10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2007

or

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

For the transition period from     to

Commission file number 1-3507

ROHM AND HAAS COMPANY

(Exact name of registrant as specified in its charter)

DELAWARE	23-1028370
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

100 INDEPENDENCE MALL WEST, PHILADELPHIA, PA	19106
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (215) 592-3000

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, and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ      Accelerated filer o      Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o No þ

Common stock outstanding at October 22, 2007: 195,799,721 shares

ROHM AND HAAS COMPANY AND SUBSIDIARIES
FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements (unaudited)
		Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006
		Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006
		Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2007
		Notes to Consolidated Financial Statements
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk
		Management’s discussion of market risk is incorporated herein by reference to Item 7a of its Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 28, 2007 and updated on Form 8-K dated July 11, 2007.
	Item 4.	Controls and Procedures
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings
	Item 1A.	Risk Factors
		Management’s discussion of risk factors is incorporated herein by reference to Item 1a of its Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 28, 2007.
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	Item 4.	Submission of Matters to a Vote of Security Holders
	Item 6.	Exhibits
Instruments defining the rights of security holders, including indentures
Certification Pursuant to Rule 13a-14(a)/15d-14(a)
Certification Pursuant to Rule 13a-14(a)/15d-14(a)
Certification Furnished Pursuant to 18 U.S.C. Section 1350

1

Rohm and Haas Company and Subsidiaries

Consolidated Statements of Operations

	Three Months Ended						Nine Months Ended
(in millions, except per share amounts)	September 30,						September 30,
(unaudited)	2007			2006			2007			2006
Net sales	$	2,204		$	2,065		$	6,554		$	6,204
Cost of goods sold		1,590			1,461			4,727			4,324
Gross profit		614			604			1,827			1,880
Selling and administrative expense		256			251			793			757
Research and development expense		72			69			213			208
Interest expense		30			21			77			73
Amortization of intangibles		14			15			42			42
Restructuring and asset impairments		18			6			28			10
Pension judgment		65			—			65			—
Share of affiliate earnings, net		6			2			17			7
Other (income), net		(3	)		(17	)		(32	)		(33	)
Earnings from continuing operations before income taxes, and minority interest		168			261			658			830
Income taxes		36			69			168			232
Minority interest		3			3			10			10
Earnings from continuing operations		129			189			480			588
Discontinued operations:
Net earnings (loss) of discontinued lines of business, net of income tax (benefit)/expense of $0, $3, ($2), and $21, respectively		—			(3	)		1			(29	)
Net earnings	$	129		$	186		$	481		$	559
Basic earnings per share (in dollars):
From continuing operations	$	0.62		$	0.87		$	2.26		$	2.68
Net earnings (loss) from discontinued operations		—			(0.01	)		0.01			(0.13	)
Net earnings per share	$	0.62		$	0.86		$	2.27		$	2.55
Diluted earnings per share (in dollars):
From continuing operations	$	0.61		$	0.86		$	2.23		$	2.65
Net earnings (loss) from discontinued operations		—			(0.01	)		0.01			(0.13	)
Net earnings per share	$	0.61		$	0.85		$	2.24		$	2.52
Weighted average common shares outstanding - basic		206.8			217.6			212.1			219.5
Weighted average common shares outstanding - diluted		210.1			219.6			215.3			221.7

See Notes to Consolidated Financial Statements

2

Rohm and Haas Company and Subsidiaries

Consolidated Statements of Cash Flows

For the nine months ended September 30,
(in millions)
(unaudited)	2007			2006
Cash Flows from Operating Activities
Net earnings	$	481		$	559
Adjustments to reconcile net earnings to net cash provided by operating activities:
Loss on disposal of business, net of income taxes		2			—
(Gain) loss on sale of assets		(2	)		6
Provision for allowance for doubtful accounts		4			4
Provision for deferred taxes		(87	)		(1	)
Restructuring and asset impairments		28			17
Depreciation		309			303
Amortization of finite-lived intangibles		42			44
Pension judgment		65			—
Share-based compensation		36			36
Premium paid on debt retirement		—			(6	)
Changes in assets and liabilities
Accounts receivable		(215	)		(76	)
Inventories		50			(93	)
Prepaid expenses and other current assets		(13	)		(2	)
Accounts payable and accrued liabilities		(120	)		(72	)
Federal, foreign and other income taxes payable		18			(55	)
Other, net		(8	)		18
Net cash provided by operating activities		590			682
Cash Flows from Investing Activities
Acquisitions of businesses, affiliates and intangibles		(119	)		(35	)
Proceeds from disposal of business, net		15			—
Decrease in restricted cash		—			1
Proceeds from the sale of land, buildings and equipment		16			7
Capital expenditures for land, buildings and equipment		(276	)		(236	)
Payments to settle hedge of net investment in foreign subsidiaries		(35	)		—
Net cash used by investing activities		(399	)		(263	)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt		1,320			—
Repayment of long-term debt		(236	)		(177	)
Purchase of common stock		(1,462	)		(264	)
Tax benefit on stock options		8			4
Proceeds from exercise of stock options		43			55
Net change in short-term borrowings		(56	)		(55	)
Payment of dividends		(231	)		(211	)
Net cash used by financing activities		(614	)		(648	)
Net decrease in cash and cash equivalents		(423	)		(229	)
Effect of exchange rate changes on cash and cash equivalents		77			37
Cash and cash equivalents at the beginning of the period		593			566
Cash and cash equivalents at the end of the period	$	247		$	374

See Notes to Consolidated Financial Statements

3

Rohm and Haas Company and Subsidiaries

Consolidated Balance Sheets

(in millions, except share data)	September 30,			December 31,
(unaudited)	2007			2006
Assets
Cash and cash equivalents	$	247		$	593
Restricted cash		3			3
Receivables, net		1,845			1,570
Inventories		975			984
Prepaid expenses and other current assets		236			254
Current assets of discontinued operations		—			7
Total current assets		3,306			3,411
Land, buildings and equipment, net of accumulated depreciation		2,709			2,669
Investments in and advances to affiliates		178			112
Goodwill, net of accumulated amortization		1,565			1,541
Other intangible assets, net of accumulated amortization		1,477			1,487
Other assets		271			324
Other assets of discontinued operations		—			9
Total Assets	$	9,506		$	9,553
Liabilities and Stockholders’ Equity
Liabilities:
Short-term obligations	$	207		$	393
Trade and other payables		666			684
Accrued liabilities		856			816
Income taxes payable		16			93
Current liabilities of discontinued operations		—			2
Total current liabilities		1,745			1,988
Long-term debt		3,037			1,688
Employee benefits		757			735
Deferred income taxes		665			754
Other liabilities		319			230
Other liabilities of discontinued operations		—			5
Total Liabilities		6,523			5,400
Minority Interest		135			122
Commitments and contingencies
Stockholders’ Equity:
Preferred stock; par value — $1.00; authorized - 25,000,000 shares; issued — no shares		—			—
Common stock; par value — $2.50; authorized - 400,000,000 shares; issued — 242,078,349 shares		605			605
Additional paid-in capital		2,141			2,214
Retained earnings		2,389			2,218
		5,135			5,037
Treasury stock at cost (2007 - 46,292,782 shares; 2006 - 23,239,920 shares)		(1,922	)		(608	)
ESOP shares (2007 - 8,101,882 shares; 2006 - 8,585,684 shares)		(77	)		(82	)
Accumulated other comprehensive loss		(288	)		(316	)
Total Stockholders’ Equity		2,848			4,031
Total Liabilities and Stockholders’ Equity	$	9,506		$	9,553

See Notes to Consolidated Financial Statements

4

Rohm and Haas Company and Subsidiaries

Consolidated Statements of Stockholders’ Equity

	Number of
	Shares of											Number of									Accumulated
(unaudited)	Common					Additional						Shares of									Other			Total			Total
For the period ended September 30, 2007	Stock			Common		Paid-in			Retained			Treasury			Treasury						Comprehensive			Stockholders’			Comprehensive
(in millions, except share amounts in thousands)	Outstanding			Stock		Capital			Earnings			Stock			Stock			ESOP			Income (Loss)			Equity			Income
Balance January 1, 2007		218,839		$	605	$	2,214		$	2,218			23,240		$	(608	)	$	(82	)	$	(316	)	$	4,031
2007
Net earnings										481															481		$	481
Current period changes in fair value, net of taxes of $0																						(1	)		(1	)		(1	)
Reclassification to earnings, net of taxes of $2																						(4	)		(4	)		(4	)
Cumulative translation adjustment, net of taxes of $(17)																						11			11			11
Pension and postretirement benefit adjustments, net of taxes of $(8)																						22			22			22
Total comprehensive income																											$	509
Cumulative Transition Adjustment for FIN 48										(9	)														(9	)
Repurchase of common stock		(24,747	)				(99	)					24,747			(1,363	)								(1,462	)
Common stock issued:
Stock-based compensation		1,694					26						(1,694	)		49									75
ESOP																			5						5
Tax benefit on ESOP										2															2
Common dividends ($1.44 per share(1))										(303	)														(303	)
Balance September 30, 2007		195,786		$	605	$	2,141		$	2,389			46,293		$	(1,922	)	$	(77	)	$	(288	)	$	2,848

⁽¹⁾ Dividends per share represent dividends paid of $1.07 per share during the nine months ended September 30, 2007 and the dividend of $0.37 declared on September 28, 2007, payable in the 4th quarter of 2007.

See Notes to Consolidated Financial Statements

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: Basis of Presentation

The accompanying unaudited consolidated financial statements of Rohm and Haas Company and its subsidiaries (the “Company”) have been prepared on a basis consistent with accounting principles generally accepted in the United States of America and are in accordance with the Securities and Exchange Commission (“SEC”) regulations for interim financial reporting. In the opinion of management, the financial statements reflect all adjustments, which are of a normal and recurring nature, which are necessary to present fairly the financial position, results of operations, and cash flows for the interim periods.

These financial statements should be read in conjunction with the financial statements, accounting policies and the notes included in our Form 8-K filed on July 11, 2007, for the year ended December 31, 2006. The interim results are not necessarily indicative of results for a full year.

In the second quarter of 2006, our Board of Directors approved a plan to sell our Automotive Coatings business. The held-for-sale and discontinued operations criteria set forth in Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) were met. Therefore, the results of our Automotive Coatings business are presented as a discontinued operation in our Consolidated Financial Statements for all periods presented herein. On October 1, 2006, we completed the sale of our Automotive Coatings business, excluding the business’ European operations which were sold on June 30, 2007. See Note 3 to the Consolidated Financial Statements.

On January 1, 2007, we reorganized our segments to create a more market-focused business structure. In addition to reorganizing our business structure, we adopted a simplified methodology for allocating shared service costs across all business units in order to provide improved management reporting through ease of administration and enhanced transparency of costs, as well as a simpler transfer pricing methodology which is intended to reduce volatility in earnings on internal sales and more accurately represent the value that is created in our integrated acrylic chain businesses. See Note 4 for further discussion.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Variable Interest Entities

We are the primary beneficiary of a joint venture deemed to be a variable interest entity. Each joint venture partner holds several equivalent variable interests, with the exception of a royalty agreement held exclusively between the joint venture and our Company. In addition, the entire output of the joint venture is sold to our Company for resale to third party customers. As the primary beneficiary, we have consolidated the joint venture’s assets, liabilities and results of operations in our Consolidated Financial Statements. Creditors and other beneficial holders of the joint venture have no recourse to the general credit of our Company.

We also hold a variable interest in another joint venture, accounted for under the equity method of accounting. The variable interest relates to a cost-plus arrangement between the joint venture and each joint venture partner. We have determined that we are not the primary beneficiary and therefore have not consolidated the entity’s assets, liabilities and results of operations in our Consolidated Financial Statements. The entity provides manufacturing services to us and the other joint venture partner, and has been in existence since 1999. As of September 30, 2007, our investment in the joint venture totals approximately $36 million, representing our maximum exposure to loss.

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NOTE 2: New Accounting Pronouncements

Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which provides companies with an option to report selected financial assets and liabilities at fair value in an attempt to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. This Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. We do not anticipate electing the SFAS 159 option for our existing financial assets and liabilities and therefore do not expect the adoption of SFAS 159 to have a material impact on our Consolidated Financial Statements. On a prospective basis, we will apply the requirements of the standard if we select to report new financial assets or liabilities at fair value.

Accounting for Planned Major Maintenance Activities

In September 2006, the FASB issued Staff Position (FSP) AUG AIR-1, which addresses the accounting for planned major maintenance activities. The FASB believes that the accrue-in-advance method of accounting for planned major maintenance activities results in the recognition of liabilities that do not meet the definition of a liability in FASB Concepts Statement No. 6, “Elements of Financial Statements,” because it causes the recognition of a liability in a period prior to the occurrence of the transaction or event obligating the entity. This FSP prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods beginning January 1, 2007. We have adopted this FSP as of January 1, 2007 and it did not have a material impact to our Consolidated Financial Statements.

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. It does not expand the use of fair value measurement. We will be required to adopt SFAS 157 on January 1, 2008.  We have not completed our evaluation, but currently believe the impact will not require material modification of our fair value measurements and will be substantially limited to expanded disclosures in the notes to our Consolidated Financial Statements that currently have components measured at fair value.

Accounting for Uncertainty in Income Taxes

In July 2006, the FASB issued Financial Accounting Standards Board Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” FIN No. 48 is an interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in an enterprise’s tax return. This interpretation also provides guidance on the derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition of tax positions. The recognition threshold and measurement attribute is part of a two step tax position evaluation process prescribed in FIN No. 48. FIN No. 48 is effective after the beginning of an entity’s first fiscal year that begins after December 15, 2006. We have adopted FIN No. 48 as of January 1, 2007. The adoption resulted in a charge of $9 million recorded directly to retained earnings as a cumulative effect of an accounting change. See Note 6 for further discussion.

NOTE 3: Acquisitions and Dispositions of Assets

Acquisitions

On January 4, 2007, we completed the formation of Viance, LLC, a joint venture owned 50% by Rohm and Haas and 50% by Chemical Specialties, Inc. (CSI), a wholly owned subsidiary of Rockwood Holdings, Inc. Rohm and Haas paid CSI $73 million to create the new company, which combines the wood biocides business of Rohm and Haas and the wood protection chemicals business of CSI. The

7

results of this joint venture are included in our Performance Materials Group segment as an equity method investment.

On June 15, 2007, we acquired the net assets of Eastman Kodak Company’s Light Management Films technology business, which produces advanced films that improve the brightness and efficiency of liquid crystal displays (LCD). Of the $40 million purchase price, $9 million was allocated to intangible assets, primarily consisting of developed technology, and we recorded a charge of $3 million for acquired in-process research and development which is included in restructuring and asset impairments in the Consolidated Statement of Operations. The remainder of the purchase price was allocated to the tangible net assets acquired. The proforma results of operations for the three and nine month periods ended September 30, 2007 and 2006, respectively, would not be material to the Rohm and Haas Consolidated Statements of Operations for those respective periods. The results of operations of the light management films business are included in our Electronic Materials Group segment as of the second quarter of 2007.

On August 14, 2007, Rohm and Haas Company and SKC Incorporated announced the formation of a joint venture that will develop, manufacture and market advanced optical and functional films used in the flat panel display industry. As part of the new joint venture arrangement, SKC Incorporated will spin-off its Display Technologies business into a separate legal entity. Rohm and Haas will invest to become a 51 percent owner in the new company. We will have a controlling interest in the new company and therefore will consolidate its assets, liabilities, and results of operations in our Consolidated Financial Statements. Closing of this transaction is expected to occur in the fourth quarter of 2007 pending approval by regulatory authorities.

Dispositions

In the second quarter of 2006, we determined that the global Automotive Coatings business became an Asset Held for Sale and qualified for treatment as a discontinued operation. We have reflected this business as such in our financial statements for all periods presented. On October 1, 2006, we completed the sale of our global Automotive Coatings business, excluding that business’ European operations. Proceeds included $230 million in cash, plus working capital adjustments as defined in the sale agreement. In January of 2007, we paid $9 million in closing working capital adjustments.

The European Automotive Coatings business’ operations were sold on June 30, 2007 for proceeds of $3 million. The sale resulted in a pre-tax loss of approximately $3 million.

The following table presents the results of operations of our Automotive Coatings discontinued operation:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in millions)	2007		2006			2007			2006
Net sales from discontinued operation	$	—	$	23		$	14		$	72
Loss from discontinued operation		—		—			(1	)		(8	)
Income tax (provision) benefit		—		(3	)		2			(21	)
Net (loss) earnings from discontinued operation	$	—	$	(3	)	$	1		$	(29	)

In the second quarter of 2006, we acquired the net assets of Floralife^®, Inc. (“Floralife”), a global provider of post-harvest care products for the floral industry based in South Carolina, for approximately $22 million. In January of 2007, we sold Floralife with the exception of certain patented technologies (1-MCP) that will enhance the growth of the AgroFresh business in the Performance Materials Group segment. This sale resulted in a pre-tax gain of approximately $3 million.

8

NOTE 4: Segment Information

On January 1, 2007, we reorganized our segments to create a more market-focused business structure. In addition to reorganizing our business structure, we adopted a simplified methodology for allocating shared service costs across all business units in order to provide improved management reporting through ease of administration and enhanced transparency of costs, as well as a simpler transfer pricing methodology which is intended to reduce volatility in earnings on internal sales and more accurately represent the value that is created in our integrated acrylic chain businesses. The following segment profiles reflect the new structure.

We operate six reportable segments: Primary Materials, Paint and Coatings Materials, Packaging and Building Materials, Electronic Materials Group, Performance Materials Group, and Salt. Paint and Coatings Materials, Packaging and Building Materials and Primary Materials are managed under one executive as the Specialty Materials Group. The reportable operating segments and the types of products from which their revenues are derived are discussed below.

Ø	Paint and Coatings Materials
	This business produces acrylic emulsions and additives that are used primarily to make decorative and industrial coatings. Its products are critical components used in the manufacture of architectural paints used by do-it-yourself consumers and professional contractors. Paint and Coatings Materials products are also used in the production of industrial coatings (for use on wood, metal, and in traffic paint); in construction applications (for use in roofing materials, insulation, and cement modification); and floor care products.
Ø	Packaging and Building Materials
	This business offers a broad range of polymers; additives; and formulated value-added products (which utilize a broad range of chemistries and technologies, including our world-class acrylic technology). Its products are used in a wide range of markets, including: packaging and paper, building and construction, durables and transportation, and other industrial markets. Product lines include: additives for the manufacture of plastic and vinyl products, packaging, pressure sensitive, construction, and transportation adhesives, as well as polymers and additives used in textile, graphic arts, nonwoven, paper and leather applications.
Ø	Primary Materials
	This business produces methyl methacrylate, acrylic acid and associated esters as well as specialty monomer products which are building blocks used in our downstream polymer businesses and which are also sold externally. Internal consumption of Primary Materials products is principally in the Paint and Coatings Materials and Packaging and Building Materials businesses. Primary Materials also provides polyacrylic acid (PAA) dispersants, opacifiers and rheology modifiers/thickeners to the global household and industrial markets.
Ø	Electronic Materials Group
	The Electronic Materials segment provides cutting-edge technology for use in telecommunications, consumer electronics and household appliances. It is comprised of three aggregated businesses: Circuit Board Technologies, Packaging and Finishing Technologies, and Semiconductor Technologies. The Circuit Board Technologies business develops and delivers the technology, materials and fabrication services for increasingly powerful, high-density circuit boards in computers, cell phones, automobiles and many other electronic devices. Our Packaging and Finishing Technologies business develops and delivers innovative materials and processes that boost the performance of a diverse range of electronic, optoelectronic and industrial packaging and finishing applications. The Semiconductor Technologies business develops and supplies integrated products and technologies on a global basis enabling our customers to drive leading-edge semiconductor design to boost performance of semiconductor devices powered by smaller and faster chips. This business also develops and delivers materials used for chemical mechanical planarization, the process used to create the flawless surfaces required to allow manufacturers to make faster and more powerful integrated circuits and electronic substrates.

9

Ø	Performance Materials Group
	This business group represents our expertise in enabling technologies that meet growing societal needs in the areas of water, food, health care and energy. It is comprised of the operating results of Process Chemicals and Biocides, Powder Coatings, and other smaller business units. Its products include: ion exchange resins; sodium borohydride, biocides, polymers and additives used in personal care applications and other niche technologies.
Ø	Salt
	The Salt business houses the Morton Salt name including the well known image of the Morton Salt Umbrella Girl and the familiar slogan, “when it rains it pours.” This business also encompasses the leading table salt brand in Canada, Windsor Salt.  Salt’s product offerings extend well beyond the consumer market to include salts used for food processing, agriculture, water conditioning, highway ice control and industrial processing applications.

The table below presents net sales by reportable segment. Segment eliminations are presented for intercompany sales between reportable segments.

Net Sales by Business Segment and Region

	Three Months Ended						Nine Months Ended
(in millions)	September 30,						September 30,
	2007			2006			2007			2006
Business Segment
Paint and Coatings Materials	$	570		$	548		$	1,652		$	1,612
Packaging and Building Materials		460			443			1,373			1,353
Primary Materials		542			516			1,584			1,505
Elimination of Intersegment Sales		(297	)		(296	)		(860	)		(866	)
Specialty Materials Group	$	1,275		$	1,211		$	3,749		$	3,604
Electronic Materials Group		442			402			1,227			1,169
Performance Materials Group		296			278			882			834
Salt		191			174			696			597
Total net sales	$	2,204		$	2,065		$	6,554		$	6,204
Customer Location
North America	$	1,039		$	1,042		$	3,180		$	3,206
Europe		549			507			1,691			1,520
Asia-Pacific		515			427			1,408			1,232
Latin America		101			89			275			246
Total net sales	$	2,204		$	2,065		$	6,554		$	6,204

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Net Earnings (Loss) from Continuing Operations by Business Segment ^(1,2,3)

	Three Months Ended						Nine Months Ended
(in millions)	September 30,						September 30,
	2007			2006			2007			2006
Business Segment
Paint and Coatings Materials	$	72		$	72		$	201		$	210
Packaging and Building Materials		32			33			96			109
Primary Materials		18			32			65			123
Specialty Materials Group	$	122		$	137		$	362		$	442
Electronic Materials Group		72			64			201			179
Performance Materials Group		24			20			64			54
Salt		8			4			45			24
Corporate (3)		(97	)		(36	)		(192	)		(111	)
Total net earnings from continuing operations	$	129		$	189		$	480		$	588

(1)	Earnings (loss) for all segments except Corporate are tax effected using our overall consolidated effective tax rate excluding certain discrete items.
(2)	In the first quarter of 2007, we changed the methodology for allocating shared service costs across all business units to a simpler methodology we believe will provide improved management reporting. Also in the first quarter of 2007, we moved to a simpler transfer pricing methodology which is intended to reduce volatility in earnings on internal sales and more accurately represent where value is created in our integrated acrylic chain businesses. We have reclassified our 2006 results to conform to these changes.
(3)	Corporate includes certain corporate governance costs, interest income and expense, environmental remediation expense, insurance recoveries, exploratory research and development expense, currency gains and losses, any unallocated portion of shared services, certain discrete period tax items and other infrequently occurring items. Results for the three and nine months ended September 30, 2007 include $65 million ($42 million after-tax) for the pension charge recorded in the third quarter of 2007.

NOTE 5: Restructuring and Asset Impairments

Severance and employee benefit costs associated with restructuring initiatives are primarily accounted for in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits.” Asset impairment charges are accounted for in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The following net restructuring and asset impairment charges were recorded for the three and nine months ended September 30, 2007 and 2006, respectively as detailed below:

	Three Months Ended				Nine Months Ended
(in millions)	September 30,				September 30,
	2007		2006		2007			2006
Severance and employee benefits	$	13	$	4	$	12		$	5
Other, including contract lease termination penalties		—		2		(1	)		2
Asset impairments, net of gains		5		—		17			3
Total	$	18	$	6	$	28		$	10

Restructuring and Asset Impairment by Business Segment

	Three Months Ended				Nine Months Ended
(in millions)	September 30,				September 30,
	2007		2006		2007		2006
Business Segment
Paint and Coatings Materials	$	2	$	1	$	2	$	1
Packaging and Building Materials		1		—		2		5
Primary Materials		—		—		—		—
Specialty Materials Group	$	3	$	1	$	4	$	6
Electronic Materials Group		3		—		—		(1	)
Performance Materials Group		11		2		10		2
Salt		—		1		—		1
Corporate		1		2		14		2
Total	$	18	$	6	$	28	$	10

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Restructuring by Initiative				Contract and Lease
	Severance and			Termination and
(in millions)	Employee Benefits			Other Costs			Total
2007 Initiatives:
Initial charge	$	15		$	—		$	15
Payments		—			—			—
Changes in estimate		—			—			—
September 30, 2007 ending balance		15			—			15
2006 Initiatives:
Initial charge	$	26		$	—		$	26
Payments		(3	)		—			(3	)
Changes in estimate		(1	)		—			(1	)
December 31, 2006 ending balance		22			—			22
Payments		(16	)		—			(16	)
Changes in estimate		(2	)		—			(2	)
September 30, 2007 ending balance		4			—			4
2005 Initiatives:
Initial charge	$	36		$	1		$	37
Payments		(3	)		(1	)		(4	)
Changes in estimate		—			—			—
December 31, 2005 ending balance		33			—			33
Payments		(19	)		—			(19	)
Changes in estimate		(1	)		2			1
December 31, 2006 ending balance		13			2			15
Payments		(8	)		(1	)		(9	)
Changes in estimate		(1	)		(1	)		(2	)
September 30, 2007 ending balance		4			—			4
Balance at September 30, 2007	$	23		$	—		$	23

The balance at September 30, 2007, recorded for severance and employee benefits, is included in accrued liabilities in our Consolidated Balance Sheet. The restructuring reserve balances presented are considered adequate to cover committed restructuring actions. Our restructuring initiatives are generally completed in 12 to 18 months.

Restructuring Initiatives

2007 Initiatives

For the three and nine months ended September 30, 2007, we recorded approximately $15 million of a provision for severance and associated employee benefits primarily associated with the elimination of 201 positions as part of our on-going efforts to reposition our business portfolio for accelerated growth by exiting non-strategic business lines, as well as to improve operating excellence through productivity initiatives in manufacturing, research and development, and business services.

As of September 30, 2007, of the 201 positions identified under total 2007 restructuring initiatives, 16 positions have been eliminated.

2006 Initiatives

For the three months ended September 30, 2006, we recorded approximately $4 million of expense for severance and associated employee benefits primarily associated with the elimination of 69 positions in our North American support services, as we continue to capitalize on the enhancements made possible

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by the implementation of our Enterprise Resource Planning system. This charge was offset by $1 million of favorable adjustments to appropriately reflect more accurate estimates of remaining obligations related to severance payments within our global Graphic Arts business initiative announced in the first quarter of 2006. In the three months ended September 30, 2007, we recorded favorable adjustments of $2 million of severance and employee benefit charges related to total 2006 initiatives.

For the nine months ended September 30, 2006, we recorded approximately $8 million, net of expense for severance and associated employee benefits primarily related to the restructuring of our global Graphics Arts business within our Packaging and Building Materials segment, and our North American support services restructuring, that affected 106 positions in total. In the first nine months of 2006 and 2007, we reversed $1 million and $2 million, respectively, of severance and employee benefit charges related to total 2006 initiatives.

Of the 329 positions identified under restructuring initiatives for the year ended December 31, 2006, we reduced the total number of positions to be affected by 37 to 292 positions in total. As of September 30, 2007, 227 positions have been eliminated.

2005 Initiatives

For the year ended December 31, 2005, we recorded $36 million for severance and associated employee benefits related to company-wide initiatives impacting virtually all areas including sales and marketing, manufacturing, administrative support and research personnel.

In the first nine months of 2006, we reversed $1 million of severance and employee benefit charges related to total 2005 initiatives. In addition, we recorded $2 million for contract lease obligations associated with a restructuring initiative announced in the fourth quarter of 2005. In the first nine months of 2007, we reversed $1 million of severance and employee benefit charges and contract lease obligations related to total 2005 initiatives.

Of the initial 590 positions identified under restructuring initiatives for the year ended December 31, 2006, we reduced the total number of positions to be affected by 47 to 543 positions in total. As of September 30, 2007, 522 positions have been eliminated.

Prior Year Initiatives

In the nine months of 2006, we recorded changes in estimates to reduce our reserve by $1 million for severance and employee benefit charges relating to total 2004 restructuring initiatives. All severance and contract lease payments contemplated by these initiatives were complete as of September 30, 2007. Of the initial 500 positions identified, we reduced the total number of positions to be affected by these initiatives by 123 to 377 positions in total, all of which were eliminated as of December 31, 2006.

Asset Impairments

2007 Impairments

For the three months ended September 30, 2007, we recorded asset impairments of approximately $5 million. These impairments relate to the exiting of our digital imaging business line, located in Bristol, Pennsylvania.

For the nine months ended September 30, 2007, we recorded net asset impairments of approximately $17 million. These impairments included the $5 million impairment related to our digital imaging business line, $13 million write-off of our investment in Elemica, an online chemicals e-marketplace, and the $3 million write-off of in-process research and development relating to the Eastman Kodak Company Light Management Films business acquisition, partially offset by a $4 million gain on the sale of real estate previously written down.

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2006 Impairments

For the nine months ended September 30, 2006, we recognized $3 million of fixed asset impairment charges associated with the restructuring of our global Graphic Arts business within our Packaging and Building Materials segment.

Furthermore, included in discontinued operation for the nine months ended September 30, 2006 is a $7 million asset impairment charge related to our Automotive Coatings business.

NOTE 6: Accounting for Uncertainty in Income Taxes

Effective January 1, 2007, we adopted Financial Accounting Standards Board Interpretation (“FIN”) FIN 48, “Accounting for Uncertainty in Income Taxes,” which provides a comprehensive model for the recognition, measurement and disclosure in financial statements of uncertain income tax positions that a company has taken or expects to take on a tax return. Under FIN 48, a company can recognize the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit can be recognized. Additionally, companies are required to accrue interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.

The recognition threshold and measurement provisions of FIN 48 are different from those of SFAS 109. Under FIN 48 we determined that certain income tax positions did not meet the more-likely-than-not recognition threshold and, therefore, required a 100% reserve while other previously unrecognized income tax positions met the recognition threshold and did not require any reserve. Accordingly, as of January 1, 2007, we recorded a non-cash cumulative transition charge of approximately $9 million, recorded as a reduction to beginning retained earnings (see Consolidated Statement of Shareholders’ Equity). Additional interest and penalty charges associated with tax positions are classified as income tax expense in the Consolidated Financial Statements.

As of January 1, 2007, we have unrecognized income tax benefits totaling $70 million and related accrued interest and penalties of $18 million (net of any tax benefit). If recognized, $74 million of these amounts would be recorded as a benefit to income taxes on the Statement of Operations and, therefore, would impact the reported effective tax rate. The remaining $14 million relates to pre-acquisition contingencies and discontinued operations. We are currently under audit in many jurisdictions. Although it is not possible to predict the timing of the conclusion of all these pending audits with accuracy, we do anticipate that the IRS audit of the 2002 through 2004 year will be complete by the end of 2007. Given the various stages of completion of our audits we can not currently estimate significant changes in the amount of unrecognized income tax benefits over the next year.

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As of January 1, 2007, the following tax years remained subject to examination by the major tax jurisdictions indicated:

Major
Jurisdictions	Open Years
Canada	1999 through 2001, 2003 through 2006
China	1997 through 2006
France	2004 through 2006
Germany	1999 through 2006
Italy	2003 through 2006
Japan	2000 through 2006
Korea	2001 through 2006
Netherlands	2003 through 2006
South Africa	2001 through 2006
Switzerland	2005 and 2006
Taiwan	2005 and 2006
United Kingdom	2003 through 2006
United States	2002 through 2006

We are also subject to income taxes in many hundreds of state and local taxing jurisdictions in the U.S. and around the world, many of which are still open to tax examinations. Management does not believe these represent a significant financial exposure for the Company.

NOTE 7: Borrowings

In September 2007, we issued $250 million of 5.60% notes at 99.985% of par due in March 2013 and $850 million of 6.00% notes at 99.487% of par due in September 2017 (the Notes). The Notes represent unsecured and unsubordinated obligations of Rohm and Haas Company which are not subject to any sinking fund requirement and include a redemption provision which allows us to retire the Notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the noteholders are not penalized by the early redemption. Interest on the notes is payable semi-annually in March and September, commencing in March 2008. In the event of a change of control repurchase event as defined in the terms of the Notes, we may be required to offer to purchase the Notes from holders at a purchase price equal to 101% of their principal amount, plus accrued interest. The terms of the Notes limit us from entering into certain mortgage and certain sale and leaseback transactions. Debt issuance costs of $5 million have been recorded and will be amortized to interest expense over the life of the Notes.

In August of 2007, in anticipation of the debt issuance discussed above we entered into a $350 million interest rate lock agreement designated as a cash flow hedge to mitigate exposure to interest rate fluctuations which would impact semi-annual interest payments. In conjunction with the issuance of the debt, the interest rate lock agreement was settled resulting in a payment from us to the counterparty of approximately $10 million. Less than half a million after-tax of this value was deemed ineffective and immediately recognized in earnings. The remaining $6 million after-tax loss was recorded in accumulated other comprehensive income (loss) and will be amortized to interest expense over the life of the $850 million notes due in September 2017.

In September of 2007, we entered into interest rate swap agreements totaling $250 million to swap the fixed rate components of the $250 million notes due in March 2013 to a floating rate based on six-month LIBOR. The changes in fair value of the interest rate swap agreements are marked-to-market through income together with the offsetting changes in fair value of the underlying notes using the short cut method of measuring effectiveness. As a result, the carrying amounts of both the interest rate swap agreements and the notes decreased by $1 million at September 30, 2007.

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In March of 2007, we retired our €160 million of 6.0% notes upon maturity and early retired, at par, $19 million of 8.74% notes. We also issued €175 million of 4.50% Private Placement Senior Notes due March 9, 2014 with interest payable semi-annually in March and September at a rate of 4.50% annually.

In September 2005, we entered into a LIBOR rate lock agreement to hedge against changes in long-term interest rates in anticipation of the Euro debt issuance discussed above. This lock agreement was designated as a cash flow hedge to mitigate exposure to interest rate fluctuations which would impact semi-annual interest payments. In conjunction with the issuance of the debt, the interest rate lock agreement was settled resulting in the receipt by us of approximately $11 million from the counterparty. Since the hedge was deemed effective the $7 million after-tax gain was recorded in accumulated other comprehensive income (loss) and will be amortized to interest expense over the life of the €175 million notes due in March 2014.

As of September 30, 2007, we had $47 million in commercial paper outstanding.

NOTE 8: Accelerated Share Repurchase

On September 10, 2007, we entered into an accelerated share repurchase agreement (ASR) with Goldman, Sachs & Co. (Goldman Sachs) pursuant to which we paid $1 billion to Goldman Sachs and received approximately 16.2 million of shares of our common stock on September 11, 2007. During the succeeding five to nine-month period, Goldman Sachs is expected to purchase an equivalent number of shares under the terms of the ASR. At the end of the ASR’s term, which is expected to last no longer than nine months, we may receive from, or be required to pay to Goldman Sachs a price adjustment based upon the volume weighted-average price of our common stock during the period Goldman Sachs purchases the equivalent number of shares, less a discount. The price adjustment may be settled in shares of our common stock or cash, at our option. The price adjustment is accounted for as an equity instrument and changes in its fair value are not recorded. If the volume weighted-average price of our common stock price from September 10, 2007 through the end of the term of the repurchase agreement remains at the volume weighted-average price through September 30, 2007, then Goldman Sachs would owe us approximately 2.6 million additional shares.

NOTE 9: Comprehensive Income

The components of comprehensive income (loss) are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2007			2006			2007			2006
Net earnings	$	129		$	186		$	481		$	559
Other comprehensive income:
Current period changes in fair value of derivative instruments qualifying as hedges, net of $2, $0, $0, and $(1), of income taxes, respectively		(4	)		—			(1	)		1
Reclassification to earnings of derivative instruments qualifying as hedges, net of $1, $2, $2, and $3 of income taxes, respectively		(2	)		(3	)		(4	)		(6	)
Cumulative translation adjustment, net of $(16), $9, $(17), and $2 of income taxes, respectively		11			(5	)		11			27
Pension and postretirement benefit adjustments, net of $(2), $0, $(8), and $0 of income taxes, respectively		6			—			22			1
Total comprehensive income	$	140		$	178		$	509		$	582

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NOTE 10: Earnings from Continuing Operations per Share

The difference in common shares outstanding used in the calculation of basic and diluted earnings from continuing operations per common share is primarily due to the effect of stock options and non-vested restricted stock as reflected in the reconciliations that follow:

	Three Months Ended September 30,							Nine Months Ended September 30,
	Earnings								Earnings
	from								from
	continuing								continuing
(in millions,except per share	operations		Shares		Per Share				operations		Shares		Per Share
amount)	(Numerator)		(Denominator)		Amount				(Numerator)		(Denominator)		Amount
2007
Net earnings from continuing operations available to stockholders (Basic)	$	129		206.8	$	0.62			$	480		212.1	$	2.26
Dilutive effect of options and non-vested restricted stock (1)		—		3.3		(0.01	)			—		3.2		(0.03	)
Diluted earnings from continuing operations per share	$	129		210.1	$	0.61			$	480		215.3	$	2.23
2006
Net earnings from continuing operations available to stockholders (Basic)	$	189		217.6	$	0.87			$	588		219.5	$	2.68
Dilutive effect of options and non-vested restricted stock (1)		—		2.0		(0.01	)			—		2.2		(0.03	)
Diluted earnings from continuing operations per share	$	189		219.6	$	0.86			$	588		221.7	$	2.65

(1) For the three months ended September 30, 2006, 1.4 million shares, and for the nine months ended September 30, 2007 and 2006, .3 million and 1 million shares were excluded from the calculation of diluted earnings per share as the exercise price of the stock options was greater than the average market price.

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NOTE 11: Pensions and Other Postretirement Benefits

We sponsor and contribute to pension plans that provide defined benefits to U.S. and non-U.S. employees. Pension benefits earned are generally based on years of service and compensation during active employment. We provide health care and life insurance benefits (“Other Postretirement Benefits”) under numerous plans for substantially all of our domestic retired employees, for which we are self-insured. Most retirees are required to contribute toward the cost of such coverage. We also provide health care and life insurance benefits to some non-U.S. retirees, primarily in France and Canada.

The following disclosures include amounts for both the U.S. and significant foreign pension plans (primarily Canada, Germany, Japan, and the United Kingdom) and other postretirement benefits.

Estimated Components of Net Periodic Cost

	Pension Benefits												Other Postretirement Benefits
	Three Months Ended						Nine Months Ended						Three Months Ended					Nine Months Ended
	September 30,						September 30,						September 30,					September 30,
(in millions)	2007			2006			2007			2006			2007			2006		2007			2006
| | | | | | | |
Service cost	$	21		$	19		$	62		$	58		$	2		$	1	$	4		$	4
Interest cost		37			35			108			102			6			6		19			19
Expected return on plan assets		(47	)		(40	)		(140	)		(119	)		(1	)		—		(2	)		(1	)
Amortization of prior service cost		—			—			1			2			(1	)		—		(2	)		(1	)
Amortization of net loss		7			11			18			32			1			1		2			1
	$	18		$	25		$	49		$	75		$	7		$	8	$	21		$	22
Pension judgment		65			—			65			—			—			—		—			—
Recognized settlement gain		—			—			(1	)		—			—			—		—			—
Recognized curtailment gain		(1	)		—			(1	)		—			—			—		—			—
Net periodic benefit cost	$	82		$	25		$	112		$	75		$	7		$	8	$	21		$	22

Included in the third quarter and first nine months of 2007 is a pre-tax non-cash charge of $65 million ($42 million after-tax) relating to a decision rendered by the Seventh Circuit Court of Appeal’s on August 14, 2007, affirming an Indiana Federal District Court’s decision that participants in the Rohm and Haas Pension Plan who elected a lump sum benefit during a class period have the right to a cost-of-living adjustment (“COLA”) as part of their retirement benefit. See Note 14 for further discussion.

During the three months and nine months ended September 30, 2007, we contributed approximately $22 million and $70 million, respectively, to our qualified and non-qualified pension and postretirement benefit plans. We anticipate making full-year contributions of approximately $90 million this year, which consist of $40 million to our foreign qualified pension plans, $10 million to our non-qualified pension plans, and $40 million to our postretirement benefit plans.

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NOTE 12: Inventories

Inventories consist of the following:

(in millions)	September 30, 2007		December 31, 2006
Finished products	$	542	$	517
Work in process		266		301
Raw materials		120		121
Supplies		47		45
Total	$	975	$	984

NOTE 13: Goodwill and Other Intangible Assets

Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 2007, by business segment, are as follows:

	Paint		Packaging
	and		and				Specialty		Electronic		Performance
	Coatings		Building		Primary		Materials		Materials		Materials
(in millions)	Materials		Materials		Materials		Group		Group		Group			Salt		Total
Balance as of January 1, 2007	$	63	$	517	$	29	$	609	$	368	$	241		$	323	$	1,541
Goodwill related to acquisitions (1)		—		—		—		—		6	—			—			6
Goodwill related to divestitures (2)		—		—		—		—	—			(4	)	—			(4	)
Currency effects (3)		2		7		—		9	—			9			4		22
Balance as of September 30, 2007	$	65	$	524	$	29	$	618	$	374	$	246		$	327	$	1,565

(1)	Goodwill related to acquisitions is due to the following: $6 million- Electronic Materials Group – buyback of additional shares of Rodel.
(2)	Goodwill related to divestitures is due to the following: $4 million- Performance Materials- related to the sale of Floralife® in 2007.
(3)	Certain goodwill amounts are denominated in foreign currencies and are translated using the appropriate U.S. dollar exchange rate.

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Intangible Assets

The following table provides information regarding changes to our finite-lived intangible assets, subject to amortization, and indefinite-lived intangible assets, which are not subject to amortization.

Gross Asset Value

	Finite Lived												Indefinite Lived
										Patents,
	Developed			Customer						Licenses &
(in millions)	Technology			Lists			Tradename			Other			Strategic		Tradename			Total
Balance as of January 1, 2007	$	398		$	881		$	141		$	172		$	75	$	329		$	1,996
Currency effects (1)		6			19			2			—			9		6			42
Acquisitions(2)		8			—			—			1			—		—			9
Divestitures(3)		(2	)		(12	)		(2	)		(1	)		—		(1	)		(18	)
Balance as of September 30, 2007	$	410		$	888		$	141		$	172		$	84	$	334		$	2,029

Accumulated Amortization

	Finite Lived												Indefinite Lived
										Patents,
	Developed			Customer						Licenses &
(in millions)	Technology			Lists			Tradename			Other			Strategic			Tradename			Total
Balance as of January 1, 2007	$	(176	)	$	(170	)	$	(33	)	$	(104	)	$	(5	)	$	(21	)	$	(509	)
Expense		(19	)		(14	)		(5	)		(4	)		—			—			(42	)
Currency effects (1)		(3	)		(5	)		—			—			—			—			(8	)
Divestitures(3)		1			3			3			—			—			—			7
Balance as of September 30, 2007	$	(197	)	$	(186	)	$	(35	)	$	(108	)	$	(5	)	$	(21	)	$	(552	)
Net Book Value	$	213		$	702		$	106		$	64		$	79		$	313		$	1,477

(1)	Certain intangible assets are denominated in foreign currencies and are translated using the appropriate U.S. dollar exchange rate.
(2)	Finite-lived intangible assets increased by $9 million as a result of our acquisition of the Kodak Light Management Films technology business, in June of 2007. See Note 3 for further discussion of this acquisition.
(3)	Divestiture relates to the sale of a Digital Imaging business line in the Paint and Coatings Materials segment and Floralife® assets in the Performance Materials segment.

Amortization expense for finite-lived intangible assets was $14 million and $42 million for the three and nine months ended September 30, 2007, respectively and $15 million and $42 million for the three and nine months ended September 30, 2006, respectively. Amortization expense is estimated to be approximately $56 million for the full 2007 year and for each of the subsequent four years.

Annual SFAS No. 142 Impairment Review

In accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” we are required to perform, at a reporting unit level, an annual impairment review of goodwill and indefinite-lived intangible assets, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For purposes of this review, we primarily utilize discounted cash flow analyses for estimating the fair value of the reporting units. We completed our annual recoverability review as of May 31, 2007, and determined that goodwill and indefinite-lived intangible assets were fully recoverable as of this date.

SFAS No. 144 Impairment Review

Finite-lived intangible assets are amortized over their estimated useful lives and are reviewed for impairment whenever changes in circumstances indicate the carrying value may not be recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

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NOTE 14: Contingent Liabilities, Guarantees and Commitments

We are a party in various government enforcement and private actions associated with former waste disposal sites, many of which are on the U.S. Environmental Protection Agency’s (“EPA”) National Priority List, where remediation costs have been or may be incurred under the Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and similar state statutes. In some of these matters we may also be held responsible for alleged property damage. We have provided for future costs, on an undiscounted basis, at certain of these sites. We are also involved in corrective actions at some of our manufacturing facilities.

We consider a broad range of information when we determine the amount necessary for remediation accruals, including available facts about the waste site, existing and proposed remediation technology and the range of costs of applying those technologies, prior experience, government proposals for this or similar sites, the liability of other parties, the ability of other potentially responsible parties (“PRPs”) to pay costs apportioned to them and current laws and regulations. We assess the accruals quarterly and update these as additional technical and legal information becomes available. However, at certain sites, we are unable, due to a variety of factors, to assess and quantify the ultimate extent of our responsibility for study and remediation costs.

Ø Remediation Reserves and Reasonably Possible Amounts

Reserves for environmental remediation that we believe to be probable and estimable are recorded appropriately as current and long-term liabilities in the Consolidated Balance Sheets. The reserves for remediation were $153 million at September 30, 2007 and $141 million at December 31, 2006. The amounts charged to earnings for environmental remediation and related charges were $18 million and $32 million for the three and nine months ended September 30, 2007, respectively, and $11 million and $19 million for the three and nine months ended September 30, 2006, respectively, and are recorded as cost of goods sold in the Consolidated Statements of Operations.

In addition to accrued environmental liabilities, there are costs which have not met the definition of probable, and accordingly, are not recorded in the Consolidated Balance Sheets. We have identified reasonably possible loss contingencies related to environmental matters of approximately $124 million and $120 million at September 30, 2007 and December 31, 2006, respectively.

Further, we have identified other sites where future environmental remediation may be required, but these loss contingencies cannot be reasonably estimated at this time. These matters involve significant unresolved issues, including the number of parties found liable at each site and their ability to pay, the interpretation of applicable laws and regulations, the outcome of negotiations with regulatory authorities, and alternative methods of remediation.

Except as noted below, we believe that these matters, when ultimately resolved, which may be over an extended period of time, will not have a material adverse effect on our consolidated financial position, but could have a material adverse effect on consolidated results of operations or cash flows in any given period.

Our significant sites are described in more detail below.

Ø Wood-Ridge/Berry’s Creek

The Wood-Ridge, New Jersey site (“Site”), and Berry’s Creek, which runs past this Site, are areas of environmental significance to the Company. The Site is the location of a former mercury processing plant acquired many years ago by a company later acquired by Morton International, Inc. (“Morton”). Morton and Velsicol Chemical Corporation (“Velsicol”) have been held jointly and severally liable for the cost of remediation of the Site. The New Jersey Department of Environmental Protection (“NJDEP”) issued the Record of Decision documenting the clean-up requirements for the manufacturing site in October 2006. The Company has submitted a work plan to implement the remediation, and will enter into an agreement or an order to perform the work in 2007. In April 2007, NJDEP issued remediation directives to approximately a dozen parties who were major customers or neighbors of the

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plant, directing them to participate in the remediation. The Company will negotiate with these parties to assist in the funding of the work at the former processing plant. If any of the parties refuses to participate or cannot reach agreement with us, the directive gives parties performing the remediation the right to treble recovery from those parties who fail to comply with the directive. Our ultimate exposure at the Site will depend on clean-up costs and on the level of contribution from these other parties. Velsicol’s liabilities for Site response costs will be addressed through a bankruptcy trust fund established under a court-approved settlement with Velsicol, and other parties, including the government.

With regard to Berry’s Creek, and the surrounding wetlands, the EPA has issued letters to over 150 PRPs for performance of a broad scope investigation of risks posed by contamination in Berry’s Creek. Performance of this study is expected to take at least six years to complete once begun. The PRPs have formed a representative group of over 100 PRPs, and have hired common counsel and a consultant to negotiate with the EPA. The PRPs have reached an agreement with EPA to perform a preliminary study to provide background information before the larger study is conducted. Today, there is much uncertainty as to what will be required to address Berry’s Creek, but investigation and clean-up costs, as well as potential resource damage assessments, could be very high and our share of these costs could possibly be material to the results of our operations, cash flows and consolidated financial position.

Ø Moss Point

During 1996, the EPA notified Morton of possible irregularities in water discharge monitoring reports filed by its Moss Point, Mississippi plant in early 1995. Morton investigated and identified other environmental issues at the plant. An agreement with the EPA, the Department of Justice and the State of Mississippi resolving these historical environmental issues received court approval in early 2001. The accruals established for this matter were sufficient to cover the costs of the settlement. All operations at this Moss Point facility have now been terminated. Environmental investigation and interim remedial measures are proceeding pursuant to the Court approved agreement.

In December 2002, a complaint was filed in Mississippi on behalf of over 700 plaintiffs against Morton, Rohm and Haas, Joseph Magazzu, a former Morton employee, and the Mississippi Department of Environmental Quality alleging personal injury and property damage caused by environmental contamination. In April 2005, this complaint was dismissed, without prejudice, with respect to all the plaintiffs. Similar complaints were filed in Mississippi on behalf of approximately 1,800 other plaintiffs; however, all but about 40 of these plaintiffs failed to comply with a court ruling that required plaintiffs to provide basic information on their claims to avoid dismissal. The remaining plaintiffs are individual plaintiffs since Mississippi procedural rules do not permit class actions. At this time, we see no basis for the claims of any of the plaintiffs. On April 4, 2007, the Court issued several rulings in the Company’s favor including a ruling on a motion for partial summary judgment regarding chemicals in the wells of certain plaintiffs which the Court found resulted from the chlorination of the Moss Point Water System. In addition, the Court granted partial summary judgment regarding certain chemicals not found on the property of another plaintiff. The Court also granted the Company’s motion for sanctions against plaintiffs’ attorneys because there was no legal proof for 98 percent of the cases they had filed which were dismissed.

Ø Paterson

We closed the former Morton plant at Paterson, New Jersey in December 2001, and are currently undertaking remediation of the site under New Jersey’s Industrial Site Recovery Act. We removed contaminated soil from the site and constructed an on-site remediation system for residual soil and groundwater contamination. Off-site investigation of contamination is ongoing.

Ø Martin Aaron Superfund Site

Rohm and Haas is a PRP at this Camden, New Jersey former drum recycling site. We are participating in a PRP group to address cost allocation and technical issues. U.S. EPA Region 2 issued a Record of Decision in 2005. The project is divided into two phases: Phase I will involve soil remediation and groundwater monitoring. Phase II will address groundwater remediation and institutional controls.

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Rohm and Haas and other PRPs are entering into a Consent Decree for performance of Phase I of the remedy. Additionally, the Consent Decree resolves the claims of the U.S. EPA and the claims of the New Jersey Department of Environmental Protection (“NJDEP”) for past costs and natural resources damages.

Ø Groundwater Treatment and Monitoring

Major remediation for certain sites, such as Kramer, Whitmoyer, Woodlands and Goose Farm has been completed. We are continuing groundwater remediation and monitoring programs. Reserves for these costs have been established.

Ø Manufacturing Sites

We also have accruals for enforcement and corrective action programs under environmental laws at several of our manufacturing sites. The more significant of these accruals for corrective action, in addition to those presented above, have been recorded for the following sites: Bristol, Pennsylvania; Philadelphia, Pennsylvania; Houston, Texas; Louisville, Kentucky; Ringwood, Illinois; Apizaco, Mexico; Jacarei, Brazil; Jarrow, U.K.; Lauterbourg, France; and Mozzanica, Italy. We are currently in negotiations with the U.S. EPA to resolve an enforcement matter at the Louisville plant.

Insurance Litigation

We have actively pursued lawsuits over insurance coverage for certain environmental liabilities. It is our practice to reflect environmental insurance recoveries in the results of operations for the quarter in which the litigation is resolved through settlement or other appropriate legal processes. These resolutions typically resolve coverage for both past and future environmental spending and involve the “buy back” of the policies and have been included in cost of goods sold. In addition, litigation is pending regarding insurance coverage for certain Ringwood plant environmental lawsuits.

Self-Insurance

We maintain deductibles for general liability, business interruption and property damage to owned, leased and rented property. These deductibles could be material to our earnings, but they should not be material to our overall financial position. We carry substantial excess general liability, property and business interruption insurance above our deductibles. In addition, we meet all statutory requirements for automobile liability and workers’ compensation.

Other Litigation

In December 2006, the federal government sued Waste Management of Illinois, Morton and Rohm and Haas for $1 million in unreimbursed costs and interest for the H.O.D. landfill, a closed waste disposal site, owned and operated by Waste Management and a predecessor company, located in Antioch, Lake County, Illinois.

In November 2006, a complaint was filed in the United States District Court for the Western District of Kentucky by individuals alleging that their persons or properties were invaded by particulate and air contaminants from the Louisville plant. The complaint seeks class action certification alleging that there are hundreds of potential plaintiffs residing in neighborhoods within two miles of the plant. We believe that this lawsuit is without merit.

In April 2006 and thereafter, lawsuits were filed against Rohm and Haas claiming that the Company’s Ringwood, Illinois plant contaminated groundwater and air that allegedly reached properties a mile south of the plant site. Also sued was the owner of a plant site neighboring our facility. An action brought in federal court in Philadelphia, Pennsylvania, seeks certification of a class comprised of the owners and residents of about 500 homes in McCullom Lake Village, seeking medical monitoring and compensation for alleged property value diminution, among other things. In addition, lawsuits were filed in the Philadelphia Court of Common Pleas by twenty-one individuals who claim that contamination from the plants has resulted in tumors (primarily of the brain) and one individual whose claims relate to cirrhosis of the liver. We believe that these lawsuits are without merit.

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Rohm and Haas, Minnesota Mining and Manufacturing Company (3M) and Hercules, Inc. have been engaged in remediation of the Woodland Sites (“Sites”), two waste disposal locations in the New Jersey Pinelands, under various NJDEP orders since the early 1990s. Remediation is complete at one site and substantially complete at the other. In February 2006, a lawsuit was filed in state court in Burlington County, New Jersey by the NJDEP and the Administrator of the New Jersey Spill Compensation Fund against these three companies and others for alleged natural resource damages relating to the Sites. In June 2006, after the lawsuit was served, the defendants filed a notice of removal of the action to the federal court in Camden, New Jersey. On July 5, 2007, the federal court remanded the case to state court. This lawsuit presents significant legal and public policy issues, including the fundamental issue of whether there are any “damages,” and the Company intends to defend it vigorously.

In January 2006 and thereafter, civil lawsuits were filed against Rohm and Haas and other chemical companies in U.S. federal court, alleging violation of antitrust laws in the production and sale of methyl methacrylate (“MMA”) and polymethylmethacrylates (“PMMA”). The various plaintiffs sought to represent a class of direct or indirect purchasers of MMA or PMMA in the United States from January 1, 1995 through December 31, 2003. The lawsuits referred to an investigation of certain chemical producers by the European Commission in which Rohm and Haas was not involved in any way. However, in September 2006, both the direct purchasers and the indirect purchasers filed amended complaints in which Rohm and Haas was not named as a defendant, and therefore the Company is no longer a party to these lawsuits. In addition, another United States complaint brought in late 2006 has been dismissed. Although Rohm and Haas remains a defendant in a similar lawsuit filed in Canada, we believe the Canadian lawsuit is without merit as to Rohm and Haas, and if the Company is not dropped from the lawsuit, we intend to defend it vigorously.

In late January 2006, Morton Salt was served with a Grand Jury subpoena in connection with an investigation by the Department of Justice (“DOJ”) into possible antitrust law violations in the “industrial salt” business. On August 22, 2007, we received a letter from the DOJ advising that the documents we submitted as part of the investigation were being returned to us. This is the typical manner in which the DOJ signals that it is terminating its investigation, and neither Morton Salt nor any Morton Salt employee has been charged with or implicated in any wrongdoing. This matter is now closed.

On December 22, 2005, a federal judge in Indiana issued a decision purporting to grant a class of participants in the Rohm and Haas pension plan the right to a cost-of-living adjustment (“COLA”) as part of the retirement benefit for those who elect a lump sum benefit. The decision contravenes the plain language of the plan, which clearly and expressly excludes a discretionary COLA for participants who elect a lump sum benefit. On August 14, 2007, the Seventh Circuit Court of Appeals rendered a decision affirming the Indiana Federal District Court’s decision that participants in the Rohm and Haas Pension Plan who elected a lump sum benefit during a class period have the right to a cost-of-living adjustment (“COLA”) as part of their retirement benefit. If this decision stands, the pension trust would be required to pay these COLA benefits and we will take appropriate steps to modify the plan to ensure pension expense will not increase. Due to the funded status of the Rohm and Haas Pension Plan, we do not believe we will have any requirement to currently fund our plan as a result of this decision.

In accordance with Financial Accounting Standards Board No. 5 (FAS 5) “Accounting for Contingencies,” we have recorded a charge in the third quarter of $65 million ($42 million after-tax) to recognize the estimated potential impact of this decision to our long term pension plan obligations. There are a number of issues yet to be addressed by the court, and were those issues to be decided against the Pension Plan, it is reasonably possible that we would need to record an additional charge of up to $25 million.

In August 2005, a class-action complaint seeking medical monitoring was filed in the Philadelphia Court of Common Pleas relating to brain cancer incidence among employees who worked at our Spring House, Pennsylvania research facility. In April 2006, the court dismissed this case as barred by Pennsylvania Workers’ Compensation Law and the dismissal was affirmed by the Superior Court in August 2007. An action filed by the plaintiff in the Commonwealth Court was also dismissed in June 2007, with the finding by the Court that Workers’ Compensation does not allow a class-action procedure but that the

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plaintiff could proceed with an individual worker’s compensation petition to have a determination of his claim. In addition, two separate actions filed on behalf of individuals in the Court of Common Pleas are now stayed pending the outcome of workers’ compensation proceedings. Our ongoing epidemiological studies have not found an association between anything in the Spring House workplace and brain cancer.

In February 2003, the United States Department of Justice and antitrust enforcement agencies in the European Union, Canada and Japan initiated investigations into possible antitrust violations in the plastics additives industry. In April 2006, we were notified that the grand jury investigation in the United States had been terminated and no further actions would be taken against any parties. In August of 2006, Rohm and Haas was informed by the Canadian Competition Bureau that it was terminating its investigation having found insufficient evidence to warrant a referral to the Attorney General of Canada. In January 2007, we were advised that the European Commission has closed its impact modifier investigation and in April 2007, we were informed that the European Commission had closed its heat stabilizer investigation as well. We previously reported that the Japanese Fair Trade Commission brought proceedings against named Japanese plastics additives producers but did not initiate action against Rohm and Haas and no further action is expected. All of the criminal investigations initiated in February 2003 have now been terminated with no finding of any misconduct by the Company.

In civil litigation on plastics additives matters, we are a party to nine private federal court civil antitrust actions that have been consolidated in the U.S. District Court for the Eastern District of Pennsylvania, including one that originally had been filed in State Court in Ohio and another involving an individual direct purchaser claim that was filed in federal court in Ohio. These actions have been brought against Rohm and Haas and other producers of plastics additives products by direct purchasers of these products and seek civil damages as a result of alleged violations of the antitrust laws. The named plaintiffs in all but one of these actions are seeking to sue on behalf of all similarly situated purchasers of plastics additives products. Federal law provides that persons who have been injured by violations of Federal antitrust law may recover three times their actual damages plus attorneys’ fees. In the fall of 2006, the Court issued an order certifying six subclasses of direct purchasers premised on the types of plastics additives products that have been identified in the litigation. On April 9, 2007, the Third Circuit Court of Appeals agreed to hear an appeal from the Court’s certification order. As a result of the appeal, the lower court has stayed indefinitely the consolidated direct purchaser cases. In addition, in August 2005, a new indirect purchaser class action antitrust complaint was filed in the U.S. District Court for the Eastern District of Pennsylvania, consolidating all but one of the indirect purchaser cases that previously had been filed in various state courts, including Tennessee, Vermont, Nebraska, Arizona, Kansas and Ohio. The Court has dismissed from the consolidated action the claims arising from the states of Nebraska, Kansas and Ohio, and allowed the claims from Arizona, Tennessee and Vermont to continue. Because of the significant effect that the decision of the Third Circuit on the appeal of class certification in the direct purchaser cases may have on the indirect purchaser class, the parties agreed to stay this case pending the outcome of the appeal. The only remaining state court indirect action is the one filed in California which is dormant. Our internal investigation has revealed no wrongdoing. We believe these cases are without merit as to Rohm and Haas.

As a result of the bankruptcy of asbestos producers, plaintiffs’ attorneys have focused on peripheral defendants, including our company, which had asbestos on its premises. Historically, these premises cases have been dismissed or settled for minimal amounts because of the minimal likelihood of exposure at our facilities. We have reserved amounts for premises asbestos cases that we currently believe are probable and estimable.

There are also pending lawsuits filed against Morton related to employee exposure to asbestos at a manufacturing facility in Weeks Island, Louisiana with additional lawsuits expected. We expect that most of these cases will be dismissed because they are barred under workers’ compensation laws. However, cases involving asbestos-caused malignancies may not be barred under Louisiana law. Subsequent to the Morton acquisition, we commissioned medical studies to estimate possible future claims and recorded accruals based on the results.

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Morton has also been sued in connection with asbestos-related matters in the former Friction Division of the former Thiokol Corporation, which merged with Morton in 1982. Settlement amounts to date have been minimal and many cases have closed with no payment. We estimate that all costs associated with future Friction Division claims, including defense costs, will be well below our insurance limits.

We are also parties to litigation arising out of the ordinary conduct of our business. Recognizing the amounts reserved for such items and the uncertainty of the ultimate outcomes, it is our opinion that the resolution of all these pending lawsuits, investigations and claims will not have a material adverse effect, individually or in the aggregate, upon our results of operations, cash flows or consolidated financial position.

Indemnifications

In connection with the divestiture of several of our operating businesses, we have agreed to retain, and/or indemnify the purchaser against, certain liabilities of the divested business, including liabilities relating to defective products sold by the business or environmental contamination arising or taxes accrued prior to the date of the sale. Our indemnification obligations with respect to these liabilities may be indefinite as to duration and may or may not be subject to a deductible, minimum claim amount or cap. As such, it is not possible for us to predict the likelihood that a claim will be made or to make a reasonable estimate of the maximum potential loss or range of loss. No company assets are held as collateral for these indemnifications and no specific liabilities have been established for such guarantees.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following commentary should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to the Consolidated Financial Statements for the year ended December 31, 2006, and Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in our 2006 annual report filed on Form 10-K with the Securities and Exchange Commission (“SEC”) on February 28, 2007, and updated on Form 8-K dated July 11, 2007, for the year ended December 31, 2006.

Within the following discussion, unless otherwise stated, “three month period” and “nine month period” refers to the three and nine months ended September 30, 2007, and “prior period” refers to comparisons with the corresponding period in the previous year.

Forward-Looking Information

This document contains forward-looking information so that investors will have a better understanding of our future prospects and make informed investment decisions. Forward-looking statements within the context of the Private Securities Litigation Reform Act of 1995 include statements anticipating future growth in sales, cost of sales, earnings, selling and administrative expense, research and development expense and cash flows. Words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes,” and similar language to describe prospects for future operations or financial condition identify such forward-looking statements. Forward-looking statements are based on management’s assessment of current trends and circumstances, which may be susceptible to uncertainty, change or any other unforeseen development. Results could differ materially depending on such factors as changes in business climate, economic and competitive uncertainties, the cost of raw materials, natural gas, and other energy sources and the ability to achieve price increases to offset such cost increases, foreign exchange rates, interest rates, acquisitions or divestitures, risks in developing new products and technologies, risks of doing business in rapidly developing economies, the impact of new accounting standards, assessments for asset impairments, the impact of tax and other legislation and regulation in the jurisdictions in which we operate, changes in business strategies, manufacturing outages or the unanticipated costs of complying with environmental and safety regulations. As appropriate, additional factors are described in our 2006 annual report filed on Form 10-K with the SEC on February 28, 2007 and updated on Form 8-K dated July 11, 2007, for the year ended December 31, 2006. We are under no obligation to update or alter our forward-looking statements, as a result of new information, future events or otherwise.

Company Overview

Rohm and Haas Company was incorporated in 1917 under the laws of the State of Delaware. Our shares are traded on the New York Stock Exchange under the symbol “ROH”.

We are a global specialty materials company that began almost 100 years ago when a chemist, Otto Rohm, and a businessman, Otto Haas, decided to form a partnership to make a unique chemical product for the leather industry. That once tiny firm, now known as Rohm and Haas Company, reported sales of approximately $8.2 billion in 2006 on a portfolio of global businesses including specialty chemicals, electronic materials and salt. Today, we leverage science and technology to design materials and processes that enable our customers’ products to work. We serve a broad segment of dynamic markets, the largest of which include: building and construction, electronics, food and retail, household and personal care, industrial processes, packaging, transportation and water. To serve these markets, we have significant operations with approximately 100 manufacturing and 32 research facilities in 27 countries with approximately 15,800 employees.

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Annual Net Sales (in millions)

Annual Net Sales by Region (in millions)

Industry Dynamics

Over the past decade, the global chemical industry has grown faster than the overall Gross Domestic Product. Projections for the next several years suggest this will likely continue. We expect the highest growth rates over the next ten years will be in the Asia-Pacific region.

The specialty materials industry is highly competitive. In some sectors, global value chain dynamics have placed specialty materials producers between the large global petrochemical producers and the large down stream retailers. In addition, the varying regional growth rates, the instant access to vast amounts of information, and highly efficient commercial transactions enabled by the internet are testing the historical industry business models. We believe growth opportunities exist for companies with the right business portfolio of value-added products, a global presence, and the flexibility to cope with the changing macro-industry trends.

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Our Strategic Focus

Our focus is to grow both revenues and earnings through organic growth, as well as highly selective acquisitions and to deploy our strong cash generating capability in a balanced manner to provide sustained value for our stockholders while managing the company within the highest ethical standards. We are tuned to the changing global dynamics that impact the environment in which we operate; the trends in consumer demand and preferences; the shifting global demand and demographics; the greater emphasis on environmentally compatible products and renewable resources; and the increasing global competition.

In October 2006, we announced an evolution in our operating strategy, which we refer to as Vision 2010. The primary goal of Vision 2010 is to accelerate value creation. The key elements of this strategy are:

• Position Our Portfolio For Accelerated Growth — by leveraging our integrated acrylic monomer and polymer chain; accelerating investment in the Electronic Materials Group; creating or expanding platforms that address the growing needs in food, health, water, energy, and other areas in the developed and developing worlds; and supplementing our organic growth with highly selective acquisitions of a “bolt-on” nature, which bring a technology or geographic supplement to our core businesses or provide a new growth platform for the company.

• Build Value-Creating Business Models in Rapidly Developing Economies— through customizing products closer to customers; finding solutions that are affordable and meet local requirements; organizing in a manner that enables rapid decision-making; investing in local talent; and building plant facilities that can compete effectively with local and regional players as well as multinational players.

• Innovate with a Market / Customer Focus — by increasingly shifting the focus and delivery of technology programs closer to the customer, driving to faster and more tailored output.

• Drive Operational Excellence / Continuous Improvement — by maintaining conversion costs at the same absolute level, offsetting any inflation with productivity improvement; building more capital-efficient plants in Rapidly Developing Economies; continuing to optimize our global footprint; and increasing global sourcing, especially from low-cost countries.

• Deploy Right Talent in Right Places — by ensuring that leadership talent with the right depth and breadth is in place to drive the profitable growth of our businesses through shifting deployment of more key leaders to locations outside the U.S. and continuing to drive the nurturing and development of our global workforce.

Complementing this operating strategy is a financial strategy aimed at providing sustained stockholder returns while providing the needed financial flexibility to support growth. Our financial strategy has three core elements:

• Disciplined deployment of our operating cash flow — We generated $840 million and $947 million in cash from operating activities during 2006 and 2005, respectively, and we expect to generate between $900 million and $1 billion during 2007. We plan to deploy this cash to enhance stockholder value through higher dividends, strategic investments in our core businesses and technologies, highly selective acquisitions, and share repurchases, as appropriate.

• Leveraging our balance sheet — Through the second quarter of 2007, our policy was to maintain credit ratios consistent with an “A” rating. Effective with the beginning of the third quarter of 2007, we have shifted away from targeting a specific credit rating. Rather, we intend to manage our debt levels in a manner consistent with maintaining investment grade quality ratios that are supported by our strong capability to generate cash from operating activities throughout the business cycle. Within these parameters, we will use our balance sheet to further enhance stockholder value. Having determined that sufficient cash is expected to be

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	generated from operating activities to support at least $1 billion in additional debt, we issued new debt during the third quarter to fund our announced $1 billion accelerated share repurchase. We believe that we continue to retain the financial flexibility needed to support our Vision 2010 strategy, despite the issuance of this new debt.
•	Continued evaluation of and adjustment to our portfolio of businesses — We regularly evaluate the performance and strategic fit of our portfolio of businesses relative to our operating strategy and financial targets. If a business is identified as non-performing and/or non-strategic, we will evaluate options for that business with the intent of maximizing stockholder value.

Our company was built upon a strong foundation of core values, which continue today. These values are the bedrock of our success. We strive to operate at the highest levels of integrity and ethics and, in support of this, require that all employees, as well as the members of our Board of Directors, receive compliance training and annually certify their compliance with our internal Code of Business Conduct and Ethics. Our core values are best summarized as:

• Ethical and legal behavior at all times;

• Integrity in all business interactions; and

• Trust by doing what we promise.

Our Board of Directors devotes substantial time in reviewing our business practices with regard to the norms of institutional integrity. Our Board is comprised of 12 directors, of whom 11 are non-employees. The Audit, Nominating and Governance, and Executive Compensation committees of the Board are all entirely composed of independent directors.

Summary of Financial Results

In the third quarter of 2007, we reported sales of $2,204 million, a 7% increase over $2,065 million reported in the third quarter of 2006, reflecting higher demand, favorable currencies, and higher selling prices. Gross profit of $614 million in the quarter was 2% higher than the same period in 2006 and gross profit margin in the quarter was 28%, slightly lower than the 29% achieved in the prior year period. The decrease was due to higher operating costs at the Houston, Texas plant and higher raw material costs, which were partially offset by strong global demand, favorable currencies, and increased selling prices. Selling and administrative expenses increased 2% versus the third quarter of 2006, largely reflecting the negative impact of currencies and the establishment of the European Headquarters in Switzerland. Research and development expense for the quarter was $72 million, up 4% from the prior year period, reflecting continued funding of research and development efforts in the key strategic growth areas for the Electronic Materials Group. This quarter’s results also include $18 million in restructuring and asset impairment charges, as well as the recognition of the estimated impact from a one-time pension plan charge of $65 million ($42 million after-tax). Income tax expense for the quarter was $36 million reflecting an effective tax rate of 21.4% versus 26.4% in the prior period. In the third quarter of 2007, we reported earnings from continuing operations of $129 million, or $0.61 per share, as compared to $189 million, or $0.86 per share in the third quarter of 2006.

Critical Accounting Estimates

Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. Management considers an accounting estimate to be critical to the preparation of our financial statements when:

• the estimate is complex in nature or requires a high degree of judgment, and

• the use of different estimates and assumptions could have a material impact on the Consolidated Financial Statements.

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Management has discussed the development and selection of our critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors. Those estimates critical to the preparation of our Consolidated Financial Statements are listed below.

Ø Litigation and Environmental Reserves

We are involved in litigation in the ordinary course of business involving employee, personal injury, property damage and environmental matters. Additionally, we are involved in environmental remediation and spend significant amounts for both company-owned and third-party locations. In accordance with GAAP, we are required to assess these matters to: 1) determine if a liability is probable; and 2) record such a liability when the financial exposure can be reasonably estimated. The determination and estimation of these liabilities are critical to the preparation of our financial statements.

In reviewing such matters, we consider a broad range of information, including the claims, demands, settlement offers received from governmental authorities or private parties, estimates performed by independent third parties, identification of other responsible parties and an assessment of their ability to contribute as well as our prior experience, to determine if a liability is probable and if the value is estimable. If both of these conditions are met, we record a liability. If we believe that no best estimate exists, we accrue the minimum in a range of possible losses, and disclose any material, reasonably possible, additional losses. If we determine a liability to be only reasonably possible, we consider the same information to estimate the possible exposure and disclose any material potential liability.

Our most significant reserves are those that have been established for remediation and restoration costs associated with environmental issues. As of September 30, 2007, we have $153 million reserved for environmental-related costs. We conduct studies and site surveys to determine the extent of environmental contamination and necessary remediation. With the expertise of our environmental engineers and legal counsel, we determine our best estimates for remediation and restoration costs. These estimates are based on forecasts of future costs for remediation and change periodically as additional and better information becomes available. Changes to assumptions and considerations used to calculate remediation reserves could materially affect our results of operations or financial position. If we determine that the scope of remediation is broader than originally planned, discover new contamination, discover previously unknown sites or become subject to related personal injury or property damage claims, our estimates and assumptions could materially change.

We believe the current assumptions and other considerations used to estimate reserves for both our environmental and other legal liabilities are appropriate. These estimates are based in large part on information currently available and the current laws and regulations governing these matters. If additional information becomes available or there are changes to the laws or regulations or actual experience differs from the assumptions and considerations used in estimating our reserves, the resulting change could have a material impact on the results of our operations, financial position or cash flows.

Ø Income Taxes

The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns.

In the determination of our current year tax provision, we have provided deferred income taxes on income from foreign subsidiaries which have not been reinvested abroad permanently because such earnings are taxable upon remittance to the United States. For foreign subsidiaries where earnings are permanently reinvested outside the United States, no accrual of United States income taxes has been provided. In addition, we operate within multiple taxing jurisdictions and are subject to audit within these jurisdictions. We record accruals for the estimated outcomes of these audits. We adjust these accruals, if necessary, upon the completion of tax audits or changes in tax law. Since significant judgment is required to assess the future tax consequences of events that have been recognized in our financial statements or tax returns, the ultimate resolution of these events could result in adjustments to our financial statements and such adjustments could be material. Therefore, we consider such estimates to be critical to the preparation of our financial statements.

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We believe that the current assumptions and other considerations used to estimate the current year accrued and deferred tax positions are appropriate. However, if the actual outcome of future tax consequences differs from our estimates and assumptions, the resulting change to the provision for income taxes could have a material impact on our results of operations, financial position or cash flows.

Ø Restructuring

When appropriate, we record charges relating to efforts to strategically reposition our manufacturing footprint and support service functions. To the extent that exact amounts are not determinable, we have established reserves for such initiatives by calculating our best estimate of employee termination costs utilizing detailed restructuring plans approved by management. Reserve calculations are based upon various factors including an employee’s length of service, contract provisions, salary level and health care benefit choices. We believe the estimates and assumptions used to calculate these restructuring provisions are appropriate, and although significant changes are not anticipated, actual costs could differ from the assumptions and considerations used in estimating reserves should changes be made in the nature or timing of our restructuring plans. The resulting change could have a material impact on our results of operations or financial position.

Ø Long-Lived Assets

Our long-lived assets include land, buildings and equipment, long-term investments, goodwill, indefinite-lived intangible assets and other intangible assets. Long-lived assets, other than investments, goodwill and indefinite-lived intangible assets, are depreciated over their estimated useful lives, and are reviewed for impairment whenever changes in circumstances indicate the carrying value may not be recoverable. Such circumstances would include a significant decrease in the market price of a long-lived asset, a significant adverse change in the manner in which the asset is being used or in its physical condition, or a history of operating or cash flow losses associated with the use of the asset. In addition, changes in the expected useful life of these long-lived assets may also be an impairment indicator. As a result, future decisions to change our manufacturing footprint or exit certain businesses could result in material impairment charges.

When such events or changes occur, we estimate the future cash flows expected to result from the assets’ use and, if applicable, the eventual disposition of the assets. The key variables that we must estimate include assumptions regarding sales volume, selling prices, raw material prices, labor and other employee benefit costs, capital additions and other economic factors. These variables require significant management judgment and include inherent uncertainties since they are forecasting future events. If such assets are considered impaired, they are written down to fair value, as appropriate.

Goodwill and indefinite-lived intangible assets are reviewed annually, or more frequently if changes in circumstances indicate the carrying value may not be recoverable. To test for recoverability, we typically utilize discounted estimated future cash flows to measure fair value for each reporting unit. This calculation is highly sensitive to both the estimated future cash flows of each reporting unit and the discount rate assumed in these calculations. These components are discussed below:

•	Estimated future cash flows
	The key variables that we must estimate to determine future cash flows include assumptions for sales volume, selling prices, raw material prices, labor and other employee benefit costs, capital additions and other economic or market-related factors. Significant management judgment is involved in estimating these variables, and they include inherent uncertainties since they are forecasting future events. For example, unanticipated changes in competition, customer sourcing requirements and product maturity would all have a significant impact on these estimates.
•	Discount rate
	We employ a Weighted Average Cost of Capital (“WACC”) approach to determine our discount rate for goodwill recoverability testing. Our WACC calculation includes factors such as the risk free rate of return, cost of debt and expected equity premiums. The factors in this calculation are largely external to our company, and therefore are beyond our control. The

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average WACC utilized in our annual test of goodwill recoverability in May 2007 was 9.88%, which was based upon average business enterprise value. A 1% increase in the WACC will result in an approximate 11% decrease in the computed fair value of our reporting units. A 1% decrease in the WACC will result in an approximate 16% increase in the computed fair value of our reporting units. The following table summarizes the major factors that influenced the rate:

	2007			2006
Risk free rate of return		5.1	%		5.3	%
Cost of debt		6.7	%		7.6	%
Market risk premium		4.0	%		4.0	%

The decrease in the risk free rate of return is due to the overall decrease in U.S. long-term interest rates between the dates of our annual impairment testing in May 2006 and May 2007.

In the second quarter of 2007, we completed our 2007 annual FAS 142 impairment review and determined that goodwill and indefinite-lived intangible assets were not impaired as of May 31, 2007. We believe the current assumptions and other considerations used in the above estimates are reasonable and appropriate. A material adverse change in the estimated future cash flows of our business or significant increases in the WACC rate could result in the fair value falling below the book value of its net assets. This could result in a material impairment charge.

The fair values of our long-term investments are dependent on the financial performance and solvency of the entities in which we invest, as well as the volatility inherent in their external markets. In assessing potential impairment for these investments, we will consider these factors as well as the forecasted financial performance of these investment entities. If these forecasts are not met, we may have to record impairment charges.

Ø Pension and Other Employee Benefits

Certain assumptions are used to measure plan obligations and related assets of company-sponsored defined benefit pension plans, postretirement benefits, post-employment benefits (e.g., medical, disability) and other employee liabilities. Plan obligations and annual expense calculations are based on a number of key assumptions. These assumptions include the weighted-average discount rate at which obligations can be effectively settled, the anticipated rate of future increases in compensation levels, the expected long-term rate of return on assets, increases or trends in health care costs and estimated mortality. We use independent actuaries to assist us in preparing these calculations and determining these assumptions. We believe that the current assumptions used to estimate plan obligations and annual expense are appropriate in the current economic environment. However, if economic conditions change, we may be inclined to change some of our assumptions, and the resulting change could have a material impact on the consolidated statements of operations and on the balance sheets. The weighted-average discount rate and the estimated return on plan assets used in our determination of pension expense is as follows:

	2007						2006
	U.S.			Non-U.S.			U.S.			Non-U.S.
Discount rate		5.90	%		5.00	%		5.70	%		4.77	%
Estimated return on plan assets		8.50	%		6.73	%		8.50	%		6.97	%

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The following illustrates the annual impact on pension expense of a 100 basis point increase or decrease from the assumptions used to determine the net cost for the year ended December 31, 2006:

													Combined
	Weighted-Average						Estimated Return on						Increase/(Decrease)
	Discount Rate						Plan Assets						Pension Expense
(in millions)	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
100 basis point increase	$	(28	)	$	(10	)	$	(14	)	$	(6	)	$	(42	)	$	(16	)
100 basis point decrease		30			10			14			6			44			16

The following illustrates the annual impact on postretirement benefit expense of a 100 basis point increase or decrease from the discount rate used to determine the net cost for the year ended December 31, 2006:

	Weighted-Average Discount
	Rate
(in millions)	U.S.			Non-U.S.
100 basis point increase	$	1		$	(1	)
100 basis point decrease		(1	)		1

Ø Share-Based Compensation

We account for share-based compensation in accordance with the fair value recognition provisions of SFAS No. 123R, “Share-Based Payment.” Prior to January 1, 2006, we accounted for share-based compensation in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation.” Under the fair value recognition provisions of SFAS No. 123R, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimation of the expected term of stock options, the expected volatility of our stock, expected dividends, and risk-free interest rates. If actual results differ significantly from these estimates, share-based compensation expense and our results of operations could be materially impacted.

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SEPTEMBER 30, 2007 VERSUS SEPTEMBER 30, 2006 — CONSOLIDATED

Net Sales and Gross Profit

In the three months ended September 30, 2007, we reported consolidated net sales of $2,204 million, an increase of 7% or $139 million from prior period net sales of $2,065 million. In the nine months ended September 30, 2007, we reported consolidated net sales of $6,554 million, an increase of 6% and $350 million from prior period net sales of $6,204 million. These increases are primarily driven by higher demand, favorable currencies and higher selling prices as reflected below.

	Three months ended		Nine months ended
Sales Change September 30, 2007 versus 2006	%		%
Demand		4		3
Currency		2		2
Price		1		1
Total change		7		6

Our gross profit for the third quarter of 2007 was $614 million, an increase of 2% or $10 million from $604 million in the third quarter of 2006. Gross profit margin decreased to 28% from 29% in the third quarter of 2006. Our gross profit for the nine months ended September 30, 2007 was $1,827 million, a decrease of 3% or $53 million from $1,880 million in the prior year period. These decreases reflect higher operating costs related to the Houston, Texas plant and higher raw material costs, which were partially offset by stronger demand, favorable currencies and selling price increases.

Selling and Administrative Expense

In the third quarter of 2007, selling and administrative expenses were $256 million, an increase of 2% or $5 million from $251 million in the prior year period, reflecting the negative impact of currencies and the establishment of the European Headquarters in Switzerland. As a percent of sales, selling and administrative expenses were down slightly versus the same period in 2006.

In the nine months ended September 30, 2007, selling and administrative expenses were $793 million, an increase of $36 million from $757 million in the prior year period and relatively flat as a percentage of sales. The increases reflect increased spending to support growth initiatives, costs related to the establishment of the European Headquarters, and the negative impact of currencies.

Research and Development Expense

Research and development expense for the third quarter of 2007 was $72 million, up approximately 4% from $69 million in the third quarter of 2006. The increase in research and development spending relates to growth initiatives in the Electronic Materials Group.

In the nine months ended September 30, 2007, research and development expense was $213 million, an increase of 2% or $5 million from $208 million in the prior year period. The focus of our research and development expense continues to be in the Electronic Materials, Paint and Coatings Materials and Performance Materials segments.

Interest Expense

Interest expense for the third quarter of 2007 was $30 million, up 43% from $21 million in the prior year period. Interest expense for the nine months ended September 30, 2007 was $77 million, an increase of 5%, or $4 million from $73 million in the prior year period. The increase is attributable to higher interest rates and the issuance of new debt in September 2007 to fund a $1 billion accelerated share repurchase.

Amortization of Finite-lived Intangible Assets

Amortization of finite-lived assets was $14 million for the current quarter down slightly from prior year period. Amortization of finite-lived intangible assets was $42 million for the nine months ended September 30, 2007, consistent with the prior year period.

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Restructuring and Asset Impairments

In the third quarter of 2007, we recorded approximately $15 million of expense for severance and associated employee benefit charges primarily related to our digital imaging business, manufacturing efficiencies broadly dispersed across several major business segments, a small repositioning of research and development positions to faster growth regions outside North America, as well as efficiencies in administrative and business service operations. This was partially offset by a $2 million favorable adjustment relating to 2006 initiatives. In addition, we recorded $5 million of asset impairment charges related to our digital imaging business line.

For the nine months ended September 30, 2007, we recorded approximately $12 million of expense for severance and associated employee benefits, $1 million of benefit for contract lease obligations and $17 million of net asset impairment charges. These impairments include the $5 million impairment of our digital imaging business line, $13 million write-off of our investment in Elemica, an online chemicals e-marketplace, and the $3 million write-off of in-process research and development relating to the Eastman Kodak Company Light Management Films business acquisition, partially offset by a $4 million gain on the sale of real estate previously written down.

In the third quarter of 2006, we recorded approximately $4 million of expense for severance and associated employee benefit charges primarily related to our North American support services. In addition, we recorded $2 million for contract lease obligations associated with a restructuring initiative announced in the forth quarter of 2005.

In the nine months ended September 30, 2006, we recorded $5 million of expense for severance and associated employee benefits and $2 million for contract lease obligations associated with a restructuring initiative announced in the fourth quarter of 2005. In addition, in the first quarter of 2006, we recognized $3 million of fixed asset impairment charges associated with the restructuring of our global Graphic Arts business.

Pension Judgment

As discussed in Note 14, we have recorded a non-cash charge in the third quarter of $65 million ($42 million after-tax) to recognize the estimated potential impact of a court decision related to cost of living adjustments on our long term pension plan obligations.

Share of Affiliate Earnings, net

Affiliate net earnings for the three months ended September 30, 2007 were $6 million, an increase of $4 million in comparison to $2 million for the prior year. For the nine months ended September 30, 2007, affiliate earnings increased $10 million to $17 million from $7 million at September 30, 2006. The increases are primarily due to Viance, the new wood joint venture in our Performance Materials Group. The Viance joint venture is 50% owned by Rohm and Haas Company and 50% owned by Chemical Specialties, Inc., a wholly owned subsidiary of Rockwood Holdings, Inc.

Other (Income), net

Other income for the three months ended September 30, 2007 was $3 million, in comparison to $17 million in the prior year period. The decrease was mostly attributable to a decrease in interest and investment income, as well as a reduction of gains from the sale of fixed assets.

In the nine months ended September 30, 2007, other income, net was $32 million as compared to $33 million in the prior year period. This decrease was primarily due to lower interest and investment income and tolling income, a reduction in gains from the sale of fixed assets partially offset by a significant reduction in currency losses.

Effective Tax Rate

We recorded a provision for income tax expense of $36 million for the third quarter of 2007, reflecting an effective tax rate from continuing operations of 21.4% compared to a 26.4% effective rate for earnings in 2006. For the nine months ended September 30, 2007, we recorded a provision for income tax expense of $168 million, reflecting an effective tax rate from continuing operations of 25.5%

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compared to a 28.0% effective rate for earnings in the prior year period. The decrease in the rate is mainly due to lower taxes on foreign earnings and the tax benefit associated with a one-time pension charge. We expect the full year effective tax rate from continuing operations to be near 26%.

Minority Interest

In the third quarter of 2007, we reported minority interest of $3 million, consistent with the prior year period. In the nine months ended September 30, 2007, we reported minority interest of $10 million, consistent with the prior year. The majority of our minority interest relates to a consolidated joint venture recorded in our Electronic Materials Group reporting segment, as well as smaller consolidated joint ventures in our Specialty Materials Group.

Loss from Discontinued Operation

As discussed in Note 3 to the Consolidated Financial Statements, in the second quarter of 2007, we completed the sale of our European Automotive Coatings business within our former Coatings business segment. The results of the business for all periods presented are reported as a discontinued operation.

For the nine months ended September 30, 2007, we reported a gain of $1 million, after taxes, related to our discontinued operation, as compared to an after-tax loss of $29 million for nine months ended September 30, 2006. The 2006 loss includes $31 million, after-tax, attributable to the recognition of certain deferred tax liabilities as well as the impairment of certain intangible and fixed assets, triggered by the decision to sell the business, offset by $2 million in after-tax income from the Automotive Coatings operations.

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SEPTEMBER 30, 2007 VERSUS SEPTEMBER 30, 2006 — BY BUSINESS SEGMENT

Net Sales by Business Segment and Region

	Three Months Ended						Nine Months Ended
(in millions)	September 30,						September 30,
	2007			2006			2007			2006
Business Segment
Paint and Coatings Materials	$	570		$	548		$	1,652		$	1,612
Packaging and Building Materials		460			443			1,373			1,353
Primary Materials		542			516			1,584			1,505
Elimination of Intersegment Sales		(297	)		(296	)		(860	)		(866	)
Specialty Materials Group	$	1,275		$	1,211		$	3,749		$	3,604
Electronic Materials Group		442			402			1,227			1,169
Performance Materials Group		296			278			882			834
Salt		191			174			696			597
Total net sales	$	2,204		$	2,065		$	6,554		$	6,204
Customer Location
North America	$	1,039		$	1,042		$	3,180		$	3,206
Europe		549			507			1,691			1,520
Asia-Pacific		515			427			1,408			1,232
Latin America		101			89			275			246
Total net sales	$	2,204		$	2,065		$	6,554		$	6,204

Earnings (Loss) from Continuing Operations by Business Segment ^(1,2,3)

	Three Months Ended						Nine Months Ended
(in millions)	September 30,						September 30,
	2007			2006			2007			2006
Business Segment
Paint and Coatings Materials	$	72		$	72		$	201		$	210
Packaging and Building Materials		32			33			96			109
Primary Materials		18			32			65			123
Specialty Materials Group	$	122		$	137		$	362		$	442
Electronic Materials Group		72			64			201			179
Performance Materials Group		24			20			64			54
Salt		8			4			45			24
Corporate (3)		(97	)		(36	)		(192	)		(111	)
Total net earnings from continuing operations	$	129		$	189		$	480		$	588

1.	Earnings (loss) for all segments except Corporate were tax effected using our overall consolidated effective tax rate excluding certain discrete items.
2.	In the first quarter of 2007, we changed the methodology for allocating shared service costs across all business units to a simpler methodology we believe will provide improved management reporting. Also in the first quarter of 2007, we moved to a simpler transfer pricing methodology which is intended to reduce volatility in earnings on internal sales and more accurately represent where value is created in our integrated acrylic chain businesses. We have reclassified our 2006 results to conform to these changes.
3.	Corporate includes certain corporate governance costs, interest income and expense, environmental remediation expense, insurance recoveries, exploratory research and development expense, currency gains and losses, any unallocated portion of shared services, certain discrete tax items and other infrequently occurring items. Results for the three and nine months ended September 30, 2007 include $65 million ($42 million after-tax) for the pension charge recorded in the third quarter of 2007.

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Provision for Restructuring and Asset Impairment by Business Segment

	Three Months Ended				Nine Months Ended
(in millions)	September 30,				September 30,
	2007		2006		2007		2006
Business Segment
Paint and Coatings Materials	$	2	$	1	$	2	$	1
Packaging and Building Materials		1		—		2		5
Primary Materials		—		—		—		—
Specialty Materials Group	$	3	$	1	$	4	$	6
Electronic Materials Group		3		—		—		(1	)
Performance Materials Group		11		2		10		2
Salt		—		1		—		1
Corporate		1		2		14		2
Total	$	18	$	6	$	28	$	10

Specialty Materials Group

The Specialty Materials Group is comprised of three business units and represents the majority of the company’s chemical business, serving a broad range of end-use markets.

Overall sales for the Specialty Materials Group (after elimination of intersegment sales) were $1,275 million in the third quarter of 2007, an increase of 5%, or $64 million, from third quarter 2006 sales of $1,211 million. Sluggish demand in North America, driven by continued weakness in building and construction markets, was more than offset by strong demand in all other regions, particularly in Rapidly Developing Economies, as well as favorable currencies. Year-to-date 2007 sales for this Group were $3,749 million, an increase of $145 million or 4% from 2006 sales of $3,604 million. The increase reflects the favorable impacts of currency and robust demand outside North America, which more than offset the continued weakness in the U.S. building and construction markets.

Earnings for this Group were $122 million in the third quarter, down 11% from the third quarter of 2006, largely due to higher manufacturing and raw materials costs and lower pricing on third-party monomer sales. This was partially offset by favorable currencies and strong demand outside North America, with robust demand in the Asia Pacific and Latin American regions. Earnings for this Group declined 18% in comparison to the nine months ended September 30, 2006, because the favorable impacts of currency were more than offset by the unanticipated operating costs at the Houston, Texas facility and the impact of higher raw material costs.

The results for the Specialty Materials Group are reported under three separate reportable segments as follows:

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Paint and Coatings Materials

Third quarter and Year-to-Date Net Sales (in millions)

Third quarter net sales for the Paint and Coatings Materials business were $570 million, an increase of 4%, or $22 million, from third quarter 2006 sales of $548 million, due to strong demand growth in Western Europe and the Rapidly Developing Economies of China, Turkey, Southeast Asia and India, where the company has been successful in launching new products specifically targeted for unique market needs, as well as favorable currencies in Europe and Asia. Volumes in the U.S. for this business were down 1% in the third quarter compared with the prior-year period, reflecting softness in the housing related markets that was somewhat more unfavorable than anticipated.

Third quarter 2007 earnings of $72 million were flat compared to the same period in 2006 due to the impact of favorable currencies offset by the higher manufacturing costs associated with inventory management efforts.

In the nine months ended September 30, 2007, net sales for the Paint and Coatings Materials business were $1,652 million, an increase of 2%, or $40 million, from $1,612 million in sales from the same period in 2006. The increase is due to the favorable impact of currencies and higher demand, sustained across all regions, other than North America, which more than offset the slowed demand in the U.S. The slowed demand in the U.S. was due to weakness in the architectural paint market reflecting the pronounced slowdown in home improvements as well as lower existing and new home sales.

Earnings for the nine months ended September 30, 2007 were $201 million, down from $210 million in 2006 as a result of higher raw material costs and lower demand in North America, which was only partially offset by demand growth in other regions and the favorable impact of currencies.

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Packaging and Building Materials

Third quarter and Year-to-Date Net Sales (in millions)

In the third quarter of 2007, net sales for Packaging and Building Materials were $460 million, an increase of $17 million, or 4%, from net sales of $443 million in 2006. The increase reflects the impact of favorable currencies and pricing. Demand in the Rapidly Developing Economies of Asia, Eastern Europe and Latin America continued to demonstrate strong year-over-year growth; however, this growth was insufficient to cover the impact of weakening demand in Western Europe. Overall, demand in North America stabilized compared to earlier quarters, and was essentially flat versus last year, reflecting continued softness in the U.S. construction markets.

Earnings of $32 million in the third quarter of 2007 were down versus earnings of $33 million in the third quarter of 2006. The earnings decline largely reflects higher raw material prices — primarily for tin, styrene and acrylic feedstock. This increased pricing in raw materials was partially offset by higher selling prices and favorable currencies.

In the nine months ended September 30 2007, net sales for Packaging and Building Materials were $1,373 million, increasing 1% or $20 million, from net sales of $1,353 million in 2006. The increase reflects the impacts of favorable currencies and higher pricing, partially offset by lower demand. While Rapidly Developing Economies such as Asia, Eastern Europe and Latin America are showing strong growth year-over-year, economic softness in the U.S. building and construction markets and some soft spots in Western Europe partially offset the growth. The overall lower demand is mainly the result of softness in the vinyl siding and windows profile markets in North America that use our plastics additives products and paper products in Western Europe.

Earnings of $96 million were down versus earnings of $109 million for the nine months ended September 30, 2007 and 2006, respectively. 2006 results included a $3 million, after-tax, charge primarily for restructuring and other one-time costs related to our Graphic Arts business. The earnings decline reflects increased raw material costs and lower demand, partially offset by increased selling prices and favorable currencies.

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Primary Materials

Third quarter and Year-to-Date Net Sales (in millions)

Third quarter 2007 net sales for Primary Materials were $542 million, an increase of 5%, or $26 million, over net sales for the prior year period of $516 million. Primary Materials results include sales to our internal downstream monomer-consuming businesses, along with sales to third-party customers of Merchant Monomers, Dispersants and Industrial and Household Polymers. Sales to third party customers increased 11% to $245 million in the third quarter of 2007 from $220 million in the prior period, due to higher volumes and the favorable impact of currencies, while third-party monomers pricing was lower, as anticipated. Sales to downstream Rohm and Haas specialty businesses were flat, reflecting softer North American business conditions for the downstream businesses.

	Three Months Ended
(in millions)	September 30,
	2007			2006
Total Sales	$	542		$	516
Elimination of Intersegment Sales		(297	)		(296	)
Third Party Sales	$	245		$	220

Earnings declined 44% to $18 million for the third quarter of 2007 from $32 million in the prior year period. Increased manufacturing costs due to operating difficulties at our Houston facility and lower third-party monomer pricing was somewhat offset by favorable currencies and higher volumes.

For the nine months ended September 30, 2007, net sales for Primary Materials were $1,584 million, up 5%, or $79 million over prior period net sales of $1,505 million. Primary Materials results include sales to our internal downstream monomer-consuming businesses, primarily Paint and Coatings Materials and Packaging and Building Materials, along with sales to third party customers of Merchant Monomers, Dispersants and Industrial and Household Polymers markets. Sales to third party customers increased 13% to $724 million in the nine months ended September 30, 2007 from $639 million in the prior period, primarily due favorable currencies and higher demand, offset slightly by lower pricing for monomers, as anticipated. Sales to downstream Rohm and Haas specialty businesses were 1% lower, due primarily to lower volumes reflecting the weak market conditions in the U.S.

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	Nine Months Ended
(in millions)	September 30,
	2007			2006
Total Sales	$	1,584		$	1,505
Elimination of Intersegment Sales		(860	)		(866	)
Third Party Sales	$	724		$	639

Earnings of $65 million for the nine months ended September 30, 2007 decreased from $123 million in the prior period due to higher operating costs, higher raw materials costs, reduced demand mostly in North America from our downstream businesses, and lower selling prices to third party customers.

We continue to see the effects of an increase in the global monomer supply during 2007 as a result of new production facilities that have come on line. We expect this additional supply to continue to apply downward pressure on Primary Material’s pricing through the remainder of 2007.

Electronic Materials Group

Third quarter and Year-to-Date Net Sales (in millions)

Third quarter sales for the Electronic Materials Group were a record $442 million, up 10%, or $40 million, versus sales of $402 million in the prior year. Excluding precious metals pass-through sales, sales in the third quarter were up 12% compared to the prior year period and 10% versus the second quarter of 2007. A continued pick-up in semiconductor industry demand in Asia helped fuel double-digit sales gains there, while all of the businesses saw weaker year-over-year comparisons in North America. The businesses continued to deliver advanced technologies to meet the needs of a dynamic market. Sales of advanced technology product lines were up 13% versus the third quarter of 2006 and now account for approximately 42% of Electronic Materials sales.

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Circuit Board Technologies sales grew 10% as compared to the same period last year, reflecting solid growth in Asia, offset by generally weak conditions in North America. Packaging and Finishing Technologies sales rose 4%, with Process sales up 10% versus the same period last year, partially offset by lower volumes of precious metal sales in North America. Sales from Semiconductor Technologies grew 12% for the quarter, reflecting strength in sales of Chemical Mechanical Planarization (CMP) pads and slurries as well as advanced photoresists and related products. Solid growth in Asia more than offset weaker demand in North America and Europe for semiconductor products.

Earnings of $72 million were up 13% from the $64 million earned in the prior year quarter. The increase was primarily due to increased demand, particularly in advanced technology product lines.

Net sales for the Electronic Materials Group reached $1,227 million in the nine months ended September 30, 2007, up 5%, or $58 million, versus sales of $1,169 million in the prior year. The increase is mainly attributable to increased demand, particularly in Asia where there was a pick-up in the semiconductor industry, which was partially offset by weaker demand in other regions versus the prior year period. The businesses continue to deliver innovative technologies to meet the needs of a dynamic market. Sales in advanced technology product lines were up 10% versus the same period in 2006.

For the nine months ended September 30, 2007, Circuit Board Technologies sales grew 4% as solid growth in Asia more than offset weaker demand in North America and Europe. Packaging and Finishing Technologies sales were down 2% versus the same nine month period in the prior year due to lower volumes of precious metal sales in North America; however, Process sales were up 6% over the same period in 2006. Sales from Semiconductor Technologies grew 8% over the prior year period, reflecting continued strength in sales of Chemical Mechanical Planarization (CMP) pads and slurries as well as advanced photoresists and related products.

Earnings for the nine months ended September 30, 2007 of $201 million were up 12% from the $179 million earned in the nine months ended September 30, 2006, reflecting increased demand, particularly in the advanced technology product lines.

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Performance Materials Group

Third quarter and Year-to-Date Net Sales (in millions)

Net sales for the Performance Materials Group reached $296 million in the third quarter 2007, an increase of 6%, or $18 million, versus sales of $278 million in 2006. The increase was due to favorable currencies, the impact of price increases, as well as stronger demand in the European Region.

Net sales for Process Chemicals and Biocides were $184 million, an increase of 7%, or $12 million over third quarter 2006 sales with demand for ion exchange resins strong across all regions and markets. In the Rapidly Developing Economies, particularly Central and Eastern Europe and Turkey, the business saw increased demand in both the mining and industrial process markets. Net sales for Powder Coatings were $78 million, down 1% from the third quarter 2006, where lower demand was only partially offset by the favorable impacts of currencies and higher pricing. Net sales for AgroFresh and Advanced Materials, increased 25%, or $6 million, mainly driven by continued growth of the patented 1-MCP technology in AgroFresh and increased demand in Advanced Materials.

Earnings for Performance Materials for the three months ended September 30, 2007 were $24 million, 20%, or $4 million over the prior year period. This increase was due to increased demand, year-on-year improvement in Powder Coatings, higher selling prices and favorable currencies, the benefits of which were somewhat offset by increased restructuring charges. Third quarter 2007 earnings include $8 million after-tax impact of restructuring and asset impairment charges, mainly associated with exiting a Digital Imaging business line.

Net sales for the Performance Materials Group reached $882 million for the nine months ended September 30, 2007, an increase of 6%, or $48 million, versus sales of $834 million in 2006. Favorable currencies in Europe, coupled with stronger demand in the Asia Pacific and Latin American regions, more than offset overall economic weakness in North America.

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Net sales for Process Chemicals and Biocides were $557 million, an increase of 6%, or $33 million over sales from the same nine month period in 2006. Increases in demand for ion exchange resins were strong across all regions and markets and only partially offset by weakness in the North America building and construction markets. In the Rapidly Developing Economies, particularly China and Central and Eastern Europe and Turkey, the business saw increased demand in the nutrition and mining markets. The business also realized solid growth in new markets segments, such as polymeric media for the emerging biodiesel market. Net sales for Powder Coatings were $251 million, an increase of 1%, or $2 million over sales from the same period in 2006. The sales increase was driven by the impact of favorable currencies and higher pricing, partially offset by weaker demand. Net sales for AgroFresh and Advanced Materials increased 26%, or $14 million, in comparison to prior year mainly driven by continued growth of the patented 1-MCP technology in AgroFresh.

Nine months 2007 earnings of $64 million include $7 million after-tax impact of restructuring and asset impairment charges, mainly associated with exiting a Digital Imaging business line. Absent prior year after-tax restructuring charges of $2 million, earnings increased $15 million, or 27% compared to the first nine months of 2006. The earnings increase is due to strong improvement over the prior year period in the Powder Coatings business and increased demand. 2007 results include additional investment in more advanced applications in ion exchange and biocides (such as bio-processing, advanced water treatment and microbial protection) and expansion of the ethylene management technology from our AgroFresh subsidiary (for additional high value applications in both horticultural and agronomic markets).

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Salt

Third quarter and Year-to-Date Net Sales (in millions)

In the third quarter of 2007, net sales from Salt were $191 million, an increase of 10%, or $17 million, versus the third quarter of 2006 sales of $174 million. The sales revenue increase was a result of increased early-season demand for ice-control salt and other bulk products, improved product mix and pricing management in the industrial and consumer markets, as well as the impact of currencies.

Earnings for the quarter were $8 million, up from earnings of $4 million in 2006, largely the result of increased sales demand.

For the nine months ended September 30, 2007, net sales from Salt were $696 million, an increase of 17%, or $99 million, versus $597 million in sales for the same period of 2006. The sales revenue increase is the result of increased demand for ice-control salt and other bulk products as well as improved product line and pricing management in the industrial and consumer markets.

Earnings for the nine months ended September 30, 2007 were $45 million, an increase of 88% over the $24 million earned in 2006, in line with improved sales performance which offset increases in operating costs.

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Corporate

Third quarter and Year-to-Date After-Tax Expenses (in millions)

Corporate expense of $97 million for the three months ended September 30, 2007, increased from $36 million in the prior year period primarily due to the recognition of the estimated impact from a one-time non-cash after tax pension charge of $42 million. Other factors contributing to the increase were higher non-recurring costs associated with establishing the European Headquarters in Switzerland, as well as higher interest expense due to higher interest rates and the issuance of $1.1 billion in new debt in September of 2007 to fund an accelerated share repurchase.

For the nine months ended September 30, 2007, Corporate expense was $192 million, $81 million higher than the $111 million for the same period in 2006. The increase is attributed to the pension charge discussed above, non-recurring costs associated with the establishment of the European Headquarters in Switzerland, the write-off of our investment in Elemica, an on-line chemicals marketplace, as well as an increase in interest expense.

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LIQUIDITY AND CAPITAL RESOURCES

Overview

Early in the third quarter of 2007, both management and the board of directors re-evaluated our financial policies. Through the second quarter of 2007, our policy was to maintain credit ratios consistent with an “A” rating. Effective with the beginning of the third quarter of 2007, we have shifted away from targeting a specific credit rating. Rather, we intend to manage our debt levels in a manner consistent with maintaining investment grade quality ratios supported by our strong capability to generate cash from operating activities throughout the business cycle.

Having determined that sufficient cash is expected to be generated from operating activities to support at least $1 billion in additional debt, we issued new debt during the third quarter to support our announced $1 billion accelerated share repurchase. We believe that we continue to retain the financial flexibility needed to support our Vision 2010 strategy, despite the issuance of this new debt.

As of September 30, 2007, our company’s debt ratio (total debt in proportion to total debt plus stockholders’ equity) was 53%, up from 34% as of December 31, 2006, and cash from operating activities for the rolling twelve months ended September 30, 2007, was approximately 23% of our quarter-end debt (cash from operating activities in proportion to total debt). We expect to maintain our debt ratio at approximately 50%, and we expect cash from operating activities to exceed 30% of our debt. Maintenance of a strong balance sheet well-covered by our cash flows remains a key financial policy. We intend to employ a balanced approach to cash deployment that will enhance stockholder value through:

• Reinvesting in core businesses to drive profitable growth through our capital expenditure program;

• Investing in new platforms that address the growing needs in health, water, energy, and other areas in the developed and developing worlds;

• Supplementing our organic growth with highly selective acquisitions which bring a growth platform technology or geographic supplement to our core businesses;

• Continuing to pay higher cash dividends to our stockholders (dividend payouts have increased at an average 10.6% compound annual growth rate since 1978); and

• Repurchasing shares to improve overall returns to our stockholders.

In the nine months ended September 30, 2007, our primary sources of cash were from the issuance of long-term debt, balances on hand and operating activities. Our principal uses of cash were share repurchases, capital expenditures and dividends. These are summarized in the table below:

	Nine Months ended
	September 30,
(in millions)	2007			2006
Cash provided by operations	$	590		$	682
Share repurchases		(1,462	)		(264	)
Capital expenditures		(276	)		(236	)
Dividends		(231	)		(211	)
Net debt increase (reduction)		1,028			(232	)
Stock option exercise proceeds		43			55

Our consolidated statement of cash flows includes the combined results of our continuing and discontinued operations for all periods presented.

49

Cash Provided by Operations

For the nine months ended September 30, 2007, cash from operating activities was $590 million, trailing the prior year period by $92 million principally due to the year-over-year reduction in net earnings.

The cash flow we generate from operating activities is typically concentrated in the second half of the year due to working capital patterns in some of our core businesses, as well as the timing of certain annual payments such as employee bonuses, interest on debt and property taxes, which are concentrated in the first half of the year. We expect 2007 cash from operating activities to be between $900 million and $1 billion. Maintaining strong operating cash flow through earnings and working capital management continues to be an important objective.

Pension Plan and Postretirement Benefit Plan Funding and Liability

During 2006, we voluntarily increased U.S. pension and other postretirement employee benefit plan funding to the maximum tax-deductible amounts, $137 million and $12 million, respectively. Additional contributions made during 2006 were $108 million, consisting of $57 million for our foreign qualified pension plans, $40 million for our postretirement benefit plans, and $11 million for our non-qualified pension plans. Over half of the $57 million used to fund our foreign qualified pension trusts was used to fund shortfalls in our Canadian pension trust. In 2007, we expect to contribute approximately $90 million to our foreign qualified pension plans, non-qualified pension plans and other postretirement plans as required. As of September 30, 2007, we have contributed $70 million to these plans. Funding requirements for subsequent years are uncertain and will significantly depend on changes in assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements. For tax planning, financial planning, cash flow management or cost reduction purposes, we may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law. See Note 11 for additional details.

Capital Expenditures

We intend to manage our capital expenditures to take advantage of growth and productivity improvement opportunities as well as to fund ongoing environmental protection and plant infrastructure requirements. We have a well-defined review procedure for the authorization of capital projects. Capital expenditures of $276 million through the first nine months of 2007 are above the prior year period expenditures primarily due to expected spending for a greater number of large projects focused on growth. These large projects include the purchase of a defect analysis tool for the Electronic Materials Group, the construction of new emulsion production facilities in Mexico and India, the expansion of capacity for several businesses in China, Italy, and India, the completion of several large environmental and end-of-life projects in our Houston plant combined with a planned shutdown during the third quarter, spending for environmental compliance projects at several Salt plants, the implementation of a data center at our Bristol, PA location, and spending for the Flat Panel Display business related to the Kodak acquisition. Projected capital expenditures for fiscal year 2007 of approximately $450 million, compared to $404 million in fiscal year 2006, are expected to be slightly higher than depreciation expense.

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Dividends

Common stock dividends have been paid each year since 1927. The payout has increased at an average 10.6% compound annual growth rate since 1978. On May 7, 2007, we announced that the Board of Directors voted to increase dividends by 12% to $0.37 per share and on September 28, 2007 our Board of Directors declared a $0.37 per share dividend payable on December 1, 2007.

2007				2006
	Amount				Amount
	(Per	Amount			(Per	Amount
Date of dividend	common	(In		Date of dividend	common	(In
payment	share)	millions)	Record Date	payment	share)	millions)	Record Date
March 1, 2007	$0.33	$72	February 16, 2007	March 1, 2006	$0.29	$65	February 17, 2006
June 1, 2007	$0.37	$80	May 18, 2007	June 1, 2006	$0.33	$73	May 12, 2006
September 4, 2007	$0.37	$79	August 10, 2007	September 1, 2006	$0.33	$73	August 11, 2006
December 1, 2007	$0.37		November 2, 2007	December 1, 2006	$0.33	$72	November 3, 2006

Share Repurchase Program

During the nine months ended September 30, 2007, we spent $ 462 million to repurchase 8.5 million shares, which essentially completed the $1 billion share repurchase program authorized by our Board of Directors in December 2004. Over the life of that program we repurchased approximately 20.2 million shares.

On July 16, 2007, our Board of Directors authorized the repurchase of up to another $2 billion of our common stock, the first $1 billion of which was financed with debt and the remainder to be funded from available cash through 2010. See Note 8 for additional information.

Liquidity and Debt

As of September 30, 2007, we had $250 million in cash, including restricted cash, and $3,244 million in debt compared with $596 million and $2,081 million, respectively, at December 31, 2006. A summary of our cash and debt balances is provided below:

	September 30,		December 31,
(in millions)	2007		2006
Short-term obligations	$	207	$	393
Long-term debt		3,037		1,688
Total debt	$	3,244	$	2,081
Cash and cash equivalents	$	247	$	593
Restricted cash		3		3
Total cash	$	250	$	596

Debt

In September 2007, we issued $1.1 billion in long-term debt at an effective interest rate of 6.2%. The debt proceeds were primarily used to finance a $1 billion accelerated share repurchase and the remaining $100 million of the debt proceeds were used to reduce commercial paper outstanding and pay debt issuance costs. The addition of this new debt is, consistent with the shift in the company’s financial policies as announced earlier this quarter. As a result of the issuance, Standard and Poor’s and Moody’s have changed our senior unsecured debt ratings from A minus and A3 to BBB and Baa1, respectively, both with stable outlooks. Our short-term commercial paper ratings are unchanged at A2 and P2 by Standard and Poor’s and Moody’s respectively. We believe investment grade ratings are consistent with the objectives of our long-term financial policies.

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In March 2007, we issued €175 million of 4.50% Private Placement Senior Notes due March 9, 2014. We also retired our 6.0% notes for €160 million upon maturity and early retired at par $19 million of our 8.74% notes. We expect interest expense to increase in the third and fourth quarters of 2007, consistent with planned higher debt levels.

At September 30, 2007, we had $47 million in commercial paper outstanding. Other short-term debt was primarily composed of local bank borrowings. During 2007, our primary source of short-term liquidity has been cash from operating activities, commercial paper, and bank borrowings. In September 2007, the company expanded its syndicated revolving credit facility which expires in December, 2011 from $500 million to $750 million.  The company has no plans to draw on this facility.

Use of Derivative Instruments to Manage Market Risk

We use derivative instruments to reduce uncertainties arising from conducting our business in a variety of currencies, financing at long- and short-term interest rates and pricing our raw materials at market prices. The policies and procedures applicable to our use of these derivative instruments are disclosed in Items 7a and 8 (Notes 1 and 5) of our 2006 Form 10-K.

During the nine months ended September 30, 2007, the market value of our derivative instruments decreased $43 million after-tax primarily driven by the Euro and Canadian Dollar which strengthened by 7.9% and 17.0%, respectively, during the first nine months of 2007. The strong Euro, Canadian Dollar and other currencies favored our fundamental business positions, the net book value of which increased approximately $29 million, net of hedging during the period. During the same period, derivative instruments lowered interest expense by approximately $10 million, but slightly increased our effective cost of natural gas. Our total hedging cost was $10.5 million after-tax or $0.05 per share for the nine months ended September 30, 2007.

During the remainder of this year, we expect to manage financial prices under business and economic conditions characterized by a weak dollar, a flat U.S. yield curve, and U.S. natural gas prices held in check by sufficient inventories. Our objectives are to preserve our earnings from potentially weaker local currencies, maintain or reduce our effective interest rate, and capture opportunities to increase protection against further natural gas price spikes.

Trading Activities

We do not have any trading activity that involves non-exchange traded contracts accounted for at fair value.

Unconsolidated Entities

All significant entities are consolidated. Any unconsolidated entities are de minimis in nature and there are no significant contractual requirements to fund losses of unconsolidated entities. See Note 1 to the Consolidated Financial Statements for our treatment of Variable Interest Entities.

Environmental Matters and Litigation

Our chemical operations, as those of other chemical manufacturers, involve the use and disposal of substances regulated under environmental protection laws. Our environmental policies and practices are designed to ensure compliance with existing laws and regulations and to minimize the risk of harm to the environment.

We have participated in the remediation of waste disposal and manufacturing sites as required under the Superfund and related laws. Remediation is well underway or has been completed at many sites. Nevertheless, we continue to face government enforcement actions, as well as private actions, related to past manufacturing and disposal and continue to focus on achieving cost-effective remediation where required.

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Accruals

We have provided for costs to remediate former manufacturing and waste disposal sites, including Superfund sites, as well as our company facilities. We consider a broad range of information when we determine the amount necessary for remediation accruals, including available facts about the waste site, existing and proposed remediation technology and the range of costs of applying those technologies, prior experience, government proposals for these or similar sites, the liability of other parties, the ability of other Potentially Responsible Parties (“PRPs”) to pay costs apportioned to them and current laws and regulations. Reserves for environmental remediation that we believe to be probable and estimable are recorded appropriately as current and long-term liabilities in the Consolidated Balance Sheets. We assess the accruals quarterly and update them as additional technical and legal information becomes available. However, at certain sites, we are unable, due to a variety of factors, to assess and quantify the ultimate extent of our responsibility for study and remediation costs. The reserves for remediation were $153 million at September 30, 2007 and $141 million at December 31, 2006. The amounts charged to pre-tax earnings for environmental remediation and related charges were $18 million and $32 million for the three and nine months ended September 30, 2007, respectively, and $11 million and $19 million for the three and nine months ended September 30, 2006, respectively, and are recorded as cost of goods sold in the Consolidated Statements of Operations.

Wood-Ridge/Berry’s Creek

The Wood-Ridge, New Jersey site (“Site”), and Berry’s Creek, which runs past this Site, are areas of environmental significance to the Company. The Site is the location of a former mercury processing plant acquired many years ago by a company later acquired by Morton International, Inc. (“Morton”). Morton and Velsicol Chemical Corporation (“Velsicol”) have been held jointly and severally liable for the cost of remediation of the Site. The New Jersey Department of Environmental Protection (“NJDEP”) issued the Record of Decision documenting the clean-up requirements for the manufacturing site in October 2006. The Company has submitted a work plan to implement the remediation, and will enter into an agreement or order to perform the work in 2007. In April 2007, NJDEP issued remediation directives to approximately a dozen parties who were major customers or neighbors of the plant, directing them to participate in the remediation. The Company will negotiate with these parties to assist in the funding of the work at the former processing plant. If any of the parties refuses to participate or cannot reach agreement with us, the directive gives parties performing the remediation the right to treble recovery from those parties who fail to comply with the directive. Our ultimate exposure at the Site will depend on clean-up costs and on the level of contribution from other parties. Velsicol’s liabilities for Site response costs will be addressed through a bankruptcy trust fund established under a court-approved settlement with Velsicol, and other parties, including the government.

With regard to Berry’s Creek, and the surrounding wetlands, the EPA has issued letters to over 150 PRPs for performance of a broad scope investigation of risks posed by contamination in Berry’s Creek. Performance of this study is expected to take at least six years to complete. The PRPs have formed a representative group of over 100 PRPs, and have hired common counsel and a consultant to negotiate with the EPA. The PRPs have reached an agreement with EPA to perform a preliminary study to provide background information before the larger study is conducted. Today, there is much uncertainty as to what will be required to address Berry’s Creek, but investigation and cleanup costs, as well as potential resource damage assessments, could be very high and our share of these costs could possibly be material to the results of our operations, cash flows and consolidated financial position.

Other Environmental Expenditures

The laws and regulations under which we operate require significant expenditures for capital improvements, operation of environmental protection equipment, environmental compliance and remediation. Our major competitors are confronted by substantially similar environmental risks and regulations. Future developments and even more stringent environmental regulations may require us to make unforeseen additional environmental expenditures.

Capital spending for new environmental protection equipment was $63 million, $42 million and $26 million in 2006, 2005 and 2004, respectively. Spending for 2007 and 2008 is expected to approximate $65 million and $33 million, respectively. Capital expenditures in this category include projects whose

53

primary purposes are pollution control and safety, as well as environmental projects intended primarily to improve operations or increase plant efficiency. Capital spending does not include the cost of environmental remediation of waste disposal sites.

The cost of managing, operating and maintaining current pollution abatement facilities was $151 million, $153 million and $133 million in 2006, 2005 and 2004, respectively, and was charged against each year’s earnings.

Climate Change

There is an increasing global focus on issues related to climate change and particularly on ways to limit and control the emission of greenhouse gases, which are believed to be associated with climate change. Some initiatives on these topics are already well along in Europe, Canada and other countries, and related legislation has passed or is being introduced in some U.S. states. In addition, the Supreme Court decision in Massachusetts v. EPA, holding that greenhouse gases, including carbon dioxide (CO₂), are “air pollutants” subject to regulation by EPA has increased the likelihood of federal regulatory or legislative action.

The Kyoto Protocol to the United Nations Framework Convention on Climate Change was adopted in 2005 in many countries. For instance, the European Union (EU) has a mandatory Emissions Trading Scheme to implement its objectives under the Kyoto Protocol. Four of our European locations currently exceed the threshold for participation in the EU Emissions Trading Scheme pursuant to the Kyoto Protocol and are currently implementing the requirements established by their respective countries. We are very much aware of the importance of these issues and the importance of addressing greenhouse gas emissions.

Due to the nature of our business, we have emissions of carbon dioxide (CO₂) primarily from combustion sources, although we also have some minor process by-product CO₂ emissions. Our emissions of other greenhouse gases are infrequent and minimal as compared to CO₂ emissions. We have therefore focused on ways to increase energy efficiency and curb increases in greenhouse gas emissions resulting from growth in production in addition to lowering the energy usage of existing operations. Although the general lack of specific legislation prevents any accurate estimates of the long-term impact on the Company, any legislation that limits CO₂ emissions may create a potential restriction to business growth by capping consumption of traditional energy sources available to all consumers of energy, including Rohm and Haas. Capping consumption could result in: increased energy cost, additional capital investment to lower energy intensity and rationed usage with the need to purchase greenhouse gas emission credits. Our Manufacturing Council has a global effort underway to improve our energy efficiency at all of our locations through energy audits, sharing best practices and in some cases installation of more efficient equipment. We will continue to follow these climate change issues, work to improve the energy efficiencies of our operations, work to minimize any negative impacts on company operations and seek technological breakthroughs in energy supply and efficiency in both Company operations and product development.

Litigation

We are involved in various kinds of litigation, principally in the United States. We strive to resolve litigation where we can through negotiation and other alternative dispute resolution methods such as mediation. Otherwise, we vigorously prosecute or defend lawsuits in the Courts.

Significant litigation is described in Note 14 to the Consolidated Financial Statements, but we will comment here on several recent legal matters.

In November 2006, a complaint was filed in the United States District Court for the Western District of Kentucky by individuals alleging that their persons or properties were invaded by particulate and air contaminants from our Louisville plant. The complaint seeks class action certification alleging that there are hundreds of potential plaintiffs residing in neighborhoods within two miles of the plant. We believe that this lawsuit is without merit.

54

In April 2006 and thereafter, lawsuits were filed against Rohm and Haas claiming that the Company’s Ringwood, Illinois plant contaminated groundwater and air that allegedly reached properties a mile south of the plant site. Also sued was the owner of a plant site neighboring our facility. An action brought in federal court in Philadelphia, Pennsylvania seeks certification of a class comprised of the owners and residents of about 500 homes in McCullom Lake Village, seeking medical monitoring and compensation for alleged property value diminution, among other things. In addition, lawsuits were filed in the Philadelphia Court of Common Pleas by twenty-one individuals who claim that contamination from the plants has resulted in tumors (primarily of the brain) and one individual whose claims relate to cirrhosis of the liver. We believe that these lawsuits are without merit.

Rohm and Haas, Minnesota Mining and Manufacturing Company (3M) and Hercules, Inc. have been engaged in remediation of the Woodland Sites (“Sites”), two waste disposal locations in the New Jersey Pinelands, under various NJDEP orders since the early 1990s. Remediation is complete at one site and substantially complete at the other. In February 2006, a lawsuit was filed in state court in Burlington County, New Jersey by NJDEP and the Administrator of the New Jersey Spill Compensation Fund against these three companies and others for alleged natural resource damages relating to the Sites. In June 2006, after the lawsuit was served, the defendants filed a notice of removal of the action to the federal court in Camden, New Jersey. On July 5, 2007, the federal court remanded the case to state court. This lawsuit presents significant legal and public policy issues, including the fundamental issue of whether there are any “damages”, and we believe it is without merit.

In late January 2006, Morton Salt was served with a Grand Jury subpoena in connection with an investigation by the Department of Justice into possible antitrust law violations in the “industrial salt” business. On August 22, 2007, we received a letter from DOJ advising that the documents we submitted as part of the investigation were being returned to us. This is the typical manner in which DOJ signals that it is terminating its investigation, and neither Morton Salt nor any Morton Salt employee has been charged with or implicated in any wrongdoing. This matter is now closed.

ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED

Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which provides companies with an option to report selected financial assets and liabilities at fair value in an attempt to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. This Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. We do not anticipate electing the SFAS 159 option for our existing financial assets and liabilities and therefore do not expect the adoption of SFAS 159 to have a material impact on our Consolidated Financial Statements. On a prospective basis, we will apply the requirements of the standard if we select to report new financial assets or liabilities at fair value.

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. It does not expand the use of fair value measurement. We will be required to adopt SFAS 157 on January 1, 2008.  We have not completed our evaluation, but currently believe the impact will not require material modification of our fair value measurements and will be substantially limited to expanded disclosures in the notes to our Consolidated Financial Statements that currently have components measured at fair value.

55

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Management’s discussion of market risk is incorporated herein by reference to Item 7a of the Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 28, 2007.

ITEM 4. Controls and Procedures

a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report. Our principal executive officer and our principal financial officer have signed their certifications as required by the Sarbanes-Oxley Act of 2002.

b) Changes in Internal Controls over Financial Reporting

In July 2007, we completed the implementation of the redesign of our European operations financial reporting structure in support of the Company’s 2010 Vision. This initiative realigned reporting entities and related internal controls within our European footprint. We performed appropriate testing of these changes to ensure effectiveness of internal controls as they relate to the reliability and accuracy of financial reporting data and no significant issues were noted.

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

For information related to Legal Proceedings, see Note 14: Contingent Liabilities, Guarantees and Commitments in the accompanying Notes to Consolidated Financial Statements.

56

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information relating to our purchases of our common stock during the quarter ended September 30, 2007:

					Total Number of Shares		Approximate Dollar Value
	Total Number		Average Price		Purchased as Part of		of Shares that May Yet Be
	of Shares		Paid per		Publicly Announced		Purchased Under the Plans or
Period	Purchased (1)		Share (1)		Plans or Programs (2) (3)		Programs (2) (3)
July 1, 2007 – July 31, 2007		960,260		56.79		950,000		2,124,138,601
August 1, 2007 – August 31, 2007		2,172,582		56.88		2,170,251		2,000,654,218
September 1, 2007 – September 30, 2007		16,189,716		61.77		16,189,716		1,000,654,218
Total		19,322,558		60.97		19,309,967		1,000,654,218

Notes:
(1)	12,591 shares were purchased as a result of employee stock option exercises (stock swaps).
(2)	In December 2004, our Board of Directors authorized the repurchase of up to $1 billion of our common stock through 2008, with the timing of the purchases depending on market conditions and other priorities for cash. As of September 30, 2007, most of the $1 billion has been used to repurchase approximately 20.2 million shares of our stock.
(3)	In July 2007, our Board of Directors authorized another $2 billion towards repurchasing our common stock through 2010. In September 2007, we entered into an agreement, pursuant to which we purchased 16.2 million shares from a financial institution. The initial purchase price for the shares was $1 billion in the aggregate including a brokerage fee. The average share price for the 16.2 million shares was $61.77. The average share price will be adjusted at the end of the agreement which is not expected to last longer than nine months based on the final volume weighted average price of our common stock over this period. As of September 30, 2007, $1 billion of this authorization remains outstanding and will be funded from available cash, with the timing of the purchases depending on market conditions.

ITEM 6. Exhibits

(4)	Instruments defining the rights of security holders, including indentures.
(31.1)	Certification Pursuant to Rule 13a-14(a)/15d-14(a).
(31.2)	Certification Pursuant to Rule 13a-14(a)/15d-14(a).
(32)	Certification Furnished Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 Sarbanes-Oxley Act of 2002. The exhibit attached to this Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

57

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	/s/ Jacques M. Croisetiere
DATE: October 25, 2007	Jacques M. Croisetiere
	Executive Vice President and Chief
	Financial Officer
	ROHM AND HAAS COMPANY
	(Registrant)

58

EX-4

Exhibit 4

MORTON INTERNATIONAL, INC.

TO

Continental Bank, National Association

Trustee

Indenture

Dated as of June 1, 1990

$200,000,000

9 1/4% Credit Sensitive Debentures due June 1, 2020

Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of June 1, 1990

Trust Indenture
Act Section	Indenture Section
§310(a)(l)	609
(a)(2)	609
(a)(3)	Not Applicable
(a)(4)	Not Applicable
(b)	608
	610
§311(a)	613(a)
(b)	613(b)
(b)(2)	703(a)(2), 703(b)
§312(a)	701
	702(a)
(b)	702(b)
(c)	702(c)
§313(a)	703(a)
(b)	703(b)
(c)	703(a), 703(b)
(d)	703(c)
§314(a)	704
(b)	Not Applicable
(c)(1)	102
(c)(2)	102
(c)(3)	Not Applicable
(d)	Not Applicable
(e)	102
§315(a)	601(a)
(b)	602, 703(a) (6)
(c)	601(b)
(d)	601(c)
(d)(l)	601(a)(l)
(d)(2)	601(c)(2)
(d)(3)	601(c)(3)
(e)	514
§316(a)	101
(a)(1)(A)	502
	512
(a)(1)(B)	513
(a)(2)	Not Applicable
(b)	508
§317(a)(l)	503
(a)(2)	504
(b)	1003
§318(a)	107

NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture.

TABLE OF CONTENTS

		Page
Parties		1
Recitals of the Company		1
	ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101.	Definitions:
	Act	2
	Affiliate; control	2
	Attributable Debt	2
	Authenticating Agent	2
	Board of Directors	2
	Board Resolution	3
	Business Day	3
	Commission	3
	Company	3
	Company Request; Company Order	3
	Consolidated Net Tangible Assets	3
	Corporate Trust Office	4
	corporation	4
	Defaulted Interest	4
	Event of Default	4
	Funded Debt	4
	Holder	4
	Indenture	4
	Interest Payment Date	4
	Maturity	4
	Officers’ Certificate	4
	Opinion of Counsel	5
	Outstanding	5
	Paying Agent	6
	Person	6
	Place of Payment	6
	Predecessor Security	6
	Principal Domestic Operating Property	6
	Regular Record Date	6

NOTE: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture.

-i-

		Page
	Responsible Officer	6
	Securities	7
	Security Register and Security Registrar	7
	Special Record Date	7
	Stated Maturity	7
	Subsidiary	7
	Trustee	7
	Trust Indenture Act	7
	U. S. Government Obligations	7
	Vice President	8
Section 102.	Compliance Certificates and Opinions	8
Section 103.	Form of Documents Delivered to Trustee	9
Section 104.	Acts of Holders	9
Section 105.	Notices, Etc., to Trustee and Company	10
Section 106.	Notice to Holders; Waiver	11
Section 107.	Conflict with Trust Indenture Act	11
Section 108.	Effect of Headings and Table of Contents	11
Section 109.	Successors and Assigns	11
Section 110.	Separability Clause	12
Section 111.	Benefits of Indenture	12
Section 112.	Governing Law	12
Section 113.	Legal Holidays	12
	ARTICLE TWO
	Security Forms
Section 201.	Forms Generally	12
Section 202.	Form of Face of Security	13
Section 203.	Form of Reverse of Security	15
Section 204.	Form of Trustee’s Certificate of Authentication	18
	ARTICLE THREE
	The Securities
Section 301.	Title and Terms	19
Section 302.	Denominations	21
Section 303.	Execution, Authentication, Delivery and Dating	21
Section 304.	Temporary Securities	21

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		Page
Section 305.	Registration, Registration of Transfer and Exchange	22
Section 306.	Mutilated, Destroyed, Lost and Stolen Securities	23
Section 307.	Payment of Interest; Interest Rights Preserved	24
Section 308.	Persons Deemed Owners	25
Section 309.	Cancellation	25
	ARTICLE FOUR
	Satisfaction and Discharge
Section 401.	Satisfaction and Discharge of Indenture	26
Section 402.	Application of Trust Money	27
Section 403.	Satisfaction, Discharge and Defeasance of Securities	28
Section 404.	Funding of Defeasance Trust	30
	ARTICLE FIVE
	Remedies
Section 501.	Events of Default	30
Section 502.	Acceleration of Maturity; Rescission and Annulment	32
Section 503.	Collection of Indebtedness and Suits for Enforcement by Trustee	33
Section 504.	Trustee May File Proofs of Claim	34
Section 505.	Trustee May Enforce Claims Without Possession of Securities	35
Section 506.	Application of Money Collected	35
Section 507.	Limitation on Suits	35
Section 508.	Unconditional Right of Holders to Receive Principal and Interest	36
Section 509.	Restoration of Rights and Remedies	36
Section 510.	Rights and Remedies Cumulative	37
Section 511.	Delay or Omission Not Waiver	37
Section 512.	Control by Holders	37
Section 513.	Waiver of Past Defaults	37
Section 514.	Undertaking for Costs	38
Section 515.	Waiver of Stay or Extension Laws	38

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		Page
	ARTICLE SIX
	The Trustee
Section 601.	Certain Duties and Responsibilities	39
Section 602.	Notice of Defaults	40
Section 603.	Certain Rights of Trustee	40
Section 604.	Not Responsible for Recitals of Issuance of Securities	41
Section 605.	May Hold Securities	42
Section 606.	Money Held in Trust	42
Section 607.	Compensation and Reimbursement	42
Section 608.	Disqualification; Conflicting Interests	43
	(a) Elimination of Conflicting Interest or Resignation	43
	(b) Notice of Failure to Eliminate Conflicting Interest or Resign	43
	(c) “Conflicting Interest” Defined	43
	(d) Definitions of Certain Terms Used in This Section	46
	(e) Calculation of Percentages of Securities	47
Section 609.	Corporate Trustee Required; Eligibility	49
Section 610.	Resignation and Removal; Appointment of Successor	49
Section 611.	Acceptance of Appointment by Successor	50
Section 612.	Merger, Conversion, Consolidation or Succession to Business	51
Section 613.	Preferential Collection of Claims Against Company	51
	(a) Segregation and Apportionment of Certain Collections by Trustee, Certain Exceptions	51
	(b) Certain Creditor Relationships Excluded from Segregation and Apportionment	54
	(c) Definitions of Certain Terms Used in This Section	55
Section 614.	Appointment of Authenticating Agent	56

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		Page
	ARTICLE SEVEN
	Holders’ Lists and Reports By Trustee and Company
Section 701.	Company to Furnish Trustee Names and Addresses of Holders	58
Section 702.	Preservation of Information; Communications to Holders	58
Section 703.	Reports by Trustee	59
Section 704.	Reports by Company	61
Section 705.	Notice of Change in Rating	62
	ARTICLE EIGHT
	Consolidation, Merger, Conveyance, Transfer or Lease
Section 801.	Company May Consolidate, Etc. on Certain Terms	62
Section 802.	Successor Corporation Substituted	63
	ARTICLE NINE
	Supplemental Indentures
Section 901.	Supplemental Indentures Without Consent of Holders	63
Section 902.	Supplemental Indentures with Consent of Holders	64
Section 903.	Execution of Supplemental Indentures	65
Section 904.	Effect of Supplemental Indentures	65
Section 905.	Conformity with Trust Indenture Act	65
Section 906.	Reference in Securities to Supplemental Indentures	65
	ARTICLE TEN
	Covenants
Section 1001.	Payment of Principal and Interest	66
Section 1002.	Maintenance of Office or Agency	66
Section 1003.	Money for Securities Payments to Be Held in Trust	66
Section 1004.	Corporate Existence	68

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		Page
Section 1005.	Maintenance of Properties; Insurance	68
Section 1006.	Payment of Taxes and Other Claims	68
Section 1007.	Limitation on Liens	69
Section 1008.	Limitations on Sales and Leasebacks	70
Section 1009.	Waiver of Certain Covenants	71
Section 1010.	Statement as to Default	71
TESTIMONIUM		72
SIGNATURES AND SEALS		73
ACKNOWLEDGMENTS		73

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          INDENTURE, dated as of June 1, 1990; between Morton International, Inc., a corporation duly organized and existing under the laws of the State of Indiana (herein called the “Company”), having its principal office at 110 North Wacker Drive, Chicago, Illinois 60606-1560, and Continental Bank, National Association, a national banking association having its corporate trust office and place of business at 231 South LaSalle Street, Chicago, Illinois 60697, Trustee (herein called the “Trustee”).

RECITALS OF THE COMPANY

          The Company has duly authorized the creation of an issue of its 9 1/4% Credit Sensitive Debentures due June 1, 2020 (herein called the “Securities”) of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture.

          All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

          For and in consideration of the premises and the acquisition of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows:

ARTICLE ONE

Definitions and Other Provisions
of General Application

Section 101. Definitions.

          For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:

     (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;

     (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;

     (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles,

and, except as otherwise herein expressly provided, the term “generally accepted accounting principles” with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of this instrument; and

     (4) the words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

          Certain terms, used principally in Articles Six and Ten, are defined in such Articles.

          “Act,” when used with respect to any Holder, has the meaning specified in Section 104.

          “Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

          “Attributable Debt” means, as to any particular lease entered into after the date hereof under which any Person is at the time liable, at any date as of which the amount thereof is to be determined, the present value of the total net amount of rent required to be paid by such Person under such lease during the remaining term thereof, discounted from the respective due dates thereof to such date at the rate of 10% per annum compounded annually. The net amount of rent required to be paid under any such lease for any such period shall be the amount of the rent payable by the lessee with respect to such period, after excluding amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges. In the case of any lease that is terminable by the lessee upon payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated.

          “Authenticating Agent” means any person authorized by the Trustee to act on behalf of the Trustee to authenticate Securities.

          “Board of Directors” means either the Board of Directors of the Company or any duly authorized committee of the Board of Directors of the Company.

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          “Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.

          “Business Day,” when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law (including any executive order) to close.

          “Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.

          “Company” means the Person named as the “Company” in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor Person.

          “Company Request” or “Company Order” means a written request or order signed in the name of the Company by its Chairman of the Board, any Vice Chairman, its President or any Vice President, and by its Treasurer, its Controller or its Secretary and delivered to the Trustee.

          “Consolidated Net Tangible Assets” means the total of all the assets appearing on the consolidated balance sheet of the Company and its Subsidiaries, less the following:

     (1) current liabilities, including liabilities for indebtedness maturing more than 12 months from the date of the original creation thereof but maturing within 12 months from the date of determination but excluding any current liabilities constituting Funded Debt by reason of being renewable or extendable and current deferred income taxes;

     (2) reserves for depreciation and other asset valuation reserves;

     (3) intangible assets, including, but without limitation, such items as goodwill, trademarks, trade names, patents and unamortized debt discount and expense carried as an asset on said balance sheet; and

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     (4) appropriate adjustments on account of minority interests of other persons holding stock in any Subsidiary of the Company.

          Consolidated Net Tangible Assets shall be determined in accordance with generally accepted accounting principles and practices, applicable to the type of business in which the Company and its Subsidiaries are engaged and which are approved by the independent accountants regularly retained by the Company, and may be determined as of a date not more than 60 days prior to the happening of the event for which such determination is being made.

          “Corporate Trust Office” means the office of the Trustee in the city in which it has its principal place of business at which at any particular time its corporate trust business shall be principally administered.

          “Corporation” includes corporations, associations, companies and business trusts.

          “Defaulted Interest” has the meaning specified in Section 307.

          “Event of Default” has the meaning specified in Section 501.

          “Funded Debt” means all indebtedness for money borrowed having a maturity of more than 12 months from the date as of which the amount thereof is to be determined or having a maturity of less than 12 months but by its terms being renewable or extendible beyond 12 months from such date at the option of the borrower.

          “Holder” means a Person in whose name a Security is registered in the Security Register.

          “Indenture” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof.

          “Interest Payment Date” means the Stated Maturity of an installment of interest on the Securities.

          “Maturity,” when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration or otherwise.

          “Officers' Certificate” means a certificate signed by the Chairman of the Board, any Vice Chairman, the President or

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any Vice President, and by the Treasurer, the Controller, or the Secretary of the Company, and delivered to the Trustee.

          “Opinion of Counsel” means a written opinion of counsel, who may be an employee of or of counsel to the Company, and who shall be reasonably satisfactory to the Trustee.

          “Outstanding,” when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:

     (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;

     (ii) Securities for whose payment (a) money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities or (b) money or U.S. Government Obligations as contemplated by Sections 401 or 403 in the necessary amount have been theretofore deposited with the Trustee, in trust for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and

     (iii) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company;

provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act

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with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.

          “Paying Agent” means any Person authorized by the Company to pay the principal of or interest on any Securities on behalf of the Company.

          “Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

          “Place of Payment” means the place where the principal of (and premium, if any) and interest on the Securities are payable as designated in or pursuant to Section 301.

          “Predecessor Security” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.

          “Principal Operating Property” means any land, or any building, structure or other facility together with the land upon which it is erected and fixtures comprising a part thereof, used primarily for manufacturing, warehousing, extraction, processing or production owned or leased by the Company or any subsidiary of the Company, the gross book value (without deduction of any depreciation reserve) of which on the date as of which the determination is being made exceeds 2% of Consolidated Net Tangible Assets, other than any land, building, structure or other facility or portion thereof which (i) in the opinion of the Board of Directors of the Company, is not of material importance to the total business conducted by the Corporation and its subsidiaries as an entirety; or (ii) any land designated by the Board of Directors as being held primarily for development and/or sale.

          “Regular Record Date,” for the interest payable on any Interest Payment Date means the date specified for that purpose as designated in Section 301.

          “Responsible Officer,” when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant

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trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.

          “Securities” has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture.

          “Security Register” and “Security Registrar” have the respective meanings specified in Section 305.

          “Special Record Date” for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307.

          “Stated Maturity”, when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable.

          “Subsidiary” means any corporation (a) more than 50% of the outstanding voting stock of which is at the time owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries and (b) substantially all of the property of which is located, or substantially all of the business of which is carried on, within the United States of America (other than its territories or possessions and other than Puerto Rico). For the purposes of this definition, “voting stock” means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.

          “Trustee” means the Person named as the “Trustee” in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean or include each Person who is then a Trustee hereunder.

          “Trust Indenture Act” means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed, except as provided in Section 905.

          “U.S. Government Obligations” means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and

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acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of U.S. Government Obligations or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt.

          “Vice President,” when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title “vice president.”

Section 102. Compliance Certificates and Opinions.

          Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers’ Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.

          Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include

     (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;

     (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

     (3) a statement that, in the opinion of each such individual, he has made such examination or investiga-

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tion as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

     (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.

Section 103. Form of Documents Delivered to Trustee.

          In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

          Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

          Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

Section 104. Acts of Holders.

          (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are

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herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.

          (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.

          (c) The ownership of Securities shall be proved by the Security Register.

          (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.

Section 105. Notices, Etc. to Trustee and Company.

          Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,

     (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or

     (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument: attention of the Treasurer, or at any other address

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previously furnished in writing to the Trustee by the Company.

Section 106. Notice to Holders; Waiver.

          Where this Indenture or any Security provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein or in such Security expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture or any Security provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

          In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.

Section 107. Conflict with Trust Indenture Act.

          If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control.

Section 108. Effect of Headings and Table of Contents.

          The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 109. Successors and Assigns.

          All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.

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Section 110. Separability Clause.

          In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 111. Benefits of Indenture.

          Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture.

Section 112. Governing Law.

          This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of Illinois.

Section 113. Legal Holidays.

          In any case where any Interest Payment Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or at the Stated Maturity, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.

ARTICLE TWO

Security Forms

Section 201. Forms Generally.

          The Securities and the Trustee’s certificate of authentication thereon shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities.

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          The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.

Section 202. Form of Face of Security.

MORTON INTERNATIONAL, INC.

9 1/4% Credit Sensitive Debenture due 2020

No.                      $                    

          MORTON INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Indiana (hereinafter called the “Company”, which term shall include any successor corporation), for value received, hereby promises to pay to                                                                                                                          or registered assigns, the principal sum of                                                            Dollars on June 1, 2020 and to pay interest thereon from June 1, 1990 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on June 1 and December 1 in each year, commencing December 1, 1990, at the rate of 9 1/4% per annum on the date of original issue, subject to adjustment on the calendar day that certain changes in the debt rating of the Security occur as determined by Standard & Poor’s Corporation or Moody’s Investors Service, Inc., as described herein, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the May 15 or November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture.

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          Payment of the principal of and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Chicago, and in such other cities, if any, as the Company may designate in writing to the Trustee, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.

          Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

          Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

          IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.

Dated:

MORTON INTERNATIONAL, INC.
By
	Chairman of the Board and
	Chief Executive Officer

Attest:

Secretary

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Section 203. Form of Reverse of Security.

          This Security is one of a duly authorized issue of securities of the Company designated as its 9 1/4% Credit Sensitive Debentures due June 1, 2020 (herein called the “Securities”), limited in aggregate principal amount to $200,000,000 (except as otherwise provided in the Indenture) issued and to be issued under an Indenture, dated as of June 1, 1990 (herein called the “Indenture”), between the Company and Continental Bank, National Association, Trustee (herein called the “Trustee”, which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered.

          The interest rate on this Security shall be based upon the debt rating on the Securities (the “Rating”) as determined by Standard & Poor’s Corporation (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”), or their successors (as described below), and adjusted if necessary in response to changes in a Rating. The initial Applicable Rate (as hereinafter defined) on this Security will be 9 1/4% per annum. This Security shall bear interest at the initial Applicable Rate from June 1, 1990 to but excluding the earlier of the date of repayment or (except as provided below) the calendar day on which a change in rating category (as set forth in the table below) takes effect in either the S&P Rating or Moody’s Rating (a “Rating Adjustment Date”). Beginning with the calendar day that is a Rating Adjustment Date, if any (unless such Rating Adjustment Date occurs between a Record Date and an Interest Payment Date in which case beginning on such Interest Payment Date), and (except as provided below) to but excluding the earlier of the date of repayment or next Rating Adjustment Date, if any, this Security shall bear interest at the rate per annum (the “Applicable Rate”) set forth below opposite the lower of the S&P Rating and the Moody’s Rating in effect at the close of business on that Rating Adjustment Date; provided that if only one such Rating is available on any Rating Adjustment Date, the Applicable Rate shall be determined solely by reference to such one Rating. If neither S&P nor Moody’s has issued a current Rating, or if the rating system employed by either such organization is changed from that which is currently employed, then the Company shall, with the approval of the Trustee, designate such additional nationally recognized statistical rating organization, or make such adjustments in the relationship between the Rating and the Applicable Rate, as are consistent with the table below.

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Ratings		Applicable
Moody’s	S&P	Rate
Aaa	AAA		8.95	%
Aa1 to Aa2	AA+ to AA		9.15
Aa3 to A3	AA- to A-		9.25
Baa1	BBB+		9.65
Baa2	BBB		9.75
Baa3	BBB-		9.90
Ba1	BB+		12.40
Ba2	BB		12.90
Ba3	BB-		13.40
B1	B+		14.40
B2 or lower	B or lower		14.90

          The Applicable Rate and interest on this Security shall be computed on the basis of a year of twelve 30-day months. In the event of any satisfaction, discharge and defeasance of the Securities, or the Indenture, the Applicable Rate shall be fixed at a rate (the “Defeasance Rate”) based upon the debt rating of the Securities as defeased by the defeasance trust containing the money and/or U.S. Obligations deposited by the Company to effect the satisfaction, discharge and defeasance of the Securities or the Indenture. The Defeasance Rate shall be the corresponding rate per annum set forth above opposite the lower of the S&P or Moody’s debt rating in effect for the Securities as defeased by the defeasance trust (the “Defeasance Rating”) on the date of the deposit of the money and/or U.S. Obligations in order to effect the satisfaction, discharge and defeasance of the Securities or the Indenture. The Applicable Rate shall be fixed, or the Indenture on the effective date of any satisfaction, discharge and defeasance of the Securities or the Indenture at the Defeasance Rate and such rate shall relate back to and be considered to have effect from, the date of deposit of the money and/or U.S. Obligations (unless an Interest Payment Date occurs between the deposit date and the effective date, in which case the Defeasance Rate shall relate back to, and be considered to have effect from, such Interest Payment Date). The Applicable Rate shall not thereafter be affected by any change in Rating or Defeasance Rating. If no such Defeasance Rating exists on the date of such deposit, the Applicable Rate shall be fixed at the Applicable Rate in effect on the date of the deposit.

          If an Event of Default shall occur and be continuing, the principal of the Securities may be declared due and payable in the manner and with the effect provided in the Indenture.

          The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities to be affected under the Indenture at any time by the Company and the Trustee with the consent of the

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Holders of 66-2/3% in principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all Securities, to waive certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

          No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.

          As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registerable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

          The Securities are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same.

          No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

          Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

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          All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

Section 204. Form of Trustee’s Certificate of Authentication.

          This is one of the Securities referred to in the within-mentioned Indenture.

[                                              ], as Trustee
By
	Authorized Signer

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ARTICLE THREE

The Securities

Section 301. Title and Terms.

          The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $200,000,000 except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Sections 304, 305, 306 or 906.

          The Securities shall be known and designated as the “9 1/4% Credit Sensitive Debentures due June 1, 2020” of the Company. Their Stated Maturity shall be June 1, 2020, and they shall bear interest from June 1, 1990 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, payable semi-annually on June 1 and December 1 in each year, at the rate of 9 1/4% per annum on the date of original issue, subject to adjustment on the calendar day that certain changes in the debt rating of the Securities occur as determined by Standard & Poor’s Corporation (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”), as described herein, until the principal is paid or such payment is duly provided for. The Regular Record Dates for the Securities shall be May 15 and November 15.

          The interest rate on the Securities shall be based upon the debt rating on the Securities (“Rating”) as determined by S&P or Moody’s or their successors (as described below), and adjusted if necessary in response to changes in a Rating. The initial Applicable Rate (as hereinafter defined) on the Securities will be 9 1/4% per annum. The Securities shall bear interest at the initial Applicable Rate from June 1, 1990 to but excluding the earlier of the date of repayment or (except as provided below) the calendar day on which a change in rating category (as set forth in the table below) takes effect in either the S&P Rating or Moody’s Rating (a “Rating Adjustment Date”). Beginning with the calendar day that is a Rating Adjustment Date, if any (unless such Rating Adjustment Date occurs between a Record Date and an Interest Payment Date in which case beginning on such Interest Payment Date), and (except as provided below) to but excluding the earlier of the date of repayment or next Rating Adjustment Date, if any, the Securities shall bear interest at the rate per annum (the “Applicable Rate”) set forth below opposite the lower of the S&P Rating and the Moody’s Rating in effect at the close of business on that Rating Adjustment Date; provided that if only one such Rating is available on any Rating Adjustment Date, the Applicable Rate shall be determined solely by reference to such one Rating. If neither S&P nor Moody’s has issued a current Rating, or if the rating system employed by either such organization is changed from that which is currently employed,

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then the Company shall, with the approval of the Trustee, designate such additional nationally recognized statistical rating organization, or make such adjustments in the relationship between the Rating and the Applicable Rate, as are consistent with the table below.

Ratings		Applicable
Moody’s	S&P	Rate
Aaa	AAA		8.95	%
Aa1 to Aa2	AA+ to AA		9.15
Aa3 to A3	AA to A-		9.25
Baa1	BBB+		9.65
Baa2	BBB		9.75
Baa3	BBB-		9.90
Ba1	BB+		12.40
Ba2	BB		12.90
Ba3	BB-		13.40
B1	B+		14.40
B2 or lower	B or lower		14.90

          The Applicable Rate and interest on the Securities shall be computed on the basis of a year of twelve 30-day months. In the event of any satisfaction, discharge and defeasance of the Securities or the Indenture, the Applicable Rate shall be fixed at a rate (the “Defeasance Rate”) based upon the debt rating of the Securities as defeased by the defeasance trust containing the money and/or U.S. Obligations deposited by the Company to effect the satisfaction, discharge and defeasance of the Securities or the Indenture. The Defeasance Rate shall be the corresponding rate per annum set forth above opposite the lower of the S&P Rating and the Moody’s debt rating in effect for the Securities as defeased by the defeasance trust (the “Defeasance Rating”) on the date of the deposit of the money and/or U.S. Obligations in order to effect the satisfaction, discharge and defeasance of the Securities or the Indenture. The Applicable Rate shall be fixed on the effective date of any satisfaction, discharge and defeasance of the Securities or the Indenture at the Defeasance Rate and such rate shall relate back to, and be considered to have effect from, the date of deposit of the money and/or U.S. Obligations (unless an Interest Payment Date occurs between the deposit date and the effective date, in which case the Defeasance Rate shall relate back to, and be considered to have effect from, such Interest Payment Date). The Applicable Rate shall not thereafter be affected by any change in Rating or Defeasance Rating. If no such Defeasance Rating exists on the date of such deposit, the Applicable Rate shall be fixed at the Applicable Rate in effect on the date of the deposit.

          The principal of and interest on the Securities shall be payable at the office or agency of the Company in the City of

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Chicago, Illinois and in such other cities, if any, as the Company may designate in writing to the Trustee (any such city being herein called a “Place of Payment”); except that interest may be payable, at the option of the Company, by check mailed to the address of the Person entitled thereto as such address appears on the Security Register.

Section 302. Denominations.

          The Securities shall be issued only in fully registered form without coupons and only in denominations of $1,000 and any integral multiple thereof.

Section 303. Execution, Authentication, Delivery and Dating.

          The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile.

          Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.

          At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities.

          Each Security shall be dated the date of its authentication.

          No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture.

Section 304. Temporary Securities.

          Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall

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authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.

          If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company in a Place of Payment, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities.

Section 305. Registration, Registration of Transfer and Exchange.

          The Company shall cause to be kept at the Corporate Trust Office a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the “Security Register”) in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed “Security Registrar” for the purpose of registering Securities and transfers of Securities as herein provided.

          Upon surrender for registration of transfer of any Security at the office or agency of the Company in a Place of Payment, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities, of any authorized denominations and of a like aggregate principal amount.

          At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.

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          All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.

          Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.

          No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304 or 906.

Section 306. Mutilated, Destroyed, Lost and Stolen Securities.

          If (i) any mutilated Security is surrendered to the Trustee or if there shall be delivered to the Company and the Trustee evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) there shall be delivered to the Company and the Trustee such security and indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such mutilated, destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding.

          In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.

          Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.

          Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company,

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whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.

          The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

Section 307. Payment of Interest; Interest Rights Preserved.

          Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.

          Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called “Defaulted Interest”) shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below:

     (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 15 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such

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Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of the Securities at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).

     (2) The Company may make payment of any Defaulted Interest on the Securities in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.

          Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.

Section 308. Persons Deemed Owners.

          Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and (subject to Section 307) interest on such Security, and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.

Section 309. Cancellation.

          All Securities surrendered for payment, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities

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cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of as directed by a Company Order.

ARTICLE FOUR

Satisfaction and Discharge

Section 401. Satisfaction and Discharge of Indenture.

          This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when

          (1) either

     (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or

     (B) all such Securities not theretofore delivered to the Trustee for cancellation

     (i) have become due and payable, or

     (ii) will become due and payable at their Stated Maturity within one year, or

     (iii) are deemed paid and discharged pursuant to Section 403, as applicable,

and the Company, in the case of (i) or (ii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount of (a) money or (b) in the case of (ii) above U.S. Government Obligations which through the payment of

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interest and principal in respect thereof in accordance with their terms will provide not later than one day before the Stated Maturity money in an amount or (c) a combination of money and U.S. Government Obligations, in each case sufficient, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certificate thereof delivered to the Trustee, to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity, as the case may be;

     (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and

     (3) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.

          Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607, the obligations of the Trustee to an Authenticating Agent under Section 614 and, if money or U.S. Government Obligations shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section or if money or U.S. Government Obligations shall have been deposited with or received by the Trustee pursuant to Section 403, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive.

Section 402. Application of Trust Money.

          (a) Subject to the provisions of the last paragraph of Section 1003, all money or U.S. Government Obligations deposited with the Trustee pursuant to Section 401 or 403 and all money received by the Trustee in respect of U.S. Government Obligations deposited with the Trustee pursuant to Section 401 or 403 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and interest for whose payment such money has been deposited with or received by the Trustee.

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          (b) The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against U.S. Government Obligations deposited pursuant to Section 403 or the interest and principal received in respect of such obligations other than any payable by or on behalf of Holders.

          (c) The Trustee shall deliver or pay to the Company from time to time upon Company Request any U.S. Government Obligations or money held by it as provided in Section 401 or Section 403 which, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee, are then in excess of the amount thereof which then would have been required to be deposited for the purpose for which such U.S. Government Obligations or money was deposited or received. Notwithstanding the foregoing, the Trustee shall not deliver or pay to the Company any such excess amounts unless the Trustee shall have received a letter from S&P and Moody’s (or the nationally recognized statistical rating agency that provided the Defeasance Rating) stating that the delivery or payment of such excess amounts by the Trustee to the Company will not result in a decrease in the Defeasance Rating. No provision of this Indenture shall be deemed to authorize the sale by the Trustee of any U.S. Government Obligations held under this Indenture pursuant to Section 403.

Section 403. Satisfaction, Discharge and Defeasance of the Securities.

          The Company shall be deemed to have paid and discharged the entire indebtedness on all the Outstanding Securities on the 91st day after the date of the deposit referred to in subparagraph (e) hereof, and the provisions of this Indenture, as it relates to such Outstanding Securities, shall no longer be in effect (and the Trustee, at the expense of the Company, shall at Company Request execute proper instruments acknowledging the same), except as to:

     (a) the rights of Holders of Securities to receive, from the trust funds described in subparagraph (e) hereof, payment of the principal of and each installment of principal of or interest on the Outstanding Securities on the Stated Maturity of such principal or installment of principal or interest;

     (b) the Company’s obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1003;

     (c) the Company’s obligations with respect to the Trustee under Section 607; and

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     (d) the rights, powers, trust and immunities of the Trustee hereunder and the duties of the Trustee under Section 402 and the duty of the Trustee to authenticate Securities issued on registration of transfer or exchange;

provided that, the following conditions shall have been satisfied:

     (e) the Company has deposited or caused to be irrevocably deposited (except as provided in Section 402) with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities, (i) money in an amount, or (ii) U.S. Government Obligations which through the payment of interest and principal in respect thereof in accordance with their terms will provide not later than one day before the due date of any payment of money in an amount or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge the principal of and each installment of principal and interest on the Outstanding Securities on the Stated Maturity of such principal or installment of principal or interest;

     (f) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound;

     (g) such provision would not cause any Outstanding Securities then listed on any securities exchange to be delisted as a result thereof;

     (h) no Event of Default or event which with notice or lapse of time would become an Event of Default with respect to the Securities such series shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date;

     (i) the Company has delivered to the Trustee an Officers’ Certificate and an opinion of nationally recognized tax counsel stating that either (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (ii) since the date of this Indenture, there has been a change in the applicable Federal income tax law, and that based

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thereon such counsel is of the opinion that, Holders of the Securities will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred; and

     (j) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the defeasance contemplated by this Section have been complied with.

Section 404. Funding of Defeasance Trust.

          For the purpose of determining the amount of money and/or U.S. Government Obligations required to be deposited with the Trustee in order to effect a discharge pursuant to Sections 401 or 403, the interest rate on the Securities shall be assumed to be the Defeasance Rate for the period beginning on the date of such deposit.

ARTICLE FIVE

Remedies

Section 501. Events of Default.

          “Event of Default”, wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

     (1) default in the payment of any interest upon any Security when due and payable and continuance of such default for a period of 30 days; or

     (2) default in the payment of the principal of any Security at its Maturity; or

     (3) default in the performance of any covenant, agreement or warranty of the Company in this Indenture (other than a covenant, agreement or warranty a default in whose performance is elsewhere in this Section specifically dealt with) and continuance of such default for a period of 60 days after there has been

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given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or

     (4) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company in excess of $10,000,000 or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company in excess of $10,000,000, whether such indebtedness now exists or shall hereafter be created, which default shall consist of a failure to pay any portion of the principal of such indebtedness within 10 days after such indebtedness became due and payable after the expiration of any applicable grace period with respect thereto or shall have resulted in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled within a period of 10 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a “Notice of Default” hereunder; or

     (5) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or

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     (6) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any such law, or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or state law, or the consent by it to the filing of such a petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of appropriate action by the Company in furtherance of any such action.

Section 502. Acceleration of Maturity; Rescission and Annulment.

          If an Event of Default occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the principal amount of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount shall become immediately due and payable.

          At any time after such a declaration of acceleration has been made and before the Stated Maturity thereof, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if

     (1) the Company has paid or deposited with the Trustee a sum sufficient to pay

     (A) all overdue installments of interest on all Securities,

     (B) the principal of any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities,

     (C) to the extent that payment of such interest is lawful, interest upon overdue

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interest at the rate borne by the Securities, and

     (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel;

and

     (2) all Events of Default, other than the nonpayment of the principal of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513.

No such rescission shall affect any subsequent default or impair any right consequent thereon.

Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.

          The Company covenants that if

     (1) default is made in the payment of any interest on any Securities when such interest becomes due and payable and such default continues for a period of 30 days, or

     (2) default is made in the payment of the principal of any Securities at the Maturity thereof,

the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and on any overdue interest, at the rate borne by the Securities and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

          If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sum so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.

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          If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of the Securities by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

Section 504. Trustee May File Proofs of Claim.

          In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,

     (i) to file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Securities and to file such other papers and documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and

     (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607.

          Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights

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of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

Section 505. Trustee May Enforce Claims Without Possession of Securities.

          All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.

Section 506. Application of Money Collected.

          Any money or other property collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

     First: To the payment of all amounts due the Trustee under Section 607; and

     Second: To the payment of the amounts then due and unpaid for principal of and interest on the Securities in respect of which or for the benefit of which such money or other property has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and interest.

     Third: The balance, if any, to the Company.

Section 507. Limitation on Suits.

          No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless

     (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default;

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     (2) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;

     (3) such Holder or Holders have offered to the Trustee reasonable security and indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;

     (4) the Trustee for 60 days after its receipt of such notice, request and offer of security and indemnity has failed to institute any such proceedings; and

     (5) no direction inconsistent with such written request has been given to the Trustee during such 60 - day period by the Holders of a majority in principal amount of the Outstanding Securities;

it being understood and intended that no one or more Holders of Securities shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders.

Section 508. Unconditional Right of Holders to Receive Principal and Interest.

          Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security and to institute suit for the enforcement of any such payment and such other rights shall not be impaired without the consent of such Holder.

Section 509. Restoration of Rights and Remedies.

          If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies

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of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

Section 510. Rights and Remedies Cumulative.

          Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

Section 511. Delay or Omission Not Waiver.

          No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

Section 512. Control by Holders.

          The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that

     (1) such direction shall not be in conflict with any rule of law or with this Indenture, and

     (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.

Section 513. Waiver of Past Defaults.

          The Holders of not less than a majority in principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default

     (1) in the payment of the principal or interest on any Security, or

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     (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security offered.

          Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

Section 514. Undertaking for Costs.

          All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 25% in principal amount of the Out-standing Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or interest on any Security on or after the respective Stated Maturities expressed in such Security.

Section 515. Waiver of Stay or Extension Laws.

          The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

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ARTICLE SIX

The Trustee

Section 601. Certain Duties and Responsibilities.

          (a) Except during the continuance of an Event of Default,

     (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

     (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.

          (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

          (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that

     (1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;

     (2) the Trustee shall not be liable for any error or judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;

     (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities relating to the time, method and place of conducting any proceeding for any remedy

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available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and

     (4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate security and indemnity against such risk or liability is not reasonably assured to it.

          (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.

Section 602. Notice of Defaults.

          Within 90 days after the occurrence of any default hereunder, the Trustee shall transmit by mail to all Holders of Securities, as their names and addresses appear in the Security Register, notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders of Securities; and provided, further, that in the case of any default of the character specified in Section 501(3) no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term “default” means any event which is, or after notice or lapse of time or both would become, an Event of Default.

Section 603. Certain Rights of Trustee.

          Subject to the provisions of Section 601:

     (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;

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     (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;

     (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers’ Certificate;

     (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;

     (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security and indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;

     (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; and

     (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder.

Section 604. Not Responsible for Recitals or Issuance of Securities.

          The recitals contained herein and in the Securities, except the Trustee’s certificates of authentication, shall be

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taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.

Section 605. May Hold Securities.

          The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, any Authenticating Agent, Paying Agent, Security Registrar or such other agent.

Section 606. Money Held in Trust.

          Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company.

Section 607. Compensation and Reimbursement.

          The Company agrees

     (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

     (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and

     (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the

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exercise or performance of any of its powers or duties hereunder.

Section 608. Disqualification; Conflicting Interests.

          (a) If the Trustee has or shall acquire any conflicting interest, as defined in this Section, it shall, within 90 days after ascertaining that it has such conflicting interest, either eliminate such conflicting interest or resign in the manner and with the effect hereinafter specified in this Article.

          (b) In the event that the Trustee shall fail to comply with the provisions of Subsection (a) of this Section, the Trustee shall, within 10 days after the expiration of such 90 - day period, transmit by mail to all Holders of Securities, as their names and addresses appear in the Security Register, notice of such failure.

          (c) For the purposes of this Section, the Trustee shall be deemed to have a conflicting interest if

     (1) the Trustee is trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the Company are outstanding, unless such other indenture is a collateral trust indenture under which the only collateral consists of Securities issued under this Indenture, provided that there shall be excluded from the operation of this paragraph any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding if

     (A) this Indenture and such other indenture or indentures are wholly unsecured and such other indenture or indentures are hereafter qualified under the Trust Indenture Act, unless the Commission shall have found and declared by order pursuant to Section 305(b) or Section 307(c) of the Trust Indenture Act that differences exist between the provisions of this Indenture and the provisions of such other indenture or indentures which are so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture and such other indenture or indentures, or

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     (B) the Company shall have sustained the burden of proving, on application to the Commission and after opportunity for hearing thereon, that trusteeship under this Indenture and such other indenture or indentures is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under one of such indentures;

     (2) the Trustee or any of its directors or executive officers is an obligor upon the Securities or an underwriter for the Company;

     (3) the Trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with the Company or an underwriter for the Company;

     (4) the Trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee or representative of the Company, or of an underwriter (other than the Trustee itself) for the Company who is currently engaged in the business of underwriting, except that (i) one individual may be a director or an executive officer, or both, of the Trustee and a director or an executive officer, or both, of the Company but may not be at the same time an executive officer of both the Trustee and the Company; (ii) if and so long as the number of directors of the Trustee in office is more than nine, one additional individual may be a director or an executive officer, or both, of the Trustee and a director of the Company; and (iii) the Trustee may be designated by the Company or by any underwriter for the Company to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent or depositary, or in any other similar capacity, or, subject to the provisions of paragraph (1) of this Subsection, to act as trustee, whether under an indenture or otherwise;

     (5) 10% or more of the voting securities of the Trustee is beneficially owned either by the Company or by any director, partner or executive officer thereof, or 20% or more of such voting securities is beneficially owned, collectively, by any two or more of such persons; or 10% or more of the voting securities of the Trustee is beneficially owned either by an underwriter for the Company or by any director, partner or execu-

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tive officer thereof, or is beneficially owned, collectively, by any two or more such persons;

     (6) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this Subsection defined), (i) 5% or more of the voting securities, or 10% or more of any other class of security, of the Company not including the Securities issued under this Indenture and securities issued under any other indenture under which the Trustee is also trustee, or (ii) 10% or more of any class of security of an underwriter for the Company;

     (7) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this Subsection defined), 5% or more of the voting securities of any person who, to the knowledge of the Trustee, owns 10% or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, the Company;

     (8) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this Subsection defined), 10% or more of any class of security of any person who, to the knowledge of the Trustee, owns 50% or more of the voting securities of the Company; or

     (9) the Trustee owns, on May 15 in any calendar year, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of 25% or more of the voting securities, or of any class of security, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under paragraph (6), (7) or (8) of this Subsection. As to any such securities of which the Trustee acquired ownership through becoming executor, administrator or testamentary trustee of an estate which included them, the provisions of the preceding sentence shall not apply, for a period of two years from the date of such acquisition, to the extent that such securities included in such estate do not exceed 25% of such voting securities or 25% of any such class of security. Promptly after May 15 in each calendar year, the Trustee shall make a check of its holdings of such securities in any of the above-mentioned capacities as of such May 15. If the Company fails to make payment in full of the principal of (or premium, if any) or

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interest on any of the Securities when and as the same becomes due and payable, and such failure continues for 30 days thereafter, the Trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such 30-day period, and after such date, notwithstanding the foregoing provisions of this paragraph, all such securities so held by the Trustee, with sole or joint control over such securities vested in it, shall, but only so long as such failure shall continue, be considered as though beneficially owned by the Trustee for the purposes of paragraphs (6), (7) and (8) of this Subsection.

          The specification of percentages in paragraphs (5) to (9), inclusive, of this Subsection shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of paragraph (3) or (7) of this Subsection.

          For the purposes of paragraphs (6), (7), (8) and (9) of this Subsection only, (i) the terms “security” and “securities” shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys lent to a person by one or more banks, trust companies or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness; (ii) an obligation shall be deemed to be “in default” when a default in payment of principal shall have continued for 30 days or more and shall not have been cured; and (iii) the Trustee shall not be deemed to be the owner or holder of (A) any security which it holds as collateral security, as trustee or otherwise, for an obligation which is not in default as defined in clause (ii) above, or (B) any security which it holds as collateral security under this Indenture, irrespective of any default hereunder, or (C) any security which it holds as agent for collection, or as custodian, escrow agent or depositary, or in any similar representative capacity.

          (d) For the purposes of this Section:

     (1) The term “underwriter”, when used with reference to the Company, means every person who, within three years prior to the time as of which the determination is made, has purchased from the Company with a view to, or has offered or sold for the Company in connection with, the distribution of any security of the Company outstanding at such time, or has participated or has had a direct or indirect participation in any such undertaking, or has participated or has had a

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participation in the direct or indirect underwriting of any such undertaking, but such term shall not include a person whose interest was limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors’ or sellers’ commission.

     (2) The term “director” means any director of a corporation or any individual performing similar functions with respect to any organization, whether incorporated or unincorporated.

     (3) The term “person” means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization or a government or political subdivision thereof. As used in this paragraph, the term “trust” shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security.

     (4) The term “voting security” means any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person.

     (5) The term “Company” means any obligor upon the Securities.

     (6) The term “executive officer” means the president, every vice president, every trust officer, the cashier, the secretary and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors.

          (e) The percentages of voting securities and other securities specified in this Section shall be calculated in accordance with the following provisions:

     (1) A specified percentage of the voting securities of the Trustee, the Company or any other person referred to in this Section (each of whom is referred to as a “person” in this paragraph) means such amount of the outstanding voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of

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such person are entitled to cast in the direction or management of the affairs of such person.

     (2) A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding.

     (3) The term “amount”, when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares and the number of units if relating to any other kind of security.

     (4) The term “outstanding” means issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition:

     (i) securities of an issuer held in a sinking fund relating to securities of the issuer of the same class;

     (ii) securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise;

     (iii) securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise; and

     (iv) securities held in escrow if placed in escrow by the issuer thereof;

provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof.

     (5) A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders thereof substantially the same rights and privileges; provided, however, that, in the case of secured evidences of indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute such series different classes and provided, further, that, in the case of unsecured evidences of

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indebtedness, differences in the interest rates or maturity dates thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture.

Section 609. Corporate Trustee Required; Eligibility.

          There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

Section 610. Resignation and Removal; Appointment of Successor.

          (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611.

          (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee.

          (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company.

          (d) If at any time:

     (1) the Trustee shall fail to comply with Section 608(a) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or

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     (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or

     (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,

then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee or Trustees.

          (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee.

          (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to all Holders of Securities as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office.

Section 611. Acceptance of Appointment by Successor.

          (a) Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the

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retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.

          (b) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.

Section 612. Merger, Conversion, Consolidation or Succession to Business.

          Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.

Section 613. Preferential Collection of Claims Against Company.

          (a) Subject to Subsection (b) of this Section, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within four months prior to a default, as defined in Subsection (c) of this Section, or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the Holders of the Securities and the holders of other indenture securities, as defined in Subsection (c) of this Section:

     (1) an amount equal to any and all reductions in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such four months’ period and

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valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this Subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and

     (2) all property received by the Trustee in respect of any claims as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such four months’ period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds.

Nothing herein contained, however, shall affect the right of the Trustee:

     (A) to retain for its own account (i) payments made on account of any such claim by any Person (other than the Company) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the Trustee to a third Person, and (iii) distributions made in cash, securities or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law;

     (B) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such four months’ period;

     (C) to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such four months’ period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default, as defined in Subsection (c) of this Section, would occur within four months; or

     (D) to receive payment on any claim referred to in paragraph (B) or (C), against the release of any property held as security for such claim as provided in

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paragraph (B) or (C), as the case may be, to the extent of the fair value of such property.

          For the purposes of paragraphs (B), (C) and (D), property substituted after the beginning of such four months’ period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any pre-existing claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim.

          If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned among the Trustee, the Holders and the holders of other indenture securities in such manner that the Trustee, the Holders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of the receipt by it from the Company of the funds and property in such special account and before crediting to the respective claims of the Trustee and the Holders and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this paragraph, with respect to any claim, the term “dividends” shall include any distribution with respect to such claim, in bankruptcy or receivership or proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, whether such distribution is made in cash, securities or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or proceedings for reorganization is pending shall have jurisdiction (i) to apportion among the Trustee, the Holders and the holders of other indenture securities, in accordance with the provisions of this paragraph, the funds and property held in such special account and proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee and the Holders and the holders of other indenture securities with respect to their respective claims, in

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which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula.

          Any Trustee which has resigned or been removed after the beginning of such four months’ period shall be subject to the provisions of this Subsection as though such resignation or removal had not occurred. If any Trustee has resigned or been removed prior to the beginning of such four months’ period, it shall be subject to the provisions of this Subsection if and only if the following conditions exist:

     (i) the receipt of property or reduction of claim, which would have given rise to the obligation to account, if such Trustee had continued as Trustee, occurred after the beginning of such four months’ period; and

     (ii) such receipt of property or reduction of claim occurred within four months after such resignation or removal.

          (b) There shall be excluded from the operation of Subsection (a) of this Section a creditor relationship arising from:

     (1) the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee;

     (2) advances authorized by a receivership or bankruptcy court of competent jurisdiction or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advances and of the circumstances surrounding the making thereof is given to the Holders at the time and in the manner provided in this Indenture;

     (3) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depositary, or other similar capacity;

     (4) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in

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a cash transaction, as defined in Subsection (c) of this Section;

     (5) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; and

     (6) the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper, as defined in Subsection (c) of this Section.

     (c) For the purposes of this Section only:

     (1) the term “default” means any failure to make payments in full of the principal of or interest on any of the Securities or upon other indenture securities when and as such principal or interest becomes due and payable.

     (2) the term “other indenture securities” means securities upon which the Company is an obligor outstanding under any other indenture (i) under which the Trustee is also trustee, (ii) which contains provisions substantially similar to the provisions of this Section, and (iii) under which a default exists at the time of the apportionment of the funds and property held in such special account;

     (3) the term “cash transaction” means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand;

     (4) the term “self-liquidating paper” means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making,

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drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation;

     (5) the term “Company” means any obligor upon the Securities; and

     (6) the term “Federal Bankruptcy Act” means the Bankruptcy Act or Title 11 of the United States Code.

Section 614. Appointment of Authenticating Agent.

          The Trustee may appoint an Authenticating Agent or Agents, which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon the original issue and upon exchange, registration of transfer or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee’s certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.

          Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or

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filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.

          An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.

          The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 607.

          If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustee’s certificate of authentication, an alternate certificate of authentication in the following form:

          This is one of the Securities described in the within-mentioned Indenture.

	As Trustee
By
	As Authenticating Agent
By
	Authorized Officer

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ARTICLE SEVEN

Holders’ Lists and Reports by Trustee and Company

Section 701. Company to Furnish Trustee Names and Addresses of Holders.

          The Company will furnish or cause to be furnished to the Trustee

     (a) semi-annually, not later than fifteen days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and

     (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished;

provided, however, that so long as the Trustee is the Security Registrar no such list shall be required to be furnished.

Section 702. Preservation of Information; Communications to Holders.

          (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished.

          (b) If three or more Holders (herein referred to as “applicants”) apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a security for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders with respect to their rights under this Indenture or under the Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either

     (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 702(a), or

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     (ii) inform such applicants as to the approximate number of Holders whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 702(a), and as to the approximate cost of mailing to such Holders the form of proxy or other communication, if any, specified in such application.

          If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder whose name and address appear in the information preserved at the time by the Trustee in accordance with Section 702(a) a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interest of the Holders or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application.

          (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 702(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 702(b).

Section 703. Reports by Trustee.

          (a) Within 60 days after May 15 of each year commencing with the year 1991, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, a brief report dated as of such May 15 with respect to:

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     (1) its eligibility under Section 609 and its qualifications under Section 608, or in lieu thereof, if to the best of its knowledge it has continued to be eligible and qualified under said Sections, a written statement to such effect;

     (2) the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to report such advances if such advances so remaining unpaid aggregate not more than 1/2 of 1% of the principal amount of the Securities Outstanding on the date of such report;

     (3) the amount, interest rate and maturity date of all other indebtedness owing by the Company (or by any other obligor on the Securities) to the Trustee in its individual capacity, on the date of such report, with a brief description of any property held as collateral security therefor, except an indebtedness based upon a creditor relationship arising in any manner described in Section 613(b)(2), (3), (4) or (6);

     (4) the property and funds, if any, physically in the possession of the Trustee as such on the date of such report;

     (5) any additional issue of Securities which the Trustee has not previously reported; and

     (6) any action taken by the Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Securities, except action in respect of a default, notice of which has been or is to be withheld by the Trustee in accordance with Section 602.

          (b) The Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to Subsection (a) of this Section (or if no such report has yet been so transmitted, since the date of execution of this instrument) for the reimbursement of which it claims or may claim a lien or

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charge, prior to that of the Securities, on property or funds held or collected by it as Trustee and which it has not previously reported pursuant to this Subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of the Securities Outstanding at such time, such report to be transmitted within 90 days after such time.

          (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange.

Section 704. Reports by Company.

          The Company shall:

     (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations;

     (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and

     (3) transmit by mail to all Holders, as their names and addresses appear in the Security Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents

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and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission.

Section 705. Notice of Change of Rating.

          The Company shall give notice of any change in Rating or Defeasance Rating to the Trustee within ten days of such change in Rating or Defeasance Rating and include in such notice a specification of the Applicable Rate or Defeasance Rate, as the case may be. The Trustee shall be under no obligation to ascertain the occurrence of a change in Rating. The Trustee may conclusively assume, in the absence of any notice to the contrary from the Company, that no change in Rating has occurred.

ARTICLE EIGHT

Consolidation, Merger, Conveyance, Transfer or Lease

Section 801. Company May Consolidate, Etc. on Certain Terms.

          The Company shall not consolidate with or merge into any Person or convey, transfer or lease its properties and assets as, or substantially as, an entirety to any Person, unless:

     (1) the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer, or lease the properties and assets of the Company as, or substantially as, an entirety shall be a corporation, partnership or trust organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall, by an indenture supplemental hereto executed and delivered to the Trustee, in form satisfactory to the Trustee, expressly assume the due and punctual payment of the principal of and interest on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed;

     (2) immediately after such transaction, no Event of Default, or event which after notice or lapse of time, or both, would become an Event of Default, shall have occurred and be continuing;

     (3) if, as a result of any such consolidation or merger or such conveyance, transfer or lease, properties or assets of the Company would become subject to a mortgage, pledge, lien, security interest or other encumbrance which would not be permitted by

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this Indenture, the Company or such successor Person, as the case may be, shall take such steps as shall be necessary effectively to secure the Securities equally and ratably with (or prior to) all indebtedness secured thereby; and

     (4) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.

Section 802. Successor Substituted.

          Upon any consolidation or merger or any conveyance, transfer or lease of the properties and assets of the Company as, or substantially as, an entirety to any Person in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease to another Person, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities.

ARTICLE NINE

Supplemental Indentures

Section 901. Supplemental Indentures Without Consent of Holders.

          Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:

     (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or

     (2) to add to the covenants of the Company for the benefit of the Holders of Securities or to surrender any right or power herein conferred upon the Company; or

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     (3) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security Outstanding created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or

     (4) to secure the Securities; or

     (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided such action shall not adversely affect the interests of the Holders of Securities in any material respect.

Section 902. Supplemental Indentures with Consent of Holders.

          With the consent of the Holders of not less than 66-2/3% in principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,

     (1) change the Stated Maturity of the principal of, or any installment of interest on, any such Security, or reduce the principal amount thereof or the rate of interest thereon or change any Place of Payment where, or the coin or currency in which, any such Security or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof,

     (2) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver provided for in this Indenture, or

     (3) modify any of the provisions of this Section or Section 513, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the

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consent of the Holder of each Outstanding Security affected thereby.

          It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

Section 903. Execution of Supplemental Indentures.

          In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

Section 904. Effect of Supplemental Indentures.

          Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

Section 905. Conformity with Trust Indenture Act.

          Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.

Section 906. Reference in Securities to Supplemental Indentures.

          Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities.

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ARTICLE TEN

Covenants

Section 1001. Payment of Principal and Interest.

          The Company covenants and agrees that it will duly and punctually pay the principal of and interest on the Securities in accordance with the terms of the Securities and this Indenture.

Section 1002. Maintenance of Office or Agency.

          The Company will maintain in each Place of Payment an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.

          The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

Section 1003. Money for Securities Payments to be Held in Trust.

          If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act.

          Whenever the Company shall have one or more Paying Agents, it will, on or before each due date of the principal of or interest on any Securities, deposit with a Paying Agent a sum

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sufficient to pay the principal or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.

          The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:

     (1) hold all sums held by it for the payment of the principal of or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;

     (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal or interest on the Securities; and

     (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.

          The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.

          Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or interest on any Security and remaining unclaimed for two years after such principal or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each

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Business Day and of general circulation in the city of New York, New York or to be mailed to such Holder or both, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the earlier of the date of such publication or such mailing, any unclaimed balance of such money then remaining will be repaid to the Company.

Section 1004. Corporate Existence.

          Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders.

Section 1005. Maintenance of Properties; Insurance.

          The Company will (i) keep and cause all properties used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this subsection shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders, and (ii) maintain and cause each Subsidiary to maintain insurance with financially sound and reputable insurance companies or associations, in such amounts and covering such risks as is determined by the Board of Directors of the Company in its reasonable discretion.

Section 1006. Payment of Taxes and Other Claims.

          The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged

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any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings.

Section 1007. Limitation on Liens.

          The Company will not itself, and will not permit any Subsidiary to, incur, issue, assume or guarantee any indebtedness for money borrowed (such indebtedness for money borrowed being hereinafter in this Article called “Debt”), secured by a pledge of, or mortgage or other lien on, any Principal Operating Property of the Company or any Subsidiary or any shares of stock or Debt of any Subsidiary that is held by the Company or any Subsidiary, [and owns a Principal Operating Property] (such pledges, mortgages and other liens being hereinafter in this Article called “Mortgage” or “Mortgages”) without effectively providing that the Securities (together with, if the Company shall so determine, any other Debt of the Company or such Subsidiary then existing or thereafter created which is not subordinate to the Securities), shall be secured equally and ratably with (or prior to) such secured Debt, so long as such secured Debt shall be so secured, unless, after giving effect thereto, the aggregate amount of all such secured Debt plus all Attributable Debt of the Company and its Subsidiaries in respect of sale and leaseback transactions (as defined in Section 1008) would not exceed 10% of the Consolidated Net Tangible Assets; provided, however, that this Section shall not apply to, and there shall be excluded from secured Debt in any computation under this Section, Debt secured by:

     (1) Mortgages on property of, or on any shares of stock or Debt of, any corporation existing at the time such corporation becomes a Subsidiary;

     (2) Mortgages in favor of the Corporation or any Subsidiary;

     (3) Mortgages in favor of a governmental unit to secure payments under any contract or statute, or to secure any Debt incurred in financing the acquisition, construction or improvement of property subject thereto, including Mortgages on, and created or arising in connection with the financing of the acquisition, construction or improvement of, any facility used or to be used in the business of the Company or any Subsidiary through the issuance of obligations, the income from which shall be excludable from gross income by virtue of Section 103 of the Internal Revenue Code (or any subsequently adopted provisions thereof providing for a specific exclusion from gross income);

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     (4) Mortgages on property, shares of stock or Debt existing at the time of acquisition thereof (including acquisition through merger or consolidation) or to secure the payment of all or any part of the purchase price or construction cost thereof or to secure any Debt incurred prior to, at the time of, or within 180 days after, the acquisition of such property or shares or Debt or the completion of any such construction for the purpose of financing all or any part of the purchase price or construction cost thereof; provided that no such Mortgage shall extend to or cover any property of the Company or any Subsidiary, other than the property then being acquired or constructed;

     (5) Mortgages existing on the date of this Indenture; and

     (6) Any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Mortgage referred to in the foregoing clauses (1) to (5), inclusive; provided, that (i) such extension, renewal or replacement Mortgage shall be limited to all or a part of the same property, shares of stock or Debt that secured the Mortgage extended, renewed or replaced (plus improvements on such property) and (ii) the Debt secured by such Mortgage at such time is not increased.

Section 1008. Limitation on Sales and Leasebacks.

          The Company will not itself, and it will not permit any Subsidiary to, enter into any arrangement with any bank, insurance company or other lender or investor (not including the Company or any Subsidiary) or to which any such lender or investor is a party, providing for the leasing by the Company or a Subsidiary for a period, including renewals, in excess of three years of any Principal Operating Property which has been or is to be sold or transferred, more than 180 days after the completion of construction and commencement of full operation thereof, by the Company or any Subsidiary to such lender or investor or to any person to whom funds have been or are to be advanced by such lender or investor on the security of such Principal Operating Property (herein referred to as a “sale and leaseback transaction”) unless either:

     (1) The Company or such Subsidiary could create Debt secured by a Mortgage pursuant to Section 1007 on the Principal Operating Property to be leased back in an amount equal to the Attributable Debt with respect to such sale and leaseback transaction without equally and ratably securing the Securities, or

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     (2) The Company within 180 days after the sale or transfer shall have been made by the Company or by a Subsidiary, applies an amount equal to the greater of (i) the net proceeds of the sale of the Principal Operating Property sold and leased back pursuant to such arrangement or (ii) the fair market value of the Principal Operating Property so sold and leased back at the time of entering into such arrangement (as determined by any two of the following: the Chairman of the Board of the Company, the Vice Chairman of the Board, the Chief Executive Officer, its President and Chief Operating Officer, any Vice President of the Company, its Treasurer and its Controller), to either (a) the retirement of Funded Debt of the Company; provided, that the amount to be applied to the retirement of Funded Debt of the Company shall be reduced by the principal amount of any Securities delivered within 180 days after such sale to the Trustee for retirement and cancellation, or (b) the purchase of similar property or facilities (other than the Principal Operating Property involved in such sale and leaseback transaction) having a value at least equal to the greater of the net proceeds of the sale of, or the fair market value of, the Principal Operating Property so sold and leased back.

Section 1009. Waiver of Certain Covenants.

          The Company may omit in any particular instance to comply with any covenant or condition set forth in Sections 1005 to 1008 inclusive, if before the time for such compliance the Holders of at least 66-2/3% in principal amount of the Outstanding Securities shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect.

Section 1010. Statement as to Default.

          The Company will deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers’ Certificate, stating as to each signer thereof that he is familiar with the affairs of the Company and whether or not to the best of his knowledge the Company is in default in the performance and observance of any of the Company’s obligations under this Indenture and if the Company shall be in default, specifying all

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such defaults of which he has knowledge and the nature and status thereof.

          This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

          IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.

Attest:	MORTON INTERNATIONAL, INC.
/s/ illegible Secretary	/s/ illegible Vice President
Attest:	CONTINENTAL BANK, NATIONAL ASSOCIATION, AS TRUSTEE
/s/ illegible Trust Officer	/s/ illegible Vice President

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State of Illinois	)
	)            SS.:
County of Cook	)

          On the 12th day of June, 1990, before me personally came Thomas F. McDevitt, to me known, who being by me duly sworn, did depose and say that he is Vice President Finance of Morton International, Inc., one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority.

/s/ illegible  

Notary Public 

          On the 12th day of June, 1990, before me personally came [Arnold Lenters], to me known, who being by me duly sworn, did depose and say that he is a Vice President of Continental Bank, National Association, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority.

/s/ illegible  

Notary Public 

“OFFICIAL SEAL”
KRISTEN M. ZEHR
Notary Public, State of Illinois
My Commission Expires Jan. 25, 1994

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     SUPPLEMENTAL INDENTURE (the “Supplemental Indenture”), dated July 3rd, 2003, among Morton International, Inc., an Indiana corporation (the “Company”), Rohm and Haas Company, a Delaware corporation (the “Guarantor”), and J.P. Morgan Trust Company, National Association, successor by merger to Chase Manhattan Trust Company, National Association, as trustee (the “Trustee”).

WITNESSETH:

     WHEREAS, Section 901 of the indenture relating to the 9 1/4 % Credit Sensitive Debentures due June 1, 2020 of the Company (the “Securities”), dated as of June 1, 1990, between the Company and the Trustee (the “Original Indenture”) provides that the Trustee and the Company may execute a supplemental indenture without the consent of the holders of the Securities (the “Holders”) to, among other things, add a provision that does not adversely affect the interests of the Holders in any material respect;

     WHEREAS, the Guarantor intends to guarantee the Securities issued under the Original Indenture and become a party to the Original Indenture through the execution of this Supplemental Indenture;

     WHEREAS, all things necessary to make the Guarantor’s guarantee to be the effective and valid obligation of the Guarantor have been done;

     WHEREAS, the Guarantor also intends to assume the Company’s obligations under Section 704 of the Original Indenture with regard to filing certain reports with the Trustee; and

     WHEREAS, all things necessary to make this Supplemental Indenture a valid supplement to the terms of the Original Indenture have been done.

     NOW, THEREFORE, the parties hereto agree as set forth below:

     Capitalized terms used herein, but not defined herein, shall have the meanings ascribed to them in the Original Indenture. The Original Indenture is hereby amended as follows:

Section I.

     The Guarantor’s guarantee shall become effective in accordance with the terms set forth in paragraphs (1) — (22) below. For purposes of this Section I, the Supplemental Indenture, together with the Original Indenture, is referred to as the “Indenture.”

          (1) Unconditional Guarantee.

          Subject to the provisions of the Indenture, the Guarantor hereby unconditionally and irrevocably guarantees, as principal obligor and not only as a surety

(the “Guarantee”), to the Holders and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Securities or the obligations of the Company or the Trustee hereunder or thereunder, that the principal and interest on the Securities shall be duly and punctually paid in United States Dollars in full when due, whether at maturity, by acceleration or otherwise, and all other obligations of the Company or the Guarantor to the Holders or the Trustee hereunder or thereunder shall be promptly paid in full or performed, all in accordance with the terms hereof and thereof. Failing payment when due of any amount so guaranteed, or failing performance of any other obligation of the Company to the Holders under the Indenture or under the Securities, for whatever reason, the Guarantor shall be obligated to pay, or to perform or cause the performance of, the same immediately. An Event of Default under the Indenture or the Securities shall constitute an event of default under the Guarantee, and shall entitle the Holders to accelerate the obligations of the Guarantor hereunder in the same manner and to the same extent as the obligations of the Company.

          The Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Indenture or the Securities, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Guarantor. The Guarantor hereby waives the benefit of diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require proceeding first against the Company, protest, notice and all demands whatsoever and covenants that the Guarantee shall not be discharged except by complete performance of the obligations contained in the Securities, the Indenture and the Guarantee. The Guarantee is a guarantee of payment and not of collection. If any Holder or the Trustee is required by any court or otherwise to return to the Company or to the Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or the Guarantor any amount paid by the Company or the Guarantor to the Trustee or Holder, the Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. The Guarantor further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (a) subject to the Indenture, the maturity of the obligations guaranteed hereby may be accelerated for the purposes of the Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (b) in the event of any acceleration of such obligations, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantor for the purpose of the Guarantee.

          No stockholder, officer, director, employee or incorporator, past, present or future, of the Guarantor, as such, shall have any personal liability under the Guarantee by reason of his, her or its status as such stockholder, officer, director, employee or incorporator.

          (2) Merger, Consolidation of Guarantor

          The Guarantor (other than under circumstances by which the Guarantee is to be released in accordance with the terms of the Indenture) shall not, and the Company shall not cause or permit the Guarantor to, consolidate with or merge into any Person or convey, transfer or lease its properties and assets as, or substantially as, an entirety to any Person, unless (i) the entity formed by or surviving any such consolidation or merger or the Person which acquires by conveyance, transfer, or lease the properties and assets of the Guarantor as, or substantially as, an entirety, shall be a corporation, partnership, or trust organized and existing under the laws of the United States or any state thereof or the District of Columbia; (ii) such entity expressly assumes by supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Guarantor under the Indenture and the Guarantee; and (iii) immediately after giving effect to such transaction, no Event of Default, or event after notice or lapse of time, or both, would become an Event of Default, shall have occurred and be continuing; and (iv) the Guarantor shall have delivered to the Trustee an officers’ certificate and an opinion of counsel, each stating that such consolidation, merger, conveyance, transfer or lease and such supplemental indenture comply with this Section and that all conditions precedent herein provided for relating to such transaction have been complied with.

          (3) Release of the Guarantor.

          (a) Upon the consolidation or merger of the Guarantor with or into any Person in compliance with Section (2) (in each case, other than to the Company or an Affiliate of the Company), or if the Guarantor is dissolved or liquidated, the Guarantor’s Guarantee will be automatically discharged and released from all obligations under the Indenture without any further action required on the part of the Trustee or any Holder. Any Guarantor not so released or the entity surviving such Guarantor, as applicable, shall remain or be liable under the Guarantee as provided in the Indenture.

          (b) The Trustee shall deliver an appropriate instrument evidencing the release of the Guarantor upon receipt of a request by the Company or the Guarantor accompanied by an officers’ certificate and an opinion of counsel certifying as to the compliance with this Section (3); provided, however, that the legal counsel delivering such opinion of counsel may rely as to matters of fact on one or more officers’ certificates of the Company.

          The Trustee shall execute any documents reasonably requested by the Company or the Guarantor in order to evidence the release of such Guarantor from its obligations under the Guarantee under the Indenture.

          Except as set forth in Section (2) and this Section (3), nothing contained in the Indenture or in any of the Securities shall prevent any consolidation or merger of the Guarantor with or into the Company or shall prevent any sale or conveyance of the property of the Guarantor as an entirety or substantially as an entirety to the Company.

          (4) Waiver of Subrogation.

          Until this Indenture is discharged and all of the Securities are discharged and paid in full, the Guarantor hereby irrevocably waives and agrees not to exercise any claim or other rights which it may now have or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of the Company’s obligations under the Securities or the Indenture and the Guarantor’s obligations under the Guarantee and the Indenture, in any such instance including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, or indemnification, and any right to participate in any claim or remedy of the Holders against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to the Guarantor in violation of the preceding sentence and any amounts owing to the Trustee or the Holders under the Securities, the Indenture, or any other document or instrument delivered under or in connection with such agreements or instruments, shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Trustee or the Holders and shall forthwith be paid to the Trustee for the benefit of itself or such Holders to be credited and applied to the obligations in favor of the Trustee or the Holders, as the case may be, whether matured or unmatured, in accordance with the terms of the Indenture.

          (5) Immediate Payment.

          The Guarantor agrees to make immediate payment to the Trustee on behalf of the Holders of all obligations arising under the Guarantee owing or payable to the respective Holders upon receipt of a demand for payment therefor by the Trustee to the Guarantor in writing.

          (6) Obligations Absolute.

          The obligations of the Guarantor hereunder are and shall be absolute and unconditional, and any monies or amounts expressed to be owing or payable by the Guarantor hereunder which may not be recoverable from the Guarantor on the basis of the Guarantee shall be recoverable from the Guarantor as a primary obligor in respect thereof.

          (7) Obligations Continuing.

          The obligations of the Guarantor hereunder shall be continuing and shall remain in full force and effect until all the obligations have been paid and satisfied in full. The Guarantor agrees with the Trustee that it will from time to time deliver to the Trustee suitable acknowledgments of this continued liability hereunder and under any other

instrument or instruments in such form as counsel to the Trustee may advise and as will prevent any action brought against it in respect of any default hereunder being barred by any statute of limitations now or hereafter in force and, in the event of the failure of the Guarantor to do so, it hereby irrevocably appoints the Trustee the attorney and agent of such Guarantor to make, execute and deliver such written acknowledgement or acknowledgments or other instruments as may from time to time become necessary or advisable, in the judgment of the Trustee on the advice of counsel, to fully maintain and keep in force the liability of such Guarantor hereunder.

          (8) Obligations Not Reduced.

          The obligations of the Guarantor hereunder shall not be satisfied, reduced or discharged solely by the payment of such principal, interest, fees and other monies or amounts as may at any time prior to discharge of the Indenture be or become owing or payable under or by virtue of or otherwise in connection with the Securities or the Indenture.

          (9) Obligations Reinstated.

          The obligations of the Guarantor hereunder shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment which would otherwise have reduced the obligations of the Guarantor hereunder (whether such payment shall have been made by or on behalf of the Company or by or on behalf of the Guarantor) is rescinded or reclaimed from any of the Holders upon the insolvency, bankruptcy, liquidation or reorganization of the Company or the Guarantor or otherwise, all as though such payment had not been made. If demand for, or acceleration of the time for, payment by the Company is stayed upon the insolvency, bankruptcy, liquidation or reorganization of the Company, all such indebtedness otherwise subject to demand for payment or acceleration shall nonetheless be payable by the Guarantor as provided herein.

          (10) Obligations Not Affected.

          The obligations of the Guarantor hereunder shall not be affected, impaired or diminished in any way by any act, omission, matter or thing whatsoever, occurring before, upon or after any demand for payment hereunder (and whether or not known or consented to by the Guarantor, the Trustee or any of the Holders) which, but for this provision, might constitute a whole or partial defense to a claim against the Guarantor hereunder or might operate to release or otherwise exonerate the Guarantor from any of its obligations hereunder or otherwise affect such obligations, whether occasioned by default of any of the Holders or otherwise, including, without limitation:

     (a) any limitation of status or power, disability, incapacity or other circumstance relating to the Company or any other Person , including any insolvency, bankruptcy, liquidation, reorganization, readjustment, composition,

dissolution, winding-up or other proceeding involving or affecting the Company or any other Person;

     (b) any irregularity, defect, unenforceability or invalidity in respect of any indebtedness or other obligation of the Company or any other Person under the Indenture, the Securities or any other document or instrument;

     (c) any failure of the Company, whether or not without fault on its part, to perform or comply with any of the provisions of the Indenture or the Securities, or to give notice thereof to the Guarantor;

     (d) the taking or enforcing or exercising or the refusal or neglect to take or enforce or exercise any right or remedy from or against the Company or any other Person or their respective assets or the release or discharge of any such right or remedy;

     (e) the granting of time, renewals, extensions, compromises, concessions, waivers, releases, discharges and other indulgences to the Company or any other Person;

     (f) any change in the time, manner or place of payment of, or in any other term of, any of the Securities, or any other amendment, variation, supplement, replacement or waiver or, or any consent to departure from, any of the Securities or the Indenture, including, without limitation, any increase or decrease in the principal amount of or interest on any of the Securities;

     (g) any change in the ownership, control, name, objects, businesses, assets, capital structure or constitution of the Company or the Guarantor;

     (h) any merger or amalgamation of the Company or the Guarantor with any Person or Persons;

     (i) the occurrence of any change in the laws, rules, regulations or ordinances of any jurisdiction by any present or future action of any governmental authority or court amending, varying, reducing or otherwise affecting, or purporting to amend, vary, reduce or otherwise affect, any of the obligations of the Guarantor under the Guarantee; and

     (j) any other circumstance, including release of the Guarantor pursuant to Section (3) (other than by complete, irrevocable payment) that might otherwise constitute a legal or equitable discharge or defense of the Company under the Indenture or the Securities or of the Guarantor in respect of the Guarantee hereunder.

          (11) Waiver.

          Without in any way limiting the provisions of Section (1) hereof, the Guarantor hereby waives notice of acceptance hereof, notice of any liability of the Guarantor hereunder, notice or proof of reliance by the Holders upon the obligations of the Guarantor hereunder, or other notice or formalities to the Company or the Guarantor of any kind whatsoever.

          (12) No Obligation to Take Action Against the Company.

          Neither the Trustee nor any other Person shall have any obligation to enforce or exhaust any rights or remedies or to take any other steps against the Company or any other Person or any property of the Company or any other Person before the Trustee is entitled to demand payment and performance by the Guarantor of its liabilities and obligations under the Guarantee or under the Indenture.

          (13) Dealing with the Company and Others.

          The Holders, without releasing, discharging, limiting or otherwise affecting in whole or in part the obligations and liabilities of the Guarantor hereunder and without the consent of or notice to the Guarantor, may

     (a) grant time, renewals, extensions, compromises, concessions, waivers, releases, discharges and other indulgences to the Company or any other Person;

     (b) accept compromises or arrangements from the Company; and

     (c) otherwise deal with, or waive or modify their right to deal with, the Company and all other Persons as the Holders or the Trustee may see fit.

          (14) Default and Enforcement.

          If the Guarantor fails to pay in accordance with Section (5) hereof, the Trustee may proceed in its name as trustee hereunder in the enforcement of the Guarantee and the Guarantor’s obligations thereunder and hereunder by any remedy provided by law, whether by legal proceedings or otherwise, and to recover from the Guarantor the obligations arising under the Guarantee.

          (15) Amendment, Etc.

          No amendment, modification or waiver of any provision of the Indenture relating to the Guarantor or consent to any departure by the Guarantor or any other Person from any such provision will in any event be effective unless it is signed by the Guarantor and the Trustee.

          (16) Acknowledgment.

          The Guarantor hereby acknowledges communication of the terms of the Indenture and the Securities and consents to and approves of the same.

          (17) Costs and Expenses.

          The Guarantor shall pay on demand by the Trustee any and all costs, fees and expenses (including, without limitation, legal fees and expenses) incurred by the Trustee, its agents, advisors and counsel or any of the Holders in enforcing any of their rights under the Guarantee.

          (18) No Merger or Waiver; Cumulative Remedies.

          The Guarantee shall not operate by way of merger with any of the obligations of the Guarantor under any other agreement, including, without limitation, the Indenture. No failure to exercise and no delay in exercising, on the part of the Trustee or the Holders, any right, remedy, power or privilege hereunder or under the Indenture or the Securities shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under the Indenture or the Securities preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges in the Guarantee and under the Indenture, the Securities and any other document or instrument between the Guarantor and/or the Company and the Trustee are cumulative and not exclusive of any rights, remedies, powers and privilege provided by law.

          (19) Survival of Obligations.

          Without prejudice to the survival of any of the other obligations of the Guarantor hereunder, the obligations of the Guarantor under Section (1) shall survive the payment in full of the Obligations and shall be enforceable against the Guarantor without regard to and without giving effect to any defense, right of offset or counterclaim available to or which may be asserted by the Company or the Guarantor.

          (20) Guarantee in Addition to Other Obligations.

          The obligations of the Guarantor under the Guarantee and the Indenture are in addition to and not in substitution for any other obligations to the Trustee or to any of the Holders in relation to the Indenture or the Securities.

          (21) Successors and Assigns.

          The Guarantee shall be binding upon and inure to the benefit of the Guarantor and the Trustee and the other Holders and their respective successors and permitted assigns, except that the Guarantor may assign any of its obligations hereunder or thereunder.

          (22) Choice of Law.

          Notwithstanding Section 112 of the Indenture, the Guarantee set forth in Section I of this Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the state of New York without giving effect to the principles of conflicts of law. The undersigned Guarantor hereby agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to the Guarantee.

Section II.

     Section 704 of the Original Indenture is hereby amended as follows:

          (1) In the title of Section 704, the word “Company” shall be deleted and replaced with the word “Guarantor.”

          In the first line of Section 704, the word “Company” shall be deleted and replaced with the word “Guarantor.”

          In Section 704(1), lines 2, 7, and 10, the words “Company” shall be deleted and replaced with the words “Guarantor.”

          In Section 704(2), line 5, the word “Company” shall be deleted and replaced with the word “Guarantor.”

          In Section 704(3), line 5, the word “Company” shall be deleted and replaced with the word “Guarantor.”

     IN WITNESS WHEREOF, the undersigned have caused this Supplemental Indenture to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the date first above written.

Attest:		Morton International, Inc.
By: Name:	/s/ Robert A. Lonergan Robert A. Lonergan	By: Name:	/s/ Edward E. Liebert Edward E. Liebert
Title:	Secretary	Title:	Treasurer
Date:	07/03/2003	Date:	07/03/2003
Attest:		Rohm and Haas Company
By: Name:	/s/ Robert A. Lonergan Robert A. Lonergan	By: Name:	/s/ Jacques M. Croisetiere Jacques M. Croisetiere
Title:	Corporate Secretary	Title:	Vice President & CFO
Date:	07/03/2003	Date:	07/03/2003
Attest:		Rohm and Haas Company
By: Name:	/s/ Robert A. Lonergan Robert A. Lonergan	By: Name:	/s/ Edward E. Liebert Edward E. Liebert
Title:	Corporate Secretary	Title:	Treasurer
Date:	07/03/2003	Date:	07/03/2003
Attest:		J.P. Morgan Trust Company, National Association, successor by merger to Chase Manhattan Trust Company, National Association as Trustee
By: Name:	/s/ Charles J. Adomenis Charles J. Adomenis	By: Name:	/s/ Catherine Lenhardt Catherine Lenhardt
Title:	Assistant Secretary	Title:	Vice President
Date:	07/03/2003	Date:	07/03/2003

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Raj L. Gupta, Chairman, President and Chief Executive Officer of Rohm and Haas Company, certify that:

1.	I have reviewed this report on Form 10-Q of Rohm and Haas Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Rohm and Haas Company as of, and for, the periods presented in this report;
4.	Rohm and Haas’ 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)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Rohm and Haas, 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) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. Rohm and Haas’ 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:

(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 Rohm and Haas’ ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 25, 2007

By:	/s/ Raj L. Gupta
Raj L. Gupta
Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jacques M. Croisetiere, Vice President and Chief Financial Officer of Rohm and Haas Company, certify that:

1.	I have reviewed this report on Form 10-Q of Rohm and Haas Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Rohm and Haas Company as of, and for, the periods presented in this report;
4.	Rohm and Haas’ 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)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Rohm and Haas, 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) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. Rohm and Haas’ 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:

(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 Rohm and Haas’ ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 25, 2007

By:	/s/ Jacques M. Croisetiere
Jacques M. Croisetiere
Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

Section 906 Certification

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

     In connection with the quarterly report of Rohm and Haas Company (“Rohm and Haas”) on Form 10-Q for the period ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officer and Chief Financial Officer of Rohm and Haas hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, based on their knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of Rohm and Haas as of and for the periods covered by the Report.

/s/ Raj L. Gupta

Raj L. Gupta

Chairman, President and Chief Executive Officer

Rohm and Haas Company

October 25, 2007

/s/ Jacques M. Croisetiere

Jacques M. Croisetiere

Executive Vice President and Chief Financial Officer

Rohm and Haas Company

October 25, 2007