland Inc.;
 
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.  
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act  Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c)  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
d)  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.  
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
 
 
a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
Date:  August 5, 2009
 

 

 
 
/s/ James J. O’Brien
 
James J. O’Brien
 
Chairman and Chief Executive Officer
 
(Principal Executive Officer)

EXHIBIT 31.2

 
CERTIFICATIONS
 

 
I, Lamar M. Chambers, certify that:
 
1.  
I have reviewed this quarterly report on Form 10-Q of Ashland Inc.;
 
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.  
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act  Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.  
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
 
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
Date:  August 5, 2009
 

 

 
 
 /s/ Lamar M. Chambers
 
Lamar M. Chambers
 
Chief Financial Officer
 
(Principal Financial Officer)

 
EXHIBIT 32
 
ASHLAND INC.


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of Ashland Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, James J. O’Brien, Chief Executive Officer of the Company, and Lamar M. Chambers, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


 
   
/s/ James J. O'Brien
 
James J. O'Brien
 
Chief Executive Officer 
 
August 5, 2009  
   
   
/s/ Lamar M. Chambers  
Lamar M. Chambers   
Chief Financial Officer   
August 5, 2009