10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

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

For the transition period from ..... to .....

Commission file number 1-5263

THE LUBRIZOL CORPORATION

(Exact name of registrant as specified in its charter)

OHIO	34-0367600
(State of incorporation)	(I.R.S. Employer Identification No.)

29400 Lakeland Boulevard
Wickliffe, Ohio 44092-2298
(Address of principal executive officers, including zip code)

Registrant’s telephone number, including area code: (440) 943-4200
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Shares without par value	New York Stock Exchange
Common Share purchase rights	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act).
Yes þ No o

Aggregate market value (on basis of closing sale price) of voting stock held by nonaffiliates as of
June 30, 2004: $1,882,287,481.

Number of the registrant’s Common Shares, without par value, outstanding as of February 15, 2005:
67,324,555

Documents Incorporated by Reference

Portions of the registrant’s 2004 Annual Report to its shareholders (Incorporated into Part I and II of this Form 10-K)

Portions of the proxy statement for the 2005 Annual Meeting of Shareholders (Incorporated into Part III of this Form 10-K)

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9A. CONTROLS AND PROCEDURES
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
	ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
	REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SIGNATURES
EX-3.1 Certificate of Adoption of Amended Articles of Incorporation
EX-3.2 Regulations of Lubrizol Meetings of Shareholders
EX-4.1 Certificate of Amendment to Amended Articles of Incorporation
EX-4.2 Amended and Restated Rights Agreement
EX-12.1 Computation of Ratio of Earnings to Fixed Charges
EX-13.1 Annual Report
EX-21.1 Subsidiaries
EX-23.1 Consent of Ind. Reg. Public Accounting Firm
EX-31.1 Section 302 CEO Certification
EX-31.2 Section 302 CFO Certification
EX-32.1 906 Certifications

PART I

ITEM 1. BUSINESS

References to “Lubrizol”, the “company”, “we”, “us” or “our” refer to The Lubrizol Corporation and its subsidiaries, except where the context makes clear that the reference is only to The Lubrizol Corporation itself and not its subsidiaries.

Overview

     We are an innovative specialty chemical company that produces and supplies technologies that improve the quality and performance of our customers’ products in the global transportation, industrial and consumer markets. Our business is founded on technological leadership. Innovation provides opportunities for us in growth markets as well as advantages over our competitors. From a base of approximately 2,800 patents, we use our product development and formulation expertise to sustain our leading market positions and fuel our future growth. We create additives, ingredients, resins and compounds that enhance the performance, quality and value of our customers’ products, while minimizing their environmental impact. Our products are used in a broad range of applications, and are sold into stable markets such as those for engine oils, specialty driveline lubricants and metalworking fluids, as well as higher growth markets such as personal care and pharmaceutical products and performance coatings and inks. Our specialty materials products are also used in a variety of industries, including the construction, sporting goods, medical products and automotive industries.

     We are an industry leader in many of the markets in which our product lines compete. We also produce products with well recognized brand names, such as Anglamol^® (gear oil additives), Carbopol^® (acrylic thickeners for personal care products), Estane^® (thermoplastic polyurethane) and TempRite^® (chlorinated polyvinyl chloride resins and compounds used in plumbing, industrial and fire sprinkler systems).

     We are geographically diverse, with an extensive global manufacturing, supply chain, technical and commercial infrastructure. We operate facilities in 27 countries, including production facilities in 21 countries and laboratories in 9 countries, in key regions around the world through the efforts of approximately 7,800 employees. Including the June 2004 acquisition of Noveon International, Inc. (Noveon International) for the year ended December 31, 2004, we derived approximately 48% of our consolidated total revenues from North America, 28% from Europe, 18% from the Asia/Pacific and the Middle East region and 6% from Latin America. We sell our products in more than 100 countries and believe that our customers recognize and value our ability to provide customized, high quality, cost-effective performance formulations and solutions worldwide. We also believe our customers value highly our global supply chain capabilities.

     Our consolidated results for the year ended December 31, 2004 included total revenues of $3,159.5 million and net income of $93.5 million. We have generated consistently strong cash flows from our diverse product lines, leading market positions, disciplined capital expenditure programs and working capital management. We believe our strong cash flow will enable us to maintain our leading market positions and to invest in targeted growth strategies while continuing to reduce indebtedness.

     Our principal executive offices are located at 29400 Lakeland Boulevard, Wickliffe, Ohio 44092-2298 and our telephone number is 440-943-4200. Our website is located at www.lubrizol.com. Information contained on our website does not constitute part of this Form 10-K. We make available free of charge on our website the annual report on Form 10-K, the quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file or furnish the material to the Securities and Exchange Commission.

Acquisition History

     In the 1980s, growth in demand for lubricant additives slowed as innovations in engine design and improved lubricant performance extended the service intervals between required lubricant changes. We responded to this decline in the lubricant additive growth rate by expanding into new markets.

     Our initial expansion efforts focused on discovering new applications for our additive chemistry. We also began making selective acquisitions driven by our desire to gain access to new market channels as well as to higher growth, adjacent markets such as coating additives and metalworking fluids. During the 1990s and through the end of 2000, we completed 16 acquisitions. In aggregate, the annual revenues of these companies at the time of purchase

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totaled approximately $270.0 million. The largest was the acquisition of BP p.l.c.’s lubricant additive business, which we consolidated into our existing operations.

     In 2000, we established a vision for growth that renewed our strategy to grow our business by broadening our end-market focus beyond our traditional lubricant additive markets. To measure our progress toward achieving our vision, we established aggressive revenue and profitability goals. A key element of our strategy was organic growth through continued product innovation and new formulations for new end markets.

     We also increased our efforts to make larger, profitable acquisitions. Among the areas targeted for growth through acquisitions were personal care ingredients and coating additives. These areas fit our strength in surface-active chemistry and product innovation. We also introduced new tools and training to improve our ability to complete acquisitions successfully, including refinements to our due diligence and integration processes. Prior to the acquisition of Noveon International, we made eight other acquisitions since 2000, with aggregate annual revenues of approximately $200.0 million.

     By early 2004, we believe we had established the basis for acquiring Noveon International. We had developed significant experience evaluating and integrating acquired businesses and had expanded our presence in the personal care and coatings markets that offered potential for synergies with Noveon International.

The Noveon International Acquisition

     On June 3, 2004, we acquired Noveon International, a leading global producer and marketer of technologically advanced specialty materials and chemicals used in the industrial and consumer markets. With the acquisition of Noveon International, we have accelerated our program to attain a substantial presence in the personal care and coatings markets by adding a number of higher-growth, industry-leading products under highly recognizable brand names, including Carbopol^®, to our already strong portfolio of lubricant and fuel additive products and consumer product ingredients. Additionally, Noveon International has a number of industry-leading specialty materials businesses, including TempRite^® chlorinated polyvinyl chloride (CPVC) and Estane^® thermoplastic polyurethane (TPU), that generate strong cash flow. We believe that the Noveon International acquisition meets the core tenets of our stated strategy to:

•   maintain technology leadership;

•   apply our formulation expertise to extend applications into new markets; and

•   expand the global breadth of our businesses.

     We expect the diversity of our combined businesses, customer base and end markets to provide greater stability for our operations, and to generate strong cash flow from operations to reduce indebtedness while also pursuing selective future growth opportunities.

     The following chart sets forth the historical total revenues for the years ended December 31, 2004 and December 31, 2003 of the company attributable to each of our primary product lines, including a pro forma combined total (in millions). For the year ended December 31, 2004, the Lubrizol column includes revenues of Noveon International since the acquisition and the Noveon International column includes revenues of Noveon International prior to the acquisition.

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Reporting Segments and	December 31, 2004						December 31, 2003
Product Lines
			Noveon		Pro Forma				Noveon		Pro Forma
	Lubrizol		International		Combined		Lubrizol		International		Combined
Lubricant Additives:
Engine additives	$	1,222.9			$	1,222.9	$	1,127.4			$	1,127.4
Specialty driveline and industrial oil additives		743.2				743.2		622.6				622.6
Services and equipment		72.7				72.7		48.9				48.9
		2,038.8				2,038.8		1,798.9				1,798.9
Specialty Chemicals:
Consumer specialties		481.7		195.3		677.0		144.2		411.5		555.7
Performance coatings		391.9		165.3		557.2		109.0		375.5		484.5
Specialty materials		247.1		177.0		424.1		—		343.1		343.1
		1,120.7		537.6		1,658.3		253.2		1,130.1		1,383.3
Total revenues	$	3,159.5	$	537.6	$	3,697.1	$	2,052.1	$	1,130.1	$	3,182.2

     We have established a target of $40.0 million in annual cost savings from the integration of Noveon International that we expect to achieve by reducing costs of raw materials and outside services through purchasing synergies, rationalizing manufacturing operations and consolidating corporate functions, and repositioning our commercial development activities. The savings from our restructuring activities in 2004 were approximately $10.0 million, mostly due to workforce reductions that were announced within a month of closing the acquisition. We are projecting annual cost savings in 2005 of approximately $35.0 million. We currently expect to reach our target run rate of $40.0 million in annual savings by the end of 2005, 18 months ahead of schedule. Longer term, we seek to grow revenues and profits by pursuing cross-marketing opportunities, leveraging our geographical infrastructure, enhancing product development capabilities and further streamlining operations. For example, Lubrizol’s stronger position in the European coatings market has been combined with Noveon International’s greater share of the North American coatings market to increase the cross-marketing opportunities for our products. The integration of Noveon International has been facilitated by our companies’ common roots in the greater Cleveland area.

Business Segments

     Following our acquisition of Noveon International, we reorganized our business into two operating and reporting segments: the Lubricant Additives segment, also referred to as Lubrizol Additives, and the Specialty Chemicals segment, also referred to as Noveon. The Lubricant Additives segment is comprised of our previous business in fluid technologies for transportation, advanced fluid systems, emulsified products and the former industrial additives product group of our previous business in fluid technologies for industry. The Specialty Chemicals segment is comprised of the product lines of Noveon International and the former performance chemicals product group of fluid technologies for industry. For the year ended December 31, 2004, the Lubricant Additives segment represented 65% and the Specialty Chemicals segment represented 35% of our consolidated net sales.

     The following chart summarizes the product groupings within each of our key product lines.

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Lubricant Additives Segment
Engine Additives
Passenger Car Motor Oils
Heavy-duty Diesel Engine Oils
Marine Diesel, Small Engines,
Stationery Gas Oils
Viscosity Modifiers
Fuel, Refinery and Oilfield
Products
Specialty Driveline and
Industrial Oil Additives
Automatic Transmission Fluids
Gear Oils
Farm Tractor Fluids
Hydraulic Fluids
Grease Additives
Metalworking Fluids
Compressor Lubricants
Industrial Gear Oils
Services and Equipment
Custom Solutions
Fluid Metering Equipment
Diesel Oxidation Catalysts
Diesel Particulate Filters
Specialty Chemicals Segment
Consumer Specialties
Specialty Materials
Personal Care and Pharmaceuticals
Food and Beverage
Polymer Additives
Performance Coatings
Specialty Resins and Polymers
Coating Additives
TempRite^®
Estane^®

Lubricant Additives Segment

     The Lubricant Additives segment is the leading global supplier of additives for transportation and industrial lubricants. We pioneered the development of lubricant additives over 75 years ago and continue to maintain leadership in the $5.0 billion industry today. Our customers rely on our products to improve the performance and lifespan of critical components, such as engines, transmissions and gear drives for cars, trucks, buses, off-highway equipment, marine engines and industrial applications.

     For the year ended December 31, 2004, the Lubricant Additives segment generated revenues of $2,038.8 million and segment operating income of $244.3 million.

     Our products serve to increase cost-effectiveness by reducing friction and heat, resisting oxidation, minimizing deposit formation, and preventing corrosion and wear. Through our in-house research, development and testing programs, we have the capability to invent and develop a broad range of proprietary chemical components,

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including antioxidants, anti-wear agents, corrosion inhibitors, detergents, dispersants, friction modifiers and viscosity modifiers. We formulate proprietary additive packages by combining these different components to create unique products targeting specific customer problems. We are recognized by our customers for innovative technology, the broadest product line and high quality products. Our key components of our additive packages include:

•   antioxidants that retard oil thickening;

•   anti-wear agents that prevent surfaces metal-to-metal contact;

•   corrosion inhibitors that prevent rust;

•   detergents that prevent deposit build-up;

•   dispersants that protect equipment by suspending contaminant particles;

•   friction modifiers that control friction at surfaces;

•   polymer-based viscosity modifiers that allow lubricants to operate over broad temperature ranges; and

•   pour point depressants that control low temperature fluid thickening.

     Our products are essential to the performance of the finished lubricant, yet represent a relatively small portion of its volume. Our products are often designed to meet specific customer requirements. For example, we work with customers to develop additive packages that perform in combination with their proprietary base oil or that meet their marketing objectives to differentiate their lubricant. Extensive testing is conducted in our world-class laboratories, global mechanical testing facilities and in the field to determine additive performance under actual operating conditions. With this testing, we provide proof of performance, which enables our customers to label and certify the lubricant as meeting the exact performance specifications required for these products by the industry. The majority of our products are designed to meet an industry standard or specification.

     We have three primary product lines within our Lubricant Additives segment: engine additives, specialty driveline and industrial oil additives, and services and equipment.

     Engine Additives. Our engine additives products hold a leading global position for a wide range of additives for passenger car, heavy-duty diesel, marine diesel, stationary gas and small engines. We also produce fuel additives and refinery and oilfield products. Our customers, who include major global and regional oil companies, refineries and specialized lubricant producers and marketers, blend our additive products with their base oil and distribute the finished lubricant to end users via retail, commercial or vehicle original equipment manufacturer (OEM) channels. Passenger car motor oils and diesel engine oils are more than 80% of our engine additive sales. In 2004, our engine additives products generated total revenues of $1,222.9 million.

     The following is a list of representative uses for and a description of our engine additives products:

Category	Product/Brand	Description
Engine Additives	Passenger car motor oils, heavy-duty diesel engine oils, marine diesel, small engines, stationery gas and viscosity modifiers	Additives that extend engine life, lower emissions and enhance fuel economy.
	Fuel, refinery and oilfield products and other components	Additives designed to eliminate deposits and provide fuel system cleanliness, prevent rust and corrosion, enhance fuel economy, provide anti-knock, lower volatility and improve storage stability.

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     Specialty Driveline and Industrial Oil Additives. We are a global supplier of specialty driveline and industrial oil additive products for use in driveline and industrial applications. In 2004, our specialty driveline and industrial oil additives products generated total revenues of $743.2 million.

     Specialty Driveline Additives

     Our specialty driveline additives products include additives for automatic transmission oils and gear oils for cars, trucks, buses, off-highway equipment and farm tractors. Relative to engine oils, specialty driveline additives are more complex formulations that carry higher average pricing and value and have longer product life cycles. We sell our products to major global and regional oil companies, specialized lubricant producers and marketers. Our customers use our products to blend with their lubricant fluids and distribute the finished lubricant to end users via retail, commercial or vehicle OEM channels. The specialty driveline additives industry is characterized by well-established product lines that meet OEM specifications and carry OEM approvals.

     Industrial Oil Additives

     Our industrial oil additives products include additives for hydraulic lubricants, metalworking fluids, industrial gear oils and grease, as well as compressor lubricants. We sell our products to major global and regional oil companies, specialized lubricant producers and marketers. Our customers use our products to blend with their fluid products and distribute the finished lubricant to end users via retail, commercial or OEM channels. Because of our products are sold to industrial end-markets, our industrial oil additives products are exposed to economic cycles more than other products within the Lubricant Additives segment.

     The following is a list of representative uses for and a description of our specialty driveline and industrial oil additives products:

Category	Product/Brand	Description
Specialty Driveline and Industrial Oil Additives	Driveline additives for automatic transmission fluids, gear oils and farm tractor fluids	OEM-specific additives that provide multiple and complex performance properties, including reducing friction in order to prevent wear of transmissions, gears and farm tractor components.
	Additives for industrial fluids, including hydraulics, metalworking, industrial gear, grease and compressor fluids	A wide range of additives to meet the lubricant performance requirements of industrial equipment.

     Services and Equipment. Services and equipment is comprised of fluid metering devices, particulate emission trap devices, FluiPak^TM sensor systems and outsourcing strategies for supply chain and knowledge center management. In 2004, our services and equipment products generated total revenues of $72.7 million.

     The following is a list of representative uses for and a description of our services and equipment products:

Category	Product/Brand	Description
Services and Equipment	Custom Solutions	Custom blending of finished lubricants and training services for oil company customers.
	Lubrizol Performance Systems	Precision blending and additive metering equipment for the petroleum and chemical industries.
	Engine Control Systems	A full range of original equipment and aftermarket products, including diesel oxidation catalysts and particulate filters, for treating harmful exhaust emissions from diesel, propane and natural gas engines.

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Specialty Chemicals Segment

     The Specialty Chemicals segment represents a diverse portfolio of performance chemicals used in consumer and industrial applications, such as ingredients for personal care and pharmaceutical products, food and beverage products, emulsions and additives for coatings and inks, and specialty plastics and materials.

     For the year ended December 31, 2004, the Specialty Chemicals segment generated revenues of $1,120.7 million and segment operating income of $85.6 million.

     We have three primary product lines within our Specialty Chemicals segment: consumer specialties, performance coatings and specialty materials.

     Consumer Specialties. We are a global producer of specialty chemicals targeting the personal care, pharmaceutical and food and beverage industries and a leading provider of engineered adhesives, polymer additives and specialty emulsifiers. Key products include Carbopol^® acrylic thickeners, film formers, fixatives, emollients, silicones, botanicals, active pharmaceutical ingredients and intermediates, benzoate preservatives, fragrances, synthetic food dyes, natural colorants, Hycar^® reactive liquid polymers, rubber and lubricant antioxidants, rubber accelerators and ADEX^® specialty emulsifiers for mining explosives. In 2004, our consumer specialties products generated total revenues of $481.7 million.

     Personal Care and Pharmaceuticals

     We are a global producer of specialty chemicals targeting the personal care and pharmaceutical industries. Our products impart physical and sensory properties, such as texture, stability and thickness to products, including lotions, shampoos, hair gels, cosmetics and personal and oral hygiene products. Key products in this area include selected functional specialties and formulation additives such as specialty surfactants, methyl glucoside and lanolin derivatives, and Carbopol^® acrylic thickeners, film formers and fixatives. Our products are an important component of the functionality and aesthetics of the end product, but typically represent a small portion of the customer’s total product costs. Key product families include:

•   Carbopol^® acrylic thickener, which is a global leader in synthetic thickeners due to its efficient stabilizing properties and superior thickening capabilities. Primary end-uses in the personal care industry include hair care, skin care and personal and oral hygiene products. Pharmaceutical primary end-uses include topical and controlled-release applications.

•   Methyl glucoside and lanolin derivatives that enhance the functional and aesthetic properties of personal care products by delivering characteristics such as emulsification, thickening and moisturizing, as well as imparting the elegant feel to lotions and creams.

•   AMPS^® specialty monomers that are used in the manufacture of polymers for a variety of applications such as dishwashing detergents to reduce spotting, skin creams to improve lubricity and feel, medical gels for defibrillator pads to enhance conductivity, and coatings and adhesives to improve adhesion.

•   Specialty surfactants and additives that enhance the functional and aesthetic properties of personal care products and household and industrial cleaners by improving characteristics such as foaming, cleansing, conditioning and mildness. Surfactants are primarily used in hair care products, such as shampoos and body washes.

     Recent acquisitions have extended our product breadth in personal care. In September 2003, we purchased a natural skin care ingredients business from The Dow Chemical Company. In October 2003, Noveon International purchased a controlling interest in SNP, a Thailand-based manufacturer and marketer of botanical extracts used in personal care product formulations. SNP provides us with access to products that we plan to sell throughout our global distribution system. In January 2004, Noveon International purchased Scher Chemicals, Inc., a manufacturer of emollient and surfactant specialty chemicals used in cosmetic and other personal care formulations.

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     The following is a list of representative uses for and a description of our personal care and pharmaceuticals products:

Category	Product/Brand	Description
Personal Care and Pharmaceuticals	Carbopol®	Acrylic thickener, which imparts stability and improves aesthetics. Often used as a controlled release agent.
	Pemulen®	Polymeric emulsifier reducing formulation irritancy and providing unique sensory properties.
	Avalure®	Polymers for color cosmetics and skin care.
	Specialty silicones	Polymers affecting slip-and-feel.
	Fixate™	Resin for hair styling.
	Emollients	Improve skin feel and appearance.
	Colorants	Impart color in personal care products.
	Botanical extracts	Specialty additives for cosmetic and skin care formulations.
	Methyl glucoside derivatives, including Glucamate®	Natural thickeners, emulsifiers and moisturizers for shampoos, liquid cleansers, face and body creams and lotions.
	Lanolin derivatives	Natural emollients, emulsifiers and conditioners for creams, lotions and color cosmetics.
	AMPS® monomers	Specialty monomer for high performance polymers.
	Specialty surfactants, including Sulfochem®	Enhance cleansing, foaming and moisturizing of shampoos, body washes, industrial and household cleaners.
	Polycarbophil	Active agent for bulk laxatives.
	Amino acid-based actives	Active ingredients for pharmaceuticals.
	Advanced intermediates	Used in the production of active pharmaceutical ingredients.
	Cassia gum	Gelling agents for human food (Japan) and pet food.

     Food and Beverage

     We are a supplier of products that preserve freshness and improve the color and consistency of food and beverages, making them more appealing to consumers. We are a leading global producer of benzoate preservatives, a leading U.S. supplier of synthetic colorants and an integrated producer of flavors, fragrances and other food additives to the food and beverage industry. Benzoates improve the shelf life of consumable goods and are the preservative of choice for manufacturers of soft drinks, bottled beverages, fruit-based products and prepared salads due to their antimicrobial properties. We believe that our Kalama, Washington benzoate facility is the largest facility of its type in North America and the second largest in the world, giving us the capability to serve large customers globally. This facility also produces a number of high-value, distinct flavor and fragrance products for use in many food and personal care products as well as certain intermediate products. The intermediate products include plasticizers used in adhesives, sealants and safety glass, and phenol, a co-product, used for adhesive resins in forest-product applications.

     We consolidated a series of small acquisitions that supply foam control agents, which reduce the amount of foam generated in a variety of industrial processes. Our antifoam and defoaming agents are based on a wide variety of chemistries, including silicone. We specialize in defoamers and antifoam agents for the food processing,

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fermentation, grain and sugar-sweetener industries, as well as for the metalworking, coatings, ink, textile, pharmaceutical, water treatment, mining and pulp and paper industries.

     We also sell a full line of FDA-approved food, drug and cosmetic primary dyes (including blends of primary dyes), as well as lakes and natural colors. Primary end-uses for our products within food and beverage applications include soft drinks and processed foods, such as canned soup and pre-made meals. In addition, within the colorant operation, we produce pigment dispersions for use in architectural coatings and technical dyes used in household dyes and other applications. We also sell defoamer and antifoam additives that are used in food applications to manage the level of foaming that occurs.

     The following is a list of representative uses for and a description of our food and beverage products:

Category	Product/Brand	Description
Food and Beverage	Colors
	Food, drug and cosmetic dyes, lakes, natural colors and pigments	Colorants for beverages, confectionary goods, cosmetics, dry mixes/snacks, processed foods and pet food and colorants for inks, paints and paper dyes.
	Benzoates
	Sodium benzoate and potassium benzoate	Improves shelf life for certain consumable goods. Preservative for manufacturers of soft drinks, bottled beverages, fruit-based products and prepared salads.
	Flavors and Fragrances
	Benzaldehyde-based chemicals	Food, personal care and soap products.
	Intermediates
	Phenol, benzaldehyde, benzyl alcohol and benzoic acid	Pharmaceuticals, coatings, agrochemical products, plasticizers, adhesives, sealant products and alkyd resins.
	Foam Control Agents
	Silicone and other chemistries	Reduce foam in processing of food, grain, fermentation and a wide range of industrial products.

     Polymer Additives

     We are a leading global supplier of reactive liquid polymers (RLP) sold under the trademark Hycar^®, and one of the leading North American producers of polymer additives including rubber and lubricant antioxidants and rubber accelerators. Our products in this category extend the life and improve the performance characteristics of rubber, lubricating oil, plastics and thermoset resin-based formulations. RLP is a high-growth niche product for technologically challenging applications, including structural and engineered adhesives used in aerospace, transportation and electronics. RLP improves impact and crack resistance in composites and coatings and improves the toughness and long-term durability of epoxy-based structural adhesives. RLP growth is anticipated to exceed overall growth of the high-end adhesives industry, as the product is increasingly utilized for its superior performance characteristics relative to other binding agents.

     Our antioxidant products are used in rubber, plastics and lubricants and are marketed under the Good-Rite^® name, a leading industry brand. Antioxidants prevent oxidative degradation and are primarily utilized by rubber manufacturers and, to a lesser extent, plastic manufacturers, to impart durability and prevent the loss of functional attributes such as flexibility. In motor oil and other lubricants, antioxidants prevent thermal breakdown and extend product life. We also manufacture a line of accelerators marketed under our brand Cure-Rite^®, which are utilized by rubber manufacturers to reduce the vulcanization/curing time, and thereby improve manufacturing productivity.

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     The following is a list of representative uses for and a description of our polymer additives products:

Category	Product/Brand	Description
Polymer Additives	Reactive Liquid Polymer
	Hycar®	Used as a toughener and flexibilizer in thermoset resin formulations (construction, composites, coatings and structural adhesives).
	Antioxidants
	Good-Rite®	Primarily used by rubber manufacturers to prevent oxidative degradations, impart durability and prevent loss of flexibility.
	Accelerators
	Cure-Rite®	Helps reduce vulcanization/curing time.

     Performance Coatings. We are a leading supplier of specialty resins and additives for the coatings and ink markets worldwide. We offer a wide range of products for formulating paints, coatings and inks. In 2004, our performance coatings products generated total revenues of $391.9 million.

     Our business strategy for performance coatings is centered on our ability to formulate and compound polymer emulsions to create customized solutions meeting the specific needs of our customers. Many of our coatings customers have expanded their operations around the world. In response, Noveon International expanded its product lines and geographic coverage with a focus on strategic international account customers. We also recognize the importance of middle tier and local customers, who we service economically with our trained local agents and distributor network. Noveon International had success with water-borne acrylic and polyurethane technologies as global restrictions targeting the reduction of the volatile organic compounds prevalent in solvent-based products have become more stringent. We continue to develop innovative products based on these technologies to enhance our portfolio. We expect water-borne formulations to continue to grow faster than the overall industry growth rate for the niche industries in which we participate.

     Specialty Resins and Polymers

     Our water-based polymer emulsions and dispersions, including resins and auxiliaries, are used in the production of high-end paint and coatings for wood, paper, metal, concrete, plastic, textiles and other surfaces. Our acrylic emulsions and polyurethane dispersions, which are environmentally attractive substitutes for solvent-based and hydrocarbon products, are valued for the superior gloss and durability properties they provide. In addition, our polymers are used as ink vehicles, overprint varnishes and functional coatings for specialty paper, printing and packaging applications. We supply acrylic emulsions used to improve the appearance, texture, durability and flame retardance of high-end specialty textiles sold to the home furnishings, technical fabrics and apparel industries. In addition, we believe we are the only fully integrated U.S. supplier of glyoxal and glyoxal-based resins for durable press and wrinkle-resistant textile additives.

     In addition to water-based polymers, we specialize in unique, non-aqueous acrylic and other proprietary polymer resins for the paint and coatings, printing ink, laminating, adhesives and sealants, and grease markets. These value-added Doresco^® specialty resins not only function as carriers for pigment, but also provide surface protection and adhesion properties. We work closely with our customers to develop resins that address their specific problems.

     The following is a list of representative uses for and a description of our polymer products:

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Category	Product-line	Description
Specialty Resins and Polymers	Acrylic Emulsions, Polyurethane Dispersions and Other Water-based Systems, Hycar®, Sancure®, Algan®, Performax®	Provide superior gloss and durability properties to paints and coatings. End markets include wood, paper, metal, concrete, plastic and textiles.
	Acrylic and Other Polymer Resins, Doresco®	Function as carriers for pigments, and provide surface protection and adhesion properties. End-markets include paint and coatings, printing ink, laminating, adhesives and sealants and grease.

     Coating Additives

     Our additives for coatings and inks are used to enhance the appearance and durability of coatings in architectural and industrial uses, as well as to improve their processing and application characteristics. Additives such as pigment dispersants enhance the processing and performance of printing ink, while also maximizing color strength and stability in coatings and plastics. We are a leading global supplier of surface modifiers that improve the abrasion resistance properties and film characteristics of printing ink and coatings. Our products include:

•   High-performance hyperdispersants for coatings, inks, thermoplastics and thermoset composites. We are a world leader in polymeric hyperdispersant technology, sold under the Solsperse^® and Solplus^® trade names. Hyperdispersants improve the dispersion of almost any solid particulate (including pigments, fillers, flame retardants and fibers) into almost any liquid medium (water, solvents and resins). They are primarily used to achieve even color saturation. They enrich and strengthen color, while reducing production costs and solvent emissions. We also produce Ircosperse^® pigment dispersants for coatings and COLORBURST™ pigment dispersants for printing inks.

•   Surface modifiers improve the performance of industrial, architectural, can, coil, wood and powder coatings by enhancing and protecting surfaces. Lanco^®, Lanco^® Glidd, Lanco^® Matt and Aquaslip™ surface modifiers impart a variety of properties to a coating, including enhanced slip, improved abrasion and scratch resistance, matting, texturing and a silky, soft feel.

•   Rheology control additives improve the performance of coatings by providing thickening, sag control, pigment anti-settling and improved surface appearance. Rheology control additives are sold under the brand names Ircothix^®, Ircogel^® and Solthix^®.

•   Foam control additives for paints and coatings minimize air bubbles and are sold under the FOAM BLAST^® and Antibubble™ brands.

•   Specialized additives for inks improve rub resistance properties and film characteristics.

     The following is a list of representative uses for and a description of our coating additives products:

Category	Product/Brand	Description
Coating Additives	Dispersants, Solsperse® Ircosperse®, COLORBURST™	Improve the dispersion of almost any solid particulate into almost any liquid medium. End-markets include coatings and printing inks.
	Surface Modifiers Lanco®, Lanco® Glidd, Lanco® Matt, Aquaslip™	Impart a variety of properties to a coating, including enhanced slip, improved abrasion and scratch resistance, matting, texturing and a silky, soft feel. End markets include industrial, architectural, can and coil, wood and powder coatings.

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Category	Product/Brand	Description
	Rheology Control Additives, Ircothix®, Ircogel® and Solthix®	Provide thickening, sag control and improved surface appearance of coatings.
	Foam Control Additives, FOAM BLAST® and Antibubble™	Minimize air bubbles in paints and coatings.
	Specialized Additives for Inks, Duotron®, Liquitron®, Fluotron®	Improve the processing, performance and rub resistance properties.

     Specialty Materials. We are a leading global supplier of chlorinated polyvinyl chloride (CPVC) resins and compounds sold under the trademark TempRite^®. We are also a leading producer of cross-linked polyethylene compounds (PEX) sold under the trademark TempRite^®. Applications for TempRite^® resins and compounds include piping for residential and commercial plumbing and fire sprinkler systems. In addition to TempRite^®, we are also a leading producer of thermoplastic polyurethane (TPU) sold under the trademark Estane^®. Applications for Estane^® TPU include plastic film and sheet for various coatings processes. In 2004, the specialty materials product line generated total revenues of $247.1 million.

     Chlorinated Polyvinyl Chloride

     TempRite^® CPVC is a technologically advanced heat, fire and chemical resistant polymer that we developed to serve technically demanding applications not well served by traditional PVC and other commodity plastics. Our TempRite^® CPVC polymers are sold to customers who produce plastic piping for residential and commercial plumbing, fire sprinkler systems and industrial piping applications. TempRite^® CPVC piping has inherent advantages over copper and other metals due to its heat and corrosion resistance, increased insulation properties, mold resistance, ease of installation and lower installed cost. We market our branded TempRite^® CPVC products for specific applications: FlowGuard^® and FlowGuard Gold^® for residential and commercial plumbing, BlazeMaster^® for fire sprinkler systems and Corzan^® for industrial piping. We believe we have built strong end-user awareness of our brands by using a direct sales force that markets directly to builders, contractors, plumbers, architects, engineers and building owners.

     In 2001, Noveon International purchased select assets and technology to manufacture PEX compounds, further used to produce PEX pipe. TempRite^® PEX enables us to add a flexible piping compound to our rigid piping product offering. TempRite^® PEX is a small but growing product for applications that demand flexible piping systems.

     The following is a list of representative uses for and a description of our CPVC and PEX products:

Category	Product/Brand	Description
CPVC	TempRite®	Residential plumbing
	FlowGuard®	Residential and commercial plumbing
	FlowGuard Gold®	Residential and commercial plumbing
	Corzan®	Industrial and commercial piping
	BlazeMaster®	Fire sprinkler piping
PEX	TempRite®	Flexible piping systems

     Thermoplastic Polyurethane

     Estane^® TPU, an engineered, highly versatile thermoplastic, provides a high quality, lower cost alternative to rigid plastics and flexible rubber. Performance attributes of Estane^® TPU include abrasion, heat and chemical resistance, minimal fatigue from bending, ease of processing and good paintability. These performance characteristics make Estane^® TPU attractive for use in a broad range of end-uses, including film and sheet for various coating processes, wire and cable insulation, athletic equipment (such as footwear), medical applications,

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pneumatic tubing and automotive molded parts. Noveon International recently introduced several new product families that extend the uses for Estane^® TPU. This includes products that can be melt spun into elastic spandex fibers and materials that offer enhanced breathability for garments. We believe that Estane^® TPU is one of the industry’s leading brand names. We also market Stat-Rite^® thermoplastics, which are static dissipative materials used in packaging for the electronics industry. In addition, we market fiber-reinforced TPU under the Estaloc^® brand. Estaloc^® reinforced engineering thermoplastics offer the functional properties of traditional TPU, yet are reinforced for higher stiffness to provide the strength, dimensional stability and impact resistance required to withstand a variety of tough applications and harsh environments. Applications include sporting goods, agricultural equipment and other mechanical components.

     In October 2003, Noveon International purchased select assets and technology of Thermedics Polymer Products, LLC, a manufacturer of aliphatic TPU, which has allowed us to enter high-value optical film, medical tubing and other applications.

     The following is a list of representative uses for and a description of our TPU products:

Category	Product/Brand	Description
TPU	Estane®	Aromatic grades for film and sheet, wire and cable insulation, athletic equipment, medical applications, pneumatic tubing, automotive molded parts and adhesives.
	Estaloc®	Automotive trim, sporting goods, agricultural equipment and other mechanical components.
	Stat-Rite®	Packaging of semiconductors, sensitive electronic components, disk drive heads and cell phone components.
	Tecoflex®	Aliphatic grades for optical film, medical tubing and general industrial applications.

Competition

     Our Lubricant Additives business is highly competitive in terms of price, technology development, product performance and customer service. Our principal competitors, both in the United States and overseas, are Infineum, a joint venture involving Shell Oil Company and Exxon Mobil Corporation; Chevron Oronite Company, a subsidiary of ChevronTexaco Corporation; and Afton Chemical Corporation, a subsidiary of NewMarket Corporation (formerly Ethyl Corporation). Petroleum companies also produce, either directly or indirectly, lubricants and fuel additives for their own use and also sell additives to others. These petroleum companies are also our customers, and some of them sell raw materials to us. We believe, based on volume sold, that we are a leading supplier of performance additives for lubricants to the petroleum industry.

     Our Specialty Chemicals business faces a variety of competitors in each of our product lines, but we believe no single company competes with us across all of our existing product lines. The specialty chemicals industry is highly fragmented. Individual products or service offerings compete on a global, regional and local level due to the nature of the businesses and products, as well as the applications and customers served. The following chart sets forth our principal competitors of the Specialty Chemicals business by product line:

Product Line	Principal Competitors
Consumer specialties	Cognis, CP Kelco, Croda, DSM, FMC, Hercules, ISP, Nihon Junkayu, Quest, Rhodia, Rohm and Haas, Sensient, Sigma/3V, Sumitomo Seika, Symrise, Tessenderlo, Velsicol
Performance coatings	Avecia, BASF, Bayer, Byk, Ciba, Clariant, Dow Chemical, Eastman, Johnson Polymer, OMNOVA, Parachem, PolymerLatex, Reichhold, Rohm and Haas, Tego, UCB

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Product Line	Principal Competitors
Specialty materials	Atofina, BASF, Bayer, Dow, Georgia Gulf, Huntsman, Kaneka, Sekisui Chemical, Victaulic

Sales and Marketing

     We primarily market our lubricant and fuel additives products worldwide through our own direct sales organization. In addition, we use sales agents and distributors where necessary. Our additive customers primarily consist of oil refiners and independent oil blenders and are located in more than 100 countries. Our 10 largest customers, most of which are international oil companies and a number of which are groups of affiliated entities, accounted for approximately 38% of our consolidated net sales in 2004.

     In order to maximize our understanding of customer needs as well as emerging trends, our sales and marketing activities for our specialty chemicals products are organized by end-use applications. Each sales team includes representatives from sales, marketing and research and development.

     Most of our sales and marketing staff is technically oriented and works closely with customers to develop products and formulations that deliver the desired product attributes. Some of our laboratories are equipped with small-scale equipment that replicates our customers’ processing capabilities, which ensure our solutions are easily and efficiently implemented at our customers’ facilities.

     Finally, many of our sales and marketing resources are dedicated to stimulating end-use demand for our products. For example, in the case of our TempRite^® plumbing, fire sprinkler and industrial piping applications, our resources are focused on marketing to building contractors, plumbers, distributors and construction code officials to convince them to specify our products in their projects or building codes.

Research, Development and Technology

     Technology leadership in design and formulation of additives and specialty chemicals drives our business. Historically, we have emphasized consistent investment in research. Excluding acquisitions, research and testing expense consistently has been about 8% of sales for the last two decades – higher than most chemical companies. Research expense alone has been 4.5% to 5.0% of sales annually for the last 10 years. We have developed internally a large percentage of the products we manufacture and sell. Our internal technical resources encompass chemical synthesis, world-class physical and analytical science, statistical and computer modeling expertise and extensive applications technology and testing laboratories. We balance centralized research facilities with applications technology capabilities that are closely tied to their counterparts in the commercial organizations. Our technical facilities are located all over the world. We provide tools and processes for knowledge sharing and for leveraging our technology globally and across product lines.

     Lubricant Additives. In our Lubricant Additives segment, the majority of the additives we manufacture and sell are developed by our in-house research group. Technological advances in materials and in the design of engines and other automotive equipment, combined with rising demands for environmental protection and fuel economy, require increasingly sophisticated research capabilities to meet industry performance standards.

     We have technical facilities in Wickliffe, Ohio; Hazelwood, United Kingdom; and Kinuura, Japan for lubricant additives research. We also conduct a limited program of corporate research designed to leverage technology across our product lines. We maintain mechanical testing laboratories at those three locations, equipped with a variety of gasoline and diesel engines, driveline and other mechanical equipment to evaluate the performance of additives for lubricants and fuels. In addition, we make extensive use of independent research firms. Global field testing is conducted through various arrangements with fleet operators and others.

     We maintain offices in Detroit, Michigan; Hazelwood, United Kingdom; Paris, France; Hamburg, Germany; Shanghai, China; Mumbai, India; Tokyo, Japan; and Seoul, South Korea to maintain close contact with the principal automotive OEMs of the world and to keep us abreast of the performance requirements for our products. These liaison activities also serve as contacts for cooperative development and evaluation of products for future applications.

     Specialty Chemicals. Our Specialty Chemicals segment has had a long history as an industry innovator, creating proprietary, high-performance materials for our customers, including ingredients for personal care products,

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the invention of Carbopol^® acrylic thickener, additives for coatings and the commercial development of TempRite^® CPVC. We have leveraged our core surface activity chemistry into new specialty chemicals and materials markets through acquisitions and application technology expertise. Our specialty chemical and materials products are derived from a broad range of technology platforms developed either internally or externally through licensing, acquisition or joint technological alliances with global suppliers and customers.

     Our primary research facility for our Specialty Chemicals segment is located in Brecksville, Ohio, where we develop new technologies and products and conduct applications development and technical service for our customers. We maintain other smaller technical facilities in various locations in the United States, Europe and Asia.

     Patents. We own approximately 2,800 patents worldwide relating to our products and manufacturing processes. Although these domestic and foreign patents expire from time to time, we continue to apply for and obtain patent protection for new products on an ongoing basis. We believe that, in the aggregate, our patents constitute an important asset. However, we do not regard our business as being materially dependent upon any single patent or any group of related patents. We use patents in both of our reporting segments.

     Research, Testing and Development Expenditures. Our consolidated research and development expenditures were $108.3 million in 2004, $93.9 million in 2003 and $93.5 million in 2002. These amounts were equivalent to 3.4%, 4.6% and 4.7% of the respective consolidated total revenues for those years. These amounts include expenditures for the performance evaluation of additive developments in engines and other types of mechanical equipment as well as expenditures for the development of specialty chemicals for industrial applications. In addition, we spent $82.5 million, $73.0 million and $74.8 million in 2004, 2003 and 2002, respectively, for technical service (testing) activities, principally for evaluation in mechanical equipment of specific lubricant formulations designed for the needs of petroleum industry customers throughout the world.

     Our research and development staff includes approximately 700 professionals, many of whom possess PhDs or equivalent degrees, and approximately 450 technical service employees. Our research and development staff works with both our sales force and customers to use our wide spectrum of technology platforms and processing capabilities to enhance our product offerings in the specialty chemicals industry. We have developed many of our products in cooperation with our customers, often as a result of their specific needs, resulting in long-standing customer relationships.

Raw Materials

     We use a broad variety of specialty and commodity chemical raw materials in our manufacturing processes, and use oil in processing and blending additives. These raw materials are obtainable from several sources. The materials that we choose to purchase from a single source generally have long-term supply contracts as a basis to guarantee supply reliability. For the most part, our raw materials are derived from petroleum and petrochemical-based feedstocks.

     Lubricant base oil is our single largest purchased raw material, representing about one-third of our purchases, by weight, for the Lubricant Additives segment. Other major categories of raw materials for the Lubricant Additives segment include olefins and esters (approximately 15% of purchases); inorganic acids, bases and oxides (approximately 6%); and alcohols and glycols (approximately 5%). We believe that raw materials derived from petrochemicals are approximately 75% of our purchases for the Lubricant Additives segment. For our Specialty Chemicals segment, no single raw material represents more than 5% of purchases. The top seven raw materials total about 30% of purchases for the Specialty Chemicals segment. Principal raw materials for the Specialty Chemicals segment include acrylates for personal care and coatings, styrene for coatings, toluene for food and beverages, and PVC, PTMEG and MDI for specialty materials.

Environmental Matters

     We are subject to foreign, federal, state and local laws and regulations designed to protect the environment and limit manufacturing wastes and emissions. We believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and the consequent financial liability to us. Compliance with environmental laws and regulations requires continuing management effort and expenditures. We have incurred, and will continue to incur, costs and capital expenditures in complying with these laws and regulations and to obtain and maintain all necessary permits. We believe that the cost of complying

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with environmental laws and regulations will not have a material affect on our earnings, liquidity or competitive position, although we cannot provide you assurance in that regard.

     We believe that our business, operations and facilities are being operated in compliance, in all material respects, with applicable environmental laws and regulations, many of which provide for substantial fines, penalties and criminal sanctions for violations. The operation of manufacturing plants entails environmental risks, and we may incur material costs or liabilities in the future that could adversely affect us. For example, we may be required to comply with evolving environmental laws, regulations or requirements that may be adopted or imposed in the future or to address newly discovered contamination or other conditions or information that require a response on our part.

     Among other environmental laws, we are subject to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as Superfund), under which we have been designated as a “potentially responsible party” that may be liable for cleanup costs associated with various waste or operating sites, some of which are on the U.S. Environmental Protection Agency Superfund priority list. Our experience, consistent with what we believe to be the experience of others in similar cases, is that Superfund site liability tends to be apportioned among parties based upon the contribution of materials to the Superfund site. Accordingly, we measure our liability and carry out our financial reporting responsibilities with respect to Superfund sites based upon this standard, even though Superfund site liability is technically joint and several in nature. We accrue for estimated environmental liabilities with charges to cost of sales. We believe our environmental accrual is adequate to provide for our portion of the costs of all such known environmental liabilities. Based upon consideration of currently available information, we believe liabilities for environmental matters will not have a material adverse affect on our financial position, operating results or liquidity, although we cannot provide you assurance in that regard.

     Noveon International is the beneficiary of agreements with Goodrich Corporation that require Goodrich to indemnify Noveon International for, among other things, certain environmental liabilities and costs relating to facilities of the former Performance Materials Segment of Goodrich. However, we cannot assure you that Goodrich or other third party indemnitors will, in the future, honor their indemnification obligations to us.

Employees

     At December 31, 2004, we and subsidiaries had approximately 7,800 employees of which approximately 56% were in the United States. We believe that our relationship with our employees is good. Seven of our U.S. sites, and approximately 11% of our domestic employees, are organized by labor unions with collective bargaining agreements that are subject to periodic renegotiation. The durations of these collective bargaining agreements vary from three to five years, with four agreements expiring in 2005. We expect to enter into new agreements with these unions as the current agreements expire.

Manufacturing and Properties

     We possess global manufacturing, laboratory and sales and technical service facilities enabling us to provide customers with worldwide service and a reliable supply of products. Our corporate headquarters are located in Wickliffe, Ohio. We have manufacturing facilities and laboratories, which we own or lease, at 33 sites in the United States and 40 sites in approximately 20 other countries. We also have entered into long-term contracts for the exclusive use of major marine terminal facilities at various ports and leases for storage facilities. We maintain a capital expenditure program to support our operations and believe our facilities are adequate for our present operations and for the foreseeable future.

Geographic Area Information

     Financial information with respect to our domestic and foreign operations is contained in Note 14 to our consolidated financial statements, which is included in our 2004 Annual Report to shareholders, and is incorporated herein by reference.

     We supply our customers abroad through exports from the United States and from overseas manufacturing plants. We believe the political and economic risks related to our foreign operations are mitigated due to the stability of the countries in which our largest foreign operations are located.

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Legal Proceedings

     We are engaged in legal proceedings arising in the ordinary course of business. We believe that the ultimate outcome of these proceedings will not have a material adverse impact on our results of operations, financial position or cash flows.

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ITEM 2. PROPERTIES

     Our corporate headquarters are located in Wickliffe, Ohio. Our commercial centers for Lubricant Additives and Specialty Chemicals are located in Wickliffe, Ohio and Brecksville, Ohio, respectively. We have other offices and facilities around the world. The locations of our manufacturing and laboratory facilities are indicated below in the following chart.

			Size
		Laboratory	(approx.)		Reporting Segments
	Owned/	(R&D/Testing) or	in square		Lubricant	Specialty
Location	Leased	Manufacturing	feet		Additives	Chemicals
Sydney, Australia	Owned	Manufacturing		45,000	x	x
Antwerp, Belgium	Owned	Manufacturing		81,000		x
Oevel, Belgium	Owned	Manufacturing		215,000		x
Vilvoorde, Belgium	Owned	Manufacturing		27,000		x
Rio de Janeiro, Brazil	Owned	Manufacturing		270,000	x	x
Niagara Falls, Ontario, Canada	Owned	Manufacturing		175,000	x
London, Ontario, Canada	Owned	Manufacturing		22,000	x
Newmarket, Ontario, Canada	Owned	Manufacturing		17,000	x
Lanzhou, China(1)	Plant is owned; land is leased	Manufacturing		35,500		x
Qingpu, China	Leased	Manufacturing		45,000		x
Wenzhou, China(1)	Leased	Manufacturing		53,000		x
Le Havre, France	Owned	Manufacturing		960,000	x
Lyon, France	Leased	Laboratory		13,500		x
Mourenx, France	Owned	Manufacturing		40,000	x
Rouen, France	Owned	Manufacturing		760,000	x
Hamburg, Germany	Leased	Laboratory, Manufacturing		65,000	x
Raubling, Germany	Leased/Owned	Laboratory, Manufacturing		134,500		x
Ritterhude, Germany	Owned	Laboratory, Manufacturing		85,000		x
Chennai, India	Leased	Manufacturing		114,000		x
Mumbai, India(1)	Plant is owned; land is leased	Manufacturing		230,000	x
Vadadora, India	Owned	Manufacturing		294,000		x
Kinuura, Japan	Owned	Laboratory, Manufacturing		710,400	x	x
Senawang, Malaysia	Owned	Manufacturing		38,000		x
Apodaca, Mexico	Owned	Manufacturing		135,000	x
Delfzijl, The Netherlands	Leased	Manufacturing		50,000		x
Yanbu, Saudi Arabia	Owned	Laboratory, Manufacturing		4,900	x
Singapore	Plant is owned; land is leased	Manufacturing		500,000	x
Singapore	Leased	Laboratory		1,300		x
Durban, South Africa	Owned	Manufacturing		75,000	x	x
Pohang, South Korea	Leased/Owned	Manufacturing		49,000		x
Barcelona, Spain	Leased/Owned	Laboratory, Manufacturing		76,000		x
Malmo, Sweden	Owned	Manufacturing		6,700	x
Muang, Thailand	Jointly Owned	Laboratory, Manufacturing		15,000		x
Barnsley, United Kingdom	Owned	Laboratory, Manufacturing		50,000		x
Blackley, Manchester, United Kingdom	Leased	Laboratory		13,000		x
Bromborough, United Kingdom (2)	Owned	Manufacturing		140,000	x	x
Fareham, United Kingdom	Owned	Manufacturing		13,000	x
Hazelwood, United Kingdom	Owned	Laboratory		77,000	x

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			Size
		Laboratory	(approx.)		Reporting Segments
	Owned/	(R&D/Testing) or	in square		Lubricant	Specialty
Location	Leased	Manufacturing	feet		Additives	Chemicals
Huddersfield, United Kingdom	Plant is owned; land is leased	Laboratory, Manufacturing		37,000		x
Grangemouth, Scotland, United Kingdom	Leased	Laboratory		900		x
Paso Robles, CA	Plant is owned; land is leased	Laboratory, Manufacturing		26,000		x
Atlanta, GA	Owned	Manufacturing		51,400	x
Peachtree City, GA(3)	Owned	Manufacturing		42,500		x
Countryside, IL	Owned	Laboratory, Manufacturing		60,000		x
Henry, IL	Owned	Manufacturing		100,000		x
McCook, IL	Leased	Laboratory, Manufacturing		68,000		x
Calvert City, KY	Owned	Manufacturing		75,000		x
Louisville, KY	Owned	Manufacturing		232,000		x
Lawrence, MA	Owned	Laboratory, Manufacturing		160,000		x
Wilmington, MA	Leased	Manufacturing		83,600		x
Midland, MI	Owned	Laboratory, Manufacturing		68,700	x
Reno, NV	Leased	Manufacturing		54,300	x
Linden, NJ(4)	Owned	Laboratory, Manufacturing		9,500		x
Pedricktown, NJ	Owned	Manufacturing		40,000		x
Charlotte, NC	Leased	Laboratory		2,000		x
Charlotte, NC	Owned	Manufacturing		270,000		x
Gastonia, NC	Owned	Laboratory, Manufacturing		116,000		x
Akron, OH	Owned	Manufacturing		236,000		x
Avon Lake, OH	Owned	Manufacturing		240,000		x
Bowling Green, OH	Owned	Manufacturing		75,000		x
Brecksville, OH	Owned	Laboratory		142,000		x
Chagrin Falls, OH	Owned	Manufacturing		49,000		x
Cincinnati, OH	Leased	Laboratory, Manufacturing		450,000		x
Painesville, OH	Owned	Manufacturing		450,000	x	x
Wickliffe, OH	Owned	Laboratory		233,000	x
Mountaintop, PA(5)	Owned	Laboratory, Manufacturing		42,000		x
Spartanburg, SC	Leased	Laboratory		22,300	x
Spartanburg, SC	Owned	Laboratory, Manufacturing		71,000	x	x
Bayport, TX	Owned	Manufacturing		810,000	x	x
Deer Park, TX	Owned	Manufacturing		1,570,000	x
Houston, TX	Owned	Manufacturing		39,000		x
Kalama, WA	Owned	Laboratory, Manufacturing		550,000		x
Cheyenne, WY	Owned	Laboratory, Manufacturing		32,000		x

(1)	These manufacturing plants are owned and operated by joint venture companies licensed by Lubrizol.
(2)	Operations are expected to cease by the end of 2006.
(3)	Acquired this property in February 2005.
(4)	Operations are expected to cease by the end of the second quarter of 2006.
(5)	Operations are expected to cease by the end of the third quarter of 2005.

     In some cases, the ownership or leasing of these facilities is through a subsidiary or affiliate.

     We have entered into long-term contracts for our exclusive use of major marine terminal facilities at the Port of Houston, Texas. In addition, we have leases for storage facilities in Australia, Chile, Denmark, France, the Netherlands, Singapore, Spain, South Africa, Sweden, Turkey and United Kingdom; Paso Robles, Bakersfield and Los Angeles, California; St. Paul, Minnesota; Bayonne and Edison, New Jersey; Perrysburg, Ohio; Oklahoma City, Oklahoma; Odessa, Texas and Tacoma, Washington.

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     On January 17, 2005, we announced we will close our Lubricant Additives manufacturing plant in Bromborough, United Kingdom and resource that plant production to other facilities primarily in France and in the United States. Production phase-out is planned to begin in the second quarter of 2005 and is expected to be completed by the fourth quarter of 2006. A fourth quarter 2004 non-cash restructuring charge of $17.0 million pre-tax was recorded for the impairment of property, plant and equipment. We currently anticipate that future pre-tax charges and cash expenditures of approximately $13.0 million to $15.0 million will be incurred in 2005 through 2006 to satisfy anticipated severance and retention obligations, plant dismantling, site restoration and other site environmental evaluation costs and lease-related costs. In addition, we anticipate capital expenditures of approximately $20.0 million, which will be incurred over the next two years to enable our plants in France and the United States to assume the production from Bromborough. When the production transfer is fully implemented, we estimate our pre-tax operating cost savings will approximate $10.0 million annually.

     We maintain a capital expenditure program to support our operations and believe our facilities are adequate for our present operations and for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

     Lubrizol and our subsidiaries are participants in ordinary routine litigation incidental to the business but are not defendants in any material pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to the vote of the security holders during the three months ended December 31, 2004.

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EXECUTIVE OFFICERS OF THE REGISTRANT

     The following sets forth the name, age, recent business experience and certain other information relative to each person who was an executive officer as of February 28, 2005.

Name	Age		Position
James L. Hambrick		50	Chairman of the Board, President and Chief Executive Officer
Joseph W. Bauer		51	Vice President and General Counsel
Donald W. Bogus		57	Senior Vice President and President — Specialty Chemicals
Charles P. Cooley		49	Senior Vice President and Chief Financial Officer
W. Scott Emerick		40	Corporate Controller
Stephen F. Kirk		55	Senior Vice President and President — Lubricant Additives
Gregory R. Lewis		46	Vice President and General Counsel — Specialty Chemicals
Gregory. P. Lieb		52	Vice President, Finance — Lubricant Additives
Annora C. Marcus		42	Assistant Secretary
Scott A. McKinley		43	Vice President, Finance — Specialty Chemicals
Mark W. Meister		50	Vice President and Chief Ethics Officer
Larry Norwood		54	Vice President, Operations —Lubricant Additives
Rosanne S. Potter		45	Treasurer
Leslie M. Reynolds		44	Corporate Secretary
Patrick Saunier		49	Vice President, Information Systems
Jeffrey A. Vavruska		44	Chief Tax Officer
Joanne Wanstreet		53	Vice President, Investor Relations

James L. Hambrick is chairman of the board of directors, president and chief executive officer of The Lubrizol Corporation. He was elected president in January 2003, chief executive officer in April 2004 and chairman of the board effective January 3, 2005. From May 2000 to January 2003, he was vice president responsible for managing corporate strategies in the Asia Pacific region. From October 1998 to April 2000, he was global business manager for engine oils.

Joseph W. Bauer has been the vice president and general counsel of The Lubrizol Corporation since April 1992.

Donald W. Bogus became senior vice president of The Lubrizol Corporation in July 2004 and president of the Specialty Chemicals segment in April 2004. He joined Lubrizol in 2000 as vice president responsible for the Fluid Technologies for Industry segment. He also led Lubrizol’s mergers and acquisitions committee. Prior to joining Lubrizol, Mr. Bogus was with PPG Industries, Inc. where he was vice president for government affairs from May 1999 to February 2000.

Charles P. Cooley is senior vice president and chief financial officer of The Lubrizol Corporation. He joined Lubrizol in 1998 as its chief financial officer and vice president. He was also treasurer from April 1998 to September 2001. Mr. Cooley became senior vice president in July 2004.

W. Scott Emerick joined The Lubrizol Corporation as corporate controller in June 2004. Prior to that, Mr. Emerick was at Noveon International, Inc., where he held the positions of director of finance — TempRite^® products from September 2003 to June 2004 and director of accounting and external financial reporting from April 2001 to September 2003. Prior to joining Noveon International, Mr. Emerick served as director of finance for Flexalloy-Textron, a subsidiary of Textron, Inc., where he held several management positions since 1997.

Stephen F. Kirk became senior vice president of The Lubrizol Corporation in July 2004 and the president of the Lubricant Additives segment in June 2004. Previously, he was vice president of sales and marketing for Lubrizol since January 1999 and vice president of sales from April 1996 to January 1999.

Gregory R. Lewis became vice president and general counsel to the Specialty Chemicals segment in June 2004. Previously, Mr. Lewis was the vice president responsible for managing corporate strategies in the Asia Pacific region

22

from January 2003 to June 2004. He was assistant secretary of Lubrizol from April 2001 to January 2003 and assistant to the general counsel from October 1997 to January 2003.

Gregory P. Lieb became vice president of finance for the Lubricant Additives segment in June 2004. Prior to that position, he was controller – commercial analysis and support from April 1999 until June 2004. From 1993 to April 1999, he was controller – accounting and financial reporting. From 1994 to April 1999, he was also the principal accounting officer of Lubrizol.

Annora C. Marcus has been assistant secretary of The Lubrizol Corporation since April 2003. In addition, she has been the director — foreign audits/transfer pricing since September 2004. She previously has held various tax positions with Lubrizol from October 1997 until September 2004.

Scott A. McKinley became vice president of finance for the Specialty Chemicals segment in June 2004. From February 2001 to June 2004, he was vice president and controller for Noveon International, Inc. From late 1998 until February 2001, he was the director, financial planning and analysis, for the Performance Materials Segment of The B.F. Goodrich Company.

Mark W. Meister has been the vice president of human resources for The Lubrizol Corporation since 1993 and chief ethics officer since 1994.

Larry Norwood is vice president for operations for the Lubricant Additives segment. He was appointed an officer in April 2004. Mr. Norwood joined Lubrizol in 1973 and, most recently, he has served as general manager of the Deer Park and Bayport, Texas facilities.

Rosanne S. Potter joined The Lubrizol Corporation and was named treasurer in September 2001. Previously, she was the vice president and treasurer to Dexter Corporation from 1999 to 2000.

Leslie M. Reynolds is corporate secretary and counsel for The Lubrizol Corporation. She has been counsel since February 1991. She served as assistant secretary from 1997 until her appointment as corporate secretary in April 2001.

Patrick H. Saunier became the vice president for information systems and business processes for The Lubrizol Corporation in July 2004. Mr. Saunier joined Lubrizol’s manufacturing facility in Rouen, France in 1981 and, since 1999 he led the European shared services organization.

Jeffrey A. Vavruska joined The Lubrizol Corporation as chief tax officer in April 2004. Previously, he worked at American Greetings Corporation, where he was executive director of tax from September 2001 to April 2004, and at Cleveland Cliffs, Inc. where he held various tax roles from 1995 to 2001.

Joanne Wanstreet was elected vice president with responsibility for global communications and investor relations for The Lubrizol Corporation in April 2002. From January 2001 to April 2002, Ms. Wanstreet was manager, investor relations. From January 1999 to December 2000, she was finance manager.

All executive officers serve at the pleasure of the Board.

23

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common shares are listed on the New York Stock Exchange under the symbol LZ. The number of shareholders of record of common shares was 3,682 as of February 10, 2005.

     Information relating to the recent price and dividend history of our common shares follows:

	Common Share Price History								Dividends
	2004				2003				Per Common Share
	High		Low		High		Low		2004		2003
1st quarter	$	33.55	$	29.44	$	32.06	$	26.54	$	.26	$	.26
2nd quarter		36.81		30.67		32.46		29.50		.26		.26
3rd quarter		37.37		33.00		34.40		30.50		.26		.26
4th quarter		37.33		32.12		34.31		29.23		.26		.26
									$	1.04	$	1.04

     On October 14, 2004, 6,794 common shares were issued in a private placement transaction exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of that Act. We issued the common shares to the surviving spouse of a former director under a deferred stock compensation plan for outside directors.

     On December 1, 2004, 187 common shares were issued in a private placement transaction exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of that Act. We issued the common shares to a former officer under the deferred compensation plan for officers.

     The following table provides information regarding the company’s purchases of its common shares during the quarter.

					(d) Maximum Number
			(c) Total Number		(or Approximate Dollar
			of Shares (or Units)		Value) of Shares (or
	(a) Total Number of	(b) Average Price	Purchased as Part of		Units) that May Yet be
	Shares (or Units)	Paid per Share	Publicly Announced		Purchased Under the
Period	Purchased1	(or Unit)	Plans or Programs		Plans or Programs
Month #1 (Oct. 1, 2004 through Oct. 31, 2004)	0 Shares	N/A		N/A	N/A
Month #2 (Nov. 1, 2004 through Nov. 30, 2004)	0 Shares	N/A		N/A	N/A
Month #3 (Dec. 1, 2004 through Dec. 31, 2004)	1,607 Shares	$36.60		N/A	N/A
Total	1,607 Shares

     ¹ This column represents common shares that were purchased by the company pursuant to:

(a) its option plan, whereby participants exchange already owned shares to the company to pay for the exercise price of an option or whereby the company withholds shares upon the exercise of an option to pay the withholding taxes on behalf of the employee.

(b) its deferred compensation plans, whereby the company withholds shares upon a distribution to pay the withholding taxes on behalf of the employee.

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ITEM 6. SELECTED FINANCIAL DATA

     The summary of selected financial data for each of the last five years included in the Historical Summary contained on pages 58-59 of our 2004 Annual Report to shareholders is incorporated herein by reference.

     Total debt reported in the Historical Summary includes the following amounts classified as long-term at December 31: $1,964.1 million in 2004, $386.7 million in 2003, $384.8 million in 2002, $388.1 million in 2001, $378.8 million in 2000 and $365.4 million in 1999.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The Management’s Discussion and Analysis of Financial Condition and Results of Operations, including the information appearing under the heading “Cautionary Statements for Safe Harbor Purposes,” contained on pages 9 through 26, inclusive, of our 2004 Annual Report to shareholders is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The information appearing under the heading “Quantitative and Qualitative Disclosures about Market Risk” contained on page 26 of our 2004 Annual Report to shareholders is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated financial statements, together with the report of the independent registered public accounting firm relating thereto, contained on pages 28 through 57, inclusive, of our 2004 Annual Report to shareholders, and the Quarterly Financial Data (Unaudited) contained on page 57 of the 2004 Annual Report to shareholders, are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

     We evaluated, under the supervision and with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of December 31, 2004. Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2004, our disclosure controls and procedures were effective in timely alerting them to material information relating to Lubrizol and our consolidated subsidiaries required to be included in our periodic SEC filings. There were no significant changes in our internal control over financial reporting that occurred during the fourth quarter of 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

     Management’s report on internal control over financial reporting and the report of the independent registered public accounting firm relating thereto are contained on pages 27 and 28, inclusive, of our 2004 Annual Report to shareholders and are incorporated herein by reference.

25

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information contained under the headings “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” of our proxy statement for the 2005 Annual Meeting of Shareholders is incorporated herein by reference. Information relative to executive officers is contained under “Executive Officers of the Registrant” in Part I of this Annual Report on Form 10-K. Information regarding the identification of a financial expert on the Audit Committee contained under the heading “Audit Committee” in our proxy statement for the 2005 Annual Meeting of Shareholders is incorporated herein by reference.

     We have a code of ethics, entitled the Ethical and Legal Conduct Guidelines, that applies to our directors and all employees, including our chief executive officer, chief financial officer, and controller. The Ethical and Legal Conduct Guidelines are posted at the company overview area of our website, www.lubrizol.com.

ITEM 11. EXECUTIVE COMPENSATION

     The information relating to executive compensation contained under the headings “Director Compensation,” “Executive Compensation –Summary Compensation Table,” “Executive Compensation - Stock Incentive Plans,” “Executive Compensation – Long-Term Incentive Plans,” “Employee and Executive Officer Benefit Plans — Pension Plans,” “Employee and Executive Officer Benefit Plans – Supplemental Retirement Plan” and “Employee and Executive Officer Benefit Plans — Executive Agreements” in our proxy statement for the 2005 Annual Meeting of Shareholders is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information relating to security ownership set forth under the heading “Share Ownership of Directors, Executive Officers and Large Beneficial Owners” in our proxy statement for the 2005 Annual Meeting of Shareholders is incorporated herein by reference.

     The information relating to securities authorized for issuance under equity compensation plans set forth under the heading “Equity Compensation Plan Information” in our proxy statement for the 2005 Annual Meeting of Shareholders is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information contained in footnote 1 under the heading “Share Ownership of Directors, Executive Officers and Large Beneficial Owners – Five Percent Beneficial Owners” in our proxy statement for the 2005 Annual Meeting of Shareholders is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

     The information included under the heading entitled “Independent Registered Public Accountant Fees” in our proxy statement for the 2005 Annual Meeting of Shareholders is incorporated herein by reference.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   Documents filed as part of this Annual Report:

1.	Management’s report on internal controls over financial reporting together with the report of the independent registered public accounting firm relating thereto, contained on pages 27 and 28 of our 2004 Annual Report to shareholders, and incorporated herein by reference.
2.	The following consolidated financial statements of The Lubrizol Corporation and its subsidiaries, together with the report of the independent registered public accounting firm relating thereto, contained on pages 28 through 57, inclusive, of our 2004 Annual Report to shareholders, and incorporated herein by reference:
	Report of Independent Registered Public Accounting Firm.
	Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002.
	Consolidated Balance Sheets at December 31, 2004 and 2003.
	Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002.
	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2004, 2003 and 2002.
	Notes to Consolidated Financial Statements.
3.	Schedule

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF THE LUBRIZOL CORPORATION

We have audited the consolidated financial statements of The Lubrizol Corporation and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and for each of the three years in the period ended December 31, 2004, and have issued our report thereon dated March 2, 2005 (which report expresses an unqualified opinion and includes an explanatory paragraph concerning the adoption of a new accounting principle in 2002). We have also audited management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, and have issued our report thereon dated March 2, 2005. Such consolidated financial statements and reports are included in the 2004 Annual Report to Shareholders of The Lubrizol Corporation and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15(a)3. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP
Cleveland, Ohio
March 2, 2005

27

SCHEDULE II - Valuation and Qualifying Accounts
For the years ended December 31, 2004, 2003 and 2002
(in millions of dollars)
	Balance at		Additions		Additions					Balance at
	Beginning		Charged		Charged to					End of
Description	of Year		to Expenses		Other Accounts			Deductions		Year
Year ended December 31, 2004
Allowance for uncollectible accounts	$	4.2	$	0.4	$	7.7	*	$	1.3	$	11.0
Year ended December 31, 2003
Allowance for uncollectible accounts	$	4.4	$	—	$	—		$	0.2	$	4.2
Year ended December 31, 2002
Allowance for uncollectible accounts	$	5.3	$	0.7	$	—		$	1.6	$	4.4

*   Receivable reserves associated with the acquisition of Noveon International, Inc.

     All other schedules have been omitted because they are not applicable.

4.   Exhibits

3.1	Amended Articles of Incorporation of The Lubrizol Corporation, as adopted September 23, 1991.
3.2	Regulations of The Lubrizol Corporation, as amended effective April 27, 1992.
4.1	Amendment to Article Fourth of Amended Articles of Incorporation.
4.2	Amended and Restated Rights Agreement between The Lubrizol Corporation and American Stock Transfer & Trust Company dated as of July 26, 1999.
4.3	Amended and Restated Indenture dated September 28, 2004 (originally dated June 1, 1995) by and among The Lubrizol Corporation, all of The Lubrizol Corporation’s wholly owned direct and indirect domestic subsidiaries, as guarantors, and J.P. Morgan Trust Company, National Association, as successor trustee (incorporated by reference to Exhibit 99.1 of the Form 8-K of The Lubrizol Corporation filed with the SEC on September 29, 2004).
4.4	Amended and Restated Indenture dated September 28, 2004 (originally dated November 25, 1998), by and among The Lubrizol Corporation, all of The Lubrizol Corporation’s wholly owned direct and indirect domestic subsidiaries, as guarantors, and J.P. Morgan Trust Company, National Association, as successor trustee (incorporated by reference to Exhibit 99.2 of the Form 8-K of The Lubrizol Corporation filed with the SEC on September 29, 2004).
4.5	Form of Indenture for Debt Securities of The Lubrizol Corporation (incorporated by reference to Exhibit 4.2 of Amendment No. 2 to the Registration Statement on Form S-3 of The Lubrizol Corporation filed with the SEC on August 24, 2004).
10.1*	The Lubrizol Corporation 1985 Employee Stock Option Plan, as amended (incorporated by reference to Exhibit (10)(a) to The Lubrizol Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000).
10.2*	The Lubrizol Corporation 1991 Stock Incentive Plan, as amended (incorporated by reference to Exhibit (10)(h) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on November 18, 2004).

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10.3*	The Lubrizol Corporation 2005 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to The Lubrizol Corporation’s Current Report on Form 8-K/A filed with the SEC on March 2, 2005).
10.4*	The Lubrizol Corporation Amended Deferred Compensation Plan for Directors (incorporated by reference to Exhibit (10)(b) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on November 18, 2004).
10.5*	The Lubrizol Corporation Deferred Stock Compensation Plan for Outside Directors, as amended (incorporated by reference to Exhibit (10)(i) to The Lubrizol Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003).
10.6*	The Lubrizol Corporation Deferred Compensation Plan for Officers, as amended (incorporated by reference to Exhibit (10)(k) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on November 18, 2004).
10.7*	The Lubrizol Corporation Executive Council Deferred Compensation Plan, as amended (incorporated by reference to Exhibit (10)(l) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on November 18, 2004).
10.8*	The Lubrizol Corporation 2005 Deferred Compensation Plan for Directors (incorporated by reference to Exhibit (10)(v) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on November 18, 2004).
10.9*	The Lubrizol Corporation 2005 Deferred Compensation Plan for Officers (incorporated by reference to Exhibit (10)(x) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on November 18, 2004).
10.10*	The Lubrizol Corporation 2005 Executive Council Deferred Compensation Plan (incorporated by reference to Exhibit (10)(y) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on November 18, 2004).
10.11*	The Lubrizol Corporation Excess Defined Benefit Plan, as amended (incorporated by reference to Exhibit (10)(d) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on December 15, 2004).
10.12*	The Lubrizol Corporation Excess Defined Contribution Plan, as amended (incorporated by reference to Exhibit (10)(e) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on December 15, 2004).
10.13*	The Lubrizol Corporation Officers’ Supplemental Retirement Plan, as amended (incorporated by reference to Exhibit (10)(j) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on December 15, 2004).
10.14*	The Lubrizol Corporation 2005 Excess Defined Benefit Plan (incorporated by reference to Exhibit (10)(z) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on December 15, 2004).
10.15*	The Lubrizol Corporation 2005 Excess Defined Contribution Plan (incorporated by reference to Exhibit (10)(aa) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on December 15, 2004).
10.16*	The Lubrizol Corporation 2005 Officers’ Supplemental Retirement Plan (incorporated by reference to Exhibit (10)(cc) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on December 15, 2004).
10.17*	Supplemental Retirement for Donald W. Bogus (incorporated by reference to Exhibit (10)(m) to The Lubrizol Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003).

29

10.18*	The Lubrizol Corporation Executive Death Benefit Plan, as amended (incorporated by reference to Exhibit (10)(g) to The Lubrizol Corporation’s Quarterly Report on Form 10-Q for the period ended March 31, 2003).
10.19*	The Lubrizol Corporation Executive Officer Long Term Incentive Plan (incorporated by reference to Exhibit (10)(n) to The Lubrizol Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003).
10.20*	Form of Employment Agreement between The Lubrizol Corporation and certain of its senior executive officers (incorporated by reference to Exhibit (10)(c) to The Lubrizol Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000).
10.21*	Employment Agreement effective January 1, 2003, between The Lubrizol Corporation and Charles P. Cooley (incorporated by reference to Exhibit (10)(o) to The Lubrizol Corporation’s Quarterly Report on Form 10-Q for the period ended on March 31, 2003).
10.22*	Employment Agreement effective January 1, 2003, between The Lubrizol Corporation and Stephen F. Kirk (incorporated by reference to Exhibit (10)(p) to The Lubrizol Corporation’s Quarterly Report on Form 10-Q for the period ended on March 31, 2003).
10.23*	Employment Agreement effective January 1, 2003, between The Lubrizol Corporation and Donald W. Bogus (incorporated by reference to Exhibit (10)(r) to The Lubrizol Corporation’s Quarterly Report on Form 10-Q for the period ended on March 31, 2003).
10.24*	Early Retirement Agreement and General Release between The Lubrizol Corporation and George R. Hill (incorporated by reference to Exhibit (10)(u) to The Lubrizol Corporation’s Quarterly Report on Form 10-Q for the period ended on September 30, 2004).
10.25*	The Lubrizol Corporation Annual Incentive Pay Plan (incorporated by reference to Exhibit (10)(bb) to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on December 13, 2004).
10.26*	The Lubrizol Corporation Annual Incentive Pay Plan, as amended (incorporated by reference to Exhibit 10.1 to The Lubrizol Corporation’s Current Report on Form 8-K/A filed with the SEC on February 23, 2005).
10.27	Credit Agreement dated as of August 24, 2004 among The Lubrizol Corporation, the Initial Lenders named therein, Citigroup Global Markets Inc. and KeyBanc Capital Markets, as co-lead arrangers and co-bookrunners, KeyBank National Association and ABN Amro Bank N.V., as co-syndication agents, Wachovia Bank, National Association, as documentation agent, and Citicorp North America, Inc., as agent (incorporated by reference to Exhibit 10.1 to The Lubrizol Corporation’s Current Report on Form 8-K filed with the SEC on August 30, 2004).
12.1	Computation of Ratio of Earnings to Fixed Charges.
13.1	The following portions of The Lubrizol Corporation 2004 Annual Report to its shareholders (the 2004 Annual Report is available on our website at www.lubrizol.com as a separate pdf file):

Pages 9-26      Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Page 27           Management’s Report on Internal Control Over Financial Reporting.

Page 27           NYSE Certification.

Page 28           Reports of Independent Registered Public Accounting Firm.

Page 29           Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002.

Page 30           Consolidated Balance Sheets at December 31, 2004 and 2003.

Page 31           Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002.

30

Page 32           Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2004, 2003 and 2002.

Pages 33-57     Notes to Consolidated Financial Statements.

Pages 58-59     Historical Summary.

21.1	List of Subsidiaries of The Lubrizol Corporation.
23.1	Consent of Independent Registered Public Accounting Firm.
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer, as created by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Rule 13a-14(a) Certification of the Chief Financial Officer, as created by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer of The Lubrizol Corporation pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.

     ^*Indicates management contract or compensatory plan or arrangement.

31

SIGNATURES

     Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on March 2, 2005, on its behalf by the undersigned, thereunto duly authorized.

THE LUBRIZOL CORPORATION
BY	/s/ James L. Hambrick
James L. Hambrick, President and
Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on February 21, 2005, by the following persons on behalf of the Registrant and in the capacities indicated.

/s/ James L. Hambrick James L. Hambrick	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)
/s/ Charles P. Cooley Charles P. Cooley	Sr. Vice President and Chief Financial Officer (Principal Financial Officer)
/s/ W. Scott Emerick W. Scott Emerick	Corporate Controller (Chief Accounting Officer)
/s/ Jerald A. Blumberg Jerald A. Blumberg	Director
/s/ Forest J. Farmer, Sr. Forest J. Farmer, Sr.	Director
/s/ Gordon D. Harnett Gordon D. Harnett	Director
/s/ Victoria F. Haynes Victoria F. Haynes	Director
/s/ William P. Madar William P. Madar	Director
/s/ Peggy Gordon Miller Peggy Gordon Miller	Director
/s/ Ronald A. Mitsch Ronald A. Mitsch	Director
/s/ Dominic J. Pileggi Dominic J. Pileggi	Director
/s/ Daniel E. Somers Daniel E. Somers	Director

32 EX-3.1 2 l12253aexv3w1.txt EX-3.1 CERTIFICATE OF ADOPTION OF AMENDED ARTICLES OF INCORPORATION Exhibit 3.1 CERTIFICATE OF ADOPTION OF AMENDED ARTICLES OF INCORPORATION OF THE LUBRIZOL CORPORATION L. E. Coleman, Chairman of the Board of Directors, and K. H. Hopping, Vice President and Secretary, of The Lubrizol Corporation, an Ohio corporation (the "Corporation") with its principal place of business located in Wickliffe, Ohio, do hereby certify that a meeting of the Board of Directors of the Corporation was duly called and held on September 23, 1991, at which meeting a quorum of the directors of the Corporation was present, and that by the affirmative vote of the majority of such directors the following resolution was adopted for the purpose of consolidating the existing Amended Articles of Incorporation and the amendments to the existing Amended Articles of Incorporation that previously have been adopted by the shareholders of the Corporation and filed with the Secretary of State of Ohio (such consolidation being permitted by Section 1701.72(B) of the Ohio Revised Code): RESOLVED, that the Amended Articles of Incorporation attached hereto as Exhibit A be, and they hereby are, adopted to supersede the existing Amended Articles of Incorporation of the Corporation. IN WITNESS WHEREOF, L. E. Coleman, Chairman of the Board of Directors, and K. H. Hopping, Vice President and Secretary, of The Lubrizol Corporation, acting for and on behalf of the Corporation, have hereunto subscribed their names this 23rd day of September, 1991. /s/ [L. E. Coleman] ------------------------------------------ L. E. Coleman Chairman of the Board /s/ [K. H. Hopping] ------------------------------------------ K. H. Hopping Vice President and Secretary 1 Exhibit A AMENDED ARTICLES OF INCORPORATION OF THE LUBRIZOL CORPORATION FIRST: The name of the Corporation is The Lubrizol Corporation. SECOND: The place in the State of Ohio where its principal office is located is Wickliffe, Lake County. THIRD: The purposes of the Corporation are as follows: To manufacture, produce, process, buy, sell, develop, acquire, distribute and otherwise deal in chemicals, chemical products and compositions, including lubricants, fuels and additives for lubricants and fuels, and to do all things necessary or incidental thereto. To invest in high technology companies and in companies with substantial growth possibilities and to acquire such companies. To engage in any other lawful act or activity for which corporations may be formed under Section 1701.01 to 1701.98, inclusive, of the Revised Code of Ohio, as now in effect or hereafter amended. FOURTH: The authorized number of shares of the Corporation is 147,000,000, consisting of 2,000,000 shares of serial preferred stock without par value designated Serial Preferred Stock ("Serial Preferred Stock"); 25,000,000 shares of serial preferred stock without par value designated Serial Preference Shares ("Serial Preference Shares"); and 120,000,000 common shares without par value ("Common Shares"). No holder of any class of shares of the Corporation shall, as such holder, have any preemptive or preferential right to purchase or subscribe to any shares of any class of stock of the Corporation, whether now or hereafter authorized, whether unissued or in treasury, or to purchase any obligations convertible into shares of any class of stock of the Corporation, which at any time may be proposed to be issued by the Corporation or subjected to rights or options to purchase granted by the Corporation. No holder of shares of the Corporation shall be entitled to vote cumulatively in the election of Directors of the Corporation. The shares of such classes shall have the following express terms: DIVISION A EXPRESS TERMS OF THE SERIAL PREFERRED STOCK Section 1. The Serial Preferred Stock may be issued from time to time in one or more series. All shares of Serial Preferred Stock shall be of equal rank and shall be identical, except in respect of the matters that may be fixed by the Board of Directors as hereinafter provided, and each share of each series shall be identical with all other shares of such series, except as to the date from which dividends are cumulative. Subject to the provisions of Sections 2 to 8, both inclusive, of this Division, which provisions shall apply to all Serial Preferred Stock, the Board of Directors hereby is authorized to cause such shares to be issued in one or more series and with respect to each such series prior to the issuance thereof to fix: (a) The designation of the series, which may be by distinguishing number, letter or title; 1 (b) The number of shares of the series, which number the Board of Directors may (except where otherwise provided in the creation of the series) increase or decrease (but not below the number of shares thereof then outstanding); (c) The annual dividend rate of the series; (d) The dates at which dividends, if declared, shall be payable, and the dates from which dividends shall be cumulative; (e) The redemption rights and price or prices, if any, for shares of the series; (f) The terms and amount of any sinking fund provided for the purchase or redemption of shares of the series; (g) The amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Corporation; (h) Whether the shares of the series shall be convertible into Common Shares, and, if so, the conversion price or prices, any adjustments thereof, and all other terms and conditions upon which such conversion may be made; and (i) Restrictions (in addition to those set forth in Sections 6(b) and 6(c) of this Division) on the issuance of shares of the same series or of any other class or series; provided, however, that the aggregate amount which the holders of Serial Preferred Stock at any time outstanding shall be entitled to receive upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation shall not exceed $50,000,000, plus accrued and unpaid dividends. The Board of Directors is authorized to adopt from time to time amendments to the Articles of Incorporation fixing, with respect to each such series, the matters described in clauses (a) to (i), both inclusive, of this Section 1. Section 2. The holders of Serial Preferred Stock of each series, in preference to the holders of Common Shares and of any other class of shares ranking junior to the Serial Preferred Stock, shall be entitled to receive out of any funds legally available and when and as declared by the Board of Directors, dividends in cash at the rate for such series fixed in accordance with the provisions of Section 1 of this Division, and no more, payable quarterly on the dates fixed for such series. Such dividends shall be cumulative, in the case of shares of each particular series, from and after the date or dates fixed with respect to such series. No dividends may be paid upon or declared or set apart for any of the Serial Preferred Stock for any quarterly dividend period unless at the same time a like proportionate dividend for the same quarterly dividend period, ratably in proportion to the respective annual dividend rates fixed therefor, shall be paid upon or declared or set apart for all Serial Preferred Stock of all series then issued and outstanding and entitled to receive such dividend. Section 3. In no event so long as any Serial Preferred Stock shall be outstanding shall any dividends, except a dividend payable in Common Shares or other shares ranking junior to the Serial Preferred Stock, be paid or declared or any distribution be made except as aforesaid on the Common Shares or any other shares ranking junior to the Serial Preferred Stock, nor shall any Common Shares or any other shares ranking junior to the Serial Preferred Stock be purchased, retired or otherwise acquired by the Corporation(except out of the proceeds of the sale of Common Shares or other shares ranking junior to the Serial Preferred Stock received by the Corporation subsequent to January 1, 1969): (a) Unless all accrued and unpaid dividends on Serial Preferred Stock, including the full dividends for the current quarterly dividend period, shall have been declared and paid or a sum sufficient for payment thereof set apart; and 2 (b) Unless there shall be no arrearages with respect to the redemption of Serial Preferred Stock of any series from any sinking fund provided for shares of such series in accordance with the provisions of Section 1 of this Division. Section 4. (a) Subject to the express terms of each series and to the provisions of Section 6(b)(iii) of this Division A, the Corporation may from time to time redeem all or any part of the Serial Preferred Stock of any series at the time outstanding, (i) at the option of the Board of Directors at the applicable redemption price for such series fixed in accordance with the provisions of Section 1 of this Division, or (ii) in fulfillment of the requirements of any sinking fund provided for shares of such series at the applicable sinking fund redemption price, fixed in accordance with the provisions of Section 1 of this Division, together in each case with accrued and unpaid dividends to the redemption date. (b) Notice of every such redemption shall be mailed, postage prepaid, to the holders of record of the Serial Preferred Stock to be redeemed at their respective addresses then appearing on the books of the Corporation, not less than thirty (30) days nor more than sixty (60) days prior to the date fixed for such redemption. At any time after notice has been given as above provided, the Corporation may deposit the aggregate redemption price of the shares of Serial Preferred Stock to be redeemed with any bank or trust company in Cleveland, Ohio, or New York, New York, having capital and surplus of not less than Twenty-Five Million Dollars ($25,000,000), named in such notice, directed to be paid to the respective holders of the shares of Serial Preferred Stock so to be redeemed in amounts equal to the redemption price of all shares of Serial Preferred Stock so to be redeemed, on surrender of the stock certificate or certificates held by such holders, and upon the making of such deposit such holders shall cease to be shareholders with respect to such shares, and after such notice shall have been given and such deposit shall have been made such holders shall have no interest in or claim against the Corporation with respect to such shares except only to receive such money from such bank or trust company without interest or the right to exercise, before the redemption date, any unexpired privileges of conversion. In case less than all of the outstanding shares of Serial Preferred Stock are to be redeemed, the Corporation shall select by lot the shares so to be redeemed in such manner as shall be prescribed by its Board of Directors. If the holders of shares of Serial Preferred Stock which have been called for redemption shall not within ten years after such deposit, claim the amount deposited for the redemption thereof, any such bank or trust company shall, upon demand, pay over to the Corporation such unclaimed amounts and thereupon such bank or trust company and the Corporation shall be relieved of all responsibility in respect thereof and to such holders. (c) Any shares of Serial Preferred Stock which are redeemed by the Corporation pursuant to the provisions of this Section 4 and any shares of Serial Preferred Stock which are purchased and delivered in satisfaction of any sinking fund requirements provided for shares of such series and any shares of Serial Preferred Stock which are converted in accordance with the express terms thereof, shall be cancelled, and not reissued. Any shares of Serial Preferred Stock otherwise acquired by the Corporation shall resume the status of authorized and unissued shares of Serial Preferred Stock without serial designation. Section 5. (a) The holders of Serial Preferred Stock of any series shall, in case of voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, be entitled to receive in full out of the assets of the Corporation, including its capital, before any amount shall be paid or distributed among the holders of the Common Shares or any other shares ranking junior to the Serial Preferred Stock, the amounts fixed with respect to shares of such series in accordance with Section 1 of this Division plus an amount equal to all dividends accrued and 3 unpaid thereon to the date of payment of the amount due pursuant to such liquidation, dissolution or winding up of the affairs of the Corporation, in case the net assets of the Corporation legally available therefor are insufficient to permit the payment upon all outstanding shares of Serial Preferred Stock of the full preferential amount to which they are respectively entitled, then such net assets shall be distributed ratably upon outstanding shares of Serial Preferred Stock in proportion to the full preferential amount to which each such share is entitled. After payment to holders of Serial Preferred Stock of the full preferential amounts as aforesaid, holders of Serial Preferred Stock as such shall have no right or claim to any of the remaining assets of the Corporation. (b) The merger or consolidation of the Corporation into or with any other corporation, or the merger of any other corporation into it, or the sale, lease or conveyance of all or substantially all the property or business of the Corporation, shall not be deemed to be a dissolution, liquidation or winding up for the purposes of this Section 5. Section 6. (a) The holders of Serial Preferred Stock shall be entitled to one vote for each share of such stock upon all matters presented to the shareholders; and, except as otherwise provided herein or required by law, the holders of Serial Preferred Stock and the holders of Common Shares shall vote together as one class on all matters. If, and so often as, the Corporation shall be in default in the payment of six (6) full quarterly dividends (whether or not consecutive) on any series of Serial Preferred Stock at the time outstanding, whether or not earned or declared, the holders of Serial Preferred Stock of all series, voting separately as a class and in addition to all other rights to vote for directors, shall be entitled to elect as herein provided, two members of the Board of Directors of the Corporation; provided, however, that the holders of shares of Serial Preferred Stock shall not have or exercise such special class voting rights except at meetings of the shareholders for the election of directors at which the holders of not less than thirty-five percent (35%) of the outstanding shares of Serial Preferred Stock of all series then outstanding are present in person or by proxy; and provided further that the special class voting rights provided for herein when the same shall have become vested shall remain so vested until all accrued and unpaid dividends on the Serial Preferred Stock of all series then outstanding shall have been paid, whereupon the holders of Serial Preferred Stock shall be divested of their special class voting rights in respect of subsequent elections of directors, subject to the revesting of such special class voting rights in the event hereinabove specified in this paragraph. In the event of default entitling the holders of Serial Preferred Stock to elect two directors as above specified, a special meeting of the shareholders for the purpose of electing such directors shall be called by the Secretary of the Corporation upon written request of, or may be called by, the holders of record of at least ten percent (10%) of the shares of Serial Preferred Stock of all series at the time outstanding, and notice thereof shall be given in the same manner as that required for the annual meeting of shareholders; provided, however, that the Corporation shall not be required to call such special meeting if the annual meeting of shareholders shall be held within one hundred twenty (120) days after the date of receipt of the foregoing written request from the holders of Serial Preferred Stock. At any meeting at which the holders of Serial Preferred Stock shall be entitled to elect directors, the holders of thirty-five percent (35%) of the then outstanding shares of Serial Preferred Stock of all series present in person or by proxy, shall be sufficient to constitute a quorum, and the vote of the holders of a majority of such shares so present at any such meeting at which there shall be such a quorum shall be sufficient to elect the members of the Board of Directors which the holders of Serial Preferred Stock are entitled to elect as hereinabove provided. The two directors who may be elected by the holders of Serial Preferred Stock pursuant to the foregoing provisions shall be in addition to any other directors then in office or proposed to be elected otherwise then pursuant to such provisions, and nothing 4 in such provisions shall prevent any change otherwise permitted in the total number of directors of the Corporation or require the resignation of any director elected otherwise than pursuant to such provisions. Notwithstanding any classification of the other directors of the Corporation, the two directors elected by the holders of Serial Preferred Stock shall be elected annually for terms expiring at the next succeeding annual meeting of shareholders. (b) The affirmative vote of the holders of at least two-thirds of the shares of Serial Preferred Stock at the time outstanding, given in person or by proxy at a meeting called for the purpose at which the holders of Serial Preferred Stock shall vote separately as a class shall be necessary to effect any one or more of the following (but so far as the holders of Serial Preferred Stock are concerned, such action may be effected with such vote): (i) Any amendment, alteration or repeal of any of the provisions of the Articles of Incorporation or of the Regulations of the Corporation which affects adversely the voting powers, rights or preferences of the holders of Serial Preferred Stock; provided, however, that, for the purpose of this clause (i) only, neither the amendment of the Articles of Incorporation so as to authorize or create, or to increase the authorized or outstanding amount of Serial Preferred Stock or of any shares of any class ranking on a parity with or junior to the Serial Preferred Stock, nor the amendment of the provisions of the Regulations so as to increase the number of directors of the Corporation shall be deemed to affect adversely the voting powers, rights or preferences of the holders of Serial Preferred Stock; and provided further, that if such amendment, alteration or repeal affects adversely the rights or preferences of one or more but not all series of Serial Preferred Stock at the time outstanding only the affirmative vote of the holders of at least two-thirds of the number of the shares at the time outstanding of the series so affected shall be required; (ii) The authorization or creation of, or the increase in the authorized amount of, any shares of any class, or any security convertible into shares of any class, ranking prior to the Serial Preferred Stock; or (iii) The purchase or redemption (for sinking fund purposes or otherwise) of less than all of the Serial Preferred Stock then outstanding except in accordance with a stock purchase offer made to all holders of record of Serial Preferred Stock, unless all dividends upon all Serial Preferred Stock then outstanding for all previous quarterly dividend periods shall have been declared and paid or funds therefor set apart and all accrued sinking fund obligations applicable thereto shall have been complied with. (c) The affirmative vote of the holders of at least a majority of the shares of Serial Preferred Stock at the time outstanding, given in person or by proxy at a meeting called for the purpose at which the holders of Serial Preferred Stock shall vote separately as a class, shall be necessary to effect any one or more of the following (but so far as the holders of Serial Preferred Stock are concerned, such action may be effected with such vote): (i) The sale, lease or conveyance by the Corporation of all or substantially all of its property or business, or its consolidation with or merger into any other corporation unless the corporation resulting from such consolidation or merger will have after such consolidation or merger no class of shares either authorized or outstanding ranking prior to or on a parity with the Serial Preferred Stock except the same number of shares ranking prior to or on a parity with the Serial Preferred Stock and having the same rights and preferences as the shares of the Corporation authorized and outstanding immediately preceding such consolidation or merger, and each holder of Serial Preferred Stock immediately preceding such consolidation or merger shall receive the same number of shares, with the same rights and preferences, of the resulting corporation; or 5 (ii) The authorization of any shares ranking on a parity with the Serial Preferred Stock or an increase in the authorized number of shares of Serial Preferred Stock. Section 7. The holders of Serial Preferred Stock shall have no preemptive right to purchase or have offered to them for purchase any shares or other securities of the Corporation, whether now or hereafter authorized. Section 8. For the purpose of this Division A: Whenever reference is made to shares "ranking prior to the Serial Preferred Stock" or "on a parity with the Serial Preferred Stock," such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, are given preference over, or rank on an equality with (as the case may be) the rights of the holders of Serial Preferred Stock; and whenever reference is made to shares "ranking junior to the Serial Preferred Stock," such reference shall mean and include all shares of the Corporation in respect of which the rights of holders thereof as to payment of dividends and as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, are junior and subordinate to the rights of the holders of Serial Preferred Stock. DIVISION B EXPRESS TERMS OF THE COMMON SHARES The Common Shares shall be subject to the express terms of (i) the Serial Preferred Stock and any series thereof and (ii) the Serial Preference Shares and any series thereof. Each Common Share shall be equal to every other Common Share and the holders thereof shall be entitled to one vote for each share of such stock on all questions presented to the shareholders. DIVISION C EXPRESS TERMS OF THE SERIAL PREFERRED STOCK, SERIES A Section 1. Designation and Amount. The shares of such series shall be designated as "Serial Preferred Stock, Series A" ("Series A Stock") and the number of shares constituting such series shall be 2,000,000. No shares of Series A Stock may be issued except upon the exercise of a Right, as defined in, and pursuant to the terms of, the Special Rights Agreement, dated as of October 31, 1988 (as from time to time amended or supplemented in accordance with the terms thereof, the "Rights Agreement"), between the Corporation and National City Bank. Section 2. Dividends and Distributions. (A) Except as provided in this Section 2, the holders of shares of Series A Stock shall not be entitled to receive dividends or other distributions with respect to any shares of Series A Stock. (B) From and after the date on which shares of Series A Stock are issued and outstanding (the "Dividend Accrual Commencement Date"), the holders of issued and outstanding shares of Series A Stock, in preference to the holders of Common Shares and of any other capital stock of the Corporation which ranks junior to the Serial Preferred Stock in respect of dividends or distributions of assets on liquidation of the Corporation (all of which classes, other than the Serial Preferred Stock, are hereinafter embraced in the term "Junior Stock"), shall be entitled to receive as and when declared by the Directors out of the assets of the Corporation which are by law available for the payment of dividends, cumulative cash dividends, payable quarterly on the last days of March, June, September and December, and accruing from the applicable Dividend Accrual Commencement Date, at, but not exceeding, the rate per share per annum equal to the Dividend Rate (as hereinafter defined). For purposes of this Division C, the "Dividend Rate" shall be equal to 8% of the Cash Redemption Amount (as defined in Section 5(A) of this Division C) as of the last day of the calendar month immediately preceding the applicable dividend payment date. 6 Section 3. Redemption. (A) From and after (but not before) the Earliest Redemption Date (as defined in Section 5(C) of this Division C), the Series A Stock may be redeemed in whole or in part, at any time or from time to time, at the option of the Corporation, for a cash redemption price per share equal to the sum of (x) the then- applicable Cash Redemption Amount plus $1 .00 and (y) an amount equal to the sum of all dividends accrued to the date fixed for redemption and remaining unpaid, whether or not declared, together with any applicable Deferred Payment Entitlement (as defined in Section 5(D) of this Division C). (B) So long as any shares of Series A Stock shall be outstanding, but subject to Section 3(E) of this Division C, the Corporation shall, as a sinking fund applicable to the Series A Stock, commencing on the date two years after the first date on which any shares of Series A Stock are issued, and annually thereafter, redeem, for a cash redemption price per share equal to the sum of (x) the then-applicable Cash Redemption Amount plus $1.00 and (y) an amount equal to the sum of all dividends accrued to such date and remaining unpaid, whether or not declared, together with any applicable Deferred Payment Entitlement, a number of shares of Series A Stock equal to 25% of the greatest number of shares of Series A Stock at any time outstanding. The Corporation shall be permitted to satisfy in whole or in part the requirements of this Section 3(B) with respect to any year by applying in whole or in part as a credit in reduction of the obligation of the Corporation to make redemptions for the sinking fund in such year shares of Series A Stock purchased by the Corporation and shares of Series A Stock redeemed otherwise than for the sinking fund. Shares purchased by the Corporation for application as a credit as provided above may be purchased in such manner as the Directors may determine from time to time, subject to the restrictions on such purchases set forth elsewhere herein or arising under applicable law. (C) On the date five years after the first date on which any shares of Series A Stock are issued, but subject to Section 3(E) of this Division C, the Corporation shall redeem all shares of Series A Stock remaining outstanding for a cash redemption price per share equal to the sum of (x) the then-applicable Cash Redemption Amount plus $1.00 and (y) an amount equal to the sum of all dividends accrued to such date and remaining unpaid, whether or not declared, together with any applicable Deferred Payment Entitlement. (D) Notwithstanding anything contained in this Division C to the contrary, but subject to Section 3(E) of this Division C, at the option of any holder of Series A Stock, upon written notice given by such holder at any time during the 30-calendar day period following the date on which the last notice was mailed pursuant to the next sentence of this Section 3(D) the Corporation shall, prior to the filing of a certificate of dissolution or such other instrument as may then be prescribed by applicable law to effect the dissolution of the Corporation, redeem all shares of Series A Stock outstanding as to which such holder shall have made such election for a cash redemption price per share equal to the sum of (x) the then-applicable Cash Redemption Amount plus $1.00 and (y) an amount equal to the sum of all dividends accrued to such date and remaining unpaid, whether or not declared, together with any applicable Deferred Payment Entitlement. The Corporation shall give notice to all holders of Series A Stock no fewer than 45-calendar days prior to making any filing referred to in the immediately preceding sentence, which notice will be so given by first class United States mail and publication in The Wall Street Journal and any other nationally recognized publication the Corporation may elect, accompanied by an appropriate form of election and such other information as may be required to permit an informed election. (E) In addition to the limitations that may apply under applicable Ohio law, the Corporation shall be required to redeem any shares of Series A Stock under Sections 3(B), 3(C) or 3(D) of this Division C only to the extent that, after giving effect to such redemption, the consolidated retained earnings of the Corporation and the corporations with which it is consolidated for financial reporting purposes are greater than zero. For purposes of the foregoing sentence, consolidated retained earnings shall mean the sum of (1) the consolidated retained earnings as of September 30, 1988 of the Corporation and the corporations with which it was then consolidated for financial reporting purposes and (2) the consolidated retained earnings accumulated subsequent to September 30, 1988 of the Corporation and the corporations with which it is consolidated for financial reporting purposes determined in accordance with generally accepted 7 accounting principles as in effect as of such date (except as otherwise provided in this sentence) and after giving effect to dividends or other distributions on, and redemptions and other purchases of, Serial Preferred Stock, but without giving effect to dividends or other distributions on, or redemptions or other purchases of, any Junior Stock, or to any transfers from retained earnings to additional capital or capital stock accounts, and including as a credit to retained earnings, in all events (and notwithstanding any contrary treatment for financial reporting purposes or otherwise), the amount of the Recovery then collected. If the Corporation is not required to redeem shares of Series A Stock in the manner otherwise provided herein by virtue of the first sentence of this Section 3(E), or if a legal or contractual restriction prevents the Corporation form effecting the redemption of any shares of Series A Stock then outstanding in the manner otherwise provided herein, then (x) to the extent required and not restricted, payment of redemption amounts shall be made daily on a pro rata basis or in such other manner as the Directors of the Corporation may determine in good faith to be fair to the holders of Series A Stock, (y) in the case of any such legal or contractual restriction, the Corporation shall use its best efforts to remove such restriction as soon as possible, and (z) the Corporation shall give notice to each holder of shares of Series A Stock of any such restriction and the efforts by the Corporation to remove it. Postponement of payment of redemption amounts shall not in any way diminish or restrict the right or the holders of shares of Series A Stock to have their shares redeemed as provided in this Section 3. If amounts payable to retire shares of Serial Preferred Stock are not paid in full in the case of all series for which a sinking fund has been fixed, the number of shares to be retired for the sinking fund of each such series shall be in proportion to the respective amounts that would be payable if all such amounts were paid in full. Section 4. Liquidation Rights. (A) The provisions of Section 7(F) of this Division C will apply to any voluntary to involuntary dissolution, liquidation or winding up of the affairs of the Corporation and will not be limited or otherwise affected by this Section 4. (B) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation (all of which are hereinafter embraced in the word "liquidation") occurring on or after the Earliest Redemption Date, the holders of Series A Stock who do not exercise their rights pursuant to Section 3(D) of this Division C, shall be entitled to receive, subject to the limitations, if any, then applicable in such event pursuant to Division A, from the assets of the Corporation available for distribution to the shareholders, all amounts (including without limitation any Deferred Payment Entitlement) which they would be entitled to receive if on the date of such liquidation the shares of Series A Stock held by them had been redeemed at the option of the Corporation in accordance with the provisions of Section 3(A) of this Division C. In the event of any liquidation occurring prior to the Earliest Redemption Date, all rights of the Corporation in respect of the Covered Cases and any portion of the Recovery (as defined in Section 5(A) of this Division C) theretofore collected by the Corporation, and such additional funds or assets as may be required, shall be placed in trust for the benefit of the holders of the Series A Stock (and the holders of any other class of capital stock of the Corporation to the extent hereinafter provided) upon such terms so that (1) the holders of Series A Stock shall be entitled to receive, from the assets of the Corporation available for distribution to shareholders, units of beneficial interest in such trust which shall as nearly as practicable entitle them to receive, per share of Series A Stock held, a fractional undivided interest in the proceeds of the Recovery equal to the Per Share Allocation Factor, plus $1.00, and (2) the holders of the other classes of capital stock of the Corporation shall be entitled to receive out of such assets available for distribution units of beneficial interest in such trust which shall as nearly as practicable entitle them to receive any balance of the proceeds of the Recovery in accordance with their respective rights upon liquidation. In the event of any liquidation, the holders of the Serial Preferred Stock of the respective series shall be entitled to be paid in full the respective amounts fixed for such series before any distribution or payment or setting apart for payment shall be made to or for the holders of the Common Shares or any other Junior Stock. After such payments shall have been in full to the holders of the Serial Preferred Stock, the remaining assets and funds of the Corporation shall be distributed among the holders of the Junior Stock of the Corporation according to their respective rights. In the event that the assets of the Corporation are not sufficient to make the payments required to be made to the holders of the Serial Preferred Stock in full, such assets 8 shall be distributed to the holders of the Serial Preferred Stock of the respective series pro rata in proportion to the respective amounts fixed for such series. Section 5. Amount Payable on Redemption or Liquidation. (A) For purposes of this Division C, the following terms shall have the meanings indicated: (1) "Adjusted Value" of any "Assigned Value Assets" shall mean, initially, the value assigned thereto as provided in Section 5(B) of this Division C, and, in the event any such Assigned Value Assets shall be sold for cash within two years of the Corporation's receipt thereof, shall mean, thereafter and in lieu of the value initially assigned, the cash proceeds of the sale, increased by the amount of any revenues derived by the Corporation from, and decreased by any costs and expenses incurred by the Corporation after receipt of such Assigned Value Assets in respect of, such Assigned Value Assets during the period prior to such sale. (2) "Assigned Value Assets" shall mean any assets collected as a part of the Recovery to which a value has been assigned as provided in Section 5(B) of this Division C and shall also include the proceeds of any sale or other disposition thereof. (3) "Cash Redemption Amount" shall mean, at anytime of determination on or after the Dividend Accrual Commencement Date, the product obtained by multiplying (a) the sum of (i) the amount of the Recovery which shall have been collected in the form of cash and (ii) the Adjusted Value of any Assigned Value Assets, less (iii) all amounts which shall have been paid by the Corporation as dividends on, in redemption of, or for the repurchase (in accordance with the provisions of Section 3(B) of this Division C) of, shares of Series A Stock, and all dividends which shall have accrued but not been paid (whether or not declared), on shares of Series A Stock by (b) the Per Share Allocation Factor. (4) "Covered Cases" shall mean, collectively, the civil actions captioned The Lubrizol Corporation, an Ohio corporation vs. Exxon Corporation, a New Jersey corporation, in the United States District Court for the Southern District of Texas (Civil Action Nos. H-84-1627 and H-85-2450), and in the United States District Court for the Northern District of Ohio (Civil Action Nos. C84-1064 and C85-3135), and all civil actions, whether in or before a state, federal or foreign court or other authority, designated either specifically or generically, as Covered Cases by majority vote of the Directors of the Corporation prior to the first date on which shares of Series A Stock are issued, and all the right, title and interest of the Corporation in and under all such actions, and in and under all actions, suits or proceedings determined by majority vote of the Directors of the Corporation, prior to the first date on which shares of Series A Stock are issued, to be directly related thereto or to have arisen therefrom, and to all claims asserted therein (whether asserted in such actions or any action to enforce any judgment or order therein or otherwise). (5) "Deferred Payment Entitlement" shall have the meaning referred to in Section 5(D) of this Division C. (6) "Recovery" shall mean the collective total amount which the Corporation (or its successors and assigns to the extent permitted hereby) shall collect, whether in cash or other assets and whether collected in one of more payments or transactions, on account of favorable judgments in the Covered Cases or settlement in respect thereof, less the sum of (a) an amount equal the product of (i) such collective total amount and (ii) the Corporation's effective income tax rate disclosed by the Corporation in the notes to the financial statements of the Corporation last published and furnished to shareholders immediately prior to the first issuance of any shares of Series A Stock and (b) any amount which the Corporation (or its successors and assigns to the extent permitted hereby) shall collect in respect of any interest assigned by the Corporation as a Deferred Payment Entitlement. 9 (7) "Per Share Allocation Factor" shall mean, at any time of determination, the fraction which results from dividing 1 by the sum of (a) the total number of shares of Series A Stock then outstanding and (b) the total number of shares of Series A Stock then subject to issuance upon the proper exercise of outstanding Rights. (B) If and whenever the Corporation shall receive any proceeds of the Recovery in a form other than cash, there shall be assigned to such assets an amount equal to the fair market value thereof as determined in good faith by the Directors, unless the Directors of the Corporation shall determine that it is not possible to assign a fair market value to such assets with a reasonable level of confidence. The Directors of the Corporation shall make such determination at the time such assets are collected or, if it is determined as aforesaid that it is not possible to assign a fair market value thereto with a reasonable level of confidence, at the first opportunity thereafter when it is possible to make such a determination in good faith. The assets to which a value has been assigned in accordance with this Section 5(B) are referred to therein as "Assigned Value Assets" and the value so assigned shall be the initial Adjusted Value of such assets. If a fair market value cannot reasonably be assigned to any assets, the Corporation shall use its best efforts to dispose of such assets as promptly as practicable, subject to the judgment of the Directors as to the best interests of the holders of Series A Stock. Pending such disposition the Corporation shall keep accurate records relating to such assets. (C) The "Earliest Redemption Date" shall mean the first date on which the Corporation shall have collected, in respect of any of the Covered Cases, in the form of cash and/or assets constituting Assigned Value Assets, aggregate proceeds of the Recovery having a value (based on the amount of cash to received together with the Adjusted Value of any Assigned Value Assets) in excess of $50,000,000. (D) Whenever the Corporation shall redeem any shares of Series A Stock when either (1) the prospect remains that additional amounts will be collected in respect of the Covered Cases or (2) any portion of the Recovery then collected consists of assets other than cash or Assigned Value Assets, the Corporation shall, in connection with such redemption, assign to the holder of each share of Series A Stock then being redeemed an undivided fractional interest equal to the Per Share Allocation Factor then in effect in all the Corporation's right, title and interest in (x) such additional amounts as may be collected in respect of the Covered Cases as provided in the foregoing clause (1) and/or the proceeds thereof and (y) the proceeds of the sale or other disposition of any assets other than cash or Assigned Value Assets plus the revenues derived by the Corporation therefrom. The form and manner of assignment shall be as determined by the Directors of the Corporation so as to best convey to the holders of the shares of Series A Stock being redeemed the benefits contemplated hereby; provided, however, that such holders shall not by reason of the assignment of the Corporation's interest in the foregoing proceeds have any right to control the prosecution of the Covered Cases, the collection of any amounts recoverable thereunder of the operation or disposition of the aforesaid assets, and provided, further, that the Corporation may provide that the interests as assigned shall be non-transferable. The interest assigned in accordance with this Section 5(D) in respect of any share of Series A Stock being redeemed is referred to herein as a "Deferred Payment Entitlement" in respect of such share. Section 6. Voting Rights. The voting rights relating to the Serial Preferred Stock set forth in Section 6 of Division A of Article Fourth are applicable to the Series A Stock. Except as so provided, and except as required by applicable law, the holders of shares of Series A Stock shall have no voting rights with respect to any action by the Corporation or its shareholders by virtue of being a holder of shares of Series A Stock. Section 7. Limitations. (A) So long as any shares of Series A Stock are outstanding, no shares of any series of Serial Preferred Stock or other capital stock of the Corporation other than Common Shares having the express terms applicable to Common Shares on the Share Acquisition Date (as defined in Section 8(B) of this Division C) or the Series A Stock, and no shares of Series A Stock not issuable pursuant to and in accordance with the Rights Agreement, may be issued by the Corporation. 10 (B) So long as any shares of Series A Stock are outstanding, the Corporation shall not invest any portion of the proceeds of the Recovery (other than any non-cash assets collected as a part thereof) in other than "Permitted Investments." For purposes of this Section 7(C), "Permitted Investments" shall include the following obligations and securities: (a) United States Treasury bonds, notes and bills; (b) certificates of deposit issued by major commercial banks; (c) Eurodollar time deposits placed with major commercial banks; (d) corporate bonds, debentures and notes (none of which shall be convertible into any equity security) rated A or better by Moody's Investors Services and by Standard & Poor's Corporation; (e) non-convertible preferred stock rated A or better by Moody's Investors Services and by Standard & Poor's Corporation; and (f) commercial paper rated Prime-2 or better by Moody's Investors Services and A-1 or better by Standard & Poor's Corporation. In no event shall any portion of the proceeds of the Recovery be invested in any obligation or other security of a Prohibited Transferee. (C) So long as any shares of Series A Stock are outstanding, the Corporation shall not settle or otherwise compromise the Covered Cases, direct counsel to make any change in the strategy for conducting the Covered Cases, fail to pay any costs or expenses of conducting the Covered Cases which might diminish the likelihood of a favorable result therein or otherwise adversely affect the conduct of the Covered Cases, except, in each case, with the approval of the Directors of the Corporation. (D) So long as any shares of Series A Stock are outstanding, the Corporation shall not sell, assign or otherwise transfer the Covered Cases or any interest therein unless the Directors of the Corporation shall have previously determined in good faith that the proceeds to be realized thereby are fair to the holders of the Series A Stock. (E) So long as any shares of Series A Stock are outstanding, the Corporation shall not (i) consolidate with, (ii) merge with or into, (iii) sell or transfer to, in one or more transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its subsidiaries, taken as a whole, any Prohibited Transferee or any Affiliate or Associate thereof (as such terms are defined in Section 8(B) of this Division C), or (iv) liquidate, dissolve or otherwise wind-up the affairs of the Corporation, if at the time of, after or as a result of such consolidation, merger, sale, liquidation, dissolution or winding up there would be any charter or regulation provisions, including without limitation any provisions of the Corporation's Amended Articles of Incorporation or Regulations, as from time to time amended, of any rights, options, warrants or other instruments or securities outstanding or agreements in effect or any other actions taken, which would eliminate or otherwise diminish the benefits intended to be afforded by the Rights of the Series A Stock, without proper provision being made for the redemption of the Series A Stock in accordance with Section 7(E) of this Division C. Section 8. Contributions and Transfer. (A) The Series A Stock shall not be transferable to or by a Prohibited Transferee and any attempt to transfer shares of Series A Stock to or by a Prohibited Transferee shall be null and void. The Corporation reserves the right to require (or to cause any transfer agent of the Corporation to require) any Person who submits a share of Series A Stock for transfer on the transfer books of the Corporation or for redemption pursuant to Section 3 hereof to establish to the satisfaction of the Corporation that such Person did not acquire such shares of Series A Stock while or from a Prohibited Transferee. 11 (B) As used in this Division C, the term "Prohibited Transferee" shall mean, at the time any determination is to be made, (1) any Person other than the Corporation or any Related Person (as such terms are hereinafter defined), who or which, together with all Affiliates and Associates (as such terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, and in effect on the date of first issuance of any shares of Series a Stock (the "Exchange Act")) of such Person, shall be the beneficial owner of 20% or more of the Common Shares then outstanding or (2) any Person (other than the Corporation or any Related Person) who or which, together with all Affiliates or Associates of such Person (A) commences or announces its intention to commence a tender or exchange offer the consummation of which would result in beneficial ownership by such Person of 20% or more of the Common Shares then outstanding, or announces its intention otherwise to purchase or acquire (b) 20% or more of the Common Shares then outstanding. The term "Person" shall mean any individual, firm, corporation, partnership or other entity, and shall include any successor (by merger or otherwise) of such entity. The term "Related Person" shall mean (x) any subsidiary of the Corporation, (y) any employee benefit or stock ownership plan of the Corporation or any entity holding Common Shares for or pursuant to the terms of any such plan, or (z) any Person who acquires Common Shares from the Corporation or any other Related Person in one or a series of related transactions, each of which is approved by a majority of the Directors of the Corporation; provided, however, that if any Person who becomes a Related Person solely by virtue of subsection (z) above, or any Affiliate or Associate of such Person, subsequently becomes the beneficial owner of any additional Common Shares in a transaction or transactions not approved by a majority of the Directors of the Corporation, such Person shall no longer be deemed a "Related Person" with respect to all Common Shares of which it, or any of its Affiliates or Associates, is the beneficial owner. The term "Distribution Date" shall mean the close of business on the fifteenth calendar day (or such other date as any be specified by a majority vote of the Directors then in office) after the Share Acquisition Date. The term "Share Acquisition Date" shall mean the first date of public announcement by the Corporation or a Prohibited Transferee (by press release, filing made with the Securities and Exchange Commission or otherwise) that a Prohibited Transferee has become such. For the purposes of this Division C, a Person shall be deemed the "Beneficial Owner" of and shall be deemed "beneficially to own" any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time or the occurrence or nonoccurrence of an event) pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, other rights (other than the Other Rights), warrants, options or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or beneficially to own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right or power to vote or dispose of, or to direct the vote or disposition of, including pursuant to any agreement, arrangement or understanding (whether or not in writing); or (iii) which any other Person is the beneficial Owner if such other Person or any of the Affiliates or Associates of such other Person has any agreement, arrangement or understanding (whether or not in writing) with the first Person or the Affiliates or Associates of the first Person with respect to acquiring, holding, voting or disposing of any securities of the Company; provided, however, that a Person shall not be deemed the Beneficial Owner of, or beneficially to own, any security (A) if such Personal has a right to vote such security pursuant to an agreement, arrangement or understanding(whether or not in writing) which (i) arises solely from a revocable proxy given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report), or (B) if such beneficial ownership arises solely as a result of such Person's status as a "clearing agency," as defined in Section 3(a)(23) of the Exchange Act; and provided, further, however, that nothing in this paragraph shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of any securities acquired through such Person's participation in good faith in an underwriting syndicate pursuant to an agreement to which the Company is a party until the expiration of 40-calendar days after the date of such acquisition. The term "Rights" shall mean the rights to purchase shares of Series A Stock issued pursuant to the terms of the Rights Agreement. The term "Other Rights" shall mean the rights to purchase Common Shares of the 12 Corporation issued pursuant to the terms of the Rights Agreement, dated October 6, 1987, as from time to time amended or supplemented, between the Corporation and National City Bank. DIVISION D EXPRESS TERMS OF THE SERIAL PREFERENCE SHARES Section 1. Serial Preference Shares may be issued from time to time in one or more series. Subject to the provisions of this Division D, which apply to all Serial Preference Shares, the Directors are hereby authorized to adopt amendments to the Articles of Incorporation in respect of any unissued or treasury Serial Preference Shares and thereby fix or change any or all of the express terms of such Serial Preference Shares as from time to time may be permitted or required by law, including without limitation the following: (i) The division of such shares into series and the designation and authorized number of shares of each series; (ii) The dividend or distribution rate; (iii) The dates of payment of dividends or distributions and the dates from which they are cumulative; (iv) Liquidation price; (v) Redemption rights and price; (vi) Sinking fund requirements; (vii) Conversion rights; and (viii) Restrictions on the issuance of shares of any class or series. Section 2. The holders of Serial Preference Shares shall be entitled to one vote for each Serial Preference Share held by them upon all matters presented to the shareholders and, except as required by law, the holders of Serial Preference Shares and the holders of Common Shares (and the holders of all other shares of voting stock of the Corporation that vote together as a class with the holders of Common Shares) shall vote together as one class on all matters. Section 3. (a) The holders of Serial Preference Shares shall be entitled to receive dividends, when and as declared by the Directors, out of the assets of the Corporation which are by law available for the payment of dividends at the rate per share per annum as shall have been fixed by the Directors pursuant to Section 1 of this Division D. (b) No dividends (other than a dividend payable in Common Shares) or other distributions shall be paid or declared on any Common Shares or any other shares ranking junior to the Serial Preference Shares (such Common Shares and other shares ranking junior to the Serial Preference Shares being hereinafter referred to as "Junior Shares"), nor shall any Junior Shares be purchased, retired or otherwise acquired by the Corporation, unless: (i) all accrued and unpaid dividends on all series of Serial Preference Shares, including the full dividends for the current period, shall have been declared and paid or provision shall have been made for such payment; and (ii) there shall be no arrearages with respect to the redemption or sinking fund obligations, if any, of the Corporation for any series of Serial Preference Shares. 13 Section 4. In the event of a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, before any payment shall be made to the holders of Junior Shares, the holders of the Serial Preference Shares shall be entitled to be paid from the assets available therefor the liquidation price fixed by the Directors pursuant to Section 1 of this Division D and all accrued and unpaid dividends on the Serial Preference Shares. Section 5. All Serial Preference Shares shall be shares "ranking junior to the Serial Preferred Stock" as such phrase is defined in Division A, Section 8 of the Articles of Incorporation. FIFTH: Except as otherwise provided in these Articles of Incorporation or in the Regulations, the holders of a majority of the outstanding shares are authorized to take any action which, but for this provision, would require the vote or other action of the holders of more than a majority of such shares. SIXTH: Except as otherwise provided in these Articles of Incorporation, the Corporation, by its Board of Directors, may purchase issued shares, to the extent permitted by law. SEVENTH: Section 1. In addition to any affirmative vote required by law or these Articles of Incorporation, any Related Party Transaction shall require the affirmative vote of not less than both a majority of the Corporation's outstanding Voting Stock and a majority of the portion of the Corporation's outstanding Voting Stock excluding the Voting Stock owned by the Related Party involved in the Related Party Transaction. Section 2. The provisions of Section 1 of this Article Seventh shall not be applicable to Related Party Transactions in which (a) the aggregate amount of the cash and the fair market value of consideration other than cash received per share by holders of shares of each class or series of Voting Stock of the Corporation who receive cash or other consideration in the Related Party Transaction is not less than the highest per share price (with appropriate adjustments for recapitalizations and for stock splits, stock dividends, and like distributions) paid by the Related Party in acquiring any of its holdings of each class of series of such Voting Stock, and (b) the form of consideration received by holders of shares of each class or series of such Voting Stock is cash or the same form used by the Related Party to acquire the largest percentage of each class or series of such Voting Stock owned by the Related Party. Section 3. The provisions of Section 1 of this Article Seventh shall not be applicable if the Continuing Directors of the Corporation by a majority vote have expressly approved the Related Party Transaction. Section 4. For the purpose of this Article Seventh: (a) The term "Related Party Transaction" shall mean (i) any merger or consolidation of the Corporation or a Subsidiary with a Related Party, irrespective of which party, if either, is the surviving party, (ii) any sale, purchase, lease, exchange, transfer, or other transaction (or series of transactions) between the Corporation or a Subsidiary and a Related Party involving the acquisition or disposition of assets for consideration of $10,000,000 or more in value (except for transactions in the ordinary course of business), (iii) the issuance or transfer of any securities of the Corporation or of a Subsidiary to a Related Party (other than an issuance or transfer of securities which is effected on a pro rata basis to all shareholders of the Corporation), (iv) any reclassification of securities of the Corporation (including any reverse stock split) or any recapitalization or other transaction involving the Corporation or its Subsidiaries that would have the effect of increasing the voting power of a Related Party, except for any mandatory redemption required by the terms of outstanding securities, and (v) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation in favor of which a Related Party votes its Voting Stock. 14 (b) The term "Related Party" shall mean (i) any individual, corporation, partnership, or other person, group or entity which, together with its Affiliates and Associates, is the beneficial owner of ten percent (10%) or more but less than ninety percent (90%) of the Voting Stock of the Corporation or (ii) any such Affiliate or Associate. (c) A person shall be a "beneficial owner" of any shares of Voting Stock: (i) Which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (ii) Which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) Which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (d) The terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Act of 1934, as in effect on January 1, 1985 (or any subsequent provisions replacing such Act, Rules or Regulations). (e) The term "consideration other than cash" as used in Section 2(a) of this Article Seventh shall include, without limitation, Voting Stock of the Corporation retained by its existing shareholders in the event of a merger or consolidation with a Related Party in which the Corporation is the surviving corporation. (f) The term "Subsidiary" shall mean any Affiliate of the Corporation more than fifty percent (50%) of the outstanding securities of which representing the right, other than as affected by events of default, to vote for the election of directors is owned by the Corporation or by another Subsidiary (or both). (g) The term "Voting Stock" shall mean all securities of the Corporation entitled to vote generally in the election of directors. (h) The term "Continuing Director" shall mean a director who either (i) was a member of the Board of Directors of the Corporation immediately prior to the time that the Related Party involved in a Related Party Transaction became a Related Party, or (ii) was designated (before his or her initial election as a director) as a Continuing Director by a majority of the then Continuing Directors. Section 5. A majority of the Continuing Directors shall have the power and duty to determine conclusively for the purposes of this Article Seventh, on the basis of information known to them, (a) whether a person is a Related Party, (b) whether a person is an Affiliate or Associate of another, (c) whether a transaction between the Corporation or a Subsidiary and a Related Party involves the acquisition or disposition of assets for consideration of $10,000,000 or more in value, (d) the fair market value of consideration other than cash received by holders of Voting Stock in a Related Party Transaction, and (e) such other matters with respect to which a determination or interpretation is required under this Article Seventh. Section 6. Nothing contained in this Article Seventh shall be construed to relieve any related Party from any fiduciary obligation imposed by law. 15 Section 7. Notwithstanding any other provisions of these Articles of Incorporation or the Regulations of the Corporation or any provision of law which might otherwise permit a lesser vote, but in addition to any affirmative vote of the holders of any particular class or series of stock required by law or these Articles of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Corporation's Voting Stock, voting as a single class, shall be required to alter, amend or adopt any provision inconsistent with or repeal this Article Seventh. EIGHTH: Section 1. Any direct or indirect purchase or other acquisition by the Corporation of any shares of Voting Stock from any Selling Shareholder who has beneficially owned any of such shares of Voting Stock for less than two years prior to the date of such purchase or other acquisition, or any agreement in respect thereof, shall, except as expressly provided in Section 2 of this Article Eighth, require the affirmative vote of the holders of not less than a majority of the shares of Voting Stock represented in person or by proxy at a meeting at which a quorum is present, excluding Voting Stock beneficially owned by such Selling Shareholder, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified by law, or in any agreement with any national securities exchange or otherwise. Section 2. The provisions of Section 1 of this Article Eighth shall not be applicable (a) to any purchase or other acquisition by the Corporation from a Selling Shareholder of shares of Voting Stock owned by said Selling Shareholder which purchase or acquisition is made as part of a tender or exchange offer by the Corporation to purchase Voting Stock of the same class or series made on the same terms to all holders of such Voting Stock and complying with the applicable requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations), or (b) to the purchase from any Selling Shareholder of shares of Voting Stock by the Corporation at a price not in excess of the Fair Value thereof, and any such purchase or acquisition shall require only such affirmative vote, if any, as is required by law and any other provisions of these Articles of Incorporation or otherwise. Section 3. For the purpose of this Article Eighth: (a) "Selling Shareholder" shall mean any individual, firm, partnership, corporation or other person, group or entity (other than the Corporation or any corporation of which a majority of its voting stock is owned, directly or indirectly, by the Corporation) who or which: (i) is the beneficial owner of more than five percent (5%) of the class or series of Voting Stock to be acquired; or (ii) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of more than five percent (5%) of the class or series of Voting Stock to be acquired; or (iii) is an assignee or has otherwise succeeded to any shares of the class or series of Voting Stock to be acquired which were at any time within the two-year period immediately prior to the date in question beneficially owned by a Selling Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (b) "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Act of 1934, as in effect on January 1, 1985 (or any subsequent provisions replacing such Act, Rules or Regulations). (c) A person shall be a "beneficial owner" of any shares of Voting Stock: 16 (i) Which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (ii) Which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) Which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (d) For the purpose of determining whether a person is a Selling Shareholder pursuant to paragraph (a) of this Section 3, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph (c) of this Section 3, but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (e) "Voting Stock" shall mean all securities of the Corporation entitled to vote generally in the election of directors. (f) "Fair Value" shall mean the highest closing sale price of such Voting Stock during the thirty-day period immediately preceding the date in question, on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such Voting Stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such Voting Stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such Voting Stock is listed, or, if such Voting Stock is not listed on any such exchange, the highest closing bid quotation with respect to such Voting Stock, during the thirty- day period immediately preceding the date in question, on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the Fair Value on the date in question of such Voting Stock shall be as determined by a majority of the Board of Directors of the Corporation in good faith. Section 4. A majority of the Board of Directors shall have the power and duty to determine conclusively for the purposes of this Article Eighth, on the basis of information known to them, (a) whether a person is a Selling Shareholder, (b) the Fair Value of Voting Stock owned by a Selling Shareholder, and (c) such other matters with respect to which a determination or interpretation is required under this Article Eighth. NINTH: No person shall make a Control Share Acquisition without first obtaining the prior authorization of the Corporation's shareholders at a special meeting of shareholders called by the Board of Directors in accordance with this Article Ninth. Section 1. PROCEDURE. Any Person who proposes to make a Control Share Acquisition shall deliver a notice ("Notice") to the Corporation at its principal place of business that sets forth all of the following information: (A) The identity of the Person who is giving the Notice; (B) A Statement that the Notice is given pursuant to this Article Ninth. 17 (C) The number and class of shares of the Corporation owned, directly or indirectly, by the Person who gives the Notice; (D) The range of voting power (as specified in Section 6(B)(1)) under which the proposed Control Share Acquisition would, if consummated, fall; (E) A description in reasonable detail of the terms of the proposed Control Share Acquisition; and (F) Representatives, supported by reasonable information, that the proposed Control Share Acquisition would be consummated if shareholder approval is obtained and, if consummated, would not be contrary to law and that the Person who is giving the Notice has the financial capacity to make the proposed Control Share Acquisition. Section 2. CALL OF SPECIAL MEETING OF SHAREHOLDERS. The Board of Directors of the Corporation shall, within ten (10) days after receipt by the Corporation of a Notice that complies with Section 1, call a special meeting of shareholders to be held not later than fifty (50) days after receipt of the Notice by the Corporation, unless the Person who delivered the Notice agrees to a later date, to consider the proposed Control Share Acquisition; provided that the Board of Directors shall have no obligation to call such a meeting if they make a determination with ten (10) days after receipt of the Notice that the proposed Control Share Acquisition could not be consummated for financial or legal reasons. The Board of Directors may adjourn such special meeting of shareholders if prior to such meeting the Corporation has received a Notice from any other Person and the Board of Directors has determined that the Control Share Acquisition proposed by such other Person, or a merger, consolidation or sale of assets of the Corporation, should be presented to shareholders at an adjourned meeting or at a special meeting held at a later date. For purposes of making a determination that a special meeting of shareholders should not be allowed pursuant to this Section 2, no such determination shall be deemed void or voidable with respect to the Corporation merely because one or more of its directors or officers who participated in deliberations regarding such determination may be deemed to be other than disinterested, if in any such case the material facts of the relationship giving rise to a basis for self-interest are known to the directors and the directors, in good faith reasonably justified by the facts, make such determination by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors constitute less than a quorum. For purposes of this paragraph, "disinterested directors" shall mean directors whose material contacts with the Corporation are limited principally to activities as a director or shareholder. Persons who have substantial, recurring business or professional contacts with the Corporation shall not be deemed to be "disinterested directors" for purposes of this provision. A director shall not be deemed to be other than a "disinterested director" merely because he would no longer be a director if the proposed Control Share Acquisition were approved and consummated. Section 3. NOTICE OF SPECIAL MEETING. The Corporation shall, as promptly as practicable, give notice of the special meeting of shareholders called pursuant to Section 2 to all shareholders of record as of the record date set for such meeting. Such notice shall include or be accompanied by a copy of the Notice and by a statement of the Corporation, authorized by the Board of Directors, of its position or recommendation, or that it is taking no position or making no recommendation, with respect to the proposed Control Share Acquisition. Section 4. REQUIREMENTS FOR APPROVAL The Person who delivered the Notice may make the proposed Control Share Acquisition if both of the following occur: (A) The Shareholders of the Corporation authorize such acquisition at the special meeting of shareholders called pursuant to Section 2, at which meeting a quorum is present, by the affirmative vote of a majority of the Voting Stock represented at such meeting in person 18 or by proxy and by a majority of the portion of such Voting Stock represented at such meeting in person or by proxy excluding the votes of Interested Shares. A quorum shall be deemed to be present at such special meeting if at least a majority of the issued and outstanding Voting Stock, and a majority of such Voting Stock excluding Interested Shares, are represented at such meeting in person or by proxy. (B) Such acquisition is consummated, in accordance with the terms so authorized, not later than three hundred sixty (360) days following shareholder authorization of the Control Share Acquisition. Section 5. VIOLATIONS OF RESTRICTION. Any Voting Stock issued or transferred to any Person in violation of this Article Ninth shall hereinafter be called "Excess Shares." In the event that any Person acquires Excess Shares, then, in addition to any other remedies which the Corporation may have at law or in equity as a result of such acquisition, the Corporation shall have the right to redeem, or to deny voting rights or other shareholder rights appurtenant to such Excess Shares. The Corporation additionally shall have the right to regard the Person who holds Excess Shares as having acted as an agent on behalf of the Corporation in acquiring the Excess Shares and to hold such Excess Shares on behalf of the Corporation. As the equivalent of treasury securities for such purposes, the Excess Shares shall not be entitled to any voting rights, shall not be considered to be outstanding for quorum or voting purposes, and the Person who holds Excess Shares shall not be entitled to receive dividends, interest or any other distribution with respect to the Excess Shares. Any Person who receives dividends, interest or any other distribution with respect to Excess Shares shall hold the same as agent for the Corporation and, following a permitted transfer, for the transferee thereof. Notwithstanding the foregoing, any Person who holds Excess Shares may transfer the same (together with any distributions thereon) to any Person who, following such transfer, would not own shares in violation of this Article Ninth. Upon such permitted transfer, the Corporation shall pay or distribute to the transferee any distributions on the Excess Shares not previously paid or distributed. Section 6. DEFINITIONS. As used in this Article Ninth: (A) "Person" includes, without limitation, an individual, a corporation (whether nonprofit or for profit), a partnership, an unincorporated society or association, and two or more persons having a joint or common interest. (B)(1) "Control Share Acquisition" means the acquisition, directly or indirectly, by any Person, of shares of the Corporation that, when added to all other shares of the Corporation in respect of which such Person, directly or indirectly, may exercise or direct the exercise of voting power as provided in this Section 6(B)(1), would entitle such Person, immediately after such acquisition, directly or indirectly, to exercise or direct the exercise of voting power of the Corporation in the election of directors within any of the following ranges of such voting power: a) One-fifth or more but less than one-third of such voting power; (b) One-third or more but less than a majority of such voting power; or (c) A majority or more of such voting power. A bank, broker, nominee, trustee, or other Person who acquires shares in the ordinary course of business for the benefit of others in good faith and not for the purpose of circumventing this Article Ninth shall, however, be deemed to have voting power only of shares in respect of which such Person would be able to exercise or direct the exercise of votes at a special meeting of shareholders called pursuant to Section 2 of this Article Ninth without further instruction from others. For purposes of this Article Ninth, the acquisition of securities immediately convertible into shares of the Corporation with voting power in the election of directors shall be treated as an acquisition of such shares. 19 (2) The acquisition of any shares of the Corporation does not constitute a Control Share Acquisition for the purposes of this Article Ninth if the acquisition is consummated in any of the following circumstances: (a) By underwriters in good faith and not for the purpose of circumventing this Article Ninth in connection with an offering to the public of securities of the Corporation; (b) By bequest or inheritance, by operation of law upon the death of any individual, or by any other transfer without valuable consideration, including a gift that is made in good faith and not for the purpose of circumventing this Article Ninth; (c) Pursuant to the satisfaction of a pledge or other security interest created in good faith and not for the purpose of circumventing this Article Ninth; (d) Pursuant to a merger, consolidation, combination or majority share acquisition adopted or authorized by shareholder vote in compliance with the provisions of Article Seventh of these Articles of Incorporation and Section 1701.78 or 1701.83 of the Ohio Revised Code if the Corporation is the surviving or new corporation in the merger or consolidation or is the acquiring corporation in the combination or majority share acquisition; (e) Under such circumstances that the acquisition does not result in the Person acquiring shares of the Corporation being entitled, immediately thereafter and for the first time, directly or indirectly, to exercise or direct the exercise of voting power of the Corporation in the election of directors within the range of one-fifth or more but less than one-third of such voting power, or within any of the ranges of voting power specified in Section 6(B)(1)(a), (b) or (c) which is higher than the range of voting power applicable to such Person immediately prior to such acquisition; (f) Prior to [of the Merger]; or (g) Pursuant to a contract existing prior to [date of the Merger]. The acquisition by any Person of shares of the Corporation in a manner described under this Section 6(B)(2) shall be deemed to be a Control Share Acquisition authorized pursuant to this Article Ninth within the range of voting power specified in Section 6(B)(1)(a), (b) or (c) that such Person is entitled to exercise after such acquisition, provided that, in the case of an acquisition in a manner described under Section 6(B)(2)(b) or (c), the transferor of shares to such Person had previously obtained any authorization of shareholders required under this Article Ninth in connection with such transferor's acquisition of shares of the Corporation. (3) The acquisition of shares of the Corporation in good faith and not for the purpose of circumventing this Article Ninth from any Person whose Control Share Acquisition had previously been authorized by shareholders in compliance with this Article Ninth, or from any Person whose previous acquisition of shares would have constituted a Control Share Acquisition but for Section 6(B)(2), does not constitute a Control Share Acquisition for the purpose of this Article Ninth unless such acquisition entitles any Person, directly or indirectly, alone or with others, to exercise or direct the exercise of voting power of the Corporation in the election of directors in excess of the range of such voting power authorized pursuant to this Article Ninth, or deemed to be so authorized under Section 6(B)(2). (C) "Interested Shares" means Voting Stock with respect to which any of the following persons may exercise or direct the exercise of the voting power: (1) any Person whose Notice prompted the calling of a special meeting of shareholders pursuant to Section 2; 20 (2) any officer of the Corporation elected or appointed by the directors of the Corporation; and (3) any employee of the Corporation who is also a director of the Corporation. (D) "Voting Stock" means all securities of the Corporation entitled to vote generally in the election of directors, and, for purposes of Section 5 of this Article Ninth, shall mean securities of the Corporation immediately convertible into securities entitled to vote generally in the election of directors. Section 7. PROXIES. No proxy appointed for or in connection with the Shareholder authorization of a Control Share Acquisition pursuant to this Article Ninth is valid if it provides that it is irrevocable. No such proxy is valid unless it is sought, appointed, and received both: (A) In accordance with all applicable requirements of law; and (B) Separate and apart from the sale or purchase, contract or tender for sale or purchase, or request or invitation for tender for sale or purchase, of shares of the Corporation. Section 8. REVOCABILITY OF PROXIES. Proxies appointed for or in connection with the shareholder authorization of a Control Share Acquisition pursuant to this Article Ninth shall be revocable at all times prior to the obtaining of such shareholder authorization, whether or not coupled with an interest. Section 9. AMENDMENTS. Notwithstanding any other provisions of these Articles of Incorporation or the Regulations of the Corporation or any provision of law that might otherwise permit a lesser vote, but in addition to any affirmative vote of the holders of any particular class or series of stock required by law, the Articles of Incorporation or the Regulations of the Corporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Voting Stock, voting as a single class, shall be required to alter, amend or repeal this Article Ninth or adopt any provisions in the Articles of Incorporation or Regulations of the Corporation which are inconsistent with the provisions of this Article Ninth. Section 10. LEGEND ON SHARE CERTIFICATES. Each certificate representing shares of the Corporation's capital stock shall contain the following legend: Transfer of the shares represented by this Certificate is subject to the provisions of Article Ninth of the Corporation's Articles of Incorporation as the same may be in effect from time to time. Upon written request delivered to the Secretary of the Corporation at its principal place of business, the Corporation will mail to the holder of this Certificate a copy of such provisions without charge within five (5) days after receipt of written request therefor. By accepting this Certificate the holder hereof acknowledges that it is accepting same subject to the provisions of said Article Ninth as the same may be in effect from time to time and covenants with the Corporation and each shareholder thereof from time to time to comply with the provisions of said Article Ninth as the same may be in effect from time to time. TENTH: The provisions of Section 1701.831 of the Ohio Revised Code, as amended from time to time, or any successor provision or provisions to said Section, shall not apply with respect to any particular Control Share Acquisition, as such is defined in said Section, regarding this Corporation so long as Article Ninth of these Articles of Incorporation, as such Articles of Incorporation may be amended from time to time, remains an Article of these Articles of Incorporation and remains substantially in full force and effect, disregarding any renumbering of such Article Ninth resulting from any amendment of these Articles of Incorporation. 21 ELEVENTH: These Amended Articles of Incorporation supersede the existing Amended Articles of Incorporation of the Corporation. 22 EX-3.2 3 l12253aexv3w2.txt EX-3.2 REGULATIONS OF LUBRIZOL MEETINGS OF SHAREHOLDERS Exhibit 3.2 REGULATIONS OF THE LUBRIZOL CORPORATION MEETINGS OF SHAREHOLDERS Section 1. Annual Meeting. The annual meeting of the shareholders of the Company shall be held at the principal office of the Company, or at such other place within or without the State of Ohio as the directors may determine, on the fourth Monday of April of each year, if not a legal holiday, or, if a legal holiday, then on the next succeeding business day. The directors shall be elected thereat and such other business transacted as may be specified in the notice of the meeting. Section 2. Special Meetings. Special meetings of the shareholders may be called at any time by the Chairman of the Board, the Vice Chairman of the Board, the President, or by a majority of the directors acting with or without a meeting, or by shareholders holding fifty percent (50%) or more of the outstanding shares entitled to vote thereat. Such meetings may be held within or without the State of Ohio at suchtime and place as may be specified in the notice thereof. Section 3. Notice of Meetings. Written or printed notice of every annual or special meeting of the shareholders stating the time and place and the purposes thereof shall be given to each shareholder entitled to vote thereat and to each shareholder entitled to notice as provided by law, by mailing the same to his last address appearing on the records of the Company at least seven days before any such meeting. Any shareholder may waive any notice required to be given by law or under these Regulations, and by attendance at any meeting, shall be deemed to have waived notice thereof. Section 4. Persons Becoming Entitled by Operation of Law of Transfer. Every person who, by operation of law transfer, or any other means whatsoever, shall become entitled to any shares, shall be bound by every notice in respect of such share or shares which previously to the entering of his name and address on the records of the Company shall have been duly given to the person from whom he derives his title to such shares. Section 5. Quorum and Adjournments. Except as may be otherwise required by law or by the Articles of Incorporation, the holders of shares entitling them to exercise a majority of the voting power of the Company shall constitute a quorum to hold a shareholders meeting; provided, however, that at any meeting, whether a quorum is present or otherwise, the holders of a majority of the voting shares represented thereat may adjourn from time to time without notice other than by announcement at such meeting. Section 6. Business to be Conducted at Meetings. At any meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting of shareholders, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Directors, otherwise properly brought before the meeting by or at the direction of the directors or otherwise properly brought before the meeting by a shareholder. For business to be properly brought before a meeting of shareholders by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Company. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Company not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than seventy-five (75) days' notice or prior public disclosure of the date of the meeting is given or made to the shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the fifteenth (15th) day following the earlier of the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting; (ii) the name and record address of the shareholder proposing such business; (iii) the class and number of shares of the Company which are beneficially owned by such shareholder; and (iv) any material interest of such shareholder in such business. Notwithstanding anything in the Regulations of the Company to the contrary, no business shall be conducted at a meeting of shareholders except in accordance with the procedures set forth in this Section 6. The Chairman of the meeting of shareholders may, if the facts warrant determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6, and if he should so determine, any such business shall not be transacted. DIRECTORS Section 7. Number. The number of directors may be determined by the vote of the holders of a majority of the shares of the Company entitled to vote for the election of directors that are represented at any annual meeting or special meeting called for the purpose of electing directors or by resolution adopted by affirmative vote of a majority of the directors then in office, provided that the number of directors shall in no event be fewer than nine (9) nor more than thirteen (13). When so fixed, such number shall continue to be the authorized number of directors until changed by the shareholders or directors by vote as aforesaid. Section 8. Nominations. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election as directors of the Company may be made at a meeting of shareholders by or at the direction of the directors, by any nominating committee or person appointed by the directors, or by any shareholder of the Company entitled to vote for the election of directors who complies with the notice procedures set forth in this Section 8. Nominations by shareholders shall be made pursuant to timely notice in writing to the Secretary of the Company. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Company not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than seventy-five (75) days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the fifteenth (15th) day following the earlier of the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth: (a) as to each person who is not an incumbent director whom the shareholder proposes to nominate for election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Company which are beneficially owned by such person, and (iv) any other information relating to such person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934 (or any comparable successor rule or regulation under such Act); and (b) as to the shareholder giving the notice (i) the name and record address of such shareholder, and (ii) the class and number of shares of the Company which are beneficially owned by such shareholder. Such notice shall be accompanied by the written consent of each proposed nominee to serve as a director of the Company, if elected. No person shall be eligible for election as a director of the Company unless nominated in accordance with the procedures set forth in this Section 8. The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the provisions of this Section 8, and if he should so determine the defective nomination shall be disregarded. Section 9. Classification, Election and Term of Office of Directors. The directors shall be divided into three classes, as nearly equal in number as possible. At the 1985 Annual Meeting of Shareholders, one class of directors shall be elected for a one-year term, one class for a two-year term and one class for a three-year term. At each succeeding annual meeting of shareholders, successors to the class of directors whose term expires in that year will be elected for a three-year term. At such time as the shareholders or directors fix or change the total number of directors comprising the Board of directors, they shall also fix, or determine the adjustment to be made to, the number of directors comprising the three classes of directors, provided, however, that no reduction in the number of directors shall of itself 2 result in the removal of or shorten the term of any incumbent director. In the case of any increase in the number of directors of any class, any additional directors elected to such class shall hold office for a term which shall coincide with the term of such class. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, or removal from office. Election of directors shall be by ballot whenever requested by any person entitled to vote at the meeting, but unless so requested, such election may be conducted in any way approved at such meeting. Section 10. Removal. Except as otherwise provided by law, all the directors, or all the directors of a particular class, or any individual director, may be removed from office without assigning any cause, by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the shares of the Company present in person or represented by proxy and entitled to vote in respect thereof, at an annual meeting or at any special meeting duly called for such purpose. Section 11. Vacancies. Whenever any vacancy shall occur among the directors, the remaining directors shall constitute the directors of the Company until such vacancy is filled or until the number of directors is changed as above provided. The remaining directors; though less than a majority of the whole authorized number of directors, may, by a vote of a majority of their number, fill any vacancy for a term ending with the next annual meeting or until a successor is elected and qualified. Section 12. Quorum. A majority of the directors in office at the time shall constitute a quorum - provided that any meeting duly called, whether a quorum be present or otherwise, may, by note of a majority of the directors present adjourn from time to time and place to place within or without the State of Ohio without notice other than by announcement at the meeting. At any meeting of the directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of not less than a majority of the directors present. Section 13. Organization Meeting. Immediately after each annual meeting of the shareholders at which directors are elected, or each special meeting held in lieu thereof, the newly elected directors, if a quorum thereof be present, shall hold an organization meeting at the same place or at such other time and place as may be fixed by the shareholders at such meeting, for the purpose of electing officers and transacting any other business. Notice of such meeting need not be given. If for any reason such organization meeting is not held at such time, a special meeting for such purpose shall be held as soon thereafter as practicable. Section 14. Regular Meetings. Regular meetings of the directors may be held at such times and places within or without the State of Ohio as may be provided for in by-laws or resolutions adopted by the directors and upon such notice, if any, shall be so provided for. Section 15. Special Meetings. Special meetings of the directors may be held at any time within or without the State of Ohio upon call by the Chairman of the Board, the Vice Chairman of the Board, the President, or any two directors. Notice of each such meeting shall be given to each director by letter or telegram or in person not less than forty-eight (48) hours prior to such meeting; provided, however, that such notice shall be deemed to have been waived by the directors attending such meeting, and may be waived in writing or by telegram by any director either before or after such meeting. Unless otherwise indicated in the notice thereof, any business may be transacted at any organization, regular or special meeting. Section 16. Compensation. The directors are authorized to fix a reasonable salary for directors or a reasonable fee for attendance at any meeting of the directors, the Executive Committee, or other committees elected under Section 18 hereof, or any combination of salary and attendance fee, provided that no compensation as director shall be paid to any director who is a full-time employee of the Company. In addition to such compensation provided for directors, they shall be reimbursed for any expenses incurred by them in traveling to and from such meetings. 3 EXECUTIVE COMMITTEE AND OTHER COMMITTEES Section 17. Membership and Organization. (a) The directors, at any time may elect from their number an Executive Committee which shall consist of not less than three members, each of whom shall hold office during the pleasure of the directors and may be removed at anytime, with or without cause by note thereof. (b) Vacancies occurring in the Committee may be filled by the directors. (c) The Committee shall appoint one of its own number as Chairman who shall preside at all meetings and may also appoint a Secretary (who need not be a member of the Committee) who shall keep its records and who shall hold office during the pleasure of the Committee. Section 18. Meetings. (a) Meeting of the Committee may be held upon notice of the time and place thereof at any place within or without the State of Ohio and until otherwise ordered by the Committee shall be held at any time and place at the call of the Chairman or any two members thereof. (b) A majority of the members of the Committee shall be necessary for the transaction of any business and at any meeting the Committee may exercise any or all of its powers and any business which shall come before any meeting maybe transacted thereat, provided a majority of the Committee is present, but in every case the affirmative vote of a majority of all of the members of the Committee shall be necessary to any action by it taken. Section 19. Powers. Except as its powers, duties and functions may be limited or prescribed by the directors, during the intervals between the meetings of the directors, the Committee shall possess and may exercise all the powers of the directors in the management and control of the business of the Company; provided that the Committee shall not be empowered to declare-dividends, elect officers, nor to fill vacancies among the directors of Executive Committee. All actions of the Committee shall be reported to the directors at their meeting next succeeding such action and shall be subject to revision or alteration by the directors provided that no rights of any third person shall be affected thereby. Section 20. Other Committees. The directors may elect other committees from among the directors in addition to or in lieu of an Executive Committee and give to them any of the powers which under the foregoing provisions could be vested in an Executive Committee. Sections 15 and 16 shall be applicable to such other committees. OFFICERS Section 21 - Officers Designated. The directors at their organization meeting or at a special meeting held in lieu thereof, shall elect a President, a Secretary, a Treasurer and, in their discretion, a Chairman of the Board, a Vice Chairman of the Board, one or more Vice Presidents, an Assistant Secretary or Secretaries, an Assistant Treasurer or Treasurers, and such other officers as the directors may see fit. The President, the Chairman of the Board and the Vice Chairman of the Board shall be, but the other officers may, but need not be, chosen from among the directors. Any two or more of such offices other than that of President and Vice President, or Secretary and Assistant Secretary or Treasurer and Assistant Treasurer, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. Section 22. Tenure of Office. The officers of the Company shall hold office until the next organization meeting of the directors and until their successors are chosen and qualified, except in case of resignation, death or removal. The directors may remove any officer at any time with or without cause by a majority vote of the directors in office at the time. A vacancy, however created, in any office may be filled by election by the directors. 4 Section 23. Chairman of the Board and President. The Chairman of the Board shall preside at meetings of shareholders and at meetings of directors. The President shall, in the absence of the Chairman of the Board, preside at meetings of the shareholders and in the absence of the Chairman of the Board and of the Vice Chairman of the Board shall also preside at meetings of the directors. The directors shall designate either the Chairman of the Board or the President as chief executive officer of the Company. The chief executive officer of the Company shall have general supervision over its property, business and affairs, and perform all the duties usually incident to such office, subject to the directions of the directors. He may execute all authorized deeds, mortgages, bonds, contracts and other obligations, in the name of the Company, and shall have such other powers and duties as may be prescribed by the directors. During such time as the President or Chairman of the Board, as the case may be, is not the chief executive officer, he shall have such authority and perform such duties as the directors may determine. In case of the absence or disability of the chief executive officer or when circumstances prevent the chief executive officer from acting, the President (if the Chairman of the Board is the chief executive officer) or the Chairman of the Board (if the President is the chief executive officer) shall perform the duties of the chief executive officer. Section 24. Vice Chairman of the Board. The Vice Chairman of the Board, if any, shall, in the absence of the Chairman of the Board, preside at meetings of the directors and shall have such other powers and duties as may be prescribed by the directors. Section 25. Vice Presidents. The Vice Presidents shall have such powers and duties as may be prescribed by the directors or as may be delegated by the chief executive officer. Incase of the absence or disability of the Chairman of the Board and the President or when circumstances prevent them from acting, the Vice Presidents, in the order designated by the directors, shall perform the duties of the chief executive officer, and in such case, the power of the Vice Presidents to execute all authorized deeds, mortgages, bonds, contracts and other obligations, in the name of the Company shall be coordinate with like powers of the chief executive officer and any such instrument so executed by such Vice Presidents shall be as valid and binding as though executed by the chief executive officer. In case the chief executive officer and such Vice Presidents are absent or unable to perform their duties, the directors may appoint a President pro tempore. Section 26. Secretary. The Secretary shall keep the minutes of all meetings of the shareholders and the directors. He shall keep such records as may be required by the directors, shall have charge of the seal of the Company and shall give all notices of shareholders and directors meetings required by law or by these Regulations, or otherwise, and shall have such other powers and duties as may be prescribed by the directors. Section 27. Treasurer. The Treasurer shall receive and have in charge all money, bills, notes, bonds, stocks in other corporations and similar property belonging to the Company, and shall do with the same as shall be ordered by the directors. He shall keep accurate financial accounts, and hold the same open for inspection and examination of the directors. On the expiration of this term of office, he shall turn over to his successor, or the directors, all property, books, papers and money of the Company in his hands. He shall have such other powers and duties as may be prescribed by the directors. Section 28. Other Officers. The Assistant Secretaries, Assistant Treasurers, if any, and any other officers that the directors may elect, shall have such powers and duties as the directors may prescribe. Section 29. Delegation of Duties. The directors are authorized to delegate the duties of any officers to any other officer and generally to control the action of the officers and to require the performance of duties in addition to those mentioned herein. Section 30. Compensation. The directors are authorized to determine or to provide the method of determining the compensation of all officers. Section 31 Bond. Any officer or employee, if required by the directors, shall give bond in such sum and with such security as the directors may require for the faithful performance of his duties. 5 Section 32. Signing Checks and Other Instruments. The directors are authorized to determine or provide the method of determining how checks, notes, bills of exchange and similar instruments shall be signed, countersigned or endorsed. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES Section 33. Indemnification. The Company shall indemnify any director or officer and any former director or officer of the Company and any such director or officer who is or has served at the request of the Company as a director, officer or trustee of another corporation, partnership, joint venture, trust or other enterprise (and his heirs, executors and administrators) against expenses, including attorney's fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by him by reason of the fact that he is or was such director, officer or trustee in connection with any threatened, pending or completed action, suitor proceeding, whether civil, criminal, administrative or investigative to the full extent permitted by applicable law. The indemnification provided for herein shall not be deemed to restrict the right of the Company (i) to indemnify employees, agents and others to the extent not prohibited by such law, (ii) to purchase and maintain insurance or furnish similar protection on behalf of or for any person who is or was a director, officer, employee or agent of the Company, or any person who is or was serving at the request of the Company as a director, officer, trustee, employee or agent of another corporation, joint venture, partnership, trust or other enterprise against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such and (iii) to enter into agreements with persons of the class identified in clause (ii) above indemnifying them against any and all liabilities (or such lesser indemnification as may be provided in such agreements) asserted against or incurred by them in such capacities. CORPORATE SEAL Section 34. The corporate seal of this Company shall be circular in form and contain the name of the Company. PROVISIONS IN ARTICLES OF INCORPORATION Section 35. These Regulations are at all times subject to the provisions of the Articles of Incorporation of the Company (including in such term whenever used in these Regulations all amendments to the Articles of Incorporation in force at the time) and in case of any conflict, the provisions in the Articles of Incorporation shall govern. AMENDMENTS Section 36. Amendments. (a) These Regulations may be altered, changed or amended in any respect or superseded by new Regulations, in whole or in part, by the affirmative vote of the holders of a majority of the shares of the Company present in person or by proxy and entitled to vote thereon, at an annual or special meeting duly called for such purpose. (b) Notwithstanding the provisions of Section 36(a) hereof and notwithstanding the fact that a lesser percentage may be specified by law or in any agreement with any national securities exchange or any other provision of these Regulations, the amendment, alteration, change or repeal of, or adoption of any provisions inconsistent with, Sections 7, 9 or 10 of these Regulations shall require the affirmative vote, at an annual or special meeting duly called for such purpose, of the holders of shares representing at least sixty-six and two-thirds percent (66-2/3%) of the voting power of the Company, unless such amendment, alteration, change, repeal or adoption has been recommended by at least two-thirds of the Board of Directors of the Company then in office, in which event the provisions of Section 36(a) hereof shall apply. 6 EX-4.1 4 l12253aexv4w1.txt EX-4.1 CERTIFICATE OF AMENDMENT TO AMENDED ARTICLES OF INCORPORATION Exhibit 4.1 CERTIFICATE OF AMENDMENT TO AMENDED ARTICLES OF INCORPORATION of THE LUBRIZOL CORPORATION L. E. Coleman, Chairman and Chief Executive Officer and K. H. Hopping, Secretary, of The Lubrizol Corporation, an Ohio corporation (the "Corporation"), DO HEREBY CERTIFY THAT: Pursuant to the authority conferred upon the Directors by the Amended Articles of Incorporation of the Corporation, the Directors at a meeting duly called and held on October 28, 1991, at which a quorum was present and acting throughout, adopted the following resolution to amend the Amended Articles of Incorporation of the Corporation pursuant to Section 1701.70(B)(1) of the Ohio Revised Code to amend the terms of a series of the Corporation's Serial Preferred Stock designated as Serial Preferred Stock, Series A: RESOLVED, that in accordance with the Special Rights Plan Amendment and pursuant to the authority vested in the Directors of this Corporation in accordance with the provisions of its Amended Articles of Incorporation (the "Articles"), Section 7(A) of Division C of Article Fourth of the Articles be and hereby is amended to read in its entirety as follows: (A) So long as any shares of Series A Stock are outstanding, no shares of any series of Serial Preferred Stock or other capital stock of the Corporation may be issued by the Corporation except for (i) Common Shares having the express terms applicable to Common Shares on the Share Acquisition Date (as defined in Section 8(B) of this Division C), (ii) shares of capital stock which are Junior Stock (as that term is defined in Section 2(B) of this Division C), and (iii) shares of Series A Stock issuable pursuant to and in accordance with the Rights Agreement. IN WITNESS WHEREOF L. E. Coleman, Chairman and Chief Executive Officer, and K. H. Hopping, Secretary, of The Lubrizol Corporation, acting for and on behalf of the Corporation, have hereunto subscribed their names this 28th day of October, 1991. /s/ L. E. Coleman /s/ K. H. Hopping L. E. Coleman, Chairman & CEO K. H. Hopping, Secretary EX-4.2 5 l12253aexv4w2.txt EX-4.2 AMENDED AND RESTATED RIGHTS AGREEMENT Exhibit 4.2 AMENDED AND RESTATED RIGHTS AGREEMENT BETWEEN THE LUBRIZOL CORPORATION AND AMERICAN STOCK TRANSFER & TRUST COMPANY DATED AS OF JULY 26, 1999

TABLE OF CONTENTS Section 1. Certain Definitions............................................................ 2 Section 2. Appointment of Rights Agent.................................................... 6 Section 3. Issue of Right Certificates.................................................... 7 Section 4. Form of Right Certificate...................................................... 10 Section 5. Countersignature and Registration.............................................. 10 Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates .................................................. 11 Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights...................................................................... 12 Section 8. Cancellation and Destruction of Right Certificates............................. 14 Section 9. Reservation and Availability of Common Shares.................................. 14 Section 10. Common Shares Record Date...................................................... 16 Section 11. Adjustment of Purchase Price, Number and Type of Shares or Number of Rights..................................................... 17 Section 12. Certificate of Adjusted Purchase Price or Number of Shares...................................................................... 31 Section 13. Notice of Adjusted Purchase Price or Number or Type of Shares to Holders of Rights................................................. 31 Section 14. Fractional Rights and Fractional Shares........................................ 31 Section 15. Rights of Action............................................................... 33 Section 16. Agreement of Rights Holders.................................................... 33 Section 17. Right Certificate Holder Not Deemed a Shareholder.............................. 34

1 Section 18. Concerning the Rights Agent................................................... 35 Section 19. Merger or Consolidation or Change of Name of Rights Agent..................... 35 Section 20. Duties of Rights Agent........................................................ 36 Section 21. Change of Rights Agent........................................................ 39 Section 22. Issuance of New Right Certificates............................................ 40 Section 23. Redemption.................................................................... 40 Section 24. Notice of Certain Events...................................................... 42 Section 25. Notices....................................................................... 43 Section 26. Supplements and Amendments.................................................... 43 Section 27. Successors.................................................................... 44 Section 28. Determinations and Actions by the Directors, etc.............................. 45 Section 29. Benefits of this Agreement.................................................... 45 Section 30. Action by Executive Committee................................................. 46 Section 31. Severability.................................................................. 46 Section 32. Governing Law................................................................. 46 Section 33. Counterparts.................................................................. 46 Section 34. Descriptive Headings.......................................................... 46 Exhibit A -- Form of Rights Certificate .................................................. A-1 Exhibit B -- Form of Summary of Rights.................................................... B-1 2 AMENDED AND RESTATED RIGHTS AGREEMENT This Amended and Restated Rights Agreement, dated as of July 26, 1999 (this "Agreement"), is between THE LUBRIZOL CORPORATION, an Ohio corporation (the "Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY (the "Rights Agent"). RECITALS WHEREAS, the Company entered into a certain Rights Agreement, dated as of October 13, 1997 between the Company and Rights Agent (the "1997 Rights Agreement"); WHEREAS, on September 22, 1997, pursuant to Section 1701.16 of the Ohio Revised Code, the Board of Directors of the Company authorized and declared a dividend distribution of one right for each Common Share outstanding at the close of business on September 22, 1997 (the "Record Date"), entitling the holder thereof to purchase, upon the terms and subject to the conditions hereinafter set forth, one-half of one Common Share for each Common Share so held on the Record Date at an initial purchase price of $170 per share, subject to adjustment as hereinafter provided (such rights are hereinafter referred to as the "Rights") and also authorized and granted one Right for each Common Share issued after the Record Date but prior to the earlier of (i) the Distribution Date (in the case of Common Shares issued upon conversion of the Company's convertible securities or upon exercise of employee stock options, prior to the thirtieth day after the Distribution Date), (ii) the Expiration Date, or (iii) October 12, 2007 (the "Final Expiration Date"), including, without limitation, Common Shares issued upon conversion of the Company's convertible securities and upon exercise of employee stock options and Common Shares which are treasury shares as of the Record Date and subsequently become outstanding; and WHEREAS, the Board of Directors of the Company has determined that it is desirable and in the best interests of the Company and its shareholders for the Company to amend certain 3 provisions of the 1997 Rights Agreement to eliminate requirements that "Continuing Directors" concur in the taking of certain actions thereunder; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 20% or more of the Common Shares then outstanding, but shall not include (i) the Company, any Subsidiary or any employee benefit or stock ownership plan of the Company or any Person or entity organized, appointed or established by the Company for or pursuant to any such plan, (ii) any Person who becomes an Acquiring Person solely as a result of a reduction in the number of Common Shares outstanding due to the repurchase of Common Shares by the Company, unless and until (x) such time as such Person or any Affiliate or Associate of such Person shall thereafter become the Beneficial Owner of any additional Common Shares, other than as a result of a stock dividend, stock split or similar transaction effected by the Company in which all holders of Common Shares are treated equally, or (y) any other Person who is the Beneficial Owner of any Common Shares shall thereafter become an Affiliate or Associate of such Person, or (iii) any Person who becomes the Beneficial Owner of 20% or more of the Common Shares then outstanding in a transaction or series of transactions which are approved in advance by the affirmative vote of a majority of the Board of Directors of the Company (an "Approved Transaction"), unless and until such Person shall purchase or otherwise become the Beneficial Owner of additional Common Shares in a transaction or series of transactions which are not approved in advance by the affirmative vote of a majority the Board of Directors of the Company. 4 (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date hereof. (c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "beneficially own" any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, (A) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or payment, or (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event, or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event which Rights were acquired by such Person or any of such Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a) or Section 22 hereof or pursuant to Section 11(i) hereof in connection with an adjustment made with respect to any Rights which such Person or any of such 5 Person's Affiliates or Associates has or the right to vote or dispose of pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any securities of the Company; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if such Person has the right to vote such security pursuant to an agreement, arrangement or understanding which (A) arises solely from a revocable proxy given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (B) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); provided, however, that nothing in this paragraph (c) shall cause a Person engaged in the business as an underwriter of securities to be deemed the "Beneficial Owner" of, or to "beneficially own," any securities acquired through such Person's participation in good faith in a firm commitment underwriting until the expiration of forty (40) days after the date of such acquisition. (d) "Business Day" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the States of Ohio and New York are closed or are authorized or obligated by law or executive order to close. (e) "Close of business" on any given date shall mean 5:00 P.M., Cleveland, Ohio time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., Cleveland, Ohio time, on the next succeeding Business Day. 6 (f) "Common Shares" when used with reference to the Company shall mean the Common Shares, without par value, of the Company; provided that, if the Company is the continuing or surviving corporation in a transaction described in Section 11(d)(ii) hereof, "Common Shares" when used with reference to the Company shall mean the capital stock with the greatest aggregate voting power of the Company, or, if the Company is a subsidiary of another corporation or business trust, the corporation or business trust which ultimately controls the Company. "Common Shares" when used with reference to any corporation or business trust, other than the Company, shall mean the capital stock with the greatest aggregate voting power of such corporation or business trust, or, if such corporation or business trust is a subsidiary of another corporation or business trust, the corporation or business trust which ultimately controls such first-mentioned corporation or business trust. (g) [Intentionally left blank] (h) "Distribution Date" shall have the meaning ascribed to such term in Section 3 hereof. (i) "Expiration Date" shall mean the earlier of (i) the date on which the Rights are redeemed as provided in Section 23 hereof or (ii) the time at which all exercisable Rights are exchanged as provided in Section 11(p) hereof. (j) "Flip-In Event" shall mean any event described in Section 11(a)(ii) hereof. (k) "Flip-Over Event" shall mean any event described in clauses (i), (ii) or (iii) of Section 11(d) hereof. (l) "Person" shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. 7 (m) "Redemption Price" shall mean $.05 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof. (n) "Share Acquisition Date" shall mean the first date of public announcement by the Company or an Acquiring Person (by press release, filing made with the Securities and Exchange Commission or otherwise) that an Acquiring Person has become such. (o) "Subsidiary" shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interests is owned, directly or indirectly, by the Company. (p) "Triggering Event" shall mean any Flip-In Event or Flip-Over Event. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall also be, prior to the Distribution Date, the holders of the Common Shares) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment and hereby certifies that it complies with the requirements of the New York Stock Exchange governing transfer agents and registrars. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. Any actions which may be taken by the Rights Agent pursuant to the terms of this Agreement may be taken by any such Co-Rights Agent. Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the close of business on the tenth Business Day after the Share Acquisition Date (or, if the tenth Business Day after the Share Acquisition Date occurs before the Record Date, the close of business on the Record Date or such later date as the Board of Directors shall determine), or (ii) the close of business on the tenth Business Day (or such later date as the Board of Directors shall determine) after the date that a 8 tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would be the Beneficial Owner of 20% or more of the Common Shares then outstanding (the earlier of (i) and (ii) being herein referred to as the "Distribution Date"), the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for Common Shares registered in the names of the record holders thereof (which certificates for Common Shares shall also be deemed to be Right Certificates) and not by separate Right Certificates, and the right to receive Right Certificates will be transferable only in connection with the transfer of Common Shares in the stock transfer books of the Company maintained by the Company or its appointed transfer agent. As soon as practicable after the Distribution Date, the Rights Agent will send, by first-class, insured, postage prepaid mail (or such other method as the Company shall deem appropriate), to each record holder of Common Shares as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, a Right Certificate, in substantially the form of Exhibit A hereto, evidencing one Right for each Common Share so held, subject to adjustment, together with a notice setting forth the Purchase Price (as defined in Section 4 hereof) as in effect on the Distribution Date. As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates. Any Right Certificate issued pursuant to this Section 3 that represents Rights which are beneficially owned by an Acquiring Person or any Associate or Affiliate thereof and any Right Certificate issued at any time upon the transfer of any Rights to an Acquiring Person or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate, and any Right Certificate issued pursuant to Sections 6 or 11 hereof upon transfer, exchange, replacement or adjustment of any other Right Certificate referred to in this sentence, shall be subject to and (to the extent feasible) contain the following legend or such similar legend as the Company may deem appropriate and as is not inconsistent with the provisions of this Agreement, or as may be 9 required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage: The Rights represented by this Right Certificate were issued to or acquired by a Person who was an Acquiring Person or an Affiliate or an Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). This Right Certificate and the Rights represented hereby may become null and void in the circumstances specified in the Rights Agreement. provided, however, the failure of the Company to cause any Right Certificate to contain such legend or any defect therein, shall not affect the legality or validity of any provision of this Agreement, including provisions voiding Rights held by any such Person. (b) On the Record Date or as soon as reasonably practicable thereafter, the Company will send a copy of a Summary of Rights to Purchase Common Shares, in substantially the form attached hereto as Exhibit B (the "Summary of Rights"), by first-class, postage prepaid mail (or such other method as the Company shall deem appropriate), to each record holder of Common Shares as of the close of business on the Record Date, at the address of such holder shown on the records of the Company as of such date. With respect to certificates for Common Shares outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates for Common Shares registered in the names of the holders thereof. Until the Distribution Date (or the earlier of the Expiration Date or the Final Expiration Date), the surrender for transfer of any certificate for Common Shares outstanding on the Record Date, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. (c) Certificates for Common Shares issued (including, without limitation, any certificates for Common Shares issued upon conversion of the Company's convertible securities or upon exercise of employee stock options) or surrendered for transfer or exchange after the Record Date but prior to the earlier of the Distribution Date, the Expiration Date or the Final Expiration 10 Date, shall have stamped on, impressed on, printed on, written on or otherwise affixed to them the following legend or such similar legend as the Company may deem appropriate and as is not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Common Shares or the Rights may from time to time be listed, or to conform to usage: This Certificate also evidences and entitles the holder hereof to certain Rights as set forth in an Amended and Restated Rights Agreement between The Lubrizol Corporation and American Stock Transfer & Trust Company, dated as of July 26, 1999 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of The Lubrizol Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this Certificate. The Lubrizol Corporation will mail to the holder of this Certificate a copy of the Rights Agreement without charge within five business days after receipt of a written request therefor. Under certain circumstances, Rights beneficially owned by an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement) and any subsequent holder of such Rights may become null and void. With respect to certificates containing the legend described above, until the Distribution Date, the Rights associated with the Common Shares represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate shall also constitute the surrender for transfer of the Rights associated with the Common Shares represented thereby. Section 4. Form of Right Certificates. The Right Certificates (and the forms of election to purchase shares and of assignment to be printed on the reverse thereof) shall be substantially the same as Exhibit A hereto with such changes, marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to 11 conform to usage. Subject to the provisions of Sections 11 and 22 hereof, the Right Certificates, whenever issued and on their face shall entitle the holders thereof to purchase such number of Common Shares as shall be set forth therein at the price per whole share set forth therein (the "Purchase Price"), but the number of such shares and the Purchase Price shall be subject to adjustment as provided herein. Section 5. Countersignature and Registration. The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, President or any Vice President, either manually or by facsimile signature, and have affixed thereto the Company's seal or a facsimile thereof which shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent, and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. Following the Distribution Date, the Rights Agent will keep or cause to be kept, at one of its offices in New York, New York, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. 12 Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the provisions of Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the earlier of the Expiration Date or the Final Expiration Date, any Right Certificate or Certificates may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of Common Shares as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the principal office of the Rights Agent in New York, New York or in Cleveland, Ohio. Thereupon, the Rights Agent shall countersign and deliver to the person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered owner in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. (a) The registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part at any time after the Distribution Date and at or prior to the Close of business on the earlier of the Expiration Date or the Final 13 Expiration Date upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at an office of the Rights Agent designated for such purpose, together with an amount in cash, in lawful money of the United States of America, by certified check or bank draft payable to the order of the Company, equal to the Purchase Price for each Common Share as to which such surrendered Rights are exercised, or, if applicable, the exercise price per Right specified in Sections 11(a)(ii) or 11(d) hereof, as the case may be, together with an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof; provided, however, that after the later of the first occurrence of a Triggering Event and the Distribution Date, in lieu of the cash payment payable to the Company referred to in this sentence, the registered holder of a Right Certificate evidencing exercisable Rights (which shall not include Rights that have become void pursuant to Section 11(a)(ii) hereof) may, at the option of the Company, exercise the Rights evidenced thereby in whole or in part in accordance with this Section 7(a) upon surrender of the Right Certificate as described above, together with the election to exercise such Rights duly completed. With respect to any Rights as to which such an election to exercise without payment of cash is made, the holder shall receive, upon exercise, a number of Common Shares or other securities, as the case may be, having a current per share market price (determined pursuant to Section 11(e) hereof as of the date of the first occurrence of any Triggering Event) equal to the excess of (i) the aggregate current per share market price of the Common Shares or other securities (determined pursuant to Section 11(e) hereof as of the date of the first occurrence of any Triggering Event) that would have been issuable upon payment of the cash amount as described above over (ii) the amount of cash that would have been payable to the Company upon exercise absent such election. (b) The Purchase Price shall initially be $170 per Common Share purchased, (equivalent to $85 for each one-half of a Common Share), and shall be subject to adjustment from time to time as provided in Section 11 hereof. (c) Subject to Sections 7(d), 11(a)(ii), and 11(d) hereof, upon receipt of a Right Certificate representing exercisable Rights with the form of election to purchase duly executed, 14 accompanied by either payment as described above or a duly completed election to exercise without payment of cash, the Rights Agent shall promptly (i) requisition from any transfer agent of the Common Shares (or make available, if the Rights Agent is the transfer agent) certificates representing the number of whole Common Shares to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, (ii) promptly after receipt of such certificates, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder, (iii) if appropriate, requisition from the Company the amount of cash to be paid or depository receipts to be issued in lieu of the issuance of fractional shares in accordance with Section 14 hereof or in lieu of the issuance of Common Shares in accordance with Section 11(a)(iii) or 11(d) hereof, and (iv) if appropriate, after receipt, promptly deliver such cash (or depository receipts, when appropriate) to or upon the order of the registered holder of such Right Certificate. (d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to any purported transfer, split up, combination or exchange of any Right Certificate pursuant to Section 6 hereof or exercise of a Right Certificate as set forth in this Section 7 unless the registered holder of such Right Certificate shall have (i) completed and signed the certificate following the form of assignment or the form of election to purchase, as applicable, set forth on the reverse side of the Right Certificate surrendered for such transfer, split up, combination, exchange or exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall have reasonably requested. 15 Section 8. Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its stock transfer agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Right Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Reservation and Availability of Common Shares. The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued Common Shares or any authorized and issued Common Shares held in its treasury, the number of Common Shares that will be sufficient to permit the exercise pursuant to Section 7 hereof of all outstanding Rights; such number of Common Shares reserved and kept available shall be adjusted from time to time, if and to the extent required, upon the occurrence of any of the events described in Section 11 hereof. So long as the Company's Common Shares are listed on a national securities exchange, the Company shall endeavor to cause, from and after such time as the Rights become exercisable, all Common Shares reserved for issuance upon exercise of the Rights to be listed on such exchange upon official notice of issuance. The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Common Shares delivered upon exercise of Rights shall be, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price, if required), duly and validly authorized and issued, fully paid, nonassessable and freely tradeable shares, free and clear of 16 any liens, encumbrances and other adverse claims and not subject to any rights of call or first refusal. The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any Common Shares upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or the issuance or delivery of certificates for the Common Shares in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise, or to issue or deliver any certificates for Common Shares upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. The Company further consents and agrees to use its best efforts to (i) file on an appropriate form, as soon as practicable following the later to occur of a Triggering Event or the Distribution Date, a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities issuable upon exercise of the Rights, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the earliest of (A) the date as of which the Rights are no longer exercisable for such securities, (B) the Expiration Date, and (C) the Final Expiration Date. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective and upon any such suspension, the Company will issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding anything in this Agreement to the contrary, the Rights shall not be 17 exercisable in any jurisdiction if the requisite registration or qualification in such jurisdiction shall not have been effected or the exercise of the Rights shall not be permitted under applicable law. Notwithstanding anything in this Agreement to the contrary, the Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23 or Section 26 hereof, take any action if at the time such action is taken it is reasonably foreseeable that such action will diminish or otherwise eliminate the benefits intended to be afforded by the Rights. In the event that the Company is obligated to pay cash and/or distribute other property pursuant to Sections 11, 13, and 14 hereof, it will make all arrangements necessary so that such cash and/or property are available for distribution by the Rights Agent, if and when appropriate. Section 10. Common Shares Record Date. Each person in whose name any certificate for Common Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Common Shares represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price, if required (and any applicable transfer taxes), was made; provided, however, that if the date of such surrender and payment is a date upon which the Common Shares transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Common Shares transfer books of the Company are open. Prior to the exercise pursuant to Section 7 hereof of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a shareholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. 18 Section 11. Adjustment of Purchase Price, Number and Type of Shares or Number of Rights. The Purchase Price, the number and type of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a)(i) In the event that the Company shall at any time after the date of this Agreement (A) declare a dividend on the Common Shares payable in Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding Common Shares into a smaller number of shares or (D) issue any shares of its capital stock in a reclassification of the Common Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) or in Section 11(d) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and/or the number and/or kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Common Shares transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; provided, however, that if the record date for any such dividend, subdivision, combination or reclassification shall occur prior to the Distribution Date, the Company shall make an appropriate adjustment to the Purchase Price (taking into account any additional Rights which may be issued as a result of such dividend, subdivision, combination or reclassification), in lieu of adjusting (as described above) the number of Common Shares (or capital shares, as the case may be) issuable upon exercise of the Rights. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof or Section 11(d) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) or Section 11(d) hereof. 19 (ii) In the event that any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) who or which, together with all Affiliates and Associates of such Person, shall become the Beneficial Owner of 20% or more of the Common Shares then outstanding (other than in an Approved Transaction), then, and in each such case, the Company shall make adjustments in the terms of the Rights so that each holder of a Right, except as provided below, shall thereafter have a right to receive, upon exercise thereof in accordance with the terms of this Agreement, at an exercise price per Right equal to the product of two times the then-current Purchase Price multiplied by the number of Common Shares for which a Right was exercisable immediately prior to the first occurrence of a Triggering Event, such number of Common Shares as shall equal the result obtained by (x) multiplying the product of two times the then-current Purchase Price by the number of Common Shares for which a Right was exercisable immediately prior to the first occurrence of a Triggering Event and dividing that product by (y) 50% of the current per share market price of the Common Shares (determined pursuant to Section 11(e) hereof) on the date of the first occurrence of a Triggering Event. Notwithstanding anything in this Agreement to the contrary, from and after the later of the Distribution Date and the first occurrence of a Flip-In Event, any Rights that are or were acquired or beneficially owned (1) by any Acquiring Person (or any Affiliate or Associate of such Acquiring Person or any transferee thereof) or (2) pursuant to a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this sentence, shall become null and void without any further action, and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to insure that the provisions of the preceding sentence are complied with, but shall have no liability to any holder of Rights Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. 20 (iii) Upon the occurrence of a Flip-In Event, if there shall not be sufficient authorized but unissued Common Shares or authorized and issued Common Shares held in treasury to permit the exercise in full of the Rights in accordance with the foregoing subsection (ii), the Directors of the Company shall use their best efforts promptly to authorize and, subject to the provisions of Section 9 hereof, make available for issuance additional Common Shares; provided, however, that if at any time after 90 calendar days after the first occurrence of a Flip-In Event, there shall not be sufficient Common Shares available for issuance upon the exercise of a Right, then the Company shall deliver, upon the surrender of such Right and without requiring payment of the Purchase Price, Common Shares (to the extent available), and then cash or other property or securities (to the extent permitted by applicable law and any agreements or instruments to which the Company is a party in effect immediately prior to the first occurrence of any Flip-In Event), which Common Shares and cash shall have an aggregate value equal to the excess of (x) the aggregate current per share market price (determined pursuant to Section 11(e) hereof) of all the Common Shares issuable in accordance with subsection (ii) of this Section 11(a) upon the exercise of a Right over (y) the product of the then-current Purchase Price multiplied by the number of Common Shares for which a Right was exercisable immediately prior to the first occurrence of a Triggering Event. To the extent that any legal or contractual restrictions prevent the Company from paying the full amount of cash payable in accordance with the foregoing sentence, the Company shall pay to holders of the Rights as to which such payments are being made all amounts which are not then restricted on a pro rata basis. The Company shall continue to make payments on a pro rata basis as funds become available until such payments have been paid in full. (b) In the event that the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Shares (or shares having the same rights, privileges and preferences as the Common Shares ("equivalent common shares")) or securities convertible into Common Shares or equivalent common shares at a price per Common Share or equivalent common share (or having a conversion price per share, if a security convertible into Common Shares or equivalent common shares) less than the current per 21 share market price of the Common Shares (as determined pursuant to Section 11(e) hereof) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Common Shares outstanding on such record date plus the number of Common Shares which the aggregate offering price of the total number of Common Shares and/or equivalent common shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of Common Shares outstanding on such record date plus the number of additional Common Shares and/or equivalent common shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. Common Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In the event that the Company shall fix a record date for the making of a distribution to all holders of the Common Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness, cash (other than a regular periodic cash dividend at a rate not in excess of 125% of the rate of the last cash dividend theretofore paid), assets, stock (other than a dividend payable in Common Shares) or subscription rights, options or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the current per share market price of the Common Shares (as determined pursuant to Section 11(e) hereof) on such record date, less the fair market value (as 22 determined in good faith by the Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes) of the portion of the cash, assets, stock or evidences of indebtedness so to be distributed (in the case of regular periodic cash dividends at a rate in excess of 125% of the rate of the last cash dividend theretofore paid, only that portion in excess of 125% of such rate) or of such subscription rights, options or warrants applicable to one Common Share, and the denominator of which shall be such current per share market price of the Common Shares. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) In the event that, following the Share Acquisition Date, directly or indirectly: (i) the Company shall consolidate with, or merge with or into, any other Person and the Company shall not be the continuing or surviving corporation of such merger or consolidation; or (ii) any Person shall consolidate with the Company, or merge with or into the Company and the Company shall be the continuing or surviving corporation of such merger or consolidation and, in connection with such merger or consolidation, all or part of the Common Shares shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property; or (iii) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power (including, without limitation, securities creating any obligation on the part of the Company and/or any of its Subsidiaries) representing in the aggregate more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons; then, and in each such case, proper provision shall be made so that (A) each holder of a Right (except for Rights which are or become void as provided herein) shall thereafter have the right to receive, upon the exercise thereof in accordance with the terms of this Agreement at an exercise 23 price per Right equal to the product of two times the then-current Purchase Price multiplied by the number of Common Shares for which a Right was exercisable immediately prior to the first occurrence of a Triggering Event, such number of validly authorized and issued, fully paid, nonassessable and freely tradeable Common Shares of the Issuer (as such term is hereinafter defined), free and clear of any liens, encumbrances and other adverse claims and not subject to any rights of call or first refusal, as shall be equal to the result obtained by (x) multiplying the product of two (2) times the then-current Purchase Price by the number of Common Shares for which a Right is exercisable immediately prior to the first occurrence of a Triggering Event and dividing that product by (y) 50% of the current per share market price of the Common Shares of the Issuer (determined pursuant to Section 11(e) hereof), on the date of consummation of such Flip-Over Event; (B) the Issuer shall thereafter be liable for, and shall assume, by virtue of the consummation of such Flip-Over Event, all the obligations and duties of the Company pursuant to this Agreement; (C) the term "Company" shall thereafter be deemed to refer to the Issuer; and (D) the Issuer shall take such steps (including, without limitation, the reservation of a sufficient number of its Common Shares to permit the exercise of all outstanding Rights) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be possible, in relation to its Common Shares thereafter deliverable upon the exercise of the Rights. For purposes of this Section 11(d), "Issuer" shall mean (A) in the case of any Flip-Over Event described in Sections 11(d)(i) or (ii) above, the Person that is the continuing, surviving, resulting or acquiring Person (including the Company as the continuing or surviving corporation of a transaction described in Section 11(d)(ii) above), and (B) in the case of any Flip-Over Event described in Section 11(d)(iii) above, the Person that is the party receiving the greatest portion of the assets or earning power (including, without limitation, securities creating any obligation on the part of the Company and/or any of its Subsidiaries) transferred pursuant to such transaction or transactions; provided, however, that, in any such case, (x) if (1) no class of equity security of such Person is, at the time of such merger, consolidation or transaction and has been continuously over the preceding 12-month period, registered pursuant to Section 12 of the Exchange Act, and (2) such Person is a Subsidiary, directly or indirectly, of another Person, a class of equity security of which is and has been so registered, the term "Issuer" shall mean such other Person; and 24 (y) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, a class of equity security of two or more of which are and have been so registered, the term "Issuer" shall mean whichever of such Persons is the issuer of the equity security having the greatest aggregate market value. Notwithstanding the foregoing, if the Issuer in any of the Flip-Over Events listed above is not a corporation or other legal entity having outstanding equity securities, then, and in each such case, (A) if the Issuer is directly or indirectly wholly owned by a corporation or other legal entity having outstanding equity securities, then all references to Common Shares of the Issuer shall be deemed to be references to the Common Shares of the corporation or other legal entity having outstanding equity securities which ultimately controls the Issuer, and (B) if there is no such corporation or other legal entity having outstanding equity securities, (1) proper provision shall be made so that the Issuer shall create or otherwise make available for purposes of the exercise of the Rights in accordance with the terms of this Agreement, a kind or kinds of security or securities having a fair market value at least equal to the economic value of the Common Shares which each holder of a Right would have been entitled to receive if the Issuer had been a corporation or other legal entity having outstanding equity securities; and (2) all other provisions of this Agreement shall apply to the issuer of such securities as if such securities were Common Shares. The Company shall not consummate any Flip-Over Event unless the Issuer shall have a sufficient number of authorized Common Shares (or other securities as contemplated above) which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 11(d), and unless prior to such consummation the Company and the Issuer shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in Section 11(d) and further providing that as promptly as practicable after the consummation of any Flip-Over Event, the Issuer shall: (A) prepare and file a registration statement under the Securities Act, with respect to the Rights and the securities issuable upon exercise of the Rights on an appropriate form, and shall use its best efforts to cause such registration statement to (1) become effective as soon as practicable after such filing and (2) remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the earlier of the Expiration Date and the Final Expiration Date; 25 (B) take all such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights; and (C) deliver to holders of the Rights historical financial statements for the Issuer and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act. The provisions of this Section 11(d) shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Flip-Over Event occurs at any time after the occurrence of a Flip-In Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in this Section 11(d). In the event that the Company shall be the continuing or surviving corporation in a merger or consolidation referred to in subparagraph (ii) above and Common Shares of the Company are required to be issued upon exercise of the Rights following such merger or consolidation, and if there shall not be sufficient authorized but unissued Common Shares or authorized and issued Common Shares held in treasury to permit the exercise in full of the Rights in accordance with the foregoing, the Directors of the Company shall use their best efforts promptly to authorize and, subject to the provisions of Section 9 hereof, make available for issuance additional Common Shares; provided, however, that if at any time after 90 calendar days after the first occurrence of a Triggering Event, there shall not be sufficient Common Shares available for issuance upon the exercise of a Right, then the Company shall deliver, upon the surrender of such Right and without requiring payment of the Purchase Price, Common Shares (to the extent available), and then cash or other property or securities (to the extent permitted by applicable law and any agreements or instruments to which the Company is a party in effect immediately prior to the first occurrence of any Triggering Event), which Common Shares and cash shall have an aggregate value equal to the excess of (x) the aggregate current per share market price (determined pursuant to Section 11(e) 26 hereof) of all the Common Shares issuable in accordance with this Section 11(d) upon the exercise of a Right over (y) the product of the then-current Purchase Price multiplied by the number of Common Shares for which a Right was exercisable immediately prior to the occurrence of the merger or consolidation referred to in subparagraph (ii) above. To the extent that any legal or contractual restrictions prevent the Company from paying the full amount of cash payable in accordance with the foregoing sentence, the Company shall pay to holders of the Rights as to which such payments are being made all amounts which are not then restricted on a pro rata basis. The Company shall continue to make payments on a pro rata basis as funds become available until such payments have been paid in full. (e) For the purpose of any computation hereunder, the "current per share market price" of Common Shares on any date shall be deemed to be the average of the daily closing prices per share of such Common Shares for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current per share market price of the Common Shares is determined during a period following the announcement by the issuer of such Common Shares (i) of a dividend or distribution on such Common Shares payable in such Common Shares or securities convertible into such Common Shares or (ii) any subdivision, combination or reclassification of such Common Shares, and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution or the record date for such subdivision, combination or reclassification, then, and in each such case, the "current market price" shall be appropriately adjusted to take into account ex-dividend trading or to reflect the current market price per Common Share equivalent. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted to trading or, if the Common Shares are not listed or admitted to trading on any 27 national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or, if on any such date the Common Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Shares selected by the Directors of the Company. The term "Trading Day" shall mean any day on which the principal national securities exchange on which the Common Shares are listed or admitted to trading is open for the transaction of business or, if the Common Shares are not listed or admitted to trading on any national securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by law or executive order to close. If the Common Shares are not publicly held or not so listed or traded, or not the subject of available bid and asked quotes, "current per share market price" shall mean the fair value per share as determined in good faith by the Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. (f) Except as set forth below, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this Section 11(f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest thousandth of a share, as the case may be. Notwithstanding the first sentence of this Section 11(f), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the date of the expiration of the right to exercise any Rights. (g) If as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Common Shares, thereafter the number of such other shares so 28 receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares contained in this Section 11 and the provisions of Sections 7, 9, 10 and 14 hereof with respect to the Common Shares shall apply on like terms to any such other shares. In the event that the Rights become exercisable under both Section 11(a)(ii) and Section 11(d) hereof, a holder may, at his or her option, elect to exercise Rights under either provision, but each Right may be exercised only once. (h) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of Common Shares purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (i) Unless the Company shall have exercised its election as provided in Section 11(j) hereof, upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c) hereof, each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of shares (calculated to the nearest thousandth) obtained by (i) multiplying (x) the number of shares covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (j) The Company may elect, on or after the date of any adjustment of the Purchase Price, to adjust the number of Rights in substitution for any adjustment in the number of Common Shares purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of Common Shares for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest thousandth) obtained by dividing the Purchase Price in effect immediately prior to 29 adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least 10 calendar days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(j), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (k) Irrespective of any adjustment or change in the Purchase Price or the number or type of shares issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price per whole share and the number of shares which were expressed in the initial Right Certificate issued hereunder. (l) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the Common Shares issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Common Shares at such adjusted Purchase Price. 30 (m) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date the Common Shares and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Common Shares and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (n) Anything in Sections 11 (a) through (m), inclusive, hereof to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Common Shares, issuance wholly for cash of any of the Common Shares at less than the current market price, issuance wholly for cash of Common Shares or securities which by their terms are convertible into or exchangeable for Common Shares, stock dividends or issuance of rights, options or warrants referred to hereinabove in this Section 11, hereafter made by the Company to holders of its Common Shares shall not be taxable to such shareholders. (o) Notwithstanding any other provision of this Agreement, no adjustment to the Purchase Price (other than pursuant to Section 11(n)), the number of Common Shares (or fractions of a share) for which a Right is exercisable or the number of Rights outstanding shall be made or be effective if such adjustment would have the effect of reducing or limiting the benefits the holders of the Rights would have had absent such adjustment, including, without limitation, the benefits under Sections 11(a)(ii) and 11(d) hereof, unless the terms of this Agreement are amended so as to preserve such benefits. 31 (p) Notwithstanding the provisions of Sections 11(a)(ii) and 11(d) hereof, the Directors of the Company may, at their option, at any time after the later of the Distribution Date and the first occurrence of a Triggering Event, exchange all or part of the then-outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the "Exchange Ratio"). Immediately upon the action of the Directors of the Company ordering the exchange of any Rights pursuant to this Section 11(p), and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right with respect to such Rights thereafter of the holder of such Rights shall be to receive that number of Common Shares equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. Promptly after the action of the Directors of the Company ordering the exchange of any Rights pursuant to this Section 11(p), the Company shall publicly announce such action, and within 10 calendar days thereafter shall give notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. Any notice which is mailed or transmitted in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange shall state the method by which the exchange of the Common Shares for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 11(a)(ii)) held by each holder of Rights. In any exchange pursuant to this Section 11(p), the Company, at its option, may substitute for any Common Share exchangeable for a Right, (i) cash, (ii) debt securities of the Company, (iii) other assets, or (iv) any combination of the foregoing, in any event having an aggregate value which the Directors of the Company shall have determined in good faith to be equal to the current per share market price of one Common Share (determined pursuant to Section 11(e) hereof) on the Trading Day immediately preceding the date of exchange pursuant to this Section 11(p). The Company shall not be required to issue fractions of Common 32 Shares or to distribute certificates which evidence fractional Common Shares upon the exchange of a Right. In lieu of such fractional Common Shares, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional Common Shares would otherwise be issuable an amount in cash equal to the same fraction of the current per share market price of a whole Common Share (determined pursuant to Section 11(e) hereof) on the Trading Day immediately preceding the date of exchange pursuant to this Section 11(p). Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 hereof, the Company shall promptly prepare a certificate setting forth such adjustment, (including a description of any Rights which have become void as a result thereof), and a brief statement of the facts accounting for such adjustment and promptly file with the Rights Agent and with each transfer agent for the Common Shares a copy of such certificate. Section 13. Notice of Adjusted Purchase Price or Number or Type of Shares to Holders of Rights. Whenever an adjustment is made as provided in Section 11 hereof after the Distribution Date, the Company shall mail or transmit a brief summary of such adjustment to each holder of a Right Certificate in accordance with Section 25 hereof. Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights or to distribute any Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid as promptly as practicable to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction 33 reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Directors of the Company. If on any such date no such market maker is making a market in the Rights the fair value of the Rights on such date as determined in good faith by the Directors of the Company shall be used and shall be conclusive for all purposes. (b) The Company shall not be required to issue fractions of shares upon exercise of the Rights or to distribute certificates which evidence fractional shares. Fractions of Common Shares may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it, provided that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of Common Shares. In lieu of fractional shares, the Company may pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Common Share. For purposes of this Section 14(b), the current market value of a Common Share shall be the closing price of a Common Share (as determined pursuant to the second sentence of Section 11(e) hereof) for the Trading Day immediately prior to the date of such exercise. (c) The holder of a Right by the acceptance of the Right expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right. 34 Section 15. Rights of Action. All rights of action in respect of this Agreement are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Shares), without the consent of the Rights Agent or of the holder of any other Right Certificates (or, prior to the Distribution Date, of the Common Shares), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under this Agreement, and injunctive relief against actual or threatened violations of the obligations of any Person subject to this Agreement. Section 16. Agreement of Rights Holders. Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Shares; (b) after the Distribution Date, the Right Certificates will be transferable only on the registry books of the Rights Agent if surrendered at the principal office of the Rights Agent in New York, New York, or Cleveland, Ohio, duly endorsed or accompanied by a proper instrument of transfer; (c) the Company and the Rights Agent may deem and treat the person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby 35 (notwithstanding any notations of ownership or writing on the Right Certificate or the associated Common Share certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided, however, that the Company must use reasonable efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. Section 17. Right Certificate Holder Not Deemed a Shareholder. No 6 holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Common Shares or any other securities of the Company which may at any time be issuable upon exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 24 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with Section 7 hereof or exchanged pursuant to the provisions of Section 11(p) hereof. Section 18. Concerning the Rights Agent. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on 36 demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, suit, action, proceeding or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability. If the Rights Agent asserts or intends to assert a right of indemnification under this Section 18 in connection with a suit, action or proceeding, the Company shall have the right, but not the obligation, to assume the responsibility for the defense of any such suit, action or proceeding. The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Right Certificate or certificate for Common Shares or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons. Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent 37 may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, the Chief 38 Executive Officer, the President, any Vice President, the Treasurer or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 hereof (including any adjustment which results in Rights becoming void) or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice of any such adjustment or voidance); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Common Shares to be issued pursuant to this Agreement or any Right Certificate or as to whether any Common Shares will, when issued, be validly authorized and issued, fully paid and nonassessable. 39 (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, or the Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. The Rights Agent shall not be under any duty or responsibility to insure compliance with any applicable federal or state securities laws in connection with the issuance, transfer or exchange of Right Certificates. 40 (j) The Rights Agent shall promptly remit to the Company any funds paid to it upon exercise of the Rights pursuant to Section 7 hereof. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed or otherwise transmitted to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares by registered or certified mail (or such other method as the Company shall deem appropriate), and to the holders of the Right Certificates by first-class mail (or such other method as the Company shall deem appropriate). If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or of the States of Ohio or New York (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the States of Ohio or New York), in good standing, having a principal office in the States of Ohio or New York, which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $10 million and which shall otherwise meet any requirements imposed by the New York Stock Exchange on transfer agents and registrars. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights 41 Agent shall deliver and transferto the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares, and mail or transmit a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. Section 23. Redemption. (a) Prior to the earlier of the Expiration Date and the Final Expiration Date, the Directors of the Company may, at their option, redeem all but not less than all of the then-outstanding Rights at the Redemption Price at any time prior to the Close of business on the later of (i) the Distribution Date and (ii) the Share Acquisition Date. (b) Immediately upon the action of the Directors of the Company ordering the redemption of the Rights, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. Promptly after the action of the Directors ordering the redemption of the Rights, the Company shall publicly announce such action. Within 10 calendar days after ordering the redemption of the Rights, the Company shall give notice of such redemption to the holders of the then outstanding Rights by mailing or transmitting such notice to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the 42 Distribution Date, on the registry books of the transfer agent for the Common Shares; provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of the redemption of the Rights. Any notice which is mailed or transmitted in the manner herein provided shall be deemed given, whether or not the holder receives the notice. The notice of redemption mailed or transmitted to the holders of Rights shall state the method by which the payment of the Redemption Price will be made. The Company may, at its option, pay the Redemption Price in cash, Common Shares (based upon the current per share market price of the Common Shares (determined pursuant to Section 11(e) hereof) at the time of redemption) or any other form of consideration deemed appropriate by the Directors of the Company (based upon the fair market value of such other consideration, determined by the Directors of the Company in good faith) or any combination thereof. (c) At any time following the Share Acquisition Date, the Directors of the Company may relinquish their rights to redeem the Rights under paragraph (a) above, or both, by duly adopting a resolution to that effect. Immediately upon adoption of such resolution, the rights of the Directors under the portions of this Section 23 specified in such resolution shall terminate without further action and without any notice. (d) Notwithstanding anything in this Section 23 to the contrary, all rights of, and requirements for, redemption set forth above shall terminate immediately and automatically upon the occurrence of any one or more of the events set forth in Sections 11(a)(ii) or Sections 11(d)(i), (ii) or (iii), hereof. Section 24. Notice of Certain Events. In case, after the Distribution Date, the Company shall propose (a) to pay any dividend payable in stock of any class to the holders of Common Shares or to make any other distribution to the holders of Common Shares (other than a regular periodic cash dividend at a rate not in excess of 125% of the rate of the last cash dividend theretofore paid) or (b) to offer to the holders of Common Shares rights, options or warrants to subscribe for or to purchase any additional Common Shares or shares of stock of any class or any other securities, 43 rights or options, or (c) to effect any reclassification of its Common Shares (other than a reclassification involving only the subdivision of outstanding Common Shares), or (d) to effect any consolidation or merger, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of more than 50% of the assets or warning power of the Company and its Subsidiaries, taken as a whole, to any other Person or Persons, or (e) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Right Certificate, in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution or offering of rights, options or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Common Shares, if any such date is to be fixed, and such notice shall be so given, in the case of any action covered by clause (a) or (b) above, at least 20 calendar days prior to the record date for determining holders of the Common Shares for purposes of such action, and, in the case of any such other action, at least 20 calendar days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares, whichever shall be the earlier. In case any of the events set forth in Section 11(a)(ii) or Section 11(d) hereof shall occur, then, in any such case, the Company shall as soon as practicable thereafter give to the Rights Agent and each holder of a Right Certificate, in accordance with Section 25 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights. Section 25. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: The Lubrizol Corporation 29400 Lakeland Boulevard 44 Wickliffe, Ohio 44092 Attention: Secretary Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, New York 11214 (or if given such other method as the Company shall deem appropriate). Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Rights Agent (or if given such other method as the Company shall deem appropriate). Section 26. Supplements and Amendments. Prior to the Distribution Date, the Board of Directors of the Company may, and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing Common Shares. From and after the Distribution Date and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent may at any time and from time to time supplement or amend this Agreement without the approval of any holders of Rights solely in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, to shorten or lengthen any time period hereunder or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Rights Agent may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person), as such; provided, this Agreement may not be supplemented or 45 amended to lengthen a time period relating to when the Rights may be redeemed at such time as the Rights are not then redeemable or any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall be made which changes the Redemption Price, the Final Expiration Date, the Purchase Price or the number of Common Shares for which a Right is exercisable; provided, however, that at any time prior to (i) a Share Acquisition Date or (ii) the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would be the Beneficial Owner of 20% or more of the Common Shares then outstanding, the Board of Directors of the Company may amend this Agreement to increase the Purchase Price or extend the Final Expiration Date. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock. Section 27. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. The Company covenants and agrees that it shall not (i) consolidate with, (ii) merge with or into, or (iii) sell or transfer to, in one or more transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries, taken as a whole, any Acquiring Person or its Affiliates or Associates if at the time of or after such consolidation, merger or sale there would be any charter or by-law provisions or any rights, options, warrants or other instruments or securities outstanding or agreements in effect or any other actions taken which would eliminate or otherwise diminish the benefits intended to be afforded by the Rights. 46 Section 28. Determinations and Actions by the Directors. etc. For all purposes of this Agreement, any calculation of the number of Common Shares outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding Common Shares of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3d(1)(i) of the General Rules and Regulations under the Exchange Act as in effect as of the date hereof and as hereinafter amended but only to the extent that any amendment thereto does not diminish the rights of holder of the Rights other than any Acquiring Person or an Affiliate or Associate of an Acquiring Person. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board of Directors or the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (ii) below, all omissions with respect to the foregoing) which are done or made by the Directors in good faith, shall (i) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (ii) not subject the Directors to any liability to the holders of the Right Certificates. Section 29. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates. Section 30. Action by Executive Committee. Whenever any action hereunder or in connection with the Rights is required or permitted to be taken by the Board of Directors of the 47 Company, such action may be taken by the Executive Committee of the Board or by any other duly authorized committee thereof. Section 31. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated, to the extent such terms, provisions, covenants and restrictions do not adversely affect the interests of the holders of Rights (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person), as such. Section 32. Governing Law. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Ohio and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Section 33. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 34. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, this 26th day of July, 1999. THE LUBRIZOL CORPORATION 48 By:________________________________________ Name: _____________________________________ Title:_____________________________________ AMERICAN STOCK TRANSFER & TRUST COMPANY By: _______________________________________ Name:______________________________________ Title:_____________________________________ 49 EXHIBIT A [Form of Right Certificate] Certificate No. R- ____________ Rights NOT EXERCISABLE AFTER OCTOBER 12, 2007 OR EARLIER IF REDEEMED. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.05 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. [THE RIGHTS REPRESENTED BY THIS CERTIFICATE WERE ISSUED TO OR ACQUIRED BY A PERSON WHO WAS AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 11(a)(ii) OR SECTION 11(d) OF THE RIGHTS AGREEMENT.](1) Right Certificate THE LUBRIZOL CORPORATION This certifies that , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Amended and Restated Rights Agreement dated as of July 26, 1999 (the "Rights Agreement") between The Lubrizol Corporation, an Ohio corporation (the "Company"), and American Stock Transfer & Trust Company (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M. (Cleveland, Ohio time) on October 12, 2007 at the principal office of the Rights Agent, or its successors as Rights Agent, in New York, New York or Cleveland, Ohio, one-half of one fully paid nonassessable Common Share, without par value (a "Common Share") of the Company, at a purchase price of $170 per whole Common Share (the "Purchase Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly executed. The number of Rights evidenced by this Right Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of July 26, 1999, based on the Common Shares as constituted at such date. - --------------------- (1) The portion of the legend in brackets shall be inserted only if applicable and if the Company is able to identify the holder as an Acquiring Person or an Affiliate or Associate of an Acquiring Person. A-1 As provided in the Rights Agreement, the Purchase Price and the number of Common Shares which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events. This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent. This Right Certificate, with or without other Right Certificates, upon surrender at the principal office of the Rights Agent in New York, New York or Cleveland, Ohio, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Common Shares as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company at a redemption price of $.05 per Right, payable, at the election of the Company, in cash, Common Shares of the Company or such other consideration as may be determined by the Directors of the Company. No fractional Common Shares will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Right Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Common Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or, to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. A-2 WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of ___________. THE LUBRIZOL CORPORATION Attest: ______________ By: ____________________________ Name: _______________________ Title: __________________________ Countersigned: AMERICAN STOCK TRANSFER & TRUST COMPANY By: ____________________________ Name: ___________________ Title: _________________________ A-3 [Form of Reverse Side of Right Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Right Certificates.) FOR VALUE RECEIVED, ____________________________________ hereby sells, assigns and transfers unto __________________________________________ (Please print name and address of transferee) ________________________________________________________________________________ this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution. Dated: ____________ ___________________ Signature Signature Guaranteed: Certificate The undersigned hereby certifies by checking the appropriate boxes that: A-4 (1) This Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); and (2) After due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ______________ ______________________ Signature Signature Guaranteed: A-5 NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. A-6 FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise the Right Certificate.) To The Lubrizol Corporation: The undersigned hereby irrevocably elects to exercise_____________ Rights represented by this Right Certificate to purchase the Common Shares issuable upon the exercise of such Rights and requests that certificates for such shares be issued in the name of: Please insert social security or other identifying number ________________________________________________________________________________ (Please print name and address) ________________________________________________________________________________ If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number ________________________________________________________________________________ (Please print name and address) ________________________________________________________________________________ Dated: _____________ ______________________ Signature Signature Guaranteed: A-7 Certificate The undersigned hereby certifies by checking the appropriate boxes that: (1) The Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); and (2) After due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: _____________ _____________________ Signature Signature Guaranteed: NOTICE The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. A-8 EXHIBIT B SUMMARY OF RIGHTS TO PURCHASE COMMON SHARES On September 22, 1997, the Directors of The Lubrizol Corporation (the "Company") declared a dividend distribution of one right (a "Right") for each outstanding Common Share, without par value (the "Common Shares"), of the Company. The distribution is payable on October 13, 1997 to the shareholders of record as of the close of business on September 22, 1997 (the "Record Date"). Each Right initially entitles the registered holder to purchase from the Company one-half of one Common Share at a price of $170 per whole share, subject to adjustment (the "Purchase Price"). The description and terms of the Rights are set forth in a Rights Agreement dated as of October 13, 1997 (the "Rights Agreement") between the Company and American Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent"). Until the earlier of (i) ten Business Days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding Common Shares, or (ii) ten Business Days following the commencement of a tender offer or exchange offer for 20% or more of such outstanding Common Shares (in each case without the prior approval of the Board of Directors)(the earlier of such dates being hereinafter called the "Distribution Date"), the Rights will be evidenced, with respect to any of the Common Share certificates outstanding as of the Record Date, by such Common Share certificate with a copy of this Summary of Rights attached thereto. The Rights Agreement provides that, until the Distribution Date, the Rights will be transferred with and only with the Common Shares. Until the Distribution Date (or earlier redemption or expiration of the Rights), new Common Share certificates issued after the Record Date upon transfer or new issuance of Common Shares will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for Common Shares outstanding as of the Record Date, even without a copy of this Summary of Rights attached thereto, will also constitute the transfer of the Rights associated with the Common Shares represented by such certificate. As soon as practicable following the Distribution Date (as defined above), separate certificates evidencing the Rights (the "Right Certificates") will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date. The Rights will expire on October 12, 2007, unless earlier redeemed by the Company as described below. The Purchase Price payable, and the number of Common Shares or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Common Shares, (ii) upon the grant to holders of the Common Shares of certain rights, options or warrants to subscribe for Common Shares or convertible securities at less than the current market price of the Common Shares, or (iii) upon the distribution to holders of the Common Shares of evidences of indebtedness, cash (excluding regular periodic cash dividends at a rate not in excess of 125% of the rate of the last cash dividend theretofore paid) assets, stock (other than dividends payable in Common Shares) or of subscription rights, options or warrants (other than those referred to above). In the event that an Acquiring Person merges into the Company and the Company's Common Shares are not changed or exchanged or a person or group of affiliated or associated persons become the beneficial owner of 20% or more of the Company's Common Shares, proper provision shall be made so that each holder of a Right, other than Rights that are or were beneficially owned by the Acquiring Person after the date upon which the Acquiring Person became such (which will thereafter be void), will thereafter have the right to receive upon exercise thereof at the then current Purchase Price, that number of Common Shares having a market value of two times the Purchase Price (or, under certain circumstances, an amount of cash or other property or securities having a value equal to the Purchase Price). In the event that the Company is acquired by an Acquiring Person in a merger or other business combination transaction or 50% or more of its assets or earning power are sold to an Acquiring Person (other than in a transaction approved by the Company's shareholders), proper provision shall be made so that each holder of a Right, other than Rights that are or were beneficially owned by the Acquiring Person after the date upon which the Acquiring Person became such (which will thereafter be void), shall thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price, that number of Common Shares (or, under certain circumstances, an economically equivalent security or securities) of the surviving, resulting or acquiring person which at the time of such transaction would have a market value of two times the Purchase Price (or, under certain circumstances, an amount of cash equal to the Purchase). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional shares will be issued (other than fractions which may, at the election of the Company, be evidenced by depositary receipts), and in lieu thereof, a payment in cash will be made based on the market price of the Common Shares on the last trading day prior to the date of exercise. The Company may redeem the Rights in whole, but not in part, at a price of $0.05 per Right (the "Redemption Price") at any time prior to the later of (i) the Distribution Date and (ii) a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 20% or more of the outstanding Common Shares (or such later date as the Directors may specify), and, under certain circumstances, upon a merger or consolidation of the Company with or into a corporation which is not an Acquiring Person. At the election of the Company, the Redemption Price may be payable in cash, Common Shares, or such other consideration as the Company deems appropriate. Immediately upon the action of the Directors of the Company authorizing redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. The Company will give notice of such redemption to the holders of the then outstanding Rights by mailing such notice to all such holders at their last addresses as they appear on the Registry Books of the Rights Agent. Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. A-10 Prior to the Rights becoming exercisable, the Rights Agreement may be amended or supplemented by the Company and the Rights Agent, without the approval of any holders of Rights, in any manner, except for an amendment or supplement which would change the Redemption Price, accelerate the Final Expiration Date, reduce the Purchase Price or change the number of Common Shares for which a Right is then exercisable. After the Distribution Date, the Rights Agreement may be so amended or supplemented to cure ambiguity, correct or supplement defective or inconsistent provisions or otherwise as the Company and the Rights Agent may deem necessary or desirable and shall not adversely affect the interests of the Rights holders. A copy of the Rights Agreement is being filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is hereby incorporated herein by reference. A-11 EX-12.1 6 l12253aexv12w1.txt EX-12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 THE LUBRIZOL CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges (all amounts except ratios are shown in millions)

2004 2003 2002 2001 2000 --------- -------- ------- ------- ------- Pretax income $ 146.6 $ 129.1 $ 180.4 $ 139.9 $ 170.3 Add (deduct) earnings of less than 50% owned affiliates (net of distributed earnings) included in pretax income (0.8) 0.8 1.6 (0.6) 1.1 Add losses of less than 50% owned affiliates included in pretax income - 0.2 - 2.1 1.8 Add fixed charges net of capitalized interest 85.8 30.4 28.5 29.7 32.3 Add previously capitalized interest amortized during period 1.2 1.3 1.1 1.6 1.3 --------- -------- ------- ------- ------- "Earnings" $ 232.8 $ 161.8 $ 211.6 $ 172.7 $206.8 ========= ======== ======= ======= ======= Gross interest expense including capitalized interest $ 77.6 $ 25.3 $ 22.2 $ 24.1 $ 26.3 Interest portion of rental expense 8.8 5.3 5.2 4.7 5.4 --------- -------- ------- ------- ------- "Fixed charges" $ 86.4 $ 30.6 $ 27.4 $ 28.8 $ 31.7 ========= ======== ======= ======= ======= Ratio of earnings to fixed charges 2.69 5.29 7.72 6.00 6.52 ========= ======== ======= ======= =======

EX-13.1 7 l12253aexv13w1.htm EX-13.1 ANNUAL REPORT

Exhibit 13.1

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements, the notes thereto and the historical summary appearing elsewhere in this annual report. Historical results and percentage relationships set forth in the consolidated financial statements, including trends that might appear, should not be taken as indicative of future operations. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in such forward-looking statements as a result of various factors, including those described under the section “Cautionary Statements for Safe Harbor Purposes” included elsewhere in this annual report.

Overview

GENERAL We are an innovative specialty chemical company that produces and supplies technologies that improve the quality and performance of our customers’ products in the global transportation, industrial and consumer markets. Our business is founded on technological leadership. Innovation provides opportunities for us in growth markets as well as advantages over our competitors. From a base of approximately 2,800 patents, we use our product development and formulation expertise to sustain our leading market positions and fuel our future growth. We create additives, ingredients, resins and compounds that enhance the performance, quality and value of our customers’ products, while minimizing their environmental impact. Our products are used in a broad range of applications, and are sold into stable markets such as those for engine oils, specialty driveline lubricants and metalworking fluids, as well as higher-growth markets such as personal care and pharmaceutical products and performance coatings and inks. Our specialty materials products are also used in a variety of industries, including the construction, sporting goods, medical products and automotive industries. We are an industry leader in the majority of our businesses.

     We are geographically diverse, with an extensive global manufacturing, supply chain, technical and commercial infrastructure. We operate facilities in 27 countries, including production facilities in 21 countries and laboratories in nine countries through the efforts of approximately 7,800 employees. We sell our products in more than 100 countries and believe that our customers value our ability to provide customized, high-quality, cost-effective performance formulations and solutions worldwide. We also believe that our customers value our global supply chain capabilities.

     On June 3, 2004, we completed the acquisition of Noveon International, Inc. (Noveon International), a leading global producer and marketer of technologically advanced specialty materials and chemicals used in the industrial and consumer markets. With the acquisition of Noveon International, we have accelerated our program to attain a substantial presence in the personal care and coatings markets by adding a number of higher-growth, industry-leading products under highly recognizable brand names, including Carbopol^®, to our already strong portfolio of lubricant and fuel additives, and consumer products. Additionally, Noveon International has a number of industry-leading and strong, cash flow-generating specialty materials businesses, including TempRite^® chlorinated polyvinyl chloride (CPVC) and Estane^® thermoplastic polyurethane (TPU).

     Noveon International was acquired for cash of $920.2 million (inclusive of certain seller expenses of $32.9 million) plus transaction costs of $11.4 million and less cash acquired of $103.0 million. In addition, we assumed $1,103.1 million of long-term indebtedness from Noveon International. Noveon International had 2003 revenues of $1,135.9 million.

     The acquisition and related costs were initially financed with the proceeds of a $2,450.0 million 364-day bridge credit facility. Shortly after the acquisition, we repaid substantially all of the assumed debt with proceeds of the temporary bridge loan. The temporary bridge loan was repaid in full in September 2004 when we secured our permanent financing. This permanent financing structure included the issuance of 14.7 million common shares in underwritten offerings, $1,150.0 million in unsecured senior notes and debentures and a $575.0 million bank term loan resulting in $2,170.0 million of net proceeds to Lubrizol.

     Our consolidated balance sheet as of December 31, 2004 reflects the acquisition of Noveon International under the purchase method of accounting. We recorded the various assets acquired and liabilities assumed, primarily working capital accounts, of Noveon International at their estimated fair values that we determined as of the acquisition date. The allocation of the purchase price has not yet been finalized, but is substantially complete, as of December 31, 2004. While we do not expect any material changes, the purchase price allocation remains subject to revision through the end of the allocation period ending in the second quarter of 2005. Actuarial valuations were completed for the projected pension and other post-employment benefit obligations and were reflected in the purchase price allocation. In addition, appraisals of long-lived assets and identifiable intangible assets, including an evaluation of in-process research and development (IPR&D) projects, have also been completed.

     The purchase price includes the estimated fair value of research and development projects totaling $34.0 million that, as of the acquisition date, had not yet reached technological feasibility and had no alternative future use. Approximately $33.5 million was expensed through the third quarter and $0.5 million was expensed in the fourth quarter, based upon the refinement of our valuation analysis. The $34.0 million charge for 2004 approximates $0.39 on a per-share basis. The inventory step-up to fair value totaled $24.2 million, of which $9.8 million, or $0.11 on a per-share basis, was expensed in 2004. As the remaining step-up relates to inventories accounted for on the LIFO (last-in, first-out) method of accounting, we do not anticipate that additional amounts of step-up will be expensed in the near term. The 2004 historical results include revenues and expenses of Noveon International only since the date of acquisition.

     In June 2004, we reorganized our business as a result of the Noveon International acquisition into two operating and reporting segments: the Lubricant Additives segment and the Specialty Chemicals segment. The Lubricant Additives segment is comprised of our previous business in fluid technologies for transportation (FTT), advanced fluid systems, emulsified products and the former industrial additives product group of fluid technologies for industry (FTI). The Specialty Chemicals segment is comprised of the businesses of the

THE LUBRIZOL CORPORATION nn ⁹

Management’s Discussion and Analysis of Financial Condition and Results of Operations

acquired Noveon International and the former performance chemicals group of FTI. Note 14 to the consolidated financial statements contains our segment reporting disclosure including a further description of the nature of our operations, the product lines within each of the reporting segments and related financial disclosures for the reportable segments. See also “Segment Analysis” for further financial disclosures by reporting segment, including segment profitability.

LUBRICANT ADDITIVES SEGMENT A variety of industry market forces and conditions continue to influence the Lubricant Additives business. A key factor is the low global growth rate for this market, which we believe is in the range of approximately 0% to 1% per year. Additional characteristics of this market are:

o Consolidation of the customer base in recent years, which has increased the competitiveness of the transportation lubricant additives market.

o Frequent product specification changes driven primarily by original equipment manufacturers (OEMs) and the impact of environmental and fuel economy regulations on the OEMs. The specification changes require us to incur product development and testing costs, but also enable us to apply our technology know-how to create products and solve problems. We believe our technology, and our expertise in applying it, are key strengths.

o Improved engine design, which can result in longer lubricant drain intervals. Longer drain intervals lessen demand for lubricants.

o New vehicle production levels, which affect our specialty driveline fluids in particular because the initial factory fill is an important market factor in that product line.

          We believe we are the market leader in lubricant additives and intend to remain the leader by continuing to invest in this business.

SPECIALTY CHEMICALS SEGMENT Our Specialty Chemicals segment’s growth strategy involves a combination of internal growth and acquisitions. Since 2000 and prior to the Noveon International acquisition, we made eight acquisitions with aggregate annual revenues at the time of acquisition of approximately $200.0 million. In 2002, we completed four acquisitions having aggregate annual revenues at the time of acquisition of $85.0 million, including Chemron Corporation, a supplier of specialty surfactants principally for the personal care market. In 2003, we acquired a personal care ingredients business from Amerchol Corporation, a subsidiary of The Dow Chemical Company. Also in 2003, we acquired silicone product lines, which expanded our foam control additives business to $40.0 million in annual revenues in 2004. In January 2004, we acquired the additives business of Avecia, with annual revenues of approximately $50.0 million. This business develops, manufactures and markets high-value additives used in coatings and inks. With the acquisition of Noveon International in June 2004, our Specialty Chemicals segment now represents nearly half of pro forma consolidated revenues.

We have a strategy to continue to achieve internal growth in the Specialty Chemicals segment by using our strengths, including our technology, formulating skills and broad geographic infrastructure, to develop and invest in new fluid technology applications in higher-growth industrial and consumer markets. Key factors to our success continue to be the introduction of new products, development of new applications for existing products, cross-selling of products, the integration of acquisitions and geographic expansion.

PRIMARY FACTORS AFFECTING 2004 RESULTS In addition to higher shipment volume in the Lubricant Additives segment, along with the contribution from Noveon International and other acquisitions and ongoing organic business growth in the Specialty Chemicals segment, the factors that most affected our 2004 results were:

o increased raw material costs;

o our ability to raise selling prices;

o integration of Noveon International;

o cost control initiatives, including restructuring programs; and

o favorable currency effects.

     For Lubricant Additives, raw material costs are significantly influenced by the price of crude oil and natural gas, which have been subject to periods of rapid and significant increases in price. In 2004, the cost of our other raw materials has also increased significantly. Our results are affected by how quickly and the extent to which we are able to change our product selling prices in reaction to raw material cost and operating cost increases. The increases in material costs were more significant in North America than in our other geographic zones. The Lubricant Additives segment implemented four price increases in 2004 in order to attempt to recover these costs.

     In connection with the acquisition of Noveon International, we established a target of achieving annual savings from acquisition cost synergies of approximately $40.0 million within three years from June 2004 when we completed the acquisition. In 2004, we realized pre-tax synergy savings of approximately $10.0 million, including $6.4 million of savings associated with the 2004 workforce reductions announced in June 2004. We are projecting to realize annual savings in 2005 of approximately $35.0 million. We currently expect to reach our target run rate of $40.0 million in annual savings by the end of 2005, which is 18 months ahead of schedule.

     Our operating cost structure has been pressured by higher energy, insurance, pension and health care expenses. Additionally, a large portion of our manufacturing expenses are fixed in the short term. As a result of these cost pressures, primarily in the Lubricant Additives segment, we implemented several restructuring programs in 2003 to further lower our cost structure while simultaneously improving our service capabilities for our customers. We achieved approximately $10.4 million of pre-tax savings in 2004 from the 2003 restructuring programs.

     In our continuing efforts to rationalize our manufacturing operations, in January 2005, we announced the decision to close our Lubricant Additives manufacturing facility in Bromborough, United Kingdom. Production phase-out of this site is planned to begin in the second quarter of 2005 and is expected to be completed by late 2006.

¹⁰ nn THE LUBRIZOL CORPORATION

Management’s Discussion and Analysis CONTINUED

During this phase-out, United Kingdom production will be transferred to facilities in France and the United States. We recognized a $17.0 million impairment charge in the fourth quarter of 2004 relating to the site property, plant and equipment. Approximately 69 employees will be impacted by this closure, although some employees may be retained. We expect the Bromborough facility closure and transfer of production to more efficient manufacturing locations ultimately to generate annual pre-tax cost savings of approximately $10.0 million by 2007.

     We conduct a significant amount of our business outside the United States and are subject to business risks inherent in non-U.S. activities, including currency exchange rate fluctuations. As the U.S. dollar strengthens or weakens against other international currencies in which we transact business, our financial results will be affected. Currency had an overall favorable effect on our 2004 and 2003 operating results.

2004 Results of Operations Compared with 2003

Our 2004 revenues as compared to 2003, excluding acquisitions, increased primarily due to higher ongoing shipment volume and higher average selling price. The increased revenues partially were offset by higher raw material costs and higher manufacturing expenses. Primarily as a result of these factors and acquisitions, gross profit increased 47% in 2004 compared with 2003.

     The changes in consolidated revenues are summarized as follows:

ANALYSIS OF REVENUES

									Excluding
									Acquisitions
					$		%		$		%
(In Millions of Dollars)	2004		2003		Change		Change		Change		Change
Net sales	$	3,155.6	$	2,049.1	$	1,106.5		54%	$	271.2		13%
Royalties and other revenues		3.9		3.0		0.9		30%		0.6		18%
Total revenues	$	3,159.5	$	2,052.1	$	1,107.4		54%	$	271.8		13%

     The 2004 and 2003 acquisitions accounted for the majority of the increase in consolidated revenues in 2004. Acquisitions in 2004 included Noveon International and the hyperdispersants business purchased from Avecia. Acquisitions in 2003 included the personal care specialty ingredients business purchased from Amerchol Corporation, a subsidiary of The Dow Chemical Company, and the silicone product lines purchased from BASF. The 2004 and 2003 acquisitions contributed $835.6 million toward the increase in 2004 consolidated revenues compared with 2003.

     Excluding acquisitions, the increase in consolidated revenues in 2004 compared to 2003 was due to a 7% increase in ongoing shipment volume, a 3% increase in average selling price and a 3% favorable currency impact.

     Shipment volume patterns vary in different geographic zones. The following table shows our 2004 shipment volume by geographic zone as well as the changes compared with 2003:

Analysis of Volume – 2004 vs. 2003

							Excluding
	2004						Acquisitions
	Volume			% Change			% Change
North America		49	%		39	%		4	%
Europe		26	%		22	%		9	%
Asia-Pacific / Middle East		19	%		31	%		16	%
Latin America		6	%		8	%		(8	%)
Total		100	%		31	%		7	%

     Segment shipment volume variances by geographic zone, as well as the factors explaining the changes in segment revenues for 2004 compared with 2003, are contained under the “Segment Analysis” section.

ANALYSIS OF COSTS AND EXPENSES

										Excluding
										Acquisitions
					$		%			$			%
(In Millions of Dollars)	2004		2003		Change		Change			Change			Change
Cost of sales	$	2,359.5	$	1,507.8	$	851.7		56	%	$	226.5			15	%
Selling and administrative expenses		304.6		202.9		101.7		50	%		14.6			7	%
Research, testing and development expenses		190.8		166.9		23.9		14	%		(9.6	)		(6	%)
Amortization of intangible assets		18.0		4.9		13.1		*			0.1			2	%
Write-off of acquired in-process research and development		34.0		—		34.0		*			—			*
Restructuring charges		38.6		22.5		16.1		*			(0.3	)		*
Total costs and expenses	$	2,945.5	$	1,905.0	$	1,040.5		55	%	$	231.3			12	%

* Calculation not meaningful

     Cost of sales increased due to acquisitions, higher average raw material cost and higher manufacturing expenses. Excluding acquisitions, average raw material cost increased 10% in 2004 compared with 2003, primarily due to higher unit raw material cost and, to a lesser extent, unfavorable currency effects. Sequentially, the fourth quarter 2004 average raw material cost, excluding acquisitions, increased 7% compared to the third quarter and 11% compared to the second quarter, primarily due to higher prices of crude oil and natural gas and unfavorable currency effects. Material cost, including acquisitions, also included inventory step-up adjustments associated with the increased valuation of inventory of $12.5 million in 2004 for the Noveon International and hyperdispersants acquisitions. The Noveon International portion of the inventory step-up adjustment was $9.8 million, or $0.11 per share.

     Total manufacturing expenses, which are included in cost of sales, increased 49% (8% excluding acquisitions) in 2004 compared with 2003, primarily due to acquisitions. We estimate that currency effects accounted for approximately 51% of the increase excluding acquisitions. The remainder of the increase primarily was due to higher shipment volumes and an increase in base and incentive compensation expense of $4.4 million. In addition, manufacturing expenses included an increase of $3.3 million for environmental accruals and $2.4 mil-

THE LUBRIZOL CORPORATION nn ¹¹

Management’s Discussion and Analysis of Financial Condition and Results of Operations

lion for increased utility costs. Excluding acquisitions, currency effects and environmental accruals, manufacturing expenses increased 3% in 2004 compared with 2003. On a per-unit-sold basis, manufacturing costs were flat in 2004 compared to 2003, excluding acquisitions.

     Gross profit (net sales less cost of sales) increased $254.8 million, or 47% ($44.7 million, or 8%, excluding acquisitions), in 2004 compared with 2003. Excluding acquisitions, the increase primarily was due to higher shipment volume and higher average selling price, partially offset by higher unit average raw material cost and higher manufacturing expenses. Our 2004 gross profit percentage (gross profit divided by net sales) decreased to 25.2% (25.3% excluding acquisitions) compared to 26.4% in 2003. Sequentially, our gross profit percentage decreased 90 basis points to 24.0% in the fourth quarter of 2004 compared to 24.9% in the third quarter of 2004. The decrease for both periods primarily was due to higher raw material costs outpacing our ability to raise selling prices sufficiently to sustain gross profit percentages.

     The selling and administrative expenses increase, excluding acquisitions, primarily was due to an increase in incentive compensation expense of $12.2 million. We estimate that currency effects accounted for approximately 30% of the increase, excluding acquisitions.

     The timing and amount of research, testing and development expenses (technology expenses) are affected by lubricant additives product standards, which change periodically to meet new emissions, efficiency, durability and other performance factors as engine and transmission designs are improved by OEMs. Technology expenses, excluding acquisitions, decreased 6% in 2004 compared with 2003. Despite an approximate 3% unfavorable currency impact in 2004, this decrease primarily was due to greater utilization of inside testing facilities as compared to outside laboratories, leading to a decrease in testing at outside laboratories of $8.3 million in 2004 compared with 2003, along with a $3.1 million reduction in salary and benefit expenses as a result of the reduction in workforce. During 2004, approximately 87% of our technology cost was incurred in company-owned facilities and approximately 13% was incurred at third-party facilities, compared with approximately 82% and 18%, respectively, in 2003. Testing costs for Noveon International primarily occur at company-owned facilities, which also contributed to the decrease in the percentage of testing performed at third-party facilities.

     The increased amortization expense in 2004 compared with 2003 primarily was due to the Noveon International and hyperdispersants acquisitions in 2004 and the personal care specialty ingredients business acquisition in 2003. These three acquisitions resulted in an increase in gross amortized intangible assets of approximately $334.5 million with useful lives ranging between three and 20 years.

     We included a one-time, non-cash charge of $34.0 million, or $0.39 per share, in total costs and expenses in 2004 to write off the estimated fair value of acquired IPR&D projects associated with the Noveon International acquisition. Costs to acquire IPR&D projects that have no alternative future use and that have not yet reached technological feasibility at the date of acquisition are expensed upon acquisition. We obtained appraisals to determine the estimated fair value of IPR&D projects. There were approximately nine projects acquired in the Noveon International transaction in several different product lines. The projects are at varying stages of completeness ranging from the early development stage to prototype testing. We estimate the need to spend approximately $3.0 million to develop the acquired technology, and we expect the benefit from these projects to be generated starting in 2005 and continuing into 2006.

     In 2004, we recorded aggregate restructuring charges of $38.6 million, or $0.47 per share, primarily related to asset impairments and workforce reductions. The components of the 2004 restructuring charges are detailed as follows:

(In Millions of Dollars)	2004
Asset impairments – Bromborough	$	17.0
Asset impairments – PuriNOxTM		2.8
Employee severance		11.1
Pension settlement obligation		7.7
Total restructuring charges	$	38.6

     In December 2004, management made the decision to close our Lubricant Additives manufacturing facility in Bromborough, United Kingdom to lower our cost structure further while simultaneously improving our service capabilities for our customers. We announced this decision in January 2005. We determined, as of December 31, 2004, that an impairment of the facility’s long-lived assets had been triggered by this decision. As a result, a $17.0 million impairment charge was recorded in December 2004 to reflect the related assets at their estimated fair values. Production phase-out of this site is planned to begin in the second quarter of 2005 and is expected to be completed by late 2006. During this phase-out, United Kingdom production will be transferred to higher-capacity facilities in France and the United States. Approximately 69 employees will be impacted by this closure, some of whom may have an opportunity to relocate to other facilities. We currently anticipate that future pre-tax charges and cash expenditures of approximately $13.0 million to $15.0 million will be incurred in 2005 through 2006 to satisfy anticipated severance and retention obligations, plant dismantling, site restoration and other site environmental evaluation costs and lease-related costs. In addition to the restructuring charges, we also expect to invest approximately $20.0 million over the next two years for capacity upgrades at alternative manufacturing facilities that will absorb production previously undertaken at the Bromborough facility. We expect the Bromborough facility closure and transfer of production to more efficient manufacturing locations to generate annual pre-tax cost savings of approximately $10.0 million by 2007.

     In 2004, we eliminated more than 100 positions, primarily affecting technical and commercial employees located at our Wickliffe, Ohio headquarters. Most of these workforce reductions were related to our restructuring following our acquisition of Noveon International. In addition to the employee severance costs, we incurred a non-cash pension benefit settlement charge. These reductions were completed by December 31, 2004 and resulted in pre-tax savings of approximately $7.1 million in 2004. We estimate future annual pre-tax savings of approximately $18.3 million.

     In addition, we realized approximately $10.4 million of pre-tax savings in 2004 relating to the 2003 restructuring programs discussed in the section “2003 Results of Operations Compared with 2002.”

¹² nn THE LUBRIZOL CORPORATION

Management’s Discussion and Analysis CONTINUED

ANALYSIS OF OTHER ITEMS AND NET INCOME

										Excluding
										Acquisitions
					$		%			$			%
(In Millions of Dollars)	2004		2003		Change		Change			Change			Change
Other income – net	$	4.9	$	3.3	$	1.6		*		$	(0.2	)		*
Interest expense – net		72.3		21.3		51.0		*			(4.4	)		*
Income before income taxes		146.6		129.1		17.5		14	%		44.9			35	%
Provision for income taxes		53.1		38.3		14.8		39	%		24.0			63	%
Net income		93.5		90.8		2.7		3	%		20.9			23	%

* Calculation not meaningful

     The net other income in 2004 included a gain of $6.4 million, or $0.07 per share, on a currency forward contract to purchase pound sterling related to the acquisition of the hyperdispersants business in the first quarter. We secured the forward contract in December 2003 and completed the acquisition at the end of January 2004. This gain partially was offset by other currency translation losses.

     The increase in net interest expense in 2004, compared with 2003, primarily was due to the Noveon International acquisition-related financing costs of $56.7 million, or $0.66 per share. These costs were comprised of the interest incurred relating to the permanent transaction financing as well as interest on the bridge loan and assumed Noveon International debt not repaid at the time of acquisition of $42.6 million, amortization of bridge loan fees of $11.2 million and termination of an interest rate swap of $2.9 million.

     During 2004, the U.S. dollar weakened against most currencies, especially the euro. The change in currency exchange rates in 2004, as compared with 2003 exchange rates, had a favorable effect on 2004 net income.

     We had an effective tax rate of 36.2% in 2004 as compared with 29.7% in 2003 as the result of the net impact of a number of factors. Items driving the increased tax rate included an increase in tax on unrepatriated earnings of foreign subsidiaries, a reduction in our ability to claim both U.S. foreign tax credits and to obtain U.S. tax benefits on exports following the Noveon International acquisition, and less significant non-taxable currency gains than occurred in 2003. These factors partially were offset by the favorable impact of foreign tax rate differences and other less significant items.

     As of December 31, 2004, we had U.S. net operating loss carryforwards (NOLs) of $326.0 million. These NOLs are a combination of NOLs acquired from Noveon International, as well as those generated in 2004 primarily as a result of transaction-related costs. We expect that these NOLs will be fully utilized during the carryforward period.

     Primarily as a result of the above factors, our net income per share, basic was $1.68 in 2004 compared with $1.76 in 2003. Earnings for 2004 benefited from Noveon International’s operating income before financing costs, inventory step-up charges and the write-off of IPR&D projects, of $78.3 million, or $0.91 per share. Earnings in 2004 included a one-time write-off of IPR&D projects from the Noveon International acquisition of $0.39 per share, a purchase adjustment associated with the increased valuation of Noveon International acquired inventory of $0.11 per share, restructuring charges of $0.47 per share, acquisition-related financing costs of $0.66 per share and a gain on a foreign currency forward contract of $0.07 per share. The 2003 restructuring charge reduced earnings by $0.29 per share in 2003.

2003 Results of Operations Compared with 2002

Income per share, basic before cumulative effect of a change in accounting principle declined 28% in 2003 to $1.76 per share, from $2.45 per share in 2002. The primary operating drivers of the lower earnings were lower shipment volume and higher raw material costs and manufacturing expenses, which more than offset higher average selling price due to the combination of price and product mix, favorable currency, a lower effective tax rate and acquisitions that were accretive to earnings. In addition, restructuring charges reduced 2003 earnings by $0.29 per share.

ANALYSIS OF REVENUES

											Excluding
											Acquisitions
					$			%			$			%
(In Millions of Dollars)	2003		2002		Change			Change			Change			Change
Net sales	$	2,049.1	$	1,980.3	$	68.8			3	%	$	25.8			1	%
Royalties and other revenues		3.0		3.6		(0.6	)		(17	%)		(0.6	)		(17	%)
Total revenues	$	2,052.1	$	1,983.9	$	68.2			3	%	$	25.2			1	%

     In 2003, the increase in consolidated revenues was due to a 9% increase in average selling price, partially offset by a 6% decline in shipment volume.

     Changes in our shipment volume vary by geographic area. The following table shows our 2003 shipment volume by geographic zone as well as the changes compared with 2002:

Analysis of Volume – 2003 vs. 2002

						Excluding
	2003					Acquisitions
		Volume		% Change			% Change
North America		45	%	(5	%)		(9	%)
Europe		28	%	(8	%)		(8	%)
Asia-Pacific / Middle East		20	%	(5	%)		(5	%)
Latin America		7	%	(2	%)		(2	%)
Total		100	%	(6	%)		(8	%)

     Excluding acquisitions, approximately half of the decline in shipment volume was due to the loss of a portion of the business associated with a major international customer and 16% of the decline was due to a shift in our viscosity modifier product line from liquids to higher-value concentrated solid form. All geographic zones were affected by the loss of business with this customer and the viscosity modifier shift, though the effects were mostly seen in North America and Europe. In addition, weak worldwide demand for lubricants negatively impacted volume for the year. We believe that the economic and political conditions within certain countries of the Asia-Pacific / Middle East region contributed to the volume decline in this zone. See “Segment Analysis” below for additional explanations of shipment volume changes by business segment and geographic zone in 2003 compared with 2002.

THE LUBRIZOL CORPORATION nn ¹³

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The 9% increase in average selling price was due to a 5% increase in the combination of price and product mix and 4% favorable currency effects. We combine the impact of price and product mix as frequent product changes in our Lubricant Additives segment have made it difficult to distinguish between the two components. Sequentially, the fourth quarter 2003 average selling price was 3% higher than the third quarter of 2003, due to favorable currency effects, and 6% higher than the first quarter of 2003, due to favorable currency effects and price increases implemented in the first half of the year.

ANALYSIS OF COSTS AND EXPENSES

											Excluding
											Acquisitions
					$			%			$			%
(In Millions of Dollars)	2003		2002		Change			Change			Change			Change
Cost of sales	$	1,507.8	$	1,416.3	$	91.5			6	%	$	61.7			4	%
Selling and administrative expenses		202.9		196.9		6.0			3	%		2.2			1	%
Research, testing and development expenses		166.9		168.3		(1.4	)		(1	%)		(2.9	)		(2	%)
Amortization of intangible assets		4.9		4.2		0.7			*			0.5			11	%
Restructuring charges		22.5		—		22.5			*			22.5			*
Total costs and expenses	$	1,905.0	$	1,785.7	$	119.3			7	%	$	84.0			5	%

* Calculation not meaningful

     Cost of sales increased due to higher average raw material cost and higher manufacturing expenses, partially offset by lower shipment volume. Average raw material cost increased 9% in 2003 compared with 2002, primarily due to 6% higher raw material costs and, to a lesser extent, unfavorable currency effects. Raw material costs started to increase in the second half of 2002 and continued to increase in the first and third quarters of 2003. Sequentially, the fourth quarter 2003 average raw material cost increased 2% compared with the third quarter and 7% compared with the first quarter, primarily due to higher unit raw material costs driven by higher prices of crude oil and natural gas and unfavorable currency effects.

     Manufacturing expenses, which are included in cost of sales, increased 14% (12% excluding acquisitions) in 2003 compared with 2002. The increase was due to unfavorable currency effects, acquisitions, higher utility expenses and higher salary and benefit expenses, partially offset by a reduction in variable pay expense. In addition, total manufacturing expenses in 2003 included a $2.6 million reclassification of expenses at certain subsidiaries of our Specialty Chemicals segment that were charged in 2002 to selling and administrative expenses or material costs.

     Cost of sales in 2003 also included approximately $3.4 million in manufacturing expenses to cover costs associated with two fires that occurred during the second quarter of 2003. In April 2003, an after-working-hours fire destroyed a metalworking additive blending facility we leased in Detroit. There were no injuries, nor any damage to a nearby warehouse where we stored finished goods. We were able to supply customers from this warehouse and have permanently shifted production to our Painesville, Ohio plant. In April 2003, a fire associated with a maintenance shutdown occurred in a dispersant production unit at our plant in Le Havre, France. Again, there were no injuries and we were able to continue to supply customers from other facilities.

     Excluding currency effects, acquisitions and the cost associated with the fires, consolidated manufacturing expense increased 5% over 2002.

     Gross profit decreased $22.7 million, or 4% ($35.8 million, or 6%, excluding acquisitions), in 2003 compared with 2002. Our gross profit percentage decreased to 26.4% in 2003 compared with 28.5% in 2002. Excluding the impact of acquisitions, our gross profit percentage was 26.3% in 2003. These decreases primarily were due to lower shipment volume, higher average raw material cost and higher manufacturing expenses, partially offset by higher average selling price and favorable net currency effects.

     The selling and administrative expenses increase, excluding acquisitions, was due to higher salary and benefit expenses and unfavorable currency effects, partially offset by lower variable pay expense and the reclassification to manufacturing expense of approximately $1.1 million that was classified as selling and administrative expenses in 2002.

     The decrease in technology expenses was due to lower testing activity at outside laboratories and a reduction in our variable pay expense, partially offset by unfavorable currency effects and higher salary and benefit expenses. In addition, technology expenses in 2003 included a write-down of $1.1 million related to a former technical facility in Japan that we sold during the third quarter of 2003. During 2003, approximately 82% of our technology cost was incurred in company-owned facilities and approximately 18% was incurred at third-party testing facilities, compared with approximately 78% and 22%, respectively, in 2002. In 2003, we completed a development program for GF-4, the U.S. passenger car motor oil technical standard that began in the second half of 2004.

     The increased amortization expense in 2003 as compared with 2002 primarily was due to the acquisition of the personal care specialty ingredients business from Amerchol Corporation, a subsidiary of The Dow Chemical Company, in 2003.

     In 2003, we recorded restructuring charges of $22.5 million, with $0.29 per share, related to the separation of approximately 250 employees in the United States, Europe and India, comprising 5% of our worldwide workforce. The components of the 2003 restructuring charges are shown in the table below:

(In Millions of Dollars)	U.S.		Europe		India		Total
Employee severance costs	$	11.2	$	4.6	$	1.5	$	17.3
Asset impairments		—		3.3		—		3.3
Other*		1.6		0.3		—		1.9
Total restructuring charges	$	12.8	$	8.2	$	1.5	$	22.5

* Other costs primarily include outplacement costs

     In November 2003, we announced workforce reductions of approximately 150 employees primarily at our headquarters in Wickliffe, Ohio, at our Deer Park and Bayport, Texas manufacturing facilities and at our Hazelwood, United Kingdom technical facility.

¹⁴ nn THE LUBRIZOL CORPORATION

Management’s Discussion and Analysis CONTINUED

This resulted in a restructuring charge primarily for employee severance costs in both the United States and the United Kingdom. The workforce reductions were completed prior to the end of 2003. The charge for Europe also included costs associated with the restructuring program announced in February 2003 for our Bromborough, United Kingdom intermediate production and blending facility. We eliminated some capacity at this facility and completed workforce reductions of 45 positions. An asset impairment charge of $3.3 million was recorded at Bromborough for production units taken out of service. The charge for Europe also included some severance-related costs for the closing of a sales office in Scandinavia. The charge for India pertains to a voluntary separation program of approximately 55 employees at our joint venture in India.

The 2003 restructuring programs were undertaken to achieve a more competitive cost structure, primarily within the Lubricant Additives segment, and to help mitigate cost pressures from higher energy, pension, health care and insurance expenses. Approximately $5.0 million and $10.4 million of pre-tax savings were realized in 2003 and 2004, respectively, relating to these programs.

ANALYSIS OF OTHER ITEMS AND NET INCOME

												Excluding
												Acquisitions
						$			%			$			%
(In Millions of Dollars)	2003		2002			Change			Change			Change			Change
Other income (expense) – net	$	3.3	$	(1.2	)	$	4.5			*		$	4.0			*
Interest expense – net		21.3		16.6			4.7			*			4.7			*
Income before income taxes and cumulative effect of change in accounting principle		129.1		180.4			(51.3	)		(28	%)		(58.5	)		(32	%)
Provision for income taxes		38.3		54.1			(15.8	)		(29	%)		(17.9	)		(33	%)
Income before cumulative effect of change in accounting principle		90.8		126.3			(35.5	)		(28	%)		(40.6	)		(32	%)
Cumulative effect of change in accounting principle		—		(7.8	)		7.8			*			7.8			*
Net income		90.8		118.5			(27.7	)		(23	%)		(32.8	)		(28	%)

* Calculation not meaningful

     The favorable change in other income (expense) primarily was due to an increase in currency translation gains.

     Interest income decreased $2.9 million in 2003 compared with 2002 as a result of lower interest rates. Interest expense increased $1.8 million in 2003 compared with 2002, due to the absence of the interest rate swap agreements that we utilized in 2002. In 2002, we had swap agreements that reduced interest expense by approximately $4.2 million ($3.1 million impact from outstanding swaps and $1.1 million amortization of deferred gain). We terminated the interest rate swap agreements in 2002 and recorded a deferred gain, which is being amortized as a reduction of interest expense through December 1, 2008. Amortization of the deferred gain reduced interest expense in 2003 by approximately $2.7 million.

     During 2003, the U.S. dollar weakened against most currencies, especially the euro. We believe the change in currency exchange rates in 2003, as compared with 2002 exchange rates, had a favorable effect on 2003 net income.

     We had an effective tax rate of 29.7% in 2003 as compared with 30.0% in 2002. The 2003 effective tax rate was lower than the U.S. statutory rate of 35%, primarily due to significant nontaxable translation gains at foreign subsidiaries utilizing a U.S. dollar functional currency. The low effective tax rate in 2002 was due primarily to a non-recurring U.S. tax benefit resulting from the charitable contribution of technology, partially offset by nontaxable translation losses.

     As a result of the factors described above, income per share, basic before the cumulative effect of a change in accounting principle was $1.76 in 2003 compared with $2.45 in 2002. The restructuring charges reduced earnings in 2003 by $0.29 per share.

     During the first half of 2002, we completed the impairment analysis required pursuant to Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” which we adopted on January 1, 2002. There was no impairment in the Specialty Chemicals segment. However, for the Lubricant Additives segment, we recorded an impairment change of $7.8 million. The charge was recorded as a cumulative effect of a change in accounting principle as of January 1, 2002. There was no tax benefit associated with this charge.

     After adjustment for the cumulative effect of a change in accounting principle from the implementation of SFAS No. 142 in 2002, net income per share, basic was $1.76 in 2003 compared with $2.30 for 2002.

Segment Analysis

We primarily evaluate performance and allocate resources based on segment operating income, defined as revenues less expenses identifiable to the product lines included within each segment, as well as projected future returns. Segment operating income will reconcile to consolidated income before tax by deducting the write-off of acquired IPR&D projects, restructuring charges, net interest expense, corporate expenses and corporate other income that we do not attribute to either operating segment.

     During 2004, we reclassified certain unallocated corporate expenses to segment operating income, which previously had been excluded from our previously disclosed segment contribution income. We have restated our segment results for 2003 and 2002 to reflect the new reporting classifications of products between the two operating and reporting segments and the new definition of segment operating income.

     The Lubricant Additives segment represents approximately 65% and 74% of our consolidated revenues and segment operating income, respectively, for 2004. The Specialty Chemicals segment represents approximately 35% and 26% of our consolidated revenues and segment operating income, respectively, for 2004. On a pro forma basis, the Lubricant Additives segment represents approximately 55% and 62% of our pro forma consolidated revenues and pro forma segment operating income, respectively, for 2004. The Specialty Chemicals segment represents approximately 45% and 38% of our consolidated pro forma revenues and pro forma segment operating income, respectively, for 2004.

THE LUBRIZOL CORPORATION nn ¹⁵

Management’s Discussion and Analysis of Financial Condition and Results of Operations

OPERATING RESULTS BY SEGMENT

							2004 vs. 2003										2003 vs. 2002
												Excluding Acquisitions
(In Millions of Dollars)	2004		2003		2002		$ Change		% Change			$ Change		% Change			$ Change			% Change
REVENUES:
Lubricant Additives	$	2,038.8	$	1,798.9	$	1,798.2	$	239.9		13	%	$	239.9		13	%	$	0.7			—
Specialty Chemicals		1,120.7		253.2		185.7		867.5		343	%		31.9		13	%		67.5			36	%
Total	$	3,159.5	$	2,052.1	$	1,983.9	$	1,107.4		54	%	$	271.8		13	%	$	68.2			3	%
GROSS PROFIT:
Lubricant Additives	$	520.0	$	481.2	$	515.0	$	38.8		8	%	$	38.8		8	%	$	(33.8	)		(7	%)
Specialty Chemicals		276.1		60.1		49.0		216.0		359	%		5.9		10	%		11.1			23	%
Total	$	796.1	$	541.3	$	564.0	$	254.8		47	%	$	44.7		8	%	$	(22.7	)		(4	%)
SEGMENT OPERATING INCOME:
Lubricant Additives	$	244.3	$	201.5	$	235.2	$	42.8		21	%		42.8		21	%	$	(33.7	)		(14	%)
Specialty Chemicals		85.6		0.9		0.4		84.7		*			6.2		*			0.5			*
Total	$	329.9	$	202.4	$	235.6	$	127.5		63	%	$	49.0		24	%	$	(33.2	)		(14	%)

* Calculation not meaningful

LUBRICANT ADDITIVES SEGMENT Segment revenues increased 13% in 2004 compared to 2003, due to 7% higher volume and 6% higher average selling price, approximately one-half of which was due to favorable currency.

     Shipment volume patterns vary in different geographic zones. The following table shows our shipment volume by geographic zone in 2004 as well as the changes compared with 2003:

Analysis of Volume – 2004 vs. 2003

	2004
	Volume			% Change
North America		41	%		4	%
Europe		30	%		8	%
Asia-Pacific / Middle East		23	%		16	%
Latin America		6	%		(9	%)
Total		100	%		7	%

     The shipment volume increase in North America in 2004 compared with 2003 primarily resulted from increases in our specialty driveline and industrial oil additives product line and in our PuriNOx^TM emulsion fuels products, which more than offset a modest decline in the engine additives product line due to lost business. Higher shipment volume in Europe in 2004 compared with 2003 primarily was due to increases in our engine additives product line and market share gains in our specialty driveline and industrial oil additives product line. The shipment volume increase in Asia-Pacific / Middle East in 2004 compared with 2003 primarily was due to economic recovery in the region, market share gains in China primarily in our engine additives and specialty driveline and industrial oil additives product lines, along with favorable timing of orders. The decrease in Latin America in 2004 compared with 2003 substantially was due to some lost business primarily within our engine additives product line and changes in order pattern for a major customer in that region.

     The Lubricant Additives segment implemented a price increase in March 2004 for products sourced from North American plants and in the second quarter 2004 for products sourced from Asia-Pacific / Middle East and Latin America. A second price increase was implemented beginning in mid-June for products sourced from North America and beginning in mid-July for targeted areas outside North America. A third price increase began in October 2004 for products sourced from North America and Europe and in November 2004 for the rest of the world. We announced a fourth price increase effective beginning in mid-December 2004 for products sourced from North America and Europe and beginning in mid-January 2005 for the rest of the world. The announced price increases were in response to continuing raw material cost increases, particularly during the second half of the year, and higher prices for natural gas used for utilities in our plants. We anticipate raw material costs will increase in the first quarter of 2005 as compared to the fourth quarter of 2004, but at a lower rate than the level of increases experienced in the fourth quarter of 2004 as compared to the third quarter of 2004.

     Segment gross profit is defined as sales less cost of sales, which includes material cost and all manufacturing expenses. The increase in segment gross profit of $38.8 million, or 8%, in 2004 compared with 2003, primarily was due to higher revenues partially offset by higher average raw material cost and higher manufacturing expenses. In 2004, average material cost increased 11% and manufacturing expenses increased 8% compared with 2003. The increase in manufacturing expenses primarily was due to unfavorable currency, higher manufacturing throughput, environmental accruals, higher utilities and higher compensation expense including increased variable pay.

     The gross profit percentage for the segment was 25.5% for 2004 compared with 26.8% in 2003. The decrease primarily was due to raw material costs increasing faster than selling price increases.

¹⁶ nn THE LUBRIZOL CORPORATION

Management’s Discussion and Analysis CONTINUED

     Selling, technical, administrative and research (STAR) expenses decreased $3.2 million, or 1%, in 2004 compared with 2003, primarily due to lower outside testing expenses as a result of higher utilization of our internal testing facilities and the effects of the reductions in workforce discussed previously, partially offset by a $3.9 million charge related to an employee offsite personal injury along with higher incentive compensation expense.

     Segment operating income (revenues less expenses attributable to the product lines aggregated within each segment) increased 21% in 2004 compared with 2003 due to the factors previously discussed.

     Segment revenues were flat in 2003 compared with 2002 due to an 8% decrease in shipment volume partially offset by a 7% increase in average selling price. The increase in average selling price in 2003 primarily was due to favorable currency effects of 5% and the remainder was due to higher prices and favorable product mix.

     Lubricant Additives implemented a price increase in December 2002 for the North America zone and in January 2003 for the rest of the world. A second price increase was implemented in late March 2003 for North America and in late April for Asia-Pacific / Middle East and Latin America as well as for select products in Europe. This price increase was designed to address the continuing rise in raw material costs and natural gas-fired utility costs that had occurred since the last price increase in the fourth quarter of 2002.

     The following table shows the changes in shipment volume by geographic zone in 2003 as well as the changes compared with 2002:

Analysis of Volume – 2003 vs. 2002

	2003
	Volume			% Change
North America		42	%		(11	%)
Europe		30	%		(9	%)
Asia-Pacific / Middle East		21	%		(6	%)
Latin America		7	%		(2	%)
Total		100	%		(8	%)

     Approximately half of the total shipment volume decline in 2003 was due to business losses associated with a major international customer. Lower unit sales of viscosity modifiers products in 2003 also contributed to the decline, principally caused by a shift from liquid polymers to solid polymers. Generally, solids are one-tenth the volume of liquids. Excluding this shift in our viscosity modifier product line, total shipment volume decreased 7% in 2003. The shift had no impact on gross profit dollars. All geographic zones were affected by the loss of business with this customer and the viscosity modifier shift, though the effects were mostly seen in North America and Europe. The declines in North America for 2003 also were due to the conversion of some products in our specialty driveline product line to more concentrated formulations. In addition, weak worldwide demand for lubricants contributed to the declines in the North America and Europe zones in 2003. The decrease in Asia-Pacific / Middle East volume primarily was due to the weak business environment stemming from economic and political conditions in some parts of this region.

     Segment gross profit decreased $33.8 million, or 7%, in 2003 compared with 2002. The decrease primarily was due to lower shipment volume, higher average raw material cost and higher manufacturing expenses, partially offset by higher average selling price and favorable net currency effects. For these reasons, the gross profit percentage for this segment decreased to 26.8% in 2003, compared with 28.7% in 2002.

     STAR expense decreased $2.9 million, or 1%, in 2003 compared with 2002, primarily due to lower technical spending at outside test laboratories.

     Segment operating income decreased $33.7 million, or 14%, in 2003 compared with 2002 as a result of lower gross profit and lower equity earnings from our joint venture in Saudi Arabia, partially offset by lower technology expenses.

SPECIALTY CHEMICALS SEGMENT In 2004, revenues for the Specialty Chemicals segment increased 343% compared with 2003 primarily due to the 2004 acquisitions of Noveon International and the hyperdispersants business and the 2003 acquisition of the personal care specialty ingredients business from The Dow Chemical Company. Excluding acquisitions, segment revenues increased 13% in 2004 compared with 2003 due to a 7% increase in shipment volume, 4% improvement in the combination of price and product mix and 2% favorable currency impact. The higher-priced product mix for 2004 primarily occurred in our consumer specialties product line.

     Shipment volume patterns vary in different geographic zones. The following table shows our shipment volume by geographic zone in 2004 as well as the changes compared with 2003:

Analysis of Volume – 2004 vs. 2003

							Excluding
	2004						Acquisitions
	Volume			% Change			% Change
North America		71	%		173	%		6	%
Europe		16	%		231	%		13	%
Asia-Pacific / Middle East		9	%		825	%		21	%
Latin America		4	%		184	%		8	%
Total		100	%		201	%		7	%

     Excluding acquisitions, the shipment volume increase in North America for 2004 was due to increases in our specialty emulsifier products in our consumer specialties product line resulting from market share gains and improvements in the mining sector, and increased customer demand and market share gains in our personal care products in our consumer specialties product line. The increase in Europe was due to increased customer demand and market share gains in our performance coatings product line and new business in our specialty emulsifier products. The increase in Asia-Pacific / Middle East was due to market share gains in our consumer specialties product line and higher shipment volumes in our performance coatings product line as some approvals we have obtained in the United States and Europe have been extended by our customers into Asia.

THE LUBRIZOL CORPORATION nn ¹⁷

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Segment gross profit increased $216.0 million, or 359% (increased $5.9 million, or 10%, excluding acquisitions), in 2004 compared with 2003. Excluding acquisitions, the increase in segment gross profit in 2004 was due to higher revenues partially offset by higher material costs and manufacturing expenses. Average material cost increased 9% in 2004 compared with 2003. Manufacturing expenses increased 5% in 2004 compared with 2003, however average unit manufacturing expense decreased 2% due to the higher shipment volumes.

     The gross profit percentage for this segment was 24.7% (23.2% excluding acquisitions) in 2004, compared with 23.8% in 2003. The decrease in gross profit percentage excluding acquisitions was due to higher raw material costs that were only partially offset by an improvement in the combination of price and product mix and lower average unit manufacturing expense. We implemented price increases across most of the businesses during the year in response to the rising raw material costs.

     STAR expenses increased $118.3 million, or 205%, in 2004 (decreased $2.3 million, or 4%, excluding acquisitions), compared with 2003.

     Segment operating income increased $84.7 million in 2004 (increased $6.2 million, excluding acquisitions) compared with a profit of $0.9 million in 2003. Excluding acquisitions, the increase in segment operating profit primarily was due to the increase in segment gross profit.

     In 2003, segment revenues increased $67.5 million, or 36% ($26.7 million, or 14%, excluding acquisitions), compared with 2002. The acquisition-related increase primarily was due to the 2002 acquisitions of Dock Resins Corporation and Chemron Corporation and the 2003 acquisition of a personal care ingredients business. The 2003 increase in segment revenues, excluding acquisitions, was due to a 9% increase in shipment volume along with a 4% favorable currency impact and 1% stronger price and product mix.

     The following table shows our shipment volume by geographic zone in 2003 as well as the changes compared with 2002:

Analysis of Volume – 2003 vs. 2002

							Excluding
	2003						Acquisitions
	Volume			% Change			% Change
North America		78	%		36	%		7	%
Europe		14	%		16	%		14	%
Asia-Pacific / Middle East		3	%		31	%		26	%
Latin America		5	%		16	%		16	%
Total		100	%		31	%		9	%

     The 2003 shipment volume increase in North America primarily was due to the 2002 acquisitions of Chemron and Dock Resins and the 2003 acquisition of a personal care ingredients business. Excluding acquisitions, the increase in North America in 2003 was due to market share gains in our consumer specialties product line along with increases in our performance coatings product line from the introduction of new products. The increase in Europe in 2003 primarily was due to market share gains and new applications in our specialty monomers products. The increase in 2003 for the Asia-Pacific / Middle East zone was spread across many product lines and was due to an increasing focus in this region leading to new business in most of our businesses. The increase in Latin America in 2003 was due to a shift from North America to Latin America of our specialty emulsifiers products with some of our existing customers, along with some business gains in our coatings and inks, defoamer and specialty monomers products.

     Segment gross profit increased $11.1 million, or 23% (decreased $2.0 million, or 4%, excluding acquisitions), in 2003 compared with 2002. Excluding acquisitions, the decrease in segment gross profit in 2003 was due to higher manufacturing expenses and average raw material cost partially offset by higher shipment volume and higher average selling price due to favorable currency effects. The increase in manufacturing expenses was due to higher shipment volume, $2.4 million in expenses associated with the integration of a multi-purpose chemical production facility in Spartanburg, South Carolina that was purchased in the second quarter of 2003, and higher manufacturing overhead for some specialty chemicals products produced at Lubricant Additives facilities as a result of unusually low Lubricant Additives volumes in 2003. The gross profit percentage for this segment was 23.6% in 2003, compared with 26.4% in 2002. The decrease in the gross profit percentage in 2003 was due to higher raw material costs and increased manufacturing expenses.

     Segment operating income increased $0.5 million (decreased $6.7 million excluding acquisitions), in 2003 compared with 2002. Excluding acquisitions, the decrease primarily was due to lower gross profit, higher direct technology and selling expenses and higher amortization expenses of intangibles that resulted from acquisitions.

Pro Forma Analysis

The following table presents major components of and information derived from the pro forma consolidated statements of income and pro forma consolidated statements of cash flows. The major components of the pro forma consolidated statements of income and pro forma consolidated statements of cash flows reflect the effect of the acquisition of Noveon International on June 3, 2004 as if the acquisition occurred at the beginning of each of the periods reflected in the table. We believe that this data provides the financial statement reader with information that is useful in understanding the impact of the acquisition of Noveon International on our results of operations and cash flows.

     The components of and information derived from the pro forma consolidated statements of income and the pro forma consolidated statements of cash flows for the years ended December 31, 2004 and 2003 are derived from our consolidated financial statements for the years ended December 31, 2004 and 2003 and the unaudited consolidated financial statements of Noveon International for the period from January 1, 2004 to the acquisition date.

¹⁸ nn THE LUBRIZOL CORPORATION

Management’s Discussion and Analysis CONTINUED

     Our consolidated balance sheet as of December 31, 2004 reflects the acquisition of Noveon International under the purchase method of accounting. We recorded the various assets acquired and liabilities assumed, primarily working capital accounts, of Noveon International at their estimated fair values that we determined as of the acquisition date. The allocation of the purchase price has not yet been finalized, but is substantially complete, as of December 31, 2004. While we do not expect any material changes, the purchase price allocation remains subject to revision through the end of the allocation period ending in the second quarter of 2005. Actuarial valuations were completed for the projected pension and other post-employment benefit obligations and were reflected in the purchase price allocation. In addition, appraisals of long-lived assets and identifiable intangible assets, including an evaluation of IPR&D projects, have also been completed.

     The pro forma data gives effect to actual operating results of Noveon International prior to the acquisition. Adjustments to cost of sales for the inventory step-up charge of $9.8 million, the write-off of acquired IPR&D of $34.0 million and intangible asset amortization are reflected in the pro forma data for each period in the table. The entire inventory step-up charge is attributable to the Specialty Chemicals segment and is reflected in each pro forma period of the table. In the fourth quarter of 2004, we reflected a reduction in our long-lived assets as a result of the completion of appraisals of these Noveon International assets. In the fourth quarter, we recognized a $4.4 million reduction in depreciation expense for the period from the acquisition date to December 31, 2004 to reflect changes in estimated fair values and asset lives for the long-lived assets. In the pro forma data for each period in the table, these changes in estimates resulted in a reduction of $7.5 million of depreciation expense in each year. We also assumed that the bridge loan was replaced with the permanent long-term financing, consisting of both debt and equity, at the end of the fourth month of each period presented. This pro forma data is consistent with the pro forma data that is disclosed in Note 3 to the consolidated financial statements for the years ended December 31, 2004 and 2003. These pro forma amounts are presented for informational purposes only and do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of the beginning of the periods presented or that may be obtained in the future.

PRO FORMA DATA

(In Millions of Dollars)	2004			2003
CONSOLIDATED PRO FORMA DATA
Total revenues	$	3,697.1		$	3,182.2
Gross profit	$	952.4		$	843.8
Income before income taxes and cumulative effect of change in accounting principle	$	172.9		$	96.6
Income before cumulative effect of change in accounting principle	$	110.6		$	66.2
Depreciation expense	$	166.4		$	164.3
Amortization of intangible assets	$	25.0		$	21.6
Capital expenditures	$	156.2		$	145.0
SEGMENT PRO FORMA DATA
Lubricant Additives segment:
Total revenues	$	2,038.8		$	1,798.9
Gross profit	$	520.0		$	481.2
Segment operating income	$	244.3		$	201.5
Depreciation expense	$	86.8		$	85.0
Amortization of intangible assets	$	3.0		$	3.0
Capital expenditures	$	83.0		$	73.9
Specialty Chemicals segment:
Total revenues	$	1,658.3		$	1,383.3
Gross profit	$	432.4		$	362.6
Segment operating income	$	152.5		$	106.8
Depreciation expense	$	78.6		$	78.2
Amortization of intangible assets	$	22.0		$	18.6
Capital expenditures	$	73.1		$	71.1
Unallocated corporate depreciation expense	$	1.0		$	1.1
Corporate capital expenditures	$	0.1		$	—
RECONCILIATION OF PRO FORMA SEGMENT OPERATING INCOME TO PRO FORMA INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Pro forma segment operating income:
Lubricant Additives	$	244.3		$	201.5
Specialty Chemicals		152.5			106.8
Total segment operating income		396.8			308.3
Corporate expenses		(44.1	)		(33.6	)
Corporate other income		5.7			4.1
Write-off of acquired in-process research and development		(34.0	)		(34.0	)
Restructuring charges		(41.9	)		(35.7	)
Interest expense – net		(109.6	)		(112.5	)
Pro forma income before income taxes and cumulative effect of change in accounting principle	$	172.9		$	96.6

THE LUBRIZOL CORPORATION nn ¹⁹

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Return on Average Shareholders’ Equity

Return on average shareholders’ equity was 7.6% in 2004, 10.0% in 2003 and 14.4% in 2002 (15.4% in 2002, excluding the cumulative effect of the change in accounting principle in 2002). The return on average shareholders’ equity is calculated as current year net income divided by the average of year-end shareholders’ equity for the current and prior year. The write-off of acquired IPR&D in 2004 and the restructuring charges in 2004 and 2003 lowered the return on average shareholders’ equity by approximately 3.5% and 1.6% in 2004 and 2003, respectively.

Working Capital, Liquidity and Capital Resources

The following table summarizes our financial performance indicators of liquidity:

SELECTED MEASURES OF LIQUIDITY AND CAPITAL RESOURCES

	2004			2003
Cash and short-term investments (in millions of dollars)	$	335.9		$	258.7
Working capital (in millions of dollars)		940.7			638.4
Current ratio		2.4			3.1
Debt as a % of capitalization		56.2	%		29.0	%
Net debt as a % of capitalization		51.6	%		11.0	%
Number of days sales in receivables		52.8			54.1
Number of days sales in inventories		86.8			89.4

     The following table summarizes the major components of cash flow:

SUMMARY OF CASH FLOWS

(In Millions of Dollars)	2004			2003			2002
Cash provided from (used in):
Operating activities	$	328.2		$	194.8		$	244.9
Investing activities		(1,088.8	)		(155.9	)		(148.5	)
Financing activities		811.9			(59.5	)		(30.4	)
Effect of exchange-rate changes on cash		25.9			12.9			11.3
Net increase (decrease) in cash and short-term investments	$	77.2		$	(7.7	)	$	77.3

OPERATING ACTIVITIES The increase in cash provided by operating activities in 2004 compared with 2003 primarily was due to an increase in earnings after adjusting for non-cash items. The increase in earnings was offset partially by a working capital build-up in accounts receivable, which used cash of $38.4 million. Our receivables increased by $258.2 million compared with 2003, primarily due to the Noveon International and hyperdispersants acquisitions. The increase in inventory used cash of $50.0 million primarily due to increased material costs and a higher weighting to finished goods and products in-process inventories, as well as some build-up of strategic inventory stocks at December 31, 2004. The increase in inventories was offset by a similar increase in accounts payable and an increase in accrued expenses for employee compensation accruals.

     We manage our levels of inventories and accounts receivables on the basis of average days sales in inventory and average days sales in receivables, respectively. Our target for accounts receivable is established taking into consideration the weighted average of our various terms of trade for each segment. Our target for days sales in inventory for each segment is established with the goal of minimizing our investment in inventories while at the same time ensuring adequate supply for our customers. In 2004, we outperformed our receivables targets and achieved our inventory targets.

INVESTING ACTIVITIES Our capital expenditures in 2004 were $133.2 million, as compared with $88.5 million and $65.3 million in 2003 and 2002, respectively. The 2004 expenditures include approximately $41.1 million for the newly acquired Noveon International business.

     In June 2004, we completed the acquisition of Noveon International for cash of $920.2 million plus transaction costs of $11.4 million and less cash acquired of $103.0 million.

     In January 2004, we completed the acquisition of the hyperdispersants business of Avecia for cash totaling $129.7 million. This additives business is headquartered in Blackley, United Kingdom and develops, manufactures and markets high-value additives that are based on polymeric dispersion technology and used in coatings and inks. These products enrich and strengthen color while reducing production costs and solvent emissions, and are marketed under the brand names Solsperse^® , Solplus^® and Solthix^® . Historical annual revenues of this business are approximately $50.0 million. We funded the acquisition through €43.0 million borrowings ($55.0 million equivalent) under a 364-day credit facility, $5.0 million in yen borrowings and the remainder in cash. At December 31, 2003, we had a foreign currency forward contract of $125.0 million in order to fix the U.S. dollar price for this acquisition. In the first quarter of 2004, we recorded a pre-tax gain of $6.4 million ($0.07 per share) upon the termination of this foreign currency forward contract.

FINANCING ACTIVITIES The increase in cash provided from financing activities of $811.9 million in 2004 primarily was due to the aggregate net proceeds of $2,170.0 million received relating to the issuance of 14.7 million of the company’s common shares, $1,150.0 million in unsecured senior notes and debentures and a $575.0 million bank term loan, which were used to repay the temporary bridge loan that funded the Noveon International acquisition including the repayment of $1,103.1 million in assumed debt.

CAPITALIZATION AND CREDIT FACILITIES At December 31, 2004, our total debt outstanding of $1,972.3 million consisted of 54% fixed-rate debt and 46% variable-rate debt, including $400.0 million of fixed-rate debt, that has been effectively swapped to a variable rate. Our weighted-average interest rate as of December 31, 2004 was approximately 5%.

²⁰ nn THE LUBRIZOL CORPORATION

Management’s Discussion and Analysis CONTINUED

     Our net debt to capitalization ratio at December 31, 2004 was 51.6%. Net debt is the total of short-term and long-term debt, reduced by cash and short-term investments excluding original issue discounts and unrealized gains and losses on derivative instruments designated as fair-value hedges of fixed-rate debt. Capitalization is shareholders’ equity plus net debt. Total debt as a percent of capitalization was 56.2% at December 31, 2004.

     Our ratio of current assets to current liabilities declined from 3.1 at December 31, 2003 to 2.4 at December 31, 2004 due to the Noveon International and hyperdispersants acquisitions.

     After the announcement of the Noveon International acquisition, our long-term debt and commercial paper credit ratings were downgraded. The credit rating change eliminated our access to the commercial paper markets. As a result, we repaid our outstanding commercial paper and terminated our existing floating-to-fixed rate interest rate swaps with a notional value of $50.0 million effective April 29, 2004. The termination of the swaps resulted in a $2.9 million pre-tax charge that was recognized in the second quarter of 2004. In addition, we called the outstanding $18.4 million marine terminal refunding revenue bonds, at par, in the second quarter of 2004.

     At December 31, 2004, we had a $500.0 million revolving credit facility that matures in August 2009, which allows us to borrow at variable rates based upon the U.S. prime rate or LIBOR plus a specified credit spread. As of December 31, 2004, we had no outstanding borrowings under this agreement.

     In May 2004, we obtained a 364-day bridge credit facility of $2,450.0 million for the purpose of financing the Noveon International acquisition. This temporary bridge facility enabled us to borrow at or below the U.S. prime rate. In June 2004, we borrowed $1,797.0 million under this facility to finance initially the Noveon International acquisition and repay a portion of the assumed Noveon International debt. In addition, in July 2004, we borrowed an additional $175.0 million under this facility to repay the outstanding notes also assumed as part of the Noveon International acquisition. On September 28, 2004, we repaid the bridge facility in full with proceeds from our permanent financing structure and the facility was cancelled. The equity component of our permanent financing included the issuance of 14.7 million common shares: 13.4 million shares on September 28, 2004 and an additional 1.3 million shares issued related to the exercise of the over-allotment option on October 27, 2004. The shares were issued at a price of $33.25 per share, resulting in net proceeds to the company of $470.0 million. The debt component of the financing included both public debt and bank term loans. We issued unsecured senior notes and debentures having an aggregate principal amount of $1,150.0 million and borrowed $575.0 million in bank term loans. In the fourth quarter of 2004, we prepaid $75.0 million in bank term loans.

     In June 2004, we entered into several Treasury rate lock agreements with an aggregate notional principal amount of $900.0 million, all maturing on September 30, 2004, whereby we had locked in Treasury rates relating to a portion of the then anticipated public debt securities issuance discussed above. These rate locks were designated as cash-flow hedges of the forecasted semi-annual interest payments associated with the expected debt issuance. In September 2004, we incurred a loss on the termination of these agreements in an aggregate amount of $73.9 million, which was funded through a portion of the financing proceeds, and is being amortized to interest expense over the life of the corresponding debt using the effective interest method.

CONTRACTUAL CASH OBLIGATIONS The following table shows our contractual cash obligations under debt agreements, leases, non-cancelable purchase commitments and other long-term liabilities at December 31, 2004:

	Payments Due by Period
						2006-		2008-		2010 and
(In Millions of Dollars)		Total		2005		2007		2009		After
Total debt (1)		$	1,965.1	$	8.2	$	102.6	$	1,002.7	$	851.6
Interest (2)			1,120.8		81.9		163.6		151.7		723.6
Operating leases			75.4		21.9		26.3		12.8		14.4
Non-cancelable purchase commitments (3)			137.4		37.6		56.7		40.9		2.2
Other long-term liabilities (4) (5)			44.3		1.5		16.9		7.5		18.4
Total contractual cash obligations		$	3,343.0	$	151.1	$	366.1	$	1,215.6	$	1,610.2

(1)	Total debt includes both the current and long-term portions of debt as reported in Note 6 to the consolidated financial statements, excluding original issue discounts and unrealized gains on derivative instruments designated as fair-value hedges of fixed-rate debt.
(2)	Represents estimated contractual interest payments for fixed-rate debt only. We are not able to estimate reasonably the cash payments for interest associated with variable-rate debt due to the significant estimation required relating to both market interest rates as well as projected principal payments.
(3)	Non-cancelable purchase commitments primarily include raw materials purchased under take-or-pay contracts, drumming, warehousing and service contracts, utility purchase agreements, terminal agreements and toll processing arrangements.
(4)	Other long-term liabilities disclosed in the table represent long-term liabilities reported in our consolidated balance sheet at December 31, 2004 under “noncurrent liabilities,” excluding pension, postretirement, environmental and other non-contractual liabilities.
(5)	We are required to make minimum contributions to our U.S. defined benefit pension plans pursuant to the minimum funding requirements of the Internal Revenue Code of 1986, as amended, and the Employee Retirement Income Security Act of 1974, as amended. Funding requirements for plans outside the United States are subject to applicable local regulations. In 2005, we expect to make employer contributions of approximately $28.7 million to the qualified plans to satisfy these minimum statutory funding requirements. In 2005, we expect to make payments of approximately $2.2 million relating to our unfunded pension plans. The expected payments associated with the unfunded plans represent an actuarial estimate of future assumed payments based upon retirement and payment patterns. Actual amounts paid could differ from this estimate. In addition, non-pension postretirement benefit payments are expected to approximate $4.9 million in 2005. Due to uncertainties regarding significant assumptions involved in estimating future required contributions to our defined benefit pension and other plans, such as interest rate levels, the amount and timing of asset returns and future restructurings, if any, we are not able to reasonably estimate our contributions beyond 2005.

     In addition, we have contingent obligations aggregating $33.4 million under standby letters of credit issued in the ordinary course of business to financial institutions, customers and insurance companies to secure short-term support for a variety of commercial transactions, insurance and benefit programs.

THE LUBRIZOL CORPORATION nn ²¹

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     We had $1,972.3 million of debt outstanding at December 31, 2004, a majority of which originated from our acquisition of Noveon International, including the $1,150.0 million in senior notes and debentures issued in September 2004. As a result, our total debt as a percent of capitalization has increased from 29.0% at December 31, 2003 to 56.2% at December 31, 2004. We will also incur increased interest expense relating to the permanent Noveon International transaction financing. Our debt level will require us to dedicate a significant portion of our cash flow to make interest and principal payments, thereby reducing the availability of our cash flow for acquisitions or other purposes. Nevertheless, we believe our future operating cash flows will be sufficient to cover our debt repayments and other obligations and that we have untapped borrowing capacity that can provide us with additional financial resources. We currently have a shelf registration statement filed with the Securities and Exchange Commission under which $359.8 million of debt securities, preferred shares or common shares may be issued. In addition, as of December 31, 2004, we maintained cash and short-term investment balances of $335.9 million and had $500.0 million available under our revolving credit facility.

Critical Accounting Policies

The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States of America requires us to make judgments, assumptions and estimates at a specific point in time that affect the amounts reported in the accompanying consolidated financial statements and related notes. In preparing these financial statements, we have utilized available information including our past history, industry standards and the current economic environment, among other factors, in forming our estimates and judgments of certain amounts included in the consolidated financial statements, giving due consideration to materiality. It is possible that the ultimate outcome as anticipated by management in formulating our estimates inherent in these financial statements may not materialize. Application of the critical accounting policies described below involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to similar businesses.

ACCOUNTING FOR RESERVES AND CONTINGENCIES Our accounting policies for reserves and contingencies cover a wide variety of business activities, including reserves for potentially uncollectible receivables, slow-moving or obsolete inventory, legal and environmental exposures and tax exposures. We accrue these reserves when our assessments indicate that it is probable that a liability has been incurred or an asset will not be recovered and an amount can be reasonably estimated. We review these estimates quarterly based on currently available information. Actual results may differ from our estimates and our estimates may be revised upward or downward, depending upon the outcome or changed expectations based on the facts surrounding each exposure. We discuss annually with the audit committee of our board of directors our reserves and contingencies, as well as our policies and processes for evaluating them.

ACCOUNTING FOR SALES DISCOUNTS AND REBATES Sales discounts and rebates are offered to certain customers to promote customer loyalty and to encourage greater product sales. These rebate programs provide that upon the attainment of pre-established volumes or the attainment of revenue milestones for a specified period, the customer receives credits against purchases. We estimate the provision for rebates based upon the specific terms in each agreement at the time of shipment and an estimate of the customer’s achievement of the respective revenue milestones. Customer claims, returns and allowances and discounts are accrued based upon our history of claims and sales returns and allowances. The estimated provisions could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.

DETERMINATION OF NET PERIODIC PENSION COST Each year we review with our actuaries the actuarial assumptions used in the determination of net periodic pension cost, as prescribed by SFAS No. 87, “Employers Accounting for Pensions.” The determination of net periodic pension cost is based upon a number of actuarial assumptions. The two critical assumptions are the expected return on plan assets and the discount rate for determining the funded status. Other assumptions include the rate of compensation increase and demographic factors such as retirement age, mortality and turnover. We review the critical assumptions for our U.S. pension plans with the audit committee of our board of directors. Our net periodic pension cost for all pension plans was $34.9 million in 2004, $14.1 million in 2003 and $8.4 million in 2002. The net periodic pension cost includes a settlement loss of $7.7 million and $0.3 million in 2004 and 2003, respectively. In accordance with generally accepted accounting principles, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect expense recognized and obligations recorded in future periods.

     In developing our assumption for the expected long-term rate of return on plan assets, we considered historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. During 2004, we maintained our assumption for the U.S. pension plans of 9.0% (7.82% on a weighted-average basis for all plans) because we believed that it represented a reasonable return that could be achieved over the long term using our current asset allocation. We did not substantially change our investment philosophy or investment mix of the asset portfolio in any of our Lubrizol plans existing prior to the Noveon International acquisition (legacy Lubrizol plans) in 2004. From the date of acquisition through the end of December, the Noveon International U.S. pension plans’ assets had an investment mix that approximated 50% in both equity and debt securities, as compared to the legacy Lubrizol U.S. pension plan target allocation of approximately 70% in equity securities and 30% in debt securities. However, in January 2005, we transferred the Noveon International U.S. pension assets into one master-trust arrangement with our existing U.S. pension plans. As a result, the combined assets will be subject to the same overall investment strategy and management going forward.

²² nn THE LUBRIZOL CORPORATION

Management’s Discussion and Analysis CONTINUED

     A change in the rate of return of 100 basis points would have the following effects on the net periodic pension cost:

Effect on net periodic pension cost from change in the rate of return

	100 Basis Point
(In Millions of Dollars)	Increase			Decrease
U.S. pension plans	$	(1.9	)	$	1.9
International pension plans		(1.4	)		1.4
All pension plans	$	(3.3	)	$	3.3

     The selection of a discount rate for pension plans is required to determine the value of future pension obligations and represents our best estimate of our cost in the marketplace to settle all pension obligations through annuity purchases. Historically, we have determined the discount rate based upon current market indicators, including rates of return on Aa-rated corporate bonds or on long-term U.S. Treasury obligations. However, in 2004, we further refined this discount rate setting process by also looking at yields from dedicated bond portfolios that provide for a general matching of bond maturities with the projected benefit cash flows from our plans. The dedicated bond portfolios consist of non-callable corporate bonds that are at least Aa quality. Under this enhanced approach, the 2004 year-end discount rate assumption for our legacy Lubrizol U.S. pension plans was set at 6.25%, which remains unchanged from our 2003 year-end assumption. The Noveon International U.S. pension plans utilized a discount rate of 6.00% at December 31, 2004. On a worldwide basis, the 2004 weighted-average discount rate utilized was lowered to 5.74% from 5.88% used in 2003. A change in the discount rate of 100 basis points would have the following effects on the net periodic pension cost:

Effect on net periodic pension cost from change in the discount rate

	100 Basis Point
(In Millions of Dollars)	Increase			Decrease
U.S. pension plans	$	(3.3	)	$	5.3
International pension plans		(4.3	)		4.7
All pension plans	$	(7.6	)	$	10.0

     The accumulated benefit obligation for all pension plans worldwide exceeds the value of plan assets by $68.0 million. This represents an increase compared to 2003 of $45.1 million. The worldwide Noveon International plans accounted for $13.7 million of the increase. The value of the plan assets of the legacy Lubrizol U.S. pension plans at December 31, 2004 exceeded the accumulated benefit obligation liability by $0.1 million as compared to $18.9 million at December 31, 2003. This decrease in the funding status was due to an increase in the accumulated benefit obligation primarily related to losses generated from the workforce reductions.

     Changes in pension plan assumptions are expected to increase pension expense for most pension plans worldwide in 2005. After considering a full year of expense related to the Noveon International plans, 2005 pension expense is expected to approximate between $39.0 million and $41.0 million, excluding the impact of any settlement charges. The expected increase in pension expense in 2005, excluding the impact of settlement charges, is due to 12 months of expense for the Noveon International plans, the decline in both the legacy Lubrizol U.S. and Noveon International U.S. plans’ expected return on plan assets, the decline in the discount rate for the Noveon International U.S. plans and the recognition of loss amortization.

DETERMINATION OF POSTRETIREMENT BENEFIT COST Annually, we review with our actuaries the key economic assumptions used in calculating postretirement benefit cost as prescribed by SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions.” Postretirement benefits include health care and life insurance plans. The determination of postretirement benefit cost is based upon a number of actuarial assumptions, including the discount rate for determining the accumulated postretirement benefit obligation, the assumed health care cost trend rates and ultimate health care trend rate. The same discount rate selected for the pension plans generally is used for calculating the postretirement benefit obligation by country. Net non-pension postretirement benefit cost was $5.8 million in 2004, $5.6 million in 2003 and $4.7 million in 2002.

     A change in the discount rate of 100 basis points would have the following effects on the postretirement benefit cost:

Effect on postretirement benefit cost from change in the discount rate

	100 Basis Point
(In Millions of Dollars)	Increase			Decrease
U.S. postretirement plans	$	(1.5	)	$	1.8
International postretirement plans		(0.1	)		0.1
All postretirement plans	$	(1.6	)	$	1.9

     A change in the assumed health care cost trend rate of 100 basis points would have the following effects on the postretirement benefit cost:

Effect on postretirement benefit cost from change in assumed health care cost trend rate

	100 Basis Point
(In Millions of Dollars)	Increase		Decrease
U.S. postretirement plans	$	1.8	$	(1.4	)
International postretirement plans		0.1		—
All postretirement plans	$	1.9	$	(1.4	)

ACCOUNTING FOR BUSINESS COMBINATIONS During the past three years, we have completed several business combination transactions, the most significant of which was the Noveon International acquisition, which occurred on June 3, 2004. We allocate the purchase price to assets acquired and liabilities assumed based on their relative fair value at the date of acquisition pursuant to the provisions of SFAS No. 141, “Business Combinations.” In estimating the fair value of the tangible and intangible assets and liabilities acquired, we consider information obtained during our due diligence process and utilize various valuation methods including market prices, where available, appraisals, comparisons to transactions for similar assets and liabilities and present value of estimated future cash flows. We are required to make subjective estimates in connection with these valuations and allocations.

THE LUBRIZOL CORPORATION nn ²³

Management’s Discussion and Analysis of Financial Condition and Results of Operations

ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS We review the carrying value of our long-lived assets, including property and equipment, whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. An impairment loss may be recognized when estimated undiscounted future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset. The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying amounts of the assets. Fair value is generally determined based upon a discounted cash flow analysis. In order to determine if an asset has been impaired, assets are grouped and tested at the lowest level for which identifiable, independent, cash flows are available.

     The determination of both undiscounted and discounted cash flows requires us to make significant estimates and considers the expected course of action at the balance sheet date. Subsequent changes in estimated undiscounted and discounted cash flows arising from changes in anticipated actions could impact the determination of whether an impairment exists, the amount of the impairment charge recorded and whether the effects could materially impact our net income.

     In connection with the acquisition and integration of Noveon International, we selected an investment banker in January 2005 to assist us in divesting underperforming and nonstrategic businesses. These potential divestitures have total revenues of approximately $300.0 million to $500.0 million. We have not identified buyers for these businesses. As such, none of the businesses or assets that we are evaluating is considered held for sale pursuant to the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

ACCOUNTING FOR GOODWILL IMPAIRMENT Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired and, effective January 1, 2002, is no longer amortized, in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” This standard requires goodwill to be tested annually and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of an operating segment below its carrying amount. We have elected October 1 as the annual evaluation date to test for potential goodwill impairment. The annual goodwill impairment test requires us to make a number of assumptions and estimates concerning future levels of earnings and cash flow, which are based upon our strategic plans. The combination of a discounted cash flow analysis and terminal value model is used to determine the fair value of each reporting unit. While we use available information to prepare estimates and to perform the impairment evaluation, actual results could differ significantly resulting in future impairment and losses related to recorded goodwill balances. No impairment of goodwill was identified in the annual impairment test completed in 2004. (See Note 5 to the consolidated financial statements.)

NEW ACCOUNTING STANDARDS

SFAS No. 123(R)

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), “Share-Based Payment.” This standard will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. This standard replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and applies to all awards granted, modified, repurchased or cancelled after July 1, 2005. We are currently evaluating the provisions of this standard to determine the impact on our consolidated financial statements. It is, however, expected to reduce consolidated net income.

SFAS No. 153

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets.” This standard amended APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” to eliminate the exception from fair value measurement for nonmonetary exchanges of similar productive assets. This standard replaces this exception with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has no commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for all nonmonetary asset exchanges we complete starting January 1, 2006. We do not believe the adoption of this standard will have a material impact on our financial position, results of operations or cash flows.

SFAS No. 151

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. This standard requires that such items be recognized as current-period charges. The standard also establishes the concept of “normal capacity” and requires the allocation of fixed production overhead to inventory based on the normal capacity of the production facilities. Any unallocated overhead must be recognized as an expense in the period incurred. This standard is effective for inventory costs incurred starting January 1, 2006. We do not believe the adoption of this standard will have a material impact on our financial position, results of operations or cash flows.

Medicare Prescription Drug Improvement and Modernization Act

The Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act) was signed into law on December 8, 2003. The Act introduces a prescription drug benefit under Medicare (Medicare Part D), which will begin in 2006.

²⁴ nn THE LUBRIZOL CORPORATION

Management’s Discussion and Analysis CONTINUED

     We have determined that our postretirement health care plan provides prescription drug benefits that will qualify for the federal subsidy provided by the Act. As a result, the following actuarially determined changes in accounting for this plan have been recognized starting in the third quarter of 2004 due to the legislation and in accordance with the provisions of FASB Staff Position (FSP) No. FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003” (FSP 106-2).

o The accumulated postretirement benefit obligation determined as of January 1, 2004 has been reduced by approximately $5.8 million. This reduction caused an actuarial gain in accordance with FSP 106-2.

o The effect of the above gain is to reduce the annual amortization of unrecognized actuarial loss by approximately $0.4 million.

o The interest and service cost components of the related periodic expense for fiscal year 2004 have been reduced by approximately $0.3 million.

     For 2004, our annual net periodic postretirement benefit expense has been reduced by approximately $0.7 million in the aggregate as a result of this benefit.

New Tax Legislation and Related Guidance

On October 22, 2004, the American Jobs Creation Act (Jobs Act) was signed into law. Included in the Jobs Act is a provision for a special one-time tax deduction of 85% of certain foreign earnings, in excess of a base amount, that are repatriated prior to December 31, 2005 (for calendar-year taxpayers). In December 2004, the FASB issued FSP No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” In January 2005, the Internal Revenue Service provided, in Notice 2005-10, additional guidance regarding how the Jobs Act rules on the repatriation of foreign subsidiary earnings are intended to operate.

     In accounting for the acquisition of Noveon International, we considered the pre-acquisition undistributed earnings of the foreign subsidiaries of Noveon International not to be indefinitely reinvested overseas. Therefore, the acquisition date balance sheet contains a deferred tax liability for the estimated U.S. and foreign tax cost of repatriating these earnings.

     As of December 31, 2004, our balance sheet included a deferred tax liability relating to a repatriation plan, which will result in approximately $180.0 million of cash being brought back to the United States. The calculation of this deferred tax liability assumes that we will be unable to use foreign tax credits to offset any portion of the U.S. tax cost of the planned repatriation.

     The Jobs Act also includes a tax deduction of up to 9.0% (when fully phased in) of the lesser of (a) “qualified production activities income,” as defined in the Jobs Act, or (b) taxable income, after the deduction for the utilization of any net operating loss carryforwards. In December 2004, the FASB issued FSP No. FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” We will be unable to obtain any benefit from this new deduction until our U.S. federal tax net operating loss carryforwards are completely utilized.

Cautionary Statements for Safe Harbor Purposes

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the federal securities laws. As a general matter, forward-looking statements are those focused upon future plans, objectives or performance as opposed to historical items and include statements of anticipated events or trends and expectations and beliefs relating to matters not historical in nature. Forward-looking statements are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These uncertainties and factors could cause our actual results to differ materially from those matters expressed in or implied by any forward-looking statements, although we believe that our expectations reflected in those forward-looking statements are based upon reasonable assumptions. For this purpose, any statements contained herein that are not statements of historical fact should be deemed to be forward-looking statements.

     We believe that the following factors, among others, could affect our future performance and cause our actual results to differ materially from those expressed or implied by forward-looking statements made in this annual report:

o the cost, availability and quality of raw materials, including petroleum-based products;

o our ability to increase the prices of our products in a competitive environment;

o the effect of required principal and interest payments on our ability to fund capital expenditures and acquisitions and to meet operating needs;

o the overall global economic environment and the overall demand for our products on a worldwide basis;

o technology developments that affect longer-term trends for our products;

o the extent to which we are successful in expanding our business in new and existing markets;

o our ability to identify, complete and integrate acquisitions for profitable growth and operating efficiencies, especially our ability to integrate the acquisition of Noveon International;

o our success at continuing to develop proprietary technology to meet or exceed new industry performance standards and individual customer expectations;

o our ability to continue to reduce complexities and conversion costs and modify our cost structure to maintain and enhance our competitiveness;

THE LUBRIZOL CORPORATION nn ²⁵

Management’s Discussion and Analysis of Financial Condition and Results of Operations

o our success in retaining and growing the business that we have with our largest customers;

o the cost and availability of energy, including natural gas and electricity;

o the effect of interest rate fluctuations on our interest expense;

o the effects of fluctuations in currency exchange rates upon our reported results from international operations, together with non-currency risks of investing in and conducting significant operations in foreign countries, including those relating to political, social, economic and regulatory factors;

o the extent to which we achieve market acceptance of our commercial development programs;

o significant changes in government regulations affecting environmental compliance;

o the ability to identify, understand and manage risks inherent in new markets in which we choose to expand; and

o our ability to maintain operating continuity for those businesses identified as divestiture candidates.

Quantitative and Qualitative Disclosures About Market Risk

We operate manufacturing and blending facilities, laboratories and offices around the world and utilize fixed and variable-rate debt to finance our global operations. As a result, we are subject to business risks inherent in non-U.S. activities, including political and economic uncertainties, import and export limitations, and market risks related to changes in interest rates and foreign currency exchange rates. We believe the political and economic risks related to our foreign operations are mitigated due to the stability of the countries in which our largest foreign operations are located.

     In the normal course of business, we use derivative financial instruments including interest rate and commodity hedges and forward foreign currency exchange contracts to manage our market risks. Our objective in managing our exposure to changes in interest rates is to limit the impact of such changes on our earnings and cash flow. Our objective in managing the exposure to changes in foreign currency exchange rates is to reduce volatility on our earnings and cash flow associated with such changes. Our principal currency exposures are the euro, the pound sterling, the Japanese yen and certain Latin American currencies. Our objective in managing our exposure to changes in commodity prices is to reduce the volatility on earnings of utility expense. We do not hold derivatives for trading purposes.

     We measure our market risk related to our holdings of financial instruments based on changes in interest rates, foreign currency rates and commodity prices utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in fair value, cash flow and earnings based on a hypothetical 10% change (increase and decrease) in interest, currency exchange rates and commodity prices. We use current market rates on our debt and derivative portfolios to perform the sensitivity analysis. Certain items such as lease contracts, insurance contracts and obligations for pension and other postretirement benefits are not included in the analysis.

     Our primary interest rate exposures relate to our cash and short-term investments, fixed and variable-rate debt and interest rate swaps. The calculation of potential loss in fair value is based on an immediate change in the net present values of our interest rate-sensitive exposures resulting from a 10% change in interest rates. The potential loss in cash flow and income before tax is based on the change in the net interest income/expense over a one-year period due to an immediate 10% change in rates. A hypothetical 10% increase in interest rates would have had a favorable impact and a hypothetical 10% decrease in interest rates would have had an unfavorable impact on fair values of $47.3 million in 2004. In addition, a hypothetical 10% increase in interest rates would have had an unfavorable impact and a hypothetical 10% decrease in interest rates would have had a favorable impact on cash flows and income before tax of $2.9 million in 2004.

     Our primary currency exchange rate exposures are to foreign currency denominated debt, intercompany debt, cash and short-term investments and forward foreign currency exchange contracts. The calculation of potential loss in fair value is based on an immediate change in the U.S. dollar equivalent balances of our currency exposures due to a 10% shift in exchange rates. The potential loss in cash flow and income before tax is based on the change in cash flow and income before tax over a one-year period resulting from an immediate 10% change in currency exchange rates. A hypothetical 10% increase in currency exchange rates would have had an unfavorable impact and a hypothetical 10% decrease in currency exchange rates would have had a favorable impact on fair values of $26.1 million, cash flows of $43.7 million and income before tax of $13.5 million in 2004.

     Our primary commodity hedge exposures relate to natural gas and electric utility expenses. The calculation of potential loss in fair value is based on an immediate change in the U.S. dollar equivalent balances of our commodity exposures due to a 10% shift in the underlying commodity prices. The potential loss in cash flow and income before tax is based on the change in cash flow and income before tax over a one-year period resulting from an immediate 10% change in commodity prices. A hypothetical 10% increase in commodity prices would have had a favorable impact and a hypothetical 10% decrease in commodity prices would have had an unfavorable impact on fair value, cash flow and income before tax of $0.3 million in 2004.

²⁶ nn THE LUBRIZOL CORPORATION

Management’s Report on Internal Control Over Financial Reporting

The management of The Lubrizol Corporation and its subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting. The Lubrizol Corporation’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

     All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

     The Lubrizol Corporation’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control–Integrated Framework. Based on this assessment, management believes that, as of December 31, 2004, the Company’s internal control over financial reporting is effective based on those criteria.

     Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, who expressed an unqualified opinion as stated in their report, a copy of which is included in this annual report.

James L. Hambrick
Chairman, President and Chief Executive Officer

Charles P. Cooley
Senior Vice President and Chief Financial Officer

W. Scott Emerick
Corporate Controller

March 2, 2005

New York Stock Exchange Certifications

On April 27, 2004, James L. Hambrick, as chief executive officer, certified, as required by Section 303A.12(a) of the New York Stock Exchange (NYSE) Listed Company Manual, that as of that date he was not aware of any violations by the Company of the NYSE’s Corporate Governance listing standards. This certification has been delivered to the NYSE.

     The chief executive officer and chief financial officer certifications created by Section 302 of the Sarbanes-Oxley Act of 2002 are included as exhibits to our Form 10-K and are incorporated herein by reference.

THE LUBRIZOL CORPORATION nn ²⁷

Reports of Independent Registered Public Accounting Firm

Deloitte.

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE LUBRIZOL CORPORATION

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that The Lubrizol Corporation and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

     A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

     We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements as of and for the year ended December 31, 2004 of the Company and our report dated March 2, 2005 expressed an unqualified opinion on those financial statements.

Cleveland, Ohio
March 2, 2005

Deloitte.

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE LUBRIZOL CORPORATION

We have audited the accompanying consolidated balance sheets of The Lubrizol Corporation and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Lubrizol Corporation and subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

     As discussed in Notes 2 and 5 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142.

     We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Cleveland, Ohio
March 2, 2005

²⁸ nn THE LUBRIZOL CORPORATION

Consolidated Statements of Income

	Year Ended December 31
(In Millions of Dollars Except Per-Share Data)	2004			2003			2002
Net sales	$	3,155.6		$	2,049.1		$	1,980.3
Royalties and other revenues		3.9			3.0			3.6
Total revenues		3,159.5			2,052.1			1,983.9
Cost of sales		2,359.5			1,507.8			1,416.3
Selling and administrative expenses		304.6			202.9			196.9
Research, testing and development expenses		190.8			166.9			168.3
Amortization of intangible assets		18.0			4.9			4.2
Write-off of acquired in-process research and development		34.0			—			—
Restructuring charges		38.6			22.5			—
Total costs and expenses		2,945.5			1,905.0			1,785.7
Other income (expense) – net		4.9			3.3			(1.2	)
Interest income		4.8			3.8			6.7
Interest expense		(77.1	)		(25.1	)		(23.3	)
Income before income taxes and cumulative effect of change in accounting principle		146.6			129.1			180.4
Provision for income taxes		53.1			38.3			54.1
Income before cumulative effect of change in accounting principle		93.5			90.8			126.3
Cumulative effect of change in accounting principle		—			—			(7.8	)
Net income	$	93.5		$	90.8		$	118.5
Basic net income per share:
Income before cumulative effect of change in accounting principle	$	1.68		$	1.76		$	2.45
Cumulative effect of change in accounting principle		—			—			(0.15	)
Net income per share, basic	$	1.68		$	1.76		$	2.30
Diluted net income per share:
Income before cumulative effect of change in accounting principle	$	1.67		$	1.75		$	2.44
Cumulative effect of change in accounting principle		—			—			(0.15	)
Net income per share, diluted	$	1.67		$	1.75		$	2.29
Dividends per share	$	1.04		$	1.04		$	1.04

The accompanying notes are an integral part of these consolidated financial statements.

THE LUBRIZOL CORPORATION nn ²⁹

Consolidated Balance Sheets

	December 31
(In Millions of Dollars)	2004		2003
ASSETS
Cash and short-term investments	$	335.9	$	258.7
Receivables		582.8		324.6
Inventories		568.7		311.9
Other current assets		110.6		42.6
Total current assets		1,598.0		937.8
Property and equipment – at cost		2,731.3		1,960.6
Less accumulated depreciation		1,413.4		1,270.6
Property and equipment – net		1,317.9		690.0
Goodwill		1,153.8		208.7
Intangible assets – net		437.1		62.4
Investments in non-consolidated companies		7.4		6.3
Other assets		52.1		37.1
TOTAL	$	4,566.3	$	1,942.3
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term debt and current portion of long-term debt	$	8.2	$	2.9
Accounts payable		339.6		143.1
Accrued expenses and other current liabilities		309.5		153.5
Total current liabilities		657.3		299.5
Long-term debt		1,964.1		386.7
Postretirement health care obligations		106.4		98.4
Noncurrent liabilities		170.7		100.3
Deferred income taxes		90.7		52.8
Total liabilities		2,989.2		937.7
Minority interest in consolidated companies		53.6		51.3
Contingencies and commitments
Preferred stock without par value – unissued		—		—
Common shares without par value – 66,778,865 and 51,588,190 outstanding shares at December 31, 2004 and 2003, respectively		610.6		123.8
Retained earnings		897.4		865.5
Accumulated other comprehensive income (loss)		15.5		(36.0	)
Total shareholders’ equity		1,523.5		953.3
TOTAL	$	4,566.3	$	1,942.3

The accompanying notes are an integral part of these consolidated financial statements.

³⁰ nn THE LUBRIZOL CORPORATION

Consolidated Statements of Cash Flows

	Year Ended December 31
(In Millions of Dollars)	2004			2003			2002
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net income	$	93.5		$	90.8		$	118.5
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		154.7			100.4			95.8
Write-off of acquired in-process research and development		34.0			—			—
Deferred income taxes		5.9			1.5			3.2
Restructuring charges		27.5			3.3			—
Cumulative effect of change in accounting principle		—			—			7.8
Change in current assets and liabilities, net of acquisitions:
Receivables		(38.4	)		4.7			29.0
Inventories		(50.0	)		17.4			(10.2	)
Accounts payable, accrued expenses and other current liabilities		80.5			(26.8	)		2.6
Other current assets		2.5			(4.3	)		(7.5	)
		(5.4	)		(9.0	)		13.9
Change in noncurrent liabilities		9.0			11.7			3.6
Other items – net		9.0			(3.9	)		2.1
Total operating activities		328.2			194.8			244.9
INVESTING ACTIVITIES
Capital expenditures		(133.2	)		(88.5	)		(65.3	)
Acquisitions – net of cash received and liabilities assumed		(958.4	)		(68.6	)		(86.7	)
Other items – net		2.8			1.2			3.5
Total investing activities		(1,088.8	)		(155.9	)		(148.5	)
FINANCING ACTIVITIES
Changes in short-term debt, net		(72.6	)		(5.8	)		(1.4	)
Repayments of long-term debt		(1,193.0	)		(9.2	)		(2.3	)
Proceeds from the issuance of long-term debt		1,743.3			4.5			—
Dividends paid		(57.6	)		(53.6	)		(53.4	)
Proceeds from sale of common shares, net of underwriting commissions and offering expenses of $20.2 million		470.0			—			—
Payment of debt issuance costs		(16.8	)		—			—
Payment of Treasury rate lock upon settlement		(73.9	)		—			—
Proceeds (payment) on termination of interest rate swaps		(2.9	)		—			18.1
Proceeds from the exercise of stock options		15.4			4.6			8.6
Total financing activities		811.9			(59.5	)		(30.4	)
Effect of exchange rate changes on cash		25.9			12.9			11.3
Net increase (decrease) in cash and short-term investments		77.2			(7.7	)		77.3
Cash and short-term investments at the beginning of year		258.7			266.4			189.1
Cash and short-term investments at the end of year	$	335.9		$	258.7		$	266.4

The accompanying notes are an integral part of these consolidated financial statements.

THE LUBRIZOL CORPORATION nn ³¹

Consolidated Statements of Shareholders’ Equity

			Shareholders’ Equity
	Number of							Accumulated Other
	Shares		Common		Retained			Comprehensive
(In Millions)	Outstanding		Shares		Earnings			Income (Loss)			Total
BALANCE, JANUARY 1, 2002		51.2	$	109.7	$	763.3		$	(99.8	)	$	773.2
Comprehensive income:
Net income 2002				—		118.5			—			118.5
Other comprehensive income				—		—			21.7			21.7
Comprehensive income												140.2
Dividends declared				—		(53.5	)		—			(53.5	)
Deferred stock compensation				0.5		—			—			0.5
Common shares – treasury:
Shares issued upon exercise of stock options and awards		0.3		8.8		—			—			8.8
BALANCE, DECEMBER 31, 2002		51.5		119.0		828.3			(78.1	)		869.2
Comprehensive income:
Net income 2003				—		90.8			—			90.8
Other comprehensive income				—		—			42.1			42.1
Comprehensive income												132.9
Dividends declared				—		(53.6	)		—			(53.6	)
Deferred stock compensation				1.1		—			—			1.1
Common shares – treasury:
Shares issued upon exercise of stock options and awards		0.1		3.7		—			—			3.7
BALANCE, DECEMBER 31, 2003		51.6		123.8		865.5			(36.0	)		953.3
Comprehensive income:
Net income 2004				—		93.5			—			93.5
Other comprehensive income				—		—			51.5			51.5
Comprehensive income												145.0
Dividends declared				—		(61.6	)		—			(61.6	)
Common shares – issued in public offerings		14.7		470.0		—			—			470.0
Deferred stock compensation				3.4		—			—			3.4
Common shares – treasury:
Shares issued upon exercise of stock options and awards		0.5		13.4		—			—			13.4
BALANCE, DECEMBER 31, 2004		66.8	$	610.6	$	897.4		$	15.5		$	1,523.5

The accompanying notes are an integral part of these consolidated financial statements.

³² nn THE LUBRIZOL CORPORATION

Notes To Financial Statements

(In Millions Except Per-Share Data)

Note 1 – NATURE OF OPERATIONS

The Lubrizol Corporation is a specialty chemical company that produces and supplies technologies to the global transportation, industrial and consumer markets. These technologies include lubricant additives for engine oils, other transportation-related fluids and industrial lubricants, as well as additives for gasoline and diesel fuel. In addition, the company makes ingredients and additives for personal care products and pharmaceuticals; specialty materials, including plastics technology; performance coatings in the form of specialty resins and additives; and additives for the food and beverage industry.

     On June 3, 2004, the company consummated its acquisition of Noveon International, Inc. (Noveon International). As a result of this acquisition, the company reorganized its product lines into two operating and reporting segments: Lubricant Additives and Specialty Chemicals. Refer to Note 14 for a further description of the nature of the company’s operations, the product lines within each of the operating segments, segment operating income and related financial disclosures for the reportable segments.

Note 2 – SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION The consolidated financial statements include the accounts of The Lubrizol Corporation and its consolidated subsidiaries. The company consolidates certain entities in which it owns less than a 100% equity interest if it is either deemed to be the primary beneficiary in a variable interest entity, as defined in Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 46, “Consolidation of Variable Interest Entities” or where its ownership interest is at least 50% and the company has effective management control. The equity method of accounting is applied to non-consolidated entities in which the company can exercise significant influence over the entity with respect to its operations and major decisions. The book value of investments carried on the equity method was $5.6 million at both December 31, 2004 and 2003. Investments carried at cost were $1.8 million and $0.7 million at December 31, 2004 and December 31, 2003, respectively.

ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CASH EQUIVALENTS The company invests its excess cash in short-term investments with various banks and financial institutions. Short-term investments are cash equivalents, as they are part of the cash management activities of the company and are comprised of investments having maturities of three months or less when purchased.

INVENTORIES Inventories are stated at the lower of cost or market value. Cost of inventories is determined by either the first-in, first-out (FIFO) method or the moving-average method, except in the United States for chemical inventories, which are primarily valued using the last-in, first-out (LIFO) method.

     The company accrues volume discounts on purchases from vendors where it is probable that the required volume will be attained and the amount can be reasonably estimated. The company records the discount as a reduction in the cost of the purchase (generally raw materials), based on projected purchases over the purchase agreement period.

     In November 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. This standard requires that such items be recognized as current-period charges. The standard also establishes the concept of “normal capacity” and requires the allocation of fixed production overhead to inventory based on the normal capacity of the production facilities. Any unallocated overhead must be recognized as an expense in the period incurred. This standard is effective for inventory costs incurred starting January 1, 2006. The company does not believe the adoption of this standard will have a material impact on its financial position, results of operations or cash flows.

PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Repair and maintenance costs are charged against income while renewals and betterments are capitalized as additions to the related assets. Costs incurred for computer software developed or obtained for internal use are capitalized for application development activities and immediately expensed for preliminary project activities or post-implementation activities. Accelerated depreciation methods are used in computing depreciation on certain machinery and equipment, which comprised approximately 7% and 12% of the depreciable assets at December 31, 2004 and 2003, respectively. The remaining assets are depreciated using the straight-line method. The estimated useful lives are 10 to 40 years for buildings and land and building improvements and range from 3 to 20 years for machinery and equipment.

IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS The company reviews the carrying value of its long-lived assets, including property and equipment, whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. An impairment loss may be recognized when estimated undiscounted future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset. The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying amounts of the assets. Fair value is generally determined based on a discounted cash flow analysis. In order to determine if an asset has been impaired, assets are grouped and tested at the lowest level for which identifiable, independent, cash flows are available.

THE LUBRIZOL CORPORATION nn ³³

Notes To Financial Statements

(In Millions Except Per-Share Data)

GOODWILL AND INTANGIBLE ASSETS Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired and, effective January 1, 2002, is no longer amortized, in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Goodwill is tested for impairment annually, and between annual tests if an event occurs or circumstances change that indicate the carrying amount may be impaired. The company has elected to perform its annual tests for potential impairment of goodwill and indefinite-lived intangible assets as of October 1st of each year. Impairment testing is done at the reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The estimated fair value of a reporting unit is determined through a combination of discounted cash flow analysis and terminal value calculations.

     Intangible assets resulting from business acquisitions, including customer lists, purchased technology, trademarks, patents, land-use rights and non-compete agreements, are amortized on a straight-line method over periods ranging from 3 to 40 years. Under SFAS No. 142, intangible assets determined to have indefinite lives are no longer amortized, but are tested for impairment at least annually. As part of the annual impairment test, the useful lives of the non-amortized intangible assets are reviewed to determine if the indefinite status remains appropriate.

DEFERRED FINANCING COSTS Costs incurred with the issuance of debt and credit facilities are capitalized and amortized over the life of the associated debt as a component of interest expense using the effective interest method of amortization. In June 2004, the company initially financed the Noveon International acquisition with a temporary bridge facility. Fees associated with the bridge facility were capitalized and amortized over the bridge financing period. A total of $11.2 million was incurred in bridge facility fees in June 2004. These fees were expensed ratably through September 2004 when the bridge facility was repaid in full. In September 2004, the company incurred $16.8 million in debt issuance costs and fees relating to the issuance of $1,150.0 million in senior notes and debentures, and the new $1,075.0 million five-year credit facilities. Such costs are being amortized under the effective interest method over the respective terms of the debt. The net deferred financing costs were $20.9 million and $6.4 million at December 31, 2004 and 2003, respectively. Amortization expense recorded in 2004, 2003 and 2002 was $1.6 million, $1.3 million and $1.3 million, respectively.

ENVIRONMENTAL LIABILITIES The company accrues for expenses associated with environmental remediation obligations when such expenses are probable and reasonably estimable, based upon current law and existing technologies. These accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value.

SHARE REPURCHASES The company uses the par-value method of accounting for its treasury shares. Under this method, the cost to reacquire shares in excess of paid-in capital related to those shares is charged against retained earnings.

FOREIGN CURRENCY TRANSLATION The assets and liabilities of the company’s international subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date, and revenues and expenses are translated at weighted-average exchange rates in effect during the period. Unrealized translation adjustments are recorded as a component of other comprehensive income in shareholders’ equity, except for subsidiaries for which the functional currency is other than the local currency, where translation adjustments are recognized in income. Transaction gains or losses that arise from exchange rate changes on transactions denominated in a currency other than the functional currency, except those transactions that function as a hedge of an identifiable foreign currency commitment or as a hedge of a foreign currency investment, are included in income as incurred.

REVENUE RECOGNITION Revenues are recognized at the time of shipment of products to customers, or at the time of transfer of title if later and when collection is reasonably assured. All amounts in a sales transaction billed to a customer related to shipping and handling are reported as revenues.

     Provisions for sales discounts and rebates to customers are recorded, based upon the terms of sales contracts, in the same period the related sales are recorded, as a deduction to the sale. Sales discounts and rebates are offered to certain customers to promote customer loyalty and encourage greater product sales. These rebate programs provide that upon the attainment of pre-established volumes or the attainment of revenue milestones for a specified period, the customer receives credits against purchases. The company estimates the provision for rebates based on the specific terms in each agreement at the time of shipment and an estimate of the customer’s achievement of the respective revenue milestones.

COMPONENTS OF COST OF SALES Cost of sales is comprised of raw material costs including freight and duty, inbound handling costs associated with the receipt of raw materials, direct production, maintenance and utility costs, plant and engineering overhead, terminals and warehousing costs, and outbound shipping and handling costs.

RESEARCH, TESTING AND DEVELOPMENT Research, testing and development costs are expensed as incurred. Research and development expenses, excluding testing, were $108.3 million in 2004, $93.9 million in 2003 and $93.5 million in 2002. Costs to acquire in-process research and development (IPR&D) projects that have no alternative future use and that have not yet reached technological feasibility at the date of acquisition are expensed upon acquisition.

INCOME TAXES The company provides for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of the assets and liabilities.

PER SHARE AMOUNTS Net income per share is computed by dividing net income by average common shares outstanding during the period, including contingently issuable shares. Net income per diluted share includes the dilutive impact resulting from outstanding stock options and stock awards. Per share amounts are computed as follows:

³⁴ nn THE LUBRIZOL CORPORATION

Notes To Financial Statements CONTINUED

	2004		2003		2002
Numerator:
Income before cumulative effect of change in accounting principle	$	93.5	$	90.8	$	126.3
Cumulative effect of change in accounting principle		—		—		(7.8	)
Net income	$	93.5	$	90.8	$	118.5
Denominator:
Weighted-average common shares outstanding		55.7		51.7		51.5
Dilutive effect of stock options and awards		0.3		0.2		0.3
Denominator for net income per share, diluted		56.0		51.9		51.8
Basic net income per share:
Income before cumulative effect of change in accounting principle	$	1.68	$	1.76	$	2.45
Net income per share, basic	$	1.68	$	1.76	$	2.30
Diluted net income per share:
Income before cumulative effect of change in accounting principle	$	1.67	$	1.75	$	2.44
Net income per share, diluted	$	1.67	$	1.75	$	2.29

     Weighted-average shares issuable upon the exercise of stock options that were excluded from the diluted earnings per share calculations because they were antidilutive were 1.1 million in 2004, 2.5 million in 2003 and 2.4 million in 2002.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS Derivative financial instruments are recognized on the balance sheet as either assets or liabilities and are measured at fair value. Derivatives that are not hedges are adjusted to fair value through income. Depending upon the nature of the hedge, changes in fair value of the derivative are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in value is immediately recognized in earnings. The company only uses derivative financial instruments to manage well-defined interest rate, foreign currency and commodity price risks. The company does not use derivatives for trading purposes.

COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES Liabilities for costs associated with exit or disposal activities are recognized and measured initially at fair value when the liability is incurred pursuant to the requirements of SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which became effective for the company for exit or disposal activities initiated after December 31, 2002.

GUARANTEES FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” requires the disclosure of any guarantees existing prior to January 1, 2003 and the recognition of a liability for any guarantees entered into or modified on or after that date. The company does not have any material guarantees within the scope of FIN 45.

STOCK-BASED COMPENSATION The company currently uses the intrinsic value method to account for employee stock options. The following table shows the pro forma effect on net income and earnings per share if the company had applied the fair-value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

	2004			2003			2002
Reported net income	$	93.5		$	90.8		$	118.5
Plus: Stock-based employee compensation (net of tax) included in net income		2.1			0.3			0.1
Less: Stock-based employee compensation (net of tax) using the fair-value method		(6.0	)		(4.4	)		(6.1	)
Pro forma net income	$	89.6		$	86.7		$	112.5
Reported net income per share, basic	$	1.68		$	1.76		$	2.30
Pro forma net income per share, basic	$	1.61		$	1.68		$	2.18
Reported net income per share, diluted	$	1.67		$	1.75		$	2.29
Pro forma net income per share, diluted	$	1.60		$	1.67		$	2.17

     In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” This standard will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. This standard replaces SFAS No. 123 and supersedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and applies to all awards granted, modified, repurchased or cancelled after July 1, 2005. The company is currently evaluating the provisions of this standard to determine the impact on its consolidated financial statements. It is, however, expected to reduce consolidated net income.

EXCHANGES OF NONMONETARY ASSETS In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets.” This standard amended APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” to eliminate the exception from fair value measurement for nonmonetary exchanges of similar productive assets. This standard replaces this exception with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has no commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for all nonmonetary asset exchanges completed by the company starting January 1, 2006. The company does not believe the adoption of this standard will have a material impact on its financial position, results of operations or cash flows.

ACCOUNTING FOR THE MEDICARE PRESCRIPTION DRUG IMPROVEMENT AND MODERNIZATION ACT The Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act) was signed into law on December 8, 2003. The Act introduces a prescription drug benefit under Medicare (Medicare Part D), which will begin in 2006.

THE LUBRIZOL CORPORATION nn ³⁵

Notes To Financial Statements

(In Millions Except Per-Share Data)

     The company has determined that its postretirement health care plans provide prescription drug benefits that will qualify for the federal subsidy provided by the Act. As a result, the following actuarially determined changes in accounting for this plan have been recognized starting in the third quarter of 2004 due to the legislation and in accordance with the provisions of FASB Staff Position (FSP) FAS No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003” (FSP 106-2).

o The accumulated postretirement benefit obligation determined as of January 1, 2004 has been reduced by approximately $5.8 million. This reduction caused an actuarial gain in accordance with FSP 106-2.

o The effect of the above gain is to reduce the annual amortization of unrecognized actuarial loss by approximately $0.4 million.

o The interest and service cost components of the related periodic expense for fiscal year 2004 have been reduced by approximately $0.3 million.

     For 2004, annual net periodic postretirement benefit expense has been reduced by approximately $0.7 million in the aggregate as a result of this benefit.

RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current year presentation.

Note 3 – ACQUISITIONS AND PRO FORMA FINANCIAL INFORMATION

On June 3, 2004, we completed the acquisition of Noveon International for cash of $920.2 million (inclusive of $32.9 million in certain seller expenses) plus transaction costs of $11.4 million and less cash acquired of $103.0 million. In addition, the company assumed $1,103.1 million of long-term indebtedness from Noveon International. Noveon International had 2003 revenues of $1,135.9 million. With the acquisition of Noveon International, the company has accelerated its program to attain a substantial presence in the personal care and coatings markets by adding a number of higher-growth, industry-leading products under highly recognizable brand names, including Carbopol^® , to the company’s portfolio of lubricant and fuel additives, and consumer products. Additionally, Noveon International has a number of industry-leading specialty materials businesses, including TempRite^® chlorinated polyvinyl chloride and Estane^® thermoplastic polyurethane.

     The acquisition and related costs were initially financed with the proceeds of a $2,450.0 million 364-day bridge credit facility. Shortly after the acquisition, the company repaid substantially all of the assumed long-term debt of Noveon International with proceeds of the temporary bridge loan. In addition, the temporary bridge loan was repaid in full in September 2004 with the proceeds from the permanent financing obtained by the issuance of senior notes, debentures and equity and the borrowing of $575.0 million of bank term loans, resulting in proceeds of approximately $2,170.0 million, net of underwriting commissions, discounts and transaction costs.

     Our consolidated balance sheet as of December 31, 2004 reflects the acquisition of Noveon International under the purchase method of accounting. We recorded the various assets acquired and liabilities assumed, primarily working capital accounts, of Noveon International at their estimated fair values that we determined as of the acquisition date. The allocation of the purchase price has not yet been finalized, but is substantially complete, as of December 31, 2004. While we do not expect any material changes, the purchase price allocation remains subject to revision through the end of the allocation period ending in the second quarter of 2005. Actuarial valuations were completed for the projected pension and other post-employment benefit obligations and were reflected in the purchase price allocation. In addition, appraisals of long-lived assets and identifiable intangible assets, including an evaluation of IPR&D projects, have also been completed.

     The purchase price includes the estimated fair value of IPR&D projects totaling $34.0 million that, as of the acquisition date, had not yet reached technological feasibility and had no alternative future use. As a result, the full amount allocated to IPR&D was expensed in 2004. There were nine projects acquired in the Noveon International transaction in several different product lines. The projects are at varying stages of completeness ranging from the early development stage to prototype testing. The company estimates the need to spend approximately $3.0 million to develop the acquired technology and expects the benefit from these projects to be generated starting in 2005 and continuing into 2006. The inventory step-up to fair value totaled $24.2 million, of which $9.8 million was expensed in 2004. As the remaining step-up relates to inventories accounted for on the LIFO method of accounting, the company does not anticipate that additional amounts of step-up will be expensed in the near term. In the fourth quarter of 2004, the company reflected a reduction in the long-lived assets as a result of the completion of appraisals of these Noveon International assets. In the fourth quarter, the company recognized a $4.4 million reduction in depreciation expense for the period from the acquisition date to December 31, 2004 to reflect changes in estimated fair values and asset lives for the long-lived assets.

     The 2004 historical results only include revenues and expenses of Noveon International since the date of acquisition.

     The following unaudited pro forma operating data is presented for the years ended December 31, 2004 and 2003 as if the Noveon International acquisition had been completed at the beginning of each of the periods presented below in the table. The pro forma data gives effect to actual operating results prior to the acquisition. Adjustments to cost of sales for the inventory step-up charge, fixed asset depreciation, intangible asset amortization, the write-off of acquired IPR&D, interest expense, income taxes and weighted-average common shares outstanding related to the acquisition are reflected in the pro forma data. In addition, the company assumed that the bridge loan was replaced with the permanent long-term financing, consisting of both debt and equity, at the end of the fourth month in both 2004 and 2003. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of the beginning of the periods presented or that may be obtained in the future.

³⁶ nn THE LUBRIZOL CORPORATION

Notes To Financial Statements CONTINUED

	2004		2003
Total revenues	$	3,697.1	$	3,182.2
Income before cumulative effect of change in accounting principle	$	110.6	$	66.2
Net income	$	110.6	$	65.7
Income per share before cumulative effect of change in accounting principle, basic	$	1.79	$	1.07
Income per share before cumulative effect of change in accounting principle, diluted	$	1.78	$	1.07
Net income per share, basic	$	1.79	$	1.07
Net income per share, diluted	$	1.78	$	1.06

     In January 2004, the company completed the acquisition of the coatings hyperdispersants business from Avecia for cash totaling $129.7 million, including transaction costs of $2.2 million. This business is headquartered in Blackley, United Kingdom and develops, manufactures and markets high-value additives that are based on polymeric dispersion technology and used in coatings and inks. These products enrich and strengthen color while reducing production costs and solvent emissions, and are marketed under the brand names Sol-sperse^®, Solplus^® and Solthix^®. Annualized revenues of this business are approximately $50.0 million.

     The fair value of assets acquired and liabilities assumed in 2004 acquisitions is as follows:

	Fair Value of Net Assets Acquired in 2004
	Noveon		Hyper-
	International		dispersants		Other		Total
Receivables	$	184.8	$	7.3	$	—	$	192.1
Inventories		180.6		10.5		—		191.1
Other current assets		54.6		—		—		54.6
Property and equipment		614.8		5.5		—		620.3
Goodwill		830.1		76.4		—		906.5
Intangible assets		378.8		42.7		—		421.5
Other noncurrent assets		17.3		—		0.1		17.4
Total assets		2,261.0		142.4		0.1		2,403.5
Accounts payable		129.4		7.0		—		136.4
Accrued expenses		107.0		—		—		107.0
Current and long-term debt		1,103.1		—		—		1,103.1
Noncurrent liabilities		92.9		5.7		—		98.6
Total liabilities		1,432.4		12.7		—		1,445.1
Increase in net assets from acquisitions	$	828.6	$	129.7	$	0.1	$	958.4

     In 2003, the company completed two acquisitions in the Specialty Chemicals segment for cash of $68.6 million. In July 2003, the company purchased the product lines of a silicones business from BASF, which expanded the foam control additives business to approximately $40.0 million in annual revenues. Assets acquired from BASF included customer lists, certain trademarks, manufacturing technology and other related intellectual property specifically developed for silicone products in the North America region and finished goods inventory. Silicones are used in the manufacture of sealants, caulks and water-proofing products. Historical annual revenues for these silicone products approximate $6.0 million. In September 2003, the company completed an acquisition of a selected personal care ingredients business from Amerchol Corporation, a subsidiary of The Dow Chemical Company. Products from this business go into a wide range of end uses, including skin care and hair conditioners. Products include methyl glucoside derivatives, lanolin derivatives and Promulgen^TM personal care ingredients. Annualized revenues of this acquisition were approximately $30.0 million.

     The fair value of assets acquired and liabilities assumed in 2003 acquisitions is as follows:

	Fair Value of Net Assets
	Acquired in 2003
Receivables	$	0.4
Inventories		7.8
Property and equipment		1.8
Goodwill		36.2
Intangible assets		23.4
Other assets		0.2
Total assets		69.8
Accrued expenses		1.0
Deferred income taxes – noncurrent		0.2
Total liabilities		1.2
Increase in net assets from acquisitions	$	68.6

Note 4 – INVENTORIES

	2004		2003
Finished products	$	311.2	$	150.7
Products in process		75.9		62.3
Raw materials		153.1		78.9
Supplies and engine test parts		28.5		20.0
Total inventory	$	568.7	$	311.9

     Inventories on the LIFO method were 37% and 24% of consolidated inventories at December 31, 2004 and 2003, respectively. The current replacement cost of these inventories exceeded the LIFO cost at December 31, 2004 and 2003 by $80.5 million and $57.2 million, respectively.

     During 2003, some inventory quantities were reduced, resulting in a liquidation of certain LIFO inventory quantities carried at lower costs in prior years as compared with costs at December 31, 2003. The effect of this liquidation increased income before taxes by $0.6 million.

THE LUBRIZOL CORPORATION nn ³⁷

Notes To Financial Statements

(In Millions Except Per-Share Data)

Note 5 – GOODWILL & INTANGIBLE ASSETS

Goodwill Effective January 1, 2002, the company adopted SFAS No. 142, pursuant to which goodwill is no longer amortized but rather is reviewed for impairment annually or more frequently if impairment indicators arise. The company performed the transitional impairment review of goodwill as of January 1, 2002. This evaluation indicated that goodwill recorded in the advanced fluid systems operating segment (a separate operating segment prior to the reorganization of the company’s operating segments in 2004) was impaired as of that date. The economic conditions at the time of impairment testing, including declining revenues, reduced the estimated future expected performance of this operating segment, which included the equipment businesses the company acquired in fluid metering and particulate traps. Accordingly, the company recognized a transitional impairment charge of $7.8 million in 2002. This non-cash charge was recorded as a cumulative effect of a change in accounting principle in the consolidated statement of income in 2002. There was no tax benefit associated with this charge.

     No impairment of goodwill was identified in connection with the 2004 and 2003 tests performed annually as of October 1st. The carrying amount of goodwill by reporting segment is as follows:

	Lubricant		Specialty
	Additives		Chemicals		Total
Balance, January 1, 2003	$	95.8	$	72.6	$	168.4
Goodwill acquired		—		36.2		36.2
Translation & other adjustments		3.5		0.6		4.1
Balance, December 31, 2003		99.3		109.4		208.7
Goodwill acquired		—		906.5		906.5
Translation & other adjustments		1.6		37.0		38.6
Balance, December 31, 2004	$	100.9	$	1,052.9	$	1,153.8

Intangible Assets Pursuant to SFAS No. 142, indefinite-lived intangible assets are no longer amortized but rather are reviewed annually or more frequently if impairment indicators arise. The company’s indefinite-lived assets consist primarily of trademarks. The company assesses the indefinite-lived trademarks for impairment separately from goodwill. As part of the annual test, the useful lives of the non-amortized trademarks are also reviewed to determine if the indefinite status remains appropriate. After considering the expected use of the trademarks and reviewing any legal, regulatory, contractual, obsolescence, demand, competitive or other economic factors that could limit the useful lives of the trademarks, in accordance with SFAS No. 142, the company determined that the trademarks had indefinite lives. No impairment of the non-amortized trademarks was identified in connection with the 2004 and 2003 tests performed annually as of October 1st.

     Excluding the non-amortized trademarks, the intangible assets are amortized over the lives of the agreements or other periods of value, which range between 3 and 40 years.

     The following table shows the components of identifiable intangible assets as of December 31, 2004 and 2003:

	2004				2003
	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Amortized intangible assets:
Customer lists	$	151.9	$	6.4	$	3.3	$	0.3
Technology		144.4		25.4		38.7		18.3
Trademarks		24.4		2.3		2.2		1.1
Patents		13.2		1.5		1.0		0.3
Land-use rights		7.1		0.8		7.1		0.6
Non-compete agreements		8.9		3.8		6.9		2.0
Other		11.3		0.9		10.7		0.4
Total amortized intangible assets		361.2		41.1		69.9		23.0
Non-amortized intangible assets:
Non-amortized trademarks		117.0		—		15.5		—
Total	$	478.2	$	41.1	$	85.4	$	23.0

     Excluding the impact of further acquisitions, estimated annual intangible amortization expense for the next five years will approximate $25.6 million in 2005, $25.4 million in 2006, $23.9 million in 2007, $22.4 million in 2008 and $20.6 million in 2009.

     The fair value of intangible assets acquired in 2004 and 2003 are shown below by major asset class. The intangible assets will be amortized over periods ranging from 3 to 20 years.

	Fair Value of Assets
	Noveon		Hyper-		2004		2003
	International		dispersants		Total		Total
Amortized intangible assets:
Customer lists	$	120.7	$	24.0	$	144.7	$	0.2
Technology		105.7		—		105.7		7.2
Trademarks		22.2		—		22.2		—
Patents		—		11.6		11.6		—
Non-compete agreements		2.0		—		2.0		1.4
Other		34.0		0.1		34.1		5.4
Total amortized intangible assets		284.6		35.7		320.3		14.2
Non-amortized intangible assets:
Non-amortized trademarks		94.2		7.0		101.2		9.2
Total	$	378.8	$	42.7	$	421.5	$	23.4

     The Noveon International purchase price included the estimated fair value of research and development projects totaling $34.0 million that, as of the acquisition date, had not reached technological feasibility and had no future alternative use. As a result, the full amount was expensed in 2004. This amount is reflected in the table above as an other amortized intangible asset.

³⁸ nn THE LUBRIZOL CORPORATION

Notes To Financial Statements CONTINUED

     The weighted-average amortization periods for intangible assets acquired in 2004 and 2003 are as follows:

	2004			2003
Amortized intangible assets:
Customer lists	16		years	5		years
Technology		15			19
Trademarks		15			—
Patents		9			—
Non-compete agreements		4			5
Other		3			20
Total		15			18

Note 6 – SHORT-TERM AND LONG-TERM DEBT

The company’s debt is comprised of the following at December 31, 2004 and 2003:

	2004		2003
Short-term debt consists of:
Yen denominated, at weighted-average rates of 0.6% and 0.8%	$	7.8	$	2.8
Current portion of long-term debt		0.4		0.1
Total	$	8.2	$	2.9
Long-term debt consists of:
5.875% notes, due 2008, including a fair value adjustment of $4.8 million for unrealized gain on derivative hedge instruments in 2004 and remaining unamortized gain on termination of swaps of $10.7 million and $13.4 million in 2004 and 2003, respectively	$	215.5	$	213.4
4.625% notes, due 2009, net of original issue discount of $0.3 million and fair value adjustment of $0.1 million for unrealized loss on derivative hedge instruments		399.6		—
5.5% notes, due 2014, net of original issue discount of $2.9 million		447.1		—
7.25% debentures, due 2025		100.0		100.0
6.5% debentures, due 2034, net of original issue discount of $5.0 million		295.0		—
Debt supported by long-term banking arrangements:
Term loans, at LIBOR plus 1.25% (3.7% at December 31, 2004)		500.0		—
Commercial paper, at a weighted-average rate of 1.1%		—		50.0
Marine terminal refunding revenue bonds, at 1.3%		—		18.4
Other		7.3		5.0
		1,964.5		386.8
Less current portion		0.4		0.1
Total	$	1,964.1	$	386.7

     The scheduled principal payments for all outstanding debt are $8.2 million in 2005, $45.0 million in 2006, $57.6 million in 2007, $257.7 million in 2008, $745.0 million in 2009 and $851.6 million thereafter.

     In September 2004, the company issued senior unsecured notes and debentures having an aggregate principal amount of $1,150.0 million including: $400.0 million 4.625% notes due October 1, 2009; $450.0 million 5.5% notes due October 1, 2014; and $300.0 million 6.5% debentures due October 1, 2034. The price to the public was 99.911% per 2009 note, 99.339% per 2014 note and 98.341% per 2034 debenture. The resulting original issue discount from the issuance of these notes and debentures of $8.3 million was recorded as a reduction of the underlying debt issuances and is being amortized over the life of the debt using the effective interest method. Interest is payable semi-annually on April 1 and October 1 of each year, beginning April 1, 2005. The notes and debentures have no sinking fund requirement, but are redeemable, in whole or in part, at the option of the company. The company's wholly owned direct and indirect domestic subsidiaries guarantee the notes and debentures on an unsecured and unsubordinated basis. The proceeds from these notes and debentures were used to repay a portion of the 364-day credit facility that was utilized to bridge finance the Noveon International acquisition. Including debt issuance costs, original issue discounts and losses on Treasury rate lock agreements, the 2009 notes, 2014 notes and 2034 debentures have effective annualized interest rates of approximately 5.2%, 6.2% and 6.7%, respectively, with a weighted-average interest rate for the aggregate issuances of approximately 6.0%.

     In August 2004, the company entered into a new five-year $1,075.0 million unsecured bank credit agreement consisting of: $575.0 million in term loans and a $500.0 million committed revolving credit facility. This credit agreement permits the company to borrow at variable rates based upon the U.S. prime rate or LIBOR plus a specified spread. The spread is dependent on the company's long-term unsecured senior debt rating from Standard and Poor's and Moody's Investor Services. Each of the company's wholly owned direct and indirect domestic subsidiaries unconditionally guarantees all of the obligations under the credit agreement. In September 2004, the company borrowed $575.0 million in term loans, the proceeds of which were used to repay a portion of the 364-day credit facility used to bridge finance the Noveon International acquisition. Principal on the term loans is due quarterly in equal installments of $14.4 million beginning March 31, 2005, with any remaining unpaid balance due in September 2009. The loans are prepayable at any time without penalty, and prepayments are applied in forward order of maturity. In the fourth quarter of 2004, the company prepaid $75.0 million, and, as a result, the next required principal payment on the term loans is due in June 2006. There were no outstanding revolving credit facility borrowings as of December 31, 2004.

     In May 2004, the company obtained a 364-day credit facility of $2,450.0 million for the purpose of bridge financing the Noveon International acquisition. This credit facility enabled the company to borrow at or below the U.S. prime rate. In June 2004, the company borrowed $1,797.0 million to finance the Noveon International acquisition and repay a portion of the assumed Noveon International debt. In addition, in July 2004, the company borrowed $175.0 million to repay the outstanding seller notes also assumed as part of the Noveon International acquisition. The company repaid the bridge credit facility in September 2004 with proceeds from the equity issuance, $1,150.0 in notes and debentures and $575.0 million in bank term loans. The company cancelled the bridge credit facility effective September 28, 2004.

THE LUBRIZOL CORPORATION nn ³⁹

Notes To Financial Statements

(In Millions Except Per-Share Data)

     In addition, the company had a committed revolving credit facility of $350.0 million with an original expiration date of July 17, 2006. The company repaid all outstanding borrowings and cancelled this credit facility on September 28, 2004. Immediately prior to cancellation, there were outstanding borrowings under this facility of $75.0 million, the proceeds of which were used to fund the repayment of previously outstanding commercial paper and marine terminal refunding revenue bonds, and liabilities associated with the termination of various floating-to-fixed rate swaps. This credit facility permitted the company to borrow at or below the U.S. prime rate. This facility also permitted the company to refinance beyond one year $350.0 million of debt, which by its terms is due within one year. As a result, the company classified as long-term, at December 31, 2003, the portion of commercial paper borrowings expected to remain outstanding throughout the following year and the amount due under the marine terminal refunding revenue bonds, whose bondholders had the right to put the bonds back to the company.

     In May 2000, the company borrowed $18.4 million through the issuance of marine terminal refunding revenue bonds, the proceeds of which were used to repay previously issued marine terminal refunding revenue bonds. The bonds had a stated maturity of July 1, 2018; however, the company called the bonds, at par, effective June 1, 2004.

     In November 1998, the company issued notes having an aggregate principal amount of $200.0 million. The notes are unsecured, senior obligations of the company that mature on December 1, 2008, and bear interest at 5.875% per annum, payable semi-annually on June 1 and December 1 of each year. The notes have no sinking fund requirement but are redeemable, in whole or in part, at the option of the company. The company’s wholly owned direct and indirect domestic subsidiaries guarantee the notes and debentures on an unsecured and unsubordinated basis. The company incurred debt issuance costs aggregating $10.5 million, including a loss of $6.5 million related to closed Treasury rate lock agreements originally entered into as a hedge against changes in interest rates relative to the anticipated issuance of these notes.

     The company has debentures outstanding, issued in June 1995, in an aggregate principal amount of $100.0 million. These debentures are unsecured, senior obligations of the company that mature on June 15, 2025, and bear interest at an annualized rate of 7.25%, payable semi-annually on June 15 and December 15 of each year. The debentures are not redeemable prior to maturity and are not subject to any sinking fund requirements. The company's wholly owned direct and indirect domestic subsidiaries guarantee the notes and debentures on an unsecured and unsubordinated basis.

     In November 2004, the company entered into interest rate swap agreements that effectively convert the interest on $200.0 million of outstanding 4.625% notes due 2009 to a variable rate of six-month LIBOR plus 40 basis points. In June 2004, the company entered into interest rate swap agreements that effectively convert the interest on $200.0 million of outstanding 5.875% notes due 2008 to a variable rate of six-month LIBOR plus 111 basis points. In addition, the company has an interest rate swap agreement, which expires in October 2006, that exchanges variable-rate interest obligations on a notional principal amount of Japanese yen 500.0 million for a fixed rate of 2.0%. This interest rate swap is designated as a cash-flow hedge.

     The company also had interest rate swap agreements, with an original expiration date of March 2005, that exchanged variable-rate interest obligations on a notional principal amount of $50.0 million for a fixed rate of 7.6%. In April 2004, the company terminated these interest rate swap agreements (see Note 7).

     In July 2002, the company terminated its interest rate swap agreements expiring December 2008, which converted fixed-rate interest on $100.0 million of its 5.875% debentures to a variable rate. In terminating the swaps, the company received cash of $18.1 million, which is being amortized as a reduction of interest expense through December 1, 2008, the due date of the underlying debt. Gains and losses on terminations of interest rate swap agreements designated as fair value hedges are deferred as an adjustment to the carrying amount of the outstanding obligation and amortized as an adjustment to interest expense related to the obligation over the remaining term of the original contract life of the terminated swap agreement. In the event of early extinguishment of the outstanding obligation, any unamortized gain or loss from the swaps would be recognized in the consolidated statement of income at the time of such extinguishment. In 2002, the company recorded a $17.3 million unrealized gain, net of accrued interest, on the termination of the interest rate swaps as an increase in the underlying long-term debt. The remaining unrealized gain was $10.7 million and $13.4 million at December 31, 2004 and 2003, respectively.

     Interest paid, net of amounts capitalized, amounted to $80.0 million, $26.1 million and $23.8 million during 2004, 2003 and 2002, respectively. The company capitalizes interest on qualifying capital projects. The amount of interest capitalized during 2004, 2003 and 2002 amounted to $0.6 million, $0.2 million and zero, respectively.

Note 7 – FINANCIAL INSTRUMENTS

The company has various financial instruments, including cash and short-term investments, investments in nonconsolidated companies, foreign currency forward contracts, commodity forward contracts, interest rate swaps and short-term and long-term debt. The company has determined the estimated fair value of these financial instruments by using available market information and generally accepted valuation methodologies. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts. The estimated fair value of the company’s debt instrument at December 31, 2004 and 2003 approximated $1,966.0 million and $424.9 million, compared with the carrying value of $1,972.3 million and $389.6 million, respectively.

     The company is exposed to market risk from changes in interest rates. The companys’ policy is to manage interest expense using a mix of fixed- and variable-rate debt. To manage this mix in a cost-efficient manner, the company may enter into interest rate swaps in which the company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by

⁴⁰nn THE LUBRIZOL CORPORATION

Notes To Financial Statements CONTINUED

reference to an agreed-upon notional principal amount. Interest payments receivable and payable under the terms of the interest rate swap agreements are accrued over the period to which the payment relates and the net difference is treated as an adjustment of interest expense related to the underlying liability.

     In November 2004, the company entered into interest rate swap agreements that effectively convert the interest on $200.0 million of outstanding 4.625% notes due 2009 to a variable rate of six-month LIBOR plus 40 basis points. The fair value of the interest rate swaps included in long-term debt was $(0.1) million at December 31, 2004. In June 2004, the company entered into interest rate swap agreements that effectively convert the interest on $200.0 million of outstanding 5.875% notes due 2008 to a variable rate of six-month LIBOR plus 111 basis points. The fair value of the interest rate swaps included in long-term debt was $4.8 million at December 31, 2004. These swaps are designated as fair-value hedges of underlying fixed-rate debt obligations and are recorded as an increase in noncurrent assets and long-term debt. These interest rate swaps qualify for the short-cut method for assessing hedge effectiveness per SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Changes in fair value of the swaps are offset by the change in fair value of the underlying debt. As a result, there was no impact to earnings in 2004 due to hedge ineffectiveness.

     The company also has an interest rate swap agreement that exchanges variable-rate interest obligations for a fixed rate on a notional principal amount of Japanese yen 500.0 million.

     At December 31, 2003, the company had interest rate swap agreements, with an original expiration date of March 2005, that exchanged variable-rate interest obligations on a notional principal amount of $50.0 million for a fixed rate of 7.6%. After the announcement of the Noveon International acquisition, the company’s long-term debt and commercial paper credit ratings were downgraded. The credit rating change eliminated the company’s access to the commercial paper market. As a result, in April 2004, the company terminated these interest rate swap agreements, which resulted in a $2.9 million pre-tax charge recognized in the second quarter of 2004. The fair values of these swaps at December 31, 2003, were an unrealized loss of $3.5 million. Prior to their termination, these swaps were designated as cash flow hedges of underlying variable-rate debt obligations and were recorded as a noncurrent liability. The adjustments to record the net changes in fair value during 2003 of $2.2 million ($1.4 million net of tax) were recorded in other comprehensive income. Ineffectiveness was determined to be immaterial in 2003.

     In July 2002, the company terminated its interest rate swap agreements expiring December 2008, which converted fixed-rate interest on $100.0 million of 5.875% debentures to a variable rate (see Note 6).

     In June 2004, the company entered into several Treasury rate lock agreements with an aggregate notional principal amount of $900.0 million, all maturing September 30, 2004, whereby the company had locked in Treasury rates relating to a portion of the then anticipated public debt securities issuance. These rate locks were designated as cash-flow hedges of the forecasted semi-annual interest payments associated with the expected debt issuance. In September 2004, the company incurred a pre-tax loss on the termination of these agreements in an aggregate amount of $73.9 million. Gains and losses on terminations of Treasury rate lock agreements designated as cash-flow hedges are deferred and amortized as an adjustment to interest expense over the life of the corresponding debt issuance using the effective interest method. The unamortized balance of the Treasury rate lock recorded in accumulated other comprehensive income as of December 31, 2004 was $47.4 million, net of tax.

     The company is exposed to the effect of changes in foreign currency rates on its earnings and cash flow as a result of doing business internationally. In addition to working capital management, pricing and sourcing, the company selectively uses foreign currency forward contracts to lessen the potential effect of currency changes. The maximum amount of foreign currency forward contracts outstanding at any one time was $140.8 million in 2004, $130.9 million in 2003 and $14.8 million in 2002. At December 31, 2004, the company had short-term forward contracts to buy or sell currencies at various dates during 2005 for $27.6 million. At December 31, 2003, the company had short-term forward contracts to buy or sell currencies at various dates during 2004 for $128.0 million, most of which related to the company’ acquisition of the additives business of Avecia. Changes in the fair value of these contracts are recorded in other income. The fair value of these instruments at December 31, 2004 and 2003, and the related adjustments recorded in other income, were unrealized gains of $0.7 million and $1.6 million, respectively.

     The company is exposed to market risk from changes in commodity prices. In 2003, the company modified its commodity hedging program policy to include the use of financial instruments to manage the cost of natural gas and electricity purchases. These contracts have been designated as cash-flow hedges and, accordingly, any effective unrealized gains or losses on open contracts are recorded in other comprehensive income, net of related tax effects. At December 31, 2004 and 2003, the notional amounts of open contracts totaled $3.3 million and $5.4 million, respectively. A hedge liability of $0.1 million ($0.1 million net of tax) was recorded at December 31, 2004, and a hedge asset of $0.1 million ($0.1 million net of tax) was recorded on December 31, 2003, which represents the net unrealized losses or gains based upon current futures prices at that date. Ineffectiveness was determined to be immaterial in 2004 and 2003. Contract maturities are less than 12 months. As such, the company expects that all of these losses will be reclassified into earnings within the next 12 months.

Note 8 – OTHER BALANCE SHEET INFORMATION

Receivables:	2004		2003
Customers	$	519.8	$	284.6
Affiliates		9.1		4.8
Other		53.9		35.2
	$	582.8	$	324.6

THE LUBRIZOL CORPORATION nn ⁴¹

Notes To Financial Statements

(In Millions Except Per-Share Data)

     Receivables are net of allowance for doubtful accounts of $11.0 million and $4.2 million at December 31, 2004 and 2003, respectively.

Property and equipment - at cost:	2004		2003
Land and improvements	$	171.3	$	121.6
Buildings and improvements		494.1		363.9
Machinery and equipment		1,960.6		1,420.2
Construction in progress		105.3		54.9
	$	2,731.3	$	1,960.6

     Depreciation and amortization of property and equipment was $136.7 million, $95.5 million and $91.6 million in 2004, 2003, and 2002, respectively.

Accrued expenses and other current liabilities:	2004		2003
Employee compensation	$	109.7	$	59.8
Income taxes		55.9		18.7
Taxes other than income		35.2		15.5
Sales allowances and rebates		32.2		11.9
Restructuring charges		8.8		12.4
Other		67.7		35.2
	$	309.5	$	153.5

     Dividends payable at December 31, 2004 and 2003 were $17.4 million and $13.4 million, respectively, and are included in accounts payable in the consolidated balance sheet.

Noncurrent liabilities:	2004		2003
Pensions	$	96.9	$	48.6
Employee benefits		45.8		32.8
Other		28.0		18.9
	$	170.7	$	100.3

Note 9 – SHAREHOLDERS’ EQUITY

The company has 147.0 million authorized shares consisting of 2.0 million shares of serial preferred stock, 25.0 million shares of serial preference shares and 120.0 million common shares, each of which is without par value. Common shares outstanding exclude common shares held in treasury of 19.4 million and 34.6 million at December 31,  2004 and 2003, respectively.

     In September 2004, the company issued and sold 13.4 million common shares at a price of $33.25 per share. Net proceeds from the sale of common shares were $427.2 million and were used primarily to repay the temporary bridge loan that financed a portion of the Noveon International acquisition. In October 2004, the company issued an additional 1.3 million common shares at a price of $33.25 per share due to the exercise of the over-allotment option relating to the September common share offering. This issuance generated net proceeds to the company of $42.8 million, which were utilized to prepay $40.0 million in term loan debt.

     The company has a shareholder rights plan under which one right to buy one-half common share has been distributed for each common share held. The rights may become exercisable under certain circumstances involving actual or potential acquisitions of 20% or more of the common shares by a person or affiliated persons who acquire stock without complying with the requirements of the company’s articles of incorporation. The rights would entitle shareholders, other than this person or affiliated persons, to purchase common shares of the company or of certain acquiring persons at 50% of the then current market value. At the option of the directors, the rights may be exchanged for common shares, and may be redeemed in cash, securities or other consideration. The rights will expire in 2007 unless redeemed earlier.

     Accumulated other comprehensive income (loss) shown in the consolidated statements of shareholders’ equity at December 31, 2004, 2003 and 2002 is comprised of the following:

	Foreign						Unrealized			Pension			Accumulated
	Currency			Treasury			Gains (Losses)			Plan			Other
	Translation			Rate			on Interest			Minimum			Comprehensive
	Adjustment			Locks			Rate Swaps			Liability			Income (Loss)
Balance, January 1, 2002	$	(96.2	)	$	—		$	(2.4	)	$	(1.2	)	$	(99.8	)
Other comprehensive income (loss):
Pre-tax		44.2			—			(1.2	)		(29.4	)		13.6
Tax benefit (provision)		(1.2	)		—			0.4			8.9			8.1
Total		43.0			—			(0.8	)		(20.5	)		21.7
Balance, December 31, 2002		(53.2	)		—			(3.2	)		(21.7	)		(78.1	)
Other comprehensive income (loss):
Pre-tax		51.5			—			2.2			(12.0	)		41.7
Tax benefit (provision)		(2.4	)		—			(0.8	)		3.6			0.4
Total		49.1			—			1.4			(8.4	)		42.1
Balance, December 31, 2003		(4.1	)		—			(1.8	)		(30.1	)		(36.0	)
Other comprehensive income (loss):
Pre-tax		97.5			(72.9	)		3.2			1.9			29.7
Tax benefit (provision)		(1.9	)		25.5			(1.1	)		(0.7	)		21.8
Total		95.6			(47.4	)		2.1			1.2			51.5
Balance, December 31, 2004	$	91.5		$	(47.4	)	$	0.3		$	(28.9	)	$	15.5

⁴² nn THE LUBRIZOL CORPORATION

Notes To Financial Statements CONTINUED

Note 10 – OTHER INCOME (EXPENSE) – NET

	2004			2003			2002
Currency exchange/transaction gain (loss)	$	6.2		$	3.5		$	(0.4	)
Equity earnings of nonconsolidated companies		0.8			0.1			0.9
Other – net		(2.1	)		(0.3	)		(1.7	)
	$	4.9		$	3.3		$	(1.2	)

     Dividends received from the nonconsolidated companies were $0.4 million in 2004, $1.0 million in 2003 and $2.7 million in 2002.

Note 11 – INCOME TAXES

Income before income taxes and cumulative effect of change in accounting principle consists of the following:

	2004		2003		2002
United States	$	37.8	$	39.3	$	95.5
Foreign		108.8		89.8		84.9
Total	$	146.6	$	129.1	$	180.4

     The provision for income taxes consists of the following:

	2004			2003			2002
Current:
United States	$	5.3		$	6.1		$	14.8
Foreign		41.9			30.7			36.1
		47.2			36.8			50.9
Deferred:
United States		16.0			3.0			1.2
Foreign		(10.1	)		(1.5	)		2.0
		5.9			1.5			3.2
Total	$	53.1		$	38.3		$	54.1

     The differences between the provision for income taxes at the U.S. statutory rate and the tax shown in the consolidated statements of income are summarized as follows:

	2004			2003			2002
Tax at statutory rate of 35%	$	51.3		$	45.2		$	63.1
U.S. and foreign tax on foreign dividends		13.8			3.5			(0.9	)
U.S. tax benefit on exports		(1.8	)		(3.7	)		(4.1	)
Technology donation		—			—			(5.2	)
Untaxed translation (gains) losses		(2.5	)		(5.4	)		1.6
Foreign rate differences		(7.8	)		(0.3	)		0.5
Other - net		0.1			(1.0	)		(0.9	)
Provision for income taxes	$	53.1		$	38.3		$	54.1

     The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31 are as follows:

	2004			2003
Deferred tax assets:
Accrued compensation and benefits	$	120.7		$	65.5
Intercompany profit in inventory		11.5			8.7
Net operating losses and tax credits carried forward		146.0			2.8
Other		22.2			5.0
Total gross deferred tax assets		300.4			82.0
Less valuation allowance		(18.8	)		(1.9	)
Net deferred tax assets		281.6			80.1
Deferred tax liabilities:
Depreciation and other basis differences		255.7			104.6
Foreign subsidiary and affiliate undistributed earnings		30.0			6.1
Other		10.3			6.9
Total gross deferred tax liabilities		296.0			117.6
Net deferred tax liabilities	$	14.4		$	37.5

     At December 31, 2004, the company had federal, state and foreign net operating loss carryforwards (NOLs) and federal tax credit carryforwards. The company’s U.S. federal NOLs and credits totaled $326.0 million and $6.7 million, respectively. The federal benefit of these NOLs and tax credits expires in 2021 through 2024. The company had $15.6 million of state tax benefit from NOLs, of which $6.1 million expires in 2005 through 2020 and $9.5 million expires in 2020 through 2024. The company had foreign NOLs of $38.2 million, of which $16.0 million expire in 2006-2019 and $22.2 million have no expiration.

     A valuation allowance totaling $18.8 million has been recorded to reduce foreign and state deferred tax assets, related primarily to the NOLs, to the amounts expected to be realized. No valuation allowance has been recognized against the U.S. federal NOLs or tax credits because management believes that it is more likely than not that the company will generate sufficient future taxable income during the carryforward period to utilize them.

     Of the total $18.8 million valuation allowance, $14.5 million is associated with deferred tax assets established in purchase price accounting for Noveon International. Any future reversal of the valuation allowance that was recorded in purchase price accounting would reduce goodwill.

     The net change in the total valuation allowance for the years ended December 31, 2004, 2003 and 2002 was an increase of $16.9 million, a decrease of $1.7 million and a decrease of $0.7 million, respectively.

     The American Jobs Creation Act of 2004 (the Jobs Act), enacted on October 22, 2004, provides for a temporary 85% dividends received deduction on certain foreign earnings repatriated during a one-year period, which, for the company, will be 2005. The deduction would result in an approximate 5.25% federal tax on the repatriated earnings. To qualify for the deduction, the earnings must be reinvested in the United States pursuant to a domestic reinvestment

THE LUBRIZOL CORPORATION nn ⁴³

Notes To Financial Statements

(In Millions Except Per-Share Data)

plan approved by a company’s chief executive (or comparable) officer and board of directors. Certain other criteria in the Jobs Act must be satisfied as well.

     As of December 31, 2004, the company has established a deferred tax liability of $21.2 million for the planned 2005 repatriation of foreign earnings. Of this amount, $11.7 million of deferred taxes was provided in 2004, $3.2 million was provided in prior years and $6.3 million was established in the purchase price accounting of Noveon International, because the company did not intend Noveon International’s pre-acquisition earnings to be indefinitely reinvested overseas.

     U.S. income taxes and foreign withholding taxes are not provided on the remaining undistributed earnings of foreign subsidiaries, which are considered to be indefinitely reinvested in the operations of such subsidiaries. The amount of these earnings was approximately $454.6 million at December 31, 2004. Determination of the net amount of unrecognized U.S. income tax with respect to these earnings is not practicable.

     Income taxes paid during 2004, 2003 and 2002 were $34.6 million, $50.8 million and $48.8 million, respectively.

Note 12 – PENSION, PROFIT SHARING AND OTHER POSTRETIREMENT BENEFIT PLANS

The company has noncontributory defined benefit pension plans covering most employees. Pension benefits under these plans are based on years of service and the employee’s compensation. The company’s funding policy in the United States is to contribute amounts to satisfy the funding standards of the Internal Revenue Code of 1986, as amended, and the Employee Retirement Income Security Act of 1974, as amended, and elsewhere to fund amounts in accordance with local regulations. Several of the company’s smaller defined benefit plans are not funded.

     The investment objective of the funded pension plans sponsored by the company and certain subsidiaries is to assure the timely payment of promised benefits at a minimum cost consistent with prudent standards of investment, given the strength of the company and the subsidiaries, their earnings record, the adequacy of each plan’s funding and the age of each entity’s work force. The plans utilize diversified investment portfolios and seek to earn returns consistent with a reasonable level of risk. The long-term expected return on plan assets is based upon each entity’s investment allocation and anticipated returns for specific investment classes. During 2004, the company maintained the expected long-term rate of return assumption for the U.S. plans of 9.0% (7.82% on a weighted average basis for all plans) to determine the net periodic pension cost.

     As long-term asset allocation is recognized as the primary determinant of performance, the sponsoring entities generally utilize the following asset allocation targets to achieve their plan investment objectives: 70% equity securities and 30% debt securities. The non-U.S. plans have a slightly higher allocation to debt securities than the U.S. plans. As appropriate, allocation targets and ranges may be established for various subcategories. Allocations are reviewed periodically and adjusted as necessary. From the date of acquisition through the end of December 2004, the Noveon International U.S. pension plans’ assets had an investment mix that approximated 50% in both equity and debt securities. However, in January 2005, the company transferred the Noveon International U.S. pension plans’ assets into one master-trust arrangement with the Lubrizol U.S. pension plans existing prior to the Noveon International acquisition. As a result, the combined assets will be subject to the same overall investment strategy and management going forward.

     Approved pension plan investments include, but are not limited to: equities, fixed-income securities, real estate, venture capital, cash and cash equivalent instruments and such other instruments (including mutual fund investments), as the company may approve. Investments in tax-exempt securities, commodities and options, other than covered calls, and the use of leverage are prohibited. Plan investment managers may use derivatives to hedge currency risk and to keep fully invested. Any other use of derivative instruments must be approved by the sponsoring entity.

     The market values of pension plan assets are compared periodically to the value of plan benefit obligations. The future value of assets, as calculated based on the expected long-term rate of return, are also compared to expected future plan benefit distributions and contributions to determine the sufficiency of expected plan funding levels. Investment asset allocations are revised as appropriate.

     Plan assets are invested principally in marketable equity securities and fixed income instruments. The allocation of pension plan assets by major asset class is shown below on a weighted-average basis:

	Percentage of Plan Assets
	at December 31
	2004			2003
Asset Category:
Equity securities		70	%		72	%
Debt securities		27	%		23	%
Real estate		3	%		5	%
Total		100	%		100	%

     No equity or debt securities of the company or any of its subsidiaries were included in the plans’ assets for 2004 and 2003, respectively.

     The company also provides certain non-pension postretirement benefits, primarily health care and life insurance benefits, for retired employees. Most of the legacy Lubrizol full-time employees in the United States may become eligible for health care benefits upon retirement. Full-time employees who retired on or after January 1, 1992 are also eligible for life insurance benefits. Participants contribute a portion of the cost of these benefits. The company’s non-pension postretirement benefit plans are not funded.

     The change in the projected benefit obligation and plan assets for 2004 and 2003 and the amounts recognized in the consolidated balance sheets at December 31 of the company’s defined benefit pension and non-pension postretirement plans are as follows:

⁴⁴nn THE LUBRIZOL CORPORATION

Notes To Financial Statements CONTINUED

	Pension Plans						Other Benefits
	2004			2003			2004			2003
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	419.3		$	355.9		$	113.2		$	106.5
Service cost		22.0			14.5			2.5			2.0
Interest cost		27.9			22.3			6.9			7.0
Plan participants’ contributions		0.4			0.3			2.9			2.5
Actuarial loss (gain)		37.0			26.7			(0.5	)		6.5
Currency exchange rate change		17.0			17.0			0.4			0.7
Amendments		0.9			0.9			—			(5.4	)
Settlements		(39.4	)		—			—			—
Acquisitions/divestitures		84.9			(0.1	)		3.9			—
Benefits paid		(11.5	)		(18.2	)		(6.8	)		(6.6	)
Benefit obligation at end of year		558.5			419.3			122.5			113.2
Change in plan assets:
Fair value of plan assets at beginning of year		306.5			249.1			—			—
Actual return on plan assets		39.5			53.7			—			—
Acquisitions/divestitures		32.8			(0.1	)		—			—
Employer contributions		19.9			10.6			3.9			4.1
Settlements		(37.0	)		—			—			—
Plan participants’ contributions		0.4			0.3			2.9			2.5
Currency exchange rate change		10.5			11.1			—			—
Adjustments		(3.9	)		—			—			—
Benefits paid		(11.5	)		(18.2	)		(6.8	)		(6.6	)
Fair value of plan assets at end of year		357.2			306.5			—			—
Reconciliation of funded status:
Plan assets less than projected benefit obligation		(201.3	)		(112.8	)		(122.5	)		(113.2	)
Unrecognized net loss		104.4			89.4			46.1			49.2
Unrecognized net transition obligation (asset)		0.7			(0.1	)		—			—
Unrecognized prior service cost		23.3			24.2			(33.7	)		(39.8	)
Net amounts recognized	$	(72.9	)	$	0.7		$	(110.1	)	$	(103.8	)
Net amounts recognized in the consolidated balance sheets:
Prepaid benefit cost	$	0.6		$	5.4		$	—		$	—
Accrued benefit liability		(120.6	)		(53.1	)		(110.1	)		(103.8	)
Accumulated other comprehensive income		41.6			43.5			—			—
Intangible asset		5.5			4.9			—			—
Net amounts recognized	$	(72.9	)	$	0.7		$	(110.1	)	$	(103.8	)

     The accumulated benefit obligation for all defined benefit pension plans was $425.3 million and $329.4 million at December 31, 2004 and 2003, respectively. The projected benefit obligation and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets were $548.9 million and $347.0 million, respectively, at December 31, 2004, and $414.5 million and $301.5 million, respectively, at December 31, 2003. The accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $234.7 million and $155.8 million, respectively, at December 31, 2004 and $149.8 million and $98.5 million, respectively, at December 31, 2003.

     The company amortizes gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, over the average remaining service period of participating employees expected to receive benefits under the plans.

     Net periodic pension cost of the company’s defined benefit pension plans consists of:

	2004			2003			2002
Service cost – benefits earned during period	$	22.0		$	14.5		$	12.6
Interest cost on projected benefit obligation		27.9			22.3			20.5
Expected return on plan assets		(27.4	)		(26.4	)		(26.7	)
Amortization of prior service costs		1.6			3.3			3.2
Amortization of initial net asset		(0.7	)		(0.7	)		(0.7	)
Recognized net actuarial (gain) loss		3.8			0.8			(0.5	)
Settlement loss		7.7			0.3			—
Net periodic pension cost	$	34.9		$	14.1		$	8.4

     The company recorded a $7.7 million settlement charge in 2004 primarily associated with workforce reductions announced in June 2004 in the United States.

     Net non-pension postretirement benefit cost consists of:

	2004			2003			2002
Service cost – benefits earned during period	$	2.5		$	2.0		$	1.6
Interest cost on projected benefit obligation		6.9			7.0			6.5
Amortization of prior service costs		(6.1	)		(5.6	)		(5.1	)
Recognized net actuarial loss		2.5			2.2			1.7
Net non-pension postretirement benefit cost	$	5.8		$	5.6		$	4.7

     The company’s actuarial assumptions used to determine benefit obligations and earnings effects for its defined benefit pension and non-pension postretirement plans are as follows:

	Pension Plans						Other Benefits
	2004			2003			2004			2003
The weighted-average assumptions used to determine benefit obligations at December 31:
Measurement date		12/31/04			12/31/03			12/31/04			12/31/03
Discount rate		5.74	%		5.88	%		6.20	%		6.20	%
Rate of compensation increase		4.08	%		3.87	%		*			*
The weighted-average assumptions used to determine net periodic benefit cost for years ended December 31:
Discount rate		5.94	%		6.34	%		6.24	%		6.70	%
Expected long-term return on plan assets		7.82	%		8.34	%		*			*
Rate of compensation increase		3.86	%		3.78	%		*			*

*     Disclosure not applicable

     The following table shows the amounts the company contributed to its postretirement plans in 2004 and 2003 and the expected contributions for 2005:

	Pension		Other
Employer contributions:	Plans		Plans		Total
2003	$	10.6	$	4.1	$	14.7
2004	$	19.9	$	3.9	$	23.8
2005 (expected)	$	30.9	$	4.9	$	35.8

THE LUBRIZOL CORPORATION nn⁴⁵

Notes To Financial Statements

(In Millions Except Per-Share Data)

     Expected employer contributions for pension benefits in 2005 include $2.2 million for unfunded plans. The expected contributions to these plans represent an actuarial estimate of future assumed payments based on historic retirement and payment patterns. Actual amounts paid could differ from this estimate.

     Contributions by participants to the other benefit plans were $2.9 million and $2.5 million for the years ending December 31, 2004 and 2003, respectively.

     The following table shows the benefits expected to be paid in each of the next five years and the aggregate benefits expected to be paid for the subsequent five years:

	Pension		Other		Total
Estimated future benefit payments:	Benefits		Benefits		Benefits
2005	$	18.5	$	4.9	$	23.4
2006	$	19.7	$	4.8	$	24.5
2007	$	24.3	$	5.1	$	29.4
2008	$	24.6	$	5.3	$	29.9
2009	$	28.2	$	5.6	$	33.8
2010-2014	$	171.9	$	32.9	$	204.8

     The other benefits in the above table are presented net of expected Medicare Part D subsidy payments of zero in 2005, $0.5 million in 2006, $0.6 million in 2007, $0.7 million in 2008, $0.8 million in 2009 and $4.9 million in 2010-2014.

     The weighted average of the assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation for the company’s postretirement benefit plans at December 31, 2004 was 9.37% (7.98% at December 31, 2003), with subsequent annual decrements to an ultimate trend rate of 4.74% by 2014. The assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rate would have the following effects as of and for the year ended December 31, 2004:

	One-Percentage-Point
	Increase		Decrease
Effect on postretirement benefit obligation	$	18.9	$	(15.2	)
Effect on total service and interest cost components	$	1.9	$	(1.4	)

     The company also has defined contribution plans, principally involving profit sharing plans and/or 401(k) savings plans, covering most employees in the United States and at certain non-U.S. subsidiaries. Expense for all defined contribution retirement plans was $12.8 million in 2004, $9.5 million in 2003 and $10.0 million in 2002.

Note 13 – LEASES

The company has commitments under operating leases primarily for office space, terminal facilities, land, railcars and various computer and office equipment. Rental expense was $26.4 million in 2004, $15.8 million in 2003 and $15.6 million in 2002. Future minimum rental commitments under operating leases having initial or remaining non-cancelable lease terms exceeding one year are $21.9 million in 2005, $14.8 million in 2006, $11.5 million in 2007, $7.3 million in 2008, $5.5 million in 2009 and $14.4 million thereafter. Minimum rental commitments are net of estimated credits for railcar mileage of $0.6 million in 2005, $0.4 million in 2006, $0.3 million in 2007, $0.2 million in 2008, $0.1 million in 2009 and $0.1 million thereafter.

Note 14 – SEGMENT AND GEOGRAPHIC INFORMATION

Beginning in the second quarter of 2004, the company reorganized as a result of the Noveon International acquisition into two operating and reporting segments: Lubricant Additives and Specialty Chemicals. The Lubricant Additives segment, also referred to as Lubrizol Additives, represents 65% of the company’s 2004 consolidated revenues and is comprised of the company’s previous businesses in fluid technologies for transportation (FTT), advanced fluid systems, emulsified products and the former industrial additives product group of fluid technologies for industry (FTI). The Specialty Chemicals segment, also referred to as the Noveon segment, represents 35% of the company’s 2004 consolidated revenues and is comprised of the businesses of the acquired Noveon International and the former performance chemicals group of FTI.

     Lubricant Additives consists of three product lines: engine additives; specialty driveline and industrial oil additives; and services and equipment. Engine additives is comprised of additives for lubricating engine oils, such as for gasoline, diesel, marine and stationary gas engines and additive components, additives for fuel products and refinery and oil field chemicals and PuriNOx^TM low-emissions diesel fuel. In addition, this product line sells additive components and viscosity improvers within its lubricant and fuel additives product areas. Specialty driveline and industrial oil additives is comprised of additives for driveline oils, such as automatic transmission fluids, gear oils and tractor lubricants and industrial oil additives, such as additives for hydraulic, grease and metalworking fluids, as well as compressor lubricants. Services and equipment is comprised of fluid metering devices, particulate emission trap devices, FluiPak^TM sensor systems and outsourcing strategies for supply chain and knowledge center management. Lubricant Additives product lines are produced generally in company-owned shared manufacturing facilities and sold largely to a common customer base.

     The Specialty Chemicals segment consists of consumer specialties, specialty materials and performance coatings product lines. The consumer specialties product line is characterized by global production of acrylic thickeners, specialty monomers, film formers, fixatives, emollients, silicones, surfactants, botanicals, active pharmaceutical ingredients and intermediates, process chemicals, benzoate preservatives, fragrances, defoamers, synthetic food dyes, natural colorants, rubber and lubricant oxidants and rubber accelerators. The company markets products in the consumer specialties product line to the following primary end-use industries: personal care, pharmaceuticals, textiles, food and beverage, automotive and aerospace. The consumer specialties products are sold to customers worldwide and these customers include major manufacturers of cosmetics, personal care products, water soluble polymers, household products, soft drinks and food products and major manufacturers in the automotive and aerospace industries. The specialty materials product line is characterized by products such as chlorinated polyvinyl chloride (CPVC) resins and compounds and is also a producer of thermoplastic polyurethane (TPU) and cross-linked polyethylene compounds (PEX). The

⁴⁶ nn THE LUBRIZOL CORPORATION

Notes To Financial Statements CONTINUED

company markets products of specialty materials through the primary product category of specialty plastics. Specialty materials products are sold to a diverse customer base comprised of major manufacturers in the construction, automotive, telecommunications, electronics and recreation industries. The performance coatings product line includes high-performance polymers for specialty paper, printing and packaging, industrial and architectural specialty coatings and textile applications. The company markets the performance coatings products through the primary product categories of performance polymers and coatings and textile performance chemicals. Performance coatings products serve major companies in the specialty paper, printing and packaging, paint and coatings, and textile industries.

     The following table presents a summary of the results of the company’s reportable segments for the years ended December 31, 2004, 2003 and 2002 based on the current reporting structure. During 2004, the company reclassified certain unallocated corporate expenses to segment operating income, which previously had been excluded from the previously disclosed segment contribution income. Prior years have been restated to reflect the new reporting classifications of products between the two operating segments and the new definition of segment operating income.

	2004			2003			2002
Lubricant Additives:
Revenues from external customers	$	2,038.8		$	1,798.9		$	1,798.2
Equity earnings		0.8			0.1			1.0
Amortization of intangibles		3.0			3.0			3.0
Segment operating income		244.3			201.5			235.2
Segment total assets		1,337.1			1,168.1			1,176.4
Capital expenditures		82.9			74.6			60.4
Depreciation		86.8			85.0			81.3
Specialty Chemicals:
Revenues from external customers	$	1,120.7		$	253.2		$	185.7
Amortization of intangibles		15.0			1.9			1.2
Segment operating income		85.6			0.9			0.4
Segment total assets		2,733.3			403.6			294.0
Capital expenditures		50.2			13.9			4.9
Depreciation		48.9			9.4			9.4
Corporate:
Total assets	$	495.9		$	370.6		$	389.7
Capital expenditures		0.1			—			—
Depreciation		1.0			1.1			0.9
Reconciliation to consolidated income before income taxes and cumulative effect of change in accounting principle:
Segment operating income	$	329.9		$	202.4		$	235.6
Corporate expenses		(44.1	)		(33.6	)		(36.4	)
Corporate other income (expense)		5.7			4.1			(2.2	)
Write-off of acquired IPR&D		(34.0	)		—			—
Restructuring charges		(38.6	)		(22.5	)		—
Interest expense – net		(72.3	)		(21.3	)		(16.6	)
Income before income taxes and cumulative effect of change in accounting principle	$	146.6		$	129.1		$	180.4

     The company primarily evaluates performance and allocates resources based on segment operating income, defined as revenues less expenses identifiable to the product lines included within each segment, as well as projected future returns. The company’s accounting policies for its operating segments are the same as those described in Note 2. Segment operating income will reconcile to consolidated income before tax by deducting the write-off of acquired IPR&D projects, restructuring charges, net interest expense, corporate expenses and corporate other income (expense) that are not directly attributable to the operating segments.

     Revenues from external customers by product line are as follows:

	2004		2003		2002
Engine additives	$	1,222.9	$	1,127.4	$	1,159.9
Specialty driveline / industrial oil additives		743.2		622.6		606.6
Services and equipment		72.7		48.9		31.7
Total Lubricant Additives		2,038.8		1,798.9		1,798.2
Consumer specialties		481.7		144.2		101.4
Performance coatings		391.9		109.0		84.3
Specialty materials		247.1		—		—
Total Specialty Chemicals		1,120.7		253.2		185.7
Total revenues from external customers	$	3,159.5	$	2,052.1	$	1,983.9

     Revenues are attributable to countries based on the location of the customer. The United States is the only country where sales to external customers comprise in excess of 10% of the company’s consolidated revenues. Revenues from external customers by geographic zone are as follows:

	2004		2003		2002
United States	$	1,347.0	$	820.5	$	815.0
Other North America		172.1		93.7		83.7
Europe		886.8		602.6		551.8
Asia-Pacific / Middle East		581.0		404.1		405.8
Latin America		172.6		131.2		127.6
Total revenues from external customers	$	3,159.5	$	2,052.1	$	1,983.9

     The company’s sales and receivables are concentrated in the oil and chemical industries. Lubricant Additives’ customers consist primarily of oil refiners and independent oil blenders and are located in more than 100 countries. The 10 largest customers, most of which are international oil companies and a number of which are groups of affiliated entities, comprised approximately 38% of consolidated net sales in 2004, 52% of consolidated net sales in 2003 and 55% of consolidated net sales in 2002. In 2004, there was no single customer that accounted for more than 10% of consolidated net sales. In 2003, the company had one customer, predominantly within the Lubricant Additives segment, that accounted for revenues of $217.6 million, representing more than 10% of consolidated net sales. In 2002, the company had two customers that accounted for revenues of $229.7 million and $195.2 million, respectively, individually representing more than 10% of consolidated net sales.

THE LUBRIZOL CORPORATION nn ⁴⁷

Notes To Financial Statements

(In Millions Except Per-Share Data)

     Segment assets include receivables, inventories and long-lived assets including goodwill and intangible assets. Corporate assets include cash and short-term investments, investments accounted for on the cost basis and other current and noncurrent assets.

     The company’s principal long-lived assets are located in the following countries at December 31:

	2004		2003		2002
United States	$	1,860.0	$	671.0	$	617.8
Belgium		402.0		20.9		15.3
United Kingdom		180.2		71.8		74.2
France		84.5		77.9		69.4
Hong Kong		83.2		—		—
Germany		65.3		13.3		12.3
Other		233.6		106.2		101.7
Total long-lived assets	$	2,908.8	$	961.1	$	890.7

     Net income of non-United States subsidiaries was $74.8 million in 2004, $61.1 million in 2003 and $41.2 million in 2002; dividends received from these subsidiaries were $1.2 million, $28.0 million and $12.0 million, respectively.

Note 15 – STOCK COMPENSATION PLANS

The 1991 Stock Incentive Plan (1991 Plan) provided for the granting of restricted and unrestricted shares and options to buy common shares up to an amount equal to 1% of the outstanding common shares at the beginning of any year, plus any unused amount from prior years. Options are intended either to qualify as “incentive stock options” under the Internal Revenue Code or to be “non-statutory stock options” not intended to so qualify. Under the 1991 Plan, options generally become exercisable 50% one year after grant, 75% after two years, 100% after three years and expire up to 10 years after grant. The 1991 Plan generally superseded the 1985 Employee Stock Option Plan (1985 Plan), although options outstanding under the 1985 Plan remain exercisable until their expiration dates. The option price for stock options under the 1985 Plan is the fair market value of the shares on the date of grant. The option price for stock options under the 1991 Plan is not less than the fair market value of the shares on the date of grant. Both plans permitted the granting of stock appreciation rights in connection with the grant of options. In addition, the 1991 Plan provided to each outside director of the company an automatic annual grant of an option to purchase 2,500 common shares, with terms generally comparable to employee stock options. (All references to share numbers in Note 15 are based on actual share numbers and are not shown in millions.)

     Under the 1991 Plan, the company has granted performance share stock awards to certain executive officers. Common shares equal to the number of performance share stock awards granted were to be issued if the market price of the company’s common stock reached $45.00 per common share for 10 consecutive trading days, or on March 24, 2003, whichever occurred first. Under certain conditions such as retirement, a grantee of performance share stock awards could have been issued a pro-rata number of common shares. The market value of the company’s common shares at date of grant of the performance share stock awards was $33.45 per share (for 500 awards) in 2002. The company recognized compensation expense related to performance share stock awards ratably over the estimated period of vesting. Compensation costs recognized for performance share stock awards were less than $0.1 million in 2003 and 2002. On March 24, 2003, 3,500 shares were issued and 57,250 shares were deferred to the deferred compensation plan for officers. The company allocated 1,415 share units under this plan in 2003, which represent quarterly dividends paid on the company’s shares. At December 31, 2004, 59,962 share units were outstanding. Compensation expense recognized for the dividends on the deferred shares was $0.1 million in each of 2004 and 2003.

     The 1991 Plan was terminated by the board of directors with respect to future grants effective November 15, 2004. Outstanding grants under the 1991 Plan will remain effective subject to their terms.

     Under a supplemental retirement plan, an account for the participant is credited with 500 share units each year and is credited with additional share units for quarterly dividends paid on the company’s shares. When the participant retires, the company will issue shares equal to the number of share units in the participant’s account or the cash equivalent. The company has allocated 67, 567 and 546 share units under this plan in 2004, 2003 and 2002, respectively. At December 31, 2004, 2,226 share units were outstanding. Compensation costs recognized for this plan were less than $0.1 million in each of 2004, 2003 and 2002. For share units attributable to grants credited after January 1, 2004, the payment will be in cash.

     Under the deferred stock compensation plan for outside directors, each nonemployee director received 500 share units on each October 1 and is credited with additional share units for quarterly dividends paid on the company’s shares. When a participant ceases to be a director, the company issues shares equal to the number of share units in the director’s account. The company has allocated to nonemployee directors 1,351, 6,048 and 6,208 share units under this plan in 2004, 2003 and 2002, respectively. Director fee expense recognized for share units was less than $0.1 million in 2004 and $0.2 million in each of 2003 and 2002. At December 31, 2004, 40,939 share units for nonemployee directors were outstanding. No new grants will be made under this plan after January 1, 2004.

     In addition, under a separate deferred compensation plan for outside directors, the company has allocated to nonemployee directors 569, 620 and 573 share units under this plan in 2004, 2003 and 2002, respectively. These share units continue to accrue quarterly dividends paid on the company’s shares. When a participant ceases to be a director, the company issues shares equal to the number of share units in the director’s account. At December 31, 2004, 18,917 share units for nonemployee directors were outstanding. Director fee expense recognized for share units for this plan was less than $0.1 million in each of 2004, 2003 and 2002.

⁴⁸ nn THE LUBRIZOL CORPORATION

Notes To Financial Statements CONTINUED

     Under the deferred compensation plan for executive officers, participants may elect to defer any amount of their variable pay. Deferred amounts are converted into share units based on the current market price of the company’s shares. There is a 25% company match. Additional share units are credited for quarterly dividends paid on the company’s shares. At the end of the deferral period, which is at least three years, the company issues shares equal to the number of share units in the participant’s account. The company has allocated to executive officers 16,743, 23,060 and 8,010 share units under this plan in 2004, 2003 and 2002, respectively. Compensation costs recognized for share units were approximately $0.5 million in 2004, $0.7 million in 2003 and $0.3 million in 2002. At December 31, 2004, 71,857 share units for executive officers were outstanding. For share units attributable to company match credited after January 1, 2004, distributions will be made in cash.

     Under the 1991 Stock Plan, effective January 1, 2003, the company granted 15,000 restricted shares to each of three executive officers. The shares will be issued only if the executive remains an employee until January 1, 2008. Also, effective January 1, 2003, the company granted 5,000 restricted shares to one executive officer, which would be issued only if the executive remained with the company until January 1, 2008. On July 26, 2004, this grant was amended to issue the shares if the executive remained employed until July 29, 2004. The shares will be issued July 29, 2005. There are no voting or dividend rights on the restricted shares described in this paragraph unless and until they are issued. The restricted shares stock awards had a fair value of $25.83 at the date of grant. The company recognizes compensation expense related to restricted shares ratably over the estimated period of vesting. Compensation costs recognized for restricted share stock awards were approximately $0.3 million in each of 2004 and 2003 and zero in 2002.

     Under the Long-Term Incentive Plan, dollar-based target awards were determined by the organization and compensation committee of the board of directors in December 2002 and 2003 for the three-year performance periods of 2003-2005 and 2004-2006, respectively. A portion of the award was converted into a number of share units based on the price of Lubrizol stock on the date of the award. There are no voting or dividend rights associated with the share units until the end of the performance period and a distribution of shares, if any, is made. The target awards correspond to a pre-determined three-year earnings per share growth rate target. Based on the awards granted for the 2003-2005 and 2004-2006 performance periods, the company recognized compensation expense of $2.6 million in 2004. The other portion of the award is a cash award which is also determined for the same three-year performance periods. Based on awards granted for these performance periods, the company recognized compensation expense of $5.1 million for the cash awards in 2004. No expense was recorded in 2003 as the company did not believe as of December 31, 2003 it was probable that shares would have been issued or cash awards would have been earned under the plan.

     Information regarding these option plans, excluding the performance share stock awards, the restricted share stock awards and the long-term incentive plan stock awards, follows:

				Weighted-
				Average
	Shares			Exercise Price
Outstanding, January 1, 2004		5,393,042		$	31.28
Granted		508,896			30.20
Exercised		(556,582	)		29.01
Forfeited		(320,208	)		36.44
Outstanding, December 31, 2004		5,025,148		$	31.09
Options exercisable, December 31, 2004		4,170,614		$	31.10
Weighted-average fair value of options granted during the year				$	6.50
Outstanding, January 1, 2003		5,272,723		$	31.38
Granted		525,401			30.35
Exercised		(151,112	)		27.87
Forfeited		(253,970	)		33.60
Outstanding, December 31, 2003		5,393,042		$	31.28
Options exercisable, December 31, 2003		4,173,632		$	31.18
Weighted-average fair value of options granted during the year				$	6.78
Outstanding, January 1, 2002		4,827,266		$	30.74
Granted		949,102			34.06
Exercised		(396,420	)		29.25
Forfeited		(107,225	)		34.11
Outstanding, December 31, 2002		5,272,723		$	31.38
Options exercisable, December 31, 2002		3,560,650		$	31.10
Weighted-average fair value of options granted during the year				$	8.99

     Information regarding the performance share stock awards follows:

	Shares
Outstanding, January 1, 2003		60,750
Granted		—
Forfeited		—
Common shares issued/deferred		(60,750	)
Outstanding, December 31, 2003		—
Outstanding, January 1, 2002		66,250
Granted		500
Forfeited		(918	)
Common shares issued		(5,082	)
Outstanding, December 31, 2002		60,750

     The weighted-average fair value per share was $32.16 in 2002.

     Accounting principles generally accepted in the United States encourage the fair-value method of accounting for stock compensation plans under which the value of stock-based compensation is estimated at the date of grant using valuation formulas, but permit the use of intrinsic-value accounting. The company accounts for its stock compensation plans using the intrinsic-value accounting method (measured as the difference between the exercise price and the market value of the stock at the measurement date).

THE LUBRIZOL CORPORATION nn ⁴⁹

Notes To Financial Statements

(In Millions Except Per-Share Data)

     Disclosures under the fair-value method are estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants of stock options in the following years:

	2004			2003			2002
1991 Plan:
Risk-free interest rate		3.7	%		3.9	%		5.2	%
Dividend yield		3.5	%		3.4	%		3.1	%
Volatility		24.0	%		24.0	%		24.0	%
Expected life (years)		10.0			10.0			8.4
Performance Share Plan:
Risk-free interest rate		n/a			n/a			2.4	%
Dividend yield		n/a			n/a			3.1	%
Volatility		n/a			n/a			24.0	%
Expected life (years)		n/a			n/a			1.0
Restricted Share Plan:
Risk-free interest rate		n/a			2.7	%		n/a
Dividend yield		n/a			3.3	%		n/a
Volatility		n/a			24.0	%		n/a
Expected life (years)		n/a			5.0			n/a

     If the fair-value method to measure compensation cost for all of the above mentioned plans and awards had been used, the compensation cost, which is required to be charged against income would have been $6.0 million in 2004, $4.4 million in 2003 and $6.1 million in 2002. See Note 2 for the pro forma presentation.

     The following table summarizes information about stock options outstanding, excluding the performance share stock awards, restricted share stock awards and long-term incentive plan awards at December 31, 2004:

		Options Outstanding								Options Exercisable
					Weighted-
					Average			Weighted-				Weighted-
Range of			Number		Remaining			Average		Number		Average
Exercise			Outstanding		Contractual			Exercise		Exercisable		Exercise
Prices			at 12/31/04		Life			Price		at 12/31/04		Price
$	19 - $25			216,411	3.8		years	$	21.35		216,411	$	21.35
	25 -   31			3,177,445		6.0			29.82		2,494,670		29.70
	31 -   38			1,625,292		4.3			34.84		1,453,533		34.94
	38 -   45			6,000		3.2			38.25		6,000		38.25
				5,025,148		5.4			31.09		4,170,614		31.10

Note 16 – RESTRUCTURING CHARGES

In 2004, the company recorded aggregate restructuring charges of $38.6 million primarily related to asset impairments and workforce reductions.

     In December 2004, management made the decision to close the Lubricant Additives manufacturing facility in Bromborough, United Kingdom to lower further the company’s cost structure while simultaneously improving its service capabilities to customers. The company announced this decision in January 2005. The company determined, as of December 31, 2004, that an impairment of certain of the facility’s long-lived assets had been triggered by this decision. As a result, a $17.0 million impairment charge was recorded in December 2004 to reflect the related assets at their estimated fair values. The estimated fair value of the asset was determined using a discounted cash flow model. Production phase-out of this site is planned to begin in the second quarter of 2005 and is expected to be completed by late 2006. During this phase-out, United Kingdom production will be transferred to facilities in France and United States. Approximately 69 employees will be impacted by this closure. There were no cash expenditures in 2004 relating to this restructuring. Further, there is no related liability recorded at December 31, 2004.

     In 2004, the company eliminated more than 100 positions, primarily affecting technical and commercial employees located at the Wickliffe, Ohio headquarters. Most of these workforce reductions were related to our restructuring following our acquisition of Noveon International. The aggregate restructuring charge recorded for these reductions was $21.6 million. In addition to the employee severance costs, the company incurred a $7.7 million non-cash pension benefit settlement charge and an asset impairment charge of $2.8 million relating to PuriNOx^TM assets. These reductions were completed by December 31, 2004. Cash expenditures through December 31, 2004 were $8.7 million with a remaining accrued liability of $2.7 million at December 31, 2004.

     In 2003, the company recorded restructuring charges of $22.5 million related to the separation of 252 employees in the United States, Europe and India, comprising 5% of the then-current worldwide workforce.

     In February 2003, the company initiated a restructuring at its Bromborough, United Kingdom facility by consolidating various operational activities. There was a workforce reduction of 45 employees by the end of January 2004. As a result of these changes, the company recorded a restructuring charge of $7.0 million in 2003 comprised of $3.5 million in severance costs, $3.3 million in asset impairments and $0.2 million in other miscellaneous costs. Cash expenditures in 2004 and 2003 were $0.2 million and $3.5 million, respectively. At December 31, 2003, there was an accrued liability of $0.2 million relating to employee severance costs, which were subsequently paid in 2004.

     The 2003 restructuring charges also included $1.5 million for a voluntary separation program for approximately 55 employees at the company’s India joint venture, Lubrizol India Private Limited. This joint venture is consolidated by the company. The workforce reduction occurred primarily in the second quarter of 2003. Cash expenditures for India were $0.1 million and $1.4 million in 2004 and 2003, respectively. At December 31, 2003, there was an accrued liability of $0.1 million relating to employee severance costs, which were subsequently paid in 2004.

     In November 2003, the company announced workforce reductions of approximately 150 employees at its headquarters in Wickliffe, Ohio, its Deer Park and Bayport, Texas manufacturing facilities and its Hazelwood, United Kingdom technical facility. All of the workforce reductions occurred prior to December 31, 2003. This resulted in a restructuring charge in the United States of $12.8 million, comprised of $11.2 million in severance costs and $1.6 million in outplacement and other miscellaneous costs, and a restructuring charge in Europe for $1.2 million, primarily for employee severance costs. The

⁵⁰ nn THE LUBRIZOL CORPORATION

Notes To Financial Statements CONTINUED

charge for Europe included $0.8 million for the Hazelwood, United Kingdom testing facility and $0.4 million for the closing of a sales office in Scandinavia. Cash expenditures in 2003 were $0.7 million in the United States and $1.2 million in Europe. At December 31, 2003, there was an accrued liability of $12.1 million relating to employee severance costs, which were subsequently paid in 2004.

     The charges for these cost reduction initiatives are reported as a separate line item in the consolidated income statements, entitled “Restructuring charges” and are included in the “Total cost and expenses” subtotal on the consolidated income statements. Other than the June 2004 reduction in force, the charges primarily related to the Lubricant Additives segment.

     The following table shows the reconciliation of the liability balance at December 31, 2004 and 2003:

Balance, January 1, 2003	$	—
Restructuring charges		22.5
Less cash paid		(6.8	)
Less asset impairments		(3.3	)
Balance, December 31, 2003		12.4
Restructuring charges		38.6
Restructuring liabilities assumed with acquisitions		7.2
Less cash paid		(21.9	)
Less asset impairments		(19.8	)
Less pension settlement charge		(7.7	)
Balance, December 31, 2004	$	8.8

Note 17 – CONTINGENCIES

The company has numerous purchase commitments for materials, supplies and energy in the ordinary course of business. The company has numerous sales commitments for product supply contracts in the ordinary course of business.

General There are pending or threatened claims, lawsuits and administrative proceedings against the company or its subsidiaries, all arising from the ordinary course of business with respect to commercial, product liability and environmental matters, which seek remedies or damages. The company believes that any liability that may finally be determined with respect to commercial and product liability claims should not have a material adverse effect on the company’s consolidated financial position, results of operations or cash flows. From time to time, the company is also involved in legal proceedings as a plaintiff involving contract, patent protection, environmental and other matters. Gain contingencies, if any, are recognized when they are realized.

Environmental The company and its subsidiaries are generators of both hazardous and non-hazardous wastes, the treatment, storage, transportation and off-site disposal of which are regulated by various laws and governmental regulations. These laws and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 (collectively known as Superfund), and the Resource Conservation and Recovery Act of 1976 (RCRA) and other state laws, generally impose liability for costs to investigate and remediate contamination without regard to fault and under certain circumstances liability may be joint and several resulting in one party being held responsible for the entire obligation. Liability may also include damages to natural resources. Although the company believes past operations were in substantial compliance with the then-applicable regulations, either the company or the predecessor of Noveon International, the Performance Materials Segment of Goodrich Corporation (Goodrich), has been designated as a potentially responsible party (PRP) under Superfund or an owner/operator under RCRA or other statutory definition that may apply by the U.S. Environmental Protection Agency (EPA), or similar state agencies, in connection with several sites including both third party and/or current operating facilities.

     The company initiates corrective and/or preventive environmental projects to ensure environmental compliance and safe and lawful activities at its current operations. The company also conducts compliance and management systems audits.

     The company’s environmental engineers and consultants review and monitor environmental issues at operating facilities, as well as off-site disposal sites at which the company has been identified as a PRP. This process includes investigation, remedial action selection and implementation, as well as negotiations with other parties, which primarily include PRPs, past owners and operators and governmental agencies. The estimates of environmental liabilities are based on the results of this process. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, remediation standards and evolving technologies for managing investigations and remediations. The company revises its estimates accordingly as events in this process occur and additional information is obtained.

     The company’s environmental reserves, measured on an undiscounted basis, totaled $26.4 million at December 31, 2004 and $9.8 million at December 31, 2003. Of these amounts, $4.5 million and $1.2 million were included in accrued expenses and other current liabilities at December 31, 2004 and December 31, 2003, respectively. The increase in the company’s environmental reserves at December 31, 2004 compared with December 31, 2003 was primarily due to the Noveon International acquisition. The company’s December 31, 2004 balance sheet includes liabilities, measured on an undiscounted basis, of $14.5 million to cover future environmental expenditures for Noveon International sites either payable by Noveon International or indemnifiable by Goodrich. Accordingly, the current portion of the Noveon International environmental obligations of $0.5 million is recorded in accrued expenses and other current liabilities and $1.1 million of the recovery due from Goodrich is recorded in receivables. Non-current Noveon International liabilities include $14.0 million and other assets include $2.6 million reflecting the recovery due from Goodrich.

     Goodrich provided Noveon International with an indemnity for various environmental liabilities. The company estimates Goodrich’s share of such currently identified liabilities under the indemnity, which extends through February 2011, to be approximately $3.7 million. There are specific environmental contingencies for company-owned sites for which third parties such as past owners and/or operators are the named PRPs and also for which the company is in-

THE LUBRIZOL CORPORATION nn ⁵¹

Notes To Financial Statements

(In Millions Except Per-Share Data)

demnified by Goodrich. Goodrich is currently indemnifying Noveon International for several environmental remediation projects. Goodrich’s share of all of these liabilities may increase to the extent such third parties fail to honor their obligations through February 2011.

     The company believes that its environmental accruals are adequate based on currently available information. The company believes that it is reasonably possible that $2.6 million in additional costs may be incurred at certain locations beyond the amounts accrued as a result of new information, newly discovered conditions, changes in remediation standards or technologies or a change in the law. Additionally, as the indemnification from Goodrich extends through February 2011, changes in assumptions regarding when costs will be incurred may result in additional expenses to the company. Additional costs in excess of $2.6 million cannot currently be estimated.

Note 18 – GUARANTOR AND NON-GUARANTOR SUBSIDIARY INFORMATION

The repayment of the unsecured senior notes, debentures and bank term loans is unconditionally guaranteed on a joint and several basis by the company and its direct and indirect, wholly owned, domestic subsidiaries. The following supplemental condensed consolidating financial information presents the balance sheets of the company as of December 31, 2004 and 2003 and its statements of income for the years ended December 31, 2004, 2003 and 2002 and its statements of cash flows for the years ended December 31, 2004, 2003 and 2002.

Condensed Consolidating Statement of Income

	Year Ended December 31, 2004
	Parent			Subsidiary		Other						Total
	Company			Guarantors		Subsidiaries			Eliminations			Consolidated
Net sales	$	1,213.1		$	821.5	$	1,579.4		$	(458.4	)	$	3,155.6
Royalties and other revenues		3.0			0.8		0.1			—			3.9
Total revenues		1,216.1			822.3		1,579.5			(458.4	)		3,159.5
Cost of sales		915.6			653.7		1,248.6			(458.4	)		2,359.5
Selling and administrative expenses		149.7			59.6		95.3			—			304.6
Research, testing and development expenses		105.7			34.8		50.3			—			190.8
Amortization of intangible assets		2.9			10.4		4.7			—			18.0
Write-off of acquired in-process research and development		—			34.0		—			—			34.0
Restructuring charges		16.3			1.3		21.0			—			38.6
Total costs and expenses		1,190.2			793.8		1,419.9			(458.4	)		2,945.5
Other income (expense) – net		37.2			15.7		(46.4	)		(1.6	)		4.9
Interest (expense) income – net		(86.9	)		12.7		1.9			—			(72.3	)
Equity in income of subsidiaries		116.7			36.0		—			(152.7	)		—
Income before income taxes		92.9			92.9		115.1			(154.3	)		146.6
Provision (benefit) for income taxes		(0.6	)		13.4		40.3			—			53.1
Net income	$	93.5		$	79.5	$	74.8		$	(154.3	)	$	93.5

Condensed Consolidating Statement of Income

	Year Ended December 31, 2003
	Parent			Subsidiary		Other						Total
	Company			Guarantors		Subsidiaries			Eliminations			Consolidated
Net sales	$	1,044.3		$	212.1	$	1,110.7		$	(318.0	)	$	2,049.1
Royalties and other revenues		2.7			0.3		—			—			3.0
Total revenues		1,047.0			212.4		1,110.7			(318.0	)		2,052.1
Cost of sales		768.4			167.8		893.9			(322.3	)		1,507.8
Selling and administrative expenses		135.3			23.1		44.5			—			202.9
Research, testing and development expenses		114.0			6.8		46.1			—			166.9
Amortization of intangible assets		2.8			1.9		0.2			—			4.9
Restructuring charges		12.5			0.2		9.8			—			22.5
Total costs and expenses		1,033.0			199.8		994.5			(322.3	)		1,905.0
Other income (expense) – net		16.2			16.5		(28.4	)		(1.0	)		3.3
Interest (expense) income – net		(32.0	)		9.8		0.9			—			(21.3	)
Equity in income of subsidiaries		84.5			8.9		—			(93.4	)		—
Income before income taxes		82.7			47.8		88.7			(90.1	)		129.1
Provision (benefit) for income taxes		(5.3	)		14.5		27.6			1.5			38.3
Net income	$	88.0		$	33.3	$	61.1		$	(91.6	)	$	90.8

⁵² nn THE LUBRIZOL CORPORATION

Notes To Financial Statements CONTINUED

Condensed Consolidating Statement of Income

	Year Ended December 31, 2002
	Parent			Subsidiary			Other						Total
	Company			Guarantors			Subsidiaries			Eliminations			Consolidated
Net sales	$	1,080.2		$	171.7		$	1,067.5		$	(339.1	)	$	1,980.3
Royalties and other revenues		2.4			0.2			1.0			—			3.6
Total revenues		1,082.6			171.9			1,068.5			(339.1	)		1,983.9
Cost of sales		757.2			128.5			866.1			(335.5	)		1,416.3
Selling and administrative expenses		132.7			22.3			41.9			—			196.9
Research, testing and development expenses		119.3			5.4			43.6			—			168.3
Amortization of intangible assets		2.8			1.2			0.2			—			4.2
Total costs and expenses		1,012.0			157.4			951.8			(335.5	)		1,785.7
Other income (expense) – net		29.2			5.3			(35.4	)		(0.3	)		(1.2	)
Interest (expense) income – net		(29.0	)		10.7			1.7			—			(16.6	)
Equity in income of subsidiaries		57.1			3.2			—			(60.3	)		—
Income before income taxes and cumulative effect of change in accounting principle		127.9			33.7			83.0			(64.2	)		180.4
Provision for income taxes		6.9			12.3			36.1			(1.2	)		54.1
Income before cumulative effect of change in accounting principle		121.0			21.4			46.9			(63.0	)		126.3
Cumulative effect of change in accounting principle		—			(2.1	)		(5.7	)		—			(7.8	)
Net income	$	121.0		$	19.3		$	41.2		$	(63.0	)	$	118.5

Condensed Consolidating Balance Sheet

	December 31, 2004
	Parent		Subsidiary			Other						Total
	Company		Guarantors			Subsidiaries			Eliminations			Consolidated
ASSETS
Cash and short-term investments	$	40.3	$	(0.1	)	$	295.7		$	—		$	335.9
Receivables		128.3		158.9			295.6			—			582.8
Inventories		115.7		174.3			309.6			(30.9	)		568.7
Other current assets		67.7		20.7			11.6			10.6			110.6
Total current assets		352.0		353.8			912.5			(20.3	)		1,598.0
Property and equipment – net		401.0		498.3			418.6			—			1,317.9
Goodwill		27.1		633.1			493.6			—			1,153.8
Intangible assets – net		11.4		286.1			139.6			—			437.1
Investments in subsidiaries and intercompany balances		3,087.0		1,625.9			(238.0	)		(4,474.9	)		—
Investments in non-consolidated companies		5.7		1.7			—			—			7.4
Other assets		33.6		5.5			13.0			—			52.1
Total	$	3,917.8	$	3,404.4		$	1,739.3		$	(4,495.2	)	$	4,566.3
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term debt and current portion of long-term debt	$	—	$	—		$	8.2		$	—		$	8.2
Accounts payable		118.3		99.4			121.9			—			339.6
Accrued expenses and other current liabilities		145.0		54.8			109.7			—			309.5
Total current liabilities		263.3		154.2			239.8			—			657.3
Long-term debt		1,957.2		—			6.9			—			1,964.1
Postretirement health care obligations		96.3		3.9			6.2			—			106.4
Noncurrent liabilities		47.5		40.5			82.7			—			170.7
Deferred income taxes		16.0		41.7			33.0			—			90.7
Total liabilities		2,380.3		240.3			368.6			—			2,989.2
Minority interest in consolidated companies		—		—			—			53.6			53.6
Total shareholders’ equity		1,537.5		3,164.1			1,370.7			(4,548.8	)		1,523.5
Total	$	3,917.8	$	3,404.4		$	1,739.3		$	(4,495.2	)	$	4,566.3

THE LUBRIZOL CORPORATION nn ⁵³

Notes To Financial Statements

(In Millions Except Per-Share Data)

Condensed Consolidating Balance Sheet

	December 31, 2003
	Parent		Subsidiary			Other						Total
	Company		Guarantors			Subsidiaries			Eliminations			Consolidated
ASSETS
Cash and short-term investments	$	56.3	$	(1.0	)	$	203.4		$	—		$	258.7
Receivables		100.9		39.2			184.5			—			324.6
Inventories		76.8		44.3			216.6			(25.8	)		311.9
Other current assets		26.4		0.7			6.5			9.0			42.6
Total current assets		260.4		83.2			611.0			(16.8	)		937.8
Property and equipment – net		399.6		57.3			233.1			—			690.0
Goodwill		24.9		124.8			59.0			—			208.7
Intangible assets – net		12.2		32.8			17.4			—			62.4
Investments in subsidiaries and intercompany balances		934.2		811.0			(96.9	)		(1,648.3	)		—
Investments in non-consolidated companies		5.6		0.7			—			—			6.3
Other assets		20.5		3.4			13.2			—			37.1
Total	$	1,657.4	$	1,113.2		$	836.8		$	(1,665.1	)	$	1,942.3
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term debt and current portion of long-term debt	$	—	$	—		$	2.9		$	—		$	2.9
Accounts payable		64.0		17.4			61.7			—			143.1
Accrued expenses and other current liabilities		79.9		20.7			52.9			—			153.5
Total current liabilities		143.9		38.1			117.5			—			299.5
Long-term debt		381.8		—			4.9			—			386.7
Postretirement health care obligations		92.9		—			5.5			—			98.4
Noncurrent liabilities		44.7		—			55.6			—			100.3
Deferred income taxes		24.0		6.9			21.9			—			52.8
Total liabilities		687.3		45.0			205.4			—			937.7
Minority interest in consolidated companies		—		—			—			51.3			51.3
Total shareholders’ equity		970.1		1,068.2			631.4			(1,716.4	)		953.3
Total	$	1,657.4	$	1,113.2		$	836.8		$	(1,665.1	)	$	1,942.3

⁵⁴ nn THE LUBRIZOL CORPORATION

Notes To Financial Statements CONTINUED

Condensed Consolidating Statement of Cash Flows

	Year Ended December 31, 2004
	Parent			Subsidiary			Other						Total
	Company			Guarantors			Subsidiaries			Eliminations			Consolidated
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net income	$	93.5		$	79.5		$	74.8		$	(154.3	)	$	93.5
Adjustments to reconcile net income to cash provided by operating activities		8.7			(54.6	)		126.3			154.3			234.7
Total operating activities		102.2			24.9			201.1			—			328.2
INVESTING ACTIVITIES
Capital expenditures		(54.4	)		(31.4	)		(47.4	)		—			(133.2	)
Acquisitions – net of cash received and liabilities assumed		(3.7	)		(829.1	)		(125.6	)		—			(958.4	)
Other items – net		0.6			0.2			2.0			—			2.8
Total investing activities		(57.5	)		(860.3	)		(171.0	)		—			(1,088.8	)
FINANCING ACTIVITIES
Changes in short-term debt, net		—			(78.2	)		5.6			—			(72.6	)
Repayment of long-term debt		(168.4	)		(1,024.6	)		—			—			(1,193.0	)
Proceeds from the issuance of long-term debt		1,741.7			0.1			1.5			—			1,743.3
Dividends paid		(57.6	)		—			—			—			(57.6	)
Changes in intercompany activities		(1,974.6	)		1,936.3			38.3			—			—
Proceeds from sale of common shares		470.0			—			—			—			470.0
Payment of debt issuance costs		(16.8	)		—			—			—			(16.8	)
Payment of Treasury rate lock upon settlement		(73.9	)		—			—			—			(73.9	)
Payment on termination of interest rate swaps		(2.9	)		—			—			—			(2.9	)
Proceeds from the exercise of stock options		15.4			—			—			—			15.4
Total financing activities		(67.1	)		833.6			45.4			—			811.9
Effect of exchange rate changes on cash		6.4			2.7			16.8			—			25.9
Net increase (decrease) in cash and short-term investments		(16.0	)		0.9			92.3			—			77.2
Cash and short-term investments at the beginning of year		56.3			(1.0	)		203.4			—			258.7
Cash and short-term investments at the end of year	$	40.3		$	(0.1	)	$	295.7		$	—		$	335.9

THE LUBRIZOL CORPORATION nn ⁵⁵

Notes To Financial Statements

(In Millions Except Per-Share Data)

Condensed Consolidating Statement of Cash Flows

	Year Ended December 31, 2003
	Parent			Subsidiary			Other						Total
	Company			Guarantors			Subsidiaries			Eliminations			Consolidated
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net income	$	88.0		$	33.3		$	61.1		$	(91.6	)	$	90.8
Adjustments to reconcile net income to cash provided by (used for) operating activities		10.6			92.2			(90.4	)		91.6			104.0
Total operating activities		98.6			125.5			(29.3	)		—			194.8
INVESTING ACTIVITIES
Capital expenditures		(45.8	)		(12.3	)		(30.4	)		—			(88.5	)
Acquisitions – net of cash received and liabilities assumed		(4.2	)		(62.8	)		(1.6	)		—			(68.6	)
Other items – net		0.9			(0.3	)		0.6			—			1.2
Total investing activities		(49.1	)		(75.4	)		(31.4	)		—			(155.9	)
FINANCING ACTIVITIES
Changes in short-term debt, net		—			(0.2	)		(5.6	)		—			(5.8	)
Repayment of long-term debt		—			—			(9.2	)		—			(9.2	)
Proceeds from the issuance of long-term debt		—			—			4.5			—			4.5
Dividends paid		(53.6	)		—			—			—			(53.6	)
Changes in intercompany activities		(60.7	)		(49.3	)		110.0			—			—
Proceeds from the exercise of stock options		4.6			—			—			—			4.6
Total financing activities		(109.7	)		(49.5	)		99.7			—			(59.5	)
Effect of exchange rate changes on cash		—			0.3			12.6			—			12.9
Net increase (decrease) in cash and short-term investments		(60.2	)		0.9			51.6			—			(7.7	)
Cash and short-term investments at the beginning of year		116.5			(1.9	)		151.8			—			266.4
Cash and short-term investments at the end of year	$	56.3		$	(1.0	)	$	203.4		$	—		$	258.7

Condensed Consolidating Statement of Cash Flows

	Year Ended December 31, 2002
	Parent			Subsidiary			Other						Total
	Company			Guarantors			Subsidiaries			Eliminations			Consolidated
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net income	$	121.0		$	19.3		$	41.2		$	(63.0	)	$	118.5
Adjustments to reconcile net income to cash provided by (used for) operating activities		41.9			95.4			(73.9	)		63.0			126.4
Total operating activities		162.9			114.7			(32.7	)		—			244.9
INVESTING ACTIVITIES
Capital expenditures		(35.5	)		(6.3	)		(23.5	)		—			(65.3	)
Acquisitions – net of cash received and liabilities assumed		(0.3	)		(86.4	)		—			—			(86.7	)
Other items – net		0.6			—			2.9			—			3.5
Total investing activities		(35.2	)		(92.7	)		(20.6	)		—			(148.5	)
FINANCING ACTIVITIES
Changes in short-term debt, net		—			(0.8	)		(0.6	)		—			(1.4	)
Repayment of long-term debt		—			(1.2	)		(1.1	)		—			(2.3	)
Dividends paid		(53.4	)		—			—			—			(53.4	)
Changes in intercompany activities		(71.6	)		(24.5	)		96.1			—			—
Proceeds on termination of interest rate swaps		18.1			—			—			—			18.1
Proceeds from the exercise of stock options		8.6			—			—			—			8.6
Total financing activities		(98.3	)		(26.5	)		94.4			—			(30.4	)
Effect of exchange rate changes on cash		—			—			11.3			—			11.3
Net increase (decrease) in cash and short-term investments		29.4			(4.5	)		52.4			—			77.3
Cash and short-term investments at the beginning of year		87.1			2.6			99.4			—			189.1
Cash and short-term investments at the end of year	$	116.5		$	(1.9	)	$	151.8		$	—		$	266.4

⁵⁶ nn THE LUBRIZOL CORPORATION

Notes To Financial Statements CONTINUED

Note 19 – QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth the quarterly results of operations for the years ended December 31, 2004 and 2003:

	2004
	First(1)		Second(2)(3)(4)		Third(2)(3)(4)		Fourth(2)(3)(5)		Full Year
Net sales	$	577.9	$	720.2	$	921.3	$	936.2	$	3,155.6
Gross profit	$	151.6	$	190.6	$	229.2	$	224.7	$	796.1
Net income	$	37.5	$	3.9	$	32.2	$	19.9	$	93.5
Net income per share, basic	$	0.72	$	0.08	$	0.61	$	0.30	$	1.68
Net income per share, diluted	$	0.72	$	0.08	$	0.61	$	0.30	$	1.67

	2003
		First(6)		Second(6)		Third(6)		Fourth(6)		Full Year
Net sales		$	507.0	$	514.3	$	509.1	$	518.7	$	2,049.1
Gross profit		$	138.7	$	141.7	$	131.6	$	129.3	$	541.3
Net income		$	26.0	$	29.4	$	24.3	$	11.1	$	90.8
Net income per share, basic		$	0.50	$	0.57	$	0.47	$	0.21	$	1.76
Net income per share, diluted		$	0.50	$	0.57	$	0.47	$	0.21	$	1.75

(1)	The company recorded a gain of $6.4 million on a currency forward contract relating to the hyperdispersants acquisition in the first quarter of 2004.
(2)	The company recorded the write-off of acquired IPR&D relating to the Noveon International acquisition of $35.0 million, ($1.5) million and $0.5 million in the second, third and fourth quarters of 2004, respectively.
(3)	The company recorded restructuring charges of $8.0 million, $10.5 million and $20.1 million in the second, third and fourth quarters of 2004, respectively.
(4)	The company recorded a charge to cost of sales for $4.9 million in both the second and third quarters of 2004 relating to the inventory step-up recorded in connection with the Noveon International acquisition.
(5)	The company recognized a reduction in depreciation expense of $4.4 million in the fourth quarter of 2004 for the change in estimates of fair values and asset lives for the long-lived assets of Noveon International.
(6)	The company recorded restructuring charges of $3.5 million, $3.5 million, $0.4 million and $15.1 million in the first, second, third and fourth quarters of 2003, respectively.

     The sum of the quarterly earnings per-share amounts does not equal the annual amount reported since per-share amounts are computed independently for each quarter and for the full year based upon respective weighted-average common shares outstanding and other diluted potential shares.

THE LUBRIZOL CORPORATION nn ⁵⁷

Historical Summary

(In Millions, Except Shareholders, Employees and Per-Share Data)		2004*		2003			2002
OPERATING RESULTS:
Revenues	$	3,159.5		$	2,052.1		$	1,983.9
Total cost and expenses**		2,945.5			1,905.0			1,785.7
Gain on litigation settlements and investments		—			—			—
Net interest expense and other income		(67.4	)		(18.0	)		(17.8	)
Income before cumulative effect of change in accounting principle		93.5			90.8			126.3
Cumulative effect of change in accounting principle		—			—			(7.8	)
Net income		93.5			90.8			118.5
Basic earnings per share before cumulative effect of change in accounting principle		1.68			1.76			2.45
Cumulative effect of change in accounting principle per share		—			—			(0.15	)
Basic earnings per share		1.68			1.76			2.30
FINANCIAL RATIOS:
Gross profit percentage		25.2			26.4			28.5
Percent of revenues:
Selling and administrative expenses		9.6			9.9			9.9
Research and testing expenses		6.0			8.1			8.5
Return on average shareholders’ equity (%)		7.6			10.0			14.4
Debt to capitalization (%)		56.2			29.0			31.6
Current ratio		2.4			3.1			3.0
OTHER INFORMATION:
Dividends declared per share	$	1.04		$	1.04		$	1.04
Average common shares outstanding		55.7			51.7			51.5
Capital expenditures	$	133.2		$	88.5		$	65.3
Depreciation expense		136.7			95.5			91.6
At Year End:
Total assets	$	4,566.3		$	1,942.3		$	1,860.1
Total debt		1,972.3			389.6			401.9
Total shareholders’ equity		1,523.5			953.3			869.3
Shareholders’ equity per share		22.81			18.48			16.89
Common share price		36.86			32.52			30.50
Number of shareholders		3,698			3,903			4,081
Number of employees		7,779			5,032			5,231

*	The 2004 results include the revenues and expenses of Noveon International, Inc. since June 3, 2004, the date of acquisition.
**	Includes restructuring and impairment charges of $38.6 million in 2004, $22.5 million in 2003, $19.6 million in 1999, $23.3 million in 1998, $9.4 million in 1997 and $86.3 million in 1993 and a restructuring credit of $4.5 million in 2000. Also includes the write-off of acquired in-process research and development of $34.0 million in 2004 and $13.6 million in 1998.

⁵⁸ nn THE LUBRIZOL CORPORATION

Historical Summary CONTINUED

2001			2000			1999			1998			1997		1996		1995
$	1,844.6		$	1,775.8		$	1,780.3		$	1,650.2		$	1,706.9	$	1,629.2	$	1,663.6
	1,685.5			1,605.3			1,585.5			1,540.7			1,478.4		1,436.2		1,479.5
	—			19.4			17.6			16.2			—		53.3		38.5
	(19.2	)		(19.5	)		(17.0	)		(6.9	)		2.7		4.4		3.0
	94.1			118.0			123.0			71.2			154.9		169.8		151.6
	—			—			—			—			—		—		—
	94.1			118.0			123.0			71.2			154.9		169.8		151.6
	1.84			2.22			2.25			1.27			2.68		2.80		2.37
	—			—			—			—			—		—		—
	1.84			2.22			2.25			1.27			2.68		2.80		2.37
	27.4			27.8			30.9			29.2			32.1		31.4		31.5
	9.6			9.5			10.2			10.9			10.0		9.7		9.8
	8.6			8.5			8.2			9.1			8.6		9.9		10.8
	12.3			15.3			15.8			9.0			19.0		20.4		18.0
	33.9			34.5			33.8			35.8			21.3		19.5		22.5
	2.9			2.6			2.5			2.5			2.5		2.6		2.4
$	1.04		$	1.04		$	1.04		$	1.04		$	1.01	$	0.97	$	0.93
	51.2			53.1			54.6			55.9			57.8		60.7		63.8
$	66.3		$	85.8		$	64.9		$	93.4		$	100.7	$	94.3	$	189.3
	84.7			88.0			88.3			79.7			82.7		78.7		71.8
$	1,662.3		$	1,659.5		$	1,682.4		$	1,643.2		$	1,462.3	$	1,402.1	$	1,492.0
	397.2			395.9			403.0			429.3			220.3		198.5		247.1
	773.2			752.3			790.1			769.1			815.4		819.4		849.0
	15.12			14.66			14.50			14.10			14.31		14.00		13.48
	35.09			25.75			30.88			25.69			36.88		31.00		27.75
	4,335			4,681			5,126			5,609			5,661		5,764		6,304
	4,530			4,390			4,074			4,324			4,291		4,358		4,601

THE LUBRIZOL CORPORATION nn ⁵⁹

EX-3.1

                                                                     Exhibit 3.1

                             CERTIFICATE OF ADOPTION
                                       OF
                        AMENDED ARTICLES OF INCORPORATION
                                       OF
                            THE LUBRIZOL CORPORATION

      L. E. Coleman, Chairman of the Board of Directors, and K. H. Hopping, Vice
President and Secretary, of The Lubrizol Corporation, an Ohio corporation (the
"Corporation") with its principal place of business located in Wickliffe, Ohio,
do hereby certify that a meeting of the Board of Directors of the Corporation
was duly called and held on September 23, 1991, at which meeting a quorum of the
directors of the Corporation was present, and that by the affirmative vote of
the majority of such directors the following resolution was adopted for the
purpose of consolidating the existing Amended Articles of Incorporation and the
amendments to the existing Amended Articles of Incorporation that previously
have been adopted by the shareholders of the Corporation and filed with the
Secretary of State of Ohio (such consolidation being permitted by Section
1701.72(B) of the Ohio Revised Code):

      RESOLVED, that the Amended Articles of Incorporation attached hereto as
      Exhibit A be, and they hereby are, adopted to supersede the existing
      Amended Articles of Incorporation of the Corporation.

      IN WITNESS WHEREOF, L. E. Coleman, Chairman of the Board of Directors, and
K. H. Hopping, Vice President and Secretary, of The Lubrizol Corporation, acting
for and on behalf of the Corporation, have hereunto subscribed their names this
23rd day of September, 1991.

                                      /s/ [L. E. Coleman]
                                      ------------------------------------------
                                      L. E. Coleman Chairman of the Board

                                      /s/ [K. H. Hopping]
                                      ------------------------------------------
                                      K. H. Hopping Vice President and Secretary

                                       1


                                                                       Exhibit A

                        AMENDED ARTICLES OF INCORPORATION
                                       OF
                            THE LUBRIZOL CORPORATION

      FIRST: The name of the Corporation is The Lubrizol Corporation.

      SECOND: The place in the State of Ohio where its principal office is
located is Wickliffe, Lake County.

      THIRD: The purposes of the Corporation are as follows:

            To manufacture, produce, process, buy, sell, develop, acquire,
      distribute and otherwise deal in chemicals, chemical products and
      compositions, including lubricants, fuels and additives for lubricants and
      fuels, and to do all things necessary or incidental thereto.

            To invest in high technology companies and in companies with
      substantial growth possibilities and to acquire such companies.

            To engage in any other lawful act or activity for which corporations
      may be formed under Section 1701.01 to 1701.98, inclusive, of the Revised
      Code of Ohio, as now in effect or hereafter amended.

      FOURTH: The authorized number of shares of the Corporation is 147,000,000,
consisting of 2,000,000 shares of serial preferred stock without par value
designated Serial Preferred Stock ("Serial Preferred Stock"); 25,000,000 shares
of serial preferred stock without par value designated Serial Preference Shares
("Serial Preference Shares"); and 120,000,000 common shares without par value
("Common Shares").

      No holder of any class of shares of the Corporation shall, as such holder,
have any preemptive or preferential right to purchase or subscribe to any shares
of any class of stock of the Corporation, whether now or hereafter authorized,
whether unissued or in treasury, or to purchase any obligations convertible into
shares of any class of stock of the Corporation, which at any time may be
proposed to be issued by the Corporation or subjected to rights or options to
purchase granted by the Corporation.

      No holder of shares of the Corporation shall be entitled to vote
cumulatively in the election of Directors of the Corporation.

      The shares of such classes shall have the following express terms:

                                   DIVISION A
                   EXPRESS TERMS OF THE SERIAL PREFERRED STOCK

      Section 1. The Serial Preferred Stock may be issued from time to time in
one or more series. All shares of Serial Preferred Stock shall be of equal rank
and shall be identical, except in respect of the matters that may be fixed by
the Board of Directors as hereinafter provided, and each share of each series
shall be identical with all other shares of such series, except as to the date
from which dividends are cumulative. Subject to the provisions of Sections 2 to
8, both inclusive, of this Division, which provisions shall apply to all Serial
Preferred Stock, the Board of Directors hereby is authorized to cause such
shares to be issued in one or more series and with respect to each such series
prior to the issuance thereof to fix:

            (a) The designation of the series, which may be by distinguishing
      number, letter or title;

                                       1


            (b) The number of shares of the series, which number the Board of
      Directors may (except where otherwise provided in the creation of the
      series) increase or decrease (but not below the number of shares thereof
      then outstanding);

            (c) The annual dividend rate of the series;

            (d) The dates at which dividends, if declared, shall be payable, and
      the dates from which dividends shall be cumulative;

            (e) The redemption rights and price or prices, if any, for shares of
      the series;

            (f) The terms and amount of any sinking fund provided for the
      purchase or redemption of shares of the series;

            (g) The amounts payable on shares of the series in the event of any
      voluntary or involuntary liquidation, dissolution, or winding up of the
      affairs of the Corporation;

            (h) Whether the shares of the series shall be convertible into
      Common Shares, and, if so, the conversion price or prices, any adjustments
      thereof, and all other terms and conditions upon which such conversion may
      be made; and

            (i) Restrictions (in addition to those set forth in Sections 6(b)
      and 6(c) of this Division) on the issuance of shares of the same series or
      of any other class or series;

provided, however, that the aggregate amount which the holders of Serial
Preferred Stock at any time outstanding shall be entitled to receive upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation shall not exceed $50,000,000, plus accrued and unpaid dividends.

      The Board of Directors is authorized to adopt from time to time amendments
to the Articles of Incorporation fixing, with respect to each such series, the
matters described in clauses (a) to (i), both inclusive, of this Section 1.

      Section 2. The holders of Serial Preferred Stock of each series, in
preference to the holders of Common Shares and of any other class of shares
ranking junior to the Serial Preferred Stock, shall be entitled to receive out
of any funds legally available and when and as declared by the Board of
Directors, dividends in cash at the rate for such series fixed in accordance
with the provisions of Section 1 of this Division, and no more, payable
quarterly on the dates fixed for such series. Such dividends shall be
cumulative, in the case of shares of each particular series, from and after the
date or dates fixed with respect to such series. No dividends may be paid upon
or declared or set apart for any of the Serial Preferred Stock for any quarterly
dividend period unless at the same time a like proportionate dividend for the
same quarterly dividend period, ratably in proportion to the respective annual
dividend rates fixed therefor, shall be paid upon or declared or set apart for
all Serial Preferred Stock of all series then issued and outstanding and
entitled to receive such dividend.

      Section 3. In no event so long as any Serial Preferred Stock shall be
outstanding shall any dividends, except a dividend payable in Common Shares or
other shares ranking junior to the Serial Preferred Stock, be paid or declared
or any distribution be made except as aforesaid on the Common Shares or any
other shares ranking junior to the Serial Preferred Stock, nor shall any Common
Shares or any other shares ranking junior to the Serial Preferred Stock be
purchased, retired or otherwise acquired by the Corporation(except out of the
proceeds of the sale of Common Shares or other shares ranking junior to the
Serial Preferred Stock received by the Corporation subsequent to January 1,
1969):

            (a) Unless all accrued and unpaid dividends on Serial Preferred
      Stock, including the full dividends for the current quarterly dividend
      period, shall have been declared and paid or a sum sufficient for payment
      thereof set apart; and

                                       2


            (b) Unless there shall be no arrearages with respect to the
      redemption of Serial Preferred Stock of any series from any sinking fund
      provided for shares of such series in accordance with the provisions of
      Section 1 of this Division.

      Section 4.

            (a) Subject to the express terms of each series and to the
      provisions of Section 6(b)(iii) of this Division A, the Corporation may
      from time to time redeem all or any part of the Serial Preferred Stock of
      any series at the time outstanding, (i) at the option of the Board of
      Directors at the applicable redemption price for such series fixed in
      accordance with the provisions of Section 1 of this Division, or (ii) in
      fulfillment of the requirements of any sinking fund provided for shares of
      such series at the applicable sinking fund redemption price, fixed in
      accordance with the provisions of Section 1 of this Division, together in
      each case with accrued and unpaid dividends to the redemption date.

            (b) Notice of every such redemption shall be mailed, postage
      prepaid, to the holders of record of the Serial Preferred Stock to be
      redeemed at their respective addresses then appearing on the books of the
      Corporation, not less than thirty (30) days nor more than sixty (60) days
      prior to the date fixed for such redemption. At any time after notice has
      been given as above provided, the Corporation may deposit the aggregate
      redemption price of the shares of Serial Preferred Stock to be redeemed
      with any bank or trust company in Cleveland, Ohio, or New York, New York,
      having capital and surplus of not less than Twenty-Five Million Dollars
      ($25,000,000), named in such notice, directed to be paid to the respective
      holders of the shares of Serial Preferred Stock so to be redeemed in
      amounts equal to the redemption price of all shares of Serial Preferred
      Stock so to be redeemed, on surrender of the stock certificate or
      certificates held by such holders, and upon the making of such deposit
      such holders shall cease to be shareholders with respect to such shares,
      and after such notice shall have been given and such deposit shall have
      been made such holders shall have no interest in or claim against the
      Corporation with respect to such shares except only to receive such money
      from such bank or trust company without interest or the right to exercise,
      before the redemption date, any unexpired privileges of conversion. In
      case less than all of the outstanding shares of Serial Preferred Stock are
      to be redeemed, the Corporation shall select by lot the shares so to be
      redeemed in such manner as shall be prescribed by its Board of Directors.

            If the holders of shares of Serial Preferred Stock which have been
      called for redemption shall not within ten years after such deposit, claim
      the amount deposited for the redemption thereof, any such bank or trust
      company shall, upon demand, pay over to the Corporation such unclaimed
      amounts and thereupon such bank or trust company and the Corporation shall
      be relieved of all responsibility in respect thereof and to such holders.

            (c) Any shares of Serial Preferred Stock which are redeemed by the
      Corporation pursuant to the provisions of this Section 4 and any shares of
      Serial Preferred Stock which are purchased and delivered in satisfaction
      of any sinking fund requirements provided for shares of such series and
      any shares of Serial Preferred Stock which are converted in accordance
      with the express terms thereof, shall be cancelled, and not reissued. Any
      shares of Serial Preferred Stock otherwise acquired by the Corporation
      shall resume the status of authorized and unissued shares of Serial
      Preferred Stock without serial designation.

      Section 5.

            (a) The holders of Serial Preferred Stock of any series shall, in
      case of voluntary or involuntary liquidation, dissolution or winding up of
      the affairs of the Corporation, be entitled to receive in full out of the
      assets of the Corporation, including its capital, before any amount shall
      be paid or distributed among the holders of the Common Shares or any other
      shares ranking junior to the Serial Preferred Stock, the amounts fixed
      with respect to shares of such series in accordance with Section 1 of this
      Division plus an amount equal to all dividends accrued and

                                       3


      unpaid thereon to the date of payment of the amount due pursuant to such
      liquidation, dissolution or winding up of the affairs of the Corporation,
      in case the net assets of the Corporation legally available therefor are
      insufficient to permit the payment upon all outstanding shares of Serial
      Preferred Stock of the full preferential amount to which they are
      respectively entitled, then such net assets shall be distributed ratably
      upon outstanding shares of Serial Preferred Stock in proportion to the
      full preferential amount to which each such share is entitled.

            After payment to holders of Serial Preferred Stock of the full
      preferential amounts as aforesaid, holders of Serial Preferred Stock as
      such shall have no right or claim to any of the remaining assets of the
      Corporation.

            (b) The merger or consolidation of the Corporation into or with any
      other corporation, or the merger of any other corporation into it, or the
      sale, lease or conveyance of all or substantially all the property or
      business of the Corporation, shall not be deemed to be a dissolution,
      liquidation or winding up for the purposes of this Section 5.

      Section 6.

            (a) The holders of Serial Preferred Stock shall be entitled to one
      vote for each share of such stock upon all matters presented to the
      shareholders; and, except as otherwise provided herein or required by law,
      the holders of Serial Preferred Stock and the holders of Common Shares
      shall vote together as one class on all matters.

            If, and so often as, the Corporation shall be in default in the
      payment of six (6) full quarterly dividends (whether or not consecutive)
      on any series of Serial Preferred Stock at the time outstanding, whether
      or not earned or declared, the holders of Serial Preferred Stock of all
      series, voting separately as a class and in addition to all other rights
      to vote for directors, shall be entitled to elect as herein provided, two
      members of the Board of Directors of the Corporation; provided, however,
      that the holders of shares of Serial Preferred Stock shall not have or
      exercise such special class voting rights except at meetings of the
      shareholders for the election of directors at which the holders of not
      less than thirty-five percent (35%) of the outstanding shares of Serial
      Preferred Stock of all series then outstanding are present in person or by
      proxy; and provided further that the special class voting rights provided
      for herein when the same shall have become vested shall remain so vested
      until all accrued and unpaid dividends on the Serial Preferred Stock of
      all series then outstanding shall have been paid, whereupon the holders of
      Serial Preferred Stock shall be divested of their special class voting
      rights in respect of subsequent elections of directors, subject to the
      revesting of such special class voting rights in the event hereinabove
      specified in this paragraph.

            In the event of default entitling the holders of Serial Preferred
      Stock to elect two directors as above specified, a special meeting of the
      shareholders for the purpose of electing such directors shall be called by
      the Secretary of the Corporation upon written request of, or may be called
      by, the holders of record of at least ten percent (10%) of the shares of
      Serial Preferred Stock of all series at the time outstanding, and notice
      thereof shall be given in the same manner as that required for the annual
      meeting of shareholders; provided, however, that the Corporation shall not
      be required to call such special meeting if the annual meeting of
      shareholders shall be held within one hundred twenty (120) days after the
      date of receipt of the foregoing written request from the holders of
      Serial Preferred Stock. At any meeting at which the holders of Serial
      Preferred Stock shall be entitled to elect directors, the holders of
      thirty-five percent (35%) of the then outstanding shares of Serial
      Preferred Stock of all series present in person or by proxy, shall be
      sufficient to constitute a quorum, and the vote of the holders of a
      majority of such shares so present at any such meeting at which there
      shall be such a quorum shall be sufficient to elect the members of the
      Board of Directors which the holders of Serial Preferred Stock are
      entitled to elect as hereinabove provided. The two directors who may be
      elected by the holders of Serial Preferred Stock pursuant to the foregoing
      provisions shall be in addition to any other directors then in office or
      proposed to be elected otherwise then pursuant to such provisions, and
      nothing

                                       4


      in such provisions shall prevent any change otherwise permitted in the
      total number of directors of the Corporation or require the resignation of
      any director elected otherwise than pursuant to such provisions.
      Notwithstanding any classification of the other directors of the
      Corporation, the two directors elected by the holders of Serial Preferred
      Stock shall be elected annually for terms expiring at the next succeeding
      annual meeting of shareholders.

            (b) The affirmative vote of the holders of at least two-thirds of
      the shares of Serial Preferred Stock at the time outstanding, given in
      person or by proxy at a meeting called for the purpose at which the
      holders of Serial Preferred Stock shall vote separately as a class shall
      be necessary to effect any one or more of the following (but so far as the
      holders of Serial Preferred Stock are concerned, such action may be
      effected with such vote):

                  (i) Any amendment, alteration or repeal of any of the
            provisions of the Articles of Incorporation or of the Regulations of
            the Corporation which affects adversely the voting powers, rights or
            preferences of the holders of Serial Preferred Stock; provided,
            however, that, for the purpose of this clause (i) only, neither the
            amendment of the Articles of Incorporation so as to authorize or
            create, or to increase the authorized or outstanding amount of
            Serial Preferred Stock or of any shares of any class ranking on a
            parity with or junior to the Serial Preferred Stock, nor the
            amendment of the provisions of the Regulations so as to increase the
            number of directors of the Corporation shall be deemed to affect
            adversely the voting powers, rights or preferences of the holders of
            Serial Preferred Stock; and provided further, that if such
            amendment, alteration or repeal affects adversely the rights or
            preferences of one or more but not all series of Serial Preferred
            Stock at the time outstanding only the affirmative vote of the
            holders of at least two-thirds of the number of the shares at the
            time outstanding of the series so affected shall be required;

                  (ii) The authorization or creation of, or the increase in the
            authorized amount of, any shares of any class, or any security
            convertible into shares of any class, ranking prior to the Serial
            Preferred Stock; or

                  (iii) The purchase or redemption (for sinking fund purposes or
            otherwise) of less than all of the Serial Preferred Stock then
            outstanding except in accordance with a stock purchase offer made to
            all holders of record of Serial Preferred Stock, unless all
            dividends upon all Serial Preferred Stock then outstanding for all
            previous quarterly dividend periods shall have been declared and
            paid or funds therefor set apart and all accrued sinking fund
            obligations applicable thereto shall have been complied with.

            (c) The affirmative vote of the holders of at least a majority of
      the shares of Serial Preferred Stock at the time outstanding, given in
      person or by proxy at a meeting called for the purpose at which the
      holders of Serial Preferred Stock shall vote separately as a class, shall
      be necessary to effect any one or more of the following (but so far as the
      holders of Serial Preferred Stock are concerned, such action may be
      effected with such vote):

                  (i) The sale, lease or conveyance by the Corporation of all or
            substantially all of its property or business, or its consolidation
            with or merger into any other corporation unless the corporation
            resulting from such consolidation or merger will have after such
            consolidation or merger no class of shares either authorized or
            outstanding ranking prior to or on a parity with the Serial
            Preferred Stock except the same number of shares ranking prior to or
            on a parity with the Serial Preferred Stock and having the same
            rights and preferences as the shares of the Corporation authorized
            and outstanding immediately preceding such consolidation or merger,
            and each holder of Serial Preferred Stock immediately preceding such
            consolidation or merger shall receive the same number of shares,
            with the same rights and preferences, of the resulting corporation;
            or

                                       5


                  (ii) The authorization of any shares ranking on a parity with
            the Serial Preferred Stock or an increase in the authorized number
            of shares of Serial Preferred Stock.

      Section 7. The holders of Serial Preferred Stock shall have no preemptive
right to purchase or have offered to them for purchase any shares or other
securities of the Corporation, whether now or hereafter authorized.

      Section 8. For the purpose of this Division A:

      Whenever reference is made to shares "ranking prior to the Serial
Preferred Stock" or "on a parity with the Serial Preferred Stock," such
reference shall mean and include all shares of the Corporation in respect of
which the rights of the holders thereof as to the payment of dividends or as to
distributions in the event of a voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, are given
preference over, or rank on an equality with (as the case may be) the rights of
the holders of Serial Preferred Stock; and whenever reference is made to shares
"ranking junior to the Serial Preferred Stock," such reference shall mean and
include all shares of the Corporation in respect of which the rights of holders
thereof as to payment of dividends and as to distributions in the event of a
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, are junior and subordinate to the rights of the holders of
Serial Preferred Stock.

                                   DIVISION B
                       EXPRESS TERMS OF THE COMMON SHARES

      The Common Shares shall be subject to the express terms of (i) the Serial
Preferred Stock and any series thereof and (ii) the Serial Preference Shares and
any series thereof. Each Common Share shall be equal to every other Common Share
and the holders thereof shall be entitled to one vote for each share of such
stock on all questions presented to the shareholders.

                                   DIVISION C
              EXPRESS TERMS OF THE SERIAL PREFERRED STOCK, SERIES A

      Section 1. Designation and Amount. The shares of such series shall be
designated as "Serial Preferred Stock, Series A" ("Series A Stock") and the
number of shares constituting such series shall be 2,000,000. No shares of
Series A Stock may be issued except upon the exercise of a Right, as defined in,
and pursuant to the terms of, the Special Rights Agreement, dated as of October
31, 1988 (as from time to time amended or supplemented in accordance with the
terms thereof, the "Rights Agreement"), between the Corporation and National
City Bank.

      Section 2. Dividends and Distributions.

      (A) Except as provided in this Section 2, the holders of shares of Series
A Stock shall not be entitled to receive dividends or other distributions with
respect to any shares of Series A Stock.

      (B) From and after the date on which shares of Series A Stock are issued
and outstanding (the "Dividend Accrual Commencement Date"), the holders of
issued and outstanding shares of Series A Stock, in preference to the holders of
Common Shares and of any other capital stock of the Corporation which ranks
junior to the Serial Preferred Stock in respect of dividends or distributions of
assets on liquidation of the Corporation (all of which classes, other than the
Serial Preferred Stock, are hereinafter embraced in the term "Junior Stock"),
shall be entitled to receive as and when declared by the Directors out of the
assets of the Corporation which are by law available for the payment of
dividends, cumulative cash dividends, payable quarterly on the last days of
March, June, September and December, and accruing from the applicable Dividend
Accrual Commencement Date, at, but not exceeding, the rate per share per annum
equal to the Dividend Rate (as hereinafter defined). For purposes of this
Division C, the "Dividend Rate" shall be equal to 8% of the Cash Redemption
Amount (as defined in Section 5(A) of this Division C) as of the last day of the
calendar month immediately preceding the applicable dividend payment date.

                                       6


      Section 3. Redemption.

      (A) From and after (but not before) the Earliest Redemption Date (as
defined in Section 5(C) of this Division C), the Series A Stock may be redeemed
in whole or in part, at any time or from time to time, at the option of the
Corporation, for a cash redemption price per share equal to the sum of (x) the
then- applicable Cash Redemption Amount plus $1 .00 and (y) an amount equal to
the sum of all dividends accrued to the date fixed for redemption and remaining
unpaid, whether or not declared, together with any applicable Deferred Payment
Entitlement (as defined in Section 5(D) of this Division C).

      (B) So long as any shares of Series A Stock shall be outstanding, but
subject to Section 3(E) of this Division C, the Corporation shall, as a sinking
fund applicable to the Series A Stock, commencing on the date two years after
the first date on which any shares of Series A Stock are issued, and annually
thereafter, redeem, for a cash redemption price per share equal to the sum of
(x) the then-applicable Cash Redemption Amount plus $1.00 and (y) an amount
equal to the sum of all dividends accrued to such date and remaining unpaid,
whether or not declared, together with any applicable Deferred Payment
Entitlement, a number of shares of Series A Stock equal to 25% of the greatest
number of shares of Series A Stock at any time outstanding. The Corporation
shall be permitted to satisfy in whole or in part the requirements of this
Section 3(B) with respect to any year by applying in whole or in part as a
credit in reduction of the obligation of the Corporation to make redemptions for
the sinking fund in such year shares of Series A Stock purchased by the
Corporation and shares of Series A Stock redeemed otherwise than for the sinking
fund. Shares purchased by the Corporation for application as a credit as
provided above may be purchased in such manner as the Directors may determine
from time to time, subject to the restrictions on such purchases set forth
elsewhere herein or arising under applicable law.

      (C) On the date five years after the first date on which any shares of
Series A Stock are issued, but subject to Section 3(E) of this Division C, the
Corporation shall redeem all shares of Series A Stock remaining outstanding for
a cash redemption price per share equal to the sum of (x) the then-applicable
Cash Redemption Amount plus $1.00 and (y) an amount equal to the sum of all
dividends accrued to such date and remaining unpaid, whether or not declared,
together with any applicable Deferred Payment Entitlement.

      (D) Notwithstanding anything contained in this Division C to the contrary,
but subject to Section 3(E) of this Division C, at the option of any holder of
Series A Stock, upon written notice given by such holder at any time during the
30-calendar day period following the date on which the last notice was mailed
pursuant to the next sentence of this Section 3(D) the Corporation shall, prior
to the filing of a certificate of dissolution or such other instrument as may
then be prescribed by applicable law to effect the dissolution of the
Corporation, redeem all shares of Series A Stock outstanding as to which such
holder shall have made such election for a cash redemption price per share equal
to the sum of (x) the then-applicable Cash Redemption Amount plus $1.00 and (y)
an amount equal to the sum of all dividends accrued to such date and remaining
unpaid, whether or not declared, together with any applicable Deferred Payment
Entitlement. The Corporation shall give notice to all holders of Series A Stock
no fewer than 45-calendar days prior to making any filing referred to in the
immediately preceding sentence, which notice will be so given by first class
United States mail and publication in The Wall Street Journal and any other
nationally recognized publication the Corporation may elect, accompanied by an
appropriate form of election and such other information as may be required to
permit an informed election.

      (E) In addition to the limitations that may apply under applicable Ohio
law, the Corporation shall be required to redeem any shares of Series A Stock
under Sections 3(B), 3(C) or 3(D) of this Division C only to the extent that,
after giving effect to such redemption, the consolidated retained earnings of
the Corporation and the corporations with which it is consolidated for financial
reporting purposes are greater than zero. For purposes of the foregoing
sentence, consolidated retained earnings shall mean the sum of (1) the
consolidated retained earnings as of September 30, 1988 of the Corporation and
the corporations with which it was then consolidated for financial reporting
purposes and (2) the consolidated retained earnings accumulated subsequent to
September 30, 1988 of the Corporation and the corporations with which it is
consolidated for financial reporting purposes determined in accordance with
generally accepted

                                       7


accounting principles as in effect as of such date (except as otherwise provided
in this sentence) and after giving effect to dividends or other distributions
on, and redemptions and other purchases of, Serial Preferred Stock, but without
giving effect to dividends or other distributions on, or redemptions or other
purchases of, any Junior Stock, or to any transfers from retained earnings to
additional capital or capital stock accounts, and including as a credit to
retained earnings, in all events (and notwithstanding any contrary treatment for
financial reporting purposes or otherwise), the amount of the Recovery then
collected. If the Corporation is not required to redeem shares of Series A Stock
in the manner otherwise provided herein by virtue of the first sentence of this
Section 3(E), or if a legal or contractual restriction prevents the Corporation
form effecting the redemption of any shares of Series A Stock then outstanding
in the manner otherwise provided herein, then (x) to the extent required and not
restricted, payment of redemption amounts shall be made daily on a pro rata
basis or in such other manner as the Directors of the Corporation may determine
in good faith to be fair to the holders of Series A Stock, (y) in the case of
any such legal or contractual restriction, the Corporation shall use its best
efforts to remove such restriction as soon as possible, and (z) the Corporation
shall give notice to each holder of shares of Series A Stock of any such
restriction and the efforts by the Corporation to remove it. Postponement of
payment of redemption amounts shall not in any way diminish or restrict the
right or the holders of shares of Series A Stock to have their shares redeemed
as provided in this Section 3. If amounts payable to retire shares of Serial
Preferred Stock are not paid in full in the case of all series for which a
sinking fund has been fixed, the number of shares to be retired for the sinking
fund of each such series shall be in proportion to the respective amounts that
would be payable if all such amounts were paid in full.

      Section 4. Liquidation Rights.

      (A) The provisions of Section 7(F) of this Division C will apply to any
voluntary to involuntary dissolution, liquidation or winding up of the affairs
of the Corporation and will not be limited or otherwise affected by this Section
4.

      (B) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation (all of which are hereinafter
embraced in the word "liquidation") occurring on or after the Earliest
Redemption Date, the holders of Series A Stock who do not exercise their rights
pursuant to Section 3(D) of this Division C, shall be entitled to receive,
subject to the limitations, if any, then applicable in such event pursuant to
Division A, from the assets of the Corporation available for distribution to the
shareholders, all amounts (including without limitation any Deferred Payment
Entitlement) which they would be entitled to receive if on the date of such
liquidation the shares of Series A Stock held by them had been redeemed at the
option of the Corporation in accordance with the provisions of Section 3(A) of
this Division C. In the event of any liquidation occurring prior to the Earliest
Redemption Date, all rights of the Corporation in respect of the Covered Cases
and any portion of the Recovery (as defined in Section 5(A) of this Division C)
theretofore collected by the Corporation, and such additional funds or assets as
may be required, shall be placed in trust for the benefit of the holders of the
Series A Stock (and the holders of any other class of capital stock of the
Corporation to the extent hereinafter provided) upon such terms so that (1) the
holders of Series A Stock shall be entitled to receive, from the assets of the
Corporation available for distribution to shareholders, units of beneficial
interest in such trust which shall as nearly as practicable entitle them to
receive, per share of Series A Stock held, a fractional undivided interest in
the proceeds of the Recovery equal to the Per Share Allocation Factor, plus
$1.00, and (2) the holders of the other classes of capital stock of the
Corporation shall be entitled to receive out of such assets available for
distribution units of beneficial interest in such trust which shall as nearly as
practicable entitle them to receive any balance of the proceeds of the Recovery
in accordance with their respective rights upon liquidation. In the event of any
liquidation, the holders of the Serial Preferred Stock of the respective series
shall be entitled to be paid in full the respective amounts fixed for such
series before any distribution or payment or setting apart for payment shall be
made to or for the holders of the Common Shares or any other Junior Stock. After
such payments shall have been in full to the holders of the Serial Preferred
Stock, the remaining assets and funds of the Corporation shall be distributed
among the holders of the Junior Stock of the Corporation according to their
respective rights. In the event that the assets of the Corporation are not
sufficient to make the payments required to be made to the holders of the Serial
Preferred Stock in full, such assets

                                       8


shall be distributed to the holders of the Serial Preferred Stock of the
respective series pro rata in proportion to the respective amounts fixed for
such series.

      Section 5. Amount Payable on Redemption or Liquidation.

      (A) For purposes of this Division C, the following terms shall have the
meanings indicated:

            (1) "Adjusted Value" of any "Assigned Value Assets" shall mean,
      initially, the value assigned thereto as provided in Section 5(B) of this
      Division C, and, in the event any such Assigned Value Assets shall be sold
      for cash within two years of the Corporation's receipt thereof, shall
      mean, thereafter and in lieu of the value initially assigned, the cash
      proceeds of the sale, increased by the amount of any revenues derived by
      the Corporation from, and decreased by any costs and expenses incurred by
      the Corporation after receipt of such Assigned Value Assets in respect of,
      such Assigned Value Assets during the period prior to such sale.

            (2) "Assigned Value Assets" shall mean any assets collected as a
      part of the Recovery to which a value has been assigned as provided in
      Section 5(B) of this Division C and shall also include the proceeds of any
      sale or other disposition thereof.

            (3) "Cash Redemption Amount" shall mean, at anytime of determination
      on or after the Dividend Accrual Commencement Date, the product obtained
      by multiplying (a) the sum of (i) the amount of the Recovery which shall
      have been collected in the form of cash and (ii) the Adjusted Value of any
      Assigned Value Assets, less (iii) all amounts which shall have been paid
      by the Corporation as dividends on, in redemption of, or for the
      repurchase (in accordance with the provisions of Section 3(B) of this
      Division C) of, shares of Series A Stock, and all dividends which shall
      have accrued but not been paid (whether or not declared), on shares of
      Series A Stock by (b) the Per Share Allocation Factor.

            (4) "Covered Cases" shall mean, collectively, the civil actions
      captioned The Lubrizol Corporation, an Ohio corporation vs. Exxon
      Corporation, a New Jersey corporation, in the United States District Court
      for the Southern District of Texas (Civil Action Nos. H-84-1627 and
      H-85-2450), and in the United States District Court for the Northern
      District of Ohio (Civil Action Nos. C84-1064 and C85-3135), and all civil
      actions, whether in or before a state, federal or foreign court or other
      authority, designated either specifically or generically, as Covered Cases
      by majority vote of the Directors of the Corporation prior to the first
      date on which shares of Series A Stock are issued, and all the right,
      title and interest of the Corporation in and under all such actions, and
      in and under all actions, suits or proceedings determined by majority vote
      of the Directors of the Corporation, prior to the first date on which
      shares of Series A Stock are issued, to be directly related thereto or to
      have arisen therefrom, and to all claims asserted therein (whether
      asserted in such actions or any action to enforce any judgment or order
      therein or otherwise).

            (5) "Deferred Payment Entitlement" shall have the meaning referred
      to in Section 5(D) of this Division C.

            (6) "Recovery" shall mean the collective total amount which the
      Corporation (or its successors and assigns to the extent permitted hereby)
      shall collect, whether in cash or other assets and whether collected in
      one of more payments or transactions, on account of favorable judgments in
      the Covered Cases or settlement in respect thereof, less the sum of (a) an
      amount equal the product of (i) such collective total amount and (ii) the
      Corporation's effective income tax rate disclosed by the Corporation in
      the notes to the financial statements of the Corporation last published
      and furnished to shareholders immediately prior to the first issuance of
      any shares of Series A Stock and (b) any amount which the Corporation (or
      its successors and assigns to the extent permitted hereby) shall collect
      in respect of any interest assigned by the Corporation as a Deferred
      Payment Entitlement.

                                       9


            (7) "Per Share Allocation Factor" shall mean, at any time of
      determination, the fraction which results from dividing 1 by the sum of
      (a) the total number of shares of Series A Stock then outstanding and (b)
      the total number of shares of Series A Stock then subject to issuance upon
      the proper exercise of outstanding Rights.

      (B) If and whenever the Corporation shall receive any proceeds of the
Recovery in a form other than cash, there shall be assigned to such assets an
amount equal to the fair market value thereof as determined in good faith by the
Directors, unless the Directors of the Corporation shall determine that it is
not possible to assign a fair market value to such assets with a reasonable
level of confidence. The Directors of the Corporation shall make such
determination at the time such assets are collected or, if it is determined as
aforesaid that it is not possible to assign a fair market value thereto with a
reasonable level of confidence, at the first opportunity thereafter when it is
possible to make such a determination in good faith. The assets to which a value
has been assigned in accordance with this Section 5(B) are referred to therein
as "Assigned Value Assets" and the value so assigned shall be the initial
Adjusted Value of such assets. If a fair market value cannot reasonably be
assigned to any assets, the Corporation shall use its best efforts to dispose of
such assets as promptly as practicable, subject to the judgment of the Directors
as to the best interests of the holders of Series A Stock. Pending such
disposition the Corporation shall keep accurate records relating to such assets.

      (C) The "Earliest Redemption Date" shall mean the first date on which the
Corporation shall have collected, in respect of any of the Covered Cases, in the
form of cash and/or assets constituting Assigned Value Assets, aggregate
proceeds of the Recovery having a value (based on the amount of cash to received
together with the Adjusted Value of any Assigned Value Assets) in excess of
$50,000,000.

      (D) Whenever the Corporation shall redeem any shares of Series A Stock
when either (1) the prospect remains that additional amounts will be collected
in respect of the Covered Cases or (2) any portion of the Recovery then
collected consists of assets other than cash or Assigned Value Assets, the
Corporation shall, in connection with such redemption, assign to the holder of
each share of Series A Stock then being redeemed an undivided fractional
interest equal to the Per Share Allocation Factor then in effect in all the
Corporation's right, title and interest in (x) such additional amounts as may be
collected in respect of the Covered Cases as provided in the foregoing clause
(1) and/or the proceeds thereof and (y) the proceeds of the sale or other
disposition of any assets other than cash or Assigned Value Assets plus the
revenues derived by the Corporation therefrom. The form and manner of assignment
shall be as determined by the Directors of the Corporation so as to best convey
to the holders of the shares of Series A Stock being redeemed the benefits
contemplated hereby; provided, however, that such holders shall not by reason of
the assignment of the Corporation's interest in the foregoing proceeds have any
right to control the prosecution of the Covered Cases, the collection of any
amounts recoverable thereunder of the operation or disposition of the aforesaid
assets, and provided, further, that the Corporation may provide that the
interests as assigned shall be non-transferable. The interest assigned in
accordance with this Section 5(D) in respect of any share of Series A Stock
being redeemed is referred to herein as a "Deferred Payment Entitlement" in
respect of such share.

      Section 6. Voting Rights. The voting rights relating to the Serial
Preferred Stock set forth in Section 6 of Division A of Article Fourth are
applicable to the Series A Stock. Except as so provided, and except as required
by applicable law, the holders of shares of Series A Stock shall have no voting
rights with respect to any action by the Corporation or its shareholders by
virtue of being a holder of shares of Series A Stock.

      Section 7. Limitations.

      (A) So long as any shares of Series A Stock are outstanding, no shares of
any series of Serial Preferred Stock or other capital stock of the Corporation
other than Common Shares having the express terms applicable to Common Shares on
the Share Acquisition Date (as defined in Section 8(B) of this Division C) or
the Series A Stock, and no shares of Series A Stock not issuable pursuant to and
in accordance with the Rights Agreement, may be issued by the Corporation.

                                       10


      (B) So long as any shares of Series A Stock are outstanding, the
Corporation shall not invest any portion of the proceeds of the Recovery (other
than any non-cash assets collected as a part thereof) in other than "Permitted
Investments." For purposes of this Section 7(C), "Permitted Investments" shall
include the following obligations and securities:

            (a) United States Treasury bonds, notes and bills;

            (b) certificates of deposit issued by major commercial banks;

            (c) Eurodollar time deposits placed with major commercial banks;

            (d) corporate bonds, debentures and notes (none of which shall be
      convertible into any equity security) rated A or better by Moody's
      Investors Services and by Standard & Poor's Corporation;

            (e) non-convertible preferred stock rated A or better by Moody's
      Investors Services and by Standard & Poor's Corporation; and

            (f) commercial paper rated Prime-2 or better by Moody's Investors
      Services and A-1 or better by Standard & Poor's Corporation.

In no event shall any portion of the proceeds of the Recovery be invested in any
obligation or other security of a Prohibited Transferee.

      (C) So long as any shares of Series A Stock are outstanding, the
Corporation shall not settle or otherwise compromise the Covered Cases, direct
counsel to make any change in the strategy for conducting the Covered Cases,
fail to pay any costs or expenses of conducting the Covered Cases which might
diminish the likelihood of a favorable result therein or otherwise adversely
affect the conduct of the Covered Cases, except, in each case, with the approval
of the Directors of the Corporation.

      (D) So long as any shares of Series A Stock are outstanding, the
Corporation shall not sell, assign or otherwise transfer the Covered Cases or
any interest therein unless the Directors of the Corporation shall have
previously determined in good faith that the proceeds to be realized thereby are
fair to the holders of the Series A Stock.

      (E) So long as any shares of Series A Stock are outstanding, the
Corporation shall not (i) consolidate with, (ii) merge with or into, (iii) sell
or transfer to, in one or more transactions, assets or earning power aggregating
more than 50% of the assets or earning power of the Company and its
subsidiaries, taken as a whole, any Prohibited Transferee or any Affiliate or
Associate thereof (as such terms are defined in Section 8(B) of this Division
C), or (iv) liquidate, dissolve or otherwise wind-up the affairs of the
Corporation, if at the time of, after or as a result of such consolidation,
merger, sale, liquidation, dissolution or winding up there would be any charter
or regulation provisions, including without limitation any provisions of the
Corporation's Amended Articles of Incorporation or Regulations, as from time to
time amended, of any rights, options, warrants or other instruments or
securities outstanding or agreements in effect or any other actions taken, which
would eliminate or otherwise diminish the benefits intended to be afforded by
the Rights of the Series A Stock, without proper provision being made for the
redemption of the Series A Stock in accordance with Section 7(E) of this
Division C.

      Section 8. Contributions and Transfer.

      (A) The Series A Stock shall not be transferable to or by a Prohibited
Transferee and any attempt to transfer shares of Series A Stock to or by a
Prohibited Transferee shall be null and void. The Corporation reserves the right
to require (or to cause any transfer agent of the Corporation to require) any
Person who submits a share of Series A Stock for transfer on the transfer books
of the Corporation or for redemption pursuant to Section 3 hereof to establish
to the satisfaction of the Corporation that such Person did not acquire such
shares of Series A Stock while or from a Prohibited Transferee.

                                       11


      (B) As used in this Division C, the term "Prohibited Transferee" shall
mean, at the time any determination is to be made, (1) any Person other than the
Corporation or any Related Person (as such terms are hereinafter defined), who
or which, together with all Affiliates and Associates (as such terms are defined
in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, and in effect on the date of first issuance of any
shares of Series a Stock (the "Exchange Act")) of such Person, shall be the
beneficial owner of 20% or more of the Common Shares then outstanding or (2) any
Person (other than the Corporation or any Related Person) who or which, together
with all Affiliates or Associates of such Person (A) commences or announces its
intention to commence a tender or exchange offer the consummation of which would
result in beneficial ownership by such Person of 20% or more of the Common
Shares then outstanding, or announces its intention otherwise to purchase or
acquire (b) 20% or more of the Common Shares then outstanding. The term "Person"
shall mean any individual, firm, corporation, partnership or other entity, and
shall include any successor (by merger or otherwise) of such entity. The term
"Related Person" shall mean (x) any subsidiary of the Corporation, (y) any
employee benefit or stock ownership plan of the Corporation or any entity
holding Common Shares for or pursuant to the terms of any such plan, or (z) any
Person who acquires Common Shares from the Corporation or any other Related
Person in one or a series of related transactions, each of which is approved by
a majority of the Directors of the Corporation; provided, however, that if any
Person who becomes a Related Person solely by virtue of subsection (z) above, or
any Affiliate or Associate of such Person, subsequently becomes the beneficial
owner of any additional Common Shares in a transaction or transactions not
approved by a majority of the Directors of the Corporation, such Person shall no
longer be deemed a "Related Person" with respect to all Common Shares of which
it, or any of its Affiliates or Associates, is the beneficial owner. The term
"Distribution Date" shall mean the close of business on the fifteenth calendar
day (or such other date as any be specified by a majority vote of the Directors
then in office) after the Share Acquisition Date. The term "Share Acquisition
Date" shall mean the first date of public announcement by the Corporation or a
Prohibited Transferee (by press release, filing made with the Securities and
Exchange Commission or otherwise) that a Prohibited Transferee has become such.
For the purposes of this Division C, a Person shall be deemed the "Beneficial
Owner" of and shall be deemed "beneficially to own" any securities: (i) which
such Person or any of such Person's Affiliates or Associates, directly or
indirectly, has the right to acquire (whether such right is exercisable
immediately or only after the passage of time or the occurrence or nonoccurrence
of an event) pursuant to any agreement, arrangement or understanding (whether or
not in writing), or upon the exercise of conversion rights, exchange rights,
other rights (other than the Other Rights), warrants, options or otherwise;
provided, however, that a Person shall not be deemed the Beneficial Owner of, or
beneficially to own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange;
or (ii) which such Person or any of such Person's Affiliates or Associates,
directly or indirectly, has the right or power to vote or dispose of, or to
direct the vote or disposition of, including pursuant to any agreement,
arrangement or understanding (whether or not in writing); or (iii) which any
other Person is the beneficial Owner if such other Person or any of the
Affiliates or Associates of such other Person has any agreement, arrangement or
understanding (whether or not in writing) with the first Person or the
Affiliates or Associates of the first Person with respect to acquiring, holding,
voting or disposing of any securities of the Company; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or beneficially to own, any
security (A) if such Personal has a right to vote such security pursuant to an
agreement, arrangement or understanding(whether or not in writing) which (i)
arises solely from a revocable proxy given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in accordance with,
the applicable rules and regulations of the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report), or (B) if such beneficial ownership arises solely as a result
of such Person's status as a "clearing agency," as defined in Section 3(a)(23)
of the Exchange Act; and provided, further, however, that nothing in this
paragraph shall cause a Person engaged in business as an underwriter of
securities to be the Beneficial Owner of any securities acquired through such
Person's participation in good faith in an underwriting syndicate pursuant to an
agreement to which the Company is a party until the expiration of 40-calendar
days after the date of such acquisition. The term "Rights" shall mean the rights
to purchase shares of Series A Stock issued pursuant to the terms of the Rights
Agreement. The term "Other Rights" shall mean the rights to purchase Common
Shares of the

                                       12


Corporation issued pursuant to the terms of the Rights Agreement, dated October
6, 1987, as from time to time amended or supplemented, between the Corporation
and National City Bank.

                                   DIVISION D
                  EXPRESS TERMS OF THE SERIAL PREFERENCE SHARES

      Section 1. Serial Preference Shares may be issued from time to time in one
or more series. Subject to the provisions of this Division D, which apply to all
Serial Preference Shares, the Directors are hereby authorized to adopt
amendments to the Articles of Incorporation in respect of any unissued or
treasury Serial Preference Shares and thereby fix or change any or all of the
express terms of such Serial Preference Shares as from time to time may be
permitted or required by law, including without limitation the following:

            (i) The division of such shares into series and the designation and
      authorized number of shares of each series;

            (ii) The dividend or distribution rate;

            (iii) The dates of payment of dividends or distributions and the
      dates from which they are cumulative;

            (iv) Liquidation price;

            (v) Redemption rights and price;

            (vi) Sinking fund requirements;

            (vii) Conversion rights; and

            (viii) Restrictions on the issuance of shares of any class or
      series.

      Section 2. The holders of Serial Preference Shares shall be entitled to
one vote for each Serial Preference Share held by them upon all matters
presented to the shareholders and, except as required by law, the holders of
Serial Preference Shares and the holders of Common Shares (and the holders of
all other shares of voting stock of the Corporation that vote together as a
class with the holders of Common Shares) shall vote together as one class on all
matters.

      Section 3. (a) The holders of Serial Preference Shares shall be entitled
to receive dividends, when and as declared by the Directors, out of the assets
of the Corporation which are by law available for the payment of dividends at
the rate per share per annum as shall have been fixed by the Directors pursuant
to Section 1 of this Division D.

      (b) No dividends (other than a dividend payable in Common Shares) or other
distributions shall be paid or declared on any Common Shares or any other shares
ranking junior to the Serial Preference Shares (such Common Shares and other
shares ranking junior to the Serial Preference Shares being hereinafter referred
to as "Junior Shares"), nor shall any Junior Shares be purchased, retired or
otherwise acquired by the Corporation, unless:

            (i) all accrued and unpaid dividends on all series of Serial
      Preference Shares, including the full dividends for the current period,
      shall have been declared and paid or provision shall have been made for
      such payment; and

            (ii) there shall be no arrearages with respect to the redemption or
      sinking fund obligations, if any, of the Corporation for any series of
      Serial Preference Shares.

                                       13


      Section 4. In the event of a voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation, before any payment
shall be made to the holders of Junior Shares, the holders of the Serial
Preference Shares shall be entitled to be paid from the assets available
therefor the liquidation price fixed by the Directors pursuant to Section 1 of
this Division D and all accrued and unpaid dividends on the Serial Preference
Shares.

      Section 5. All Serial Preference Shares shall be shares "ranking junior to
the Serial Preferred Stock" as such phrase is defined in Division A, Section 8
of the Articles of Incorporation.

      FIFTH: Except as otherwise provided in these Articles of Incorporation or
in the Regulations, the holders of a majority of the outstanding shares are
authorized to take any action which, but for this provision, would require the
vote or other action of the holders of more than a majority of such shares.

      SIXTH: Except as otherwise provided in these Articles of Incorporation,
the Corporation, by its Board of Directors, may purchase issued shares, to the
extent permitted by law.

      SEVENTH:

      Section 1. In addition to any affirmative vote required by law or these
Articles of Incorporation, any Related Party Transaction shall require the
affirmative vote of not less than both a majority of the Corporation's
outstanding Voting Stock and a majority of the portion of the Corporation's
outstanding Voting Stock excluding the Voting Stock owned by the Related Party
involved in the Related Party Transaction.

      Section 2. The provisions of Section 1 of this Article Seventh shall not
be applicable to Related Party Transactions in which (a) the aggregate amount of
the cash and the fair market value of consideration other than cash received per
share by holders of shares of each class or series of Voting Stock of the
Corporation who receive cash or other consideration in the Related Party
Transaction is not less than the highest per share price (with appropriate
adjustments for recapitalizations and for stock splits, stock dividends, and
like distributions) paid by the Related Party in acquiring any of its holdings
of each class of series of such Voting Stock, and (b) the form of consideration
received by holders of shares of each class or series of such Voting Stock is
cash or the same form used by the Related Party to acquire the largest
percentage of each class or series of such Voting Stock owned by the Related
Party.

      Section 3. The provisions of Section 1 of this Article Seventh shall not
be applicable if the Continuing Directors of the Corporation by a majority vote
have expressly approved the Related Party Transaction.

      Section 4. For the purpose of this Article Seventh:

            (a) The term "Related Party Transaction" shall mean (i) any merger
      or consolidation of the Corporation or a Subsidiary with a Related Party,
      irrespective of which party, if either, is the surviving party, (ii) any
      sale, purchase, lease, exchange, transfer, or other transaction (or series
      of transactions) between the Corporation or a Subsidiary and a Related
      Party involving the acquisition or disposition of assets for consideration
      of $10,000,000 or more in value (except for transactions in the ordinary
      course of business), (iii) the issuance or transfer of any securities of
      the Corporation or of a Subsidiary to a Related Party (other than an
      issuance or transfer of securities which is effected on a pro rata basis
      to all shareholders of the Corporation), (iv) any reclassification of
      securities of the Corporation (including any reverse stock split) or any
      recapitalization or other transaction involving the Corporation or its
      Subsidiaries that would have the effect of increasing the voting power of
      a Related Party, except for any mandatory redemption required by the terms
      of outstanding securities, and (v) the adoption of any plan or proposal
      for the liquidation or dissolution of the Corporation in favor of which a
      Related Party votes its Voting Stock.

                                       14


            (b) The term "Related Party" shall mean (i) any individual,
      corporation, partnership, or other person, group or entity which, together
      with its Affiliates and Associates, is the beneficial owner of ten percent
      (10%) or more but less than ninety percent (90%) of the Voting Stock of
      the Corporation or (ii) any such Affiliate or Associate.

            (c) A person shall be a "beneficial owner" of any shares of Voting
      Stock:

                  (i) Which such person or any of its Affiliates or Associates
            beneficially owns, directly or indirectly; or

                  (ii) Which such person or any of its Affiliates or Associates
            has (a) the right to acquire (whether such right is exercisable
            immediately or only after the passage of time) pursuant to any
            agreement, arrangement or understanding or upon the exercise of
            conversion rights, exchange rights, warrants or options, or
            otherwise, or (b) the right to vote pursuant to any agreement,
            arrangement or understanding; or

                  (iii) Which are beneficially owned, directly or indirectly, by
            any other person with which such person or any of its Affiliates or
            Associates has any agreement, arrangement or understanding for the
            purpose of acquiring, holding, voting or disposing of any shares of
            Voting Stock.

            (d) The terms "Affiliate" and "Associate" shall have the respective
      meanings ascribed to such terms in Rule 12b-2 of the General Rules and
      Regulations under the Securities Act of 1934, as in effect on January 1,
      1985 (or any subsequent provisions replacing such Act, Rules or
      Regulations).

            (e) The term "consideration other than cash" as used in Section 2(a)
      of this Article Seventh shall include, without limitation, Voting Stock of
      the Corporation retained by its existing shareholders in the event of a
      merger or consolidation with a Related Party in which the Corporation is
      the surviving corporation.

            (f) The term "Subsidiary" shall mean any Affiliate of the
      Corporation more than fifty percent (50%) of the outstanding securities of
      which representing the right, other than as affected by events of default,
      to vote for the election of directors is owned by the Corporation or by
      another Subsidiary (or both).

            (g) The term "Voting Stock" shall mean all securities of the
      Corporation entitled to vote generally in the election of directors.

            (h) The term "Continuing Director" shall mean a director who either
      (i) was a member of the Board of Directors of the Corporation immediately
      prior to the time that the Related Party involved in a Related Party
      Transaction became a Related Party, or (ii) was designated (before his or
      her initial election as a director) as a Continuing Director by a majority
      of the then Continuing Directors.

      Section 5. A majority of the Continuing Directors shall have the power and
duty to determine conclusively for the purposes of this Article Seventh, on the
basis of information known to them, (a) whether a person is a Related Party, (b)
whether a person is an Affiliate or Associate of another, (c) whether a
transaction between the Corporation or a Subsidiary and a Related Party involves
the acquisition or disposition of assets for consideration of $10,000,000 or
more in value, (d) the fair market value of consideration other than cash
received by holders of Voting Stock in a Related Party Transaction, and (e) such
other matters with respect to which a determination or interpretation is
required under this Article Seventh.

      Section 6. Nothing contained in this Article Seventh shall be construed to
relieve any related Party from any fiduciary obligation imposed by law.

                                       15


      Section 7. Notwithstanding any other provisions of these Articles of
Incorporation or the Regulations of the Corporation or any provision of law
which might otherwise permit a lesser vote, but in addition to any affirmative
vote of the holders of any particular class or series of stock required by law
or these Articles of Incorporation, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the Corporation's Voting
Stock, voting as a single class, shall be required to alter, amend or adopt any
provision inconsistent with or repeal this Article Seventh.

      EIGHTH:

      Section 1. Any direct or indirect purchase or other acquisition by the
Corporation of any shares of Voting Stock from any Selling Shareholder who has
beneficially owned any of such shares of Voting Stock for less than two years
prior to the date of such purchase or other acquisition, or any agreement in
respect thereof, shall, except as expressly provided in Section 2 of this
Article Eighth, require the affirmative vote of the holders of not less than a
majority of the shares of Voting Stock represented in person or by proxy at a
meeting at which a quorum is present, excluding Voting Stock beneficially owned
by such Selling Shareholder, voting together as a single class. Such affirmative
vote shall be required notwithstanding the fact that no vote may be required, or
that a lesser percentage may be specified by law, or in any agreement with any
national securities exchange or otherwise.

      Section 2. The provisions of Section 1 of this Article Eighth shall not be
applicable (a) to any purchase or other acquisition by the Corporation from a
Selling Shareholder of shares of Voting Stock owned by said Selling Shareholder
which purchase or acquisition is made as part of a tender or exchange offer by
the Corporation to purchase Voting Stock of the same class or series made on the
same terms to all holders of such Voting Stock and complying with the applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations thereunder (or any subsequent provisions replacing such Act, rules
or regulations), or (b) to the purchase from any Selling Shareholder of shares
of Voting Stock by the Corporation at a price not in excess of the Fair Value
thereof, and any such purchase or acquisition shall require only such
affirmative vote, if any, as is required by law and any other provisions of
these Articles of Incorporation or otherwise.

      Section 3. For the purpose of this Article Eighth:

            (a) "Selling Shareholder" shall mean any individual, firm,
      partnership, corporation or other person, group or entity (other than the
      Corporation or any corporation of which a majority of its voting stock is
      owned, directly or indirectly, by the Corporation) who or which:

                  (i) is the beneficial owner of more than five percent (5%) of
            the class or series of Voting Stock to be acquired; or

                  (ii) is an Affiliate of the Corporation and at any time within
            the two-year period immediately prior to the date in question was
            the beneficial owner of more than five percent (5%) of the class or
            series of Voting Stock to be acquired; or

                  (iii) is an assignee or has otherwise succeeded to any shares
            of the class or series of Voting Stock to be acquired which were at
            any time within the two-year period immediately prior to the date in
            question beneficially owned by a Selling Shareholder, if such
            assignment or succession shall have occurred in the course of a
            transaction or series of transactions not involving a public
            offering within the meaning of the Securities Act of 1933.

            (b) "Affiliate" or "Associate" shall have the respective meanings
      ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
      under the Securities Act of 1934, as in effect on January 1, 1985 (or any
      subsequent provisions replacing such Act, Rules or Regulations).

            (c) A person shall be a "beneficial owner" of any shares of Voting
      Stock:

                                       16


                  (i) Which such person or any of its Affiliates or Associates
            beneficially owns, directly or indirectly; or

                  (ii) Which such person or any of its Affiliates or Associates
            has (a) the right to acquire (whether such right is exercisable
            immediately or only after the passage of time) pursuant to any
            agreement, arrangement or understanding or upon the exercise of
            conversion rights, exchange rights, warrants or options, or
            otherwise, or (b) the right to vote pursuant to any agreement,
            arrangement or understanding; or

                  (iii) Which are beneficially owned, directly or indirectly, by
            any other person with which such person or any of its Affiliates or
            Associates has any agreement, arrangement or understanding for the
            purpose of acquiring, holding, voting or disposing of any shares of
            Voting Stock.

            (d) For the purpose of determining whether a person is a Selling
      Shareholder pursuant to paragraph (a) of this Section 3, the number of
      shares of Voting Stock deemed to be outstanding shall include shares
      deemed owned through application of paragraph (c) of this Section 3, but
      shall not include any other shares of Voting Stock which may be issuable
      pursuant to any agreement, arrangement or understanding, or upon exercise
      of conversion rights, warrants or options, or otherwise.

            (e) "Voting Stock" shall mean all securities of the Corporation
      entitled to vote generally in the election of directors.

            (f) "Fair Value" shall mean the highest closing sale price of such
      Voting Stock during the thirty-day period immediately preceding the date
      in question, on the Composite Tape for New York Stock Exchange-Listed
      Stocks, or, if such Voting Stock is not quoted on the Composite Tape, on
      the New York Stock Exchange, or, if such Voting Stock is not listed on
      such Exchange, on the principal United States securities exchange
      registered under the Securities Exchange Act of 1934 on which such Voting
      Stock is listed, or, if such Voting Stock is not listed on any such
      exchange, the highest closing bid quotation with respect to such Voting
      Stock, during the thirty- day period immediately preceding the date in
      question, on the National Association of Securities Dealers, Inc.
      Automated Quotations System or any system then in use, or if no such
      quotations are available, the Fair Value on the date in question of such
      Voting Stock shall be as determined by a majority of the Board of
      Directors of the Corporation in good faith.

      Section 4. A majority of the Board of Directors shall have the power and
duty to determine conclusively for the purposes of this Article Eighth, on the
basis of information known to them, (a) whether a person is a Selling
Shareholder, (b) the Fair Value of Voting Stock owned by a Selling Shareholder,
and (c) such other matters with respect to which a determination or
interpretation is required under this Article Eighth.

      NINTH: No person shall make a Control Share Acquisition without first
obtaining the prior authorization of the Corporation's shareholders at a special
meeting of shareholders called by the Board of Directors in accordance with this
Article Ninth.

      Section 1. PROCEDURE. Any Person who proposes to make a Control Share
Acquisition shall deliver a notice ("Notice") to the Corporation at its
principal place of business that sets forth all of the following information:

            (A) The identity of the Person who is giving the Notice;

            (B) A Statement that the Notice is given pursuant to this Article
      Ninth.

                                       17


            (C) The number and class of shares of the Corporation owned,
      directly or indirectly, by the Person who gives the Notice;

            (D) The range of voting power (as specified in Section 6(B)(1))
      under which the proposed Control Share Acquisition would, if consummated,
      fall;

            (E) A description in reasonable detail of the terms of the proposed
      Control Share Acquisition; and

            (F) Representatives, supported by reasonable information, that the
      proposed Control Share Acquisition would be consummated if shareholder
      approval is obtained and, if consummated, would not be contrary to law and
      that the Person who is giving the Notice has the financial capacity to
      make the proposed Control Share Acquisition.

      Section 2. CALL OF SPECIAL MEETING OF SHAREHOLDERS. The Board of Directors
of the Corporation shall, within ten (10) days after receipt by the Corporation
of a Notice that complies with Section 1, call a special meeting of shareholders
to be held not later than fifty (50) days after receipt of the Notice by the
Corporation, unless the Person who delivered the Notice agrees to a later date,
to consider the proposed Control Share Acquisition; provided that the Board of
Directors shall have no obligation to call such a meeting if they make a
determination with ten (10) days after receipt of the Notice that the proposed
Control Share Acquisition could not be consummated for financial or legal
reasons.

      The Board of Directors may adjourn such special meeting of shareholders if
prior to such meeting the Corporation has received a Notice from any other
Person and the Board of Directors has determined that the Control Share
Acquisition proposed by such other Person, or a merger, consolidation or sale of
assets of the Corporation, should be presented to shareholders at an adjourned
meeting or at a special meeting held at a later date.

      For purposes of making a determination that a special meeting of
shareholders should not be allowed pursuant to this Section 2, no such
determination shall be deemed void or voidable with respect to the Corporation
merely because one or more of its directors or officers who participated in
deliberations regarding such determination may be deemed to be other than
disinterested, if in any such case the material facts of the relationship giving
rise to a basis for self-interest are known to the directors and the directors,
in good faith reasonably justified by the facts, make such determination by the
affirmative vote of a majority of the disinterested directors, even though the
disinterested directors constitute less than a quorum. For purposes of this
paragraph, "disinterested directors" shall mean directors whose material
contacts with the Corporation are limited principally to activities as a
director or shareholder. Persons who have substantial, recurring business or
professional contacts with the Corporation shall not be deemed to be
"disinterested directors" for purposes of this provision. A director shall not
be deemed to be other than a "disinterested director" merely because he would no
longer be a director if the proposed Control Share Acquisition were approved and
consummated.

      Section 3. NOTICE OF SPECIAL MEETING. The Corporation shall, as promptly
as practicable, give notice of the special meeting of shareholders called
pursuant to Section 2 to all shareholders of record as of the record date set
for such meeting. Such notice shall include or be accompanied by a copy of the
Notice and by a statement of the Corporation, authorized by the Board of
Directors, of its position or recommendation, or that it is taking no position
or making no recommendation, with respect to the proposed Control Share
Acquisition.

      Section 4. REQUIREMENTS FOR APPROVAL The Person who delivered the Notice
may make the proposed Control Share Acquisition if both of the following occur:

            (A) The Shareholders of the Corporation authorize such acquisition
      at the special meeting of shareholders called pursuant to Section 2, at
      which meeting a quorum is present, by the affirmative vote of a majority
      of the Voting Stock represented at such meeting in person

                                       18


      or by proxy and by a majority of the portion of such Voting Stock
      represented at such meeting in person or by proxy excluding the votes of
      Interested Shares. A quorum shall be deemed to be present at such special
      meeting if at least a majority of the issued and outstanding Voting Stock,
      and a majority of such Voting Stock excluding Interested Shares, are
      represented at such meeting in person or by proxy.

            (B) Such acquisition is consummated, in accordance with the terms so
      authorized, not later than three hundred sixty (360) days following
      shareholder authorization of the Control Share Acquisition.

      Section 5. VIOLATIONS OF RESTRICTION. Any Voting Stock issued or
transferred to any Person in violation of this Article Ninth shall hereinafter
be called "Excess Shares." In the event that any Person acquires Excess Shares,
then, in addition to any other remedies which the Corporation may have at law or
in equity as a result of such acquisition, the Corporation shall have the right
to redeem, or to deny voting rights or other shareholder rights appurtenant to
such Excess Shares. The Corporation additionally shall have the right to regard
the Person who holds Excess Shares as having acted as an agent on behalf of the
Corporation in acquiring the Excess Shares and to hold such Excess Shares on
behalf of the Corporation. As the equivalent of treasury securities for such
purposes, the Excess Shares shall not be entitled to any voting rights, shall
not be considered to be outstanding for quorum or voting purposes, and the
Person who holds Excess Shares shall not be entitled to receive dividends,
interest or any other distribution with respect to the Excess Shares. Any Person
who receives dividends, interest or any other distribution with respect to
Excess Shares shall hold the same as agent for the Corporation and, following a
permitted transfer, for the transferee thereof. Notwithstanding the foregoing,
any Person who holds Excess Shares may transfer the same (together with any
distributions thereon) to any Person who, following such transfer, would not own
shares in violation of this Article Ninth. Upon such permitted transfer, the
Corporation shall pay or distribute to the transferee any distributions on the
Excess Shares not previously paid or distributed.

      Section 6. DEFINITIONS. As used in this Article Ninth:

            (A) "Person" includes, without limitation, an individual, a
      corporation (whether nonprofit or for profit), a partnership, an
      unincorporated society or association, and two or more persons having a
      joint or common interest.

            (B)(1) "Control Share Acquisition" means the acquisition, directly
      or indirectly, by any Person, of shares of the Corporation that, when
      added to all other shares of the Corporation in respect of which such
      Person, directly or indirectly, may exercise or direct the exercise of
      voting power as provided in this Section 6(B)(1), would entitle such
      Person, immediately after such acquisition, directly or indirectly, to
      exercise or direct the exercise of voting power of the Corporation in the
      election of directors within any of the following ranges of such voting
      power:

                  a) One-fifth or more but less than one-third of such voting
            power;

                  (b) One-third or more but less than a majority of such voting
            power; or

                  (c) A majority or more of such voting power.

            A bank, broker, nominee, trustee, or other Person who acquires
      shares in the ordinary course of business for the benefit of others in
      good faith and not for the purpose of circumventing this Article Ninth
      shall, however, be deemed to have voting power only of shares in respect
      of which such Person would be able to exercise or direct the exercise of
      votes at a special meeting of shareholders called pursuant to Section 2 of
      this Article Ninth without further instruction from others. For purposes
      of this Article Ninth, the acquisition of securities immediately
      convertible into shares of the Corporation with voting power in the
      election of directors shall be treated as an acquisition of such shares.

                                       19


            (2) The acquisition of any shares of the Corporation does not
      constitute a Control Share Acquisition for the purposes of this Article
      Ninth if the acquisition is consummated in any of the following
      circumstances:

                  (a) By underwriters in good faith and not for the purpose of
            circumventing this Article Ninth in connection with an offering to
            the public of securities of the Corporation;

                  (b) By bequest or inheritance, by operation of law upon the
            death of any individual, or by any other transfer without valuable
            consideration, including a gift that is made in good faith and not
            for the purpose of circumventing this Article Ninth;

                  (c) Pursuant to the satisfaction of a pledge or other security
            interest created in good faith and not for the purpose of
            circumventing this Article Ninth;

                  (d) Pursuant to a merger, consolidation, combination or
            majority share acquisition adopted or authorized by shareholder vote
            in compliance with the provisions of Article Seventh of these
            Articles of Incorporation and Section 1701.78 or 1701.83 of the Ohio
            Revised Code if the Corporation is the surviving or new corporation
            in the merger or consolidation or is the acquiring corporation in
            the combination or majority share acquisition;

                  (e) Under such circumstances that the acquisition does not
            result in the Person acquiring shares of the Corporation being
            entitled, immediately thereafter and for the first time, directly or
            indirectly, to exercise or direct the exercise of voting power of
            the Corporation in the election of directors within the range of
            one-fifth or more but less than one-third of such voting power, or
            within any of the ranges of voting power specified in Section
            6(B)(1)(a), (b) or (c) which is higher than the range of voting
            power applicable to such Person immediately prior to such
            acquisition;

                  (f) Prior to [of the Merger]; or

                  (g) Pursuant to a contract existing prior to [date of the
            Merger].

            The acquisition by any Person of shares of the Corporation in a
      manner described under this Section 6(B)(2) shall be deemed to be a
      Control Share Acquisition authorized pursuant to this Article Ninth within
      the range of voting power specified in Section 6(B)(1)(a), (b) or (c) that
      such Person is entitled to exercise after such acquisition, provided that,
      in the case of an acquisition in a manner described under Section
      6(B)(2)(b) or (c), the transferor of shares to such Person had previously
      obtained any authorization of shareholders required under this Article
      Ninth in connection with such transferor's acquisition of shares of the
      Corporation.

            (3) The acquisition of shares of the Corporation in good faith and
      not for the purpose of circumventing this Article Ninth from any Person
      whose Control Share Acquisition had previously been authorized by
      shareholders in compliance with this Article Ninth, or from any Person
      whose previous acquisition of shares would have constituted a Control
      Share Acquisition but for Section 6(B)(2), does not constitute a Control
      Share Acquisition for the purpose of this Article Ninth unless such
      acquisition entitles any Person, directly or indirectly, alone or with
      others, to exercise or direct the exercise of voting power of the
      Corporation in the election of directors in excess of the range of such
      voting power authorized pursuant to this Article Ninth, or deemed to be so
      authorized under Section 6(B)(2).

            (C) "Interested Shares" means Voting Stock with respect to which any
            of the following persons may exercise or direct the exercise of the
            voting power:

                  (1) any Person whose Notice prompted the calling of a special
                  meeting of shareholders pursuant to Section 2;

                                       20



                  (2) any officer of the Corporation elected or appointed by the
            directors of the Corporation; and

                  (3) any employee of the Corporation who is also a director of
            the Corporation.

            (D) "Voting Stock" means all securities of the Corporation entitled
      to vote generally in the election of directors, and, for purposes of
      Section 5 of this Article Ninth, shall mean securities of the Corporation
      immediately convertible into securities entitled to vote generally in the
      election of directors.

      Section 7. PROXIES. No proxy appointed for or in connection with the
Shareholder authorization of a Control Share Acquisition pursuant to this
Article Ninth is valid if it provides that it is irrevocable. No such proxy is
valid unless it is sought, appointed, and received both:

      (A) In accordance with all applicable requirements of law; and

      (B) Separate and apart from the sale or purchase, contract or tender for
sale or purchase, or request or invitation for tender for sale or purchase, of
shares of the Corporation.

      Section 8. REVOCABILITY OF PROXIES. Proxies appointed for or in connection
with the shareholder authorization of a Control Share Acquisition pursuant to
this Article Ninth shall be revocable at all times prior to the obtaining of
such shareholder authorization, whether or not coupled with an interest.

      Section 9. AMENDMENTS. Notwithstanding any other provisions of these
Articles of Incorporation or the Regulations of the Corporation or any provision
of law that might otherwise permit a lesser vote, but in addition to any
affirmative vote of the holders of any particular class or series of stock
required by law, the Articles of Incorporation or the Regulations of the
Corporation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the Voting Stock, voting as a single class,
shall be required to alter, amend or repeal this Article Ninth or adopt any
provisions in the Articles of Incorporation or Regulations of the Corporation
which are inconsistent with the provisions of this Article Ninth.

      Section 10. LEGEND ON SHARE CERTIFICATES. Each certificate representing
shares of the Corporation's capital stock shall contain the following legend:

            Transfer of the shares represented by this Certificate is subject to
      the provisions of Article Ninth of the Corporation's Articles of
      Incorporation as the same may be in effect from time to time. Upon written
      request delivered to the Secretary of the Corporation at its principal
      place of business, the Corporation will mail to the holder of this
      Certificate a copy of such provisions without charge within five (5) days
      after receipt of written request therefor. By accepting this Certificate
      the holder hereof acknowledges that it is accepting same subject to the
      provisions of said Article Ninth as the same may be in effect from time to
      time and covenants with the Corporation and each shareholder thereof from
      time to time to comply with the provisions of said Article Ninth as the
      same may be in effect from time to time.

      TENTH: The provisions of Section 1701.831 of the Ohio Revised Code, as
amended from time to time, or any successor provision or provisions to said
Section, shall not apply with respect to any particular Control Share
Acquisition, as such is defined in said Section, regarding this Corporation so
long as Article Ninth of these Articles of Incorporation, as such Articles of
Incorporation may be amended from time to time, remains an Article of these
Articles of Incorporation and remains substantially in full force and effect,
disregarding any renumbering of such Article Ninth resulting from any amendment
of these Articles of Incorporation.

                                       21



      ELEVENTH: These Amended Articles of Incorporation supersede the existing
Amended Articles of Incorporation of the Corporation.

                                       22

EX-3.2

                                                                     Exhibit 3.2

                                   REGULATIONS
                                       OF
                            THE LUBRIZOL CORPORATION

                            MEETINGS OF SHAREHOLDERS

Section 1. Annual Meeting. The annual meeting of the shareholders of the Company
shall be held at the principal office of the Company, or at such other place
within or without the State of Ohio as the directors may determine, on the
fourth Monday of April of each year, if not a legal holiday, or, if a legal
holiday, then on the next succeeding business day. The directors shall be
elected thereat and such other business transacted as may be specified in the
notice of the meeting.

Section 2. Special Meetings. Special meetings of the shareholders may be called
at any time by the Chairman of the Board, the Vice Chairman of the Board, the
President, or by a majority of the directors acting with or without a meeting,
or by shareholders holding fifty percent (50%) or more of the outstanding shares
entitled to vote thereat. Such meetings may be held within or without the State
of Ohio at suchtime and place as may be specified in the notice thereof.

Section 3. Notice of Meetings. Written or printed notice of every annual or
special meeting of the shareholders stating the time and place and the purposes
thereof shall be given to each shareholder entitled to vote thereat and to each
shareholder entitled to notice as provided by law, by mailing the same to his
last address appearing on the records of the Company at least seven days before
any such meeting. Any shareholder may waive any notice required to be given by
law or under these Regulations, and by attendance at any meeting, shall be
deemed to have waived notice thereof.

Section 4. Persons Becoming Entitled by Operation of Law of Transfer. Every
person who, by operation of law transfer, or any other means whatsoever, shall
become entitled to any shares, shall be bound by every notice in respect of such
share or shares which previously to the entering of his name and address on the
records of the Company shall have been duly given to the person from whom he
derives his title to such shares.

Section 5. Quorum and Adjournments. Except as may be otherwise required by law
or by the Articles of Incorporation, the holders of shares entitling them to
exercise a majority of the voting power of the Company shall constitute a quorum
to hold a shareholders meeting; provided, however, that at any meeting, whether
a quorum is present or otherwise, the holders of a majority of the voting shares
represented thereat may adjourn from time to time without notice other than by
announcement at such meeting.

Section 6. Business to be Conducted at Meetings. At any meeting of shareholders,
only such business shall be conducted as shall have been properly brought before
the meeting. To be properly brought before a meeting of shareholders, business
must be specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the Directors, otherwise properly brought before the
meeting by or at the direction of the directors or otherwise properly brought
before the meeting by a shareholder. For business to be properly brought before
a meeting of shareholders by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the Company. To be timely,
a shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than seventy-five (75) days' notice or prior public disclosure
of the date of the meeting is given or made to the shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the fifteenth (15th) day following the earlier of the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. A shareholder's notice to the Secretary shall set forth as to each matter
the shareholder proposes to bring before the meeting (i) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting; (ii) the name and record address of the
shareholder proposing such business;



(iii) the class and number of shares of the Company which are beneficially owned
by such shareholder; and (iv) any material interest of such shareholder in such
business.

      Notwithstanding anything in the Regulations of the Company to the
contrary, no business shall be conducted at a meeting of shareholders except in
accordance with the procedures set forth in this Section 6. The Chairman of the
meeting of shareholders may, if the facts warrant determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Section 6, and if he should so determine, any such
business shall not be transacted.

                                    DIRECTORS

      Section 7. Number. The number of directors may be determined by the vote
of the holders of a majority of the shares of the Company entitled to vote for
the election of directors that are represented at any annual meeting or special
meeting called for the purpose of electing directors or by resolution adopted by
affirmative vote of a majority of the directors then in office, provided that
the number of directors shall in no event be fewer than nine (9) nor more than
thirteen (13). When so fixed, such number shall continue to be the authorized
number of directors until changed by the shareholders or directors by vote as
aforesaid.

      Section 8. Nominations. Only persons who are nominated in accordance with
the following procedures shall be eligible for election as directors.
Nominations of persons for election as directors of the Company may be made at a
meeting of shareholders by or at the direction of the directors, by any
nominating committee or person appointed by the directors, or by any shareholder
of the Company entitled to vote for the election of directors who complies with
the notice procedures set forth in this Section 8. Nominations by shareholders
shall be made pursuant to timely notice in writing to the Secretary of the
Company. To be timely, a shareholder's notice shall be delivered to or mailed
and received at the principal executive offices of the Company not less than
sixty (60) days nor more than ninety (90) days prior to the meeting; provided,
however, that in the event that less than seventy-five (75) days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the fifteenth (15th) day following the
earlier of the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such shareholder's notice shall set forth: (a)
as to each person who is not an incumbent director whom the shareholder proposes
to nominate for election as a director, (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment of
such person, (iii) the class and number of shares of the Company which are
beneficially owned by such person, and (iv) any other information relating to
such person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934 (or any comparable successor rule or regulation under such Act); and
(b) as to the shareholder giving the notice (i) the name and record address of
such shareholder, and (ii) the class and number of shares of the Company which
are beneficially owned by such shareholder. Such notice shall be accompanied by
the written consent of each proposed nominee to serve as a director of the
Company, if elected. No person shall be eligible for election as a director of
the Company unless nominated in accordance with the procedures set forth in this
Section 8.

      The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
provisions of this Section 8, and if he should so determine the defective
nomination shall be disregarded.

      Section 9. Classification, Election and Term of Office of Directors. The
directors shall be divided into three classes, as nearly equal in number as
possible. At the 1985 Annual Meeting of Shareholders, one class of directors
shall be elected for a one-year term, one class for a two-year term and one
class for a three-year term. At each succeeding annual meeting of shareholders,
successors to the class of directors whose term expires in that year will be
elected for a three-year term. At such time as the shareholders or directors fix
or change the total number of directors comprising the Board of directors, they
shall also fix, or determine the adjustment to be made to, the number of
directors comprising the three classes of directors, provided, however, that no
reduction in the number of directors shall of itself

                                       2



result in the removal of or shorten the term of any incumbent director. In the
case of any increase in the number of directors of any class, any additional
directors elected to such class shall hold office for a term which shall
coincide with the term of such class. A director shall hold office until the
annual meeting for the year in which his term expires and until his successor
shall be elected and shall qualify, subject, however, to prior death,
resignation, or removal from office. Election of directors shall be by ballot
whenever requested by any person entitled to vote at the meeting, but unless so
requested, such election may be conducted in any way approved at such meeting.

      Section 10. Removal. Except as otherwise provided by law, all the
directors, or all the directors of a particular class, or any individual
director, may be removed from office without assigning any cause, by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
shares of the Company present in person or represented by proxy and entitled to
vote in respect thereof, at an annual meeting or at any special meeting duly
called for such purpose.

      Section 11. Vacancies. Whenever any vacancy shall occur among the
directors, the remaining directors shall constitute the directors of the Company
until such vacancy is filled or until the number of directors is changed as
above provided. The remaining directors; though less than a majority of the
whole authorized number of directors, may, by a vote of a majority of their
number, fill any vacancy for a term ending with the next annual meeting or until
a successor is elected and qualified.

      Section 12. Quorum. A majority of the directors in office at the time
shall constitute a quorum - provided that any meeting duly called, whether a
quorum be present or otherwise, may, by note of a majority of the directors
present adjourn from time to time and place to place within or without the State
of Ohio without notice other than by announcement at the meeting. At any meeting
of the directors at which a quorum is present, all questions and business shall
be determined by the affirmative vote of not less than a majority of the
directors present.

      Section 13. Organization Meeting. Immediately after each annual meeting of
the shareholders at which directors are elected, or each special meeting held in
lieu thereof, the newly elected directors, if a quorum thereof be present, shall
hold an organization meeting at the same place or at such other time and place
as may be fixed by the shareholders at such meeting, for the purpose of electing
officers and transacting any other business. Notice of such meeting need not be
given. If for any reason such organization meeting is not held at such time, a
special meeting for such purpose shall be held as soon thereafter as
practicable.

      Section 14. Regular Meetings. Regular meetings of the directors may be
held at such times and places within or without the State of Ohio as may be
provided for in by-laws or resolutions adopted by the directors and upon such
notice, if any, shall be so provided for.

      Section 15. Special Meetings. Special meetings of the directors may be
held at any time within or without the State of Ohio upon call by the Chairman
of the Board, the Vice Chairman of the Board, the President, or any two
directors. Notice of each such meeting shall be given to each director by letter
or telegram or in person not less than forty-eight (48) hours prior to such
meeting; provided, however, that such notice shall be deemed to have been waived
by the directors attending such meeting, and may be waived in writing or by
telegram by any director either before or after such meeting. Unless otherwise
indicated in the notice thereof, any business may be transacted at any
organization, regular or special meeting.

      Section 16. Compensation. The directors are authorized to fix a reasonable
salary for directors or a reasonable fee for attendance at any meeting of the
directors, the Executive Committee, or other committees elected under Section 18
hereof, or any combination of salary and attendance fee, provided that no
compensation as director shall be paid to any director who is a full-time
employee of the Company. In addition to such compensation provided for
directors, they shall be reimbursed for any expenses incurred by them in
traveling to and from such meetings.

                                       3



                    EXECUTIVE COMMITTEE AND OTHER COMMITTEES

      Section 17. Membership and Organization. (a) The directors, at any time
may elect from their number an Executive Committee which shall consist of not
less than three members, each of whom shall hold office during the pleasure of
the directors and may be removed at anytime, with or without cause by note
thereof.

      (b) Vacancies occurring in the Committee may be filled by the directors.

      (c) The Committee shall appoint one of its own number as Chairman who
shall preside at all meetings and may also appoint a Secretary (who need not be
a member of the Committee) who shall keep its records and who shall hold office
during the pleasure of the Committee.

      Section 18. Meetings. (a) Meeting of the Committee may be held upon notice
of the time and place thereof at any place within or without the State of Ohio
and until otherwise ordered by the Committee shall be held at any time and place
at the call of the Chairman or any two members thereof.

      (b) A majority of the members of the Committee shall be necessary for the
transaction of any business and at any meeting the Committee may exercise any or
all of its powers and any business which shall come before any meeting maybe
transacted thereat, provided a majority of the Committee is present, but in
every case the affirmative vote of a majority of all of the members of the
Committee shall be necessary to any action by it taken.

      Section 19. Powers. Except as its powers, duties and functions may be
limited or prescribed by the directors, during the intervals between the
meetings of the directors, the Committee shall possess and may exercise all the
powers of the directors in the management and control of the business of the
Company; provided that the Committee shall not be empowered to
declare-dividends, elect officers, nor to fill vacancies among the directors of
Executive Committee. All actions of the Committee shall be reported to the
directors at their meeting next succeeding such action and shall be subject to
revision or alteration by the directors provided that no rights of any third
person shall be affected thereby.

      Section 20. Other Committees. The directors may elect other committees
from among the directors in addition to or in lieu of an Executive Committee and
give to them any of the powers which under the foregoing provisions could be
vested in an Executive Committee. Sections 15 and 16 shall be applicable to such
other committees.

                                    OFFICERS

      Section 21 - Officers Designated. The directors at their organization
meeting or at a special meeting held in lieu thereof, shall elect a President, a
Secretary, a Treasurer and, in their discretion, a Chairman of the Board, a Vice
Chairman of the Board, one or more Vice Presidents, an Assistant Secretary or
Secretaries, an Assistant Treasurer or Treasurers, and such other officers as
the directors may see fit. The President, the Chairman of the Board and the Vice
Chairman of the Board shall be, but the other officers may, but need not be,
chosen from among the directors. Any two or more of such offices other than that
of President and Vice President, or Secretary and Assistant Secretary or
Treasurer and Assistant Treasurer, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in more than one
capacity.

      Section 22. Tenure of Office. The officers of the Company shall hold
office until the next organization meeting of the directors and until their
successors are chosen and qualified, except in case of resignation, death or
removal. The directors may remove any officer at any time with or without cause
by a majority vote of the directors in office at the time. A vacancy, however
created, in any office may be filled by election by the directors.

                                       4



      Section 23. Chairman of the Board and President. The Chairman of the Board
shall preside at meetings of shareholders and at meetings of directors. The
President shall, in the absence of the Chairman of the Board, preside at
meetings of the shareholders and in the absence of the Chairman of the Board and
of the Vice Chairman of the Board shall also preside at meetings of the
directors. The directors shall designate either the Chairman of the Board or the
President as chief executive officer of the Company. The chief executive officer
of the Company shall have general supervision over its property, business and
affairs, and perform all the duties usually incident to such office, subject to
the directions of the directors. He may execute all authorized deeds, mortgages,
bonds, contracts and other obligations, in the name of the Company, and shall
have such other powers and duties as may be prescribed by the directors. During
such time as the President or Chairman of the Board, as the case may be, is not
the chief executive officer, he shall have such authority and perform such
duties as the directors may determine. In case of the absence or disability of
the chief executive officer or when circumstances prevent the chief executive
officer from acting, the President (if the Chairman of the Board is the chief
executive officer) or the Chairman of the Board (if the President is the chief
executive officer) shall perform the duties of the chief executive officer.

      Section 24. Vice Chairman of the Board. The Vice Chairman of the Board, if
any, shall, in the absence of the Chairman of the Board, preside at meetings of
the directors and shall have such other powers and duties as may be prescribed
by the directors.

      Section 25. Vice Presidents. The Vice Presidents shall have such powers
and duties as may be prescribed by the directors or as may be delegated by the
chief executive officer. Incase of the absence or disability of the Chairman of
the Board and the President or when circumstances prevent them from acting, the
Vice Presidents, in the order designated by the directors, shall perform the
duties of the chief executive officer, and in such case, the power of the Vice
Presidents to execute all authorized deeds, mortgages, bonds, contracts and
other obligations, in the name of the Company shall be coordinate with like
powers of the chief executive officer and any such instrument so executed by
such Vice Presidents shall be as valid and binding as though executed by the
chief executive officer. In case the chief executive officer and such Vice
Presidents are absent or unable to perform their duties, the directors may
appoint a President pro tempore.

      Section 26. Secretary. The Secretary shall keep the minutes of all
meetings of the shareholders and the directors. He shall keep such records as
may be required by the directors, shall have charge of the seal of the Company
and shall give all notices of shareholders and directors meetings required by
law or by these Regulations, or otherwise, and shall have such other powers and
duties as may be prescribed by the directors.

      Section 27. Treasurer. The Treasurer shall receive and have in charge all
money, bills, notes, bonds, stocks in other corporations and similar property
belonging to the Company, and shall do with the same as shall be ordered by the
directors. He shall keep accurate financial accounts, and hold the same open for
inspection and examination of the directors. On the expiration of this term of
office, he shall turn over to his successor, or the directors, all property,
books, papers and money of the Company in his hands. He shall have such other
powers and duties as may be prescribed by the directors.

      Section 28. Other Officers. The Assistant Secretaries, Assistant
Treasurers, if any, and any other officers that the directors may elect, shall
have such powers and duties as the directors may prescribe.

      Section 29. Delegation of Duties. The directors are authorized to delegate
the duties of any officers to any other officer and generally to control the
action of the officers and to require the performance of duties in addition to
those mentioned herein.

      Section 30. Compensation. The directors are authorized to determine or to
provide the method of determining the compensation of all officers.

      Section 31 Bond. Any officer or employee, if required by the directors,
shall give bond in such sum and with such security as the directors may require
for the faithful performance of his duties.

                                       5



      Section 32. Signing Checks and Other Instruments. The directors are
authorized to determine or provide the method of determining how checks, notes,
bills of exchange and similar instruments shall be signed, countersigned or
endorsed.

              INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES

      Section 33. Indemnification. The Company shall indemnify any director or
officer and any former director or officer of the Company and any such director
or officer who is or has served at the request of the Company as a director,
officer or trustee of another corporation, partnership, joint venture, trust or
other enterprise (and his heirs, executors and administrators) against expenses,
including attorney's fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him by reason of the fact that he is or was
such director, officer or trustee in connection with any threatened, pending or
completed action, suitor proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by applicable law. The
indemnification provided for herein shall not be deemed to restrict the right of
the Company (i) to indemnify employees, agents and others to the extent not
prohibited by such law, (ii) to purchase and maintain insurance or furnish
similar protection on behalf of or for any person who is or was a director,
officer, employee or agent of the Company, or any person who is or was serving
at the request of the Company as a director, officer, trustee, employee or agent
of another corporation, joint venture, partnership, trust or other enterprise
against any liability asserted against him or incurred by him in any such
capacity or arising out of his status as such and (iii) to enter into agreements
with persons of the class identified in clause (ii) above indemnifying them
against any and all liabilities (or such lesser indemnification as may be
provided in such agreements) asserted against or incurred by them in such
capacities.

                                 CORPORATE SEAL

      Section 34. The corporate seal of this Company shall be circular in form
and contain the name of the Company.

                     PROVISIONS IN ARTICLES OF INCORPORATION

      Section 35. These Regulations are at all times subject to the provisions
of the Articles of Incorporation of the Company (including in such term whenever
used in these Regulations all amendments to the Articles of Incorporation in
force at the time) and in case of any conflict, the provisions in the Articles
of Incorporation shall govern.

                                   AMENDMENTS

      Section 36. Amendments. (a) These Regulations may be altered, changed or
amended in any respect or superseded by new Regulations, in whole or in part, by
the affirmative vote of the holders of a majority of the shares of the Company
present in person or by proxy and entitled to vote thereon, at an annual or
special meeting duly called for such purpose.

      (b) Notwithstanding the provisions of Section 36(a) hereof and
notwithstanding the fact that a lesser percentage may be specified by law or in
any agreement with any national securities exchange or any other provision of
these Regulations, the amendment, alteration, change or repeal of, or adoption
of any provisions inconsistent with, Sections 7, 9 or 10 of these Regulations
shall require the affirmative vote, at an annual or special meeting duly called
for such purpose, of the holders of shares representing at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of the Company, unless such
amendment, alteration, change, repeal or adoption has been recommended by at
least two-thirds of the Board of Directors of the Company then in office, in
which event the provisions of Section 36(a) hereof shall apply.

                                       6

EX-4.1

                                                                     Exhibit 4.1

                           CERTIFICATE OF AMENDMENT TO
                        AMENDED ARTICLES OF INCORPORATION
                                       of
                            THE LUBRIZOL CORPORATION

      L. E. Coleman, Chairman and Chief Executive Officer and K. H. Hopping,
Secretary, of The Lubrizol Corporation, an Ohio corporation (the "Corporation"),
DO HEREBY CERTIFY THAT:

      Pursuant to the authority conferred upon the Directors by the Amended
Articles of Incorporation of the Corporation, the Directors at a meeting duly
called and held on October 28, 1991, at which a quorum was present and acting
throughout, adopted the following resolution to amend the Amended Articles of
Incorporation of the Corporation pursuant to Section 1701.70(B)(1) of the Ohio
Revised Code to amend the terms of a series of the Corporation's Serial
Preferred Stock designated as Serial Preferred Stock, Series A:

      RESOLVED, that in accordance with the Special Rights Plan Amendment and
      pursuant to the authority vested in the Directors of this Corporation in
      accordance with the provisions of its Amended Articles of Incorporation
      (the "Articles"), Section 7(A) of Division C of Article Fourth of the
      Articles be and hereby is amended to read in its entirety as follows:

            (A) So long as any shares of Series A Stock are outstanding, no
      shares of any series of Serial Preferred Stock or other capital stock of
      the Corporation may be issued by the Corporation except for (i) Common
      Shares having the express terms applicable to Common Shares on the Share
      Acquisition Date (as defined in Section 8(B) of this Division C), (ii)
      shares of capital stock which are Junior Stock (as that term is defined in
      Section 2(B) of this Division C), and (iii) shares of Series A Stock
      issuable pursuant to and in accordance with the Rights Agreement.

      IN WITNESS WHEREOF L. E. Coleman, Chairman and Chief Executive Officer,
and K. H. Hopping, Secretary, of The Lubrizol Corporation, acting for and on
behalf of the Corporation, have hereunto subscribed their names this 28th day of
October, 1991.

/s/ L. E. Coleman                                       /s/ K. H. Hopping
L. E. Coleman, Chairman & CEO                           K. H. Hopping, Secretary

EX-4.2

                                                                     Exhibit 4.2

                              AMENDED AND RESTATED

                                RIGHTS AGREEMENT

                                     BETWEEN

                            THE LUBRIZOL CORPORATION

                                       AND

                     AMERICAN STOCK TRANSFER & TRUST COMPANY

                            DATED AS OF JULY 26, 1999







                                TABLE OF CONTENTS
                                                                                         
Section 1.  Certain Definitions............................................................  2

Section 2.  Appointment of Rights Agent....................................................  6

Section 3.  Issue of Right Certificates....................................................  7

Section 4.  Form of Right Certificate...................................................... 10

Section 5.  Countersignature and Registration.............................................. 10

Section 6.  Transfer, Split Up, Combination and Exchange of
            Right Certificates; Mutilated, Destroyed, Lost
            or Stolen Right Certificates .................................................. 11

Section 7.  Exercise of Rights; Purchase Price; Expiration Date
            of Rights...................................................................... 12

Section 8.  Cancellation and Destruction of Right Certificates............................. 14

Section 9.  Reservation and Availability of Common Shares.................................. 14

Section 10. Common Shares Record Date...................................................... 16

Section 11. Adjustment of Purchase Price, Number and Type of
            Shares or Number of Rights..................................................... 17

Section 12. Certificate of Adjusted Purchase Price or Number
            of Shares...................................................................... 31

Section 13. Notice of Adjusted Purchase Price or Number or Type
            of Shares to Holders of Rights................................................. 31

Section 14. Fractional Rights and Fractional Shares........................................ 31

Section 15. Rights of Action............................................................... 33

Section 16. Agreement of Rights Holders.................................................... 33

Section 17. Right Certificate Holder Not Deemed a Shareholder.............................. 34


                                       1



                                                                                         
Section 18. Concerning the Rights Agent...................................................  35

Section 19. Merger or Consolidation or Change of Name of Rights Agent.....................  35

Section 20. Duties of Rights Agent........................................................  36

Section 21. Change of Rights Agent........................................................  39

Section 22. Issuance of New Right Certificates............................................  40

Section 23. Redemption....................................................................  40

Section 24. Notice of Certain Events......................................................  42

Section 25. Notices.......................................................................  43

Section 26. Supplements and Amendments....................................................  43

Section 27. Successors....................................................................  44

Section 28. Determinations and Actions by the Directors, etc..............................  45

Section 29. Benefits of this Agreement....................................................  45

Section 30. Action by Executive Committee.................................................  46

Section 31. Severability..................................................................  46

Section 32. Governing Law.................................................................  46

Section 33. Counterparts..................................................................  46

Section 34. Descriptive Headings..........................................................  46

Exhibit A -- Form of Rights Certificate .................................................. A-1

Exhibit B -- Form of Summary of Rights.................................................... B-1



                                       2



                              AMENDED AND RESTATED
                                RIGHTS AGREEMENT

      This Amended and Restated Rights Agreement, dated as of July 26, 1999
(this "Agreement"), is between THE LUBRIZOL CORPORATION, an Ohio corporation
(the "Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY (the "Rights
Agent").

                                    RECITALS

      WHEREAS, the Company entered into a certain Rights Agreement, dated as of
October 13, 1997 between the Company and Rights Agent (the "1997 Rights
Agreement");

      WHEREAS, on September 22, 1997, pursuant to Section 1701.16 of the Ohio
Revised Code, the Board of Directors of the Company authorized and declared a
dividend distribution of one right for each Common Share outstanding at the
close of business on September 22, 1997 (the "Record Date"), entitling the
holder thereof to purchase, upon the terms and subject to the conditions
hereinafter set forth, one-half of one Common Share for each Common Share so
held on the Record Date at an initial purchase price of $170 per share, subject
to adjustment as hereinafter provided (such rights are hereinafter referred to
as the "Rights") and also authorized and granted one Right for each Common Share
issued after the Record Date but prior to the earlier of (i) the Distribution
Date (in the case of Common Shares issued upon conversion of the Company's
convertible securities or upon exercise of employee stock options, prior to the
thirtieth day after the Distribution Date), (ii) the Expiration Date, or (iii)
October 12, 2007 (the "Final Expiration Date"), including, without limitation,
Common Shares issued upon conversion of the Company's convertible securities and
upon exercise of employee stock options and Common Shares which are treasury
shares as of the Record Date and subsequently become outstanding; and

      WHEREAS, the Board of Directors of the Company has determined that it is
desirable and in the best interests of the Company and its shareholders for the
Company to amend certain

                                       3



provisions of the 1997 Rights Agreement to eliminate requirements that
"Continuing Directors" concur in the taking of certain actions thereunder;

      NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:

      Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:

      (a) "Acquiring Person" shall mean any Person who or which, together with
      all Affiliates and Associates of such Person, shall be the Beneficial
      Owner of 20% or more of the Common Shares then outstanding, but shall not
      include (i) the Company, any Subsidiary or any employee benefit or stock
      ownership plan of the Company or any Person or entity organized, appointed
      or established by the Company for or pursuant to any such plan, (ii) any
      Person who becomes an Acquiring Person solely as a result of a reduction
      in the number of Common Shares outstanding due to the repurchase of Common
      Shares by the Company, unless and until (x) such time as such Person or
      any Affiliate or Associate of such Person shall thereafter become the
      Beneficial Owner of any additional Common Shares, other than as a result
      of a stock dividend, stock split or similar transaction effected by the
      Company in which all holders of Common Shares are treated equally, or (y)
      any other Person who is the Beneficial Owner of any Common Shares shall
      thereafter become an Affiliate or Associate of such Person, or (iii) any
      Person who becomes the Beneficial Owner of 20% or more of the Common
      Shares then outstanding in a transaction or series of transactions which
      are approved in advance by the affirmative vote of a majority of the Board
      of Directors of the Company (an "Approved Transaction"), unless and until
      such Person shall purchase or otherwise become the Beneficial Owner of
      additional Common Shares in a transaction or series of transactions which
      are not approved in advance by the affirmative vote of a majority the
      Board of Directors of the Company.

                                       4



      (b) "Affiliate" and "Associate" shall have the respective meanings
      ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
      under the Securities Exchange Act of 1934, as amended (the "Exchange
      Act"), as in effect on the date hereof.

      (c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
      to "beneficially own" any securities:

            (i) which such Person or any of such Person's Affiliates or
            Associates, directly or indirectly, has the right to vote or dispose
            of or has "beneficial ownership" of (as determined pursuant to Rule
            13d-3 of the General Rules and Regulations under the Exchange Act),
            including pursuant to any agreement, arrangement or understanding,
            whether or not in writing;

            (ii) which such Person or any of such Person's Affiliates or
            Associates, directly or indirectly has the right to acquire (whether
            such right is exercisable immediately or only after the passage of
            time) pursuant to any agreement, arrangement or understanding, or
            upon the exercise of conversion rights, exchange rights, rights
            (other than these Rights), warrants or options, or otherwise;
            provided, however, that a Person shall not be deemed the Beneficial
            Owner of, or to beneficially own, (A) securities tendered pursuant
            to a tender or exchange offer made by or on behalf of such Person or
            any of such Person's Affiliates or Associates until such tendered
            securities are accepted for purchase or payment, or (B) securities
            issuable upon exercise of Rights at any time prior to the occurrence
            of a Triggering Event, or (C) securities issuable upon exercise of
            Rights from and after the occurrence of a Triggering Event which
            Rights were acquired by such Person or any of such Person's
            Affiliates or Associates prior to the Distribution Date or pursuant
            to Section 3(a) or Section 22 hereof or pursuant to Section 11(i)
            hereof in connection with an adjustment made with respect to any
            Rights which such Person or any of such

                                       5



            Person's Affiliates or Associates has or the right to vote or
            dispose of pursuant to any agreement, arrangement or understanding;
            or

            (iii) which are beneficially owned, directly or indirectly, by any
            other Person with which such Person or any of such Person's
            Affiliates or Associates has any agreement, arrangement or
            understanding for the purpose of acquiring, holding, voting or
            disposing of any securities of the Company; provided, however, that
            a Person shall not be deemed the Beneficial Owner of, or to
            beneficially own, any security if such Person has the right to vote
            such security pursuant to an agreement, arrangement or understanding
            which (A) arises solely from a revocable proxy given to such Person
            in response to a public proxy or consent solicitation made pursuant
            to, and in accordance with, the applicable rules and regulations of
            the Exchange Act and (B) is not also then reportable on Schedule 13D
            under the Exchange Act (or any comparable or successor report);

      provided, however, that nothing in this paragraph (c) shall cause a Person
      engaged in the business as an underwriter of securities to be deemed the
      "Beneficial Owner" of, or to "beneficially own," any securities acquired
      through such Person's participation in good faith in a firm commitment
      underwriting until the expiration of forty (40) days after the date of
      such acquisition.

      (d) "Business Day" shall mean any day other than a Saturday, Sunday, or a
      day on which banking institutions in the States of Ohio and New York are
      closed or are authorized or obligated by law or executive order to close.

      (e) "Close of business" on any given date shall mean 5:00 P.M., Cleveland,
      Ohio time, on such date; provided, however, that if such date is not a
      Business Day it shall mean 5:00 P.M., Cleveland, Ohio time, on the next
      succeeding Business Day.

                                       6



      (f) "Common Shares" when used with reference to the Company shall mean the
      Common Shares, without par value, of the Company; provided that, if the
      Company is the continuing or surviving corporation in a transaction
      described in Section 11(d)(ii) hereof, "Common Shares" when used with
      reference to the Company shall mean the capital stock with the greatest
      aggregate voting power of the Company, or, if the Company is a subsidiary
      of another corporation or business trust, the corporation or business
      trust which ultimately controls the Company. "Common Shares" when used
      with reference to any corporation or business trust, other than the
      Company, shall mean the capital stock with the greatest aggregate voting
      power of such corporation or business trust, or, if such corporation or
      business trust is a subsidiary of another corporation or business trust,
      the corporation or business trust which ultimately controls such
      first-mentioned corporation or business trust.

      (g) [Intentionally left blank]

      (h) "Distribution Date" shall have the meaning ascribed to such term in
      Section 3 hereof.

      (i) "Expiration Date" shall mean the earlier of (i) the date on which the
      Rights are redeemed as provided in Section 23 hereof or (ii) the time at
      which all exercisable Rights are exchanged as provided in Section 11(p)
      hereof.

      (j) "Flip-In Event" shall mean any event described in Section 11(a)(ii)
      hereof.

      (k) "Flip-Over Event" shall mean any event described in clauses (i), (ii)
      or (iii) of Section 11(d) hereof.

      (l) "Person" shall mean any individual, firm, corporation or other entity,
      and shall include any successor (by merger or otherwise) of such entity.

                                       7



      (m) "Redemption Price" shall mean $.05 per Right, appropriately adjusted
      to reflect any stock split, stock dividend or similar transaction
      occurring after the date hereof.

      (n) "Share Acquisition Date" shall mean the first date of public
      announcement by the Company or an Acquiring Person (by press release,
      filing made with the Securities and Exchange Commission or otherwise) that
      an Acquiring Person has become such.

      (o) "Subsidiary" shall mean any corporation or other entity of which a
      majority of the voting power of the voting equity securities or equity
      interests is owned, directly or indirectly, by the Company.

      (p) "Triggering Event" shall mean any Flip-In Event or Flip-Over Event.

      Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall also be, prior to the Distribution
Date, the holders of the Common Shares) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment and
hereby certifies that it complies with the requirements of the New York Stock
Exchange governing transfer agents and registrars. The Company may from time to
time appoint such Co-Rights Agents as it may deem necessary or desirable. Any
actions which may be taken by the Rights Agent pursuant to the terms of this
Agreement may be taken by any such Co-Rights Agent.

      Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the
close of business on the tenth Business Day after the Share Acquisition Date
(or, if the tenth Business Day after the Share Acquisition Date occurs before
the Record Date, the close of business on the Record Date or such later date as
the Board of Directors shall determine), or (ii) the close of business on the
tenth Business Day (or such later date as the Board of Directors shall
determine) after the date that a

                                       8



tender or exchange offer by any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, if upon consummation thereof, such Person
would be the Beneficial Owner of 20% or more of the Common Shares then
outstanding (the earlier of (i) and (ii) being herein referred to as the
"Distribution Date"), the Rights will be evidenced (subject to the provisions of
paragraph (b) of this Section 3) by the certificates for Common Shares
registered in the names of the record holders thereof (which certificates for
Common Shares shall also be deemed to be Right Certificates) and not by separate
Right Certificates, and the right to receive Right Certificates will be
transferable only in connection with the transfer of Common Shares in the stock
transfer books of the Company maintained by the Company or its appointed
transfer agent. As soon as practicable after the Distribution Date, the Rights
Agent will send, by first-class, insured, postage prepaid mail (or such other
method as the Company shall deem appropriate), to each record holder of Common
Shares as of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate, in
substantially the form of Exhibit A hereto, evidencing one Right for each Common
Share so held, subject to adjustment, together with a notice setting forth the
Purchase Price (as defined in Section 4 hereof) as in effect on the Distribution
Date. As of the Distribution Date, the Rights will be evidenced solely by such
Right Certificates.

      Any Right Certificate issued pursuant to this Section 3 that represents
Rights which are beneficially owned by an Acquiring Person or any Associate or
Affiliate thereof and any Right Certificate issued at any time upon the transfer
of any Rights to an Acquiring Person or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate, and any Right
Certificate issued pursuant to Sections 6 or 11 hereof upon transfer, exchange,
replacement or adjustment of any other Right Certificate referred to in this
sentence, shall be subject to and (to the extent feasible) contain the following
legend or such similar legend as the Company may deem appropriate and as is not
inconsistent with the provisions of this Agreement, or as may be

                                       9

required to comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Rights may from time to time be listed, or to conform to usage:

                  The Rights represented by this Right Certificate were
                  issued to or acquired by a Person who was an Acquiring
                  Person or an Affiliate or an Associate of an Acquiring
                  Person (as such terms are defined in the Rights
                  Agreement).  This Right Certificate and the Rights
                  represented hereby may become null and void in the
                  circumstances specified in the Rights Agreement.

provided, however, the failure of the Company to cause any Right Certificate to
contain such legend or any defect therein, shall not affect the legality or
validity of any provision of this Agreement, including provisions voiding Rights
held by any such Person.

      (b) On the Record Date or as soon as reasonably practicable thereafter,
the Company will send a copy of a Summary of Rights to Purchase Common Shares,
in substantially the form attached hereto as Exhibit B (the "Summary of
Rights"), by first-class, postage prepaid mail (or such other method as the
Company shall deem appropriate), to each record holder of Common Shares as of
the close of business on the Record Date, at the address of such holder shown on
the records of the Company as of such date. With respect to certificates for
Common Shares outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates for Common Shares registered
in the names of the holders thereof. Until the Distribution Date (or the earlier
of the Expiration Date or the Final Expiration Date), the surrender for transfer
of any certificate for Common Shares outstanding on the Record Date, with or
without a copy of the Summary of Rights attached thereto, shall also constitute
the transfer of the Rights associated with the Common Shares represented
thereby.

      (c) Certificates for Common Shares issued (including, without limitation,
any certificates for Common Shares issued upon conversion of the Company's
convertible securities or upon exercise of employee stock options) or
surrendered for transfer or exchange after the Record Date but prior to the
earlier of the Distribution Date, the Expiration Date or the Final Expiration

                                       10


Date, shall have stamped on, impressed on, printed on, written on or otherwise
affixed to them the following legend or such similar legend as the Company may
deem appropriate and as is not inconsistent with the provisions of this
Agreement, or as may be required to comply with any applicable law or with any
rule or regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Common Shares or the Rights may from time to time be
listed, or to conform to usage:

            This Certificate also evidences and entitles the holder hereof to
            certain Rights as set forth in an Amended and Restated Rights
            Agreement between The Lubrizol Corporation and American Stock
            Transfer & Trust Company, dated as of July 26, 1999 (the "Rights
            Agreement"), the terms of which are hereby incorporated herein by
            reference and a copy of which is on file at the principal executive
            offices of The Lubrizol Corporation. Under certain circumstances, as
            set forth in the Rights Agreement, such Rights will be evidenced by
            separate certificates and will no longer be evidenced by this
            Certificate. The Lubrizol Corporation will mail to the holder of
            this Certificate a copy of the Rights Agreement without charge
            within five business days after receipt of a written request
            therefor. Under certain circumstances, Rights beneficially owned by
            an Acquiring Person or any Affiliate or Associate thereof (as such
            terms are defined in the Rights Agreement) and any subsequent holder
            of such Rights may become null and void.

      With respect to certificates containing the legend described above, until
the Distribution Date, the Rights associated with the Common Shares represented
by such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
surrender for transfer of the Rights associated with the Common Shares
represented thereby.

      Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially the same as Exhibit A hereto with such
changes, marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to

                                       11


conform to usage. Subject to the provisions of Sections 11 and 22 hereof, the
Right Certificates, whenever issued and on their face shall entitle the holders
thereof to purchase such number of Common Shares as shall be set forth therein
at the price per whole share set forth therein (the "Purchase Price"), but the
number of such shares and the Purchase Price shall be subject to adjustment as
provided herein.

      Section 5. Countersignature and Registration. The Right Certificates shall
be executed on behalf of the Company by its Chairman of the Board, President or
any Vice President, either manually or by facsimile signature, and have affixed
thereto the Company's seal or a facsimile thereof which shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent,
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.

      Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at one of its offices in New York, New York, books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates and the
date of each of the Right Certificates.

                                       12


      Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
earlier of the Expiration Date or the Final Expiration Date, any Right
Certificate or Certificates may be transferred, split up, combined or exchanged
for another Right Certificate or Right Certificates, entitling the registered
holder to purchase a like number of Common Shares as the Right Certificate or
Right Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Right
Certificate shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the principal office of the
Rights Agent in New York, New York or in Cleveland, Ohio. Thereupon, the Rights
Agent shall countersign and deliver to the person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Right Certificates.

      Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and reimbursement to the Company and
the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Right Certificate if
mutilated, the Company will make and deliver a new Right Certificate of like
tenor to the Rights Agent for delivery to the registered owner in lieu of the
Right Certificate so lost, stolen, destroyed or mutilated.

      Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.

      (a) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date and at or prior to the Close of business on
the earlier of the Expiration Date or the Final

                                       13


Expiration Date upon surrender of the Right Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the Rights
Agent at an office of the Rights Agent designated for such purpose, together
with an amount in cash, in lawful money of the United States of America, by
certified check or bank draft payable to the order of the Company, equal to the
Purchase Price for each Common Share as to which such surrendered Rights are
exercised, or, if applicable, the exercise price per Right specified in Sections
11(a)(ii) or 11(d) hereof, as the case may be, together with an amount equal to
any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof; provided, however, that after
the later of the first occurrence of a Triggering Event and the Distribution
Date, in lieu of the cash payment payable to the Company referred to in this
sentence, the registered holder of a Right Certificate evidencing exercisable
Rights (which shall not include Rights that have become void pursuant to Section
11(a)(ii) hereof) may, at the option of the Company, exercise the Rights
evidenced thereby in whole or in part in accordance with this Section 7(a) upon
surrender of the Right Certificate as described above, together with the
election to exercise such Rights duly completed. With respect to any Rights as
to which such an election to exercise without payment of cash is made, the
holder shall receive, upon exercise, a number of Common Shares or other
securities, as the case may be, having a current per share market price
(determined pursuant to Section 11(e) hereof as of the date of the first
occurrence of any Triggering Event) equal to the excess of (i) the aggregate
current per share market price of the Common Shares or other securities
(determined pursuant to Section 11(e) hereof as of the date of the first
occurrence of any Triggering Event) that would have been issuable upon payment
of the cash amount as described above over (ii) the amount of cash that would
have been payable to the Company upon exercise absent such election.

      (b) The Purchase Price shall initially be $170 per Common Share purchased,
(equivalent to $85 for each one-half of a Common Share), and shall be subject to
adjustment from time to time as provided in Section 11 hereof.

      (c) Subject to Sections 7(d), 11(a)(ii), and 11(d) hereof, upon receipt of
a Right Certificate representing exercisable Rights with the form of election to
purchase duly executed,

                                       14


accompanied by either payment as described above or a duly completed election to
exercise without payment of cash, the Rights Agent shall promptly (i)
requisition from any transfer agent of the Common Shares (or make available, if
the Rights Agent is the transfer agent) certificates representing the number of
whole Common Shares to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests, (ii) promptly
after receipt of such certificates, cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder, (iii) if appropriate,
requisition from the Company the amount of cash to be paid or depository
receipts to be issued in lieu of the issuance of fractional shares in accordance
with Section 14 hereof or in lieu of the issuance of Common Shares in accordance
with Section 11(a)(iii) or 11(d) hereof, and (iv) if appropriate, after receipt,
promptly deliver such cash (or depository receipts, when appropriate) to or upon
the order of the registered holder of such Right Certificate.

      (d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof.

      (e) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action with
respect to any purported transfer, split up, combination or exchange of any
Right Certificate pursuant to Section 6 hereof or exercise of a Right
Certificate as set forth in this Section 7 unless the registered holder of such
Right Certificate shall have (i) completed and signed the certificate following
the form of assignment or the form of election to purchase, as applicable, set
forth on the reverse side of the Right Certificate surrendered for such
transfer, split up, combination, exchange or exercise and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall have
reasonably requested.

                                       15


      Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
stock transfer agents, be delivered to the Rights Agent for cancellation or in
canceled form, or, if surrendered to the Rights Agent, shall be canceled by it,
and no Right Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall deliver
to the Rights Agent for cancellation and retirement, and the Rights Agent shall
so cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.

      Section 9. Reservation and Availability of Common Shares. The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Common Shares or any authorized and issued Common
Shares held in its treasury, the number of Common Shares that will be sufficient
to permit the exercise pursuant to Section 7 hereof of all outstanding Rights;
such number of Common Shares reserved and kept available shall be adjusted from
time to time, if and to the extent required, upon the occurrence of any of the
events described in Section 11 hereof.

      So long as the Company's Common Shares are listed on a national securities
exchange, the Company shall endeavor to cause, from and after such time as the
Rights become exercisable, all Common Shares reserved for issuance upon exercise
of the Rights to be listed on such exchange upon official notice of issuance.

      The Company covenants and agrees that it will take all such action as may
be necessary to ensure that all Common Shares delivered upon exercise of Rights
shall be, at the time of delivery of the certificates for such shares (subject
to payment of the Purchase Price, if required), duly and validly authorized and
issued, fully paid, nonassessable and freely tradeable shares, free and clear of

                                       16


any liens, encumbrances and other adverse claims and not subject to any rights
of call or first refusal.

      The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Common Shares upon the exercise of Rights. The Company shall not, however,
be required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates for the Common Shares in a name other than
that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise, or to issue or deliver any certificates for Common
Shares upon the exercise of any Rights until any such tax shall have been paid
(any such tax being payable by the holder of such Right Certificate at the time
of surrender) or until it has been established to the Company's satisfaction
that no such tax is due.

      The Company further consents and agrees to use its best efforts to (i)
file on an appropriate form, as soon as practicable following the later to occur
of a Triggering Event or the Distribution Date, a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the securities issuable upon exercise of the Rights, (ii) cause such
registration statement to become effective as soon as practicable after such
filing, and (iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act) until
the earliest of (A) the date as of which the Rights are no longer exercisable
for such securities, (B) the Expiration Date, and (C) the Final Expiration Date.
The Company will also take such action as may be appropriate under, or to ensure
compliance with, the securities or "blue sky" laws of the various states in
connection with the exercisability of the Rights. The Company may temporarily
suspend the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective and upon any such
suspension, the Company will issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding anything in this Agreement to the contrary, the Rights shall not
be

                                       17


exercisable in any jurisdiction if the requisite registration or qualification
in such jurisdiction shall not have been effected or the exercise of the Rights
shall not be permitted under applicable law.

      Notwithstanding anything in this Agreement to the contrary, the Company
covenants and agrees that, after the Distribution Date, it will not, except as
permitted by Section 23 or Section 26 hereof, take any action if at the time
such action is taken it is reasonably foreseeable that such action will diminish
or otherwise eliminate the benefits intended to be afforded by the Rights.

      In the event that the Company is obligated to pay cash and/or distribute
other property pursuant to Sections 11, 13, and 14 hereof, it will make all
arrangements necessary so that such cash and/or property are available for
distribution by the Rights Agent, if and when appropriate.

      Section 10. Common Shares Record Date. Each person in whose name any
certificate for Common Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Common Shares
represented thereby on, and such certificate shall be dated, the date upon which
the Right Certificate evidencing such Rights was duly surrendered and payment of
the Purchase Price, if required (and any applicable transfer taxes), was made;
provided, however, that if the date of such surrender and payment is a date upon
which the Common Shares transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the Common
Shares transfer books of the Company are open. Prior to the exercise pursuant to
Section 7 hereof of the Rights evidenced thereby, the holder of a Right
Certificate shall not be entitled to any rights of a shareholder of the Company
with respect to shares for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.

                                       18


      Section 11. Adjustment of Purchase Price, Number and Type of Shares or
Number of Rights. The Purchase Price, the number and type of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.

            (a)(i) In the event that the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Common Shares payable in
Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the
outstanding Common Shares into a smaller number of shares or (D) issue any
shares of its capital stock in a reclassification of the Common Shares
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) or in Section 11(d) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and/or
the number and/or kind of shares of capital stock issuable on such date, shall
be proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Common Shares transfer books of the Company were
open, he would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification; provided,
however, that if the record date for any such dividend, subdivision, combination
or reclassification shall occur prior to the Distribution Date, the Company
shall make an appropriate adjustment to the Purchase Price (taking into account
any additional Rights which may be issued as a result of such dividend,
subdivision, combination or reclassification), in lieu of adjusting (as
described above) the number of Common Shares (or capital shares, as the case may
be) issuable upon exercise of the Rights. If an event occurs which would require
an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof or
Section 11(d) hereof, the adjustment provided for in this Section 11(a)(i) shall
be in addition to, and shall be made prior to, any adjustment required pursuant
to Section 11(a)(ii) or Section 11(d) hereof.

                                       19


            (ii) In the event that any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan) who or
which, together with all Affiliates and Associates of such Person, shall become
the Beneficial Owner of 20% or more of the Common Shares then outstanding (other
than in an Approved Transaction), then, and in each such case, the Company shall
make adjustments in the terms of the Rights so that each holder of a Right,
except as provided below, shall thereafter have a right to receive, upon
exercise thereof in accordance with the terms of this Agreement, at an exercise
price per Right equal to the product of two times the then-current Purchase
Price multiplied by the number of Common Shares for which a Right was
exercisable immediately prior to the first occurrence of a Triggering Event,
such number of Common Shares as shall equal the result obtained by (x)
multiplying the product of two times the then-current Purchase Price by the
number of Common Shares for which a Right was exercisable immediately prior to
the first occurrence of a Triggering Event and dividing that product by (y) 50%
of the current per share market price of the Common Shares (determined pursuant
to Section 11(e) hereof) on the date of the first occurrence of a Triggering
Event. Notwithstanding anything in this Agreement to the contrary, from and
after the later of the Distribution Date and the first occurrence of a Flip-In
Event, any Rights that are or were acquired or beneficially owned (1) by any
Acquiring Person (or any Affiliate or Associate of such Acquiring Person or any
transferee thereof) or (2) pursuant to a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this sentence, shall
become null and void without any further action, and no holder of such Rights
shall have any rights whatsoever with respect to such Rights, whether under any
provision of this Agreement or otherwise. The Company shall use all reasonable
efforts to insure that the provisions of the preceding sentence are complied
with, but shall have no liability to any holder of Rights Certificates or other
Person as a result of its failure to make any determinations with respect to an
Acquiring Person or its Affiliates, Associates or transferees hereunder.

                                       20


            (iii) Upon the occurrence of a Flip-In Event, if there shall not be
sufficient authorized but unissued Common Shares or authorized and issued Common
Shares held in treasury to permit the exercise in full of the Rights in
accordance with the foregoing subsection (ii), the Directors of the Company
shall use their best efforts promptly to authorize and, subject to the
provisions of Section 9 hereof, make available for issuance additional Common
Shares; provided, however, that if at any time after 90 calendar days after the
first occurrence of a Flip-In Event, there shall not be sufficient Common Shares
available for issuance upon the exercise of a Right, then the Company shall
deliver, upon the surrender of such Right and without requiring payment of the
Purchase Price, Common Shares (to the extent available), and then cash or other
property or securities (to the extent permitted by applicable law and any
agreements or instruments to which the Company is a party in effect immediately
prior to the first occurrence of any Flip-In Event), which Common Shares and
cash shall have an aggregate value equal to the excess of (x) the aggregate
current per share market price (determined pursuant to Section 11(e) hereof) of
all the Common Shares issuable in accordance with subsection (ii) of this
Section 11(a) upon the exercise of a Right over (y) the product of the
then-current Purchase Price multiplied by the number of Common Shares for which
a Right was exercisable immediately prior to the first occurrence of a
Triggering Event. To the extent that any legal or contractual restrictions
prevent the Company from paying the full amount of cash payable in accordance
with the foregoing sentence, the Company shall pay to holders of the Rights as
to which such payments are being made all amounts which are not then restricted
on a pro rata basis. The Company shall continue to make payments on a pro rata
basis as funds become available until such payments have been paid in full.

            (b) In the event that the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Common Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Common Shares (or shares having the same
rights, privileges and preferences as the Common Shares ("equivalent common
shares")) or securities convertible into Common Shares or equivalent common
shares at a price per Common Share or equivalent common share (or having a
conversion price per share, if a security convertible into Common Shares or
equivalent common shares) less than the current per

                                       21


share market price of the Common Shares (as determined pursuant to Section 11(e)
hereof) on such record date, the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Common Shares outstanding on such record date plus the
number of Common Shares which the aggregate offering price of the total number
of Common Shares and/or equivalent common shares so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Common Shares outstanding on such record date plus
the number of additional Common Shares and/or equivalent common shares to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price may
be paid by consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all purposes.
Common Shares owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.

            (c) In the event that the Company shall fix a record date for the
making of a distribution to all holders of the Common Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness, cash (other than a regular periodic cash dividend at a rate not in
excess of 125% of the rate of the last cash dividend theretofore paid), assets,
stock (other than a dividend payable in Common Shares) or subscription rights,
options or warrants (excluding those referred to in Section 11(b) hereof), the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the current per share market
price of the Common Shares (as determined pursuant to Section 11(e) hereof) on
such record date, less the fair market value (as

                                       22


determined in good faith by the Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes) of the portion of the cash, assets, stock or
evidences of indebtedness so to be distributed (in the case of regular periodic
cash dividends at a rate in excess of 125% of the rate of the last cash dividend
theretofore paid, only that portion in excess of 125% of such rate) or of such
subscription rights, options or warrants applicable to one Common Share, and the
denominator of which shall be such current per share market price of the Common
Shares. Such adjustments shall be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.

            (d) In the event that, following the Share Acquisition Date,
directly or indirectly:

            (i) the Company shall consolidate with, or merge with or into, any
other Person and the Company shall not be the continuing or surviving
corporation of such merger or consolidation; or

            (ii) any Person shall consolidate with the Company, or merge with or
into the Company and the Company shall be the continuing or surviving
corporation of such merger or consolidation and, in connection with such merger
or consolidation, all or part of the Common Shares shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property; or

            (iii) the Company shall sell or otherwise transfer (or one or more
of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power (including, without limitation, securities
creating any obligation on the part of the Company and/or any of its
Subsidiaries) representing in the aggregate more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
Person or Persons;

then, and in each such case, proper provision shall be made so that (A) each
holder of a Right (except for Rights which are or become void as provided
herein) shall thereafter have the right to receive, upon the exercise thereof in
accordance with the terms of this Agreement at an exercise

                                       23


price per Right equal to the product of two times the then-current Purchase
Price multiplied by the number of Common Shares for which a Right was
exercisable immediately prior to the first occurrence of a Triggering Event,
such number of validly authorized and issued, fully paid, nonassessable and
freely tradeable Common Shares of the Issuer (as such term is hereinafter
defined), free and clear of any liens, encumbrances and other adverse claims and
not subject to any rights of call or first refusal, as shall be equal to the
result obtained by (x) multiplying the product of two (2) times the then-current
Purchase Price by the number of Common Shares for which a Right is exercisable
immediately prior to the first occurrence of a Triggering Event and dividing
that product by (y) 50% of the current per share market price of the Common
Shares of the Issuer (determined pursuant to Section 11(e) hereof), on the date
of consummation of such Flip-Over Event; (B) the Issuer shall thereafter be
liable for, and shall assume, by virtue of the consummation of such Flip-Over
Event, all the obligations and duties of the Company pursuant to this Agreement;
(C) the term "Company" shall thereafter be deemed to refer to the Issuer; and
(D) the Issuer shall take such steps (including, without limitation, the
reservation of a sufficient number of its Common Shares to permit the exercise
of all outstanding Rights) in connection with such consummation as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be possible, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights. For purposes of this
Section 11(d), "Issuer" shall mean (A) in the case of any Flip-Over Event
described in Sections 11(d)(i) or (ii) above, the Person that is the continuing,
surviving, resulting or acquiring Person (including the Company as the
continuing or surviving corporation of a transaction described in Section
11(d)(ii) above), and (B) in the case of any Flip-Over Event described in
Section 11(d)(iii) above, the Person that is the party receiving the greatest
portion of the assets or earning power (including, without limitation,
securities creating any obligation on the part of the Company and/or any of its
Subsidiaries) transferred pursuant to such transaction or transactions;
provided, however, that, in any such case, (x) if (1) no class of equity
security of such Person is, at the time of such merger, consolidation or
transaction and has been continuously over the preceding 12-month period,
registered pursuant to Section 12 of the Exchange Act, and (2) such Person is a
Subsidiary, directly or indirectly, of another Person, a class of equity
security of which is and has been so registered, the term "Issuer" shall mean
such other Person; and

                                       24


(y) in case such Person is a Subsidiary, directly or indirectly, of more than
one Person, a class of equity security of two or more of which are and have been
so registered, the term "Issuer" shall mean whichever of such Persons is the
issuer of the equity security having the greatest aggregate market value.
Notwithstanding the foregoing, if the Issuer in any of the Flip-Over Events
listed above is not a corporation or other legal entity having outstanding
equity securities, then, and in each such case, (A) if the Issuer is directly or
indirectly wholly owned by a corporation or other legal entity having
outstanding equity securities, then all references to Common Shares of the
Issuer shall be deemed to be references to the Common Shares of the corporation
or other legal entity having outstanding equity securities which ultimately
controls the Issuer, and (B) if there is no such corporation or other legal
entity having outstanding equity securities, (1) proper provision shall be made
so that the Issuer shall create or otherwise make available for purposes of the
exercise of the Rights in accordance with the terms of this Agreement, a kind or
kinds of security or securities having a fair market value at least equal to the
economic value of the Common Shares which each holder of a Right would have been
entitled to receive if the Issuer had been a corporation or other legal entity
having outstanding equity securities; and (2) all other provisions of this
Agreement shall apply to the issuer of such securities as if such securities
were Common Shares. The Company shall not consummate any Flip-Over Event unless
the Issuer shall have a sufficient number of authorized Common Shares (or other
securities as contemplated above) which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 11(d), and unless prior to such consummation the Company and the Issuer
shall have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in Section 11(d) and further providing that as
promptly as practicable after the consummation of any Flip-Over Event, the
Issuer shall:

      (A) prepare and file a registration statement under the Securities Act,
with respect to the Rights and the securities issuable upon exercise of the
Rights on an appropriate form, and shall use its best efforts to cause such
registration statement to (1) become effective as soon as practicable after such
filing and (2) remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the earlier of the Expiration Date and
the Final Expiration Date;

                                       25


      (B) take all such action as may be appropriate under, or to ensure
compliance with, the securities or "blue sky" laws of the various states in
connection with the exercisability of the Rights; and

      (C) deliver to holders of the Rights historical financial statements for
the Issuer and each of its Affiliates which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act.

The provisions of this Section 11(d) shall similarly apply to successive mergers
or consolidations or sales or other transfers. In the event that a Flip-Over
Event occurs at any time after the occurrence of a Flip-In Event, the Rights
which have not theretofore been exercised shall thereafter become exercisable in
the manner described in this Section 11(d).

      In the event that the Company shall be the continuing or surviving
corporation in a merger or consolidation referred to in subparagraph (ii) above
and Common Shares of the Company are required to be issued upon exercise of the
Rights following such merger or consolidation, and if there shall not be
sufficient authorized but unissued Common Shares or authorized and issued Common
Shares held in treasury to permit the exercise in full of the Rights in
accordance with the foregoing, the Directors of the Company shall use their best
efforts promptly to authorize and, subject to the provisions of Section 9
hereof, make available for issuance additional Common Shares; provided, however,
that if at any time after 90 calendar days after the first occurrence of a
Triggering Event, there shall not be sufficient Common Shares available for
issuance upon the exercise of a Right, then the Company shall deliver, upon the
surrender of such Right and without requiring payment of the Purchase Price,
Common Shares (to the extent available), and then cash or other property or
securities (to the extent permitted by applicable law and any agreements or
instruments to which the Company is a party in effect immediately prior to the
first occurrence of any Triggering Event), which Common Shares and cash shall
have an aggregate value equal to the excess of (x) the aggregate current per
share market price (determined pursuant to Section 11(e)

                                       26


hereof) of all the Common Shares issuable in accordance with this Section 11(d)
upon the exercise of a Right over (y) the product of the then-current Purchase
Price multiplied by the number of Common Shares for which a Right was
exercisable immediately prior to the occurrence of the merger or consolidation
referred to in subparagraph (ii) above. To the extent that any legal or
contractual restrictions prevent the Company from paying the full amount of cash
payable in accordance with the foregoing sentence, the Company shall pay to
holders of the Rights as to which such payments are being made all amounts which
are not then restricted on a pro rata basis. The Company shall continue to make
payments on a pro rata basis as funds become available until such payments have
been paid in full.

            (e) For the purpose of any computation hereunder, the "current per
share market price" of Common Shares on any date shall be deemed to be the
average of the daily closing prices per share of such Common Shares for the 30
consecutive Trading Days (as such term is hereinafter defined) immediately prior
to such date; provided, however, that in the event that the current per share
market price of the Common Shares is determined during a period following the
announcement by the issuer of such Common Shares (i) of a dividend or
distribution on such Common Shares payable in such Common Shares or securities
convertible into such Common Shares or (ii) any subdivision, combination or
reclassification of such Common Shares, and prior to the expiration of 30
Trading Days after the ex-dividend date for such dividend or distribution or the
record date for such subdivision, combination or reclassification, then, and in
each such case, the "current market price" shall be appropriately adjusted to
take into account ex-dividend trading or to reflect the current market price per
Common Share equivalent. The closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Shares are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Common Shares are listed or admitted to trading or, if the Common
Shares are not listed or admitted to trading on any

                                       27


national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or such other system then in use, or, if on any such
date the Common Shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Common Shares selected by the Directors of the Company.
The term "Trading Day" shall mean any day on which the principal national
securities exchange on which the Common Shares are listed or admitted to trading
is open for the transaction of business or, if the Common Shares are not listed
or admitted to trading on any national securities exchange, a Monday, Tuesday,
Wednesday, Thursday or Friday on which banking institutions in the State of New
York are not authorized or obligated by law or executive order to close. If the
Common Shares are not publicly held or not so listed or traded, or not the
subject of available bid and asked quotes, "current per share market price"
shall mean the fair value per share as determined in good faith by the Directors
of the Company, whose determination shall be described in a statement filed with
the Rights Agent and shall be conclusive for all purposes.

            (f) Except as set forth below, no adjustment in the Purchase Price
shall be required unless such adjustment would require an increase or decrease
of at least 1% in such price; provided, however, that any adjustments which by
reason of this Section 11(f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest
thousandth of a share, as the case may be. Notwithstanding the first sentence of
this Section 11(f), any adjustment required by this Section 11 shall be made no
later than the earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the date of the expiration of the right to
exercise any Rights.

            (g) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Common Shares,
thereafter the number of such other shares so

                                       28


receivable upon exercise of any Right shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares contained in this Section 11 and the
provisions of Sections 7, 9, 10 and 14 hereof with respect to the Common Shares
shall apply on like terms to any such other shares. In the event that the Rights
become exercisable under both Section 11(a)(ii) and Section 11(d) hereof, a
holder may, at his or her option, elect to exercise Rights under either
provision, but each Right may be exercised only once.

            (h) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Common Shares
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.

            (i) Unless the Company shall have exercised its election as provided
in Section 11(j) hereof, upon each adjustment of the Purchase Price as a result
of the calculations made in Sections 11(b) and (c) hereof, each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
shares (calculated to the nearest thousandth) obtained by (i) multiplying (x)
the number of shares covered by a Right immediately prior to this adjustment by
(y) the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price and (ii) dividing the product so obtained by the Purchase Price
in effect immediately after such adjustment of the Purchase Price.

            (j) The Company may elect, on or after the date of any adjustment of
the Purchase Price, to adjust the number of Rights in substitution for any
adjustment in the number of Common Shares purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of Common Shares for which a Right
was exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest thousandth) obtained by dividing the Purchase
Price in effect immediately prior to

                                       29


adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 calendar days later than the date of the
public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(j), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein (and may bear, at
the option of the Company, the adjusted Purchase Price) and shall be registered
in the names of the holders of record of Right Certificates on the record date
specified in the public announcement.

            (k) Irrespective of any adjustment or change in the Purchase Price
or the number or type of shares issuable upon the exercise of the Rights, the
Right Certificates theretofore and thereafter issued may continue to express the
Purchase Price per whole share and the number of shares which were expressed in
the initial Right Certificate issued hereunder.

            (l) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the Common Shares
issuable upon exercise of the Rights, the Company shall take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable Common Shares
at such adjusted Purchase Price.

                                       30


            (m) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the Common Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Common Shares and other capital
stock or securities of the Company, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.

            (n) Anything in Sections 11 (a) through (m), inclusive, hereof to
the contrary notwithstanding, the Company shall be entitled to make such
reductions in the Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it in its sole discretion
shall determine to be advisable in order that any consolidation or subdivision
of the Common Shares, issuance wholly for cash of any of the Common Shares at
less than the current market price, issuance wholly for cash of Common Shares or
securities which by their terms are convertible into or exchangeable for Common
Shares, stock dividends or issuance of rights, options or warrants referred to
hereinabove in this Section 11, hereafter made by the Company to holders of its
Common Shares shall not be taxable to such shareholders.

            (o) Notwithstanding any other provision of this Agreement, no
adjustment to the Purchase Price (other than pursuant to Section 11(n)), the
number of Common Shares (or fractions of a share) for which a Right is
exercisable or the number of Rights outstanding shall be made or be effective if
such adjustment would have the effect of reducing or limiting the benefits the
holders of the Rights would have had absent such adjustment, including, without
limitation, the benefits under Sections 11(a)(ii) and 11(d) hereof, unless the
terms of this Agreement are amended so as to preserve such benefits.

                                       31


            (p) Notwithstanding the provisions of Sections 11(a)(ii) and 11(d)
hereof, the Directors of the Company may, at their option, at any time after the
later of the Distribution Date and the first occurrence of a Triggering Event,
exchange all or part of the then-outstanding and exercisable Rights (which shall
not include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Immediately upon the action of
the Directors of the Company ordering the exchange of any Rights pursuant to
this Section 11(p), and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right with respect to
such Rights thereafter of the holder of such Rights shall be to receive that
number of Common Shares equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. Promptly after the action of the Directors of
the Company ordering the exchange of any Rights pursuant to this Section 11(p),
the Company shall publicly announce such action, and within 10 calendar days
thereafter shall give notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent; provided, however, that the failure to give, or any defect in,
such notice shall not affect the validity of such exchange. Any notice which is
mailed or transmitted in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
shall state the method by which the exchange of the Common Shares for Rights
will be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become void pursuant to
the provisions of Section 11(a)(ii)) held by each holder of Rights. In any
exchange pursuant to this Section 11(p), the Company, at its option, may
substitute for any Common Share exchangeable for a Right, (i) cash, (ii) debt
securities of the Company, (iii) other assets, or (iv) any combination of the
foregoing, in any event having an aggregate value which the Directors of the
Company shall have determined in good faith to be equal to the current per share
market price of one Common Share (determined pursuant to Section 11(e) hereof)
on the Trading Day immediately preceding the date of exchange pursuant to this
Section 11(p). The Company shall not be required to issue fractions of Common

                                       32


Shares or to distribute certificates which evidence fractional Common Shares
upon the exchange of a Right. In lieu of such fractional Common Shares, the
Company shall pay to the registered holders of the Right Certificates with
regard to which such fractional Common Shares would otherwise be issuable an
amount in cash equal to the same fraction of the current per share market price
of a whole Common Share (determined pursuant to Section 11(e) hereof) on the
Trading Day immediately preceding the date of exchange pursuant to this Section
11(p).

      Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 hereof, the Company
shall promptly prepare a certificate setting forth such adjustment, (including a
description of any Rights which have become void as a result thereof), and a
brief statement of the facts accounting for such adjustment and promptly file
with the Rights Agent and with each transfer agent for the Common Shares a copy
of such certificate.

      Section 13. Notice of Adjusted Purchase Price or Number or Type of Shares
to Holders of Rights. Whenever an adjustment is made as provided in Section 11
hereof after the Distribution Date, the Company shall mail or transmit a brief
summary of such adjustment to each holder of a Right Certificate in accordance
with Section 25 hereof.

      Section 14. Fractional Rights and Fractional Shares. (a) The Company shall
not be required to issue fractions of Rights or to distribute any Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid as promptly as practicable to the registered holders
of the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for any
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction

                                       33


reporting system with respect to securities listed or admitted to trading on the
New York Stock Exchange or, if the Rights are not listed or admitted to trading
on the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Rights are listed or admitted to
trading or, if the Rights are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
NASDAQ or such other system then in use or, if on any such date the Rights are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the Rights
selected by the Directors of the Company. If on any such date no such market
maker is making a market in the Rights the fair value of the Rights on such date
as determined in good faith by the Directors of the Company shall be used and
shall be conclusive for all purposes.

      (b) The Company shall not be required to issue fractions of shares upon
exercise of the Rights or to distribute certificates which evidence fractional
shares. Fractions of Common Shares may, at the election of the Company, be
evidenced by depositary receipts, pursuant to an appropriate agreement between
the Company and a depositary selected by it, provided that such agreement shall
provide that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
Common Shares. In lieu of fractional shares, the Company may pay to the
registered holders of Right Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one Common Share. For purposes of this Section 14(b), the
current market value of a Common Share shall be the closing price of a Common
Share (as determined pursuant to the second sentence of Section 11(e) hereof)
for the Trading Day immediately prior to the date of such exercise.

      (c) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right.

                                       34


      Section 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificates (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under this Agreement, and injunctive relief against actual or
threatened violations of the obligations of any Person subject to this
Agreement.

      Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:

            (a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;

            (b) after the Distribution Date, the Right Certificates will be
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent in New York, New York, or Cleveland,
Ohio, duly endorsed or accompanied by a proper instrument of transfer;

            (c) the Company and the Rights Agent may deem and treat the person
in whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Share certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby

                                       35


(notwithstanding any notations of ownership or writing on the Right Certificate
or the associated Common Share certificate made by anyone other than the Company
or the Rights Agent) for all purposes whatsoever, and neither the Company nor
the Rights Agent shall be affected by any notice to the contrary; and

            (d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, that the Company must use
reasonable efforts to have any such order, decree or ruling lifted or otherwise
overturned as soon as possible.

      Section 17. Right Certificate Holder Not Deemed a Shareholder. No 6
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Common Shares or any
other securities of the Company which may at any time be issuable upon exercise
of the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in Section 24 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with Section 7
hereof or exchanged pursuant to the provisions of Section 11(p) hereof.

      Section 18. Concerning the Rights Agent. The Company agrees to pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on

                                       36


demand of the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this Agreement and
the exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, suit, action, proceeding or expense, incurred without negligence, bad
faith or willful misconduct on the part of the Rights Agent, for anything done
or omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of defending
against any claim of liability. If the Rights Agent asserts or intends to assert
a right of indemnification under this Section 18 in connection with a suit,
action or proceeding, the Company shall have the right, but not the obligation,
to assume the responsibility for the defense of any such suit, action or
proceeding.

   The Rights Agent shall be protected and shall incur no liability for or in
respect of any action taken, suffered or omitted by it in connection with its
administration of this Agreement in reliance upon any Right Certificate or
certificate for Common Shares or for other securities of the Company, instrument
of assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other paper or document
believed by it to be genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper person or persons.

      Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the corporate trust
business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. In case at the time such
successor Rights Agent shall succeed to the agency created by this Agreement,
any of the Right Certificates shall have been countersigned but not delivered,
any such successor Rights Agent

                                       37


may adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.

      In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.

      Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:

            (a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.

            (b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief

                                       38


Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.

            (c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.

            (d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.

            (e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution and delivery hereof by the Rights Agent) or in respect
of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be responsible for any adjustment required under the
provisions of Section 11 hereof (including any adjustment which results in
Rights becoming void) or responsible for the manner, method or amount of any
such adjustment or the ascertaining of the existence of facts that would require
any such adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after actual notice of any such adjustment or voidance); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any Common Shares to be issued
pursuant to this Agreement or any Right Certificate or as to whether any Common
Shares will, when issued, be validly authorized and issued, fully paid and
nonassessable.

                                       39


            (f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.

            (g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Treasurer, or the Secretary of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer.

            (h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.

            (i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof. The Rights Agent shall not be under any duty
or responsibility to insure compliance with any applicable federal or state
securities laws in connection with the issuance, transfer or exchange of Right
Certificates.

                                       40


            (j) The Rights Agent shall promptly remit to the Company any funds
paid to it upon exercise of the Rights pursuant to Section 7 hereof.

      Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. The Company may remove the Rights Agent
or any successor Rights Agent upon 30 days' notice in writing, mailed or
otherwise transmitted to the Rights Agent or successor Rights Agent, as the case
may be, and to each transfer agent of the Common Shares by registered or
certified mail (or such other method as the Company shall deem appropriate), and
to the holders of the Right Certificates by first-class mail (or such other
method as the Company shall deem appropriate). If the Rights Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or of the States of Ohio or New York (or of any other state of the United
States so long as such corporation is authorized to do business as a banking
institution in the States of Ohio or New York), in good standing, having a
principal office in the States of Ohio or New York, which is authorized under
such laws to exercise corporate trust powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $10
million and which shall otherwise meet any requirements imposed by the New York
Stock Exchange on transfer agents and registrars. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights

                                       41


Agent shall deliver and transferto the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Shares,
and mail or transmit a notice thereof in writing to the registered holders of
the Right Certificates. Failure to give any notice provided for in this Section
21, however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.

      Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such form as
may be approved by its Directors to reflect any adjustment or change in the
Purchase Price and the number or kind or class of shares or other securities or
property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement.

      Section 23. Redemption. (a) Prior to the earlier of the Expiration Date
and the Final Expiration Date, the Directors of the Company may, at their
option, redeem all but not less than all of the then-outstanding Rights at the
Redemption Price at any time prior to the Close of business on the later of (i)
the Distribution Date and (ii) the Share Acquisition Date.

            (b) Immediately upon the action of the Directors of the Company
ordering the redemption of the Rights, and without any further action and
without any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price. Promptly after the action of the Directors ordering the redemption of the
Rights, the Company shall publicly announce such action. Within 10 calendar days
after ordering the redemption of the Rights, the Company shall give notice of
such redemption to the holders of the then outstanding Rights by mailing or
transmitting such notice to all such holders at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the

                                       42


Distribution Date, on the registry books of the transfer agent for the Common
Shares; provided, however, that the failure to give, or any defect in, any such
notice shall not affect the validity of the redemption of the Rights. Any notice
which is mailed or transmitted in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. The notice of redemption
mailed or transmitted to the holders of Rights shall state the method by which
the payment of the Redemption Price will be made. The Company may, at its
option, pay the Redemption Price in cash, Common Shares (based upon the current
per share market price of the Common Shares (determined pursuant to Section
11(e) hereof) at the time of redemption) or any other form of consideration
deemed appropriate by the Directors of the Company (based upon the fair market
value of such other consideration, determined by the Directors of the Company in
good faith) or any combination thereof.

            (c) At any time following the Share Acquisition Date, the Directors
of the Company may relinquish their rights to redeem the Rights under paragraph
(a) above, or both, by duly adopting a resolution to that effect. Immediately
upon adoption of such resolution, the rights of the Directors under the portions
of this Section 23 specified in such resolution shall terminate without further
action and without any notice.

            (d) Notwithstanding anything in this Section 23 to the contrary, all
rights of, and requirements for, redemption set forth above shall terminate
immediately and automatically upon the occurrence of any one or more of the
events set forth in Sections 11(a)(ii) or Sections 11(d)(i), (ii) or (iii),
hereof.

      Section 24. Notice of Certain Events. In case, after the Distribution
Date, the Company shall propose (a) to pay any dividend payable in stock of any
class to the holders of Common Shares or to make any other distribution to the
holders of Common Shares (other than a regular periodic cash dividend at a rate
not in excess of 125% of the rate of the last cash dividend theretofore paid) or
(b) to offer to the holders of Common Shares rights, options or warrants to
subscribe for or to purchase any additional Common Shares or shares of stock of
any class or any other securities,

                                       43


rights or options, or (c) to effect any reclassification of its Common Shares
(other than a reclassification involving only the subdivision of outstanding
Common Shares), or (d) to effect any consolidation or merger, or to effect any
sale or other transfer (or to permit one or more of its Subsidiaries to effect
any sale or other transfer), in one or more transactions, of more than 50% of
the assets or warning power of the Company and its Subsidiaries, taken as a
whole, to any other Person or Persons, or (e) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 25
hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such stock dividend, distribution or offering of rights,
options or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the Common Shares, if
any such date is to be fixed, and such notice shall be so given, in the case of
any action covered by clause (a) or (b) above, at least 20 calendar days prior
to the record date for determining holders of the Common Shares for purposes of
such action, and, in the case of any such other action, at least 20 calendar
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares, whichever shall be
the earlier.

      In case any of the events set forth in Section 11(a)(ii) or Section 11(d)
hereof shall occur, then, in any such case, the Company shall as soon as
practicable thereafter give to the Rights Agent and each holder of a Right
Certificate, in accordance with Section 25 hereof, a notice of the occurrence of
such event, which shall specify the event and the consequences of the event to
holders of Rights.

      Section 25. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:

                            The Lubrizol Corporation
                            29400 Lakeland Boulevard

                                       44


                              Wickliffe, Ohio 44092
                              Attention: Secretary

Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:

                              American Stock Transfer & Trust Company
                              6201 15th Avenue
                              Brooklyn, New York 11214

(or if given such other method as the Company shall deem appropriate). Notices
or demands authorized by this Agreement to be given or made by the Company or
the Rights Agent to the holder of any Right Certificate shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed to such
holder at the address of such holder as shown on the registry books of the
Rights Agent (or if given such other method as the Company shall deem
appropriate).

      Section 26. Supplements and Amendments. Prior to the Distribution Date,
the Board of Directors of the Company may, and the Rights Agent shall, if the
Company so directs, supplement or amend any provision of this Agreement without
the approval of any holders of certificates representing Common Shares. From and
after the Distribution Date and subject to the penultimate sentence of this
Section 26, the Company and the Rights Agent may at any time and from time to
time supplement or amend this Agreement without the approval of any holders of
Rights solely in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, to shorten or lengthen any time period hereunder or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Rights Agent may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Rights (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person), as such;
provided, this Agreement may not be supplemented or

                                       45


amended to lengthen a time period relating to when the Rights may be redeemed at
such time as the Rights are not then redeemable or any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
26, the Rights Agent shall execute such supplement or amendment. Notwithstanding
anything contained in this Agreement to the contrary, no supplement or amendment
shall be made which changes the Redemption Price, the Final Expiration Date, the
Purchase Price or the number of Common Shares for which a Right is exercisable;
provided, however, that at any time prior to (i) a Share Acquisition Date or
(ii) the date that a tender or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or any Subsidiary of the Company, or any Person or entity organized, appointed
or established by the Company for or pursuant to the terms of any such plan) is
first published or sent or given within the meaning of Rule 14d-2(a) of the
General Rules and Regulations under the Exchange Act, if upon consummation
thereof, such Person would be the Beneficial Owner of 20% or more of the Common
Shares then outstanding, the Board of Directors of the Company may amend this
Agreement to increase the Purchase Price or extend the Final Expiration Date.
Prior to the Distribution Date, the interests of the holders of Rights shall be
deemed coincident with the interests of the holders of Common Stock.

      Section 27. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder. The Company
covenants and agrees that it shall not (i) consolidate with, (ii) merge with or
into, or (iii) sell or transfer to, in one or more transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries, taken as a whole, any Acquiring Person or its
Affiliates or Associates if at the time of or after such consolidation, merger
or sale there would be any charter or by-law provisions or any rights, options,
warrants or other instruments or securities outstanding or agreements in effect
or any other actions taken which would eliminate or otherwise diminish the
benefits intended to be afforded by the Rights.

                                       46


      Section 28. Determinations and Actions by the Directors. etc. For all
purposes of this Agreement, any calculation of the number of Common Shares
outstanding at any particular time, including for purposes of determining the
particular percentage of such outstanding Common Shares of which any Person is
the Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3d(1)(i) of the General Rules and Regulations under the Exchange Act as in
effect as of the date hereof and as hereinafter amended but only to the extent
that any amendment thereto does not diminish the rights of holder of the Rights
other than any Acquiring Person or an Affiliate or Associate of an Acquiring
Person. The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board of Directors or the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (ii)
below, all omissions with respect to the foregoing) which are done or made by
the Directors in good faith, shall (i) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights and all other parties, and
(ii) not subject the Directors to any liability to the holders of the Right
Certificates.

      Section 29. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates.

      Section 30. Action by Executive Committee. Whenever any action hereunder
or in connection with the Rights is required or permitted to be taken by the
Board of Directors of the

                                       47


Company, such action may be taken by the Executive Committee of the Board or by
any other duly authorized committee thereof.

      Section 31. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, to
the extent such terms, provisions, covenants and restrictions do not adversely
affect the interests of the holders of Rights (other than an Acquiring Person or
an Affiliate or Associate of an Acquiring Person), as such.

      Section 32. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Ohio and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.

      Section 33. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.

      Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.

      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, this 26th day of July, 1999.

                            THE LUBRIZOL CORPORATION

                                       48


                                     By:________________________________________

                                     Name: _____________________________________

                                     Title:_____________________________________

                                     AMERICAN STOCK TRANSFER & TRUST COMPANY

                                     By: _______________________________________

                                     Name:______________________________________

                                     Title:_____________________________________

                                       49


                                    EXHIBIT A
                           [Form of Right Certificate]

Certificate No. R-
                                                             ____________ Rights

            NOT EXERCISABLE AFTER OCTOBER 12, 2007 OR EARLIER IF REDEEMED. THE
            RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT
            $.05 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. [THE
            RIGHTS REPRESENTED BY THIS CERTIFICATE WERE ISSUED TO OR ACQUIRED BY
            A PERSON WHO WAS AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF
            AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
            AGREEMENT). THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY
            MAY BECOME VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 11(a)(ii)
            OR SECTION 11(d) OF THE RIGHTS AGREEMENT.](1)

                               Right Certificate

            THE LUBRIZOL CORPORATION

      This certifies that     , or registered assigns, is the registered owner
of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Amended and
Restated Rights Agreement dated as of July 26, 1999 (the "Rights Agreement")
between The Lubrizol Corporation, an Ohio corporation (the "Company"), and
American Stock Transfer & Trust Company (the "Rights Agent"), to purchase from
the Company at any time after the Distribution Date (as such term is defined in
the Rights Agreement) and prior to 5:00 P.M. (Cleveland, Ohio time) on October
12, 2007 at the principal office of the Rights Agent, or its successors as
Rights Agent, in New York, New York or Cleveland, Ohio, one-half of one fully
paid nonassessable Common Share, without par value (a "Common Share") of the
Company, at a purchase price of $170 per whole Common Share (the "Purchase
Price"), upon presentation and surrender of this Right Certificate with the Form
of Election to Purchase duly executed. The number of Rights evidenced by this
Right Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Purchase Price set forth above, are the number
and Purchase Price as of July 26, 1999, based on the Common Shares as
constituted at such date.

- ---------------------
(1)   The portion of the legend in brackets shall be inserted only if applicable
      and if the Company is able to identify the holder as an Acquiring Person
      or an Affiliate or Associate of an Acquiring Person.

                                      A-1


      As provided in the Rights Agreement, the Purchase Price and the number of
Common Shares which may be purchased upon the exercise of the Rights evidenced
by this Right Certificate are subject to modification and adjustment upon the
happening of certain events.

      This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the above-mentioned office of the Rights
Agent.

      This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent in New York, New York or
Cleveland, Ohio, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Common Shares as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.

      Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company at a redemption price of $.05
per Right, payable, at the election of the Company, in cash, Common Shares of
the Company or such other consideration as may be determined by the Directors of
the Company.

      No fractional Common Shares will be issued upon the exercise of any Right
or Rights evidenced hereby (other than fractions which may, at the election of
the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.

      No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Common Shares or of any
other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action, or, to receive notice of meetings or
other actions affecting shareholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.

      This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.

                                      A-2


            WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of ___________.

                                           THE LUBRIZOL CORPORATION

Attest: ______________                     By:  ____________________________

                                           Name: _______________________

                                           Title: __________________________

                                           Countersigned:

                                           AMERICAN STOCK TRANSFER

                                           & TRUST COMPANY

                                           By:  ____________________________

                                           Name:  ___________________

                                           Title:  _________________________

                                      A-3


                   [Form of Reverse Side of Right Certificate]

                               FORM OF ASSIGNMENT

                (To be executed by the registered holder if such
               holder desires to transfer the Right Certificates.)

      FOR VALUE RECEIVED, ____________________________________ hereby sells,
assigns and transfers unto __________________________________________

                  (Please print name and address of transferee)

________________________________________________________________________________

this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint Attorney, to transfer the within
Right Certificate on the books of the within-named Company, with full power of
substitution.

Dated:  ____________

                                    ___________________
                                    Signature

Signature Guaranteed:

                                    Certificate

      The undersigned hereby certifies by checking the appropriate boxes that:

                                      A-4


      (1) This Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
pursuant to the Rights Agreement); and

      (2) After due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.

Dated:  ______________

                                    ______________________
                                    Signature

Signature Guaranteed:

                                      A-5


                                     NOTICE

         The signature to the foregoing Assignment must correspond to the name
as written upon the face of this Right Certificate in every particular, without
alteration or enlargement or any change whatsoever.

                                      A-6


                          FORM OF ELECTION TO PURCHASE

                      (To be executed if holder desires to
                        exercise the Right Certificate.)

To The Lubrizol Corporation:

      The undersigned hereby irrevocably elects to exercise_____________ Rights
represented by this Right Certificate to purchase the Common Shares issuable
upon the exercise of such Rights and requests that certificates for such shares
be issued in the name of:

Please insert social security
or other identifying number

________________________________________________________________________________
                         (Please print name and address)

________________________________________________________________________________

      If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to:

Please insert social security
or other identifying number

________________________________________________________________________________
                         (Please print name and address)

________________________________________________________________________________

Dated:  _____________
                                    ______________________
                                    Signature
Signature Guaranteed:

                                      A-7


                                   Certificate

      The undersigned hereby certifies by checking the appropriate boxes that:

      (1) The Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement); and

      (2) After due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.

Dated:  _____________
                                    _____________________
                                    Signature

Signature Guaranteed:

                                     NOTICE

      The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.

                                      A-8


                                    EXHIBIT B

                          SUMMARY OF RIGHTS TO PURCHASE
                                  COMMON SHARES

      On September 22, 1997, the Directors of The Lubrizol Corporation (the
"Company") declared a dividend distribution of one right (a "Right") for each
outstanding Common Share, without par value (the "Common Shares"), of the
Company. The distribution is payable on October 13, 1997 to the shareholders of
record as of the close of business on September 22, 1997 (the "Record Date").
Each Right initially entitles the registered holder to purchase from the Company
one-half of one Common Share at a price of $170 per whole share, subject to
adjustment (the "Purchase Price"). The description and terms of the Rights are
set forth in a Rights Agreement dated as of October 13, 1997 (the "Rights
Agreement") between the Company and American Stock Transfer & Trust Company, as
Rights Agent (the "Rights Agent").

      Until the earlier of (i) ten Business Days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired, or obtained the right to acquire, beneficial ownership of
20% or more of the outstanding Common Shares, or (ii) ten Business Days
following the commencement of a tender offer or exchange offer for 20% or more
of such outstanding Common Shares (in each case without the prior approval of
the Board of Directors)(the earlier of such dates being hereinafter called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Share certificates outstanding as of the Record Date, by such Common
Share certificate with a copy of this Summary of Rights attached thereto. The
Rights Agreement provides that, until the Distribution Date, the Rights will be
transferred with and only with the Common Shares. Until the Distribution Date
(or earlier redemption or expiration of the Rights), new Common Share
certificates issued after the Record Date upon transfer or new issuance of
Common Shares will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares
outstanding as of the Record Date, even without a copy of this Summary of Rights
attached thereto, will also constitute the transfer of the Rights associated
with the Common Shares represented by such certificate. As soon as practicable
following the Distribution Date (as defined above), separate certificates
evidencing the Rights (the "Right Certificates") will be mailed to holders of
record of the Common Shares as of the close of business on the Distribution Date
and such separate Right Certificates alone will evidence the Rights.

      The Rights are not exercisable until the Distribution Date. The Rights
will expire on October 12, 2007, unless earlier redeemed by the Company as
described below.

      The Purchase Price payable, and the number of Common Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Common
Shares, (ii) upon the grant to holders of the Common Shares of certain rights,
options or warrants to subscribe for Common Shares or convertible securities at
less than the current market price of the Common Shares, or (iii) upon the
distribution to holders of the Common Shares of evidences of indebtedness, cash
(excluding regular periodic cash dividends at a rate not in excess of



125% of the rate of the last cash dividend theretofore paid) assets, stock
(other than dividends payable in Common Shares) or of subscription rights,
options or warrants (other than those referred to above).

      In the event that an Acquiring Person merges into the Company and the
Company's Common Shares are not changed or exchanged or a person or group of
affiliated or associated persons become the beneficial owner of 20% or more of
the Company's Common Shares, proper provision shall be made so that each holder
of a Right, other than Rights that are or were beneficially owned by the
Acquiring Person after the date upon which the Acquiring Person became such
(which will thereafter be void), will thereafter have the right to receive upon
exercise thereof at the then current Purchase Price, that number of Common
Shares having a market value of two times the Purchase Price (or, under certain
circumstances, an amount of cash or other property or securities having a value
equal to the Purchase Price). In the event that the Company is acquired by an
Acquiring Person in a merger or other business combination transaction or 50% or
more of its assets or earning power are sold to an Acquiring Person (other than
in a transaction approved by the Company's shareholders), proper provision shall
be made so that each holder of a Right, other than Rights that are or were
beneficially owned by the Acquiring Person after the date upon which the
Acquiring Person became such (which will thereafter be void), shall thereafter
have the right to receive, upon the exercise thereof at the then current
Purchase Price, that number of Common Shares (or, under certain circumstances,
an economically equivalent security or securities) of the surviving, resulting
or acquiring person which at the time of such transaction would have a market
value of two times the Purchase Price (or, under certain circumstances, an
amount of cash equal to the Purchase).

      With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares will be issued (other than fractions
which may, at the election of the Company, be evidenced by depositary receipts),
and in lieu thereof, a payment in cash will be made based on the market price of
the Common Shares on the last trading day prior to the date of exercise.

      The Company may redeem the Rights in whole, but not in part, at a price of
$0.05 per Right (the "Redemption Price") at any time prior to the later of (i)
the Distribution Date and (ii) a public announcement that a person or group of
affiliated or associated persons has acquired beneficial ownership of 20% or
more of the outstanding Common Shares (or such later date as the Directors may
specify), and, under certain circumstances, upon a merger or consolidation of
the Company with or into a corporation which is not an Acquiring Person. At the
election of the Company, the Redemption Price may be payable in cash, Common
Shares, or such other consideration as the Company deems appropriate.
Immediately upon the action of the Directors of the Company authorizing
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.
The Company will give notice of such redemption to the holders of the then
outstanding Rights by mailing such notice to all such holders at their last
addresses as they appear on the Registry Books of the Rights Agent.

      Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.

                                      A-10


      Prior to the Rights becoming exercisable, the Rights Agreement may be
amended or supplemented by the Company and the Rights Agent, without the
approval of any holders of Rights, in any manner, except for an amendment or
supplement which would change the Redemption Price, accelerate the Final
Expiration Date, reduce the Purchase Price or change the number of Common Shares
for which a Right is then exercisable. After the Distribution Date, the Rights
Agreement may be so amended or supplemented to cure ambiguity, correct or
supplement defective or inconsistent provisions or otherwise as the Company and
the Rights Agent may deem necessary or desirable and shall not adversely affect
the interests of the Rights holders.

      A copy of the Rights Agreement is being filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is hereby
incorporated herein by reference.

                                      A-11

EX-12.1

                                                                    EXHIBIT 12.1

                    THE LUBRIZOL CORPORATION AND SUBSIDIARIES

                Computation of Ratio of Earnings to Fixed Charges

                (all amounts except ratios are shown in millions)



                                           2004           2003           2002          2001          2000
                                         ---------      --------       -------       -------       -------
                                                                                    
Pretax income                            $   146.6      $  129.1       $ 180.4       $ 139.9       $ 170.3

Add (deduct) earnings of less
  than 50% owned affiliates
  (net of distributed
  earnings) included in
  pretax income                               (0.8)          0.8           1.6          (0.6)          1.1

Add losses of less than 50%
  owned affiliates included
  in pretax income                               -           0.2             -           2.1           1.8

Add fixed charges net of
  capitalized interest                        85.8          30.4          28.5          29.7          32.3

Add previously capitalized
  interest amortized during
  period                                       1.2           1.3           1.1           1.6           1.3
                                         ---------      --------       -------       -------       -------

"Earnings"                               $   232.8      $  161.8       $ 211.6       $ 172.7        $206.8
                                         =========      ========       =======       =======       =======

Gross interest expense
  including capitalized
  interest                               $    77.6      $   25.3       $  22.2       $  24.1       $  26.3

Interest portion of rental expense             8.8           5.3           5.2           4.7           5.4
                                         ---------      --------       -------       -------       -------

"Fixed charges"                          $    86.4      $   30.6       $  27.4       $  28.8       $  31.7
                                         =========      ========       =======       =======       =======

Ratio of earnings to
  fixed charges                               2.69          5.29          7.72          6.00          6.52
                                         =========      ========       =======       =======       =======

EX-13.1

Exhibit 13.1

EX-21.1

                                                                               .
                                                                               .
                                                                               .

                                                                    Exhibit 21.1

                  THE LUBRIZOL CORPORATION AND ITS SUBSIDIARIES
                             AS OF FEBRUARY 15, 2005



                                                                           COUNTRY OR STATE OF
NAME                                                                          INCORPORATION
- ----                                                                          -------------
                                                                        
FCC Acquisition Corp.                                                      USA - Delaware
Lubrizol Enterprises, Inc.                                                 USA - Delaware
Lubrizol Holding Inc.                                                      USA - Delaware
Lubrizol Overseas Trading Corporation                                      USA - Delaware
LZ Holding Corporation                                                     USA - Delaware
MPP Pipeline Corporation                                                   USA - Delaware
Noveon China, Inc.                                                         USA - Delaware
Noveon Diamalt, Inc.                                                       USA - Delaware
Noveon FCC, Inc.                                                           USA - Delaware
Noveon Hilton Davis, Inc.                                                  USA - Delaware
Noveon Holding Corporation                                                 USA - Delaware
Noveon, Inc.                                                               USA - Delaware
Noveon International, Inc.                                                 USA - Delaware
Noveon Investments, LLC                                                    USA - Delaware
Noveon Textile Chemicals, Inc.                                             USA - Delaware
Performance Materials I Inc.                                               USA - Delaware
Performance Materials II LLC                                               USA - Delaware
Lubrizol Performance Systems Inc.                                          USA - Georgia
Carroll Scientific, Inc.                                                   USA - Illinois
Noveon IP Holdings Corp.                                                   USA - Illinois
CPI Engineering Services, Inc.                                             USA - Michigan
Engine Control Systems Ltd.                                                USA - Nevada
Gateway Additive Company                                                   USA - Nevada
Lubrizol Inter-Americas Corporation                                        USA - Nevada
Lubrizol International Management Corporation                              USA - Nevada
1500 West Elizabeth Corporation                                            USA - New Jersey
Cosmetochem U.S.A., Inc.                                                   USA - New Jersey
Lubricant Investments, Inc.                                                USA - Ohio
Lubrizol Foam Control Additives, Inc.                                      USA - South Carolina
Noveon Kalama, Inc.                                                        USA - Washington

Lubrizol Gesellschaft m.b.H.                                                    Austria
Lubrizol Belgium BVBA                                                           Belgium
Lubrizol DRC Belgium NV/SA                                                      Belgium
Noveon Europe BVBA                                                              Belgium
Noveon Europe Coordination Center BVBA                                          Belgium
Noveon Realty Europe BVBA                                                       Belgium
Performance Materials (Bermuda) Ltd.                                            Bermuda
Lubrizol do Brasil Aditivos Ltda.                                                Brazil
Noveon Brasil Ltda.                                                              Brazil




                  THE LUBRIZOL CORPORATION AND ITS SUBSIDIARIES
                             AS OF FEBRUARY 15, 2005



                                                               COUNTRY OR STATE OF
NAME                                                              INCORPORATION
- ----                                                              -------------
                                                         
Lubrizol Canada Limited                                               Canada
Noveon Canada, Inc.                                                   Canada
Noveon Chemicals Canada Co.                                           Canada
Lubrizol International, Inc.                                      Cayman Islands
Lubrizol de Chile Limitada                                             Chile
Lanzhou Lubrizol Lanlian Additive Co. Ltd.                  People's Republic of China
Lubrizol (Shanghai) Fluid Technology Co., Ltd.              People's Republic of China
Noveon Consulting (Shanghai) Co., Ltd.                      People's Republic of China
Noveon (Shanghai) Co., Ltd.                                 People's Republic of China
Noveon (Shanghai) Specialty Polymers Co., Ltd.              People's Republic of China
Noveon Specialty Chemicals (Shanghai) Limited               People's Republic of China
Shanghai Lubrizol International Trading Co., Ltd.           People's Republic of China
Sino-U.S. Youli Piping Co., Ltd.                            People's Republic of China
Tianjin Lubrizol - Lanlian Additive Co. Ltd.                People's Republic of China
Lubrizol Adibis Scandinavia A/S                                       Denmark
Gemoplast SA                                                          France
Lubrizol France SAS                                                   France
Noveon France SA                                                      France
Noveon Holdings France SAS                                            France
Freedom Chemical Diamalt Beteiligungs GmbH                           Germany
Lubrizol Deutschland GmbH                                            Germany
Noveon Deutschland GmbH                                              Germany
Noveon Diamalt GmbH & Co. KG                                         Germany
Noveon Holdings Deutschland GmbH                                     Germany
Noveon Pharma GmbH & Co. KG                                          Germany
Noveon Verwaltungs GmbH                                              Germany
Noveon Asia Pacific Limited                                         Hong Kong
Noveon Hong Kong Limited                                            Hong Kong
Indiamalt Private Limited                                             India
Lubrizol India Private Limited                                        India
Noveon Diamalt Private Limited                                        India
Lubrizol Italiana S.p.A.                                              Italy
Noveon Italia S.r.l.                                                  Italy
Lubrizol Japan Limited                                                Japan
Noveon Korea, Inc.                                                    Korea
Noveon Malaysia Sdn. Bhd.                                            Malaysia
Noveon Mauritius Holdings Limited                                   Mauritius
Lubrizol de Mexico Comercial, S. de R.L. de C.V.                      Mexico
Lubrizol Servicios Tecnicos, S. de R.L. de C.V.                       Mexico
Noveon de Mexico, S.A. de C.V.                                        Mexico
Terminal Industrial Apodaca, S. A. de C.V.                            Mexico
Europe Chemical Holdings C.V.                                    The Netherlands
Lubrizol Europe B.V.                                             The Netherlands
Noveon Holland B.V.                                              The Netherlands


                                       2


                  THE LUBRIZOL CORPORATION AND ITS SUBSIDIARIES
                             AS OF FEBRUARY 15, 2005



                                               COUNTRY OR STATE OF
NAME                                              INCORPORATION
- ----                                              -------------
                                            
Noveon Netherlands B.V.                          The Netherlands
Noveon Resin B.V.                                The Netherlands
Noveon Sales Holland B.V.                        The Netherlands
Lubrizol Transarabian Company Ltd.                Saudi Arabia
Lubrizol Southeast Asia (Pte.) Ltd.                 Singapore
Lubrizol South Africa (Pty) Limited               South Africa
Noveon SA (Proprietary) Ltd.                      South Africa
Lubrizol Espanola, S.A.                               Spain
Noveon Holdings Spain, S.L.                           Spain
Noveon Manufacturing Spain, S.L.                      Spain
Noveon Sales Spain, S.L.                              Spain
Engine Control Systems Europe AB                     Sweden
Lubrizol Sweden AB                                   Sweden
Lubrizol A.G.                                      Switzerland
SNP-Noveon Holding Limited                          Thailand
Specialty Natural Products Co., Ltd.                Thailand
Engine Control Systems Ltd.                      United Kingdom
Lubrizol Adibis Holdings (UK) Limited            United Kingdom
Lubrizol Adibis (UK) Limited                     United Kingdom
Lubrizol Limited                                 United Kingdom
Lubrizol Performance Systems Limited             United Kingdom
Noveon Holdings UK Limited                       United Kingdom
Noveon Manufacturing UK Limited                  United Kingdom
Noveon UK Limited                                United Kingdom
Lubrizol de Venezuela, C.A.                         Venezuela


                                       3

EX-23.1

                                                                    EXHIBIT 23.1

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos.
2-99983, 33-61091, 33-42211, 333-42338 and 333-115662 on Form S-8 of The
Lubrizol Corporation of our reports dated March 2, 2005, relating to the
financial statements and financial statement schedule of The Lubrizol
Corporation (which reports express unqualified opinions and include explanatory
paragraphs related to the adoption of Statement of Financial Accounting
Standards No. 142 in 2002) and management's report on the effectiveness of
internal control over financial reporting, appearing in and incorporated by
reference in this Annual Report on Form 10-K of The Lubrizol Corporation for the
year ended December 31, 2004.

        /s/Deloitte & Touche LLP
- --------------------------------

DELOITTE & TOUCHE LLP
Cleveland, Ohio
March 2, 2005

EX-31.1

                                                                    EXHIBIT 31.1
                            THE LUBRIZOL CORPORATION
                          Rule 13a-14(a) Certification

I, James L. Hambrick, certify that:

1. I have reviewed this annual report on Form 10-K of The Lubrizol Corporation;

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 consolidated 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 we 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 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 upon such
            evaluation; and

      (d)   disclosed in this report any change in registrant's internal control
            over financial reporting that occurred during registrant's most
            recent fiscal quarter 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.

/s/ James L. Hambrick
- -------------------------------------
James L. Hambrick
Chief Executive Officer and President
March 2, 2005

EX-31.2

                                                                    EXHIBIT 31.2
                            THE LUBRIZOL CORPORATION
                          Rule 13a-14(a) Certification

I, Charles P. Cooley, certify that:

1. I have reviewed this annual report on Form 10-K of The Lubrizol Corporation;

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 consolidated 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 we 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 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 upon such
            evaluation; and

      (d)   disclosed in this report any change in registrant's internal control
            over financial reporting that occurred during registrant's most
            recent fiscal quarter 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.

/s/ Charles P. Cooley
- -----------------------
Charles P. Cooley
Chief Financial Officer
March 2, 2005

EX-32.1

                                                                    EXHIBIT 32.1

                            THE LUBRIZOL CORPORATION
     Certification of Chief Executive Officer and Chief Financial Officer of
           The Lubrizol Corporation Pursuant to 18 U.S.C. Section 1350

I certify that, to the best of my knowledge and belief, the Annual Report on
Form 10-K of The Lubrizol Corporation for the period ending December 31, 2004:

      (1)   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 Lubrizol Corporation.

/s/ James L. Hambrick
- -------------------------------------
James L. Hambrick
Chief Executive Officer and President
March 2, 2005

I certify that, to the best of my knowledge and belief, the Annual Report on
Form 10-K of The Lubrizol Corporation for the period ending December 31, 2004:

      (1)   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 Lubrizol Corporation.

/s/ Charles P. Cooley
- -----------------------
Charles P. Cooley
Chief Financial Officer
March 2, 2005