**Exhibit 10.35**

**SECURITIES PURCHASE AGREEMENT**dated as of July 14, 2006 (the “Agreement”), between **HEXION LLC**, a Delaware limited liability company (the “Buyer”), and **LAYLE K.SMITH**, an individual with his principal place of residence at 7171 Buffalo Speedway, Apt. 1125, Houston, TX 77025 (the “Seller”). 

**WHEREAS,** the Seller currently holds vested options (the “Options”) to acquire 109,434 equity units of the Buyer, and the Seller and the Buyer desire that such Options shall be repurchased andterminated upon the terms and conditions specified herein. 

**WHEREAS,** the Seller currently holds 79,300 equity units of the Buyer(“Units”), and the Seller desires to sell, transfer, convey and assign to the Buyer, and the Buyer desires to purchase, upon the terms and conditions specified herein, 67,417 of the Seller’s Units (the “SaleUnits”, and together with the Options, the “Sale Securities”). 

**NOW, THEREFORE,** in consideration of themutual representations, warranties, covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 

**Section 1.**Repurchase and Termination of Options; Sale and Purchase of Sale Units. 

**1.1**The Seller currently holds the Options. All of the Options are hereby terminated. Except as provided in the next sentence, the Seller shallhave no further right with respect to the Options (including any right under or pursuant to any written agreement evidencing one or more of such Options or with respect to the termination of such Options). In consideration of such termination, theBuyer shall, on the terms and subject to the conditions of this Agreement, at the Closing pay to the Seller $1,092,106.56 (the “Option Consideration”), subject to required tax withholding (such tax withholding amount estimated to beapproximately $374,301.94). 

**1.2**At the Closing, on the terms and subject to the conditions of this Agreement, the Seller shallsell, transfer, convey, assign and deliver to the Buyer the Sale Units free and clear of all liens (statutory or otherwise), pledges, mortgages, deeds of trust, security interests, charges, options, rights of first refusal, transfer restrictions orencumbrances (collectively, “Liens”), and the Buyer shall purchase and acquire such Sale Units from the Seller. As consideration for such Sale Units, the Buyer shall pay at the Closing to the Seller $1,181,148.51 (the“Purchase Price”, and together with the Option Consideration, the “Consideration”). The Seller shall ensure that the Sale Units are comprised of those of his Units that have the highest tax basis. 

**Section 2.**Manner of Payment; Conditions to Closing; Closing. 

**2.1**At the Closing, the Buyer shall pay or cause to be paid to the Seller the Consideration (in the case of the Option Consideration, subject torequired tax withholding), by bank check or in immediately available United States funds to an account designated by the Seller at, or prior to, the Closing, against delivery of certificates representing the Sale Units, endorsed in blank oraccompanied by duly executed unit power(s) in favor of the Buyer with appropriate transfer tax stamps, if any, affixed. Payment set forth in this section is against delivery of certificates representing the Sale Units, which delivery shall becompleted no later than July 21, 2006. In the event that such delivery does not occur, the Seller shall promptly reimburse the full amount to the Buyer, and the transaction shall be rescinded. 

**2.2**The obligations of the Seller to consummate the transactions contemplated by this Agreementare subject to the prior satisfaction or waiver of the following conditions: 

a. All of the representations and warrantiesof the Buyer set forth in this Agreement shall be true and correct in all respects. 

b. The Buyer shall have performed allof its obligations required to be performed at or prior to the Closing pursuant to this Agreement. 

**2.3**The obligations of the Buyerto consummate the transactions contemplated by this Agreement are subject to the prior satisfaction or waiver of the following conditions: 

a. All of the representations and warranties of the Seller set forth in this Agreement shall be true and correct in all respects. 

b. The Seller shall have performed all of his obligations required to be performed at or prior to the Closing pursuant to this Agreement.

c. The Seller shall have entered into a definitive separation agreement with Hexion Specialty Chemicals, Inc, a New Jerseycorporation (“INC”), on terms acceptable to the Buyer, and shall be in compliance with all terms of the separation agreement. 

d. The transactions contemplated by this Agreement (including the repurchase and termination of the Options, the purchase of the Sale Units and the payment of the Consideration) shall be permitted under the financingdocuments to which the Buyer and/or INC is a party. 

**2.4**The closing (“Closing”) of the transactions contemplatedby this Agreement shall take place at the offices of O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, New York 10036 on July 14, 2006 (or at such other place and date as the parties may agree). The date onwhich the Closing occurs shall be referred to as the “Closing Date.” 

**Section 3.**Representations andWarranties. 

**3.1**As a material inducement to the Buyer to enter into and perform its obligations under this Agreement, the Sellerrepresents and warrants to the Buyer, as of the date hereof and as of the Closing, as follows: 

a. The Seller has the powerand authority to enter into this Agreement, to transfer the Sale Securities and to consummate the transactions contemplated hereby. 

 

2 

b. The Seller is the true and lawful owner of the Sale Securities and has lawfulauthority to sell and transfer the same, and the Sale Securities are free and clear of all Liens whatsoever. 

c. ThisAgreement constitutes the valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms. 

d. The Seller is a sophisticated investor and has appropriate knowledge and experience to evaluate and negotiate the transactions contemplated hereby. 

e. The Seller has had the opportunity to consult with such advisors as he deems adequate and appropriate to evaluate and negotiate thetransactions contemplated hereby. 

f. The Seller has independently and without reliance upon the Buyer or its affiliates andbased on such information as the Seller and his advisors have deemed adequate and appropriate made its own analysis and decision to enter into this Agreement. The Seller has had the opportunity to review such information with his advisors.

g. The Seller acknowledges and agrees that (i) the Buyer and its affiliates, and other related parties, may nowpossess and may hereafter possess certain non-public information (“Non-Public Information”) concerning the Buyer and INC and their respective affiliates and/or the Sale Securities that may or may not be independently known to theSeller; and (ii) the Seller has entered into this Agreement and agrees to consummate the transactions contemplated hereby notwithstanding that he is aware that Non-Public Information may exist and that it may not have been disclosed by theBuyer to him, and confirms and acknowledges that neither the existence of any Non-Public Information, nor the substance of it, is material to him or to his determination to enter into this Agreement and to consummate the transactions contemplatedhereby. 

h. The Seller acknowledges and agrees that the Buyer has not made and does not make any representation or warranty,whether express or implied, of any kind or character except as expressly set forth in this Agreement and the Buyer has no obligations to the Seller, whether express or implied, including fiduciary obligations, except as expressly set forth in thisAgreement. 

**3.2**As a material inducement to the Seller to enter into and perform its obligations under this Agreement, the Buyerrepresents and warrants to the Seller, as of the date hereof and as of the Closing, as follows: 

a. The Buyer has thelimited liability company power and authority to enter into this Agreement, to purchase and to terminate or to cause the termination of (as the case may be) the Sale Securities and to consummate the transactions contemplated hereby. 

b. The execution, delivery and performance of this Agreement, the purchase and termination (as the case may be) of the Sale Securities andthe consummation of the 

 

3 

transactions contemplated hereby (except with respect to the Options that are obligations of INC) have been approved by all necessary limited liabilitycompany action on the part of the Buyer and, with respect to the Options that are obligations of INC, all necessary corporate action on the part of INC, the Buyer’s wholly-owned subsidiary. 

c. This Agreement constitutes the valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms.

**Section 4.**Taxes. 

Except for the Buyer’s right to withhold taxes with respect to the consideration paid for the termination of the Options, the Seller solely shall be responsible for any taxes due as a result of the transactions contemplated by thisAgreement. The Seller will defend and indemnify INC and the Buyer and each of their respective affiliates from and against (i) any tax liability that any of them may have as a result of the transactions contemplated by this Agreement arising out ofthe Seller’s failure to pay any taxes due with respect to any such transactions and (ii) any and all losses or liabilities, including defense costs, arising out of the Seller’s failure to pay any taxes due with respect to any suchtransactions. 

**Section 5.**Remaining Units. 

The Seller acknowledges and agrees that the Units that he owns following the Closing will remain, in all respects, subject to the terms of all agreements he has with INC and/or the Buyer or any of their respectiveaffiliates, including that certain amended and restated investor rights agreement dated as of May 31, 2005 by and among INC, the Buyer, the Seller and the other parties thereto. 

**Section 6.**Release. 

TheSeller does from and after the Closing release forever and discharge each of the Buyer and INC and each of their respective affiliates, directors, officers, employees, agents, and advisors (“Buyer Affiliated Releasees”), of and fromany and all claims, demands, causes of action, damages and liabilities of any kind or nature whatsoever that related to or arise out of any dealings, relationships or transactions by and between the Seller, on one hand, and any Buyer AffiliatedReleasee, on the other hand, insofar as such relates to the Buyer, INC and/or the Sale Securities or any of the transactions contemplated by this Agreement, in law or in equity, which against any Buyer Affiliated Releasee Seller has ever had, nowhas or which it hereafter can, shall or may have, whether or not known, from the beginning of the world to the Closing Date. 

**Section 7.**Advice of Counsel. 

In entering this Agreement, the parties represent that they have relied upon the advice of their attorneys,who are attorneys of their own choice, and that the terms of this Agreement have been completely read and explained to them by their attorneys, and that those terms are fully understood and voluntarily accepted by them. 

 

4 

**Section 8.**Governing Law. 

**THE DOMESTIC LAW, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, OF THE STATE OF NEW YORK WILL GOVERN ALL QUESTIONS CONCERNING THE CONSTRUCTION,VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE PERFORMANCE OF THE OBLIGATIONS IMPOSED BY THIS AGREEMENT.**

**Section 9.**Mutual Waiver of Jury Trial. 

**THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDINGOR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENTS RELATED HERETO.**

**Section 10.**Miscellaneous. 

**10.1**All notices, requests, demands and other communications hereunder must be in writing and shall bedeemed to have been duly given if delivered by hand or mailed within the continental United States by first class, certified mail, return receipt requested, postage and registry fees prepaid, or by comparable overnight delivery service to theapplicable party and addressed as follows: 

To the Buyer: 

Hexion LLC 

c/o Apollo Management V, L.P. 

9 West 57th Street, 43rd Floor 

New York, NY 10019 

Fax: (212) 515-3263 

Attention: Jordan Zaken 

With a copy (which shall not constitute notice) to: 

William B. Kuesel, Esq. and Taurie M. Zeitzer, Esq. 

O’Melveny & Myers LLP 

Times Square Tower 

7 Times Square 

New York, NY 10036 

Fax: (212) 326-2061 

To the Seller: 

Layle K. (Kip) Smith 

1894 Seacrest Drive 

Lummi Island, WA 98262-8624 

Fax:                     

 

5 

With a copy (which shall not constitute notice) to: 

Chester T. Lackey 

Belcher Swanson Law Firm, P.L.L.C. 

900 DuPont Street 

Bellingham, WA 98225 

Fax: (360) 671-0753 

Notice of any change of address shall be given as set forth above. 

**10.2**This Agreement (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among theparties with respect to the subject matter hereof, and (ii) except as set forth in Section 4 and Section 6 is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder, provided, however,that, as to the repurchase and termination of Options that are obligations of INC, INC is a third party beneficiary of Seller’s representations, covenants and agreements set forth in this Agreement. This Agreement may be amended only by aninstrument in writing signed by the Seller and the Buyer. 

**10.3**It is the desire and intent of the parties that the provisions ofthis Agreement be enforced to the fullest extent permissible under the law and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, in the event that any provision of this Agreement would be held in anyjurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability ofsuch provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowlydrawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. 

**10.4**This Agreement may not be assigned by the Seller without the prior written consent of the Buyer. Any attempted assignment without such consent shall be void. The Buyer may, without the prior writtenconsent of the Seller, assign any or all of its rights and interests hereunder. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and permittedassigns, as applicable. 

**10.5**The headings of the sections of this Agreement are inserted as a matter of convenience and forreference only and in no way define, limit or describe the scope of this Agreement or the meaning of any provision of this Agreement. 

**10.6**All parties agree to cooperate fully and to execute any and all supplementary documents and to take all additional actions that may be necessary or appropriate to give full force to the basic terms and intent of this Agreementand which are not inconsistent with its terms. 

 

6 

**10.7**Each party has cooperated in the drafting and preparation of this Agreement. Hence, in anyconstruction to be made of this Agreement, the same shall not be construed against any party on the basis that the party was the drafter. 

**10.8**If, and as often as, there are any changes in any Units or Options by way of stock split, stock dividend, combination or reclassification, or through merger, consolidation, reorganization or recapitalization, or by any othermeans, appropriate adjustment shall be made in the provisions of this Agreement (including appropriate adjustments to all per-Unit and per-Option amounts), as may be determined by the Buyer in good faith, so that the rights, privileges, duties andobligations hereunder shall continue with respect to the Options and Sale Units as so changed. 

**10.9**This Agreement may be executedin any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Facsimile counterpart signatures to this Agreement shall be acceptable and binding. 

**10.10**The words “hereof,” “herein,” and “hereunder” and words of similar import, when used in this Agreement, shallrefer to this Agreement as a whole and not to any particular provision of this Agreement. 

**10.11**Whenever the words“included,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” 

**10.12**Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. 

**10.13**Whenever the context may require, any pronouns used herein shall indicate the corresponding masculine, feminine or neuter forms, and thesingular form of nouns and pronouns shall include the plural and vice-versa. 

* * * * * 

 

7 

**IN WITNESS WHEREOF**, each of the undersigned has caused this Agreement to be executed on its behalfas of the date first above written. 

 

**HEXION LLC**
By: 
 
Name: Title: 
**LAYLE K. SMITH**
By: 
 
 Layle K. Smith