-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Erxct/IbYfPW9tJwQzdyE0kQYb64A4xUphB/YVD19SflJE0ZrxMRFhahi75UhzYG m3pvOx3PM2japSO1rC8n1w== 0000950135-98-004950.txt : 19980831 0000950135-98-004950.hdr.sgml : 19980831 ACCESSION NUMBER: 0000950135-98-004950 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980828 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WYMAN GORDON CO CENTRAL INDEX KEY: 0000108703 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 041992780 STATE OF INCORPORATION: MA FISCAL YEAR END: 0528 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-03085 FILM NUMBER: 98700076 BUSINESS ADDRESS: STREET 1: 244 WORCHESTER ST STREET 2: BOX 8001 CITY: NORTH GRAFTON STATE: MA ZIP: 01536 BUSINESS PHONE: 5088394441 10-K 1 WYMAN-GORDON COMPANY 1 # = pound sterling - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED MAY 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-3085 WYMAN-GORDON COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-1992780 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
244 WORCESTER STREET, BOX 8001, 01536-8001 GRAFTON, MASSACHUSETTS (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
508-839-4441 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $1 PAR VALUE (TITLE OF CLASS) Indicate by a 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 [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock held by non-affiliates of the registrant as of July 25, 1998: $331,343,000 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JULY 25, 1998 ----- ---------------------------- Common Stock, $1 Par Value 36,558,983 Shares
DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's "Proxy Statement for Annual Meeting of Stockholders" on October 21, 1998 are incorporated into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ITEM 1. BUSINESS THE COMPANY Wyman-Gordon Company is a leading manufacturer of high-quality, technologically advanced forging and investment casting components for the commercial aviation, commercial power and defense industries. The Company produces metal components to exacting customer specifications for technically demanding applications such as jet turbine engines, airframes and land-based and marine gas turbine engines. The Company also produces extruded seamless thick wall pipe, made from steel and other alloys for use primarily in the oil and gas industry and commercial power generation plants. The Company produces components for most of the major commercial and United States defense aerospace programs. The Company's unique combination of manufacturing facilities and broad range of metallurgical skills allows it to serve its customers effectively and to lead the development of new metal technologies for its customers' applications. Through its Scaled Composites and Scaled Technology Works subsidiaries, the Company engages in research, development, engineering and manufacture of composite airframe structures. In fiscal years 1998 and 1997, the Company's total revenues were $752.9 million and $608.7 million, respectively. The Company employs three manufacturing processes: forging, investment casting and composite production. The Company's forging process involves heating metal and shaping it through pressing or extrusion. Forged products represented 77% of the Company's total revenues in the year ended May 31, 1998. Castings is a process in which molten metal is poured into molds. Cast products represented 21% of the Company's total revenues in the year ended May 31, 1998. The Company's composite business designs, fabricates and tests composite airframe structures for the aerospace market. The composite business represented 2% of the Company's total revenues in fiscal year 1998. STRATEGY In order to better serve its customers, the Company has refocused its organizational structure towards end-markets served (i.e., aircraft turbines, aircraft structural components and energy products) rather than manufacturing processes used (i.e., forging, casting or composites). As a result, the Company's business units will be responsible for specific market sectors or customers. The purpose of this new structure is to enhance the Company's ability to anticipate and adapt to customer demands and market opportunities. The Company intends to strengthen its position in the aerospace market and diversify into new markets by leveraging its manufacturing capabilities and expertise in high-performance materials. By diversifying its business mix, the Company intends to lessen its reliance on the aerospace industry and mitigate the impact of the cyclicality of that industry. The Company intends to achieve its goals through the following initiatives: Continue Performance Improvements and Cost Reductions. The Company has significantly improved its performance in recent years and is committed to continuing to streamline its operations and its cost structure. The Company has successfully completed the consolidation of Cameron Forged Products Company ("Cameron"), which was acquired from Cooper Industries, Inc. ("Cooper") in May 1994. As a result of the elimination of duplicate facilities, improved throughput, and increased efficiencies of scale, the Company estimates that its total production and selling costs are more than $30 million lower on an annualized basis than such costs would have been under the cost structures of the Company and Cameron prior to the acquisition. Building upon the performance improvements achieved in recent years, the Company continually strives to increase utilization rates, reduce inventory requirements and reduce operating expenses and other costs. Enhance Strategic Alliances with Customers and Suppliers. The Company and certain of its customers and raw material suppliers have undertaken various initiatives to improve quality, shorten manufacturing cycle times and reduce costs at each stage of production. Teams from each of the participating companies meet regularly to share information and to develop plans to improve the efficiency of the entire supply chain. In addition, the Company believes it will be able to provide higher value-added, custom-tailored products to its customers by working more closely with its customers in the early stages of product development. In 1 3 July 1998, in connection with the formation of the titanium castings joint venture described below, the Company entered into a transaction with Titanium Metals Corporation, ("TIMET") in which TIMET acquired the Company's titanium vacuum arc remelting facility in Millbury, Massachusetts, and the Company and TIMET entered into a long-term agreement pursuant to which the Company will acquire a substantial portion of its titanium raw material requirements. Develop New Applications and Enter New Markets. The Company believes that its expertise in the manufacture of metal components with enhanced fatigue- and temperature-resistant properties gives it the ability to design new applications for its current markets and to enter new markets. For example, the Company has been able to enter the power generation market by utilizing its knowledge of nickel-based alloys and manufacturing technology for aerospace turbines to manufacture advanced components for land-based gas turbines. The Company is also applying its expertise in investment casting, particularly in titanium, to enter new markets, such as oil and gas and power generation. Pursue Acquisitions or Joint Ventures. The Company intends to pursue selective acquisitions and joint ventures that will enable the Company to leverage its manufacturing expertise and metallurgical skills. The Company believes that pursuing joint ventures will be increasingly important to its future growth. For example, foreign joint ventures to produce components for the aerospace industry may provide the Company with the opportunity to allow its customers to meet local content requirements as they expand into foreign markets. In addition, joint ventures may enable the Company to secure raw material supplies or reduce costs. In 1998, the Company acquired International Extruded Products, LLC ("IXP") of Buffalo, New York. IXP produces extruded seamless pipe in sizes generally smaller than those produced by the Company at its other facilities. In addition, IXP produces certain clad pipe in which a corosion resistant inner layer is bonded to an outer layer of a different, less expensive alloy, and pipes made of corosion resistant alloys of titanium and other metals. The Company believes that the IXP product line broadens its own offerings and will allow the Company to offer more comprehensive piping packages to meet customer needs. In July 1998, the Company formed a joint venture with TIMET which combines the Company's titanium castings operations in Franklin, New Hampshire with TIMET's titanium castings operations in Albany, Oregon. The Company believes that the joint venture, which is 80.1% owned by the Company, will allow it to expand its offering of cast titanium products. Leverage Expertise with Larger Aerospace Components. The Company believes that its technological expertise in manufacturing large-scale components and experience in producing and utilizing sophisticated alloys will enable it to capitalize on the industry trend toward widebody aircraft with larger and more sophisticated engines. These aircraft require larger airframe structural parts and engine components manufactured with high-purity alloys, both of which are particular strengths of the Company. MARKETS AND PRODUCTS The principal markets served by the Company are aerospace and energy. Revenue by market for the respective periods were as follows:
YEAR ENDED YEAR ENDED YEAR ENDED MAY 31, 1998 MAY 31, 1997 MAY 31, 1996 ----------------- ----------------- ----------------- % OF % OF % OF REVENUE TOTAL REVENUE TOTAL REVENUE TOTAL -------- ----- -------- ----- -------- ----- (000'S OMITTED, EXCEPT PERCENTAGES) Aerospace................... $607,844 81% $475,131 78% $362,706 73% Energy...................... 114,186 15 97,117 16 92,991 19 Other....................... 30,883 4 36,494 6 43,927 8 -------- --- -------- --- -------- --- Total....................... $752,913 100% $608,742 100% $499,624 100% ======== === ======== === ======== ===
2 4 Aerospace Products Aerospace Turbine Products. The Company manufactures components from sophisticated titanium and nickel alloys for jet engines manufactured by General Electric Company ("GE"), the Pratt & Whitney Division ("Pratt & Whitney") of United Technologies Corporation ("United Technologies"), Rolls-Royce ("Rolls Royce") and CFM International S.A. Such jet engines are used on substantially all commercial aircraft produced by the Boeing Company ("Boeing") and Airbus Industrie, S.A. ("Airbus"). The Company's forged engine parts include fan discs, compressor discs, turbine discs, seals, spacers, shafts, hubs and cases. Cast engine parts include thrust reversers, valves and fuel system parts such as combustion chamber swirl guides. Rotating parts (which include fan, compressor and turbine discs) must be manufactured to precise quality specifications. The Company believes it is the leading producer of these rotating components for use in large turbine aircraft engines. Jet engines may produce in excess of 100,000 pounds of thrust and may subject parts to temperatures reaching 1,350 degrees Fahrenheit. Components for such extreme conditions therefore require precision manufacturing and expertise with high-purity titanium and nickel-based alloys. Aerospace Structural Products. The Company's airframe structural components, such as landing gear, bulkheads and wing spars, are used on every model of airplane manufactured by Boeing and the Airbus A321, A330 and A340. In addition, the Company's structural components are used on a number of military aircraft and in other defense-related applications, including the C-17 transport and the new F-22 fighter being jointly developed by Lockheed Martin Corporation ("Lockheed") and Boeing. The Company also produces dynamic rotor forgings for helicopters. Aerospace structural products include wing spars, engine mounts, struts, landing gear beams, landing gear, wing hinges, wing and tail flaps, housings, and bulkheads. These parts may be made of titanium, steel, aluminum and other alloys, as well as composite materials. Forging is particularly well suited for airframe parts because of its ability to impart greater strength per unit of weight to metal than other manufacturing processes. Investment casting can produce complex shapes to precise, repeatable dimensions. The Company has been a major supplier of the beams that support the main landing gear assemblies on the Boeing 747 for many years and supplies main landing gear beams for the Boeing 777. The Company forges landing gear and other airframe structural components for the Boeing 737, 747, 757, 767 and 777, and the Airbus A321, A330 and A340. The Company produces structural forgings for the F-15, F-16 and F/A-18 fighter aircraft and the Black Hawk helicopter produced by Sikorsky Aircraft Corporation, a subsidiary of United Technologies. The Company also produces large, one-piece bulkheads for Lockheed and Boeing for the F-22 fighter. Energy Products The Company is a major supplier of extruded seamless thick wall pipe used in critical piping systems in both fossil fuel and nuclear commercial power plants worldwide as well as in oil and gas industry applications. The Company produces rotating components, such as discs and spacers, and valve components for land-based steam turbine and gas turbine generators, and in addition, also manufactures shafts, cases, and compressor and turbine discs for marine gas engines. The Company believes the energy sector provides it with an opportunity to build on its manufacturing capabilities and metallurgical know-how gained from manufacturing products for the aerospace industry. The April 1998 acquisition of IXP enhances this opportunity. The Company produces a variety of mechanical and structural tubular forged products, primarily in the form of extruded seamless pipe, for the domestic and international energy markets, which include nuclear and fossil-fueled power plants, cogeneration projects and retrofit and life extension applications. These tubular forged products also have ordnance and other military applications. Aluminum, steel, and titanium products are manufactured at the Company's Houston, Texas forging facility where one of the world's largest vertical extrusion presses extrudes pipe up to 48 inches in diameter and seven inches in wall thickness and bar stock from six to 32 inches in diameter. Lengths of pipe and bar stock vary from ten to 45 feet, with a maximum forged weight of 20 tons. Similar equipment and capabilities are in operation at the Company's Livingston, 3 5 Scotland, and Buffalo, New York, forging facilities. Additionally, the Houston press extrudes powder billets for use in aircraft turbine engine forgings. Other Products The Company supplies products to builders of military ordnance. Examples of forged products include steel casings for bombs and rockets. For naval defense applications, the Company supplies components for propulsion systems for nuclear submarines and aircraft carriers as well as pump, valve, structural and non- nuclear propulsion forgings. The Company also manufactures extruded missile, rocket and bomb casings and supplies extruded products for nuclear submarines and aircraft carriers, including thick wall piping for nuclear propulsion systems, torpedo tubes and catapult launch tubes. The Company also extrudes powders for other alloy powder manufacturers. Through its investment casting operations, which utilize a process of pouring molten metal into a mold, the Company manufactures products for commercial applications such as food processing, semiconductor manufacturing, diesel turbochargers and sporting equipment. The Company is actively seeking to identify alternative applications for its capabilities, such as in the automotive and other commercial markets. CUSTOMERS The Company has approximately 275 active customers that purchase forgings, approximately 800 active customers that purchase investment castings and approximately 20 active customers that purchase composite structures. The Company's principal customers are similar across all of these production processes. Five customers accounted for 51%, 48% and 47% of the Company's revenues for the years ended May 31, 1998, 1997 and 1996, respectively. GE and United Technologies (primarily Pratt & Whitney division and Sikorsky) each accounted for 10% or more of revenues for the years ended May 31, 1998, 1997 and 1996.
YEAR ENDED YEAR ENDED YEAR ENDED MAY 31, 1998 MAY 31, 1997 MAY 31, 1996 ----------------- ----------------- ----------------- % OF % OF % OF REVENUE TOTAL REVENUE TOTAL REVENUE TOTAL -------- ----- -------- ----- -------- ----- (000'S OMITTED, EXCEPT PERCENTAGES) GE.................................. $169,894 23% $156,764 26% $134,830 27% United Technologies................. 76,786 10 60,921 10 53,116 11
Boeing and Rolls-Royce are also significant customers of the Company. Because of the relatively small number of customers for some of the Company's principal products, those customers exercise significant influence over the Company's prices and other terms of trade. The Company has become actively involved with its aerospace customers through supply chain management initiatives, joint development relationships and cooperative research and development, engineering, quality control, just-in-time inventory control and computerized design programs. The Company believes that greater involvement in the design and development of components for its customers' products will result in significant efficiencies and will allow the Company to better serve its customers. MARKETING AND SALES The Company markets its products principally through its own sales engineers and makes only limited use of independent manufacturers' representatives. Substantially all sales are made directly to original equipment manufacturers. The Company's sales are not subject to significant seasonal fluctuations. A substantial portion of the Company's revenues are derived from long-term, fixed-price agreements ("LTAs") with major engine and aircraft manufacturers. These contracts are typically "requirements" contracts under which the purchaser commits to purchase a given portion of its requirements of a particular component from the Company. Actual purchase quantities are typically not determined until shortly before the year in which products are to be delivered. The Company has increased its efforts to obtain LTAs with 4 6 customers which contain price adjustments which would compensate the Company for increased raw material costs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General." BACKLOG The Company's firm backlog includes the sales prices of all undelivered units covered by customers' orders for which the Company has production authorization. The Company's firm backlog in the various markets served by the Company has been as follows:
MAY 31, 1998 MAY 31, 1997 MAY 31, 1996 ------------------- ----------------- ----------------- % OF % OF % OF BACKLOG TOTAL BACKLOG TOTAL BACKLOG TOTAL ---------- ----- -------- ----- -------- ----- (000'S OMITTED, EXCEPT PERCENTAGES) Aerospace.......................... $ 908,633 88% $767,989 86% $499,103 83% Energy............................. 94,314 9 99,172 11 66,341 11 Other.............................. 27,145 3 28,664 3 32,994 6 ---------- --- -------- --- -------- --- Total.............................. $1,030,092 100% $895,825 100% $598,438 100% ========== === ======== === ======== ===
At May 31, 1998, approximately $716.8 million of total firm backlog was scheduled to be shipped within one year (compared to $671.6 million at May 31, 1997 and $437.0 million at May 31, 1996) and the remainder in subsequent years. Sales during any period include sales which were not part of backlog at the end of the prior period. Customer orders in firm backlog are subject to rescheduling or termination for customer convenience and as a result of market fluctuations in the commercial aerospace industry. However, in certain cases, the Company is entitled to an adjustment in contract amounts. Because of the cyclical nature of order entry experienced by the Company and its dependence on the aerospace industry, there can be no assurance that order entry will continue at current levels or that current firm purchase orders will not be canceled or delayed. Accordingly, the Company's backlog is not necessarily indicative of the Company's revenues for any future period or periods. MANUFACTURING PROCESSES The Company employs three manufacturing processes: forging, investment casting and composites production. Forging The Company's forging process involves heating metal and shaping it through pressing or extrusion. The Company forges titanium and steel alloys, as well as high temperature nickel alloys. Forging is conducted on hydraulic presses with capacities ranging up to 55,000 tons. The Company believes that it is the leading producer of rotating components for use in turbine aircraft engines. These parts are forged from purchased ingots which are converted to billet in the Company's cogging presses and from alloy metal powders (primarily nickel alloys) which are produced, consolidated and extruded into billet entirely at the Company's facilities. The Company manufactures its forgings at its facilities in Grafton and Worcester, Massachusetts; Houston, Texas; Buffalo, New York; and Livingston, Scotland. The Company also operates an alloy powder metal facility in Brighton, Michigan; vacuum remelting facilities in Houston, Texas which produce steel and nickel alloy ingots; and a plasma arc melting facility for the production of titanium electrodes and ingots in Millbury, Massachusetts. The Company has eight large closed die hydraulic forging presses rated as follows: 18,000 tons, 35,000 tons and 50,000 tons in Grafton Massachusetts; 20,000 tons, 29,000 tons and 35,000 tons in Houston, Texas; 12,000 tons in Buffalo, New York and 30,000 tons in Livingston, Scotland. The Company reinstalled the 20,000 ton multi-ram press in Houston at a cost of approximately $6 million and began operating it at the end of fiscal year 1997. The addition of this press substantially increased the Company's forging capacity. The 35,000 ton vertical extrusion press in Houston can also be operated as a 55,000 ton hydraulic forging press. The Company also operates two open die cogging presses used to convert ingot into 5 7 billet rated at 2,000 tons and 1,375 tons at its Grafton, Massachusetts location. The Company produces isothermal forgings on its forging press rated at 8,000 tons at its Worcester, Massachusetts location. The Company employs the following five forging processes: - Open-Die Forging. In this process, the metal is pressed between dies that never completely surround the metal, thus allowing the metal to be observed during the process. Typically, open-die forging is used to create relatively simple, preliminary shapes to be further processed by closed die forging. - Closed-Die Forging. Closed-die forging involves pressing heated metal into the required shapes and size determined by machined impressions in specially prepared dies which completely surround the metal. In hot-die forging, both titanium and nickel alloys can be forged using this process, in which the dies are heated to a temperature of approximately 1300 degreesF. This process allows metal to flow more easily within the die cavity which produces forgings with superior surface finish, metallurgical structures with tighter tolerances and enhanced repeatability of the part shape. - Conventional/Multi-Ram. The closed-die, multi-ram process utilized on the Company's 30,000 and 20,000 ton presses enables the Company to produce extremely complex forgings such as valve bodies with multiple cavities in a single heating and pressing cycle. Dies may be split either on a vertical or a horizontal plane and shaped punches may be operated by side rams, piercing rams, or both. Multi-ram forging enables the Company to produce a wide variety of shapes, sizes and configurations. The process also optimizes grain flow and uniformity of deformation and reduces machining requirements. - Isothermal Forging. Isothermal forging is a closed-die process in which the dies are heated to the same temperature as the metal being forged, typically in excess of 1,900 degrees Fahrenheit. The forged material typically consists of nickel alloy powders. Because of the high die temperatures necessary for forming these alloys, the dies are made of refractory metals, typically molybdenum, so that the die retains its strength and shape during the forging process. Because the dies may oxidize at these elevated temperatures, the forging process is carried on in a vacuum or inert gas atmosphere. The Company's isothermal press also allows it to produce near-net shape components (requiring less machining by the customer) made from titanium alloys, which can be an important competitive advantage in times of high titanium prices. The Company carries on this process in its 8,000-ton isothermal press. - Extrusion. The Company's 35,000 ton vertical extrusion press is one of the largest and most advanced extrusion presses in the world. Extrusions are produced for applications in the oil and gas industry, including tension leg platforms, riser systems and production manifolds. The extrusion process is facilitated by manipulators capable of handling work pieces weighing up to 20 tons, rotary hearth furnaces and a 14,000 ton blocking press. The Company's extrusion press is capable of producing thick wall seamless pipe with outside diameters up to 48 inches and wall thicknesses from 1/2 inch up to seven inches. Solid extrusions can be manufactured from six to 32 inches in diameter. Typical lengths vary from ten to 45 feet. Powder materials can also be compacted and extruded into forging billets utilizing this press. The 30,000 ton press in Scotland has similar extrusion capabilities in addition to its multi-ram forging capabilities. The 12,000 ton press in Buffalo, New York is capable of producing seamless pipe with outside diameters up to 20 inches and wall thicknesses from 3/8 inches up to three inches. Metal Production. The Company's Brighton, Michigan powder metal facility has the capability to atomize, process, and consolidate (by hot isostatic pressing) alloy metal powders for use in aerospace, medical implant, petrochemical, hostile environment oil and gas drilling and production, and other applications. This facility has an annual production capacity of up to 500,000 pounds of alloy powder. After production of the powder, the Company consolidates the metal by extrusion using its 35,000 ton press in Houston, and the extruded billets are then forged into critical jet engine components on the Company's 8,000 ton isothermal press in Worcester, Massachusetts. The Company's vacuum arc remelting ("VAR") shop in Houston, Texas has five computer-controlled VAR furnaces which process electrodes up to 42 inches in diameter that weigh up to 40,000 pounds. The Houston VAR furnaces are used to remelt purchased electrodes into high purity alloys for internal use. In 6 8 addition, the VAR furnaces are used for toll melting. These vacuum metallurgy techniques provide consistently high levels of purity, low gas content, and precise control over the solidification process. This minimizes segregation in complex alloys and results in improved mechanical properties, as well as hot and cold workability. The Company's plasma arc melting ("PAM") facility in Millbury is capable of producing high quality titanium ingot and nickel alloy powder. The Company has entered into a joint venture with Pratt & Whitney and certain Australian investors to produce nickel alloy ingots in Perth, Australia, some of which the Company utilizes as raw materials for its forging and casting products. Support Operations. The Company manufactures some of its own forging dies out of high-strength steel and molybdenum. These dies can weigh in excess of 100 tons and can be up to 25 feet in length. In manufacturing its dies, the Company utilizes its customers' drawings and engineers the dies using CAD/CAM equipment and sophisticated computer models that simulate metal flow during the forging process. This activity improves die design and process control and permits the Company to enhance the metallurgical characteristics of the forging. The Company also has at its three major forging locations machine shops with computer aided profiling equipment, vertical turret lathes and other equipment that it employs to shape rough machine products. The Company also operates rotary and car-bottom furnaces for heat treatment to enhance the performance characteristics of the forgings. Testing. Because the Company's products are for high performance end uses, rigorous testing is necessary and is performed internally by Company engineers. Throughout the manufacturing process, numerous tests and inspections are performed to insure the final quality of each product; statistical process control techniques are also applied throughout the entire manufacturing process. The Company subjects its products to extensive quality inspection and contract qualification procedures involving zyglo, chemical etching, ultrasonic, red dye, hardness, and electrical conductivity testing facilities. Investment Castings The Company's investment castings operations use high-volume production equipment and both air-melt and vacuum-melt furnaces to produce a wide variety of complex investment castings. Castings are made of a range of metal alloys including steel, aluminum, nickel, titanium and magnesium. The Company's castings operations are conducted in facilities located in Groton, Connecticut; Franklin and Tilton, New Hampshire; Carson City, Nevada; San Leandro, California and Albany, Oregon. In July 1998, the Company and TIMET combined their respective titanium casting operations in Tilton, New Hampshire and Albany, Oregon into Wyman Gordon Titanium Castings, LLC, a Delaware limited liability company, (the "Joint Venture"), 80.1% owned by the Company and 19.9% by TIMET. The parties have agreed, in general, that the TIMET Venture will be the exclusive means by which they conduct their titanium castings operations. The Company produces its investment castings by the "lost wax" process, a method developed in China over 5,000 years ago. The initial step in producing investing castings is to create a wax form of the ultimate metal part by injecting molten wax into an aluminum mold, known as a "tool." These tools are produced to the specifications of the customer and are primarily purchased from outside die makers, although the Company maintains internal tool-making capabilities. The wax patterns are then mechanically coated with a ceramic slurry in a process known as investment. This forms a ceramic shell which is subsequently air-dried and hardened under controlled environmental conditions. Next, the wax inside this shell is melted and removed in a high temperature steam autoclave and the molten wax is recycled. In the next, or "foundry" stage, metal is melted in an electric furnace in either an air or vacuum environment and poured into the ceramic shell. After cooling, the ceramic shells are removed by vibration, chipping or various types of water or air blasting. The metal parts are then cleaned in a high temperature caustic bath, followed by water rinsing. In the finishing stage, the castings are finished by grinding and polishing to remove excess metal. The final product then 7 9 undergoes a lengthy series of testing (radiography, fluorescent penetrant, magnetic particle and dimensional) to ensure quality and consistency. Composites The Company's composites subsidiary, Scaled Composites, located in Mojave, California, designs, fabricates and tests composite airframe structures made by layering carbon graphite and other fibers with epoxy resins for the aerospace market. During fiscal year 1998, the Company completed the construction of a 120,000-square-foot facility in Montrose, Colorado, where the Company's subsidiary, Scaled Technology Works, manufactures airplane components, principally those designed by Scaled Composites. OPERATING FACILITIES The following table sets forth certain information with respect to the Company's operating facilities at May 31, 1998, all of which are owned. The Company believes that its operating facilities are well maintained, are suitable to support the Company's business and are adequate for the Company's present and anticipated needs. On average, during the Company's fiscal year 1998, the Company's forging, investment castings and composites facilities were operating at approximately 78%, 76% and 77% of their total productive capacity, respectively.
APPROXIMATE SQUARE LOCATION FOOTAGE PRIMARY FUNCTION - -------- ----------- -------------------------- Brighton, Michigan................................... 34,500 Alloy Powder Production Grafton, Massachusetts............................... 85,420 Administrative Offices Grafton, Massachusetts............................... 843,200 Forging Houston, Texas....................................... 1,283,800 Forging Livingston, Scotland................................. 405,200 Forging Millbury, Massachusetts.............................. 104,125 Research and Development, Metals Production Worcester, Massachusetts............................. 22,300 Forging Buffalo, New York (2 plants)......................... 235,000 Forging Carson City, Nevada.................................. 55,000 Casting Franklin, New Hampshire.............................. 43,200 Casting Groton, Connecticut (2 plants)....................... 162,550 Casting San Leandro, California.............................. 60,000 Casting Tilton, New Hampshire................................ 94,000 Casting Mojave, California................................... 67,000 Composites Montrose, Colorado................................... 120,000 Composites
RAW MATERIALS Raw materials used by the Company in its forgings and castings include titanium, nickel, steel, aluminum, magnesium and other metallic alloys. The composites operation uses high strength fibers such as fiberglass or graphite, as well as materials such as foam and epoxy, to fabricate composite structures. The major portion of metal requirements for forged and cast products are purchased from major metal suppliers producing forging and casting quality material as needed to fill customer orders. The Company has two or more sources of supply for all significant raw materials. Its principal suppliers of nickel alloys include Special Metals Corporation, Allegheny Teledyne, Inc., and Carpenter Technologies Corporation. Its principal suppliers of titanium alloys are TIMET, Oregon Metallurgical Corp. and RMI Titanium Company. In July 1998, the Company exchanged certain assets of its Millbury, Massachusetts titanium vacuum arc remelting facility for certain assets of TIMET's Albany, Oregon titanium castings business. In connection with such exchange the Company and TIMET entered into a long term supply agreement pursuant to which the Company will acquire a substantial portion of its titanium raw material requirements from TIMET. The 8 10 Company's powder metal facility in Brighton, Michigan produces nickel alloy powder and high quality titanium ingots. In addition the Company is a participant in the joint venture to produce nickel alloy ingots, and the Company utilizes a portion of the output of its Australian joint venture for its own use. The titanium and nickel alloys utilized by the Company have a relatively high dollar value. Accordingly, the Company attempts to recover and recycle scrap materials such as machine turnings, forging flash, scrapped forgings, test pieces and casting sprues, risers and gates. In the event a customer cancels an order for which material has been purchased, the Company may, under certain circumstances, obtain reimbursement from the customer if the material cannot be diverted to other uses. Costs of material already on hand, along with any conversion costs incurred, are generally billed to the customer unless transferable to another order. As demand for the Company's products grew during recent fiscal years, and prices of raw materials have risen, the Company experienced raw material shortages and production delays. During fiscal year 1997 and the first six months of fiscal year 1998, the Company's suppliers of nickel and titanium alloys experienced increases in the market prices of the elements (e.g., nickel, titanium, cobalt), that they use in fabricating their products. Because the Company's suppliers generally have alternative markets for their products where they may have greater ability to increase their prices, production in some cases was diverted to alternative markets. As a result, during fiscal year 1997 and the first six months of 1998, the Company's lead time for deliveries from its suppliers expanded from 20 weeks to 50 weeks or more. In the last six months this trend has started to change. New capacities at these suppliers combined with a flatening in overall demand is causing some softening in price and reductions in lead times back toward 20 weeks. In response to these supply problems, the Company has sought price increases and other financial considerations from its customers which would permit it to increase the price it pays to suppliers. In addition, the Company and certain of its customers and suppliers have undertaken active programs for supply chain management which have helped to reduce the overall lead times for deliveries of raw materials. Many of the Company's customer contracts have fixed prices for extended time periods and do not provide complete price adjustments for changes in the prices of raw materials such as metals. The Company attempts to reduce its risk with respect to its customer contracts by procuring long-term contracts with suppliers of metal alloys, but the Company's supply contracts typically do not completely insulate the Company from fluctuations in the prices of raw materials. ENERGY USAGE The Company is a large consumer of energy. Energy is required primarily for heating metals to be forged and melting metals to be cast, melting of ingots, heat-treating products after forging and casting, operating forging presses, melting furnaces, die-sinking, mechanical manipulation and pollution control equipment and space heating. Supplies of natural gas, oil and electricity used by the Company have been sufficient and there is no anticipated shortage for the future. However, significant increases in the price of or shortages in these energy supplies may have an adverse impact on the Company's results of operations. 9 11 EMPLOYEES As of May 31, 1998, the Company had approximately 4,285 employees, of whom 1,145 were executive, administrative, engineering, research, sales and clerical and 3,140 were production and craft. Approximately 49% of the production and craft employees, consisting of employees in the forging business, are represented by unions. The Company has entered into collective bargaining agreements with these union employees as follows:
NUMBER OF EMPLOYEES COVERED BY BARGAINING LOCATION AGREEMENTS INITIATION DATE EXPIRATION DATE - -------- ----------------- ---------------- ------------------ Grafton, Millbury and Worcester, Massachusetts............. 582 April 6, 1997 March 24, 2002 Houston, Texas.............. 616 August 10, 1998 August 12, 2001 45 August 7, 1995 September 27, 1998 Livingston, Scotland........ 203 December 1, 1995 November 30, 1998 35 February 1, 1996 January 31, 1999 Buffalo, New York........... 52 October 21, 1996 June 6, 1999 ----- Total............. 1,533 =====
The Company believes it has good relations with its employees, but there can be no assurances that the Company will not experience a strike or other work stoppage or that acceptable collective bargaining agreements can be negotiated when the existing collective bargaining agreements expire. RESEARCH AND PATENTS The Company maintains research and development departments at both Millbury, Massachusetts, and Houston, Texas, which are engaged in applied research and development work primarily relating to the Company's forging operations. The Company works closely with customers, universities and government technical agencies in developing advanced forging and casting materials and processes. The Company's Castings Operations conduct research and development related to advanced casting materials and processes at its Groton, Connecticut, and Tilton, New Hampshire, facilities. The Company's composites operation conducts research and development related to aerospace composite structures at the Mojave, California, facility. The Company spent approximately $3.3 million, $2.9 million and $1.6 million on applied research and development work during the years ended May 31, 1998, 1997 and 1996, respectively. Although the Company owns patents covering certain of its processes, the Company does not consider that these patents are of material importance to the Company's business as a whole. Most of the Company's products are manufactured to customer specifications and, consequently, the Company has few proprietary products. COMPETITION Most of the Company's production capabilities are possessed in varying degrees by other companies in the industry, including both domestic and foreign manufacturers. Competition in each of the Company's current product markets is cyclical, intensifying during upturns and lessening during downturns, but such cyclicality of competition is especially present in aerospace structural products markets because of the cyclical nature of the commercial and defense aerospace industries. In the aerospace turbine products market, the Company's largest competitors are Ladish Co., Inc., Fortech, S.A. and Thyssen AG. In the aerospace structural products market, Alcoa Corporation and Schultz Steel Company are the Company's largest competitors. In the energy products market, the Company faces mostly international competition from Mannesmann A.G. and Sumitomo Corporation, among others. In the aerospace castings products market, Howmet Corporation and Precision Cast Parts Corp. are the Company's largest competitors. In the future, the Company may face increased competition from international companies which currently have the required manufacturing equipment, but may lack sufficient technological or financial 10 12 resources, and may be hampered by lower productivity. International competition in the forging and casting processes may also increase in the future as a result of strategic alliances among aircraft prime contractors and foreign companies, particularly where "offset" or "local content" requirements create purchase obligations with respect to products manufactured in or directed to a particular country. Competition is often intense among the companies currently involved in the industry. Competitive advantages are afforded to those with high quality products, low cost manufacturing, excellent customer service and delivery and engineering and production expertise. The Company believes that it has strength in these areas, but there can be no assurance that the Company can maintain its share of the market for any of its products. ENVIRONMENTAL REGULATIONS The Company's operations are subject to extensive, stringent and changing federal, state and local environmental laws and regulations, including those regulating the use, handling, storage, discharge and disposal of hazardous substances and the remediation of alleged environmental contamination. Accordingly, the Company is involved from time to time in administrative and judicial inquiries and proceedings regarding environmental matters. Nevertheless, the Company believes that compliance with these laws and regulations will not have a material adverse effect on the Company's operations as a whole. However, it is not possible to predict accurately the amount or timing of costs of any future environmental remediation requirements. The Company continues to design and implement a system of programs and facilities for the management of its raw materials, production processes and industrial waste to promote compliance with environmental requirements. As of May 31, 1998, aggregate environmental reserves amounted to $16.5 million, which includes expected cleanup expenses estimated between $4.4 million and $5.4 million upon the eventual sale of the Worcester facility, certain environmental issues, including the remediation of on-site landfills, at Cameron amounting to approximately $3.5 million, $5.6 million in remediation projects at the Grafton facility, $0.9 million for remediation at the Buffalo facility and $1.1 million for various Superfund sites. There can be no assurance that the actual costs of remediation will not eventually materially exceed the amount presently accrued. Pursuant to an agreement entered into with the U.S. Air Force upon the acquisition of the Grafton facility from the federal government in 1982, the Company agreed to make expenditures totaling $20.8 million for environmental management and remediation at that site during the period 1982 through 1999, of which $4.0 million remained as of May 31, 1998. These expenditures will not resolve the Company's obligations to federal and state regulatory authorities, who are not parties to the agreement, however, and the Company expects to incur an additional amount, currently estimated at approximately $3.5 million, to comply with current federal and state environmental requirements governing the investigation and remediation of contamination at the site. The Company's Grafton facility was formerly included in the U.S. Nuclear Regulatory Commission's ("NRC") May 1992 Site Decommissioning Management Plan ("SDMP") for low-level radioactive waste as the result of the disposal of magnesium thorium alloys at the facility in the 1960s and early 1970s under license from the Atomic Energy Commission. On March 31, 1997, the NRC informed the Company that jurisdiction for the Grafton site had been transferred to the Commonwealth of Massachusetts Department of Public Health (the "DPH") and that the Grafton facility had been removed from the SDMP. Although it is unknown what specific remediation and disposal requirements may be imposed on the Company by the DPH, the Company believes that a reserve of $1.5 million recorded on its books is sufficient to cover all costs. There can be no assurance, however, that such reserve will be adequate to cover any obligations that the DPH may ultimately impose on the Company. The Company, together with numerous other parties, has been named a PRP under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for the cleanup of the following Superfund sites: Operating Industries, Monterey Park, California; Cedartown Municipal Landfill, Cedartown, Georgia; PSC Resources, Palmer, Massachusetts; the Harvey GRQ site, Harvey, Illinois; the Berlin & Farrow site, Swartz Creek, Michigan; the Gemme/Fournier site, Leicester, Massachusetts; and the Salco, Inc. site, Monroe, Michigan. The Company believes that a reserve of $1.1 million recorded on its books is sufficient to cover all costs. 11 13 At the Gemme/Fournier site, a proposed agreement would allocate 33% of the cleanup costs to the Company. In September 1995, a consulting firm retained by the PRP group made a preliminary remediation cost estimate of $1.4 million to $2.8 million. The Company's insurance company is defending the Company's interests, and the Company believes that any recovery against the Company would be offset by recovery of insurance proceeds. The Company expects to incur between $4.4 and $5.4 million in cleanup expenses upon the planned sale of its Worcester, Massachusetts facility to remedy certain contamination discovered on site. The Massachusetts Department of Environmental Protection has classified the site as a Tier II site under the Massachusetts Contingency Plan. PRODUCT LIABILITY EXPOSURE The Company produces many critical engine and structural parts for commercial and military aircraft. As a result, the Company faces an inherent business risk of exposure to product liability claims. The Company maintains insurance against product liability claims, but there can be no assurance that such coverage will continue to be available on terms acceptable to the Company or that such coverage will be adequate for liabilities actually incurred. The Company has not experienced any material loss from product liability claims and believes that its insurance coverage is adequate to protect it against any claims to which it may be subject. LEGAL PROCEEDINGS In addition to the matters disclosed below, at May 31, 1998, the Company was involved in certain legal proceedings arising in the normal course of its business. The Company believes the outcome of these matters will not have a material adverse effect on the Company. On December 22, 1996, a serious industrial accident occurred at the Houston, Texas, facility of Wyman-Gordon Forgings, Inc. ("WGFI"), a wholly-owned subsidiary of the Company, in which eight employees were killed and two others injured. OSHA conducted an investigation of the accident. On June 18, 1997, WGFI reached an agreement with OSHA, settling citations resulting from the accident. The injured workers and the decedents' families have asserted claims against the Company and WGFI. WGFI has also received claims from several employees of a subcontractor claiming to have been injured at the time of the accident as well as from one current employee. To date, the Company has settled all claims that could be brought by three of the decedents' families on terms acceptable to the Company and its insurance carriers and in addition has reached agreement for the settlement of the claims of the family of a fourth decedent. The Company has also settled most of the claims of the subcontractor employees. The Company thus far has been unable to achieve settlements with the other claimants, and, on October 24, 1997, a lawsuit was filed in the District Court of Harris County, Texas, on behalf of three of the decedents' families against the Company, WGFI and Cooper-Cameron Corporation. One of the injured employees has subsequently filed a motion to be included in the lawsuit. Trial of the lawsuit is currently set for January, 1999. In general, under Texas statutory law, an employee's exclusive remedy against an employer for an on-the-job injury is the benefits of the Texas Workers' Compensation Act. WGFI, the employer of the deceased employees, has workers' compensation insurance coverage and the injured employees and beneficiaries of the deceased employees are receiving workers' compensation payments. Under applicable law, however, statutory beneficiaries of employees killed in the course and scope of their employment may recover punitive (but not compensatory) damages in excess of workers compensation benefits. However, to do so, they must prove that the employer was grossly negligent. The protection of the workers compensation exclusive remedy provision may not extend to the Company as parent corporation of WGFI. Therefore, with regard to the October 24, 1997 lawsuit and any future lawsuits brought on behalf of those killed or injured in the Houston accident or their families against the Company, if (i) the court finds that the Company had a legal duty to WGFI and its employees, (ii) the evidence supports a finding that the Company acted negligently in its duty to WGFI and 12 14 its employees and (iii) such negligence had a causal connection with the accident, the plaintiffs might be able to recover compensatory damages against the Company. If it is shown that the Company's conduct amounted to gross neglect, and that conduct is found to be a cause of the accident, the plaintiffs may be able to recover punitive damages against the Company. It is not possible at this time to determine the extent, if any, to which WGFI or the Company could be held liable in connection with the accident. The Company maintains general liability and employer's liability insurance for itself and its subsidiaries under various policies with aggregate coverage limits of approximately $29 million, a portion of which has been expended in the settlements to date. While WGFI has tendered the defense of the various claims to the Company's insurance carriers, there can be no assurance that the full insurance coverage will be available. Based on the Company's experience in the settlement negotiations to date, the Company believes that there is a substantial risk that the pending and threatened claims will not be settled for an aggregate amount within its insurance coverage limits. The Company anticipates that, as with the currently pending lawsuit, any additional lawsuits will include claims for alleged compensatory as well as punitive damages that in the aggregate could substantially exceed the Company's available insurance coverage. The Company intends to vigorously defend all lawsuits that have been or may be filed relating to the accident. However, if one or more such lawsuits were to be prosecuted successfully by the plaintiffs and a judgment were to be obtained by one or more plaintiffs in such lawsuits and sustained on appeal, litigation costs, including the cost of pursuing any appeals, and the cost of paying such a judgment, to the extent not covered by insurance, could have a material adverse effect on the Company's financial condition and the results of operations, particularly if any such judgment includes awards for punitive damages. On September 25, 1997, the Company received a subpoena from the United States Department of Justice informing it that the United States Department of Defense and other federal agencies had commenced an investigation with respect to the manufacture and sale of investment castings at the Company's Tilton, New Hampshire, facility. The focus of the investigation is whether the Company failed to comply with required quality control procedures for cast aerospace parts and whether the Company shipped cast components that did not meet applicable specifications, which could be a violation of federal requirements. The investigating agencies have directed the Company to furnish various documents and information relating to the subject of the investigation. The Company is cooperating fully with the investigation, and in addition, has substantially completed its own investigation, which was supervised by the Company's outside attorneys and conducted by quality and process auditors from another casting facility of the Company and by the Company's internal attorneys. Such investigation has identified certain departures from Company policies and procedures which have been addressed. The federal investigation may result in criminal or civil charges being brought against the Company which could result in civil damages and penalties and criminal liability if the Company were found to have violated federal laws. Based on the Company's own investigation to date, the Company does not believe that the federal investigation is likely to result in a material adverse impact on the Company's financial condition or results of operations, although no assurance as to the outcome or impact of that investigation can be given. 13 15 MANAGEMENT The executive officers and directors of the Company are as follows:
NAME AGE POSITION - ---- --- -------- David P. Gruber........................... 56 Chairman and Chief Executive Officer J. Douglas Whelan......................... 59 President, Chief Operating Officer and Director Edward J. Davis........................... 51 Vice President, Chief Financial Officer and Treasurer Sanjay N. Shah............................ 47 Vice President, Corporate Strategy Planning and Business Development J. Stewart Smith.......................... 56 President, Manufacturing Colin Stead............................... 59 Senior Vice President, Quality and Technology Wallace F. Whitney, Jr.................... 55 Vice President, General Counsel and Clerk Frank J. Zugel............................ 53 President, Marketing E. Paul Casey............................. 68 Director Warner S. Fletcher........................ 53 Director Robert G. Foster.......................... 60 Director Russell E. Fuller......................... 72 Director Charles W. Grigg.......................... 59 Director M Howard Jacobson......................... 65 Director Judith S. King............................ 63 Director Robert L. Leibensperger................... 59 Director Andrew E. Lietz........................... 59 Director H. John Riley, Jr. ....................... 57 Director David A. White, Jr. ...................... 56 Director
DAVID P. GRUBER was elected Chairman and Chief Executive Officer of the Company on October 15, 1997, having previously served as President and Chief Executive Officer since May 1994 and as President and Chief Operating Officer since he joined the Company in October 1991. Prior to joining the Company, Mr. Gruber served as Vice President, Advanced Ceramics, of Compagnie de Saint Gobain (which acquired Norton Company in 1990), a position he held with Norton Company since 1987. Mr. Gruber previously held various executive and technical positions with Norton Company since 1978. He is a Director of State Street Corporation, a Trustee of the Manufacturers' Alliance for Productivity and Innovation, and a member of the Mechanical Engineering Advisory Committee of Worcester Polytechnic Institute. J. DOUGLAS WHELAN was elected President and Chief Operating Officer of the Company on October 15, 1997, having previously served as President, Forgings since he joined the Company in March 1994. He joined the Company's Board of Directors in 1998. Prior to joining the Company, he had served for a short time as the President of Ladish Co., Inc., a forging company in Cudahy, Wisconsin, and prior thereto, had been Vice President, Operations of Cameron, with which company and its predecessors he had been employed since 1965 in various executive capacities. Mr. Whelan is a Director of Sifco Industries, Inc. and a member of the President's Council of Manufacturers Alliance. EDWARD J. DAVIS was elected Vice President, Chief Financial Officer and Treasurer in February 1998. Prior to joining the Company, Mr. Davis had served as Executive Vice President and Chief Financial Officer of General Ship Acquisition Corporation, Boston, Massachusetts since 1992, and as Senior Manager of Price Waterhouse & Company from 1989 to 1992. SANJAY N. SHAH was elected Vice President, Corporate Strategy Planning and Business Development in May 1994, having previously served as Vice President and Assistant General Manager of the Company's Aerospace Forgings Division. He has held a number of executive, research, engineering and manufacturing positions at the Company since joining the Company in 1975. 14 16 J. STEWART SMITH was elected President, Manufacturing of the Company on October 15, 1997, having previously served as Vice President, Manufacturing and Engineering of the Forgings Division since 1994. Prior to that time, Mr. Smith had held various technical and manufacturing positions with Cameron and its predecessors since joining that company in 1978. COLIN STEAD was elected Senior Vice President, Quality and Technology of the Company on October 15, 1997, having previously served as Vice President, Quality and Metallurgy of the Forgings Division since 1994. Prior thereto, he had served in various technical and quality positions with Cameron and its predecessors since joining that company in 1984. WALLACE F. WHITNEY, JR. joined the Company in 1991. Prior to that time, he had been Vice President, General Counsel and Secretary of Norton Company since 1988, where he had been employed in various legal capacities since 1973. FRANK J. ZUGEL was elected President, Marketing of the Company on October 15, 1997, having previously served as President, Investment Castings, since he joined the Company in 1993. Prior to that time, he had served as President of Stainless Steel Products, Inc., a metal fabricator for aerospace applications, since 1992. E. PAUL CASEY, Chairman and General Partner, Metapoint Partners, Peabody, Massachusetts (an investment partnership which he established in 1988), has been a Director of the Company since 1993. He served as Vice Chairman of Textron, Inc. from 1986 to 1987 and as Chief Executive Officer and President of Ex-Cell-O Corporation during 1978 to 1986. Mr. Casey is a Director of Comerica, Inc. and Hood Enterprises, Inc., a Trustee of Henry Ford Health Care System and President of the Hobe Sound, Florida Community Chest. WARNER S. FLETCHER, Attorney and Director of the law firm of Fletcher, Tilton & Whipple, P.C., Worcester, Massachusetts, has been a Director of the Company since 1987. Mr. Fletcher is an Advisory Director of Bank of Boston, Worcester. He is also Chairman of The Stoddard Charitable Trust, a Trustee of The Fletcher Foundation, the George I. Alden Trust, Worcester Polytechnic Institute, Worcester Foundation for Experimental Biology, Bancroft School and the Worcester Art Museum. ROBERT G. FOSTER, President, Chief Executive Officer and Chairman of the Board of Commonwealth BioVentures, Inc., Portland, Maine (a venture capital company engaged in biotechnology) since 1987. Director of the Company since 1989. Term expires in 2000. He is also a Director of United Timber Corp., Meridian Medical Technologies, Phytera, the Small Enterprise Growth Fund for the State of Maine, Intellicare American and Epic Pharmaceuticals. RUSSELL E. FULLER, Chairman of REFCO, Inc., (a supplier of specialty industrial products), has been a Director of the Company since 1988. Mr. Fuller is Chairman and Treasurer of The George F. and Sybil H. Fuller Foundation and a Trustee of The Medical Center of Central Massachusetts. He is also Trustee of the Massachusetts Biotechnology Research Institute and the Worcester County Horticultural Society. CHARLES W. GRIGG, Chairman and Chief Executive Officer of SPS Technologies, Inc. (a manufacturer of high technology products in the field of fastening, precision components and materials handling), was elected a Director in 1996. Prior to joining SPS Technologies in 1993, Mr. Grigg spent ten years at Watts Industries, Inc. (a Massachusetts manufacturer of valves for industrial applications), the last nine of which as President and Chief Operating Officer. M HOWARD JACOBSON, Senior Advisor, Bankers Trust, New York, has been a Director of the Company since 1993. Term expires in 1999. Mr. Jacobson was for many years President and Treasurer and a Director of Idle Wild Foods, Inc. until that company was sold in 1986. Mr. Jacobson is a Director of Allmerica Financial Corporation, Stonyfield Farm, Inc. and Boston Chicken, Inc. He is Chairman of the Overseers of WGBH Public Broadcasting, the Massachusetts Biotechnology Research Institute, a Trustee of the Worcester Foundation for Biomedical Research, a Trustee of the Worcester Polytechnic Institute, Umass Memorial Healthcare and a member of the Harvard University Overseers' Committee on University Resources. He is also a member of the Commonwealth of Massachusetts Board of Higher Education. 15 17 JUDITH S. KING, Trustee and Treasurer of The Stoddard Charitable Trust, has been a Director of the Company since 1990. ROBERT L. LEIBENSPERGER, Executive Vice President, Chief Operating Officer and President -- Bearings of The Timken Company, Canton, Ohio (a manufacturer of precision bearings.) Mr. Leibensperger joined the Company's Board of Directors in January 1998. Mr. Leibensperger has been employed by The Timken Company since 1960, where he held various research, engineering, sales and marketing, and executive positions. Mr. Leibensperger is a member of the American Bearing Manufacturers Association Executive Committee, the Council on Competitiveness Global R&D Committee, the Stark County (Ohio) Capital Campaigns Committee, the Cultural Center for the Arts (Canton, Ohio) House & Grounds Committee and the Goodwill Industries (Canton, Ohio) Transportation Services Committee. ANDREW E. LIETZ, President and Chief Executive Officer and Director of HADCO Corporation, Salem, New Hampshire. (Manufacturer of electronic interconnect products.) Mr. Lietz joined the Company's Board of Directors in January 1998. Mr. Lietz has held various executive positions with HADCO Corporation since 1984. He is director of EnergyNorth, Inc., Business and Industry Association and National Electronics Manufacturing Initiative, as well as a member of the advisory Board of New Hampshire Whittemore School of Business and the Executive Committee of New Hampshire Industrial Research Center. H. JOHN RILEY, JR., Chairman and Chief Executive Officer of Cooper, has been a Director of the Company since 1994. Mr. Riley has served in a series of executive positions at Cooper since 1982. He was named President and Chief Operating Officer of Cooper in 1992, Chief Executive Officer in 1995 and Chairman in 1996. He is a Director and Chairman of Central Houston, Inc., a Director of Junior Achievement, Inc. and Junior Achievement of Southeast Texas, The Houston Symphony, The Houston Forum, The Greater Houston Partnership, and the Business Committee for the Arts. He also is a member of the Business Round Table and a Trustee of the Museum of Fine Arts in Houston, and the Manufacturers' Alliance for Productivity and Innovation. DAVID A. WHITE, JR., Senior Vice President of Strategic Planning for Cooper, was elected a Director in 1996. Since joining Cooper as a Planning Analyst in 1971, Mr. White has served in various planning and finance capacities. In 1980, he was named Vice President and General Manager of the Cooper Power Tools Division and in 1988 he became Vice President, Corporate Planning and Development. He assumed his present position in 1996. Mr. White serves as Vice Chairman of the Strategic Planning and Development Council of the Manufacturers' Alliance for Productivity and Innovation. ITEM 2. PROPERTIES The response to ITEM 2. PROPERTIES incorporates by reference the paragraphs captioned "Facilities" included in ITEM 1. BUSINESS. ITEM 3. LEGAL PROCEEDINGS The response to ITEM 3. LEGAL PROCEEDINGS incorporates by reference the paragraphs captioned "Environmental Regulations" and "Legal Proceedings" included in ITEM 1. BUSINESS. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the year ended May 31, 1998. 16 18 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Wyman-Gordon Company's common stock, par value $1.00 per share, is traded in the over-the-counter market and prices of its common stock appear daily in the NASDAQ National Market Quotation System. The table below lists the quarterly price range per share for the years ended May 31, 1998 and 1997. The quarterly price range per share is based on the high and low sales prices. At May 31, 1998, there were approximately 1,741 holders of record of the Company's common stock.
YEAR ENDED YEAR ENDED MAY 31, 1998 MAY 31, 1997 ------------- ---------------- HIGH LOW HIGH LOW ----- ---- ----- ---- First quarter............................................... $28 1/4 $23 3/8 $21 1/4 $15 3/8 Second quarter.............................................. 30 20 3/8 24 3/8 19 5/8 Third quarter............................................... 22 1/8 16 1/2 23 3/8 17 7/8 Fourth quarter.............................................. 23 1/8 19 3/4 23 11/16 18 1/8
ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data and other operating information of Wyman-Gordon Company. The selected financial data in the table are derived from the consolidated financial statements of Wyman-Gordon Company. The data should be read in conjunction with the consolidated financial statements, related notes, other financial information and Management's Discussion and Analysis of Financial Condition and Results of Operations included herein.
YEAR YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, 1998 1997 1996 1995 1994(1) 1993(2) ---------- -------- -------- -------- -------- -------- (UNAUDITED) (000'S OMITTED, EXCEPT PER-SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA(3): Revenues......................... $ 752,913 $608,742 $499,624 $396,639 $224,694 $239,761 Gross profit..................... 115,646 97,634 78,132 49,388 6,878 20,673 Other charges (credits)(4)....... (4,900) 23,083 2,717 (710) 35,003 2,453 Income (loss) from operations.... 68,892 30,322 37,699 13,718 (63,657) (8,428) Net income (loss)(5)............. 33,890 50,023 25,234 1,039 (72,403) (60,004) BASIC PER SHARE DATA: Income (loss) per share before extraordinary item and cumulative effect changes in accounting principles.......... $ 1.07 $ 1.40 $ 0.72 $ 0.03 $ (4.09) $ (0.95) Net income (loss) per share(5)... .93 1.40 0.72 0.03 (4.09) (3.35) Dividends paid per share......... -- -- -- -- -- -- DILUTED PER SHARE DATA: Income (loss) per share before extraordinary item and cumulative effect changes in accounting principles.......... $ 1.05 $ 1.35 $ 0.70 $ 0.03 $ (4.02) $ (0.95) Net income (loss) per share(5)... .91 1.35 0.70 0.03 (4.02) (3.34) Dividends paid per share......... -- -- -- -- -- -- Shares used to compute income (loss) per share: Basic.......................... 36,331 35,825 35,243 34,813 17,700 17,936 Diluted........................ 37,357 37,027 36,241 35,148 17,992 17,965
17 19
YEAR YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, 1998 1997 1996 1995 1994(1) 1993(2) ---------- -------- -------- -------- -------- -------- (UNAUDITED) (000'S OMITTED, EXCEPT PER-SHARE AMOUNTS) BALANCE SHEET DATA (AT END OF PERIOD)(3): Working capital.................. $ 223,764 $166,205 $116,534 $ 93,062 $ 91,688 $ 90,685 Total assets..................... 551,610 454,371 375,890 369,064 394,747 286,634 Long-term debt................... 162,573 96,154 90,231 90,308 90,385 90,461 Stockholders' equity............. 204,820 164,398 109,943 80,855 72,483 88,349 OTHER DATA: Order backlog (at end of period)........................ $1,030,092 $895,825 $598,438 $468,721 $389,407 $256,259
- --------------- (1) On May 24, 1994, the Company's Board of Directors voted to change the Company's fiscal year end from one which ended on December 31 to the Saturday nearest to May 31. For financial reporting purposes, the year end is stated as May 31. The Statement of Operations Data for the year ended May 31, 1994 is unaudited. The following table sets forth Summary Consolidated Statement of Operations Data, which has been derived from the Company's audited financial statements, for the five months ended May 31, 1994 (000's omitted, except per-share amounts): Revenue................................................... $ 86,976 Gross profit.............................................. (4,931) Other charges (credits) and environmental charges......... 32,550 Income (loss) from operations............................. (55,805) Net income (loss)......................................... (61,370) Per share data: Net income (loss) per share............................. $ (3.32) Dividends paid per share................................ --
(2) Including Cameron's financial results for the year ended December 31, 1993, the Company's pro forma unaudited revenues, loss before the cumulative effect of changes in accounting principles and net loss would have been $389,300,000, $(39,300,000) and $(82,300,000), respectively. (3) On May 26, 1994, the Company acquired Cameron Forged Products Company ("Cameron") from Cooper Industries, Inc. The Selected Consolidated Financial Data include the accounts of Cameron from the date of the acquisition. Cameron's operating results from May 26, 1994 to May 31, 1994 are not material to the consolidated statement of operations for the year ended May 31, 1994. On April 9, 1998, the Company acquired International Extruded Products, LLC ("IXP"). The Selected Consolidated Financial Data include the accounts of IXP from the date of acquisition. IXP's operating results from April 9, 1998 to May 31, 1998 are not material to the consolidated statement of operations for the year ended May 31, 1998. (4) In November 1993, the Company sold substantially all of the net assets and business operations of Wyman-Gordon Composites, Inc. and recorded a non-cash charge on the sale of $2,500,000. In May 1994, the Company recorded charges of $6,500,000 related to the closing of a castings facility, $24,100,000 related to restructuring and integration of Cameron and $2,000,000 for environmental investigation and remediation costs. During the year ended May 31, 1996, the Company provided $1,900,000 in order to recognize its 25.0% share of the net losses of its Australian joint venture and to reduce the carrying value of such joint venture. Additionally, the Company provided $800,000 to reduce the carrying value of the cash surrender value of certain company-owned life insurance policies. 18 20 During the year ended May 31, 1997, the Company recorded other charges of $23,100,000, which included $4,600,000 to provide for the costs of workforce reductions at the Company's Grafton, Massachusetts, Forging facility, $3,400,000 to the write-off and disposal of certain forging equipment, $2,300,000 to reduce the carrying value and dispose of certain assets of the Company's titanium castings operations, $1,200,000 to consolidate the titanium castings operations, $2,500,000 to reduce the carrying value of the Australian joint venture, $5,700,000 to reduce the carrying value of the cash surrender value of certain Company-owned life insurance policies, $1,900,000 to reduce the carrying value of a building held for sale and $250,000 to reduce the carrying value of other assets. Other charges (credits) in the year ended May 31, 1997 also included a charge of $1,200,000, net of insurance recovery of $6,900,000, related to the accident at the Houston, Texas, facility of Wyman-Gordon Forgings, Inc. in December 1996. Other charges (credits) in the year ended May 31, 1998 includes a credit of $4,000,000 for the recovery of cash surrender value of certain company-owned life insurance policies, a credit of $1,900,000 resulting from the disposal of a building held for sale and a charge of $1,000,000 to provide for costs as a result of the six-month shutdown of the 29,000-ton press at the Company's Houston, Texas, forging facility. (5) Includes a charge of $43,000,000, or $2.39 per share, in fiscal year 1993 relating to the Company's adoption of SFAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106") and SFAS 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 106 requires postretirement benefit obligations to be accounted for on an accrual basis rather than the "expense as incurred" basis formerly used. The Company elected to recognize the cumulative effect of these accounting changes in the year ended December 31, 1993. In the year ended May 31, 1997, net tax benefits of $25,680,000 were recognized, including a refund of prior years' income taxes amounting to $19,680,000, plus interest of $3,484,000, and $6,500,000 related to the expected realization of NOLs in future years and $10,250,000 related to current NOLs benefit offsetting $10,750,000 of current income tax expense. The refund relates to the carryback of tax net operating losses to tax years 1981, 1984 and 1986 under the applicable provisions of Internal Revenue Code Section 172(f). In the year ended May 31, 1998, the Company provided $16,355,000 for income taxes, net of a tax benefit of approximately $1,800,000 relating to the utilization of NOL carryforwards. In addition, the Company has recorded a $2,920,000 tax benefit against the extraordinary loss of $8,112,000 associated with the early extinguishment of the Company's 10 3/4% Senior Notes. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YEAR ENDED MAY 31, 1998 ("FISCAL YEAR 1998") COMPARED TO YEAR ENDED MAY 31, 1997 ("FISCAL YEAR 1997") The Company's revenue increased 23.7% to $752.9 million in fiscal year 1998 from $608.7 million in fiscal year 1997 as a result of higher sales volume and higher sales prices at the Company's Forgings and Castings Divisions. These revenue increases during fiscal year 1998 as compared to fiscal year 1997 are reflected by market as follows: a $132.7 million (27.9%) increase in aerospace, a $17.1 million (17.6%) increase in energy and a $5.6 million (15.4%) decrease in other. The reasons for the strength in the aerospace market were higher airplane and engine build rates and higher demands for spares by aerospace engine prime contractors. Although there were higher shipments to aerospace customers during fiscal year 1998, the shipments to aerospace customers were impacted by the Company's 29,000 ton press being out of service for repairs for six months. The increase in energy revenue was a result of higher shipments of land-based gas turbine products in fiscal year 1998 compared to fiscal year 1997. The cause of the decrease in other markets is primarily due to the decline in the titanium golf club head business as the Company exited this business. Revenues in fiscal year 1997 were limited by raw material shortages and production delays caused by capacity constraints of the Company's suppliers. Revenues in fiscal year 1998 were limited due to lower than anticipated productivity of recent equipment and personnel additions, unanticipated repairs of equipment and inconsistencies in raw material deliveries corresponding to customer requirements, as noted above. 19 21 The Company's backlog increased to $1,030.1 million at May 31, 1998 from $895.8 million at May 31, 1997. This increase resulted from the following factors: 1. Higher build rates of the Company's engine and airframe customers, 2. Higher prices for the Company's aerospace products, and 3. An increase in overdue orders to customer delivery dates as a result of shipping delays at the Company due to equipment repairs and raw material unavailability. The Company does not expect that this rate of increase in backlog will continue since it expects that customer orders will not increase at the same rates as in the recent past, and that capacity enhancements, refurbishments and additions installed by the Company will enable the Company to meet its customer demands in a more timely fashion. Of the Company's total current backlog, $716.8 million is shippable in the next twelve months. Because of the additional production capacity, generated from equipment enhancements, refurbishments and additions, the Company believes that it will be able to fulfill those twelve-month requirements. The Company's gross margins were 15.4% in fiscal year 1998 as compared to 16.0% in fiscal year 1997. Gross margin in fiscal year 1998 was negatively affected by the impact of the Company's 29,000 ton press being taken out of service for repairs for six months. During the six month period the press was out of service, the work scheduled on the 29,000 ton press was performed on alternative presses at a significant cost. The Company has estimated that gross margin in fiscal year 1998 was negatively impacted by approximately 2.3% as a result of underabsorption, inefficiencies and other items, all of which include extra labor, higher overtime, tooling modifications and higher scrap and rework costs. In addition, gross margin in fiscal year 1998 was negatively affected by other production inefficiency costs related to equipment downtime in the Company's Forgings operations, personnel additions and the reinstallation and start-up of two major forge presses. The Company expects that the addition of these presses and recent repair and enhancement of the Company's 29,000 ton press in Houston will improve the Company's ability to meet its customer requirements. Gross margin in fiscal year 1997 was negatively affected by higher raw material costs which could not be passed on to customers as a result of the then-existing long-term agreements with customers and by price and demand declines within the titanium golf club head business. There was no LIFO charge (credit) impacting gross margins in fiscal year 1998. In fiscal year 1997, gross margin was negatively impacted by a LIFO charge of $1.6 million. Selling, general and administrative expenses increased 16.8% to $51.7 million during fiscal year 1998 from $44.2 million during fiscal year 1997. Selling, general and administrative expenses as a percentage of revenues improved to 6.9% in fiscal year 1998 from 7.3% in fiscal year 1997. The improvement as a percent of revenues was primarily the result of higher revenues. Although selling, general and administrative expense in fiscal year 1998 improved, it includes higher costs associated with relocating employees, development costs associated with the Company's composite operations and $2.0 million higher compensation expense, as compared to fiscal year 1997, associated with the Company's performance share program. During fiscal year 1998, the Company recorded net other credits of $4.9 million. Such other credits include $1.9 million resulting from the disposal of a building held for sale and $4.0 million for the recovery of cash surrender value of certain Company-owned life insurance policies offset by other charges of $1.0 million to provide for costs as a result of the shutdown of the 29,000 ton press at the Company's Houston, Texas, forging facility. During fiscal year 1997, the Company recorded other charges of $23.1 million. Such other charges included $4.6 million to provide for the costs of workforce reductions at the Company's Grafton, Massachusetts, facility, $3.4 million to write off and disposal of certain forging equipment, $2.3 million to reduce the carrying value and dispose of certain assets of the Company's titanium castings operations, $1.2 million to consolidate the titanium castings operations, $2.5 million to recognize the Company's 25.0% share of the net losses of its Australian joint venture and to reduce the carrying value of such joint venture, $0.3 million relating to expenditures for an investment in another joint venture, $5.7 million to reduce the carrying value of 20 22 the cash surrender value of certain Company-owned life insurance policies and $1.2 million of costs, net of insurance recovery of $6.9 million, related to the Houston accident and $1.9 million to reduce the carrying value of the Jackson, Michigan, facility being held for sale. As of May 31, 1997, the Company had fully written off its investment in the Australian joint venture. However, in the future, the Company may make additional capital contributions to the Australian joint venture to satisfy its cash or other requirements and may be required to recognize its share of any additional losses or may write off such additional capital contributions. There were no contributions made to the joint venture in fiscal year 1998. Interest expense increased $1.7 million to $12.5 million in fiscal year 1998 compared to $10.8 million in fiscal year 1997. The increase results primarily from an issuance of $150.0 million of 8% Senior Notes offset by repayment of $84.7 million of 10 3/4% Senior Notes. Miscellaneous, net was an expense of $0.9 million in fiscal year 1998 as compared to income of $4.8 million in fiscal year 1997. Miscellaneous, net in fiscal year 1998, included a $0.7 million loss on the sale of fixed assets. Miscellaneous, net in fiscal year 1997 included interest income on a refund of prior years' income taxes amounting to $3.5 million and a $2.0 million gain on the sale of fixed assets. The Company provided $16.4 million for income taxes, net of a tax benefit of approximately $1.8 million relating to the utilization of NOL carryforwards. In addition, the Company has recorded a $2.9 million tax benefit against the extraordinary loss of $8.1 million associated with the early extinguishment of the Company's 10 3/4% Senior Notes. Net tax benefits of $25.7 million were recognized in fiscal year 1997, including a refund of prior years' income taxes amounting to $19.7 million and $6.5 million related to the expected realization of NOLs in the future years and $10.3 million related to current NOLs benefit offsetting $10.8 million of current income tax expense. The refund related to the carryback of tax net operating losses to tax years 1981, 1984 and 1986 under applicable provisions of Internal Revenue Code Section 172(f). In fiscal year 1998, net income before extraordinary item was $39.1 million, or $1.05 per share (diluted), and net income, including extraordinary item, was $33.9 million, or $.93 per share (diluted). In fiscal year 1998, the Company recorded an extraordinary charge of $5.2 million, or $.14 per share (diluted), net of tax, in connection with the extinguishment of $84.7 million of its 10 3/4% Senior Notes. In fiscal year 1997, the Company reported net income of $50.0 million, or $1.40 per share (diluted). The decrease resulted from the items described above. YEAR ENDED MAY 31, 1997 ("FISCAL YEAR 1997") COMPARED TO YEAR ENDED MAY 31, 1996 ("FISCAL YEAR 1996") The Company's revenue increased 21.8% to $608.7 million in fiscal year 1997 from $499.6 million in fiscal year 1996 as a result of higher sales volume at the Company's Forgings and Castings Divisions. These sales volume increases during fiscal year 1997 as compared to fiscal year 1996 are reflected by market as follows: a $112.4 million (31.0%) increase in aerospace, a $4.1 million (4.4%) increase in energy and a $7.4 million (16.9%) decrease in other. The reasons for the strength in the aerospace market were higher airplane and engine build rates and higher demands for spares by aerospace engine prime contractors. Although there were higher extruded pipe shipments to energy customers for fiscal 1997, the shipments to energy customers were impacted by the 10 week shutdown of the 35,000 ton vertical extrusion press in Houston due to the industrial accident at the Houston, Texas, facility of Wyman-Gordon Forgings, Inc. The cause of the decrease in other markets is primarily due to the decline in the titanium head golf club business because of oversupply, cost disadvantages and decreased demand. Revenues in fiscal year 1996 and, to a lesser extent, in fiscal year 1997 were limited by raw material shortages and production delays caused by capacity constraints of the Company's suppliers. The Company believes that the increase in order activity reflects a continued increase in spares demand and new business resulting from increasing production rates on commercial aircraft by commercial airframe primes. 21 23 The Company's backlog increased to $895.8 million at May 31, 1997 from $598.4 million at May 31, 1996. This increase resulted from the following factors: 1. Higher build rates of the Company's engine and airframe customers, 2. Higher prices for the Company's aerospace products, particularly as reflected in the new long-term agreements ("LTAs") which went into effect on January 1, 1997, and 3. An increase in overdue orders to customer delivery dates as a result of shipping delays at the Company due to capacity constraints and raw material unavailability. The Company does not expect that this rate of increase in backlog will continue since it expects that customer orders will not increase at the same rates as in the recent past, that prices will moderate and that capacity additions installed by the Company and its suppliers will enable the Company to meet its customer demands in a more timely fashion. Of the Company's total current backlog, $671.6 million is shippable in the next twelve months. Because of the additional production capacity that the Company and its suppliers are installing, the Company believes that it will be able to fulfill those twelve-month requirements. The Company's gross margins were 16.0% in fiscal year 1997 as compared to 15.6% in fiscal year 1996. The improvement in gross margins resulted from higher production volumes, continued emphasis on cost reductions, productivity gains resulting from the Company's continuing efforts toward focusing forging production of rotating parts for jet engines in its Houston, Texas, facility and forging production of airframe structures and large turbine parts in its Grafton, Massachusetts, facility and continuing realization of cost reductions from synergies associated with the integration of Cameron in fiscal year 1996 and fiscal year 1997. The Company believes that the improvements in gross margin would have been greater except that the Company incurred higher raw material costs which could not be passed on to customers as a result of the then-existing LTAs with its customers. Beginning in the second half of fiscal year 1996, higher demand required the Company to purchase certain raw materials under terms not covered by LTAs with its vendors. The current rebound in demand for many of these raw materials, especially nickel and titanium, resulted in significant market price increases which negatively affected the Company's gross margins. The Company began to see pricing relief for its products in early calendar 1997, when certain LTAs that the Company negotiated with its customers went into effect, allowing the Company to pass some raw material price increases on to its customers. Gross margins in fiscal year 1997 were also negatively impacted by price and demand declines within the titanium golf club head business because of oversupply, cost disadvantages and decreased demand. Gross margin was negatively impacted by a LIFO charge of $1.6 million in fiscal year 1997 as compared to a favorable impact by a LIFO credit of $4.9 million in fiscal year 1996. Selling, general and administrative expenses increased 17.3% to $44.2 million during fiscal year 1997 from $37.7 million during fiscal year 1996. Selling, general and administrative expenses as a percentage of revenues improved to 7.3% in fiscal year 1997 from 7.6% in fiscal year 1996. The improvement as a percent of revenues is the result of higher revenues. During fiscal year 1997, the Company recorded other charges of $23.1 million. Such other charges include $4.6 million to provide for the costs of workforce reductions at the Company's Grafton, Massachusetts, Forging facility, $3.4 million to write off and dispose of certain Forging equipment, $2.3 million to reduce the carrying value and dispose of certain assets of the Company's titanium castings operations, $1.2 million to consolidate the titanium castings operations, $2.5 million to recognize the Company's 25.0% share of the net losses of its Australian joint venture and to reduce the carrying value of such joint venture, $0.3 million relating to expenditures for an investment in another joint venture, $5.7 million to reduce the carrying value of the cash surrender value of certain Company-owned life insurance policies, $1.2 million of costs, net of insurance recovery of $6.9 million, related to the Houston accident and $1.9 million to reduce the carrying value of the Jackson, Michigan, facility being held for sale. As of May 31, 1997, the Company had fully written off its investment in the Australian joint venture. However, in the future, the Company may make additional capital contributions to the Australian joint 22 24 venture to satisfy its cash or other requirements and may be required to recognize its share of any additional losses or may write off such additional capital contributions. During fiscal year 1996, the Company provided $1.9 million in order to recognize its 25.0% share of the net losses of its Australian joint venture and to reserve for amounts loaned to the Australian joint venture during fiscal year 1996 and to provide for expenditures for an investment in an additional joint venture. Additionally, other charges (credits) includes a charge of $0.8 million in fiscal year 1996 to reduce the carrying value of the cash surrender value of certain Company-owned life insurance policies. Interest expense was $10.8 million in fiscal year 1997 and $11.3 million in fiscal year 1996. The decrease results from lower borrowings outstanding under the Company's U.K. Credit Agreement. Miscellaneous, net was income of $4.8 million in fiscal year 1997 as compared to an expense of $1.2 million in fiscal year 1996. Miscellaneous, net in fiscal year 1997 includes interest income on the refund of prior years' income taxes amounting to $3.5 million and a $2.0 million gain on the sale of fixed assets. Miscellaneous, net in fiscal year 1996 includes a $0.3 million gain on the sale of marketable securities. Net tax benefits of $25.7 million were recognized in fiscal year 1997 including a refund of prior years' income taxes amounting to $19.7 million and $6.5 million related to the expected realization of NOLs in the future years and $10.3 million related to current NOLs benefit offsetting $10.8 million of current income tax expense. The refund relates to the carryback of tax net operating losses to tax years 1981, 1984 and 1986 under applicable provisions of Internal Revenue Code Section 172(f). There was no provision or benefit recorded for income taxes in fiscal year 1996. The Company expects that in the year ended May 31, 1998, income tax provisions will approximate statutory rates subject to utilization of state NOLs. Net income was $50.0 million, or $1.36 per share, in fiscal year 1997 and $25.2 million, or $.70 per share in fiscal year 1996. The $24.8 million improvement results from the items described above. LIQUIDITY AND CAPITAL RESOURCES The increase in the Company's cash of $12.6 million to $64.6 million at May 31, 1998 from $52.0 million at May 31, 1997 resulted primarily from net borrowings from debt of $55.5 million, cash provided by operating activities of $14.4 million, issuance of common stock of $12.4 million in connection with employee compensation and benefit plans and $0.7 million of proceeds from the sale of fixed assets, offset by capital expenditures of $48.0 million, acquisition of IXP of $15.5 million, $4.6 million repurchase of common stock and $2.3 million payment to Cooper Industries, Inc. ("Cooper"). The $2.3 million payment to Cooper was made in accordance with the Company's $4.6 million promissory note payable to Cooper under the terms of the Stock Purchase Agreement with Cooper related to the acquisition of Cameron Forged Products Company in May 1994. The remaining $2.3 million was paid on June 30, 1998. 23 25 The increase in the Company's working capital of $57.6 million to $223.8 million at May 31, 1998 from $166.2 million at May 31, 1997 resulted primarily from (in millions): Net income.................................................. $ 33.9 Decrease in: Long-term restructuring, integration disposal and environmental.......................................... (0.8) Long-term benefit liabilities............................. (2.5) Deferred taxes and other.................................. (1.8) Other changes in stockholders' equity..................... (1.3) Increase in: Intangible and other assets............................... (2.3) Long-term debt............................................ 66.4 Property, plant and equipment, net........................ (43.6) Pension liability......................................... 1.8 Issuance of common stock.................................. 7.8 ------ Increase in working capital.......................... $ 57.6 ======
Earnings before interest, taxes, depreciation, amortization, other charges (credits) and extraordinary item ("EBITDA") increased $7.5 million to $86.6 million in fiscal year 1998 from $79.1 million in fiscal year 1997. The EBITDA increases reflect higher profitability. EBITDA should not be considered a substitute for net income as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity, in each case determined in accordance with generally accepted accounting principles. Investors should be aware that EBITDA as shown above may not be comparable to similarly titled measures presented by other companies, and comparisons could be misleading unless all companies and analysts calculate this measure in the same fashion. As of May 31, 1998, the Company estimated the remaining cash requirements for the 1997 restructuring to be $3.7 million. Of such amount, the Company expects to spend approximately $2.5 million during fiscal year 1999 and $1.2 million thereafter. As of May 31, 1998, the Company estimated the remaining cash requirements for the integration of Cameron and direct costs associated with the acquisition of Cameron to be $1.5 million, of which the Company expects to spend approximately $0.6 million during fiscal year 1999 and $0.9 million thereafter. The Company spent $0.6 million in fiscal year 1998 for non-capitalizable environmental projects and has a reserve with respect to environmental matters, the balance of which is $16.5 million, of which it expects to spend $2.0 million in fiscal year 1999 and the remainder in future periods on non-capitalizable environmental activities. The Company from time to time expends cash on capital expenditures for more cost-effective operations, environmental projects and joint development programs with customers. In fiscal year 1998, capital expenditures amounted to $48.0 million and are expected to be approximately $40.0 to $45.0 million in fiscal year 1999. On December 15, 1997, the Company issued $150.0 million of 8% Senior Notes due 2007 under an indenture between the Company and a bank as trustee. The 8% Senior Notes were issued at a price of 99.323% of face value and pay interest semi-annually in arrears on June 15 and December 15 of each year, commencing June 15, 1998. The 8% Senior Notes are general unsecured obligations of the Company, are non-callable for a five-year period and are senior to any future subordinated indebtedness of the Company. The Company used approximately $90.7 million of the net proceeds from the sale of the 8% Senior Notes to repurchase $84.7 million (94%) of its outstanding 10 3/4% Senior Notes due 2003. The Company's revolving receivables-backed credit facility (the "Receivables Financing Program") provides the Company with an aggregate maximum borrowing capacity of $65.0 million (subject to a 24 26 borrowing base), with a letter of credit sub-limit of $35.0 million. The term of the Receivables Financing Program is five years with a renewal option. As of May 31, 1998, the total availability under the Receivables Financing Program was $65.0 million, there were no borrowings and letters of credit amounting to $8.4 million were outstanding. Wyman-Gordon Limited, the Company's subsidiary located in Livingston, Scotland, entered into a credit agreement ("the U.K. Credit Agreement") with Clydesdale Bank PLC ("Clydesdale") effective June 27, 1997. The maximum borrowing capacity under the U.K. Credit Agreement is #2,000,000 (approximately $3,200,000) with separate letter of credit and guarantee limits of #1,000,000 (approximately $1,600,000) each. Borrowings bear interest at 1% over Clydesdale's base rate. In the event that borrowings by way of overdraft are allowed to exceed the agreed limit, interest on the excess borrowings will be charged at the rate of 1.5% per annum over Clydesdale's base rate. The U.K. Credit Agreement is secured by all present and future assets of Wyman-Gordon Limited (including without limitation, accounts receivable, inventory, property, plant and equipment, intellectual property, intercompany loans, and other real and personal property). The U.K. Credit Agreement contains covenants representations and warranties customary for such facilities. There were no borrowings outstanding at May 31, 1998 or May 31, 1997. At May 31, 1998, and May 31, 1997, Wyman-Gordon Limited had outstanding #975,000 (approximately $1,590,000), and #935,000 (approximately $1,534,000) respectively, of letters of credit or guarantees under the U.K. Credit Agreement. The primary sources of liquidity available to the Company to fund operations and other future expenditures include available cash ($64.6 million at May 31, 1998), borrowing availability under the Company's Receivables Financing Program, cash generated by operations and reductions in working capital requirements through planned inventory reductions and accounts receivable management. The Company believes that it has adequate resources to provide for its operations and the funding of restructuring, integration, capital and environmental expenditures. IMPACT OF INFLATION The Company's earnings may be affected by changes in price levels and in particular, changes in the price of basic metals. The Company's contracts generally provide for fixed prices for finished products with limited protection against cost increases. The Company would therefore be affected by changes in prices of the raw materials during the term of any such contract. The Company attempts to minimize this risk by entering into fixed price arrangements with raw material suppliers and, where possible, negotiating price escalators into its customer contracts to offset a portion of raw material cost increases. ACCOUNTING AND TAX MATTERS Effective February 28, 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 replaces the previously reported primary and fully diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented and, where necessary, restated to conform to the SFAS 128 requirements. In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). The implementation of SFAS 130 will require that the components of comprehensive income be reported in the financial statements. Implementation of this new Standard is required for the year ending May 31, 1999 ("Fiscal Year 1999"). In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). The implementation of SFAS 131 will require the disclosure of segment information utilizing the approach that the Company uses to manage its internal organization. Implementation of this Standard is required for the year ending May 31, 1999. 25 27 In February 1998, the Financial Accounting Standards Board issued Statement No. 132, "Employers' Disclosures about Pensions and Other Post Retirement Benefits" ("SFAS 132"). SFAS 132 standardizes disclosure requirements of Statement Nos. 87, "Employers' Accounting for Pensions", and 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". Implementation of this Standard is required for the year ending May 31, 1999. YEAR 2000 The Year 2000 computer issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the computer programs in the Company's computer systems and plant equipment systems that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. The Company's overall Year 2000 project approach and status is as follows:
STAGE OF ESTIMATED TIMETABLE DESCRIPTION OF APPROACH: COMPLETION: FOR COMPLETION: - ------------------------ ----------- ------------------- Computer Systems: Assess systems for possible Year 2000 impact.............. 100% Completed Modify or replace non-compliant systems................... 40% May 31,1999 Test systems with system clocks set at current date....... 40% May 31,1999 Test systems off-line with system clocks set at various Year 2000 related critical dates....................... 10% May 31,1999 Plant Equipment: Computer-dependent plant equipment assessment and compliance procedures performed........................ 10% May 31,1999
The Company has completed a comprehensive inventory of substantially all computer systems and programs. All hardware required for stand alone testing of systems has been installed in order to perform off-line testing for Year 2000 program compliance. The Company has identified all software supplied by outside vendors that are not Year 2000 compliant. With respect to approximately 90% such non-compliant software the Company has acquired the most recent release and is currently testing such versions for Year 2000 compliance. All software developed in-house has been reviewed and necessary modifications have been completed and are in the final stages of testing. In addition to assessing the Company's Year 2000 readiness, the Company has contacted and sent questionnaires regarding Year 2000 readiness to most of its suppliers. Over 70% have responded thus far. Of this amount, the majority of the Company's top suppliers have responded and believe they will be Year 2000 compliant prior to December 31, 1999. On-site audits of our key suppliers are currently being coordinated in order to assess their Year 2000 system readiness. The Company is using both internal and external resources to reprogram, or replace, and test software for Year 2000 modifications. The Year 2000 project is 40% complete and the Company anticipates completing the project by mid-1999. Maintenance or modification costs will be expensed as incurred, while the costs of new information technology will be capitalized and amortized in accordance with Company policy. The Company is uncertain of the cost of making its computer-dependent plant-equipment Year 2000 compliant due to the early stages of this part of the Year 2000 computer project. The estimated cost of the Year 2000 computer project, including software modifications, consultants, replacement costs for non-compliant systems and internal personnel costs, based on presently available information, is not material to the financial operations of the Company and is estimated at approximately $0.8 million. However, if such modifications and conversions are not made, or are not completed in time, the Year 2000 computer issue could have a material impact on the operations of the Company. 26 28 The Company is currently making Year 2000 contingency plans. The Company has multiple business systems at different locations. In case of the failure of a system at one location, the Company's contingency plan is to evaluate the use of an alternate compliant business system at another location. The Company will continue to assess possible contingency plan solutions. The forecast costs and the date on which the Company believes it will complete its Year 2000 computer modifications are based on its best estimates, which, in turn, were based on numerous assumptions of future events, including third-party modification plans, continued availability of resources and other factors. The Company cannot be sure that these estimates will be achieved and actual results could differ materially from those anticipated. OTHER MATTERS On December 22, 1996, a serious industrial accident occurred at the Houston, Texas, facility of WGFI. For details of the accident, refer to "Legal Proceedings" within this Form 10-K. "FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY" Certain statements in Management's Discussion and Analysis of Financial Condition and Results of Operations contain "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995). The words "believe," "expect," "anticipate," "intend," "estimate," "assume" and other similar expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. In addition, information concerning raw material prices and availability, customer orders and pricing, and industry cyclicality and their impact on gross margins and business trends, as well as liquidity and sales volume are forward-looking statements. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are in some cases beyond the control of the Company and may cause the actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Certain factors that might cause such differences include, but are not limited to, the following: The Company's ability to successfully negotiate long-term contracts with customers and raw materials suppliers at favorable prices and other terms acceptable to the Company, the Company's ability to obtain required raw materials and to supply its customers on a timely basis and the cyclicality of the aerospace industry. For further discussion identifying important factors that could cause actual results to differ materially from those anticipated in forward-looking statements, see "Business -- The Company," "Customers," "Marketing and Sales," "Backlog," "Raw Materials," "Energy Usage," "Employees," "Competition," "Environmental Regulations," "Product Liability Exposure" and "Legal Proceedings". 27 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF MANAGEMENT To the Stockholders of Wyman-Gordon Company: We have prepared the financial statements included herein and are responsible for all information and representations contained therein. Such financial information was prepared in accordance with generally accepted accounting principles appropriate in the circumstances, based on our best estimates and judgements. Wyman-Gordon maintains accounting and internal control systems which are designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and to produce records adequate for preparation of financial information. These systems are established and monitored in accordance with written policies which set forth management's responsibility for proper internal accounting controls and the adequacy of these controls subject to continuing independent review by our external auditors, Ernst & Young LLP. To assure the effective administration of internal control, we carefully select and train our employees, develop and disseminate written policies and procedures and provide appropriate communication channels. We believe that it is essential for the Company to conduct its business affairs in accordance with the highest ethical standards. The financial statements have been audited by Ernst & Young LLP, Independent Auditors, in accordance with generally accepted auditing standards. In connection with their audit, Ernst & Young LLP has developed an understanding of our accounting and financial controls, and conducted such tests and related procedures as it considers necessary to render their opinion on the financial statements. The financial data contained in these financial statements were subject to review by the Audit Committee of the Board of Directors. The Audit Committee meets periodically during the year with Ernst & Young LLP and with management to review accounting, auditing, internal control and financial reporting matters. We believe that our policies and procedures provide reasonable assurance that operations are conducted in conformity with applicable laws and with our commitment to a high standard of business conduct. David P. Gruber Signature David P. Gruber Chairman and Chief Executive Officer Edward J. Davis Signature Edward J. Davis Vice President, Chief Financial Officer and Treasurer 28 30 WYMAN-GORDON COMPANY REPORT OF INDEPENDENT AUDITORS To the Stockholders of Wyman-Gordon Company: We have audited the accompanying consolidated balance sheets of Wyman-Gordon Company and subsidiaries as of May 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended May 31, 1998. Our audits also included the financial statement schedule of Wyman-Gordon Company listed in Item 14(a). These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wyman-Gordon Company and subsidiaries at May 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended May 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. 'Ernst & Young Signature Boston, Massachusetts June 25, 1998 29 31 WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR YEAR YEAR ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, 1998 1997 1996 ---------- ---------- ---------- (000'S OMITTED, EXCEPT PER-SHARE DATA) Revenue.................................................... $752,913 $608,742 $499,624 -------- -------- -------- Cost of goods sold......................................... 637,267 511,108 421,492 Selling, general and administrative expenses............... 51,654 44,229 37,716 Other charges (credits).................................... (4,900) 23,083 2,717 -------- -------- -------- 684,021 578,420 461,925 -------- -------- -------- Income from operations..................................... 68,892 30,322 37,699 -------- -------- -------- Other deductions (income): Interest expense......................................... 12,548 10,822 11,272 Miscellaneous, net....................................... 907 (4,843) 1,193 -------- -------- -------- 13,455 5,979 12,465 -------- -------- -------- Income before income taxes................................. 55,437 24,343 25,234 Provision (benefit) for income taxes....................... 16,355 (25,680) -- -------- -------- -------- Income before extraordinary item........................... 39,082 50,023 25,234 Extraordinary item net of income tax benefit (Note D)...... 5,192 -- -- -------- -------- -------- Net income................................................. $ 33,890 $ 50,023 $ 25,234 ======== ======== ======== Basic net income per share: Income before extraordinary item......................... $ 1.07 $ 1.40 $ .72 Extraordinary item, net of tax........................... (.14) -- -- -------- -------- -------- Net income............................................... $ .93 $ 1.40 $ .72 ======== ======== ======== Diluted net income per share: Income before extraordinary item......................... $ 1.05 $ 1.35 $ .70 Extraordinary item, net of tax........................... (.14) -- -- -------- -------- -------- Net income............................................... $ .91 $ 1.35 $ .70 ======== ======== ======== Shares used to compute net income per share: Basic.................................................... 36,331 35,825 35,243 Diluted.................................................. 37,357 37,027 36,241
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements. 30 32 WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MAY 31, MAY 31, 1998 1997 -------- -------- (000'S OMITTED) ASSETS Cash and cash equivalents................................... $ 64,561 $ 51,971 Accounts receivable......................................... 124,658 119,159 Inventories................................................. 133,134 92,332 Prepaid expenses............................................ 6,710 7,789 Deferred income taxes....................................... -- 6,500 -------- -------- Total current assets.............................. 329,063 277,751 -------- -------- Property, plant and equipment, net.......................... 197,363 153,737 Intangible assets........................................... 19,461 19,255 Other assets................................................ 5,723 3,628 -------- -------- Total assets...................................... $551,610 $454,371 ======== ======== LIABILITIES Borrowings due within one year.............................. $ 3,017 $ 77 Accounts payable............................................ 51,590 62,092 Accrued liabilities and other............................... 50,692 49,377 -------- -------- Total current liabilities......................... 105,299 111,546 -------- -------- Restructuring, integration, disposal and environmental...... 17,314 18,172 Long-term debt.............................................. 162,573 96,154 Pension liability........................................... 2,908 1,102 Deferred income taxes and other............................. 14,066 15,861 Postretirement benefits..................................... 44,630 47,138 STOCKHOLDERS' EQUITY Preferred stock, no par value: Authorized 5,000,000 shares; none issued............................................... -- -- Common stock, par value $1.00 per share: Authorized 70,000,000 shares; issued 37,052,720........... 37,053 37,053 Capital in excess of par value.............................. 28,037 27,608 Retained earnings........................................... 148,847 114,957 Equity adjustments.......................................... 1,465 2,763 Treasury stock, 543,077 and 1,001,199 shares at May 31, 1998 and 1997.................................................. (10,582) (17,983) -------- -------- Total stockholders' equity........................ 204,820 164,398 -------- -------- Total liabilities and stockholders' equity........ $551,610 $454,371 ======== ========
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements. 31 33 WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR YEAR YEAR ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, 1998 1997 1996 -------- -------- -------- (000'S OMITTED) OPERATING ACTIVITIES: Net income................................................. $ 33,890 $ 50,023 $ 25,234 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary loss on debt retirement.................... 5,192 -- -- Depreciation and amortization............................ 23,473 20,872 17,428 Deferred income taxes.................................... 6,500 (6,500) -- Other charges (credits).................................. -- 19,145 846 Losses on equity investment.............................. -- 2,734 1,871 Changes in assets and liabilities: Accounts receivable...................................... (1,547) (24,430) (15,709) Inventories.............................................. (38,219) (27,235) 12,940 Prepaid expenses and other assets........................ 727 4,754 3,118 Accrued restructuring, integration, disposal and environmental......................................... (3,536) (3,950) (6,837) Income and other taxes payable........................... (123) (5,241) 3,631 Accounts payable and accrued and other liabilities....... (11,931) 17,839 (7,250) -------- -------- -------- Net cash provided by operating activities............. 14,426 48,011 35,272 -------- -------- -------- INVESTING ACTIVITIES: Investment in acquired subsidiaries...................... (15,460) -- -- Capital expenditures..................................... (48,017) (34,123) (18,331) Proceeds from sale of fixed assets....................... 869 559 1,718 Other, net............................................... (221) (921) (1,664) -------- -------- -------- Net cash (used) by investing activities............... (62,829) (34,485) (18,277) -------- -------- -------- FINANCING ACTIVITIES: Payment to Cooper Industries, Inc........................ (2,300) -- -- Net borrowings (repayments) of debt...................... 55,463 5,923 (3,915) Net proceeds from issuance of common stock............... 12,433 7,325 3,198 Repurchase of common stock............................... (4,603) (4,937) -- -------- -------- -------- Net cash provided (used) by financing activities...... 60,993 8,311 (717) -------- -------- -------- Increase in cash........................................... 12,590 21,837 16,278 Cash, beginning of period.................................. 51,971 30,134 13,856 -------- -------- -------- Cash, end of period........................................ $ 64,561 $ 51,971 $ 30,134 ======== ======== ========
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements. 32 34 WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ---------------- CAPITAL IN SHARES PAR EXCESS OF RETAINED EQUITY TREASURY ISSUED VALUE PAR VALUE EARNINGS ADJUSTMENTS STOCK TOTALS ------ ------- ---------- -------- ----------- -------- -------- (000'S OMITTED) Balance, May 31, 1995....... 37,053 $37,053 $40,118 $ 39,700 $ 63 $(36,079) $ 80,855 Net income................ 25,234 25,234 Stock plans............... (6,486) 8,626 2,140 Savings/Investment Plan match.................. (341) 1,399 1,058 Pension equity adjustment............. 1,403 1,403 Currency translation...... (747) (747) ------ ------- ------- -------- ------ -------- -------- Balance, May 31, 1996....... 37,053 37,053 33,291 64,934 719 (26,054) 109,943 Net income................ 50,023 50,023 Stock plans............... (5,838) 11,106 5,268 Stock repurchase.......... (4,937) (4,937) Savings/Investment Plan match.................. 155 1,902 2,057 Pension equity adjustment............. (23) (23) Currency translation...... 2,067 2,067 ------ ------- ------- -------- ------ -------- -------- Balance, May 31, 1997....... 37,053 37,053 27,608 114,957 2,763 (17,983) 164,398 Net income................ 33,890 33,890 Stock plans............... 12 9,982 9,994 Stock repurchase.......... (4,603) (4,603) Savings/Investment Plan match.................. 417 2,022 2,439 Pension equity adjustment............. (901) (901) Currency translation...... (397) (397) ------ ------- ------- -------- ------ -------- -------- Balance, May 31, 1998....... 37,053 $37,053 $28,037 $148,847 $1,465 $(10,582) $204,820 ====== ======= ======= ======== ====== ======== ========
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements. 33 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company is engaged principally in the design, engineering, production and marketing of high-technology forged and investment cast metal and composite components used for a wide variety of aerospace and power generation applications. The Company maintains its books using a 52/53 week year ending on the Saturday nearest to May 31. For purposes of the consolidated financial statements, the year-end is stated at May 31. The years ended May 31, 1998, 1997 and 1996 consisted of 52 weeks. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Revenue Recognition: Sales and income are recognized at the time products are shipped. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications: Where appropriate, prior year amounts have been reclassified to permit comparison. Cash and Cash Equivalents: Cash equivalents include short-term investments with maturities of less than three months at the time of investment. Inventories: Inventories are valued at both the lower of first-in, first-out (FIFO) cost or market, or for certain forgings raw material and work-in-process inventories, the last-in, first-out (LIFO) method. On certain orders, usually involving lengthy raw material procurement and production cycles, progress payments received from customers are reflected as a reduction of inventories. Product repair costs are expensed as incurred. Long-Term, Fixed Price Contracts: A substantial portion of the Company's revenues is derived from long-term, fixed price contracts with major engine and aircraft manufacturers. These contracts are typically "requirements" contracts under which the purchaser commits to purchase a given portion of its requirements of a particular component from the Company. Actual purchase quantities are typically not determined until shortly before the year in which products are to be delivered. Losses on such contracts are provided when available information indicates that the sales price is less than a fully allocated cost projection. Depreciable Assets: Property, plant and equipment, including significant renewals and betterments, are capitalized at cost and are depreciated on the straight-line method. Generally, depreciable lives range from 10 to 20 years for land improvements, 10 to 40 years for buildings and 5 to 15 years for machinery and equipment. Tooling production costs are primarily classified as machinery and equipment and are capitalized at cost less associated reimbursement from customers and depreciated over 5 years. Depreciation expense amounted to $22,835,000, $20,168,000 and $16,723,000 in the years ended May 31, 1998, 1997 and 1996, respectively. Bank Fees: Bank fees and related costs of obtaining credit facilities are recorded as other assets and amortized over the term of the facilities. Net Income per Share: In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 replaces the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Basic per-share data are computed based on the weighted average number of common shares outstanding during each year. Common stock equivalents related to outstanding stock options are included in diluted per-share computations unless their inclusion would be antidilutive. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to the SFAS 128 requirements. 34 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Concentration of Credit Risk: Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of temporary cash investments and trade receivables. The Company restricts investment of temporary cash investments to financial institutions with high credit standing. The Company has approximately 1,100 active customers. However, the Company's accounts receivable are concentrated with a small number of Fortune 500 companies with whom the Company has long-standing relationships. Accordingly, management considers credit risk to be low. Five customers accounted for 50.5%, 47.7% and 47.3% of the Company's revenues during the years ended May 31, 1998, 1997 and 1996, respectively. General Electric Company ("GE")and United Technologies Corporation ("UT") each accounted for 10%, or more, of the Company's revenues as follows:
YEAR YEAR YEAR ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, 1998 % 1997 % 1996 % -------- --- -------- --- -------- --- ($000'S OMITTED, EXCEPT PERCENTAGES) GE............................... $169,894 23 $156,764 26 $134,830 27 UT............................... 76,786 10 60,921 10 53,116 11
Currency Translation: For foreign operations, the local currency is the functional currency. Assets and liabilities are translated at year-end exchange rates, and statement of income items are translated at the average exchange rates for the year. Translation adjustments are reported in equity, adjustments as a separate component of stockholders' equity, which also includes exchange gains and losses on certain intercompany balances of a long-term investment nature. Research and Development: Research and development expenses, including related depreciation, amounted to $3,290,000, $2,895,000 and $1,630,000 for the years ended May 31, 1998, 1997 and 1996, respectively. Intangible Assets: Intangible assets consist primarily of costs of acquired businesses in excess of net assets acquired and are amortized on a straight line basis over periods up to 35 years. On a periodic basis, the Company estimates the future undiscounted cash flows of the businesses to which the costs of acquired businesses in excess of net assets acquired relate in order to ensure that the carrying value of such intangible asset has not been impaired. Accounting for Stock-Based Compensation: The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), in accounting for its employee stock option plans because the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, when the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Impairment of Long-Lived Assets: Effective June 1, 1996, the Company adopted Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS 121 prescribes the accounting for the impairment of long-lived assets that are to be held and used in the business and similar assets to be disposed of. The adoption has not had a material effect on earnings or the financial position of the Company. Reporting Comprehensive Income: In June 1997, the Financial Accounting Standards Board issued Statement No. 130 "Reporting Comprehensive Income" ("SFAS 130"). The implementation of SFAS 130 will require that the components of comprehensive income be reported in the financial statements. Implementation of this new Standard is required for the year ending May 31, 1999. Segment Reporting: In June 1997, the Financial Accounting Standards Board issued Statement No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). The implementation of SFAS 131 will require the disclosure of segment information utilizing the approach that 35 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the Company uses to manage its internal organization. Implementation of this Standard is required for the year ending May 31, 1999. Pensions and Other Post Retirement Benefits: In February 1998, the Financial Accounting Standards Board issued Statement No. 132, "Employers' Disclosures about Pensions and Other Post Retirement Benefits" ("SFAS 132"). SFAS 132 standardizes disclosure requirements of Statement No's. 87, "Employers' Accounting for Pensions," and 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." Implementation of this Standard is required for the year ending May 31, 1999. B. ACQUISITION The Company acquired International Extruded Products, LLC ("IXP"), a specialty manufacturer of extruded seamless wall pipe, on April 9, 1998 for approximately $15,460,000. The acquisition was financed through operating cash. The acquisition was accounted for as a purchase and the net assets and results of operations have been included in the consolidated financial statements since the date of acquisition. The purchase price was allocated on the basis of the estimated fair market value of the assets acquired and the liabilities assumed. This acquisition did not materially impact consolidated results, therefore no pro forma information is provided. C. BALANCE SHEET INFORMATION Components of selected captions in the consolidated balance sheets follow:
MAY 31, MAY 31, 1998 1997 -------- -------- (000'S OMITTED) PROPERTY, PLANT AND EQUIPMENT: Land, buildings and improvements............................ $133,401 $108,496 Machinery and equipment..................................... 330,337 292,103 Under construction.......................................... 27,065 21,789 -------- -------- 490,803 422,388 Less: accumulated depreciation.............................. 293,440 268,651 -------- -------- $197,363 $153,737 ======== ======== INTANGIBLE ASSETS: Pension intangible.......................................... $ 1,847 $ 937 Costs in excess of net assets acquired...................... 28,786 28,786 Less: accumulated amortization.............................. (11,172) (10,468) -------- -------- $ 19,461 $ 19,255 ======== ======== OTHER ASSETS: Cash surrender value of Company-owned life insurance policies.................................................. $ 1,105 $ 1,041 Other....................................................... 4,618 2,587 -------- -------- $ 5,723 $ 3,628 ======== ======== ACCRUED LIABILITIES AND OTHER: Accrued payroll and benefits................................ $ 12,520 $ 12,602 Restructuring, integration, disposal and environmental reserves.................................................. 5,330 7,108 Other....................................................... 32,842 29,667 -------- -------- $ 50,692 $ 49,377 ======== ========
36 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) D. INVENTORIES Inventories consisted of the following:
MAY 31, MAY 31, 1998 1997 -------- -------- (000'S OMITTED) Raw material................................................ $ 50,050 $ 36,990 Work-in-process............................................. 92,136 65,742 Other....................................................... 4,221 2,905 -------- -------- 146,407 105,637 Less progress payments...................................... 13,273 13,305 -------- -------- $133,134 $ 92,332 ======== ========
At May 31, 1998 and 1997 approximately 38% and 37%, respectively, of inventories are valued at LIFO cost. If all inventories valued at LIFO cost had been valued at FIFO cost or market which approximates current replacement cost, inventories would have been $18,262,000 higher than reported at May 31, 1998 and 1997. LIFO inventory quantities increased in the year ended May 31, 1998 and 1997. LIFO inventory quantities were reduced in the year ended May 31, 1996, resulting in the liquidation of LIFO inventories carried at the lower costs prevailing in prior years compared with the cost of current purchases which has a favorable effect on income from operations. Inflation and deflation have negative and positive effects on income from operations, respectively. The effects of lower quantities and inflation were as follows:
YEAR YEAR YEAR ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, 1998 1997 1996 ------- ------- ------- (000'S OMITTED) Lower quantities........................................ $-- $ -- $5,448 Inflation............................................... -- (1,600) (526) -- ------- ------ Net increase (decrease) to income from operations....... $-- $(1,600) $4,922 == ======= ======
E. SHORT-TERM AND LONG-TERM DEBT Short-term and long-term debt consisted of the following:
MAY 31, MAY 31, 1998 1997 -------- ------- (000'S OMITTED) Borrowings due within one year: Current portion of long-term debt......................... $ 3,017 $ 77 -------- ------- Total borrowings due within one year.............. $ 3,017 $ 77 ======== ======= Long-term debt: 10 3/4% Senior Notes...................................... $ 5,275 $90,000 8% Senior Notes........................................... 150,000 -- Industrial Revenue Bond................................... 5,600 6,000 Other..................................................... 1,698 154 -------- ------- Total long-term debt.............................. $162,573 $96,154 ======== =======
37 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On December 15, 1997, the Company issued $150,000,000 of 8% Senior Notes due 2007 ("8% Senior Notes") under an indenture between the Company and a bank as trustee. The 8% Senior Notes were issued at a price of 99.323% of face value and pay interest semi-annually in arrears on June 15 and December 15 of each year, commencing June 15, 1998. The 8% Senior Notes are general unsecured obligations of the Company, are non-callable for a five year period, and are senior to any future subordinated indebtedness of the Company. The Company used approximately $90,750,000 of the net proceeds from the sale of the 8% Senior Notes to repurchase $84,725,000 (94%) of its outstanding 10 3/4% Senior Notes due 2003 ("10 3/4% Senior Notes"). In conjunction with the extinguishment of the 10 3/4% Senior Notes, the Company recorded an extraordinary loss, net of income tax benefit of $2,920,000, amounting to $5,192,000. The extraordinary after-tax loss relates to (i) the premium related to the retirement of the 10 3/4% Senior Notes, (ii) the write-off of certain deferred debt issue expenses and (iii) fees and expenses payable by the Company with respect to the tender offer for the 10 3/4% Senior Notes. The estimated fair value of the combined 8% and 10 3/4% Senior Notes was $157,067,000 and $96,300,000 at May 31, 1998 and 1997, respectively, based on third party valuations. In December 1996, the Company issued an Industrial Revenue Bond (the "IRB") for the construction of a facility in Montrose, Colorado amounting to $6,000,000. The IRB bears an interest rate approximating 3.9%, fluctuating weekly. The fair value approximates market value. The Company maintains a letter of credit to collateralize the IRB. On May 20, 1994, the Company initiated, through a subsidiary, Wyman-Gordon Receivables Corporation ("WGRC"), a revolving credit agreement with a group of five banks ("Receivables Financing Program"). WGRC is a separate corporate entity from Wyman-Gordon Company and its other subsidiaries, with its own separate creditors. WGRC's business is the purchase of accounts receivable from Wyman-Gordon Company and certain of its subsidiaries ("Sellers"), and neither WGRC on the one hand nor the Sellers (or subsidiaries or affiliates of the Sellers) on the other have agreed to pay or make their assets available to pay creditors of others. WGRC's creditors have a claim on its assets prior to those assets becoming available to any creditors of any of the Sellers. The facility provides for a total commitment by the banks of up to $65,000,000, including a letter of credit subfacility of up to $35,000,000. Interest on borrowings is charged at LIBOR plus 0.625% or based on the bank's base rate. There were no borrowings outstanding under the Receivables Financing Program at May 31, 1998 and 1997. At May 31, 1998 and 1997, the total availability under the Receivables Financing Program was $65,000,000 and $45,310,000, respectively, there were no borrowings against the available amounts in either year and letters of credit amounting to $8,373,000 and $7,007,000 were outstanding, respectively. Wyman-Gordon Limited, the Company's subsidiary located in Livingston, Scotland, entered into a credit agreement ("the U.K. Credit Agreement") with Clydesdale Bank PLC ("Clydesdale") effective June 27, 1997. The maximum borrowing capacity under the U.K. Credit Agreement is #2,000,000 (approximately $3,200,000) with separate letter of credit and guarantee limits of #1,000,000 (approximately $1,600,000) each. Borrowings bear interest at 1% over Clydesdale's base rate. In the event that borrowings by way of overdraft are allowed to exceed the agreed limit, interest on the excess borrowings will be charged at the rate of 1.5% per annum over Clydesdale's base rate. The U.K. Credit Agreement is secured by all present and future assets of Wyman-Gordon Limited (including without limitation, accounts receivable, inventory, property, plant and equipment, intellectual property, intercompany loans, and other real and personal property). The U.K. Credit Agreement contains covenants representations and warranties customary for such facilities. There were no borrowings outstanding at May 31, 1998 or May 31, 1997. At May 31, 1998, and May 31, 1997, Wyman-Gordon Limited had outstanding #975,000 (approximately $1,590,000), and #935,000 (approximately $1,534,000) respectively, of letters of credit or guarantees under the U.K. Credit Agreement. 38 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) For the years ended May 31, 1998 and 1997, the weighted average interest rate on short-term borrowings was 6.5% and 6.8%, respectively. Annual maturities of long-term debt in the next five years amount to $3,017,000 for 1999, $1,241,000 for 2000, $1,198,000 for 2001, $1,234,000 for 2002, $6,500,000 for 2003 and $152,400,000 thereafter. On June 30, 1998, the Company made a final principal payment of $2,300,000 under the Company's promissory note to Cooper Industries, Inc. provided under the terms of the "Stock Purchase Agreement" with Cooper Industries, Inc.
YEAR YEAR YEAR ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, 1998 1997 1996 ------- ------- ------- (000'S OMITTED) Interest on debt.............................. $11,319 $ 9,795 $10,003 Capitalized interest........................ -- (528) (262) Amortization of financing fees and other.... 1,229 1,555 1,531 ------- ------- ------- Interest expense............................ $12,548 $10,822 $11,272 ======= ======= =======
Total interest paid approximates "Interest on debt" stated in the table above. F. RESTRUCTURING OF OPERATIONS AND OTHER CHARGES (CREDITS) Cameron Purchase Cash Costs: On May 26, 1994, the Company acquired Cameron Forged Products Company ("Cameron") from Cooper Industries, Inc. Included as part of the Cameron purchase price allocation, the Company recorded $12,200,000 for direct cash costs related to the acquisition and integration of Cameron, for relocation of Cameron machinery and dies, severance of Cameron personnel and other costs. During the year ended May 31, 1995, the Company made $4,100,000 of cash charges against the reserves and it was determined that the cash costs of the acquisition were $5,200,000 lower than originally estimated. There have been no significant changes to the Company's May 31, 1995 estimates of the remaining integration activities. The Company made $2,400,000 of cash charges against these reserves in the years ended May 31, 1998, 1997 and 1996. The remaining activities will require estimated cash outlays of $100,000 in the year ended May 31, 1999 and $400,000 thereafter. 1994 Cameron Integration Costs: Based on the Company's plans for the integration of Cameron, in May 1994, the Company recorded an integration restructuring charge totalling $24,100,000 to provide for relocating machinery, equipment, tooling and dies of the Company as well as relocation and severance costs related to personnel of the Company and the write-down of certain assets of the Company, including portions of metal production facilities and certain forging, machining and testing equipment to net realizable value as a result of consolidating certain systems and facilities, idling certain machinery and equipment, and eliminating certain processes, departments and operations as a result of the acquisition. During the year ended May 31, 1995, after a year of evaluating the combined forgings operations and concluding that most of its integration activities had been completed or were adequately provided for within the remaining integration restructuring reserves, the Company determined that severance and other personnel costs were $1,900,000 lower and movement of machinery, equipment and tooling and dies costs were $2,500,000 lower than originally estimated. Additionally, certain machinery and equipment redundancies as a result of the integration of Cameron's operations with those of the Company's were $2,300,000 higher than original estimates. As a result, the Company took into income from operations in 1995, an integration restructuring credit in the amount of $2,100,000. There have been no significant changes to the Company's May 31, 1995 estimates of the remaining integration activities. The Company made a total of $4,700,000 of 39 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) cash charges against these reserves during the years ended May 31, 1998, 1997 and 1996. At May 31, 1998, the Company estimates these remaining integration activities will require cash outlays of approximately $500,000 in the year ended May 31, 1999 and $500,000 thereafter. Most of these future expenditures represent costs associated with consolidation and reconfiguration of production facilities and relocation or severance costs. 1997 Restructuring: The Company recorded a charge totalling $11,500,000 which included $4,600,000 to provide for the costs of workforce reductions at the Company's Grafton, Massachusetts Forging facility, $3,400,000 to write-off and dispose of certain Forging equipment, $2,300,000 to reduce the carrying value and dispose of certain assets of the Company's titanium castings operations and $1,200,000 to consolidate the titanium castings operations. The Company made a total of $2,700,000 of cash charges against these reserves during the years ended May 31, 1998 and 1997 and estimates that the remaining severance and other personnel costs, disposal of Forging equipment and consolidation of the titanium castings operations will require cash outlays of $2,500,000 in the year ended May 31, 1999 and $1,200,000 thereafter. 40 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of charges made or estimated to be made against restructuring, integration and disposal reserves is as follows:
FIVE MONTHS ENDED YEAR MAY 31, 1994 YEAR YEAR YEAR ENDED AND FOR THE ENDED ENDED ENDED MAY 31, YEAR ENDED MAY 31, MAY 31, MAY 31, 1999 AND TOTAL MAY 31, 1995 1996 1997 1998 THEREAFTER ------- ------------ ------- ------- ------- ---------- (000'S OMITTED) CAMERON PURCHASE CASH COSTS: Cost of relocating Cameron's machinery and equipment and tooling and dies.............. $ 3,200 $ 1,700 $ 300 $ 800 $ 100 $ 300 Severance of Cameron personnel... 3,800 2,400 1,200 -- -- 200 ------- ------- ------ ------ ------ ------ Total Cameron purchase cash costs............. $ 7,000 $ 4,100 $1,500 $ 800 $ 100 $ 500 ======= ======= ====== ====== ====== ====== 1994 CAMERON INTEGRATION COSTS: Cash: Movement of machinery, equipment and tooling and dies.......... $ 4,300 $ 800 $1,500 $ 900 $ 400 $ 700 Severance and other personnel costs......................... 4,000 1,800 1,600 200 100 300 ------- ------- ------ ------ ------ ------ Total cash charges....... 8,300 2,600 3,100 1,100 500 1,000 ------- ------- ------ ------ ------ ------ Non-Cash: Asset revaluation................ 13,700 13,700 -- -- -- -- Credits to reserves.............. 2,100 2,100 -- -- -- -- ------- ------- ------ ------ ------ ------ Total non-cash charges... 15,800 15,800 -- -- -- -- ------- ------- ------ ------ ------ ------ Total 1994 Cameron integration costs...... $24,100 $18,400 $3,100 $1,100 $ 500 $1,000 ======= ======= ====== ====== ====== ====== 1995 OTHER CHARGES: Non-Cash: Credits to 1994 Cameron integration costs............. $(2,100) $(2,100) $ -- $ -- $ -- $ -- ------- ------- ------ ------ ------ ------ Total 1995 other charges................ $(2,100) $(2,100) $ -- $ -- $ -- $ -- ======= ======= ====== ====== ====== ====== 1997 RESTRUCTURING: Cash: Severance and other personnel costs......................... $ 2,200 $ -- $ -- $ 200 $1,400 $ 600 Disposal of Forging equipment.... 2,300 -- -- -- 400 1,900 Castings titanium operations..... 1,900 -- -- 700 -- 1,200 ------- ------- ------ ------ ------ ------ Total cash charges....... 6,400 -- -- 900 1,800 3,700 ------- ------- ------ ------ ------ ------ NON-CASH: Severance and other personnel costs......................... 2,400 -- -- 2,400 -- -- Asset write-off and revaluation................... 2,700 -- -- 2,700 -- -- ------- ------- ------ ------ ------ ------ Total non-cash charges... 5,100 -- -- 5,100 -- -- ------- ------- ------ ------ ------ ------ Total 1997 Restructuring.......... $11,500 $ -- $ -- $6,000 $1,800 $3,700 ======= ======= ====== ====== ====== ======
41 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Other Charges (Credits): Other charges (credits) also include non-cash charges to reduce the carrying value of certain non-operating other assets as follows:
YEAR YEAR YEAR ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, 1998 1997 1996 ------- ------- ------- (000'S OMITTED) Australian Joint Venture.................................... $ -- $ 2,484 $1,871 Cash surrender value of Company-owned life insurance policies.................................................. -- 5,745 846 Building held for sale...................................... -- 1,900 -- Other....................................................... (1,000) 250 -- ------- ------- ------ $(1,000) $10,379 $2,717 ======= ======= ======
Other charges (credits) in the year ended May 31, 1998 include a credit of $4,000,000 for the recovery of cash surrender value of certain Company-owned life insurance policies and a credit of $1,900,000 resulting from the disposal of a building held for sale. G. ENVIRONMENTAL MATTERS The Company is subject to extensive, stringent and changing federal, state and local environmental laws and regulations, including those regulating the use, handling, storage, discharge and disposal of hazardous substances and the remediation of alleged environmental contamination. Accordingly, the Company is involved from time to time in administrative and judicial inquiries and proceedings regarding environmental matters. Nevertheless, the Company believes that compliance with these laws and regulations will not have a material adverse effect on the Company's operations as a whole. However, it is not possible to predict accurately the amount or timing of costs of any future environmental remediation requirements. The Company continues to design and implement a system of programs and facilities for the management of its raw materials, production processes and industrial waste to promote compliance with environmental requirements. As of May 31, 1998, aggregate environmental reserves amounted to $16,509,000 and have been provided for expected cleanup expenses estimated between $4,400,000 and $5,400,000 upon the eventual sale of the Worcester facility, certain environmental issues at Cameron amounting to approximately $3,500,000 and the exposures noted in the following paragraphs, which include certain capitalizable amounts for environmental management and remediation projects. Pursuant to an agreement entered into with the U.S. Air Force upon the acquisition of the Grafton facility from the federal government in 1982, the Company agreed to make expenditures totalling $20,800,000 for environmental management and remediation at the site during the period 1982 through 1999, of which $4,000,000 remained as of May 31, 1998. These expenditures will not resolve the Company's obligations to federal and state regulatory authorities, who are not parties to the agreement, however, the Company expects to incur an additional amount, currently estimated at $ 3,500,000, to comply with current federal and state environmental requirements governing the investigation and remediation of contamination at the site. The Company's Grafton facility was formerly included in the U.S. Nuclear Regulatory Commission's ("NRC") May 1992 Site Decommissioning Management Plan ("SDMP") for low-level radioactive waste as the result of the disposal of magnesium thorium alloys at the facility in the 1960s and early 1970s under license from the Atomic Energy Commission. On March 31, 1997, the NRC informed the Company that jurisdiction for the Grafton site had been transferred to the Commonwealth of Massachusetts Department of Public Health and that the Grafton facility had been removed from the SDMP. Although it is unknown what specific disposal requirements may be placed on the Company by the Massachusetts Department of Public Health, the Company believes that a reserve of $1,500,000 recorded on its books is sufficient to cover all costs. 42 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company, together with numerous other parties, has been named a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for the cleanup of the following Superfund sites: Operating Industries, Monterey Park, California; Cedartown Municipal Landfill, Cedartown, Georgia; PSC Resources, Palmer, Massachusetts; the Harvey GRQ site, Harvey, Illinois; the Berlin & Farrow site, Swartz Creek, Michigan; the Gemme/Fournier site, Leicester, Massachusetts; and the Salco, Inc. site, Monroe, Michigan. The Company believes that a reserve of $1,150,000 recorded on its books is sufficient to cover all costs. At the Gemme/Fournier site, a proposed agreement would allocate 33% of the cleanup costs to the Company. In September 1995, a consulting firm retained by the PRP group made a preliminary remediation cost estimate of $1,400,000 to $2,800,000. The Company's insurer is defending the Company's interests, and the Company believes that any recovery against the Company would be offset by recovery of insurance proceeds. H. BENEFIT PLANS The Company and its subsidiaries have pension plans covering substantially all employees. Benefits are generally based on years of service and a fixed monthly rate or average earnings during the last years of employment. Pension plan assets are invested in equity and fixed income securities, pooled funds including real estate funds and annuities. Company contributions are determined based upon the funding requirements of U.S. and other governmental laws and regulations. A reconciliation between the amounts recorded on the consolidated balance sheets and the summary tables of the funding status of the pension plans are as follows:
MAY 31, MAY 31, 1998 1997 ------- ------- (000'S OMITTED) Pension liability per balance sheet......................... $(2,908) $(1,102) Prepaid (accrued) pension expense included in prepaid expenses in the balance sheet............................. (3,417) 95 U.K. prepaid pension expense (pension liability)............ 84 89 ------- ------- Net U.S. prepaid pension expense (pension liability)........ $(6,241) $ (918) ======= =======
U.S. Pension Plans Effective April 30, 1996, two of the Company's U.S. pension plans which had accumulated benefits exceeding assets were merged into the plan which had assets exceeding the accumulated benefits. Pension expense for the U.S. pension plans included the following components:
YEAR YEAR YEAR ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, 1998 1997 1996 -------- -------- -------- (000'S OMITTED) Service cost....................................... $ 4,961 $ 4,298 $ 3,042 Enhanced benefit package for early retirement...... -- 3,775 -- Interest cost on projected benefit obligation...... 12,179 11,302 11,662 Actual return on assets............................ (45,296) (17,804) (36,188) Net amortization and deferral of actuarial gains (losses)......................................... 32,573 4,722 23,412 -------- -------- -------- Net pension expense................................ $ 4,417 $ 6,293 $ 1,928 ======== ======== ======== Assumed long-term rate of return on plan assets.... 10.0% 10.0% 10.0% ======== ======== ========
43 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the funding status of the U.S. pension plans and a reconciliation to the amounts recorded in the consolidated balance sheets are as follows:
MAY 31, 1998 ------------------------------------ ASSETS ACCUMULATED EXCEEDING BENEFITS ACCUMULATED EXCEEDING BENEFITS ASSETS TOTAL ----------- ----------- -------- (000'S OMITTED, EXCEPT PERCENTAGES) Actuarial present value of benefit obligations: Vested.................................................... $151,934 $ 9,376 $161,310 Nonvested................................................. 3,934 615 4,549 -------- -------- -------- Accumulated benefit obligation............................ 155,868 9,991 165,859 Impact of forecasted salary increases during future periods................................................ 13,638 1,211 14,849 -------- -------- -------- Projected benefit obligation for employee service to date................................................... 169,506 11,202 180,708 Current fair market value of plan assets.................... 195,987 -- 195,987 -------- -------- -------- Excess (shortfall) of plan assets over (under) projected benefit obligation........................................ 26,481 (11,202) 15,279 Unrecognized net (gain) loss................................ (29,950) 2,315 (27,635) Unrecognized net (asset) obligation at transition........... 1,140 881 2,021 Unrecognized prior service cost............................. 6,537 966 7,503 Adjustment required to recognize minimum liability.......... -- (2,824) (2,824) Net periodic pension cost March 30, 1998 to May 31, 1998.... (458) (278) (736) Contributions March 30, 1998 to May 31, 1998................ -- 151 151 -------- -------- -------- Net prepaid pension expense (pension liability)............. $ 3,750 $ (9,991) $ (6,241) ======== ======== ======== Estimated annual increase in future salaries................ 4-5% Weighted average discount rate.............................. 7.0% --- ---
44 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the funding status of the U.S. pension plans and a reconciliation to the amounts recorded in the consolidated balance sheets are as follows:
MAY 31, 1997 ------------------------------------ ASSETS ACCUMULATED EXCEEDING BENEFITS ACCUMULATED EXCEEDING BENEFITS ASSETS TOTAL ----------- ----------- -------- (000'S OMITTED, EXCEPT PERCENTAGES) Actuarial present value of benefit obligations: Vested.................................................... $146,771 $ 6,965 $153,736 Nonvested................................................. 935 392 1,327 -------- ------- -------- Accumulated benefit obligation............................ 147,706 7,357 155,063 Impact of forecasted salary increases during future periods................................................ 12,878 2,024 14,902 -------- ------- -------- Projected benefit obligation for employee service to date................................................... 160,584 9,381 169,965 Current fair market value of plan assets.................... 164,977 -- 164,977 -------- ------- -------- Excess (shortfall) of plan assets over (under) projected benefit obligation........................................ 4,393 (9,381) (4,988) Unrecognized net (gain) loss................................ (8,190) 728 (7,462) Unrecognized net (asset) obligation at transition........... 1,655 1,116 2,771 Unrecognized prior service cost............................. 8,842 1,192 10,034 Adjustment required to recognize minimum liability.......... -- (1,013) (1,013) Net periodic pension cost March 30, 1997 to May 31, 1997.... (202) (218) (420) Contributions March 30, 1997 to May 31, 1997................ -- 160 160 -------- ------- -------- Net prepaid pension expense (pension liability)............. $ 6,498 $(7,416) $ (918) ======== ======= ======== Estimated annual increase in future salaries................ 3-5% Weighted average discount rate.............................. 7.50% ---- ----
U.K. Pension Plan Pension expense for the U.K. pension plan included the following:
YEAR YEAR YEAR ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, 1998 1997 1996 ------- ------- ------- (000'S OMITTED) Service cost.......................................... $ 746 $ 629 $ 579 Interest cost......................................... 1,695 1,507 1,300 Expected return on assets............................. (1,800) (1,640) (1,283) ------- ------- ------- Net pension expense......................... $ 641 $ 496 $ 596 ======= ======= =======
45 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The U.K. pension plan's assets and liabilities were rolled over from the former Cameron plan during fiscal 1996. The funded status of the U.K. pension plan is as follows:
MAY 31, MAY 31, 1998 1997 -------- -------- (000'S OMITTED, EXCEPT PERCENTAGES) Fair value of plan assets................................... $27,187 $22,007 Projected benefit obligation................................ 25,780 21,164 ------- ------- Plan assets greater than projected benefit obligation....... 1,407 843 Unrecognized net gain....................................... (1,323) (754) ------- ------- Prepaid pension cost........................................ $ 84 $ 89 ======= ======= Accumulated benefits........................................ $25,554 $19,436 ======= ======= Vested benefits............................................. $24,365 $19,436 ======= ======= Assumed long-term rate of return on plan assets............. 6.25% 8.0% Weighted average discount rate.............................. 6.25% 8.0% Rate of salary increase..................................... 3.25% 5.0%
Defined Contribution Plan The Company also makes a 401(k) plan available to most full-time employees. Employer contributions to the defined contribution plan are made at the Company's discretion and are reviewed periodically. There were no cash contributions in the years ended May 31, 1998 and 1997. Cash contributions amounted to $26,000 for the year ended May 31, 1996. Additionally, for the years ended May 31, 1998, 1997 and 1996, the Company contributed 100,409, 97,696 and 79,426 shares of common stock from Treasury to its defined contribution plan, respectively, and recorded expense relating thereto of $2,439,000, $2,057,000 and $1,058,000, respectively. I. OTHER POSTRETIREMENT BENEFITS In addition to providing pension benefits, the Company and its subsidiaries provide most retired employees with health care and life insurance benefits. The majority of these health care and life insurance benefits are provided through insurance companies, some of whose premiums are computed on a cost plus basis. Most of the Forgings Division and Corporate retirees and full-time employees are or become eligible for these postretirement health care and life insurance benefits if they meet minimum age and service requirements. There are certain retirees for which Company cost and liability are affected by future increases in health care cost. The liabilities have been developed assuming a medical trend rate for growth in future health care claim levels from the assumed 1994 level. For the year ended May 31, 1998, the medical trend rate for indemnity and Health Maintenance Organization ("HMO") inflationary costs was 6.5% and 4.5%, respectively. The rate for indemnity and HMO for the year ended May 31, 1999 is 6.0% and 4.0% and are ultimately estimated at 5.0% and 4.0%, respectively, for the year ended May 31, 2001. The change to the accumulated postretirement benefit obligation for each 1.0% change in these assumptions is $3,133,000. The change in the annual SFAS 106 expense for each 1.0% change in these assumptions is $248,000. The weighted average discount rate used in determining the amortization of the accumulated postretirement benefit obligation was 7.0% and 7.5% at May 31, 1998 and May 31, 1997, respectively, and the average remaining service life was 20 years. 46 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net periodic benefit expense consists of the following components:
YEAR YEAR YEAR ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, 1998 1997 1996 ------- ------- ------- ($000'S OMITTED) Service cost............................................ $ 160 $ 380 $ 234 Benefit from early retirement package................... -- (1,375) -- Interest on the accumulated benefit obligation.......... 3,372 3,550 4,021 Net amortization and deferral........................... 61 409 (53) ------ ------- ------ Total postretirement benefit expense.......... $3,593 $ 2,964 $4,202 ====== ======= ======
The Company has no plans for funding the liability and will continue to pay for retiree medical costs as they occur. The components of the accumulated postretirement benefit obligation are as follows:
MAY 31, MAY 31, 1998 1997 ------- ------- (000'S OMITTED) Accumulated postretirement benefit obligation: Retirees.................................................. $40,397 $40,516 Fully eligible active plan participants................... 1,745 3,082 Other active plan participants............................ 4,497 2,845 ------- ------- Accumulated postretirement benefit obligation in excess of plan assets............................................... 46,639 46,443 Unrecognized net gain (loss) from past experience different from that assumed and from changes in assumptions......... (1,421) 1,055 Prior service cost not yet recognized in net periodic postretirement benefit cost............................... (673) (733) Other....................................................... 85 373 ------- ------- Accrued postretirement benefit cost......................... $44,630 $47,138 ======= =======
J. FEDERAL, FOREIGN AND STATE INCOME TAXES The components of the net expense for income taxes for the year ended May 31, 1998 are as follows:
U.S. U.S. FEDERAL STATE U.K. TOTAL ------- ------ ------ ------- (000'S OMITTED) Current tax expense........................... $ 5,778 $1,250 $2,827 $ 9,855 Deferred tax expense.......................... 6,500 -- -- 6,500 ------- ------ ------ ------- Net provision for income taxes before extraordinary loss tax benefit.............. $12,278 $1,250 $2,827 $16,355 ======= ====== ====== =======
In the year ended May 31, 1998, the Company provided $16,355,000 for income taxes, net of a tax benefit of approximately $1,800,000 relating to the utilization of NOL carryforwards. In addition, the Company has recorded a $2,920,000 tax benefit against the extraordinary loss of $8,112,000 associated with the early extinguishment of the Company's 10 3/4% Senior Notes. In the year ended May 31, 1997, net tax benefits of $25,680,000 were recognized including a refund of prior years' income taxes amounting to $19,680,000 and $6,500,000 related to the expected realization of NOLs in future years and $10,250,000 related to current NOLs benefit offsetting $10,750,000 of current income tax expense. The refund relates to the carryback of tax net operating losses to tax years 1981, 1984 and 47 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1986 under applicable provisions of Internal Revenue Code Section 172(f). The amount of net operating losses carried back to such years was approximately $48,500,000. The benefit (provision) for income taxes before extraordinary item is at a rate other than the federal statutory tax rate for the following reasons:
YEAR YEAR YEAR ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, 1998 1997 1996 -------- ------- ------- (000'S OMITTED) Benefit (provision) at the applicable U.S federal statutory tax rate................................. $(19,403) $(8,442) $(8,832) Benefit from net permanent tax differences........... 4,059 -- -- Benefit of higher statutory tax rates in applicable prior years realized in Section 172(f) carryback claims............................................. -- 2,700 -- State income taxes................................... (1,640) (200) -- (Increase)decrease of deferred tax asset valuation allowance.......................................... (1,168) 30,626 8,832 Other................................................ 1,797 996 -- -------- ------- ------- Income tax benefit (provision) before extraordinary loss tax benefit................................... $(16,355) $25,680 $ -- ======== ======= =======
The principal components of deferred tax assets and liabilities were as follows:
MAY 31, 1998 MAY 31, 1997 ------------ ------------ (000'S OMITTED) DEFERRED TAX ASSETS Provision for postretirement benefits.................. $ 18,298 $ 19,232 Net operating loss carryforwards....................... 4,667 17,117 Restructuring provisions............................... 8,406 9,856 Alternative minimum tax carryforward credit............ 5,964 -- Other.................................................. 8,205 10,315 -------- -------- 45,540 56,520 Valuation allowance.................................... (32,269) (35,934) -------- -------- 13,271 20,586 -------- -------- DEFERRED TAX LIABILITIES Accelerated depreciation............................... 12,409 11,256 Other.................................................. 862 2,830 -------- -------- 13,271 14,086 -------- -------- Net deferred tax asset (liability)....................... $ -- $ 6,500 ======== ========
The change in the valuation allowance primarily reflects the expiration of state NOL carryforwards and other adjustments such as alternative minimum tax credit and utilization of federal NOL carryforwards. 48 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) K. NET INCOME PER SHARE There were no adjustments required to be made to income before extraordinary item for purposes of computing basic and diluted net income per share. A reconciliation of the average number of common shares outstanding used in the calculation of basic and diluted net income per share is as follows:
MAY 31, 1998 MAY 31, 1997 MAY 31, 1996 ------------ ------------ ------------ (000'S OMITTED) Shares used to compute basic net income per share...................................... 36,331,305 35,824,576 35,242,630 Dilutive effect of stock options............. 1,025,553 1,202,247 998,782 ---------- ---------- ---------- Shares used to compute diluted net income per share...................................... 37,356,858 37,026,823 36,241,412
L. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS The Company, through administration by the Compensation Committee of the Company's Board of Directors (the "Committee"), may grant awards under the Company's Long-Term Incentive Plans in the form of non-qualified stock options or incentive stock options to those key employees it selects to purchase in the aggregate up to 3,400,000 shares of newly issued or treasury common stock. Options expire after 10 years from the date of grant and generally become exercisable ratably over a three to seven year period commencing from the date of grant. The exercise price of non-qualified stock options may not be less than 50% of the fair market value of such shares on the date of grant or, in the case of incentive stock options, 100% of the fair market value on the date of grant. Awards of stock appreciation rights ("SAR's") may also be granted, either in tandem with grants of stock options (and exercisable as an alternative to the exercise of stock options) or separately. In addition, the Committee may grant other awards that consist of, are denominated in or are payable in shares or that are valued by reference to shares, including, for example, restricted shares, phantom shares, performance units, performance bonus awards or other awards payable in cash, shares or a combination thereof at the Committee's discretion. Information concerning stock options issued to officers and other employees is presented in the following table.
YEAR WEIGHTED YEAR WEIGHTED YEAR WEIGHTED ENDED AVERAGE ENDED AVERAGE ENDED AVERAGE MAY 31, EXERCISE MAY 31, EXERCISE MAY 31, EXERCISE 1998 PRICE 1997 PRICE 1996 PRICE ------- -------- ------- -------- ------- -------- (SHARES IN THOUSANDS) Number of shares under option: Outstanding at beginning of year.......................... 2,648 $12.56 2,295 $ 9.46 1,858 $ 5.90 Granted.......................... 356 24.11 817 18.34 861 15.14 Exercised........................ (500) 10.74 (415) 6.60 (390) 4.81 Canceled or expired.............. (42) 18.95 (49) 14.18 (34) 11.90 ----- ------ ----- ------ ----- ------ Outstanding at end of year....... 2,462 $14.46 2,648 $12.56 2,295 $ 9.46 ===== ====== ===== ====== ===== ====== Exercisable at end of year....... 1,598 1,189 1,104 ===== ===== =====
At May 31, 1998 and 1997, 1,304,207 and 1,616,845 shares were available for future grants, respectively. 49 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following tables summarize information about stock options outstanding at May 31, 1998:
OPTIONS OUTSTANDING ---------------------------------- WTD. AVG. OPTIONS EXERCISABLE REMAINING -------------------- RANGE OF CONTRACTUAL WTD. AVG. WTD. AVG. EXERCISE PRICES SHARES LIFE (YRS.) EXER. PRICE SHARES EXER. PRICE - --------------- ------ ----------- ----------- ------ ----------- (SHARES IN THOUSANDS) $ 3.00 - $ 7.99 743 4.0 $ 5.73 743 $ 5.73 $ 8.00 - $12.99 252 7.2 $12.52 152 $12.56 $13.00 - $17.99 901 7.7 $16.68 600 $16.67 $18.00 - $22.99 154 8.6 $20.10 44 $20.07 $23.00 - $27.99 412 8.9 $24.46 59 $23.00 ----- ----- 2,462 1,598 ===== =====
In addition to stock options, the Company grants performance shares to key executive employees. There were no performance shares granted during the year ended May 31, 1998. During the years ended May 31, 1997 and 1996, awards of 118,000 and 551,000 shares of the Company's common stock were made, respectively, subject to restrictions based upon continued employment and the performance of the Company. Compensation expense totalling $3,412,000, $1,403,000 and $413,000 relating to the awards were recorded during the years ended May 31, 1998, 1997 and 1996, respectively. EMPLOYEE STOCK PURCHASE PLAN Effective January 1, 1996, the Company adopted a qualified, noncompensatory Employee Stock Purchase Plan. This plan enables substantially all employees to subscribe to purchase shares of the Company's common stock on an annual basis. Such shares are subscribed at the lower of 85% of their fair market value on the first day of the plan year, January 1, or 85% of their fair market value on the last business day of the plan year, usually December 31. Each eligible employee's participation is limited to 10% of base wages and a maximum of 450,000 shares are authorized for subscription. Employee subscriptions for the twelve months ended December 31, 1997 were 83,580 shares at $16.68 per share based on 85% of the fair market value on January 1, 1997 ($19.63). Accounting for stock-based plans is in accordance with Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation expense has been recognized for fixed stock option plans or Employee Stock Purchase Plan. As required by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company has determined the weighted average fair values of stock-based arrangements granted during the years ended May 31, 1998, 1997 and 1996 to be $14.94, $11.28 and $9.34, respectively. The fair values of stock-based compensation awards granted were estimated using the Black-Scholes model with the following assumptions.
EXPECTED RISK-FREE ---------------------------------- GRANT OPTION DIVIDEND INTEREST YEAR ENDED MAY 31, DATE TERM VOLATILITY YIELD RATE - ------------------ --------- -------- ---------- -------- -------- 1998................... 10/15/97 10 years 41% -- 5.57% 1/14/98 9 years 41% -- 5.57% 2/17/98 10 years 41% -- 5.57% 1997................... 7/16/96 9 years 38% -- 6.67% 10/16/96 10 years 38% -- 6.67% 1/15/97 10 years 38% -- 6.67% 3/17/97 9 years 38% -- 6.67% 1996................... 10/18/95 9 years 38% -- 6.67% 4/17/96 10 years 38% -- 6.67%
50 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Had compensation expense for the Company's stock-based plans and Employee Stock Purchase Plan been accounted for using the fair value method prescribed by SFAS No. 123, net income and earnings per share would have been as follows:
1998 1997 1996 ---------- ---------- ---------- (000'S OMITTED, EXCEPT PER-SHARE DATA) Net income as reported................................ $33,890 $50,023 $25,234 Pro forma net income under SFAS No. 123............... 32,062 47,399 24,957 Net income per share as reported: Basic............................................... $ .93 $ 1.40 $ .72 Diluted............................................. .91 1.35 .70 Proforma net income per share under SFAS No. 123: Basic............................................... $ .88 $ 1.32 $ .71 Diluted............................................. .86 1.28 .69
The effects of applying SFAS No. 123 in the above pro forma disclosure are not indicative of future amounts. SFAS No. 123 does not apply to awards granted prior to the year ended May 31, 1996. M. STOCK PURCHASE RIGHTS On October 19, 1988, the Board of Directors of the Company declared a dividend distribution of one right (a "Right") for each outstanding Share to shareholders of record at the close of business on November 30, 1988 pursuant to a Rights Agreement dated as of October 19, 1988 (the "Original Rights Agreement"). On January 10, 1994, in connection with the acquisition of Cameron, the Original Rights Agreement was amended and restated. The description and terms of the Rights are set forth in an Amended and Restated Rights Agreement (the "Rights Agreement"), between the Company and State Street Bank & Trust Company, as Rights Agent. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, no par value (the "Series A Shares"), of the Company at a price of $50 per one one-hundredth of a Series A Share (the "Exercise Price"), subject to adjustment. In the event that the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power is sold after a person or group has become an Acquiring Person (as defined below), proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring Company which at the time of such transaction will have a market value of two times the exercise price of the Right. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, proper provision shall be made so that each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have the right to receive upon exercise that number of Shares having a market value of two times the exercise price of the Right. For purposes of the Rights Agreement, an "Acquiring Person" generally means a person or group of affiliated or associated persons who have acquired beneficial ownership of 20% or more of the outstanding Shares. However, Cooper Industries, Inc. and its affiliates and associates (together, the "Cooper Group") will not be deemed to be an Acquiring Person for so long as (A) the Cooper Group beneficially owns at least 10% or more of the outstanding Shares continuously from and after May 26, 1994 and (B) the Cooper Group does not acquire beneficial ownership of any Shares in breach of the Investment Agreement dated as of January 10, 1994 between Cooper Industries, Inc. and the Company (other than an inadvertent breach which is remedied as promptly as practicable by a transfer of the Shares so acquired to a person which is not a member of the Cooper Group). The Rights will expire on November 30, 1998 (the "Final Expiration Date"), unless the Final Expiration Date is extended or unless the Rights are earlier redeemed or exchanged by the Company. 51 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) N. COMMITMENTS AND CONTINGENCIES At May 31, 1998, certain lawsuits arising in the normal course of business were pending. In the opinion of management, the outcome of these legal matters will not have a material adverse effect on the Company's financial position and results of operations. The Company has entered into various foreign exchange contracts to manage its foreign exchange risks. Through its foreign currency hedging activities, the Company seeks to minimize the risk that the eventual cash flows resulting from purchase and sale transactions denominated in other than the functional currency of the operating unit will be affected by changes in exchange rates. Foreign currency transaction exposures generally are the responsibility of the Company's individual operating units to manage as an integral part of their business. The Company hedges its foreign currency transaction exposures based on judgment, generally through the use of forward exchange contracts. Gains and losses on the Company's foreign currency transaction hedges are recognized as an adjustment to the underlying hedged transactions. Deferred gains and losses on foreign exchange contracts were not significant at May 31, 1998 and 1997. The Company had foreign exchange contracts totaling $44,550,000 at May 31, 1998. Such contracts include forward contracts of $21,482,000 for the purchase of U.K. pounds and $23,068,000 for the sale of U.K. pounds. These contracts hedge certain normal operating purchase and sales transactions. The exchange contracts have no material fair market value, generally mature within six months and require the Company to exchange U.K. pounds for non-U.K. currencies or non-U.K. currencies for U.K. pounds. Translation and transaction gains and losses included in the Consolidated Statements of Net Income for the years ended May 31, 1998, 1997 and 1996 were not significant. On December 22, 1996, a serious industrial accident occurred at the Houston, Texas, facility of Wyman-Gordon Forgings, Inc. ("WGFI"), a wholly-owned subsidiary of the Company, in which eight employees were killed and two others injured. OSHA conducted an investigation of the accident. On June 18, 1997, WGFI reached an agreement with OSHA, settling citations resulting from the accident. The injured workers and the decedents' families have asserted claims against the Company and WGFI. WGFI has also received claims from several employees of a subcontractor claiming to have been injured at the time of the accident as well as from one current employee. To date, the Company has settled all claims that could be brought by three of the decedents' families on terms acceptable to the Company and its insurance carriers and in addition has reached agreement for the settlement of the claims of the family of a fourth decedent. The Company has also settled most of the claims of the subcontractor employees. The Company thus far has been unable to achieve settlements with the other claimants, and, on October 24, 1997, a lawsuit was filed in the District Court of Harris County, Texas, on behalf of three of the decedents' families against the Company, WGFI and Cooper-Cameron Corporation. One of the injured employees has subsequently filed a motion to be included in the lawsuit. Trial of the lawsuit is currently set for January, 1999. In general, under Texas statutory law, an employee's exclusive remedy against an employer for an on-the-job injury is the benefits of the Texas Workers' Compensation Act. WGFI, the employer of the deceased employees, has workers' compensation insurance coverage and the injured employees and beneficiaries of the deceased employees are receiving workers compensation payments. Under applicable law, however, statutory beneficiaries of employees killed in the course and scope of their employment may recover punitive (but not compensatory) damages in excess of workers compensation benefits. However, to do so, they must prove that the employer was grossly negligent. The protection of the workers compensation exclusive remedy provision may not extend to the Company as parent corporation of WGFI. Therefore, with regard to the October 24, 1997 lawsuit and any future lawsuits brought on behalf of those killed or injured in the Houston accident or their families against the Company, if (i) the court finds that the Company had a legal duty to WGFI and its employees, (ii) the evidence supports a finding that the Company acted negligently in its duty to WGFI and 52 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) its employees and (iii) such negligence had a causal connection with the accident, the plaintiffs might be able to recover compensatory damages against the Company. If it is shown that the Company's conduct amounted to gross neglect, and that conduct is found to be a cause of the accident, the plaintiffs may be able to recover punitive damages against the Company. It is not possible at this time to determine the extent, if any, to which WGFI or the Company could be held liable in connection with the accident. The Company maintains general liability and employer's liability insurance for itself and its subsidiaries under various policies with aggregate coverage limits of approximately $29 million, a portion of which has been expended in the settlements to date. While WGFI has tendered the defense of the various claims to the Company's insurance carriers, there can be no assurance that the full insurance coverage will be available. Based on the Company's experience in the settlement negotiations to date, the Company believes that there is a substantial risk that the pending and threatened claims will not be settled for an aggregate amount within its insurance coverage limits. The Company anticipates that, as with the currently pending lawsuit, any additional lawsuits will include claims for alleged compensatory as well as punitive damages that in the aggregate could substantially exceed the Company's available insurance coverage. The Company intends to vigorously defend all lawsuits that have been or may be filed relating to the accident. However, if one or more such lawsuits were to be prosecuted successfully by the plaintiffs and a judgment were to be obtained by one or more plaintiffs in such lawsuits and sustained on appeal, litigation costs, including the cost of pursuing any appeals, and the cost of paying such a judgment, to the extent not covered by insurance, could have a material adverse effect on the Company's financial condition and the results of operations, particularly if any such judgment includes awards for punitive damages. On September 25, 1997, the Company received a subpoena from the United States Department of Justice informing it that the United States Department of Defense and other federal agencies had commenced an investigation with respect to the manufacture and sale of investment castings at the Company's Tilton, New Hampshire, facility. The focus of the investigation is whether the Company failed to comply with required quality control procedures for cast aerospace parts and whether the Company shipped cast components that did not meet applicable specifications, which could be a violation of federal requirements. The investigating agencies have directed the Company to furnish various documents and information relating to the subject of the investigation. The Company is cooperating fully with the investigation, and in addition, has substantially completed its own investigation, which was supervised by the Company's outside attorneys and conducted by quality and process auditors from another casting facility of the Company and by the Company's internal attorneys. Such investigation has identified certain departures from Company policies and procedures which have been addressed. The federal investigation may result in criminal or civil charges being brought against the Company which could result in civil damages and penalties and criminal liability if the Company were found to have violated federal laws. Based on the Company's own investigation to date, the Company does not believe that the federal investigation is likely to result in a material adverse impact on the Company's financial condition or results of operations, although no assurance as to the outcome or impact of that investigation can be given. O. SUBSEQUENT EVENTS On July 31, 1998, the Company completed a transaction with Titanium Metals Corporation ("TIMET") in which the parties have combined their respective titanium castings businesses into a jointly-owned venture. The joint venture, 80.1% owned by Wyman-Gordon and 19.9% by TIMET, consists primarily of Wyman- Gordon's titanium casting business located in Franklin, New Hampshire, and TIMET's titanium casting business located in Albany, Oregon. The joint venture will produce investment castings primarily for the aerospace market and will seek to develop new applications for titanium castings. In connection with the formation of the joint venture, TIMET has acquired the operating assets of Wyman-Gordon's Millbury, Massachusetts, vacuum arc remelting facility which produces titanium ingots for further processing into finished forgings. In addition, Wyman-Gordon and TIMET have entered into a ten- 53 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) year supply agreement pursuant to which TIMET will supply a portion of Wyman-Gordon's requirements for titanium raw materials for its forging and casting operations. P. GEOGRAPHIC AND OTHER INFORMATION Transfers between U.S. and international operations, principally inventory transfers, are charged to the receiving organization at prices sufficient to recover manufacturing costs and provide a reasonable return. Certain information on a geographic basis follows:
YEAR YEAR YEAR ENDED ENDED ENDED MAY 31, MAY 31, MAY 31, 1998 1997 1996 -------- -------- -------- (000'S OMITTED) REVENUES FROM UNAFFILIATED CUSTOMERS: United States (including direct export sales)...... $676,342 $541,456 $447,515 United Kingdom..................................... 76,571 67,286 52,109 -------- -------- -------- $752,913 $608,742 $499,624 ======== ======== ======== INTER AREA TRANSFERS: United States...................................... $ 1,127 $ 378 $ 14 United Kingdom..................................... 7,062 6,244 4,666 -------- -------- -------- $ 8,189 $ 6,622 $ 4,680 ======== ======== ======== EXPORT SALES: United States direct export sales.................. $118,407 $ 88,888 $ 71,792 ======== ======== ======== INCOME (LOSS) FROM OPERATIONS: United States...................................... $ 58,126 $ 20,578 $ 32,042 United Kingdom..................................... 10,766 9,744 5,657 -------- -------- -------- $ 68,892 $ 30,322 $ 37,699 ======== ======== ======== IDENTIFIABLE ASSETS (EXCLUDING INTERCOMPANY): United States...................................... $479,181 $390,540 $309,868 United Kingdom..................................... 63,759 54,777 44,287 General corporate.................................. 8,670 9,054 21,735 -------- -------- -------- $551,610 $454,371 $375,890 ======== ======== ========
54 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Q. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for the years ended May 31, 1998 and 1997 were as follows:
QUARTER -------------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- -------- (000'S OMITTED, EXCEPT PER-SHARE DATA) YEAR ENDED MAY 31, 1998 Revenue................................. $180,009 $189,370 $181,764 $201,771 Cost of goods sold...................... 146,764 157,422 159,229 173,852 Other charges (credits)................. (1,900) (3,000) -- -- Income from operations.................. 21,750 21,771 9,577 15,794 Income before extraordinary item........ 11,859 13,336 3,963 9,924 Extraordinary item, net of tax.......... -- -- (5,192) -- Net income (loss)....................... 11,859 13,336 (1,229) 9,924 Basic net income per share: Income before extraordinary item...... .33 .37 .11 .27 Net income (loss)..................... .33 .37 (.03) .27 Diluted net income per share: Income before extraordinary item...... .32 .36 .11 .27 Net income (loss)....................... .32 .36 (.03) .27 YEAR ENDED MAY 31, 1997 Revenue................................. $134,235 $138,655 $153,331 $182,521 Cost of goods sold...................... 122,744 115,079 124,716 148,569 Other charges........................... 15,779 -- 2,434 4,870 Income (loss) from operations........... (14,340) 12,527 15,839 16,296 Income before extraordinary item........ 7,815 9,133 13,009 20,066 Extraordinary item, net of tax.......... -- -- -- -- Net income (loss)....................... 7,815 9,133 13,009 20,066 Basic net income per share: Income before extraordinary item...... .22 .26 .36 .56 Net income............................ .22 .26 .36 .56 Diluted net income per share: Income before extraordinary item...... .21 .25 .35 .54 Net income............................ .21 .25 .35 .54
The 1997 and first two quarters of 1998 earnings per share amounts have been restated to comply with Statement of Financial Accounting Standards No. 128, Earnings Per Share. 55 57 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The information called for by Item 10 (Directors and Executive Officers of the Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and Related Transactions) is incorporated herein by reference to the registrant's definitive proxy statement to be filed in connection with its 1998 Annual Meeting of Stockholders to be held on October 21, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents Filed as a Part of this Report
PAGES ----- 1. Financial Statements: Report of Management........................................ 28 Report of Independent Auditors.............................. 29 Consolidated Statements of Income........................... 30 Consolidated Balance Sheets................................. 31 Consolidated Statements of Cash Flows....................... 32 Consolidated Statements of Stockholders' Equity............. 33 Notes to Consolidated Financial Statements.................. 34
56 58 2. Exhibits: Exhibits to the Form 10-K have been included only with the copies of the Form 10-K filed with the Commission. Upon request to the Company and payment of a reasonable fee, copies of the individual exhibits will be furnished. EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 3.A Restated Articles of Organization of Wyman-Gordon Company -- incorporated by reference to Exhibit 3A to the Company's Form 10-K for the year ended June 3, 1995. -- 3.B Bylaws of Wyman-Gordon Company, as amended through May 24, 1994 -- incorporated by reference to Exhibit 3B to the Company's Form 10-K for the year ended June 3, 1995. -- 4.A Amended and Restated Rights Agreement, dated as of January 10, 1994 between the Company and State Street Bank & Trust Company, as Rights Agent -- incorporated by reference to Exhibit 1 to the Company's Report on Form 8-A/A dated January 21, 1994. -- 4.B Indenture dated as of March 16, 1993 among Wyman-Gordon Company, its Subsidiaries and State Street Bank and Trust Company as Trustee with respect to Wyman-Gordon Company's 10 3/4% Senior Notes due 2003 -- incorporated by reference to Exhibit 4C to the Company's Report on Form 10-K for the year ended December 31, 1992. -- 4.C 10 3/4% Senior Notes due 2003. Supplemental Indenture dated May 19, 1994 -- incorporated by reference to Exhibit 5 to the Company's Report on Form 8-K dated May 26, 1994. -- 4.D 10 3/4% Senior Notes due 2003. Second Supplemental Indenture and Guarantee dated May 27, 1994 -- incorporated by reference to the Company's Report on Form 8-K dated May 26, 1994. -- 4.E Instruments defining the rights of holders of long-term debt are omitted pursuant to paragraph (b)(4)(iii) of Regulation S-K Item 601. The Company agrees to furnish such instruments to the Commission upon request. -- 4.F 10 3/4% Senior Notes due 2003. Third Supplemental Indenture dated December 9, 1997. E-1 4.G Indenture dated as of December 15, 1997 among Wyman-Gordon Company, its Subsidiaries and State Street Bank and Trust Company as Trustee with respect to Wyman-Gordon Company's 8% Senior Notes due 2007. E-2 4.H 8% Senior Notes due 2007. Supplemental Indenture dated December 15, 1997. E-3 10.A J. Stewart Smith, Executive Severance Agreement dated October 15, 1997. E-4 10.B David P. Gruber, Executive Severance Agreement dated April 17, 1996 -- incorporated by reference to Exhibit 10.B of the Company's Report on Form 10-K dated May 31, 1996. -- 10.C Sanjay N. Shah, Executive Severance Agreement dated April 17, 1996 -- incorporated by reference to Exhibit 10.C of the Company's Report on Form 10-K dated May 31, 1996. -- 10.D J. Douglas Whelan, Executive Severance Agreement dated April 17, 1996 -- incorporated by reference to Exhibit 10.D of the Company's Report on Form 10-K dated May 31, 1996. --
57 59
EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 10.E Wallace F. Whitney, Jr., Executive Severance Agreement dated April 17, 1996 -- incorporated by reference to Exhibit 10.E to the Company's Report on Form 10-K dated May 31, 1996. -- 10.F Frank J. Zugel, Executive Severance Agreement dated April 17, 1996 -- incorporated by reference to Exhibit 10.F of the Company's Report on Form 10-K dated May 31, 1996. -- 10.G J. Stewart Smith, Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated July 16, 1996. E-5 10.H David P. Gruber, Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.H of the Company's Report on Form 10-K dated May 31, 1996. -- 10.I Sanjay N. Shah, Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.I of the Company's Report on Form 10-K dated May 31, 1996. -- 10.J J. Douglas Whelan, Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.J of the Company's Report on Form 10-K dated May 31, 1996. -- 10.K Wallace F. Whitney, Jr., Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.K of the Company's Report on Form 10-K dated May 31, 1996. -- 10.L Frank J. Zugel, Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.L of the Company's Report on Form 10-K dated May 31, 1996. -- 10.M J. Stewart Smith, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated July 16, 1996. E-6 10.N David P. Gruber, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.N of the Company's Report on Form 10-K dated May 31, 1996. -- 10.O Sanjay N. Shah, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.O of the Company's Report on Form 10-K dated May 31, 1996. -- 10.P J. Douglas Whelan, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.P of the Company's Report on Form 10-K dated May 31, 1996. -- 10.Q Wallace F. Whitney, Jr., Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.Q of the Company's Report on Form 10-K dated May 31, 1996. -- 10.R Frank J. Zugel, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.R of the Company's Report on Form 10-K dated May 31, 1996. -- 10.S Colin Stead, Executive Severance Agreement dated October 15, 1997. E-7 10.T David P. Gruber, Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.T of the Company's Report on Form 10-K dated May 31, 1996. -- 10.U Sanjay N. Shah, Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.U of the Company's Report on Form 10-K dated May 31, 1996. --
58 60
EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 10.V J. Douglas Whelan, Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.V of the Company's Report on Form 10-K dated May 31, 1996. -- 10.W Wallace F. Whitney, Jr., Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.W of the Company's Report on Form 10-K dated May 31, 1996. -- 10.X Frank J. Zugel, Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.X of the Company's Report on Form 10-K dated May 31, 1996. -- 10.Y Amendment to Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated May 24, 1994 between Wyman-Gordon Company and David P. Gruber -- incorporated by reference to Exhibit 10.Y of the Company's Report on Form 10-K dated May 31, 1996. -- 10.Z Stock Purchase Agreement dated as of January 10, 1994 between Cooper Industries, Inc. and the Company -- incorporated by reference to Annex A to the Company's preliminary Proxy Statement filed with the Securities and Exchange Commission on March 8, 1994. -- 10.AA Investment Agreement dated as of January 10, 1994 between Cooper Industries, Inc. and the Company -- incorporated by reference to Annex B to the Company's preliminary Proxy Statement filed with the Securities and Exchange Commission on March 8, 1994. -- 10.AB Amendment dated May 26, 1994 to Investment Agreement dated as of January 10, 1994, between the Company and Cooper -- incorporated by reference to the Company's Report on Form 8-K dated May 26, 1994. -- 10.AC Revolving Credit Agreement dated as of May 20, 1994 among Wyman-Gordon Receivables Corporation, the Financial Institutions Parties Hereto and Shawmut Bank N.A. as Issuing Bank, as Facility Agent and as Collateral Agent -- incorporated by reference to the Company's Report on Form 8-K dated May 26, 1994. -- 10.AD Receivables Purchase and Sale Agreement dated as of May 20, 1994 among Wyman-Gordon Company, Wyman-Gordon Investment Castings, Inc. and Precision Founders Inc. as the Sellers, Wyman-Gordon Company as the Servicer and Wyman-Gordon Receivables Corporation as the Purchaser -- incorporated by reference to the Company's Report on Form 8-K dated May 26, 1994. -- 10.AE Performance Share Agreement under the Wyman-Gordon Company Long-Term Incentive Plan between the Company and David P. Gruber dated as of May 24, 1994 -- incorporated by reference to the Company's Report on Form 8-K dated May 26, 1994. -- 10.AF Long-term Incentive Plan dated July 19, 1995 incorporated by reference to Appendix A of the Company's "Proxy Statement for Annual Meeting of Stockholders" on October 18, 1995. -- 10.AG Wyman-Gordon Company Non-Employee Director Stock Option Plan dated January 18, 1995 -- incorporated by reference to Appendix C of the Company's "Proxy Statement for Annual Meeting of Stockholders" on October 18, 1995. -- 10.AH Wyman-Gordon Company Long-Term Incentive Plan dated January 15, 1997 -- incorporated by reference to Appendix A of the Company's "Proxy Statement for Annual Meeting of Stockholders" to be held on October 15, 1997 -- 10.AI Colin Stead, Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated July 16, 1996. E-8
59 61
EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 10.AJ Colin Stead, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated July 16, 1996. E-9 10.AK Edward J. Davis, Executive Severence Agreement dated February 17, 1998. E-10 21 List of Subsidiaries E-11 23 Consent of Ernst & Young LLP 61 27 Financial Data Schedule E-12
(b) Reports on Form 8-K On November 19, 1997, the Company filed a Form 8-K dated November 14, 1997 with the Commission for the following purposes: (1) to report that the Company has commenced a cash tender offer for certain of its debt securities and is soliciting to amend the related indenture; (2) to report developments relating to the previously reported industrial accident at the facility of Wyman-Gordon Forgings, Inc. in Houston, Texas; and (3) to report the commencement of an investigation by certain federal agencies involving alleged irregularities at the Company's Tilton, New Hampshire facility. On December 9, 1997, the Company filed a Form 8-K with the Commission to report that the Company had taken the 29,000 ton press at its Houston, Texas facility out of service for repairs. On February 9, 1998, the Company filed a Form 8-K with the Commission to update the statue of the 29,000 ton press and to announce an extraordinary one time charge relating to the refinancing of its 10 3/4% Senior Notes due 2003. On August 11, 1998, the Company filed a Form 8-K with the Commission to report that it and Titanium Metals Corporation completed a transaction in which the parties have combined their respective titanium castings businesses into a jointly-owned venture. 60 62 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8, File Numbers 2-56547, 2-75980, 33-26980, 33-48068 and 33-64503) pertaining to the Wyman-Gordon Company Executive Long-Term Incentive Program (1975) -- Amendment No. 6, the Wyman-Gordon Company Stock Purchase Plan, the Wyman-Gordon Company Savings/Investment Plan, the Wyman-Gordon Company Long-Term Incentive Plan and the Wyman-Gordon Company Employee Stock Purchase Plan; and the Registration Statements (Form S-3, File Numbers 33-63459 and 333-32149) of Wyman-Gordon Company and in the related Prospectuses of our report dated June 25, 1998, with respect to the consolidated financial statements of Wyman-Gordon Company and subsidiaries included in this Annual Report (Form 10-K) for the year ended May 31, 1998. [Ernst & Young Signature] Boston, Massachusetts August 27, 1998 61 63 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Wyman-Gordon Company (REGISTRANT) By /s/ EDWARD J. DAVIS ------------------------------------ Edward J. Davis Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ DAVID P. GRUBER Chairman of the Board of August 27, 1998 - --------------------------------------------------- Directors and Chief Executive David P. Gruber Officer /s/ J. DOUGLAS WHELAN President and Chief Operating August 27, 1998 - --------------------------------------------------- Officer J. Douglas Whelan /s/ EDWARD J. DAVIS Vice President, Chief Financial August 27, 1998 - --------------------------------------------------- Officer and Treasurer and Edward J. Davis Principal Financial Officer /s/ JEFFREY B. LAVIN Corporate Controller and August 27, 1998 - --------------------------------------------------- Principal Accounting Officer Jeffrey B. Lavin /s/ E. PAUL CASEY Director August 27, 1998 - --------------------------------------------------- E. Paul Casey /s/ WARNER S. FLETCHER Director August 27, 1998 - --------------------------------------------------- Warner S. Fletcher /s/ ROBERT G. FOSTER Director August 27, 1998 - --------------------------------------------------- Robert G. Foster /s/ RUSSELL E. FULLER Director August 27, 1998 - --------------------------------------------------- Russell E. Fuller /s/ CHARLES W. GRIGG Director August 27, 1998 - --------------------------------------------------- Charles W. Grigg /s/ M HOWARD JACOBSON Director August 27, 1998 - --------------------------------------------------- M Howard Jacobson /s/ JUDITH S. KING Director August 27, 1998 - --------------------------------------------------- Judith S. King
62 64 /s/ ROBERT L. LEIBENSPERGER Director August 27, 1998 - --------------------------------------------------- Robert L. Leibensperger /s/ ANDREW E. LIETZ Director August 27, 1998 - --------------------------------------------------- Andrew E. Lietz /s/ H. JOHN RILEY, JR. Director August 27, 1998 - --------------------------------------------------- H. John Riley, Jr. /s/ DAVID A. WHITE, JR. Director August 27, 1998 - --------------------------------------------------- David A. White, Jr.
63 65 EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 3.A Restated Articles of Organization of Wyman-Gordon Company -- incorporated by reference to Exhibit 3A to the Company's Form 10-K for the year ended June 3, 1995. -- 3.B Bylaws of Wyman-Gordon Company, as amended through May 24, 1994 -- incorporated by reference to Exhibit 3B to the Company's Form 10-K for the year ended June 3, 1995. -- 4.A Amended and Restated Rights Agreement, dated as of January 10, 1994 between the Company and State Street Bank & Trust Company, as Rights Agent -- incorporated by reference to Exhibit 1 to the Company's Report on Form 8-A/A dated January 21, 1994. -- 4.B Indenture dated as of March 16, 1993 among Wyman-Gordon Company, its Subsidiaries and State Street Bank and Trust Company as Trustee with respect to Wyman-Gordon Company's 10 3/4% Senior Notes due 2003 -- incorporated by reference to Exhibit 4C to the Company's Report on Form 10-K for the year ended December 31, 1992. -- 4.C 10 3/4% Senior Notes due 2003. Supplemental Indenture dated May 19, 1994 -- incorporated by reference to Exhibit 5 to the Company's Report on Form 8-K dated May 26, 1994. -- 4.D 10 3/4% Senior Notes due 2003. Second Supplemental Indenture and Guarantee dated May 27, 1994 -- incorporated by reference to the Company's Report on Form 8-K dated May 26, 1994. -- 4.E Instruments defining the rights of holders of long-term debt are omitted pursuant to paragraph (b)(4)(iii) of Regulation S-K Item 601. The Company agrees to furnish such instruments to the Commission upon request. -- 4.F 10 3/4% Senior Notes due 2003. Third Supplemental Indenture dated December 9, 1997. E-1 4.G Indenture dated as of December 15, 1997 among Wyman-Gordon Company, its Subsidiaries and State Street Bank and Trust Company as Trustee with respect to Wyman-Gordon Company's 8% Senior Notes due 2007. E-2 4.H 8% Senior Notes due 2007. Supplemental Indenture dated December 15, 1997. E-3 10.A J. Stewart Smith, Executive Severance Agreement dated October 15, 1997. E-4 10.B David P. Gruber, Executive Severance Agreement dated April 17, 1996 -- incorporated by reference to Exhibit 10.B of the Company's Report on Form 10-K dated May 31, 1996. -- 10.C Sanjay N. Shah, Executive Severance Agreement dated April 17, 1996 -- incorporated by reference to Exhibit 10.C of the Company's Report on Form 10-K dated May 31, 1996. -- 10.D J. Douglas Whelan, Executive Severance Agreement dated April 17, 1996 -- incorporated by reference to Exhibit 10.D of the Company's Report on Form 10-K dated May 31, 1996. -- 10.E Wallace F. Whitney, Jr., Executive Severance Agreement dated April 17, 1996 -- incorporated by reference to Exhibit 10.E to the Company's Report on Form 10-K dated May 31, 1996. --
66
EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 10.F Frank J. Zugel, Executive Severance Agreement dated April 17, 1996 -- incorporated by reference to Exhibit 10.F of the Company's Report on Form 10-K dated May 31, 1996. -- 10.G J. Stewart Smith, Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated July 16, 1996. E-5 10.H David P. Gruber, Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.H of the Company's Report on Form 10-K dated May 31, 1996. -- 10.I Sanjay N. Shah, Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.I of the Company's Report on Form 10-K dated May 31, 1996. -- 10.J J. Douglas Whelan, Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.J of the Company's Report on Form 10-K dated May 31, 1996. -- 10.K Wallace F. Whitney, Jr., Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.K of the Company's Report on Form 10-K dated May 31, 1996. -- 10.L Frank J. Zugel, Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.L of the Company's Report on Form 10-K dated May 31, 1996. -- 10.M J. Stewart Smith, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated July 16, 1996. E-6 10.N David P. Gruber, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.N of the Company's Report on Form 10-K dated May 31, 1996. -- 10.O Sanjay N. Shah, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.O of the Company's Report on Form 10-K dated May 31, 1996. -- 10.P J. Douglas Whelan, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.P of the Company's Report on Form 10-K dated May 31, 1996. -- 10.Q Wallace F. Whitney, Jr., Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.Q of the Company's Report on Form 10-K dated May 31, 1996. -- 10.R Frank J. Zugel, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.R of the Company's Report on Form 10-K dated May 31, 1996. -- 10.S Colin Stead, Executive Severance Agreement dated October 15, 1997. E-7 10.T David P. Gruber, Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.T of the Company's Report on Form 10-K dated May 31, 1996. -- 10.U Sanjay N. Shah, Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.U of the Company's Report on Form 10-K dated May 31, 1996. -- 10.V J. Douglas Whelan, Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.V of the Company's Report on Form 10-K dated May 31, 1996. --
67
EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 10.W Wallace F. Whitney, Jr., Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.W of the Company's Report on Form 10-K dated May 31, 1996. -- 10.X Frank J. Zugel, Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996 -- incorporated by reference to Exhibit 10.X of the Company's Report on Form 10-K dated May 31, 1996. -- 10.Y Amendment to Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated May 24, 1994 between Wyman-Gordon Company and David P. Gruber -- incorporated by reference to Exhibit 10.Y of the Company's Report on Form 10-K dated May 31, 1996. -- 10.Z Stock Purchase Agreement dated as of January 10, 1994 between Cooper Industries, Inc. and the Company -- incorporated by reference to Annex A to the Company's preliminary Proxy Statement filed with the Securities and Exchange Commission on March 8, 1994. -- 10.AA Investment Agreement dated as of January 10, 1994 between Cooper Industries, Inc. and the Company -- incorporated by reference to Annex B to the Company's preliminary Proxy Statement filed with the Securities and Exchange Commission on March 8, 1994. -- 10.AB Amendment dated May 26, 1994 to Investment Agreement dated as of January 10, 1994, between the Company and Cooper -- incorporated by reference to the Company's Report on Form 8-K dated May 26, 1994. -- 10.AC Revolving Credit Agreement dated as of May 20, 1994 among Wyman-Gordon Receivables Corporation, the Financial Institutions Parties Hereto and Shawmut Bank N.A. as Issuing Bank, as Facility Agent and as Collateral Agent -- incorporated by reference to the Company's Report on Form 8-K dated May 26, 1994. -- 10.AD Receivables Purchase and Sale Agreement dated as of May 20, 1994 among Wyman-Gordon Company, Wyman-Gordon Investment Castings, Inc. and Precision Founders Inc. as the Sellers, Wyman-Gordon Company as the Servicer and Wyman-Gordon Receivables Corporation as the Purchaser -- incorporated by reference to the Company's Report on Form 8-K dated May 26, 1994. -- 10.AE Performance Share Agreement under the Wyman-Gordon Company Long-Term Incentive Plan between the Company and David P. Gruber dated as of May 24, 1994 -- incorporated by reference to the Company's Report on Form 8-K dated May 26, 1994. -- 10.AF Long-term Incentive Plan dated July 19, 1995 incorporated by reference to Appendix A of the Company's "Proxy Statement for Annual Meeting of Stockholders" on October 18, 1995. -- 10.AG Wyman-Gordon Company Non-Employee Director Stock Option Plan dated January 18, 1995 -- incorporated by reference to Appendix C of the Company's "Proxy Statement for Annual Meeting of Stockholders" on October 18, 1995. -- 10.AH Wyman-Gordon Company Long-Term Incentive Plan dated January 15, 1997 -- incorporated by reference to Appendix A of the Company's "Proxy Statement for Annual Meeting of Stockholders" to be held on October 15, 1997 -- 10.AI Colin Stead, Performance Stock Option Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated July 16, 1996. E-8 10.AJ Colin Stead, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated July 16, 1996. E-9
68
EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 10.AK Edward J. Davis, Executive Severence Agreement dated February 17, 1998. E-10 21 List of Subsidiaries E-11 23 Consent of Ernst & Young LLP 61 27 Financial Data Schedule E-12
EX-4.F 2 10 3/4% SENIOR NOTES DUE 2003 3RD SUPPL. INDENTURE 1 EXHIBIT 4.F THIRD SUPPLEMENTAL INDENTURE dated as of December 9, 1997, between WYMAN-GORDON COMPANY, a Massachusetts corporation (the "Company") and STATE STREET BANK AND TRUST COMPANY, as trustee (the "Trustee"). WHEREAS there has heretofore been executed and delivered to the Trustee an Indenture dated as of March 16, 1993, amended by the Supplemental Indenture dated as of May 19, 1994 and the Second Supplemental Indenture and Guarantee dated as of May 27, 1994 (collectively, the "Indenture"), providing for the issuance of the Company's 10 3/4% Senior Notes Due 2003 (the "Securities"); WHEREAS guaranties of certain subsidiaries of the Company have been previously released by CIT; WHEREAS Section 11.03 of the Indenture provides that following repayment in full of all Indebtedness under the CIT Facility, Subsidiary Guarantors shall be released from all obligations under Article 11 of the Indenture; WHEREAS the Company has delivered an officer's certificate to the Trustee certifying compliance with Section 11.03 of the Indenture and has requested that the Trustee deliver an appropriate instrument evidencing such release; WHEREAS there are now outstanding under the Indenture, Securities in the aggregate principal amount of $90 million; WHEREAS Section 9.02 of the Indenture provides that the Company and the Trustee may amend the Indenture with the written consent of the Holders of not less than a majority in aggregate principal amount of the Securities then outstanding; WHEREAS the Company desires to amend certain provisions of the Indenture, as set forth in Article One hereof; WHEREAS the Holders of at least a majority in aggregate principal amount of the Securities outstanding have consented to the amendments effected by this Third Supplemental Indenture; and WHEREAS all things necessary to make this Third Supplemental Indenture a valid agreement, in accordance with its terms, have been done. NOW THEREFORE, this Third Supplemental Indenture witnesseth that, for and in consideration of the premises, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I AMENDMENTS TO INDENTURE SECTION 1.01 Waiver of and Amendments to Amendments to Article Four. (a) The application of Sections 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11 and 4.16 of the Indenture are hereby waived to the extent that such provisions might otherwise interfere with the ability of the Company and its Affiliates to enter into agreements contemplated by, and to consummate, (i) the Offer and Consent Solicitation as set forth in the Offer to Purchase and Consent Solicitation dated as of November 14, 1997, and any amendments, modifications or supplements thereto (the "Offer and Consent Solicitation") and (ii) the offer and sale of one or more new issues of senior debt securities pursuant to the Registration 2 Statement on Form S-3 (Registration No. 333-32149) filed with the Securities and Exchange Commission by the Company and the unconditional guarantee of the Company's obligations thereunder by its subsidiaries. (b) Effective upon the date the Company accepts for purchase and pays for all Securities validly tendered pursuant to the Offer and Consent Solicitation (the "Payment Date"), unless, prior to that time, the Company, by written notice to the Trustee, has terminated this Third Supplemental Indenture, Sections 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11 and 4.16 of the Indenture are hereby amended by deleting all such sections and all references thereto in their entirety, including without limitation all references, direct or indirect, thereto in Sections 1.01, "Definitions" and 6.01, "Events of Default Defined; Acceleration of Maturity; Waiver of Default". SECTION 1.02 Amendment to Article Five. Effective upon the Payment Date, unless, prior to that time, the Company, by written notice to the Trustee, has terminated this Third Supplemental Indenture, Section 5.01 of the Indenture is hereby amended to delete therefrom clauses (ii), (iii) and (iv) and all references thereto in their entirety. SECTION 1.03 Amendment to Article Six. Effective upon the Payment Date, unless, prior to that time, the Company, by written notice to the Trustee, has terminated this Third Supplemental Indenture, Section 6.01 of the Indenture is hereby amended to delete clauses (h) and (i), and all references thereto, in their entirety. SECTION 1.04 Release of Subsidiary Guarantees. The Trustee hereby acknowledges the release of Precision Founders, Inc., Reisner Metals, Inc., Sealed Composites, Inc., W-G Rome Corporation, Wyman- Gordon Composites, Inc., Wyman-Gordon Composite Technologies, Inc., Wyman-Gordon Fisc Limited, Wyman-Gordon Investment Castings, Inc., and Wyman-Gordon Securities Corporation as subsidiary guarantors pursuant to Section 11.03 of the Indenture. ARTICLE II MISCELLANEOUS SECTION 2.01 Instruments To Be Read Together. This Third Supplemental Indenture is an indenture supplemental to and in implementation of the Indenture, and said Indenture and this Third Supplemental Indenture shall henceforth be read together. SECTION 2.02 Confirmation. The Indenture as amended and supplemented by this Third Supplemental Indenture is in all respects confirmed and preserved. SECTION 2.03 Terms Defined. Capitalized terms used in this Third Supplemental Indenture and not otherwise defined herein shall have the respective meanings set forth in the Indenture. SECTION 2.04 Headings. The headings of the Articles and Sections of this Third Supplemental Indenture have been inserted for convenience of reference only, and are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof. SECTION 2.05 Governing Law. The laws of the State of New York shall govern this Third Supplemental Indenture. SECTION 2.06 Counterparts. This Third Supplemental Indenture 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. 2 3 SECTION 2.07 Effectiveness; Termination. The provisions of this Third Supplemental Indenture will take effect immediately upon its execution and delivery by the Trustee in accordance with the provisions of Sections 9.02 and 9.05 of the Indenture; provided that the amendments to the Indenture set forth in Sections 1.01, 1.02 and 1.03 of this Third Supplemental Indenture shall become operative as specified in Sections 1.01, 1.02 and 1.03 hereof. Prior to the Payment Date, the Company may terminate this Third Supplemental Indenture upon written notice to the Trustee (it being understood that the Company may, subsequent thereto, enter into a substitute third supplemental indenture). SECTION 2.08 Acceptance by Trustee. The Trustee accepts the amendments to the Indenture effected by this Third Supplemental Indenture and agrees to execute the trusts created by the Indenture as hereby amended, but only upon the terms and conditions set forth in the Indenture. SECTION 2.09 Responsibility of Trustee. The recitals contained herein shall be 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 Third Supplemental Indenture. 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed, all as of the date first written above. WYMAN-GORDON COMPANY, as Issuer Attest: By: ----------------------------------- Name: Wallace F. Whitney, Jr. Title: Vice President, General Counsel and Clerk By: ---------------------------------- Alan J. Glass, Assistant Clerk WYMAN-GORDON LIMITED, as a Subsidiary Guarantor Attest: By: ----------------------------------- Name: Wallace F. Whitney, Jr. Title: By: ---------------------------------- Alan J. Glass, Assistant Clerk STATE STREET BANK AND TRUST COMPANY, as Trustee Attest: By: ----------------------------------- Name: Title: By: ---------------------------------- Name: 4 EX-4.G 3 INDENTURE 12/15/97 FOR 8% SENIOR NOTES DUE 2007 1 EXHBIT 4.G - -------------------------------------------------------------------------------- WYMAN-GORDON COMPANY TO STATE STREET BANK AND TRUST COMPANY Trustee -------------------- Indenture Dated as of December 15, 1997 -------------------- Senior Debt Securities - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS Page ---- RECITALS OF THE COMPANY .......................................................1 ARTICLE ONE - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION ...................................................1 SECTION 101. Definitions ...................................................1 SECTION 102. Compliance Certificates and Opinions .........................12 SECTION 103. Form of Documents Delivered to Trustee .......................12 SECTION 104. Acts of Holders ..............................................13 SECTION 105. Notices, etc., to Trustee and Company ........................15 SECTION 106. Notice to Holders; Waiver ....................................15 SECTION 107. Counterparts; Effect of Headings and Table of Contents .......16 SECTION 108. Successors and Assigns .......................................16 SECTION 109. Severability Clause ..........................................16 SECTION 110. Benefits of Indenture ........................................16 SECTION 111. Governing Law ................................................17 SECTION 112. Legal Holidays ...............................................17 SECTION 113. Immunity of Stockholders, Directors, Officers and Agents of the Company ...............................................17 SECTION 114. Conflict with Trust Indenture Act ............................18 ARTICLE TWO - SECURITIES FORMS ...............................................18 SECTION 201. Forms of Securities ..........................................18 SECTION 202. Form of Trustee's Certificate of Authentication ..............18 SECTION 203. Securities Issuable in Global Form ...........................19 ARTICLE THREE - THE SECURITIES ...............................................20 SECTION 301. Amount Unlimited; Issuable in Series .........................20 SECTION 302. Denominations ................................................24 SECTION 303. Execution, Authentication, Delivery and Dating ...............24 SECTION 304. Temporary Securities .........................................26 SECTION 305. Registration, Registration of Transfer and Exchange ..........29 SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities .............32 SECTION 307. Payment of Interest; Interest Rights Preserved ...............33 SECTION 308. Persons Deemed Owners ........................................35 SECTION 309. Cancellation .................................................36 SECTION 310. Computation of Interest ......................................37 ARTICLE FOUR - SATISFACTION AND DISCHARGE ....................................37 SECTION 401. Satisfaction and Discharge of Indenture ......................37 SECTION 402. Application of Trust Funds ...................................38 (i) 3 Page ---- ARTICLE FIVE - REMEDIES ......................................................39 SECTION 501. Events of Default ............................................39 SECTION 502. Acceleration of Maturity; Rescission and Annulment ...........41 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee ......................................................42 SECTION 504. Trustee May File Proofs of Claim .............................43 SECTION 505. Trustee May Enforce Claims Without Possession of Securities or Coupons ........................................43 SECTION 506. Application of Money Collected ...............................44 SECTION 507. Limitation on Suits ..........................................44 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium or Make-Whole Amount, if any, and Interest ...................45 SECTION 509. Restoration of Rights and Remedies ...........................45 SECTION 510. Rights and Remedies Cumulative ...............................45 SECTION 511. Delay or Omission Not Waiver .................................46 SECTION 512. Control by Holders of Securities .............................46 SECTION 513. Waiver of Defaults ...........................................46 SECTION 514. Waiver of Usury, Stay or Extension Laws ......................47 SECTION 515. Undertaking for Costs ........................................47 ARTICLE SIX - THE TRUSTEE ....................................................47 SECTION 601. Notice of Defaults ...........................................47 SECTION 602. Certain Rights of Trustee ....................................48 SECTION 603. Not Responsible for Recitals or Issuance of Securities .......49 SECTION 604. May Hold Securities ..........................................49 SECTION 605. Money Held in Trust ..........................................50 SECTION 606. Compensation and Reimbursement ...............................50 SECTION 607. Corporate Trustee Required; Eligibility; Conflicting Interests ....................................................51 SECTION 608. Resignation and Removal; Appointment of Successor ............51 SECTION 609. Acceptance of Appointment by Successor .......................52 SECTION 610. Merger, Conversion, Consolidation or Succession to Business ..54 SECTION 611. Appointment of Authenticating Agent ..........................54 SECTION 612. Certain Duties and Responsibilities of the Trustee. ..........56 ARTICLE SEVEN - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY ......................................................57 SECTION 701. Disclosure of Names and Addresses of Holders .................57 SECTION 702. Reports by Trustee ...........................................58 SECTION 703. Reports by Company ...........................................58 SECTION 704. Company to Furnish Trustee Names and Addresses of Holders ....58 (ii) 4 Page ---- ARTICLE EIGHT - CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE ...................................................59 SECTION 801. Consolidations and Mergers of Company and Sales, Leases and Conveyances Permitted Subject to Certain Conditions ..........59 SECTION 802. Rights and Duties of Successor Corporation ...................59 SECTION 803. Officers' Certificate and Opinion of Counsel .................60 ARTICLE NINE - SUPPLEMENTAL INDENTURES .......................................60 SECTION 901. Supplemental Indentures Without Consent of Holders ...........60 SECTION 902. Supplemental Indentures with Consent of Holders ..............62 SECTION 903. Execution of Supplemental Indentures .........................63 SECTION 904. Effect of Supplemental Indentures ............................63 SECTION 905. Conformity with Trust Indenture Act ..........................63 SECTION 906. Reference in Securities to Supplemental Indentures ...........63 ARTICLE TEN - COVENANTS ......................................................63 SECTION 1001. Payment of Principal, Premium or Make-Whole Amount, if any; and Interest ........................................63 SECTION 1002. Maintenance of Office or Agency .............................64 SECTION 1003. Money for Securities Payments to Be Held in Trust ...........65 SECTION 1004. Existence ...................................................67 SECTION 1005. Maintenance of Properties ...................................67 SECTION 1006. Insurance ...................................................67 SECTION 1007. Payment of Taxes and Other Claims ...........................67 SECTION 1008. Statement as to Compliance ..................................68 SECTION 1009. Waiver of Certain Covenants .................................68 ARTICLE ELEVEN - REDEMPTION OF SECURITIES ....................................68 SECTION 1101. Applicability of Article ....................................68 SECTION 1102. Election to Redeem; Notice to Trustee .......................68 SECTION 1103. Selection by Trustee of Securities to Be Redeemed ...........68 SECTION 1104. Notice of Redemption ........................................69 SECTION 1105. Deposit of Redemption Price .................................70 SECTION 1106. Securities Payable on Redemption Date .......................71 SECTION 1107. Securities Redeemed in Part .................................72 ARTICLE TWELVE - SINKING FUNDS ...............................................72 SECTION 1201. Applicability of Article ....................................72 SECTION 1202. Satisfaction of Sinking Fund Payments with Securities .......72 SECTION 1203. Redemption of Securities for Sinking Fund ...................73 (iii) 5 Page ---- ARTICLE THIRTEEN - REPAYMENT AT THE OPTION OF HOLDERS ........................73 SECTION 1301. Applicability of Article ....................................73 SECTION 1302. Repayment of Securities .....................................73 SECTION 1303. Exercise of Option ..........................................74 SECTION 1304. When Securities Presented for Repayment Become Due and Payable .................................................74 SECTION 1305. Securities Repaid in Part ...................................75 ARTICLE FOURTEEN - DEFEASANCE AND COVENANT DEFEASANCE ........................76 SECTION 1401. Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance ...........................76 SECTION 1402. Defeasance and Discharge ....................................76 SECTION 1403. Covenant Defeasance .........................................76 SECTION 1404. Conditions to Defeasance or Covenant Defeasance .............77 SECTION 1405. Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions ....................79 ARTICLE FIFTEEN - MEETINGS OF HOLDERS OF SECURITIES ..........................80 SECTION 1501. Purposes for Which Meetings May Be Called ...................80 SECTION 1502. Call, Notice and Place of Meetings ..........................80 SECTION 1503. Persons Entitled to Vote at Meetings ........................80 SECTION 1504. Quorum; Action ..............................................81 SECTION 1505. Determination of Voting Rights; Conduct and Adjournment of Meetings .................................................82 SECTION 1506. Counting Votes and Recording Action of Meetings .............83 SIGNATURES AND SEALS .........................................................84 ACKNOWLEDGMENT ...............................................................85 EXHIBIT A FORM OF REDEEMABLE OR NON-REDEEMABLE SENIOR SECURITY ........................A-1 EXHIBIT B FORMS OF CERTIFICATION ......................................................B-1 (iv) 6 WYMAN-GORDON COMPANY Reconciliation and tie between Trust Indenture Act of 1939 (the "Trust Indenture Act" or "TIA") and Indenture, dated as of December 15, 1997. Trust Indenture ACT SECTION INDENTURE SECTION ss. 310(a)(1)................................... 607 (a)(2)................................... 607 (b)................................... 607, 608 ss. 312(c)................................... 701 ss. 313(a)................................... 702 (c)................................... 702 ss. 314(a)................................... 703 (a)(4)................................... 1009 (c)(1)................................... 102 (c)(2)................................... 102 (e)................................... 102 ss. 315(b)................................... 601 ss. 316(a) (last sentence)................. 101 ("Outstanding") (a)(1)(A)................................... 502, 512 (a)(1)(B)................................... 513 (b)................................... 508 ss. 317(a)(1)................................... 503 (a)(2)................................... 504 ss. 318(a)................................... 111 (c)................................... 111 - --------------- NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. Attention should also be directed to TIA Section 318(c), which provides that the provisions of TIA Sections 310 to and including 317 of the Trust Indenture Act are a part of and govern every qualified indenture, whether or not physically contained therein. (v) 7 INDENTURE, dated as of December 15, 1997, between WYMAN-GORDON COMPANY, a corporation organized under the laws of the Commonwealth of Massachusetts (hereinafter called the "Company"), having its principal office at 244 Worcester Street, North Grafton, Massachusetts 01536-8001, and State Street Bank and Trust Company, a trust company organized under the laws of The Commonwealth of Massachusetts as Trustee hereunder (hereinafter called the "Trustee"), having a Corporate Trust Office at Two International Place, Boston, MA 02110. RECITALS OF THE COMPANY The Company deems it necessary to issue from time to time for its lawful purposes senior debt securities (hereinafter called the "Securities") evidencing its unsecured and senior indebtedness, and has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of the Securities, to be issued in one or more Series as provided in this Indenture. This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act" or "TIA"), that are deemed to be incorporated into this Indenture and shall, to the extent applicable, be governed by such provisions. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase 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 TIA, either directly or by reference therein, have the meanings assigned to them therein, and the terms "cash transaction" and "self-liquidating paper," as used in TIA Section 311, shall have the meanings assigned to them in the rules of the Commission adopted under the TIA; 8 (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; 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. "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. "AUTHENTICATING AGENT" means any Person authorized by the Trustee pursuant to Section 611 hereof to act on behalf of the Trustee to authenticate Securities. "AUTHORIZED NEWSPAPER" means a newspaper, printed in the English language or in an official language of the country of publication, customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in each place in connection with which the term is used or in the financial community of each such place. Whenever successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different Authorized Newspapers in the same city meeting the foregoing requirements and in each case on any Business Day. "BANKRUPTCY LAW" has the meaning specified in Section 501. "BEARER SECURITY" means any Security established pursuant to Section 201 which is payable to bearer. "BOARD OF DIRECTORS" means the board of directors of the Company or any committee of that board duly authorized to act hereunder. "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 or any other particular location referred to in this Indenture or in the Securities, means, unless otherwise specified with respect to any Securities issued pursuant to Section 301, any day, other than a 2 9 Saturday or Sunday, that is not a day on which banking institutions in that Place of Payment or particular location are authorized or required by law, regulation or executive order to close. "CAPITAL STOCK" of any Person means any and all shares, interests, participations, rights to purchase, warrants, options or other equivalents (however designated) of corporate stock or other equity of such Person. "CEDEL" means Centrale de Livraison de Valeurs Mobilieres, S.A., or its successor. "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 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 on such date. "COMMON STOCK" means, with respect to any Person, all shares of capital stock issued by such Person other than Preferred Stock. "COMPANY" means the Person named as the "Company" in the first paragraph of this Indenture until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "COMPANY REQUEST" and "COMPANY ORDER" mean, respectively, a written request or order signed in the name of the Company by its Chairman of the Board, the President or a Vice President, and by its Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. "COMPARABLE TREASURY ISSUE" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Securities. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "COMPARABLE TREASURY PRICE" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day preceding such a redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, the average of all Reference Treasury Dealer Quotations for such redemption date. 3 10 "CONSOLIDATED NET ASSETS" means as of any particular time the aggregate amount of assets (less applicable reserves and other properly deductible items) after deducting therefrom all current liabilities except for (a) notes and loans payable, (b) current maturities of long-term debt and (c) current maturities of obligations under capital leases, all as set forth on the most recent consolidated balance sheet of the Company and its consolidated Subsidiaries and computed in accordance with generally accepted accounting principles and practices as in effect on December 15, 1997. "CONVERSION EVENT" means the cessation of use of (i) a Foreign Currency both by the government of the country which issued such currency and for the settlement of transactions by a central bank or other public institutions of or within the international banking community, (ii) the ECU both within the European Monetary System and for the settlement of transactions by public institutions of or within the European Communities or (iii) any currency unit (or composite currency) other than the ECU for the purposes for which it was established. "CORPORATE TRUST OFFICE" means the office of the Trustee at which, at any particular time, its corporate trust business shall be principally administered, which office at the date hereof is located at Two International Place, Corporate Trust Division, Boston, MA 02110. "CORPORATION" includes corporations, associations, companies and business trusts. "COUPON" means any interest coupon appertaining to a Bearer Security. "CUSTODIAN" has the meaning specified in Section 501. "DEFAULTED INTEREST" has the meaning specified in Section 307. "DOLLAR" or "$" means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts. "ECU" means the European Currency Unit as defined and revised from time to time by the Council of the European Communities. "EUROCLEAR" means Morgan Guaranty Trust Company of New York, Brussels office, or its successor as operator of the Euroclear System. "EUROPEAN COMMUNITIES" means the European Economic Community, the European Coal and Steel Community and the European Atomic Energy Community. "EUROPEAN MONETARY SYSTEM" means the European Monetary System established by the Resolution of December 5, 1978 of the Council of the European Communities. 4 11 "EVENT OF DEFAULT" has the meaning specified in Article Five. "FOREIGN CURRENCY" means any currency, currency unit or composite currency, including, without limitation, the ECU issued by the government of one or more countries other than the United States of America or by any recognized confederation or association of such governments. "GAAP" means, except as otherwise provided herein, generally accepted accounting principles, as in effect from time to time, as used in the United States applied on a consistent basis. "GLOBAL SECURITY" means a Security evidencing all or a part of a series of Securities issued to and registered in the name of the depository for such series, or its nominee, in accordance with Section 305, and bearing the legend prescribed in Section 203. "GOVERNMENT OBLIGATIONS" means securities which are (i) direct obligations of the United States of America or the government which issued the Foreign Currency in which the Securities of a particular series are payable, for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such government which issued the Foreign Currency in which the Securities of such series are payable, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government, 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 Government Obligation or a specific payment of interest on or principal of any such 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 the Government Obligation or the specific payment of interest on or principal of the Government Obligation evidenced by such depository receipt. "GUARANTY" by any Person means any Obligation, contingent or otherwise, of such Person guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including, without limitation, every Obligation of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (ii) to purchase property, securities or services for the purpose of assuring the holder of such Indebtedness of the payment of such Indebtedness or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; PROVIDED, HOWEVER, that a Guaranty by any Person shall not include endorsements by such Person for collection or deposit, in either case in the ordinary course of 5 12 business. The terms "Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings correlative to the foregoing. "HOLDER" means, in the case of a Registered Security, the Person in whose name a Security is registered in the Security Register and, in the case of a Bearer Security, the bearer thereof and, when used with respect to any coupon, shall mean the bearer thereof. "INDEBTEDNESS" means, with respect to any Person, without duplication, (i) any Obligation of such Person relating to any indebtedness of such Person (A) for borrowed money (whether or not the recourse of the lender is to the whole of the assets, of such person or only to a portion thereof), (B) evidenced by notes, debentures or similar instruments (including purchase money obligations) given in connection with the acquisition of any property or assets (other than trade accounts payable for inventory or similar property acquired in the ordinary course of business), including securities, for the payment of which such Person is liable, directly or indirectly, or the payment of which is secured by a lien, charge or encumbrance on property or assets of such Person, (C) for goods, materials or services purchased in the ordinary course of business (other than trade accounts payable arising in the ordinary course of business), (D) with respect to letters of credit or bankers acceptances issued for the account of such Person or performance, surety or similar bonds, (E) for the payment of money relating to a Capitalized Lease Obligation or (F) under interest rate swaps, caps or similar agreements and foreign exchange contracts, currency swaps or similar agreements; (ii) any liability of others of the kind described in the preceding clause (i), which such Person has Guaranteed or which is otherwise its legal liability; and (iii) any and all deferrals, renewals, extensions and refunding of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (i) or (ii). "INDENTURE" means this instrument as originally executed or as it may be supplemented or amended from time to time by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, and shall include the terms of particular series of Securities established as contemplated by Section 301; PROVIDED, HOWEVER, that, if at any time more than one Person is acting as Trustee under this instrument, "Indenture" shall mean, with respect to any one or more series of Securities for which such Person is Trustee, this instrument as originally executed or as it may be supplemented or amended from time to time by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of the or those particular series of Securities for which such Person is Trustee established as contemplated by Section 301, exclusive, however, of any provisions or terms which relate solely to other series of Securities for which such Person is Trustee, regardless of when such terms or provisions were adopted, and exclusive of any provisions or terms adopted by means of one or more indentures supplemental hereto executed and delivered after such Person had become such Trustee but to which such Person, as such Trustee, was not a party. 6 13 "INDEXED SECURITY" means a Security the terms of which provide that the principal amount thereof payable at Stated Maturity may be more or less than the principal face amount thereof at original issuance. "INTEREST," when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, shall mean interest payable after Maturity. "INTEREST PAYMENT DATE," when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "MATURITY," when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption, notice of option to elect repayment or otherwise. "OBLIGATION" of any Person with respect to any specified Indebtedness means any obligation of such Person to pay principal, premium, interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to such Person, whether or not a claim for such post-petition interest is allowed in such Proceeding), penalties, reimbursement or indemnification amounts, fees, expenses or other amounts relating to such Indebtedness. "OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the Board of Directors, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "OPINION OF COUNSEL" means a written opinion of counsel, who may be counsel for the Company or who may be an employee of or other counsel for the Company and who shall be satisfactory to the Trustee. "ORIGINAL ISSUE DISCOUNT SECURITY" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502. "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 canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment or redemption (including repayment at the option of the Holder) money in the necessary amount has 7 14 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 and any coupons appertaining thereto; PROVIDED, HOWEVER, 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; (iii) Securities, except to the extent provided in Sections 1402 and 1403, with respect to which the Company has effected defeasance and/or covenant defeasance as provided in Article Fourteen; and (iv) 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 or are present at a meeting of Holders for quorum purposes, and for the purpose of making the calculations required by TIA Section 313, (i) the principal amount of an Original Issue Discount Security that may be counted in making such determination or calculation and that shall be deemed to be Outstanding for such purpose shall be equal to the amount of principal thereof that would be (or shall have been declared to be) due and payable, at the time of such determination, upon a declaration of acceleration of the maturity thereof pursuant to Section 502, (ii) the principal amount of any Security denominated in a Foreign Currency that may be counted in making such determination or calculation and that shall be deemed Outstanding for such purpose shall be equal to the Dollar equivalent, determined pursuant to Section 301 as of the date such Security is originally issued by the Company, of the principal amount (or, in the case of an Original Issue Discount Security, the Dollar equivalent as of such date of original issuance of the amount determined as provided in clause (i) above) of such Security, (iii) the principal amount of any Indexed Security that may be counted in making such determination or calculation and that shall be deemed outstanding for such purpose shall be equal to the principal face amount of such Indexed Security at original issuance, unless otherwise provided with respect to such Security pursuant to Section 301, and (iv) 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 making such calculation or 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 owned as provided in clause (iv) above which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to 8 15 the satisfaction of the Trustee the pledgee's right so to act 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. In case of a dispute as to such right, the advice of counsel shall be full protection in respect of any decision made by the Trustee in accordance with such advice. "PAYING AGENT" means any Person authorized by the Company to pay the principal of (and premium or Make-Whole Amount, if any) or interest on any Securities or coupons 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," when used with respect to the Securities of or within any series, means the place or places where the principal of (and premium or Make-Whole Amount, if any) and interest on such Securities are payable as specified as contemplated by Sections 301 and 1002. "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 or a Security to which a mutilated, destroyed, lost or stolen coupon appertains shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security or the Security to which the mutilated, destroyed, lost or stolen coupon appertains. "PREFERRED STOCK" means, with respect to any Person, all capital stock issued by such Person that are entitled to a preference or priority over any other capital stock issued by such Person with respect to any distribution of such Person's assets, whether by dividend or upon any voluntary or involuntary liquidation, dissolution or winding up. "REDEMPTION DATE," when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "REDEMPTION PRICE," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "REFERENCE TREASURY DEALER" means each of [_________________], and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer. 9 16 "REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by such Treasury Dealer, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such redemption date. "REGISTERED SECURITY" shall mean any Security which is registered in the Security Register. "REGULAR RECORD DATE" for the interest payable on any Interest Payment Date on the Registered Securities of or within any series means the date specified for that purpose as contemplated by Section 301, whether or not a Business Day. "REPAYMENT DATE" means, when used with respect to any Security to be repaid at the option of the Holder, the date fixed for such repayment by or pursuant to this Indenture. "REPAYMENT PRICE" means, when used with respect to any Security to be repaid at the option of the Holder, the price at which it is to be repaid by or pursuant to this Indenture. "RESPONSIBLE OFFICER," when used with respect to the Trustee, means any officer in its Corporate Trust Office 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 such officer's knowledge and familiarity with the particular subject. "SECURITY" has the meaning stated in the first recital of this Indenture and, more particularly, means any Security or Securities authenticated and delivered under this Indenture; PROVIDED, HOWEVER, that, if at any time there is more than one Person acting as Trustee under this Indenture, "Securities" with respect to the Indenture as to which such Person is Trustee shall have the meaning stated in the first recital of this Indenture and shall more particularly mean Securities authenticated and delivered under this Indenture, exclusive, however, of Securities of any series as to which such Person is not Trustee. "SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective meanings specified in Section 305. "SIGNIFICANT SUBSIDIARY" means any Subsidiary which is a "significant subsidiary" (as defined in Article I, Rule 1-02 of Regulation S-X, promulgated under the Securities Act of 1933) of the Company. "SPECIAL RECORD DATE" for the payment of any Defaulted Interest on the Registered Securities of or within any series means a date fixed by the Company pursuant to Section 307. 10 17 "STATED MATURITY," when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security or a coupon representing such installment of interest as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "SUBSIDIARY" means a corporation a majority of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries of the Company. For the purposes of this definition, "voting stock" means stock having 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. "TREASURY RATE" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. "TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act of 1939, as amended and as in force at the date as of which this Indenture was executed, except as provided in Section 905. "TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this Indenture 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; PROVIDED, HOWEVER, that if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean only the Trustee with respect to Securities of that series. "UNITED STATES" means, unless otherwise specified with respect to any Securities pursuant to Section 301, the United States of America (including the states and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "UNITED STATES PERSON" means, unless otherwise specified with respect to any Securities pursuant to Section 301, an individual who is a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States or an estate or trust the income of which is subject to United States Federal income taxation regardless of its source. "YIELD TO MATURITY" means the yield to maturity, computed at the time of issuance of a Security (or, if applicable, at the most recent redetermination of interest on such Security) and as set forth in such Security in accordance with generally accepted United States bond yield computation principles. 11 18 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 (including certificates delivered pursuant to Section 1008) shall include: (1) a statement that each individual signing such certificate or opinion has read such condition or covenant 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 investigation as is necessary to enable him to express an informed opinion as to whether or not such condition or covenant 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 an Opinion of Counsel, or a certificate or representations by counsel, unless such officer knows, or in the exercise of reasonable care should know, that the opinion, certificate or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such Opinion of Counsel or certificate or representations 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 as to such 12 19 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 of the Outstanding Securities of all series or one or more series, as the case may be, may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing. If Securities of a series are issuable as Bearer Securities, any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of Securities of such series may, alternatively, be embodied in and evidenced by the record of Holders of Securities of such series voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities of such series duly called and held in accordance with the provisions of Article Fifteen, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company and any agent of the Trustee or the Company, if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 1506. (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 reasonable manner which the Trustee deems sufficient. 13 20 (c) The ownership of Registered Securities shall be proved by the Security Register. As to any matter relating to beneficial ownership interests in any Global Security, the appropriate depository's records shall be dispositive for purposes of this Indenture. (d) The ownership of Bearer Securities may be proved by the production of such Bearer Securities or by a certificate executed, as depository, by any trust company, bank, banker or other depository, wherever situated, if such certificate shall be deemed by the Trustee to be satisfactory, showing that at the date therein mentioned such Person had on deposit with such depository, or exhibited to it, the Bearer Securities therein described; or such facts may be proved by the certificate or affidavit of the Person holding such Bearer Securities, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and the Company may assume that such ownership of any Bearer Security continues until (1) another certificate or affidavit bearing a later date issued in respect of the same Bearer Security is produced, or (2) such Bearer Security is produced to the Trustee by some other Person, or (3) such Bearer Security is surrendered in exchange for a Registered Security, or (4) such Bearer Security is no longer Outstanding. The ownership of Bearer Securities may also be proved in any other manner which the Trustee deems sufficient. (e) If the Company shall solicit from the Holders of Registered Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, in or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; PROVIDED that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date. (f) 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, any Security Registrar, any Paying Agent, any Authenticating Agent or the Company in reliance thereon, whether or not notation of such action is made upon such Security. 14 21 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 the address specified in the first paragraph of this Indenture; 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 Indenture or at any other address previously furnished in writing to the Trustee by the Company, Attention: Chief Financial Officer (with a copy to the Company's General Counsel), or (3) either the Trustee or the Company, by the other party, shall be sufficient for every purpose hereunder if given by facsimile transmission, receipt confirmed by telephone followed by an original copy delivered by guaranteed overnight courier; if to the Trustee at facsimile number (617) 664-5371; and if to the Company at facsimile number (508) 839-7500. SECTION 106. NOTICE TO HOLDERS; WAIVER. Where this Indenture provides for notice of any event to Holders of Registered Securities by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each such Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, if any, and not earlier than the earliest date, if any, prescribed for the giving of such notice. In any case where notice to Holders of Registered Securities 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 of Registered Securities or the sufficiency of any notice to Holders of Bearer Securities given as provided herein. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. If by reason of the suspension of or irregularities in regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification to Holders of Registered Securities as shall be made with the approval of the Trustee shall constitute a sufficient notification to such Holders for every purpose hereunder. Except as otherwise expressly provided herein or otherwise specified with respect to any Securities pursuant to Section 301, where this Indenture provides for notice to Holders of Bearer Securities of any event, such notice shall be sufficiently given if published in an Authorized Newspaper in The City of New York and in such other city or cities as may be 15 22 specified in such Securities on a Business Day, such publication to be not later than the latest date, if any, and not earlier than the earliest date, if any, prescribed for the giving of such notice. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once, on the date of the first such publication. If by reason of the suspension of publication of any Authorized Newspaper or Authorized Newspapers or by reason of any other cause it shall be impracticable to publish any notice to Holders of Bearer Securities as provided above, then such notification to Holders of Bearer Securities as shall be given with the approval of the Trustee shall constitute sufficient notice to such Holders for every purpose hereunder. Neither the failure to give notice by publication to any particular Holder of Bearer Securities as provided above, nor any defect in any notice so published, shall affect the sufficiency of such notice with respect to other Holders of Bearer Securities or the sufficiency of any notice to Holders of Registered Securities given as provided herein. Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. Where this Indenture 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. SECTION 107. COUNTERPARTS; EFFECT OF HEADINGS AND TABLE OF CONTENTS. This Indenture 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 Indenture. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 108. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 109. SEVERABILITY CLAUSE. In case any provision in this Indenture or in any Security or coupon 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 110. BENEFITS OF INDENTURE. Nothing in this Indenture or in the Securities or coupons, express or implied, shall give to any Person, other than the parties hereto, any Security Registrar, any Paying Agent, any Authenticating Agent and their successors hereunder and the Holders any benefit or any legal or equitable right, remedy or claim under this Indenture. 16 23 SECTION 111. GOVERNING LAW. This Indenture and the Securities and coupons shall be governed by and construed in accordance with the law of the State of New York. This Indenture is subject to the provisions of the TIA that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 112. LEGAL HOLIDAYS. In any case where any Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or Maturity of any Security or the last date on which a Holder has the right to exchange a Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or any Security or coupon other than a provision in the Securities of any series which specifically states that such provision shall apply in lieu hereof), payment of interest or principal (and premium or Make-Whole Amount, if any) or exchange of such security need not be made at such Place of Payment on such date, but (except as otherwise provided in the supplemental indenture with respect to such Security) 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, Redemption Date, Repayment Date or sinking fund payment date, or at the Stated Maturity or Maturity, or on such last day for exchange, provided that no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or Maturity, as the case may be. SECTION 113. IMMUNITY OF STOCKHOLDERS, DIRECTORS, OFFICERS AND AGENTS OF THE COMPANY. No recourse under or upon any obligation, covenant or agreement contained in this Indenture, or in any Security, or because of any indebtedness evidenced thereby, shall be had against any past, present or future stockholder, employee, officer or director, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of the Securities by the Holders and as part of the consideration for the issue of the Securities. 17 24 SECTION 114. CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required or deemed to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. ARTICLE TWO - SECURITIES FORMS SECTION 201. FORMS OF SECURITIES. The Registered Securities, if any, of each series and the Bearer Securities, if any, of each series and related coupons shall be substantially in the form of EXHIBIT A hereto or in such other form as shall be established in one or more indentures supplemental hereto or approved from time to time by or pursuant to a Board Resolution in accordance with Section 301, shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture or any indenture supplemental hereto, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements placed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Securities may be listed, or to conform to usage. Unless otherwise specified as contemplated by Section 301, Bearer Securities shall have interest coupons attached. The definitive Securities and coupons shall be printed, lithographed or engraved or produced by any combination of these methods on a steel engraved border or steel engraved borders or mechanically reproduced on safety paper or may be produced in any other manner, all as determined by the officers executing such Securities or coupons, as evidenced by their execution of such Securities or coupons. SECTION 202. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. Subject to Section 611, the Trustee's certificate of authentication shall be in substantially the following form: 18 25 This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY as Trustee Dated: ______________ By: ----------------------------- Authorized Signatory SECTION 203. SECURITIES ISSUABLE IN GLOBAL FORM. If Securities of or within a series are issuable in the form of one or more Global Securities, then, notwithstanding clause (8) of Section 301 and the provisions of Section 302, any such Global Security or Securities may provide that it or they shall represent the aggregate amount of all Outstanding Securities of such series (or such lesser amount as is permitted by the terms thereof) from time to time endorsed thereon and may also provide that the aggregate amount of Outstanding Securities of such series represented thereby may from time to time be increased or decreased to reflect exchanges. Any endorsement of any Global Security to reflect the amount, or any increase or decrease in the amount, or changes in the rights of Holders thereof, of Outstanding Securities represented thereby shall be made by the Trustee in such manner or by such Person or Persons as shall be specified therein or in the Company Order to be delivered to the Trustee pursuant to Section 303 or 304. Subject to the provisions of Section 303 and, if applicable, Section 304, the Trustee shall deliver and redeliver any Global Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 303 or 304 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a Global Security shall be in writing but need not comply with Section 102 and need not be accompanied by an Opinion of Counsel. The provisions of the last sentence of Section 303 shall apply to any Security represented by a Global Security if such Security was never issued and sold by the Company and the Company delivers to the Trustee the Global Security together with written instructions (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) with regard to the reduction in the principal amount of Securities represented thereby, together with the written statement contemplated by the last sentence of Section 303. Notwithstanding the provisions of Section 307, unless otherwise specified as contemplated by Section 301, payment of principal of and any premium or Make-Whole Amount, if any, and interest on any Global Security in permanent global form shall be made to the registered Holder thereof. 19 26 Notwithstanding the provisions of Section 308 and except as provided in the preceding paragraph, the Company, the Trustee and any agent of the Company and the Trustee shall treat as the Holder of such principal amount of Outstanding Securities represented by a permanent Global Security (i) in the case of a permanent Global Security in registered form, the Holder of such permanent Global Security in registered form, or (ii) in the case of a permanent Global Security in bearer form, Euroclear or CEDEL. Any Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: "This Security is a Global Security within the meaning set forth in the Indenture hereinafter referred to and is registered in the name of a Depository or a nominee of a Depository. This Security is exchangeable for Securities registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Indenture, and may not be transferred except as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or its nominee to a successor Depository or its nominee." ARTICLE THREE - THE SECURITIES SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in one or more Board Resolutions or pursuant to authority granted by one or more Board Resolutions and, subject to Section 303, set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series: (1) The title of the Securities of the series (which shall distinguish the Securities of such series from all other series of Securities); (2) Any limit upon the aggregate principal amount of the Securities of the series that may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 906, 1107 or 1305); 20 27 (3) The price (expressed as a percentage of the principal amount thereof) at which such Securities will be issued and, if other than the principal amount thereof, the portion of the principal amount thereof payable upon declaration of acceleration of the maturity thereof; (4) The date or dates, or the method for determining such date or dates, on which the principal of such Securities will be payable; (5) The rate or rates (which may be fixed or variable), or the method by which such rate or rates shall be determined, at which such Securities will bear interest, if any; (6) The date or dates, or the method for determining such date or dates, from which any such interest will accrue, the dates on which any such interest will be payable, the record dates for such interest payment dates, or the method by which such dates shall be determined, the persons to whom such interest shall be payable, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months; (7) The place or places where the principal of (and premium, if any) and interest, if any, on such Securities will be payable, where such Securities may be surrendered for registration of transfer or exchange and where notices or demands to or upon the Company in respect of such Securities and this Indenture may be served; (8) The period or periods, if any, within which, the price or prices at which and the other terms and conditions upon which such Securities may, pursuant to any optional or mandatory redemption provisions, be redeemed, as a whole or in part, at the option of the Company; (9) The obligation, if any, of the Company to redeem, repay or purchase such Securities pursuant to any sinking fund or analogous provision or at the option of a holder thereof, and the period or periods within which, the price or prices at which and the other terms and conditions upon which such Securities will be redeemed, repaid or purchased, as a whole or in part, pursuant to such obligation; (10) If other than Dollars, the currency or currencies in which such Securities are denominated and payable, which may be a foreign currency or units of two or more foreign currencies or a composite currency or currencies, the manner of determining the equivalent thereof in Dollars for purposes of the definition of "Outstanding" in Section 101, and the terms and conditions relating thereto; (11) Whether the amount of payments of principal of (and premium or Make-Whole Amount, if any, including any amount due upon redemption, if any) or 21 28 interest, if any, on such Securities may be determined with reference to an index, formula or other method (which index, formula or method may, but need not be, based on the yield on or trading price of other securities, including United States Treasury securities or on a currency, currencies, currency unit or units, or composite currency or currencies) and the manner in which such amounts shall be determined; (12) Whether the principal of (and premium, if any) or interest on the Securities of the series are to be payable, at the election of the Company or a holder thereof, in a currency or currencies, currency unit or units or composite currency or currencies other than that in which such Securities are denominated or stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made, and the time and manner of, and identity of the exchange rate agent with responsibility for, determining the exchange rate between the currency or currencies, currency unit or units or composite currency or currencies in which such Securities are denominated or stated to be payable and the currency or currencies, currency unit or units or composite currency or currencies in which such Securities are to be so payable; (13) Provisions, if any, granting special rights to the holders of Securities of the series upon the occurrence of such events as may be specified; (14) Any deletions from, modifications of or additions to the Events of Default or covenants of the Company with respect to Securities of the series, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein; (15) Whether and under what circumstances the Company will pay any additional amounts on such Securities in respect of any tax, assessment or governmental charge and, if so, whether the Company will have the option to redeem such Securities in lieu of making such payment; (16) Whether Securities of the series are to be issuable as Registered Securities, Bearer Securities (with or without coupons) or both, any restrictions applicable to the offer, sale or delivery of Bearer Securities and the terms upon which Bearer Securities of the series may be exchanged for Registered Securities of the series and vice versa (if permitted by applicable laws and regulations), whether any Securities of the series are to be issuable initially in temporary global form and whether any Securities of the series are to be issuable in permanent global form with or without coupons and, if so, whether beneficial owners of interests in any such permanent global Security may exchange such interests for Securities of such series and of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in the Indenture, and, if 22 29 Registered Securities of the series are to be issuable as a Global Security, the identity of the depository for such series; (17) The date as of which any Bearer Securities of the series and any temporary Global Security representing outstanding Securities of the series shall be dated if other than the date of original issuance of the first Security of the series to be issued; (18) The Person to whom any interest on any Registered Security of the series shall be payable, if other than 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, the manner in which, or the Person to whom, any interest on any Bearer Security of the series shall be payable, if otherwise than upon presentation and surrender of the coupons appertaining thereto as they severally mature, and the extent to which, or the manner in which, any interest payable on a temporary Global Security on an Interest Payment Date will be paid if other than in the manner provided herein; (19) The applicability, if any, of the defeasance and covenant defeasance provisions of Article Fourteen hereof to the Securities of the series; (20) If the Securities of such series are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions, then the form and/or terms of such certificates, documents or conditions; and (21) Any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series and the coupons appertaining to any Bearer Securities of such series shall be substantially identical except, in the case of Registered Securities, as to denomination and except as may otherwise be provided in or pursuant to such Board Resolution (subject to Section 303) and set forth in such Officers' Certificate or in any such indenture supplemental hereto. All Securities of any one series need not be issued at the same time and, unless otherwise provided, a series may be reopened, without the consent of the Holders, for issuances of additional Securities of such series. If any of the terms of the Securities of any series are established by action taken pursuant to one or more Board Resolutions, a copy of an appropriate record of such action(s) shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the Securities of such series. 23 30 SECTION 302. DENOMINATIONS. The Securities of each series shall be issuable in such denominations as shall be specified as contemplated by Section 301. With respect to Securities of any series denominated in Dollars, in the absence of any such provisions with respect to the Securities of any series, the Securities of such series, other than Global Securities (which may be of any denomination), shall be issuable in denominations of $1,000 and any integral multiple thereof. SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The Securities and any coupons appertaining thereto 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, and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities and coupons may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Securities. Securities or coupons 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 or coupons. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series, together with any coupon appertaining thereto, 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; PROVIDED, HOWEVER, that, in connection with its original issuance, no Bearer Security shall be mailed or otherwise delivered to any location in the United States; and PROVIDED FURTHER that, unless otherwise specified with respect to any series of Securities pursuant to Section 301, a Bearer Security may be delivered in connection with its original issuance only if the Person entitled to receive such Bearer Security shall have furnished a certificate to Euroclear or CEDEL, as the case may be, in the form set forth in Exhibit B-1 to this Indenture or such other certificate as may be specified with respect to any series of Securities pursuant to Section 301, dated no earlier than 15 days prior to the earlier of the date on which such Bearer Security is delivered and the date on which any temporary Security first becomes exchangeable for such Bearer Security in accordance with the terms of such temporary Security and this Indenture. If any Security shall be represented by a permanent global Bearer Security, then, for purposes of this Section and Section 304, the notation of a beneficial owner's interest therein upon original issuance of such Security or upon exchange of a portion of a temporary Global Security shall be deemed to be delivery in connection with its original issuance of such beneficial owner's interest in such permanent Global Security. Except as permitted by Section 306, the Trustee shall not authenticate and deliver any Bearer Security unless all appurtenant coupons for interest then matured have been detached and canceled. 24 31 If all the Securities of any series are not to be issued at one time and if the Board Resolution or supplemental indenture establishing such series shall so permit, such Company Order may set forth procedures acceptable to the Trustee for the issuance of such Securities and determining the terms of particular Securities of such series, such as interest rate or formula, maturity date, date of issuance and date from which interest shall accrue. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to TIA Section 315(a) through 315(d)) shall be fully protected in relying upon, (i) an Opinion of Counsel stating that (a) the form or forms of such Securities and any coupons have been established in conformity with the provisions of this Indenture; (b) the terms of such Securities and any coupons have been established in conformity with the provisions of this Indenture; and (c) such Securities, together with any coupons appertaining thereto, when completed by appropriate insertions and executed and delivered by the Company to the Trustee for authentication in accordance with this Indenture, authenticated and delivered by the Trustee in accordance with this Indenture and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute legal, valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization and other similar laws of general applicability relating to or affecting the enforcement of creditors' rights generally and to general equitable principles; and (ii) an Officers' Certificate stating that all conditions precedent provided for in this Indenture relating to the issuance of the Securities have been complied with and that, to the best of the knowledge of the signers of such certificate, that no Event of Default with respect to any of the Securities shall have occurred and be continuing. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties, obligations or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 301 and of the preceding paragraph, if all the Securities of any series are not to be issued at one time, it shall not be necessary to deliver an Officers' Certificate otherwise required pursuant to Section 301 or a Company Order, or an Opinion of Counsel or an Officers' Certificate otherwise required pursuant to the preceding 25 32 paragraph at the time of issuance of each Security of such series, but such order, opinion and certificates, with appropriate modifications to cover such future issuances, shall be delivered at or before the time of issuance of the first Security of such series. Each Registered Security shall be dated the date of its authentication and each Bearer Security shall be dated as of the date specified as contemplated by Section 301. No Security or coupon shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security or Security to which such coupon appertains a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, 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. Notwithstanding the foregoing, if any Security (including a Global Security) shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309 together with a written statement (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. SECTION 304. TEMPORARY SECURITIES. (a) Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall 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, in registered form, or, if authorized, in bearer form with one or more coupons or without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. In the case of Securities of any series, such temporary Securities may be in global form. Except in the case of temporary Global Securities (which shall be exchanged as otherwise provided herein or as otherwise provided in or pursuant to a Board Resolution), if temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series (accompanied by any non-matured coupons appertaining thereto), the Company shall 26 33 execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of the same series of authorized denominations; PROVIDED, HOWEVER, that no definitive Bearer Security shall be delivered in exchange for a temporary Registered Security; and PROVIDED FURTHER that a definitive Bearer Security shall be delivered in exchange for a temporary Bearer Security only in compliance with the conditions set forth in Section 303. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. (b) Unless otherwise provided in or pursuant to a Board Resolution, the following provisions of this Section 304(b) shall govern the exchange of temporary Securities other than through the facilities of The Depository Trust Company. If any such temporary Security is issued in global form, then such temporary Global Security shall, unless otherwise provided therein, be delivered to the London office of a depository or common depository (the "Common Depository"), for the benefit of Euroclear and CEDEL, for credit to the respective accounts of the beneficial owners of such Securities (or to such other accounts as they may direct). Without unnecessary delay but in any event not later than the date specified in, or determined pursuant to the terms of, any such temporary Global Security (the "Exchange Date"), the Company shall deliver to the Trustee definitive Securities, in aggregate principal amount equal to the principal amount of such temporary Global Security, executed by the Company. On or after the Exchange Date, such temporary Global Security shall be surrendered by the Common Depository to the Trustee, as the Company's agent for such purpose, to be exchanged, in whole or from time to time in part, for definitive Securities without charge, and the Trustee shall authenticate and deliver, in exchange for each portion of such temporary Global Security, an equal aggregate principal amount of definitive Securities of the same series of authorized denominations and of like tenor as the portion of such temporary Global Security to be exchanged. The definitive Securities to be delivered in exchange for any such temporary Global Security shall be in bearer form, registered form, permanent global bearer form or permanent global registered form, or any combination thereof, as specified as contemplated by Section 301, and, if any combination thereof is so specified, as requested by the beneficial owner thereof; PROVIDED, HOWEVER, that, unless otherwise specified in such temporary Global Security, upon such presentation by the Common Depository, such temporary Global Security is accompanied by a certificate dated the Exchange Date or a subsequent date and signed by Euroclear as to the portion of such temporary Global Security held for its account then to be exchanged and a certificate dated the Exchange Date or a subsequent date and signed by CEDEL as to the portion of such temporary Global Security held for its account then to be exchanged in such form as may be established pursuant to Section 301; and PROVIDED FURTHER that definitive Bearer Securities shall be delivered in exchange for a portion of a temporary Global Security only in compliance with the requirements of Section 303. 27 34 Unless otherwise specified in such temporary Global Security, the interest of a beneficial owner of Securities of a series in a temporary Global Security shall be exchanged for definitive Securities of the same series and of like tenor following the Exchange Date when the account holder instructs Euroclear or CEDEL, as the case may be, to request such exchange on his behalf and delivers to Euroclear or CEDEL, as the case may be, a certificate in the form set forth in Exhibit B-1 to this Indenture (or in such other form as may be established pursuant to Section 301), dated no earlier than 15 days prior to the Exchange Date, copies of which certificate shall be available from the offices of Euroclear and CEDEL, the Trustee, any Authenticating Agent appointed for such series of Securities and each Paying Agent. Unless otherwise specified in such temporary Global Security, any such exchange shall be made free of charge to the beneficial owners of such temporary Global Security, except that a Person receiving definitive Securities must bear the cost of insurance, postage, transportation and the like unless such Person takes delivery of such definitive Securities in person at the offices of Euroclear or CEDEL. Definitive Securities in bearer form to be delivered in exchange for any portion of a temporary Global Security shall be delivered only outside the United States. Until exchanged in full as hereinabove provided, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of the same series and of like tenor authenticated and delivered hereunder, except that, unless otherwise specified as contemplated by Section 301, interest payable on a temporary Global Security on an Interest Payment Date for Securities of such series occurring prior to the applicable Exchange Date shall be payable to Euroclear and CEDEL on such Interest Payment Date upon delivery by Euroclear and CEDEL to the Trustee of a certificate or certificates in the form set forth in Exhibit B-2 to this Indenture (or in such other forms as may be established pursuant to Section 301), for credit without further interest on or after such Interest Payment Date to the respective accounts of Persons who are the beneficial owners of such temporary Global Security on such Interest Payment Date and who have each delivered to Euroclear or CEDEL, as the case may be, a certificate dated no earlier than 15 days prior to the Interest Payment Date occurring prior to such Exchange Date in the form set forth as Exhibit B-1 to this Indenture (or in such other forms as may be established pursuant to Section 301). Notwithstanding anything to the contrary herein contained, the certifications made pursuant to this paragraph shall satisfy the certification requirements of the preceding two paragraphs of this Section 304(b) and of the third paragraph of Section 303 of this Indenture and the interests of the Persons who are the beneficial owners of the temporary Global Security with respect to which such certification was made will be exchanged for definitive Securities of the same series and of like tenor on the Exchange Date or the date of certification if such date occurs after the Exchange Date, without further act or deed by such beneficial owners. Except as otherwise provided in this paragraph, no payments of principal or interest owing with respect to a beneficial interest in a temporary Global Security will be made unless and until such interest in such temporary Global Security shall have been exchanged for an interest in a definitive Security. Any interest so received by Euroclear and CEDEL and not paid as herein provided shall be returned to the Trustee prior to the expiration of two years after such Interest Payment Date in order to be repaid to the Company. 28 35 SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. The Company shall cause to be kept at the Corporate Trust Office of the Trustee or in any office or agency of the Company in a Place of Payment a register for each series of Securities (the registers maintained in such office or in any such office or agency of the Company in a Place of Payment being herein sometimes referred to collectively as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Registered Securities and of transfers of Registered Securities. The Security Register shall be in written form or any other form capable of being converted into written form within a reasonable time. The Trustee, at its Corporate Trust Office, is hereby initially appointed "Security Registrar" for the purpose of registering Registered Securities and transfers of Registered Securities on such Security Register as herein provided. In the event that the Trustee shall cease to be Security Registrar, it shall have the right to examine the Security Register at all reasonable times. Subject to the provisions of this Section 305, upon surrender for registration of transfer of any Registered Security of any series at any office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Registered Securities of the same series, of any authorized denominations and of a like aggregate principal amount, bearing a number not contemporaneously outstanding, and containing identical terms and provisions. Subject to the provisions of this Section 305, at the option of the Holder, Registered Securities of any series may be exchanged for other Registered Securities of the same series, of any authorized denomination or denominations and of a like aggregate principal amount, containing identical terms and provisions, upon surrender of the Registered Securities to be exchanged at any such office or agency. Whenever any such Registered Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Registered Securities which the Holder making the exchange is entitled to receive. Unless otherwise specified with respect to any series of Securities as contemplated by Section 301, Bearer Securities may not be issued in exchange for Registered Securities. If (but only if) permitted by the applicable Board Resolution and (subject to Section 303) set forth in the applicable Officers' Certificate, or in any indenture supplemental hereto, delivered as contemplated by Section 301, at the option of the Holder, Bearer Securities of any series may be exchanged for Registered Securities of the same series of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Bearer Securities to be exchanged at any such office or agency, with all unmatured coupons and all matured coupons in default thereto appertaining. If the Holder of a Bearer Security is unable to produce any such unmatured coupon or coupons or matured coupon or coupons in default, any such permitted exchange may be effected if the Bearer Securities are accompanied by payment in funds acceptable to the Company in an amount equal to the face amount of such missing coupon or coupons, or the surrender of such missing coupon or 29 36 coupons may be waived by the Company and the Trustee if there is furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to any Paying Agent any such missing coupon in respect of which such a payment shall have been made, such Holder shall be entitled to receive the amount of such payment; PROVIDED, HOWEVER, that, except as otherwise provided in Section 1002, interest represented by coupons shall be payable only upon presentation and surrender of those coupons at an office or agency located outside the United States. Notwithstanding the foregoing, in case a Bearer Security of any series is surrendered at any such office or agency in a permitted exchange for a Registered Security of the same series and like tenor after the close of business at such office or agency on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date or proposed date for payment, as the case may be, and interest or Defaulted Interest, as the case may be, will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. 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. Notwithstanding the foregoing, except as otherwise specified as contemplated by Section 301, any permanent Global Security shall be exchangeable only as provided in this paragraph. If the depository for any permanent Global Security is The Depository Trust Company ("DTC"), then, unless the terms of such Global Security expressly permit such Global Security to be exchanged in whole or in part for definitive Securities, a Global Security may be transferred, in whole but not in part, only to a nominee of DTC, or by a nominee of DTC to DTC, or to a successor to DTC for such Global Security selected or approved by the Company or to a nominee of such successor to DTC. If at any time DTC notifies the Company that it is unwilling or unable to continue as depository for the applicable Global Security or Securities or if at any time DTC ceases to be a clearing agency registered under the Securities Exchange Act of 1934 if so required by applicable law or regulation, the Company shall appoint a successor depository with respect to such Global Security or Securities. If (x) a successor depository for such Global Security or Securities is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such unwillingness, inability or ineligibility, (y) an Event of Default has occurred and is continuing and the beneficial owners representing a majority in principal amount of the applicable series of Securities represented by such Global Security or Securities advise DTC to cease acting as depository for such Global Security or Securities or (z) the Company, in its sole discretion, determines at any time that all Outstanding Securities (but not less than all) of any series issued or issuable in the form of one or more Global Securities shall no longer be represented by such Global Security or Securities, then the Company shall execute, and the Trustee shall 30 37 authenticate and deliver definitive Securities of like series, rank, tenor and terms in definitive form in an aggregate principal amount equal to the principal amount of such Global Security or Securities in such names as DTC (or the successor depository, as the case may be) shall instruct. If any beneficial owner of an interest in a permanent global Security (as reflected on the books and record of DTC or such other depository) is otherwise entitled to exchange such interest for Securities of such series and of like tenor and principal amount of another authorized form and denomination, as specified as contemplated by Section 301 and provided that any applicable notice provided in the permanent Global Security shall have been given, then without unnecessary delay but in any event not later than the earliest date on which such interest may be so exchanged, the Company shall execute, and the Trustee shall authenticate and deliver definitive Securities in aggregate principal amount equal to the principal amount of such beneficial owner's interest in such permanent Global Security. On or after the earliest date on which such interests may be so exchanged, such permanent Global Security shall be surrendered for exchange by DTC or such other depository as shall be specified in the Company Order with respect thereto to the Trustee, as the Company's agent for such purpose; PROVIDED, HOWEVER, that no such exchanges may occur during a period beginning at the opening of business 15 days before any selection of Securities to be redeemed and ending on the relevant Redemption Date if the Security for which exchange is requested may be among those selected for redemption; and PROVIDED FURTHER that no Bearer Security delivered in exchange for a portion of a permanent Global Security shall be mailed or otherwise delivered to any location in the United States. If a Registered Security is issued in exchange for any portion of a permanent Global Security after the close of business at the office or agency where such exchange occurs on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, interest or Defaulted Interest, as the case may be, will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Registered Security, but will be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion of such permanent Global Security is payable in accordance with the provisions of this Indenture. 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 Registered Security presented or surrendered for registration of transfer or for exchange or redemption shall (if so required by the Company or the Security Registrar) 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. 31 38 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, 906, 1107 or 1305 not involving any transfer. The Company or the Trustee, as applicable, shall not be required (i) to issue, register the transfer of or exchange any Security if such Security may be among those selected for redemption during a period beginning at the opening of business 15 days before selection of the Securities to be redeemed under Section 1103 and ending at the close of business on (A) if such Securities are issuable only as Registered Securities, the day of the mailing of the relevant notice of redemption and (B) if such Securities are issuable as Bearer Securities, the day of the first publication of the relevant notice of redemption or, if such Securities are also issuable as Registered Securities and there is no publication, the mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any Registered Security so selected for redemption in whole or in part, except, in the case of any Registered Security to be redeemed in part, the portion thereof not to be redeemed, or (iii) to exchange any Bearer Security so selected for redemption except that such a Bearer Security may be exchanged for a Registered Security of that series and like tenor, PROVIDED that such Registered Security shall be simultaneously surrendered for redemption, or (iv) to issue, register the transfer of or exchange any Security which has been surrendered for repayment at the option of the Holder, except the portion, if any, of such Security not to be so repaid. SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. If any mutilated Security or a Security with a mutilated coupon appertaining to it is surrendered to the Trustee or the Company, together with, in proper cases, such security or indemnity as may be required by the Company or the Trustee to save each of them or any agent of either of them harmless, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and principal amount, containing identical terms and provisions and bearing a number not contemporaneously outstanding, with coupons corresponding to the coupons, if any, appertaining to the surrendered Security. If there shall be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security or coupon, and (ii) such security or 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 or coupon 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 destroyed, lost or stolen Security or in exchange for the Security to which a destroyed, lost or stolen coupon appertains (with all appurtenant coupons not destroyed, lost or stolen), a new Security of the same series and principal amount, containing identical terms and provisions and bearing a number not contemporaneously outstanding, with coupons corresponding to the coupons, if any, 32 39 appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen coupon appertains. Notwithstanding the provisions of the previous two paragraphs, in case any such mutilated, destroyed, lost or stolen Security or coupon has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, with coupons corresponding to the coupons, if any, appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen coupon appertains, pay such Security or coupon; PROVIDED, HOWEVER, that payment of principal of (and premium or Make-Whole Amount, if any), and any interest on, Bearer Securities shall, except as otherwise provided in Section 1002, be payable only at an office or agency located outside the United States and, unless otherwise specified as contemplated by Section 301, any interest on Bearer Securities shall be payable only upon presentation and surrender of the coupons appertaining thereto. 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 of any series with its coupons, if any, issued pursuant to this Section in lieu of any destroyed, lost or stolen Security, or in exchange for a Security to which a destroyed, lost or stolen coupon appertains, shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security and its coupons, if any, or the destroyed, lost or stolen coupon 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 of that series and their coupons, if any, 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 or coupons. SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. Except as otherwise specified with respect to a series of Securities in accordance with the provisions of Section 301, interest on any Registered Security that 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 at the office or agency of the Company maintained for such purpose pursuant to Section 1002; PROVIDED, HOWEVER, that each installment of interest on any Registered Security may at the Company's option be paid by (i) mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 308, to the address of such Person as it appears on the Security Register or (ii) transfer to an account maintained by the payee located inside the United States. 33 40 Unless otherwise provided as contemplated by Section 301 with respect to the Securities of any series, payment of interest may be made, in the case of a Bearer Security, by transfer to an account maintained by the payee with a bank located outside the United States. Unless otherwise provided as contemplated by Section 301, every permanent global Security will provide that interest, if any, payable on any Interest Payment Date will be paid to DTC, Euroclear and/or CEDEL, as the case may be, with respect to that portion of such permanent global Security held for its account by Cede & Co. or the Common Depository, as the case may be, for the purpose of permitting such party to credit the interest received by it in respect of such permanent global Security to the accounts of the beneficial owners thereof. In case a Bearer Security of any series is surrendered in exchange for a Registered Security of such series after the close of business (at an office or agency in a Place of Payment for such series) on any Regular Record Date and before the opening of business (at such office or agency) on the next succeeding Interest Payment Date, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date and interest will not be payable on such Interest Payment Date in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. Except as otherwise specified with respect to a series of Securities in accordance with the provisions of Section 301, any interest on any Registered Security of any series that 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 registered Holder thereof 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 Registered Securities of such series (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 Registered Security of such series and the date of the proposed payment (which shall not be less than 20 days after such notice is received by the Trustee), and at the same time the Company shall deposit with the Trustee an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) 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 on or 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. 34 41 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 10 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 Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Registered Securities of such series at his address as it appears in the Security Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in an Authorized Newspaper in each Place of Payment, but such publications shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Registered Securities of such series (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). In case a Bearer Security of any series is surrendered at the office or agency in a Place of Payment for such series in exchange for a Registered Security of such series after the close of business at such office or agency on any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such proposed date of payment and Defaulted Interest will not be payable on such proposed date of payment in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. (2) The Company may make payment of any Defaulted Interest on the Registered Securities of any series 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 and Section 305, 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 Registered 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 Registered Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium or 35 42 Make-Whole Amount, if any), and (subject to Sections 305 and 307) interest on, such Registered Security and for all other purposes whatsoever, whether or not such Registered 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. All such payments so made to any such Person, or upon such Person's order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for money payable upon any such Security. Title to any Bearer Security and any coupons appertaining thereto shall pass by delivery. The Company, the Trustee and any agent of the Company or the Trustee may treat the Holder of any Bearer Security and the Holder of any coupon as the absolute owner of such Security or coupon for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not such Security or coupon 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. No Holder of any beneficial interest in any Global Security held on its behalf by a depository shall have any rights under this Indenture with respect to such Global Security and such depository shall be treated by the Company, the Trustee, and any agent of the Company or the Trustee as the owner of such Global Security for all purposes whatsoever. None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Notwithstanding the foregoing, with respect to any Global Security, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by any depository, as a Holder, with respect to such Global Security or impair, as between such depository and owners of beneficial interests in such Global Security, the operation of customary practices governing the exercise of the rights of such depository (or its nominee) as Holder of such Global Security. SECTION 309. CANCELLATION. All Securities and coupons surrendered for payment, redemption, repayment at the option of the Holder, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and coupons and Securities and coupons surrendered directly to the Trustee for any such purpose 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 may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. If the Company shall so acquire any of the Securities, however, such 36 43 acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. Cancelled Securities and coupons held by the Trustee shall be destroyed by the Trustee, unless the Trustee is otherwise directed by a Company Order. SECTION 310. COMPUTATION OF INTEREST. Except as otherwise specified as contemplated by Section 301 with respect to Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year consisting of twelve 30-day months. ARTICLE FOUR - SATISFACTION AND DISCHARGE SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture shall upon Company Request cease to be of further effect with respect to any series of Securities specified in such Company Request (except as to any surviving rights of registration of transfer or exchange of Securities of such series herein expressly provided for), and the Trustee, upon receipt of a Company Order, and at the expense of the Company, shall execute instruments in form and substance satisfactory to the Trustee and the Company acknowledging satisfaction and discharge of this Indenture as to such series when (1) either (A) all Securities of such series theretofore authenticated and delivered and all coupons, if any, appertaining thereto (other than (i) coupons appertaining to Bearer Securities surrendered for exchange for Registered Securities and maturing after such exchange, whose surrender is not required or has been waived as provided in Section 305, (ii) Securities and coupons of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306, (iii) coupons appertaining to Securities called for redemption and maturing after the relevant Redemption Date, whose surrender has been waived as provided in Section 1106, and (iv) Securities and coupons of such series 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 Securities of such series and, in the case of (i) or (ii) below, any coupons appertaining thereto not theretofore delivered to the Trustee for cancellation 37 44 (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) if redeemable at the option of the Company, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable, sufficient to pay and discharge the entire indebtedness on such Securities and such coupons not theretofore delivered to the Trustee for cancellation, for principal (and premium or Make-Whole Amount, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, 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 as to such series have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee and any predecessor Trustee under Section 606, the obligations of the Company to any Authenticating Agent under Section 611 and, if money shall have been deposited with and held by the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. APPLICATION OF TRUST FUNDS. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities, the coupons 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 premium or Make-Whole Amount, if any), and any interest for whose payment such money has been deposited with or received by the 38 45 Trustee, but such money need not be segregated from other funds except to the extent required by law. ARTICLE FIVE - REMEDIES SECTION 501. EVENTS OF DEFAULT. "Event of Default," wherever used herein with respect to any particular series of Securities, means any one of the following events (whatever the reason for such Event of Default and whether or not it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest on any Security of that series or of any coupon appertaining thereto, when such interest or coupon becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment of the principal of (or premium or Make-Whole Amount, if any, on) any Security of that series when it becomes due and payable at its Maturity; or (3) default in the deposit of any sinking fund payment, when and as due by the terms of any Security of that series; or (4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture with respect to any Security of that series (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 60 days after there has 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 of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) default under any bond, debenture, note, 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 (or by any Subsidiary, the repayment of which the Company has guaranteed or for which the Company is directly responsible or liable as obligor or guarantor), having an aggregate principal amount outstanding of at least $25,000,000, whether such indebtedness now exists or shall hereafter be created, which default 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 39 46 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 10% in principal amount of the Outstanding Securities of that series 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 (6) the entry by a court of competent jurisdiction of one or more judgments, orders or decrees against the Company or any of its Subsidiaries in an aggregate amount (excluding amounts covered by insurance) in excess of $10,000,000 and such judgments, orders or decrees remain undischarged, unstayed and unsatisfied in an aggregate amount (excluding amounts covered by insurance) in excess of $10,000,000 for a period of 30 consecutive days; or (7) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors; or (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case, (B) appoints a Custodian of the Company or any Significant Subsidiary or for all or substantially all of either of its property, or (C) orders the liquidation of the Company or any Significant Subsidiary, and the order or decree remains unstayed and in effect for 90 days; or (9) any other Event of Default provided with respect to Securities of that series. 40 47 As used in this Section 501, the term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or state law for the relief of debtors and the term "Custodian" means any receiver, trustee, assignee, liquidator or other similar official under any Bankruptcy Law. SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of Default with respect to Securities of any series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount (or, if Securities of that Series are Original Issue Discount Securities or Indexed Securities, such portion of the principal as may be specified in the terms thereof) of all the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any such declaration such principal or specified portion thereof shall become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration of acceleration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay in the currency, currency unit or composite currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series): (A) all overdue installments of interest on all Outstanding Securities of that series and any related coupons, (B) the principal of (and premium or Make-Whole Amount, if any, on) any Outstanding Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates borne by or provided for in such Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue installments of interest at the rate or rates borne by or provided for in such 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 41 48 (2) all Events of Default with respect to Securities of that series, other than the nonpayment of the principal of (or premium or Make-Whole Amount, if any) or interest on Securities of that series 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 installment of interest on any Security of any series and any related coupon 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 (or premium or Make-Whole Amount, if any, on) any Security of any series at its Maturity, then the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities of such series and coupons, the whole amount then due and payable on such Securities and coupons for principal (and premium or Make-Whole Amount, if any) and interest, with interest upon any overdue principal (and premium or Make-Whole Amount, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installments of interest at the rate or rates borne by or provided for in such 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 sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Securities of such series 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 of such series, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series and any related coupons 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. 42 49 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 of any series 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, premium or Make-Whole Amount, if any, 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, or such lesser amount as may be provided for in the Securities of such series, of principal (and premium or Make-Whole Amount, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents (and take such other action including sitting on a committee of creditors) 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 of Securities of such series and coupons to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee and any predecessor Trustee, their agents and counsel, and any other amounts due the Trustee or any predecessor Trustee under Section 606. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security or coupon any plan of reorganization, arrangement, adjustment or composition affecting the Securities or coupons or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of a Security or coupon in any such proceeding. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the Holders of the Securities, and it shall not be necessary to make any Holders of the Securities parties to any such proceedings. SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES OR COUPONS. All rights of action and claims under this Indenture or any of the Securities or 43 50 coupons may be prosecuted and enforced by the Trustee without the possession of any of the Securities or coupons 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 and coupons in respect of which such judgment has been recovered. SECTION 506. APPLICATION OF MONEY COLLECTED. Any money 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 premium or Make-Whole Amount, if any) or interest, upon presentation of the Securities or coupons, or both, as the case may be, 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 and any predecessor Trustee under Section 606; SECOND: To the payment of the amounts then due and unpaid upon the Securities and coupons for principal (and premium or Make-Whole Amount, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the aggregate amounts due and payable on such Securities and coupons for principal (and premium or Make-Whole Amount, if any) and interest, respectively; and THIRD: To the payment of the remainder, if any, to the Company. SECTION 507. LIMITATION ON SUITS. No Holder of any Security of any series or any related coupon 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 with respect to the Securities of that series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series 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 indemnity reasonably satisfactory to the Trustee against the costs, expenses (including reasonable attorneys' fees) and liabilities to be incurred in compliance with such request; 44 51 (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; 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 of that series; it being understood and intended that no one or more of such Holders 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 of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM OR MAKE-WHOLE AMOUNT, IF ANY, AND INTEREST. Notwithstanding any other provision in this Indenture, the Holder of any Security or coupon shall have the right which is absolute and unconditional to receive payment of the principal of (and premium or Make-Whole Amount, if any) and (subject to Sections 305 and 307) interest on such Security or payment of such coupon on the respective due dates expressed in such Security or coupon (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder of a Security or coupon 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, the Company, the Trustee and the Holders of Securities and coupons shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies 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 or coupons in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Securities or coupons 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. 45 52 SECTION 511. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder of any Security or coupon 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 of Securities or coupons, as the case may be. SECTION 512. CONTROL BY HOLDERS OF SECURITIES. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series 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 with respect to the Securities of such series, PROVIDED that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) the Trustee need not take any action which might involve it in personal liability or be unduly prejudicial to the Holders of Securities of such series not joining therein. Nothing in this Indenture shall impair the right of the Trustee in its discretion to take any action deemed proper by the Trustee and which is not inconsistent with such direction by Holders. SECTION 513. WAIVER OF DEFAULTS. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series and any related coupons waive any default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of (or premium or Make-Whole Amount, if any) or interest on any Security of such series or any related coupons, or (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 of such series affected. 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 46 53 no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 514. WAIVER OF USURY, 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 usury, 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. SECTION 515. 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 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 Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium or Make-Whole Amount, if any) or interest on any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date). ARTICLE SIX - THE TRUSTEE SECTION 601. NOTICE OF DEFAULTS. Within 90 days after the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit in the manner and to the extent provided in TIA Section 313(c), notice of such default hereunder known to a Responsible Officer of 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 premium or Make-Whole Amount, if any) or interest on any Security of such series, or in the payment of any sinking fund installment with respect to the Securities of such series, the Trustee shall be protected in withholding such notice if and so long as Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of the Securities and coupons of such series; and PROVIDED FURTHER that in the case of any default or breach of the character specified in Section 501(4) with respect to the Securities and coupons of such series, no such notice to Holders shall be given until at least 60 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event 47 54 which is, or after notice or lapse of time or both would become, an Event of Default with respect to the Securities of such series. SECTION 602. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of TIA Section 315(a) through 315(d): (1) 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, coupon or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order (other than delivery of any Security, together with any coupons appertaining thereto, to the Trustee for authentication and delivery pursuant to Section 303 which shall be sufficiently evidenced as provided therein) and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) 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; (4) 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; (5) 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 of Securities of any series or any related coupons pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses (including reasonable attorneys' fees) and liabilities which might be incurred by it in compliance with such request or direction; (6) 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, coupon or other paper or document, unless requested in writing so to do by the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities of any 48 55 series; PROVIDED that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expenses or liabilities as a condition to proceeding; the reasonable expenses of every such examination shall be paid by the Holders or, if paid by the Trustee, shall be repaid by the Holders upon demand. The Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, relevant to the facts or matters that are the subject of its inquiry, personally or by agent or attorney; (7) 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; and (8) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. The Trustee shall not be required 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 indemnity against such risk or liability is not reasonably assured to it. Except during the continuance of an Event of Default, the Trustee undertakes to perform 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. SECTION 603. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The recitals contained herein and in the Securities, except the Trustee's certificate of authentication, and in any coupons shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities or coupons, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 604. MAY HOLD SECURITIES. The Trustee, any Paying Agent, Security Registrar, Authenticating Agent or any other agent of the Company, in its individual or any 49 56 other capacity, may become the owner or pledgee of Securities and coupons and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar, Authenticating Agent or such other agent. SECTION 605. 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 606. 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 each of the Trustee and any predecessor 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 reasonable 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 each of the Trustee and any predecessor Trustee and their respective directors, officers and employees, for, and to hold them 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 exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(7) or Section 501(8), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or state bankruptcy, insolvency or other similar law. As security for the performance of the obligations of the Company under this Section, the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (or premium or Make-Whole Amount, if any) or interest on particular Securities or any coupons. The provisions of this Section shall survive the termination of this Indenture. 50 57 SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY; CONFLICTING INTERESTS. There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or the requirements of Federal, state, territorial or District of Columbia 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. Neither the Company nor any Person directly or indirectly controlling, controlled by, or under common control with the Company shall serve as Trustee. SECTION 608. 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 609. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee 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 with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 607 and shall fail to resign after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, 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 51 58 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 or pursuant to a Board Resolution may remove the Trustee and appoint a successor Trustee with respect to all Securities, or (ii) subject to TIA Section 315(e), any Holder of a Security 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 with respect to all Securities 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 with respect to the Securities of one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series). If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner hereinafter provided, any Holder of a Security who has been a bona fide Holder of a Security of such series 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 with respect to Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series in the manner provided for notices to the Holders of Securities in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the 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 52 59 duties of the retiring Trustee; but, on 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, subject nevertheless to its claim, if any, provided for in Section 606. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto, pursuant to Article Nine hereof, wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each 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 with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section 609, as the case may be. (d) 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. 53 60 SECTION 610. 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 of 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 or coupons 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 or coupons so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities or coupons. In case any Securities or coupons shall not have been authenticated by such predecessor Trustee, any such successor Trustee may authenticate and deliver such Securities or coupons, in either its own name or that of its predecessor Trustee, with the full force and effect which this Indenture provides for the certificate of authentication of the Trustee. SECTION 611. APPOINTMENT OF AUTHENTICATING AGENT. At any time when any of the Securities remain Outstanding, the Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon exchange, registration of transfer or partial redemption or repayment thereof, 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. Any such appointment shall be evidenced by an instrument in writing signed by a Responsible Officer of the Trustee, a copy of which instrument shall be promptly furnished to the Company. 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 bank or trust company or corporation organized and doing business and in good standing under the laws of the United States of America or of any state 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 authorities. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or the requirements of the aforesaid 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. In case 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. 54 61 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 filing of any paper or further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent for any series of Securities may at any time resign by giving written notice of resignation to the Trustee for such series and to the Company. The Trustee for any series of Securities may at any time terminate the agency of an Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a 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 for such series may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment to all Holders of Securities of the series with respect to which such Authenticating Agent will serve in the manner set forth in Section 106. 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 herein. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation including reimbursement of its reasonable expenses for its services under this Section. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to or in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication substantially in the following form: 55 62 This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY as Trustee Dated: ____________ By: ---------------------------- as Authenticating Agent Dated: ____________ By: ---------------------------- Authorized Signatory SECTION 612. CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE. (a) With respect to the Securities of any series, except during the continuance of an Event of Default with respect to the Securities of such series: (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, but shall not be under any duty to verify the contents or accuracy thereof. (b) In case an Event of Default with respect to the Securities of any series has occurred and is continuing, the Trustee shall, with respect to Securities of such series, 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: 56 63 (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 of 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 of any series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series; (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 indemnity against such risk or liability is not reasonably assured to it; and (5) The Trustee shall not be charged with notice or knowledge of any event or matter the occurrence of which would require it to take action or omit to take action hereunder unless such event or matter is actually known to a Responsible Officer of the Trustee or unless written notice thereof (making reference to this Agreement or the Securities) has been received by the Trustee at its Corporate Trust Office. (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 612. ARTICLE SEVEN - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS. Every Holder of Securities or coupons, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any Authenticating Agent nor any Paying Agent nor any Security Registrar shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Holders of Securities in accordance with TIA Section 312, 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 TIA Section 312(b). 57 64 SECTION 702. REPORTS BY TRUSTEE. The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required by TIA Section 313 at the times and in the manner provided by the TIA, which shall initially be not less than every twelve months commencing on July 15, 1998. A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange, if any, upon which any Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange. SECTION 703. REPORTS BY COMPANY. The Company will: (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 such Sections, then it will 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 the Holders of Securities, within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in TIA Section 313(c), such summaries of any information, documents 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 704. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS. The Company will furnish or cause to be furnished to the Trustee: (a) semiannually, not later than 15 days after the Regular Record Date for interest for each series of Securities, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Registered Securities of such series as of 58 65 such Regular Record Date, or if there is no Regular Record Date for interest for such series of Securities, semiannually, upon such dates as are set forth in the Board Resolution or indenture supplemental hereto authorizing such series, 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. ARTICLE EIGHT - CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE SECTION 801. CONSOLIDATIONS AND MERGERS OF COMPANY AND SALES, LEASES AND CONVEYANCES PERMITTED SUBJECT TO CERTAIN CONDITIONS. The Company may consolidate with, or sell, lease or convey all or substantially all of its assets to, or merge with or into any other corporation, provided that in any such case, (1) either the Company shall be the continuing corporation, or the successor corporation shall be a corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia and such person shall expressly assume the due and punctual payment of the principal of (and premium, if any) and any interest on all of the Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company by supplemental indenture, complying with Article Nine hereof, satisfactory to the Trustee, executed and delivered to the Trustee by such corporation and (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or any Subsidiary as a result thereof as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or the lapse of time, or both, would become an Event of Default, shall have occurred and be continuing. SECTION 802. RIGHTS AND DUTIES OF SUCCESSOR CORPORATION. In case of any such consolidation, merger, sale, lease or conveyance and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part, and the predecessor corporation, except in the event of a lease, shall be relieved of any further obligation under this Indenture and the Securities. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation, instead of the Company, and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee 59 66 for authentication, and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, lease or conveyance, such changes in phraseology and form (but not in substance) may be made in the Securities thereafter to be issued as may be appropriate. SECTION 803. OFFICERS' CERTIFICATE AND OPINION OF COUNSEL. Any consolidation, merger, sale, lease or conveyance permitted under Section 801 is also subject to the condition that the Trustee receive an Officers' Certificate and an Opinion of Counsel to the effect that any such consolidation, merger, sale, lease or conveyance, and the assumption by any successor corporation, complies with the provisions of this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. ARTICLE NINE - SUPPLEMENTAL INDENTURES SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Without the consent of any Holders of Securities or coupons, the Company, when authorized by or pursuant to 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 contained herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such Events of Default are to be for the benefit of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of such series); PROVIDED, HOWEVER, that in respect of any such additional Events of Default such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate 60 67 enforcement upon such default or may limit the remedies available to the Trustee upon such default or may limit the right of the Holders of a majority in aggregate principal amount of that or those series of Securities to which such additional Events of Default apply to waive such default; or (4) to add to or change any of the provisions of this Indenture to provide that Bearer Securities may be registrable as to principal, to change or eliminate any restrictions on the payment of principal of or premium or Make-Whole Amount, if any, or interest on Bearer Securities, to permit Bearer Securities to be issued in exchange for Registered Securities, to permit Bearer Securities to be issued in exchange for Bearer Securities of other authorized denominations or to permit or facilitate the issuance of Securities in uncertificated form, PROVIDED that any such action shall not adversely affect the interests of the Holders of Securities of any series or any related coupons in any material respect; or (5) 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 of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (6) to secure the Securities; or (7) to establish the form or terms of Securities of any series and any related coupons as permitted by Sections 201 and 301; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee; or (9) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, PROVIDED such provisions shall not adversely affect the interests of the Holders of Securities of any series or any related coupons in any material respect; or (10) to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Securities pursuant to Sections 401, 1402 and 1403; PROVIDED that any such action shall not adversely affect the interests of the Holders of Securities of such series and any related coupons or any other series of Securities in any material respect. 61 68 SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. With the consent of the Holders of not less than a majority in principal amount of all Outstanding Securities affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by or pursuant to 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 and any related coupons 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 premium or Make-Whole Amount, if any, on) or any installment of principal of or interest on, any Security; or reduce the principal amount thereof or the rate or amount of interest thereon, or any premium or Make-Whole Amount payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502 or the amount thereof provable in bankruptcy pursuant to Section 504, or adversely affect any right of repayment at the option of the Holder of any Security, or change any Place of Payment where, or the currency or currencies, currency unit or units or composite currency or currencies in which, any Security or any premium or Make-Whole Amount 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 (or, in the case of redemption or repayment at the option of the Holder, on or after the Redemption Date or the Repayment Date, as the case may be), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver with respect to such series (or compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or reduce the requirements of Section 1504 for quorum or voting, or (3) modify any of the provisions of this Section, Section 513 or Section 1009, except to increase the required percentage to effect such action or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, PROVIDED, HOWEVER, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section 902 and Section 1009, or the deletion of this proviso, in accordance with the requirements of Sections 609(b) and 901(11). 62 69 It shall not be necessary for any Act of Holders under this Section 902 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modification thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and 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 and of any coupon appertaining thereto 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 of any series 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 of any series 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 of such series. ARTICLE TEN - COVENANTS SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM OR MAKE-WHOLE AMOUNT, IF ANY; AND INTEREST. The Company covenants and agrees for the benefit of the Holders of each series of Securities that it will duly and punctually pay the principal of (and premium or Make-Whole 63 70 Amount, if any) and interest on the Securities of that series in accordance with the terms of such series of Securities, any coupons appertaining thereto and this Indenture. Unless otherwise specified as contemplated by Section 301 with respect to any series of Securities, any interest due on Bearer Securities on or before Maturity shall be payable only upon presentation and surrender of the several coupons for such interest installments as are evidenced thereby as they severally mature. Unless otherwise specified with respect to Securities of any series pursuant to Section 301, at the option of the Company, all payments of principal may be paid by check to the registered Holder of the Registered Security or other person entitled thereto against surrender of such Security. SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY. If Securities of a series are issuable only as Registered Securities, the Company shall maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. If Securities of a series are issuable as Bearer Securities, the Company will maintain: (A) in the Borough of Manhattan, The City of New York, an office or agency where any Registered Securities of that series may be presented or surrendered for payment, where any Registered Securities of that series may be surrendered for registration of transfer, where Securities of that series may be surrendered for exchange, where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served and where Bearer Securities of that series and related coupons may be presented or surrendered for payment in the circumstances described in the following paragraph (and not otherwise); (B) subject to any laws or regulations applicable thereto, in a Place of Payment for that series which is located outside the United States, an office or agency where Securities of that series and related coupons may be presented and surrendered for payment; PROVIDED, HOWEVER, that if the Securities of that series are listed on any stock exchange located outside the United States and such stock exchange shall so require, the Company will maintain a Paying Agent for the Securities of that series in any required city located outside the United States, as the case may be, so long as the Securities of that series are listed on such exchange; and (C) subject to any laws or regulations applicable thereto, in a Place of Payment for that series located outside the United States an office or agency where any Registered Securities of that series may be surrendered for registration of transfer, where Securities of that series may be surrendered for exchange and where notices and demands to or upon the Company in respect of the Securities of that series 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 each 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, except that Bearer Securities of that series and the related coupons may be presented and surrendered for payment at the offices specified in the Security, in London, England, and the Company hereby appoints the same as its agent to receive such 64 71 respective presentations, surrenders, notices and demands, and the Company hereby appoints the Trustee its agent to receive all such presentations, surrenders, notices and demands. Unless otherwise specified with respect to any Securities pursuant to Section 301, no payment of principal, premium or Make-Whole Amount or interest on Bearer Securities shall be made at any office or agency of the Company in the United States or by check mailed to any address in the United States or by transfer to an account maintained with a bank located in the United States; PROVIDED, HOWEVER, that, if the Securities of a series are payable in Dollars, payment of principal of and any premium or Make-Whole Amount and interest on any Bearer Security shall be made upon presentment or surrender thereof for payment at the office of the Company's Paying Agent in the Borough of Manhattan, The City of New York, if (but only if) payment in Dollars of the full amount of such principal, premium or Make-Whole Amount, or interest, as the case may be, at all offices or agencies outside the United States maintained for the purpose by the Company in accordance with this Indenture, is illegal or effectively precluded by exchange controls or other similar restrictions. The Company may from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all of 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 accordance with the requirements set forth above for Securities of any series 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. Unless otherwise specified with respect to any Securities pursuant to Section 301 with respect to a series of Securities, the Company hereby designates as its office where each series of Securities may be presented and surrendered for payment, the office or agency of the Company in the Borough of Manhattan, The City of New York, and initially appoints State Street Bank and Trust Company, N.A., 61 Broadway, New York, NY 10006, and appoints as a Place of Payment as its agent in such city to receive all such presentations, surrenders, notices and demands. Unless otherwise specified with respect to any Securities pursuant to Section 301, if and so long as the Securities of any series (i) are denominated in a Foreign Currency or (ii) may be payable in a Foreign Currency, or so long as it is required under any other provision of the Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, at least one exchange rate agent. SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST. If the Company shall at any time act as its own Paying Agent with respect to any series of any Securities and any related coupons, it will, on or before each due date of the principal of (and premium or Make-Whole Amount, if any), or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such 65 72 series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay the principal (and premium or Make-Whole Amount, if any) 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 for any series of Securities and any related coupons, it will, on or before each due date of the principal of (and premium or Make-Whole Amount, if any), or interest on any Securities of that series, deposit with a Paying Agent a sum (in the currency or currencies, currency unit or units or composite currency or currencies described in the preceding paragraph) sufficient to pay the principal (and premium or Make-Whole Amount, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or Make-Whole Amount, if any, 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 for any series of Securities 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 principal of (and premium or Make-Whole Amount, if any) 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 such payment of principal (and premium or Make-Whole Amount, if any) or interest on the Securities of that series; 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 sums. Except as otherwise provided in the Securities of any series, any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the 66 73 principal of (and premium or Make-Whole Amount, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium or Make-Whole Amount, if any) or interest has become due and payable shall be paid to the Company upon 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 of such principal of (and premium or Make-Whole Amount, if any) or interest on any Security, without interest thereon, 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 an Authorized Newspaper, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1004. 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, all material rights (by articles of incorporation, by-laws and statute) and material 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. SECTION 1005. MAINTENANCE OF PROPERTIES. The Company will cause all of its material 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 the Company and its Subsidiaries shall not be prevented from selling or otherwise disposing of their properties for value in the ordinary course of business. SECTION 1006. INSURANCE. The Company will cause each of its and its Subsidiaries' insurable properties to be insured against loss or damage in an amount at least equal to their then full insurable value with insurers of recognized responsibility. SECTION 1007. 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 it 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 any such tax, assessment, 67 74 charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 1008. STATEMENT AS TO COMPLIANCE. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture and, in the event of any noncompliance, specifying such noncompliance and the nature and status thereof. For purposes of this Section 1008, such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. SECTION 1009. WAIVER OF CERTAIN COVENANTS. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 1004 to 1009, inclusive, if before or after the time for such compliance the Holders of at least a majority in principal amount of all outstanding Securities of such series, 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 term, provision or condition shall remain in full force and effect. ARTICLE ELEVEN - REDEMPTION OF SECURITIES SECTION 1101. APPLICABILITY OF ARTICLE. Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article. SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election of the Company to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any series, the Company shall, at least 45 days prior to the giving of the notice of redemption in Section 1104 (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. If less than all the Securities of any series issued on the same day with the same terms are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the 68 75 Redemption Date by the Trustee, from the Outstanding Securities of such series issued on such date with the same terms not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. The Trustee shall promptly notify the Company and the Security Registrar (if other than itself) in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. SECTION 1104. NOTICE OF REDEMPTION. Notice of redemption shall be given in the manner provided in Section 106, not less than 30 days nor more than 60 days prior to the Redemption Date, unless a shorter period is specified by the terms of such series established pursuant to Section 301, to each Holder of Securities to be redeemed, but failure to give such notice in the manner herein provided to the Holder of any Security designated for redemption as a whole or in part, or any defect in the notice to any such Holder, shall not affect the validity of the proceedings for the redemption of any other such Security or portion thereof. Any notice that is mailed to the Holders of Registered Securities in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives the notice. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, accrued interest to the Redemption Date payable as provided in Section 1106, if any, (3) if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amount) of the particular Security or Securities to be redeemed, (4) in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the holder will receive, without a charge, a new Security or 69 76 Securities of authorized denominations for the principal amount thereof remaining unredeemed, (5) that on the Redemption Date the Redemption Price and accrued interest to the Redemption Date payable as provided in Section 1106, if any, will become due and payable upon each such Security, or the portion thereof, to be redeemed and, if applicable, that interest thereon shall cease to accrue on and after said date, (6) the Place or Places of Payment where such Securities, together in the case of Bearer Securities with all coupons appertaining thereto, if any, maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price and accrued interest, if any, (7) that the redemption is for a sinking fund, if such is the case, (8) that, unless otherwise specified in such notice, Bearer Securities of any series, if any, surrendered for redemption must be accompanied by all coupons maturing subsequent to the date fixed for redemption or the amount of any such missing coupon or coupons will be deducted from the Redemption Price, unless security or indemnity satisfactory to the Company, the Trustee for such series and any Paying Agent is furnished, (9) if Bearer Securities of any series are to be redeemed and any Registered Securities of such series are not to be redeemed, and if such Bearer Securities may be exchanged for Registered Securities not subject to redemption on this Redemption Date pursuant to Section 305 or otherwise, the last date, as determined by the Company, on which such exchanges may be made, and (10) the CUSIP number of such Security, if any. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 1105. DEPOSIT OF REDEMPTION PRICE. On or prior to any Redemption Date, (but no later than 10:00 a.m. New York City time on such date) the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, which it may not do in the case of a sinking fund payment under Article Twelve, segregate and hold in trust as provided in Section 1003) an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay on the Redemption Date the Redemption Price of, 70 77 and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof which are to be redeemed on that date. SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall, if the same were interest-bearing, cease to bear interest and the coupons for such interest appertaining to any Bearer Securities so to be redeemed, except to the extent provided below, shall be void. Upon surrender of any such Security for redemption in accordance with said notice, together with all coupons, if any, appertaining thereto maturing after the Redemption Date, such Security shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; PROVIDED, HOWEVER, that installments of interest on Bearer Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified as contemplated by Section 301, only upon presentation and surrender of coupons for such interest; and PROVIDED further that installments of interest on Registered Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Bearer Security surrendered for redemption shall not be accompanied by all appurtenant coupons maturing after the Redemption Date, such Security may be paid after deducting from the Redemption Price an amount equal to the face amount of all such missing coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing coupon in respect of which a deduction shall have been made from the Redemption Price, such Holder shall be entitled to receive the amount so deducted; PROVIDED, HOWEVER, that interest represented by coupons shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified as contemplated by Section 301, only upon presentation and surrender of those coupons. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium or Make-Whole Amount, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Security. 71 78 SECTION 1107. SECURITIES REDEEMED IN PART. Any Registered Security which is to be redeemed only in part (pursuant to the provisions of this Article or of Article Twelve) shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge a new Security or Securities of the same series, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a Global Security is so surrendered, the Company shall execute and the Trustee shall authenticate and deliver to the depository, without service charge, a new Global Security in a denomination equal to and in exchange for the unredeemed portion of the principal of the Global Security so surrendered. ARTICLE TWELVE - SINKING FUNDS SECTION 1201. APPLICABILITY OF ARTICLE. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 301 for Securities of such series. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment," and any payment in excess of such minimum amount provided for by the terms of such Securities of any series is herein referred to as an "optional sinking fund payment." If provided for by the terms of any Securities of any series, the cash amount of any mandatory sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series. SECTION 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES. The Company may, in satisfaction of all or any part of any mandatory sinking fund payment with respect to the Securities of a series, (1) deliver Outstanding Securities of such series (other than any previously called for redemption) together in the case of any Bearer Securities of such series with all unmatured coupons appertaining thereto and (2) apply as a credit Securities of such series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, as provided for by the terms of such Securities, or which have otherwise been acquired by the Company; PROVIDED that such Securities so delivered or applied as a credit have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the applicable Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such mandatory sinking fund payment shall be reduced accordingly. 72 79 SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND. Not less than 60 days prior to each sinking fund payment date for Securities of any series, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 1202, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and will also deliver to the Trustee any Securities to be so delivered and credited. If such Officers' Certificate shall specify an optional amount to be added in cash to the next ensuing mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. ARTICLE THIRTEEN - REPAYMENT AT THE OPTION OF HOLDERS SECTION 1301. APPLICABILITY OF ARTICLE. Repayment of Securities of any series before their Stated Maturity at the option of Holders thereof shall be made in accordance with the terms of such Securities, if any, and (except as otherwise specified by the terms of such series established pursuant to Section 301) in accordance with this Article. SECTION 1302. REPAYMENT OF SECURITIES. Securities of any series subject to repayment in whole or in part at the option of the Holders thereof will, unless otherwise provided in the terms of such Securities, be repaid at a price equal to the principal amount thereof, together with interest, if any, thereon accrued to the Repayment Date specified in or pursuant to the terms of such Securities. The Company covenants that on or prior to the Repayment Date it will deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay the principal (or, if so provided by the terms of the Securities of any series, a percentage of the principal) of, and (except if the Repayment Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof, as the case may be, to be repaid on such date. 73 80 SECTION 1303. EXERCISE OF OPTION. Securities of any series subject to repayment at the option of the Holders thereof will contain an "Option to Elect Repayment" form on the reverse of such Securities. In order for any Security to be repaid at the option of the Holder, the Trustee must receive at the Place of Payment therefor specified in the terms of such Security (or at such other place or places of which the Company shall from time to time notify the Holders of such Securities) not earlier than 60 days nor later than 30 days prior to the Repayment Date (1) the Security so providing for such repayment together with the "Option to Elect Repayment" form on the reverse thereof duly completed by the Holder (or by the Holder's attorney duly authorized in writing) or (2) a telegram, telex, facsimile transmission or a letter from a member of a national securities exchange, or the National Association of Securities Dealers, Inc. ("NASD"), or a commercial bank or trust company in the United States setting forth the name of the Holder of the Security, the principal amount of the Security, the principal amount of the Security to be repaid, the CUSIP number, if any, or a description of the tenor and terms of the Security, a statement that the option to elect repayment is being exercised thereby and a guarantee that the Security to be repaid, together with the duly completed form entitled "Option to Elect Repayment" on the reverse of the Security, will be received by the Trustee not later than the fifth Business Day after the date of such telegram, telex, facsimile transmission or letter; PROVIDED, HOWEVER, that such telegram, telex, facsimile transmission or letter shall only be effective if such Security and form duly completed are received by the Trustee by such fifth Business Day. If less than the entire principal amount of such Security is to be repaid in accordance with the terms of such Security, the principal amount of such Security to be repaid, in increments of the minimum denomination for Securities of such series, and the denomination or denominations of the Security or Securities to be issued to the Holder for the portion of the principal amount of such Security surrendered that is not to be repaid, must be specified. The principal amount of any Security providing for repayment at the option of the Holder thereof may not be repaid in part if, following such repayment, the unpaid principal amount of such Security would be less than the minimum authorized denomination of Securities of the series of which such Security to be repaid is a part. Except as otherwise may be provided by the terms of any Security providing for repayment at the option of the Holder thereof, exercise of the repayment option by the Holder shall be irrevocable unless waived by the Company. SECTION 1304. WHEN SECURITIES PRESENTED FOR REPAYMENT BECOME DUE AND PAYABLE. If Securities of any series providing for repayment at the option of the Holders thereof shall have been surrendered as provided in this Article and as provided by or pursuant to the terms of such Securities, such Securities or the portions thereof, as the case may be, to be repaid shall become due and payable and shall be paid by the Company on the Repayment Date therein specified, and on and after such Repayment Date (unless the Company shall default in the payment of such Securities on such Repayment Date) such Securities shall, if the same were interest-bearing, cease to bear interest and the coupons for such interest appertaining to any Bearer Securities so to be repaid, except to the extent provided below, shall be void. Upon surrender of any such Security for repayment in accordance with such provisions, together with all coupons, if any, appertaining thereto maturing after the Repayment Date, the 74 81 principal amount of such Security so to be repaid shall be paid by the Company, together with accrued interest, if any, to the Repayment Date; PROVIDED, HOWEVER, that coupons whose Stated Maturity is on or prior to the Repayment Date shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified pursuant to Section 301, only upon presentation and surrender of such coupons; and PROVIDED FURTHER that, in the case of Registered Securities, installments of interest, if any, whose Stated Maturity is on or prior to the Repayment Date shall be payable (but without interest thereon, unless the Company shall default in the payment thereof) to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Bearer Security surrendered for repayment shall not be accompanied by all appurtenant coupons maturing after the Repayment Date, such Security may be paid after deducting from the amount payable therefor as provided in Section 1302 an amount equal to the face amount of all such missing coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing coupon in respect of which a deduction shall have been made as provided in the preceding sentence, such Holder shall be entitled to receive the amount so deducted; PROVIDED, HOWEVER, that interest represented by coupons shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified as contemplated by Section 301, only upon presentation and surrender of those coupons. If the principal amount of any Security surrendered for repayment shall not be so repaid upon surrender thereof, such principal amount (together with interest, if any, thereon accrued to such Repayment Date) shall, until paid, bear interest from the Repayment Date at the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) set forth in such Security. SECTION 1305. SECURITIES REPAID IN PART. Upon surrender of any Registered Security which is to be repaid in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge and at the expense of the Company, a new Registered Security or Securities of the same series, of any authorized denomination specified by the Holder, in an aggregate principal amount equal to and in exchange for the portion of the principal of such Security so surrendered which is not to be repaid. 75 82 ARTICLE FOURTEEN - DEFEASANCE AND COVENANT DEFEASANCE SECTION 1401. APPLICABILITY OF ARTICLE; COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE. If, pursuant to Section 301, provision is made for either or both of (a) defeasance of the Securities of or within a series under Section 1402 or (b) covenant defeasance of the Securities of or within a series under Section 1403, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article (with such modifications thereto as may be specified pursuant to Section 301 with respect to any Securities), shall be applicable to such Securities and any coupons appertaining thereto, and the Company may at its option by Board Resolution, at any time, with respect to such Securities and any coupons appertaining thereto, elect to have Section 1402 (if applicable) or Section 1403 (if applicable) be applied to such Outstanding Securities and any coupons appertaining thereto upon compliance with the conditions set forth below in this Article. SECTION 1402. DEFEASANCE AND DISCHARGE. Upon the Company's exercise of the above option applicable to this Section with respect to any Securities of or within a series, the Company shall be deemed to have been discharged from its obligations with respect to such Outstanding Securities and any coupons appertaining thereto on the date the conditions set forth in Section 1404 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by such Outstanding Securities and any coupons appertaining thereto, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 1405 and the other Sections of this Indenture referred to in clauses (A) and (B) below, and to have satisfied all of its other obligations under such Securities and any coupons appertaining thereto and this Indenture insofar as such Securities and any coupons appertaining thereto are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of such Outstanding Securities and any coupons appertaining thereto to receive, solely from the trust fund described in Section 1404 and as more fully set forth in such Section, payments in respect of the principal of (and premium or Make-Whole Amount, if any) and interest, if any, on such Securities and any coupons appertaining thereto when such payments are due, (B) the Company's obligations with respect to such Securities under Sections 305, 306, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article. Subject to compliance with this Article Fourteen, the Company may exercise its option under this Section notwithstanding the prior exercise of its option under Section 1403 with respect to such Securities and any coupons appertaining thereto. SECTION 1403. COVENANT DEFEASANCE. Upon the Company's exercise of the above option applicable to this Section with respect to any Securities of or within a series, the Company shall be released from its obligations under Sections 1004 to 1009, inclusive, and, if specified pursuant to Section 301, its obligations under any other covenant contained herein or in any indenture supplemental hereto, with respect to such Outstanding Securities and any 76 83 coupons appertaining thereto on and after the date the conditions set forth in Section 1404 are satisfied (hereinafter, "covenant defeasance"), and such Securities and any coupons appertaining thereto shall thereafter be deemed to be not "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with Sections 1004 to 1009, inclusive, or such other covenant, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to such Outstanding Securities and any coupons appertaining thereto, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or such other covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or such other covenant or by reason of reference in any such Section or such other covenant to any other provision herein or in any other document and such omission to comply shall not constitute a default or an Event of Default under Section 501(4) or 501(8) or otherwise, as the case may be, but, except as specified above, the remainder of this Indenture and such Securities and any coupons appertaining thereto shall be unaffected thereby. SECTION 1404. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE. The following shall be the conditions to application of Section 1402 or Section 1403 to any Outstanding Securities of or within a series and any coupons appertaining thereto: (a) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 607 who shall agree to comply with the provisions of this Article Fourteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities and any coupons appertaining thereto, (1) an amount in such currency, currencies or currency unit in which such Securities and any coupons appertaining thereto are then specified as payable at Stated Maturity, or (2) Government Obligations applicable to such Securities and coupons appertaining thereto (determined on the basis of the currency, currencies or currency unit in which such Securities and coupons appertaining thereto are then specified as payable at Stated Maturity) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment of principal of (and premium or Make-Whole Amount, if any) and interest, if any, on such Securities and any coupons appertaining thereto, money in an amount, or (3) a combination thereof, in any case, in an amount, sufficient, without consideration of any reinvestment of such principal and interest, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium or Make-Whole Amount, if any) and interest, if any, on such Outstanding Securities and any coupons appertaining thereto on the Stated Maturity of such principal or installment of principal or interest and (ii) any mandatory sinking fund payments or analogous payments applicable to such Outstanding Securities and any coupons appertaining 77 84 thereto on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities and any coupons appertaining thereto. (b) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound. (c) No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to such Securities and any coupons appertaining thereto shall have occurred and be continuing on the date of such deposit or, insofar as Sections 501(7) and 501(8) are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (d) In the case of an election under Section 1402, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such Outstanding Securities and any coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (e) In the case of an election under Section 1403, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Outstanding Securities and any coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (f) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance under Section 1402 or the covenant defeasance under Section 1403 (as the case may be) have been complied with and an Opinion of Counsel to the effect that either (i) as a result of a deposit pursuant to subsection (a) above and the related exercise of the Company's option under Section 1402 or Section 1403 (as the case may be), registration is not required under the Investment Company Act of 1940, as amended, by the Company, with respect to the trust funds representing such deposit or by the Trustee for such trust funds or (ii) all necessary registrations under said Act have been effected. (g) Notwithstanding any other provisions of this Section, such defeasance or covenant defeasance shall be effected in compliance with any additional or substitute terms, 78 85 conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 301. SECTION 1405. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to the provisions of the last paragraph of Section 1003, all money and Government Obligations (or other property as may be provided pursuant to Section 301) (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 1405, the "Trustee") pursuant to Section 1404 in respect of any Outstanding Securities of any series and any coupons appertaining thereto shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and any coupons appertaining thereto 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 Holders of such Securities and any coupons appertaining thereto of all sums due and to become due thereon in respect of principal (and premium or Make-Whole Amount, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. Unless otherwise specified with respect to any Security pursuant to Section 301, if, after a deposit referred to in Section 1404(a) has been made, (a) the Holder of a Security in respect of which such deposit was made is entitled to, and does, elect pursuant to Section 301 or the terms of such Security to receive payment in a currency or currency unit other than that in which the deposit pursuant to Section 1404(a) has been made in respect of such Security, or (b) a Conversion Event occurs in respect of the currency or currency unit in which the deposit pursuant to Section 1404(a) has been made, the indebtedness represented by such Security and any coupons appertaining thereto shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium or Make-Whole Amount, if any), and interest, if any, on such Security as the same becomes due out of the proceeds yielded by converting (from time to time as specified below in the case of any such election) the amount or other property deposited in respect of such Security into the currency or currency unit in which such Security becomes payable as a result of such election or Conversion Event based on the applicable market exchange rate for such currency or currency unit in effect on the second Business Day prior to each payment date, except, with respect to a Conversion Event, for such currency or currency unit in effect (as nearly as feasible) at the time of the Conversion Event. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Government Obligations deposited pursuant to Section 1404 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of such Outstanding Securities and any coupons appertaining thereto. Anything in this Article to the contrary notwithstanding, subject to Section 606, the Trustee shall deliver or pay to the Company from time to time upon Company Request any 79 86 money or Government Obligations (or other property and any proceeds therefrom) held by it as provided in Section 1404 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect a defeasance or covenant defeasance, as applicable, in accordance with this Article. ARTICLE FIFTEEN - MEETINGS OF HOLDERS OF SECURITIES SECTION 1501. PURPOSES FOR WHICH MEETINGS MAY BE CALLED. A meeting of Holders of Securities of any series may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities of such series. SECTION 1502. CALL, NOTICE AND PLACE OF MEETINGS. (a) The Trustee may at any time call a meeting of Holders of Securities of any series for any purpose specified in Section 1501, to be held at such time and at such place as the Trustee shall determine. Notice of every meeting of Holders of Securities of any series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 106, not less than 20 nor more than 180 days prior to the date fixed for the meeting. (b) In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 25% in principal amount of the Outstanding Securities of any series shall have requested the Trustee to call a meeting of the Holders of Securities of such series for any purpose specified in Section 1501, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication of the notice of such meeting within 20 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities of such series in the amount above specified, as the case may be, may determine the time and the place for such meeting and may call such meeting for such purposes by giving notice thereof as provided in subsection (a) of this Section. SECTION 1503. PERSONS ENTITLED TO VOTE AT MEETINGS. To be entitled to vote at any meeting of Holders of Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Securities of such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities of such series by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Securities of any series shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. 80 87 SECTION 1504. QUORUM; ACTION. The Persons entitled to vote a majority in principal amount of the Outstanding Securities of a series shall constitute a quorum for a meeting of Holders of Securities of such series; PROVIDED, HOWEVER, that if any action is to be taken at such meeting with respect to a consent or waiver which this Indenture expressly provides may be given by the Holders of not less than a specified percentage in principal amount of the Outstanding Securities of a series, the Persons entitled to vote such specified percentage in principal amount of the Outstanding Securities of such series shall constitute a quorum. In the absence of a quorum within 30 minutes after the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities of such series, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at the reconvening of any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days; at the reconvening of any meeting adjourned or further adjourned for lack of a quorum, the persons entitled to vote 25% in aggregate principal amount of the then Outstanding Securities shall constitute a quorum for the taking of any action set forth in the notice of the original meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 1502(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Except as limited by the proviso to Section 902, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the persons entitled to vote a majority in aggregate principal amount of the Outstanding Securities represented at such meeting; PROVIDED, HOWEVER, that, except as limited by the proviso to Section 902, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Securities of that series. Any resolution passed or decision taken at any meeting of Holders of Securities of any series duly held in accordance with this Section shall be binding on all the Holders of Securities of such series and the related coupons, whether or not present or represented at the meeting. Notwithstanding the foregoing provisions of this Section 1504, if any action is to be taken at a meeting of Holders of Securities of any series with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage in principal amount of all Outstanding Securities affected thereby, or of the Holders of such series and one or more additional series: 81 88 (i) there shall be no minimum quorum requirement for such meeting; and (ii) the principal amount of the Outstanding Securities of such series that vote in favor of such request, demand, authorization, direction, notice, consent, waiver or other action shall be taken into account in determining whether such request, demand, authorization, direction, notice, consent, waiver or other action has been made, given or taken under this Indenture. SECTION 1505. DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF MEETINGS. (a) Notwithstanding any provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities of a series in regard to proof of the holding of Securities of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 104 and the appointment of any proxy shall be proved in the manner specified in Section 104 or by having the signature of the Person executing the proxy witnessed or guaranteed by any trust company, bank or banker authorized by Section 104 to certify to the holding of Bearer Securities. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 104 or other proof. (b) The Trustee shall, by an instrument in writing appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 1502(b), in which case the Company or the Holders of Securities of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting. (c) At any meeting each Holder of a Security of such series or proxy shall be entitled to one vote for each $1,000 principal amount of the Outstanding Securities of such series held or represented by him; PROVIDED, HOWEVER, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security of such series or proxy. (d) Any meeting of Holders of Securities of any series duly called pursuant to Section 1502 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series 82 89 represented at the meeting, and the meeting may be held as so adjourned without further notice. SECTION 1506. COUNTING VOTES AND RECORDING ACTION OF MEETINGS. The vote upon any resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities of such series or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities of any Series shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the fact, setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 1502 and, if applicable, Section 1504. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. 83 90 SIGNATURES AND SEALS IN WITNESS WHEREOF, the Company and the Trustee have caused this Indenture to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. WYMAN-GORDON COMPANY, By: ---------------------------------------- Name: David P. Gruber Title: Chairman and Chief Executive Officer By: ---------------------------------------- Name: Andrew C. Genor Title: Vice President, Chief Financial Officer and Treasurer STATE STREET BANK AND TRUST COMPANY, as Trustee By: ---------------------------------------- Name: Title: 84 91 ACKNOWLEDGMENT COMMONWEALTH OF MASSACHUSETTS) ) ss: COUNTY OF SUFFOLK) On the [_______________________] 1997, before me personally came [_________________], to me known, who, being by me duly sworn, did depose and say that he is the [__________________] of WYMAN-GORDON COMPANY, one of the parties described in and which executed the foregoing instrument, and that he signed his name thereto by authority of the Board of Directors. [Notarial Seal] - -------------------------------- Notary Public Commission Expires COMMONWEALTH OF MASSACHUSETTS) ) ss: COUNTY OF SUFFOLK) On the [____________________________] 1997, before me personally came [_________________], to me known, who, being by me duly sworn, did depose and say that he/she is a [______________] of STATE STREET BANK AND TRUST COMPANY, one of the parties described in and which executed the foregoing instrument, and that he/she signed his/her name thereto by authority of the Board of Directors. [Notarial Seal] - -------------------------------- Notary Public Commission Expires 85 92 EXHIBIT A FORM OF REDEEMABLE OR NON-REDEEMABLE SENIOR SECURITY [Face of Security] [If the Holder of this Security (as indicated below) is The Depository Trust Company ("DTC") or a nominee of DTC, this Security is a Global Security and the following two legends apply: UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), 55 WATER STREET, NEW YORK, NEW YORK TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND SUCH SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL THIS SECURITY IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN CERTIFICATED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY DTC TO A NOMINEE THEREOF OR BY A NOMINEE THEREOF TO DTC OR ANOTHER NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR OF DTC OR A NOMINEE OF SUCH SUCCESSOR.] [IF THIS SECURITY IS AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- FOR PURPOSES OF SECTION 1273 and 1275 OF THE UNITED STATES INTERNAL REVENUE CODE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS SECURITY IS % OF ITS PRINCIPAL AMOUNT, THE ISSUE DATE IS , 19 [AND] THE YIELD TO MATURITY IS %. [THE METHOD USED TO DETERMINE THE AMOUNT OF ORIGINAL ISSUE DISCOUNT APPLICABLE TO THE SHORT ACCRUAL PERIOD OF , 19 TO , 19 , IS % OF THE PRINCIPAL AMOUNT OF THIS SECURITY.] WYMAN-GORDON COMPANY [Designation of Series] No. _______ $__________________________________ WYMAN-GORDON COMPANY, a Massachusetts corporation (herein referred to as the "Company," which term includes any successor corporation under the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to ______________________________ or registered assigns the principal sum of _______ Dollars on _____________________ (the "Stated Maturity Date") [or INSERT DATE FIXED FOR A-1 93 EARLIER REDEMPTION (the "Redemption Date," and together with the Stated Maturity Date with respect to principal repayable on such date, the "Maturity Date.")] [IF THE SECURITY IS TO BEAR INTEREST PRIOR TO MATURITY, INSERT -- and to pay interest thereon from ______________ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on __________ and _________ in each year (each, an "Interest Payment Date"), commencing __________, at the rate of __% per annum, until the principal hereof is paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Holder 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 ________ or ______ (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date [at the office or agency of the Company maintained for such purpose; PROVIDED, HOWEVER, that such interest may be paid, at the Company's option, by mailing a check to such Holder at its registered address or by transfer of funds to an account maintained by such Holder within the United States]. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may be paid to the Holder 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 of this series not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Interest will be computed on the basis of a 360-day year of twelve 30-day months.] [IF THE SECURITY IS NOT TO BEAR INTEREST PRIOR TO MATURITY, INSERT -- The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at the [Stated] Maturity Date and in such case the overdue principal of this Security shall bear interest at the rate of % per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such default in payment to the date payment of such principal has been made or duly provided for. Interest on any overdue principal shall be payable on demand. Any such interest on any overdue principal that is not so paid on demand shall bear interest at the rate of % per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand.] The principal of this Security payable on the Stated Maturity Date [or the principal of, premium or Make-Whole Amount, if any, and, if the Redemption Date is not an Interest Payment Date, interest on this Security payable on the Redemption Date] will be paid against presentation of this Security at the office or agency of the Company maintained for that A-2 94 purpose in ___________________, in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. Interest payable on this Security on any Interest Payment Date and on the [Stated] Maturity Date [or Redemption Date, as the case may be,] will include interest accrued from and including the next preceding Interest Payment Date in respect of which interest has been paid or duly provided for (or from and including ____________, if no interest has been paid on this Security) to but excluding such Interest Payment Date or the [Stated] Maturity Date [or Redemption Date, as the case may be.] If any Interest Payment Date or the [Stated] Maturity Date or [Redemption Date] falls on a day that is not a Business Day, as defined below, principal, premium or Make-Whole Amount, if any, and/or interest payable with respect to such Interest Payment Date or [Stated] Maturity Date [or Redemption Date, as the case may be,] will be paid on the next succeeding Business Day with the same force and effect as if it were paid on the date such payment was due, and no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date or [Stated] Maturity Date [or Redemption Date, as the case may be.] "Business Day" means any day, other than a Saturday or Sunday, on which banks in __________________ are not required or authorized by law or executive order to close. [IF THIS SECURITY IS A GLOBAL SECURITY, INSERT -- All payments of principal, premium or Make-Whole Amount, if any, and interest in respect of this Security will be made by the Company in immediately available funds.] 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 by manual signature of one of its authorized signatories, 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 facsimile corporate seal. Dated: WYMAN-GORDON COMPANY -------------- By: --------------------------- Attest: - -------------------- Secretary A-3 95 This is one of the Securities of the series designated therein referred to in the within- mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee Dated: By: ------------------------------ Name: Title: A-4 96 [Reverse of Security] WYMAN-GORDON COMPANY This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of _____________, 199_ (herein called the "Indenture") between the Company and _________________, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), 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. This Security is one of the duly authorized series of Securities designated on the face hereof (collectively, the "Securities"), [IF APPLICABLE, INSERT -- and the aggregate principal amount of the Securities to be issued under such series is limited to $______ (except for Securities authenticated and delivered upon transfer of, or in exchange for, or in lieu of other Securities).] All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. If an Event of Default, as defined in the Indenture, shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. [IF APPLICABLE, INSERT -- The Securities may not be redeemed prior to the Stated Maturity Date.] [IF APPLICABLE, INSERT -- The Securities are subject to redemption [ (l) (IF APPLICABLE, INSERT -- on _________ in any year commencing with the year ____ and ending with the year ____ through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2) ] [IF APPLICABLE, INSERT -- at any time [on or after ___________], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed on or before _______, __% and if redeemed during the 12-month period beginning _______ of the years indicated at the Redemption Prices indicated below. YEAR REDEMPTION PRICE YEAR REDEMPTION PRICE ---- ---------------- ---- ---------------- A-5 97 and thereafter at a Redemption Price equal to __% of the principal amount, together in the case of any such redemption [IF APPLICABLE, INSERT -- (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date; PROVIDED, HOWEVER, that installments of interest on this Security whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holder of this Security, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [IF APPLICABLE, INSERT -- The Securities are subject to redemption (1) on _______ in any year commencing with the year ____ and ending with the year ____ through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time [on or after _______], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12-month period beginning ________ of the years indicated, REDEMPTION PRICE FOR REDEMPTION PRICE FOR REDEMPTION THROUGH REDEMPTION OTHERWISE OPERATION OF THE THAN THROUGH OPERATION YEAR SINKING FUND OF THE SINKING FUND ---- -------------------- ---------------------- and thereafter at a Redemption Price equal to ____% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date; PROVIDED, HOWEVER, that installments of interest on this Security whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holder of this Security, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [IF APPLICABLE, INSERT -- Notwithstanding the foregoing, the Company may not, prior to _______, redeem any Securities as contemplated by [Clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practice) of less than __% per annum.] [IF APPLICABLE, INSERT -- The sinking fund for the Securities provides for the redemption on _______ in each year, beginning with the year ____ and ending with the year ____, of [not less than] $_______] [("mandatory sinking fund") and not more than $_______] aggregate principal amount of the Securities. [The Securities acquired or redeemed by the Company otherwise than through [mandatory] sinking fund payments may be credited against subsequent A-6 98 [mandatory] sinking fund payments otherwise required to be made in the [DESCRIBE ORDER] order in which they become due.]] Notice of redemption will be given by mail to Holders of Securities, not less than 30 nor more than 60 days prior to the Redemption Date, all as provided in the Indenture. In the event of redemption of this Security in part only, a new Security or Securities for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. 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 under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority of the aggregate principal amount of all Securities issued under the Indenture at the time Outstanding and affected thereby. The Indenture also contains provisions permitting the Holders of not less than a majority of the aggregate principal amount of the Outstanding Securities, on behalf of the Holders of all such Securities, to waive compliance by the Company with certain provisions of the Indenture. Furthermore, provisions in the Indenture permit the Holders of not less than a majority of the aggregate principal amount, in certain instances, of the Outstanding Securities of any series to waive, on behalf of all of the Holders of Securities of such series, 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 other Securities 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 premium or Make-Whole Amount, if any) and interest on this Security at the times, places and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein [and herein] set forth, the transfer of this Security is registrable in the Security Register of the Company 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 premium or Make-Whole Amount, if any) 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 by 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. A-7 99 As provided in the Indenture and subject to certain limitations therein [and herein] set forth, this Security is exchangeable for a like aggregate principal amount of Securities of different authorized denominations but otherwise having the same terms and conditions, as requested by the Holder hereof surrendering the same. The Securities of this series are issuable only in registered form [without coupons] in denominations of $_______ and any integral multiple thereof. 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. No recourse shall be had for the payment of the principal of or premium or Make-Whole Amount, if any, or the interest on this Security, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any past, present or future stockholder, employee, officer or director, as such, of the Company or of any successor, either directly or through the Company or any successor, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. The Indenture and the Securities shall be governed by and construed in accordance with the laws of [the State of New York] applicable to agreements made and to be performed entirely in such State. A-8 100 EXHIBIT B FORMS OF CERTIFICATION EXHIBIT B-1 FORM OF CERTIFICATE TO BE GIVEN BY PERSON ENTITLED TO RECEIVE BEARER SECURITY OR TO OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE CERTIFICATE [Insert title or sufficient description of Securities to be delivered] This is to certify that, as of the date hereof, and except as set forth below, the above-captioned Securities held by you for our account (i) are owned by person(s) that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States Federal income taxation regardless of its source ("United States person(s)"), (ii) are owned by United States person(s) that are (a) foreign branches of United States financial institutions (financial institutions, as defined in United States Treasury Regulations Section 2.165-12(c)(1)(v) are herein referred to as "financial institutions") purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial institution hereby agrees, on its own behalf or through its agent, that you may advise Wyman-Gordon Company or its agent that such financial institution will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) are owned by United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined in United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and, in addition, if the owner is a United States or foreign financial institution described in clause (iii) above (whether or not also described in clause (i) or (ii)), this is to further certify that such financial institution has not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions. As used herein, "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. B-1 101 We undertake to advise you promptly by tested telex on or prior to the date on which you intend to submit your certification relating to the above-captioned Securities held by you for our account in accordance with your Operating Procedures if any applicable statement herein is not correct on such date, and in the absence of any such notification it may be assumed that this certification applies as of such date. This certificate excepts and does not relate to [U.S.$] of such interest in the above-captioned Securities in respect of which we are not able to certify and as to which we understand an exchange for an interest in a permanent Global Security or an exchange for and delivery of definitive Securities (or, if relevant, collection of any interest) cannot be made until we do so certify. We understand that this certificate may be required in connection with certain tax legislation in the United States. If administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate or a copy thereof to any interested party in such proceedings. Dated: ________, ____ [To be dated no earlier than the 15th day prior to (i) the Exchange Date or (ii) the relevant Interest Payment Date occurring prior to the Exchange Date, as applicable] [Name of Person Making Certification] ------------------------------------ (Authorized Signature) Name: Title: B-2 102 EXHIBIT B-2 FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR AND CEDEL S.A. IN CONNECTION WITH THE EXCHANGE OF A PORTION OF A TEMPORARY GLOBAL SECURITY OR TO OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE CERTIFICATE [Insert title or sufficient description of Securities to be delivered] This is to certify that, based solely on written certifications that we have received in writing, by tested telex or by electronic transmission from each of the persons appearing in our records as persons entitled to a portion of the principal amount set forth below (our "Member Organizations") substantially in the form attached hereto, as of the date hereof, [U.S.$] principal amount of the above-captioned Securities (i) is owned by person(s) that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States Federal income taxation regardless of its source ("United States person(s)"), (ii) is owned by United States person(s) that are (a) foreign branches of United States financial institutions (financial institutions, as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(v) are herein referred to as "financial institutions") purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such financial institution has agreed, on its own behalf or through its agent, that we may advise Wyman-Gordon Company or its agent that such financial institution will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) is owned by United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined in United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and, to the further effect, that financial institutions described in clause (iii) above (whether or not also described in clause (i) or (ii)) have certified that they have not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions. As used herein, "United States" means the United States of America (including the States and the District of Columbia); and its "Possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. We further certify that (i) we are not making available herewith for exchange (or, if relevant, collection of any interest) any portion of the temporary Global Security representing the above-captioned Securities excepted in the above-referenced certificates of Member B-3 103 Organizations and (ii) as of the date hereof we have not received any notification from any of our Member Organizations to the effect that the statements made by such Member Organizations with respect to any portion of the part submitted herewith for exchange (or, if relevant, collection of any interest) are no longer true and cannot be relied upon as of the date hereof. We understand that this certification is required in connection with certain tax legislation in the United States. If administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate or a copy thereof to any interested party in such proceedings. Dated: _______ ____ [To be dated no earlier than the Exchange Date or the relevant Interest Payment Date occurring prior to the Exchange Date, as applicable] [Morgan Guaranty Trust Company of New York, Brussels Office,] as Operator of the Euroclear System [CEDEL S.A.] By: ----------------------------------------- B-4 EX-4.H 4 8% SENIOR NOTES DUE 2007 SUPPL. INDENTURE 12/15/97 1 EXHIBIT 4.H Execution Copy ================================================================================ FIRST SUPPLEMENTAL INDENTURE dated as of December 15, 1997 between WYMAN-GORDON COMPANY, and STATE STREET BANK AND TRUST COMPANY as Trustee 2 FIRST SUPPLEMENTAL INDENTURE, dated as of December 15, 1997 (the "Supplement"), between WYMAN-GORDON COMPANY, a Massachusetts corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts banking corporation (the "Trustee"), as Trustee under an Indenture, dated as of December 15, 1997 (the "Indenture"). RECITALS OF THE COMPANY The Company has previously executed and delivered the Indenture to the Trustee. The provisions of Article Nine and Section 301 of the Indenture provide, among other things, that the Company, when authorized by its Board of Directors, and the Trustee may at any time and from time to time enter into an indenture supplemental to the Indenture for the purpose of authorizing a series of Securities and specifying the terms and form of each series of Securities. The Board of Directors of the Company has duly authorized the creation, issuance, execution and delivery of a series of Securities consisting of the 8% Senior Notes Due 2007 (the "8% Notes") in the aggregate principal amount of $150,000,000. The Company and the Trustee are executing and delivering this Supplement in order to provide for the 8% Notes. All things necessary to make this Supplement a valid and legally binding agreement of the Company have been done. I. ADDITIONAL PROVISIONS RELATING TO THE 8% NOTES The additional terms provided for herein apply only to the 8% Notes and do not apply to any other series of Securities previously issued or to be issued under the Indenture. Except as otherwise set forth herein, all provisions of the Indenture apply to the 8% Notes. 1. PROVISIONS SUPPLEMENTAL TO ARTICLE I OF THE INDENTURE. A. TERMS DEFINED IN THE INDENTURE. All capitalized terms used in this Supplement that are defined in the Indenture have the meanings assigned to them in the Indenture, except to the extent that such terms are otherwise defined in this Supplement. To the extent that a term is defined both in the Indenture and this Supplement, the definition appearing in this Supplement shall govern with respect to the 8% Notes. B. ADDITIONAL DEFINITIONS. Section 101 of the Indenture is hereby supplemented for purposes of the 8% Notes to provide additional definitions in the appropriate alphabetical sequence, as follows: "ADDITIONAL ASSETS" means (i) any property or assets (other than Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; PROVIDED, HOWEVER, that any such Restricted Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a Related Business. "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 Person means the power to direct the management and policies of such Person, directly or indirectly, whether 3 2 through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and controlled" have meanings correlative to the foregoing. "ASSET DISPOSITION" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary or (iii) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary (other than, in the case of (i), (ii) and (iii) above and (y) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary and (z) for purposes of Section 1014 only, a disposition that constitutes a Permitted Investment or a Restricted Payment permitted by Section 1012. "ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the actual rate of interest implicit in such transaction, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "AVERAGE LIFE" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "BOARD OF DIRECTORS" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "BUSINESS DAY" means each day which is not a Legal Holiday. "CAPITAL LEASE OBLIGATIONS" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "CAPITAL STOCK" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "CHANGE OF CONTROL" means the occurrence of any of the following events: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company; 4 3 (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (iii) the merger or consolidation of the Company with or into another Person or the merger of another Person with or into the Company, or the sale of all or substantially all the assets of the Company to another Person, and, in the case of any such merger or consolidation, the Voting Stock of the Company that is outstanding immediately prior to such transaction is changed into or exchanged for cash, securities or property, unless pursuant to such transaction such Voting Stock is changed into or exchanged for, in addition to any other consideration, Voting Stock of the surviving corporation that represents immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation. "CODE" means the Internal Revenue Code of 1986, as amended. "CONSOLIDATED COVERAGE RATIO" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company shall have been filed with the SEC or provided to the Noteholders pursuant to the Indenture to (ii) Consolidated Interest Expense for such four fiscal quarters; PROVIDED, HOWEVER, that (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (2) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (4) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated 5 4 Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income, earnings or expense relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be prepared in accordance with Article 11 of Regulation S-X promulgated by the SEC as determined in good faith by a responsible financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months). "CONSOLIDATED CURRENT LIABILITIES" as of the date of determination means the aggregate amount of liabilities of the Company and its consolidated Restricted Subsidiaries which may properly be classified as current liabilities (including taxes accrued as estimated), on a consolidated basis, after eliminating (i) all intercompany items between the Company and any Restricted Subsidiary and (ii) all current maturities of long-term Indebtedness, all as determined in accordance with GAAP consistently applied. "CONSOLIDATED INTEREST EXPENSE" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, plus (a) to the extent not included in such total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries, (i) interest expense attributable to capital leases, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) net costs associated with Hedging Obligations (including amortization of fees), (vii) the amount of all dividends in respect of all Disqualified Stock of the Company and the amount of all dividends in respect of Preferred Stock of Subsidiaries of the Company, in each case held by Persons other than the Company or a Wholly Owned Subsidiary, (viii) interest incurred in connection with Investments in discontinued operations, (ix) interest accruing on any Indebtedness of any other Person that is Guaranteed by the Company or any Restricted Subsidiary to the extent such interest is actually paid (directly or indirectly) by the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that if a default entitling the holders of such Indebtedness to accelerate the maturity thereof has occurred and is continuing, all interest accruing on such Indebtedness shall be included in Consolidated Interest Expense, whether or not actually paid by the Company or any Restricted Subsidiary and (x) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust, minus (b) total interest income of the Company and its consolidated Restricted Subsidiaries. "CONSOLIDATED NET INCOME" means, for any period, the net income of the Company and its consolidated Subsidiaries, plus the amount of any LIFO charge applicable to the Company and its Restricted Subsidiaries, minus the amount of any LIFO credit applicable to the Company and its Restricted Subsidiaries; PROVIDED, HOWEVER, that there shall not be included in such Consolidated Net Income: (i) any net income of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the exclusion contained in clause (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income up to the aggregate amount of cash contributed or required to be contributed by the Company or a Restricted Subsidiary to such Person in respect of such net loss during such period; (ii) any net income (or loss) of any Person acquired by the Company or a Subsidiary in 6 5 a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the exclusion contained in clause (iv) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain (or loss) realized upon the sale or other disposition of any assets of the Company or its consolidated Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person; (v) extraordinary gains or losses; and (vi) the cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purposes of Section 1012 only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such Section pursuant to clause (a)(3)(D) thereof. "CONSOLIDATED NET TANGIBLE ASSETS" as of any date of determination, means the total amount of assets (less accumulated depreciation and amortization, allowances for doubtful receivables, other applicable reserves and other properly deductible items) which would appear on a consolidated balance sheet of the Company and its consolidated Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, and after giving effect to purchase accounting and after deducting therefrom Consolidated Current Liabilities and, to the extent otherwise included, the amounts of: (i) minority interests in consolidated Subsidiaries held by Persons other than the Company or a Restricted Subsidiary; (ii) excess of cost over fair value of assets of businesses acquired, as determined in good faith by the Board of Directors; (iii) any revaluation or other write-up in book value of assets subsequent to the Issue Date as a result of a change in the method of valuation in accordance with GAAP consistently applied; (iv) unamortized debt discount and expenses and other unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, licenses, organization or developmental expenses and other intangible items; (v) treasury stock; (vi) cash set apart and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of Capital Stock to the extent such obligation is not reflected in Consolidated Current Liabilities; and (vii) Investments in and assets of Unrestricted Subsidiaries. "CONSOLIDATED NET WORTH" means the total of the amounts shown on the balance sheet of the Company and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company (for which consolidated financial statements of the Company shall have been filed with the SEC or provided to the Noteholders pursuant to the Indenture) prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "CURRENCY AGREEMENT" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement to which such Person is a party or a beneficiary. "DEFAULT" means any event which is, or after notice or passage of time or both would be, an Event of Default. 7 6 "DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the 8% Notes; PROVIDED, HOWEVER, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the 8% Notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions of Sections 1014 and 1601. "DOMESTIC RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of the Company that is organized under the laws of the United States of America or any State thereof or the District of Columbia. "EBITDA" for any period means Consolidated Net Income, plus Consolidated Interest Expense plus, without duplication, the following to the extent deducted in calculating such Consolidated Net Income: (a) all income tax expense of the Company, (b) depreciation expense, (c) amortization expense and (d) all other non-cash items reducing Consolidated Net Income (other than items that will require cash payments and for which an accrual or reserve is, or is required by GAAP to be, made), less all non-cash items increasing Consolidated Net Income, in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Subsidiary of the Company shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Subsidiary was included in calculating Consolidated Net Income. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth (i) in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants (ii) statements and pronouncements of the Financial Accounting Standards Board (iii) in such other statements by such other entity as approved by a significant segment of the accounting profession, and (iv) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. "GUARANTEE" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing any obligation. "HEDGING OBLIGATIONS" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. 8 7 "HOLDER" or "NOTEHOLDER" means the Person in whose name a 8% Note is registered on the Registrar's books. "INCUR" means issue, assume, Guarantee, incur or otherwise become liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. In the case of a discount security, neither the accrual of interest nor the accretion of original issue discount shall be considered an incurrence of Indebtedness, but the entire face amount of such security shall be deemed incurred upon the issuance of such security. "INDEBTEDNESS" means, with respect to any Person on any date of determination (without duplication), (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions entered into by such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in each case, any accrued dividends); (vi) Guarantees of Indebtedness of other Persons; (vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured and (viii) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates. "INVESTMENT" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property (excluding Capital Stock (other than Disqualified Stock) issued by the acquiring Person) to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary", the definition of "Restricted Payment" and Section 1012, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal 9 8 to an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary or Joint Venture shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors; provided, however, that for purposes of this clause (ii), "property" shall not include the right to use any patents, copyrights or trademarks owned by the Company or any Restricted Subsidiary in the territory in which such Unrestricted Subsidiary or Joint Venture operates or proposes to operate. "ISSUE DATE" means the date on which the 8% Notes are originally issued. "JOINT VENTURE" means a Person in which a Joint Venture Investment has been made by the Company or any Restricted Subsidiary. "JOINT VENTURE INVESTMENT" means any Investment by the Company or a Restricted Subsidiary in any Person primarily engaged or preparing to engage in a Related Business if, immediately after giving effect to such Investment, the Company or a Restricted Subsidiary will own at least 20% of the outstanding Capital Stock (including at least 20% of the outstanding Voting Stock) of such Person and will have the right (whether through the ownership of voting securities, by contract or otherwise) to exercise substantial control over the management and policies of such Person (as determined in good faith by the Board of Directors). "LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York. "LIEN" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "NET AVAILABLE CASH" from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form) in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be, repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "NET CASH PROCEEDS", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "PERMITTED INVESTMENT" means an Investment by the Company or any Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making of such Investment, 10 9 become a Restricted Subsidiary; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; (iii) Temporary Cash Investments; (iv) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (v) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vi) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary; (vii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (viii) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted under Section 1014; and (ix) Joint Venture Investments and Investments in Unrestricted Subsidiaries primarily engaged in a Related Business; PROVIDED, HOWEVER, that, in the case of this clause (ix), (A) the aggregate amount of all such Investments (in each case net of all dividends, repayments of loans or advances or other transfers of assets by such Joint Venture or Unrestricted Subsidiary to the Company, provided that the foregoing amounts shall not exceed, for any Investment, the amount of Investments previously made in such Joint Venture or Unrestricted Subsidiary shall not exceed $60 million at the time of (and after giving effect to) any such Investment and (B) such Investments shall not be included in the calculation of the amount of Restricted Payments. The amount referred to in clause (ix)(A) above shall be increased by 50% of the fair market value (as determined in good faith by the Board of Directors) of any Additional Assets acquired by the Company or any Restricted Subsidiary subsequent to the Issue Date in exchange for Capital Stock of the Company (other than Disqualified Stock); provided, however, that the amount referred to in clause (ix)(A) above shall not be increased pursuant to this sentence by the fair market value of any Additional Assets that constitute Net Cash Proceeds that increase the amount of Restricted Payments permitted under Section 1012 pursuant to clause (a)(3)(B) thereof. "PERMITTED LIENS" means, with respect to any Person, (a) pledges or deposits by such Person under worker's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (b) Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review; (c) Liens for property taxes not yet subject to penalties for non-payment or which are being contested in good faith and by appropriate proceedings; (d) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; PROVIDED, HOWEVER, that such letters of credit do not constitute Indebtedness; (e) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (f) Liens securing Indebtedness Incurred to finance the construction, purchase or lease of, or repairs, improvements or additions to, property of such Person; PROVIDED, HOWEVER, that (i) the Lien may not extend to any other property owned by such Person or any of its Subsidiaries at the time the Lien is Incurred and (ii) the Indebtedness secured by the Lien may not be Incurred more than 180 days 11 10 after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to the Lien; PROVIDED FURTHER, HOWEVER, THAT, notwithstanding subclause (f)(ii) above, "Permitted Liens" shall include a Lien created in connection with a Sale/Leaseback Transaction with respect to the 20,000 ton hydraulic forging press installed at the Company's Houston, Texas facility so long as such Lien satisfies subclause (f)(i) above and is entered into on or prior to May 31, 1999; (g) Liens on cash, cash equivalents, accounts receivable, inventory, general intangibles (to the extent necessary to realize on such accounts receivable and inventory) and bank accounts of the Company or any Restricted Subsidiary, and proceeds of the foregoing, to secure Indebtedness permitted under the provisions described in clause (b)(1) of Section 1010 or clause (a) of Section 1011; (h) Liens on any assets of the U.K. Subsidiary to secure Indebtedness permitted under the provisions described in clause (b) of Section 1011; (i) Liens existing on the Issue Date (other than Liens described in clause (h)); (j) Liens on property or shares of Capital Stock of another Person at the time such other Person becomes a Subsidiary of such Person; PROVIDED, HOWEVER, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such other Person becoming such a Subsidiary; PROVIDED FURTHER, HOWEVER, that such Lien may not extend to any other property owned by such Person or any of its Subsidiaries; (k) Liens on property at the time such Person or any of its Subsidiaries acquires the property, including any acquisition by means of a merger or consolidation with or into such Person or a Subsidiary of such Person; PROVIDED, HOWEVER, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such acquisition; PROVIDED FURTHER, however, that the Liens may not extend to any other property owned by such Person or any of its Subsidiaries; (l) Liens securing Indebtedness or other obligations of a Subsidiary of such Person owing to such Person or a wholly owned Subsidiary of such Person; (m) Liens securing Hedging Obligations so long as such Hedging Obligations relate to Indebtedness that is, and is permitted to be under the Indenture, secured by a Lien on the same property securing such Hedging Obligations; and (n) Liens to secure any Refinancing (or successive Refinancings) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (f), (i), (j) and (k); PROVIDED, HOWEVER, that (x) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements to or on such property) and (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (f), (i), (j) or (k) at the time the original Lien became a Permitted Lien and (B) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, extension, renewal or replacement. Notwithstanding the foregoing, "Permitted Liens" will not include any Lien described in clauses (f), (j) or (k) above to the extent such Lien applies to any Additional Assets acquired directly or indirectly from Net Available Cash pursuant to Section 1014. "PERMITTED RECEIVABLES FINANCING" means (a) the Receivables Facility and (b) any subsequent financing secured substantially by accounts receivables (and related assets) originated by the Company and any Restricted Subsidiary; PROVIDED, HOWEVER, that (i) such subsequent receivables financing has a later or equal final maturity and a longer or equal weighted average life than the Receivables Facility, (ii) all sales of receivables to or by the Receivables Subsidiary shall be made at fair market value (as determined in good faith by the Board of Directors) and the interest rate, covenants, events of default and other provisions applicable to such financing shall be customary for such transactions and shall be on market terms (as determined in good faith by the Board of Directors), and (iii) such financing shall be non-recourse to the Company and its Subsidiaries (other than the Receivables Subsidiary) except to a limited extent customary for such transactions. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "PREFERRED STOCK", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or 12 11 as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "PRINCIPAL" of a 8% Note means the principal of the 8% Note plus the premium, if any, payable on the 8% Note which is due or overdue or is to become due at the relevant time. "PURCHASE MONEY INDEBTEDNESS" mean Indebtedness (i) consisting of the deferred purchase price of property, conditional sale obligations, obligations under any title retention agreement, other purchase money obligations and obligations in respect of industrial revenue bonds or similar Indebtedness, in each case where the maturity of such Indebtedness does not exceed the anticipated useful life of the asset being financed, and (ii) incurred to finance the acquisition by the Company or a Restricted Subsidiary of such asset, including additions and improvements; PROVIDED, HOWEVER, that any Lien arising in connection with any such Indebtedness shall be limited to the specified asset being financed or, in the case of real property or fixtures, including additions and improvements, the real property on which such asset is attached; and PROVIDED FURTHER, HOWEVER, that such Indebtedness is Incurred within 180 days after such acquisition of such asset by the Company or Restricted Subsidiary. "RECEIVABLES CREDIT AGREEMENT" means the Revolving Credit Agreement dated as of May 20, 1994, among Wyman-Gordon Receivables Corporation, the lenders party thereto and Fleet Bank, N.A., as Issuing Bank, Facility Agent and Collateral Agent. "RECEIVABLES FACILITY" means the receivables facility made available pursuant to the Receivables Credit Agreement and the Receivables Purchase and Sale Agreement. "RECEIVABLES PURCHASE AND SALE AGREEMENT" means the Receivables Purchase and Sale Agreement dated as of May 20, 1994, among Wyman-Gordon Receivables Corporation, as Purchaser, the Company and certain Subsidiaries, as Sellers, and the Company, as Servicer. "RECEIVABLES SUBSIDIARY" means Wyman-Gordon Receivables Corporation or any other bankruptcy-remote, special-purpose Wholly Owned Subsidiary formed in connection with a Permitted Receivables Financing. "REFINANCE" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "REFINANCING INDEBTEDNESS" means Indebtedness that Refinances any Indebtedness of the Company or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with the Indenture; PROVIDED, HOWEVER, that (i) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced, (iii) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary. "RELATED BUSINESS" means any business related, ancillary or complementary to the businesses of the Company and the Restricted Subsidiaries on the Issue Date. 13 12 "RESTRICTED PAYMENT" with respect to any Person means (i) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock)) and dividends or distributions payable solely to the Company or a Restricted Subsidiary, and other than pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition) or (iv) the making of any Investment in any Person (other than a Permitted Investment). "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "SALE/LEASEBACK TRANSACTION" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "STATED MATURITY" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "SUBORDINATED OBLIGATION" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the 8% Notes pursuant to a written agreement to that effect. "SUBSIDIARY" means, in respect of any Person, any corporation, association, partnership or other business entity (a) of which more than 50% of the Voting Stock is at the time owned or controlled, directly or indirectly, by such Person and/or one or more Subsidiaries of such Person or (b) of which (x) at least 50% of the Capital Stock and (y) the power to elect or direct the election of a majority of the board of directors, managers or trustees (or other similar governing body) is at the time owned or controlled, directly or indirectly, by such Person and/or one or more Subsidiaries of such Person. "SUBSIDIARY GUARANTOR" means each Subsidiary that has issued a Subsidiary Guaranty. "SUBSIDIARY GUARANTY" means the Guarantee by a Subsidiary Guarantor of the Company's obligations with respect to the 8% Notes. 14 13 "TEMPORARY CASH INVESTMENTS" means any of the following: (i) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof, (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rated "a" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by an registered broker dealer or mutual fund distributor, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) investments in commercial paper, maturing not more than 270 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "a-1" (or higher) according to Standard and Poor's Ratings Group, and (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "a" by Standard & Poor's Ratings Group or "a" by Moody's Investors Service, Inc. "U.K. CREDIT FACILITY" means the credit facility made available pursuant to the Credit Agreement dated as of November 28, 1994, among the U.K. Subsidiary and the lenders party thereto, as the same may be amended, waived, modified, Refinanced or replaced from time to time (except to the extent that any such amendment, waiver, modification, replacement or Refinancing would be prohibited by the terms of the Indenture). "U.K. SUBSIDIARY" means Wyman-Gordon Limited, a corporation organized under the laws of England and Wales. "UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under Section 1012. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of Section 1010 and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be by the Company to the Trustee by promptly filing with the Trustee a copy of the board resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. 15 14 "VOTING STOCK" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares and shares held by other Persons to the extent such shares are required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary) is owned by the Company or one or more Wholly Owned Subsidiaries. 2. TERMS OF THE 8% NOTES. A. DESIGNATION. The 8% Notes are hereby created and shall be issuable in one series and shall be designated as the "8% Senior Notes Due 2007". B. DATING OF THE 8% NOTES. All 8% Notes shall be dated the date of authentication. C. MAXIMUM AGGREGATE OUTSTANDING AMOUNT. The maximum aggregate principal amount of the 8% Notes that may be authenticated and delivered under this Supplement is limited to $150,000,000, except for (i) 8% Notes authenticated and delivered upon transfer of, or in exchange for, or in lieu of, other 8% Notes pursuant to Sections 304, 305, 306, 307, 1107 or 1305 of the Indenture. D. STATED MATURITY. The principal amount of the 8% Notes shall be due and payable on December 15, 2007. E. DENOMINATION OF 8% NOTES. The 8% Notes shall initially be represented by one or more global securities (the "Global Securities") deposited with The Depositary Trust Company ("DTC"), as depositary, and registered in the name of a nominee of DTC. Except as set forth in the Indenture, the 8% Notes will be available for purchase in denominations of $1,000 and integral multiples thereof in book-entry form only. The term "Depository" refers to DTC or any successor depository, as depository. F. PAYMENTS OF PRINCIPAL AND INTEREST, RECORD DATES Each 8% Note shall bear interest on its outstanding principal balance from December 15, 1997 at 8% per annum until payment of the principal thereof has been made or duly provided for. Interest on the 8% Notes shall be paid semi-annually on June 15 and December 15, commencing on June 15, 1998 (each an "Interest Payment Date"). Interest on the 8% Notes shall be computed on the basis of a 360-day year of twelve 30-day months, from the later of: (1) December 15, 1997 or (2) the most recent Interest Payment Date to which interest has been paid or duly provided for to the end of the next Interest Payment Date. Interest on the 8% Notes shall be payable in lawful money of the United States of America. The principal of each 8% Note shall be payable on the date due as set forth in the form of Notes upon delivery and surrender of such 8% Note to the Trustee at the principal office of the Trustee in lawful money of the United States of America by check or by wire transfer of immediately available funds. 16 15 The record date ("Record Date") for each Interest Payment Date shall be the close of business on June 1 and December 1 next preceding each Interest Payment Date, whether or not such date shall be a Business day. G. FORM OF 8% NOTES. The 8 % Notes shall all be issued in global form. The form of the 8% Notes and the Trustee's certificate of authentication are attached hereto as Exhibit A, which is hereby incorporated in and expressly made a part of the Indenture. Each of the 8% Notes shall be numbered consecutively from R-1 upward. The 8% Notes shall bear a CUSIP number, but any failure to indicate or any error in such CUSIP number shall not in any way affect the validity of the 8% Notes. The terms of the 8% Notes set forth in Exhibit A are part of the terms of this Indenture. H. RANKING. The 8% Notes shall constitute unsecured and unsubordinated indebtedness of the Company and shall rank PARI PASSU with any other unsecured and unsubordinated indebtedness of the Company. I. SINKING FUND. There will be no mandatory sinking fund payments for the 8% Notes. 3. PROVISIONS SUPPLEMENTAL TO ARTICLE THREE OF INDENTURE. A. For purposes of the 8% Notes only, the word "deliver" in the first sentence of Subsection (a) of Section 304 of the Indenture is hereby superseded in its entirety and replaced by the phrase "make available". B. For purposes of the 8% Notes only, the phrase "authenticate and deliver" in the second sentence of the second paragraph of Subsection (b) of Section 304 of the Indenture is hereby superseded in its entirety and replaced by the phrase "authenticate and make available for delivery". C. For purposes of the 8% Notes only, the phrase "authenticate and deliver" in the first sentence of the paragraph of Section 305 of the Indenture is hereby superseded in its entirety and replaced by the phrase "authenticate and make available for delivery". D. For purposes of the 8% Notes only, the phrase "authenticate and deliver" in the second sentence of the third paragraph of Section 305 of the Indenture is hereby superseded in its entirety and replaced by the phrase "authenticate and make available for delivery". E. For purposes of the 8% Notes only, the phrase "authenticate and deliver" in the last sentence of the fourth paragraph of Section 305 of the Indenture is hereby superseded in its entirety and replaced by the phrase "authenticate and make available for delivery". F. For purposes of the 8% Notes only, the phrase "authenticate and deliver" in the fourth sentence of the fifth paragraph of Section 305 of the Indenture is hereby superseded in its entirety and replaced by the phrase "authenticate and make available for delivery". G. For purposes of the 8% Notes only, the phrase "authenticate and deliver" in the first paragraph of Section 306 of the Indenture is hereby superseded in its entirety and replaced by the phrase "authenticate and make available for delivery". 17 16 H. For purposes of the 8% Notes only, the phrase "authenticate and deliver" in the second paragraph of Section 306 of the Indenture is hereby superseded in its entirety and replaced by the phrase "authenticate and make available for delivery". I. For purposes of the 8% Notes only, the final sentence of Section 309 of the Indenture is hereby superseded in its entirety and replaced by the following: Unless otherwise directed in writing by a Company Order, the Trustee shall return all canceled Notes to the Company. J. Article Three of the Indenture is hereby supplemented with respect to the 8% Notes by inserting, following the final sentence of the second paragraph of Section 305, the following: The 8% Notes shall be issued in registered form and shall be transferable only upon the surrender of a 8% Note for registration of transfer. When a 8% Note is presented to the Security Registrar or a co-registrar with a request to register a transfer, the Security Registrar shall register the transfer as requested if the requirements of Section 8-401(1) of the Uniform Commercial Code are met. When 8% Notes are presented to the Security Registrar or a co-registrar with a request to exchange them for an equal principal amount of 8% Notes of other denominations, the Security Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, the Company shall execute and the Trustee shall authenticate 8% Notes at the Security Registrar's or co-registrar's request. K. Article Three of the Indenture is hereby supplemented with respect to the 8% Notes by inserting, following the phrase "them harmless" in the first sentence of Section 306, the phrase "and if such parties are satisfied that the requirements of Section 8-405 of the Uniform Commercial Code have been met". L. Article Three of the Indenture is hereby supplemented with respect to the 8% Notes by inserting, following the last sentence of Section 309, the following: The Company may not issue new 8% Notes to replace 8% Notes it has redeemed, paid or delivered to the Trustee for cancelation. M. Article Three of the Indenture is hereby supplemented with respect to the 8% Notes by inserting, following the final sentence of Section 310, the following: SECTION 311. REGISTRAR AND PAYING AGENT. The Company shall enter into an appropriate agency agreement with any Security Registrar, Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Security Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 606. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Security Registrar, co-registrar or transfer agent. The Company initially appoints the Trustee as Security Registrar and Paying Agent in connection with the 8% Notes. SECTION 312. NOTEHOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Noteholders. If the Trustee is not the Security Registrar, the Company 18 17 shall furnish to the Trustee, in writing at least five Business days before each Interest Payment Date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Noteholders. SECTION 313. OUTSTANDING 8% NOTES. 8% Notes outstanding at any time are all 8% Notes authenticated by the Trustee except for those canceled by it, those paid pursuant to Section 306, those delivered to it for cancelation and those described in this Section as not outstanding. A 8% Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the 8% Note. If a 8% Note is replaced pursuant to Section 306, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced 8% Note is held by a bona fide purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the 8% Notes (or portions thereof) to be redeemed or maturing, as the case may be, then on and after that date such 8% Notes (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 314. CUSIP NUMBERS. The Company in issuing the 8% Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Noteholders; PROVIDED that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the 8% Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the 8% Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. 4. PROVISIONS SUPPLEMENTAL TO ARTICLE FIVE OF THE INDENTURE. A. For purposes of the 8% Notes only, Section 501 of the Indenture is hereby superseded in its entirety and replaced by the following: SECTION 501 EVENTS OF DEFAULT. An "Event of Default" occurs if: (1) the Company fails to make any payment of interest on any 8% Note when the same becomes due and payable, and such failure continues for a period of 30 days; (2) the Company (i) fails to make the payment of the principal of any 8% Note when the same becomes due and payable at its Stated Maturity, upon redemption, upon declaration, or otherwise, or (ii) fails to redeem or purchase 8% Notes when required pursuant to this Indenture or the 8% Notes; (3) the Company fails to comply with Section 801; (4) the Company fails to comply with any covenant or obligation set forth in Section 1601 or 1602 or Article X (other than a failure to purchase 8% Notes when required under 1014 or Section 1601) and such failure continues for 30 days; 19 18 (5) the Company fails to comply with any of its agreements in the 8% Notes or this Indenture (other than those referred to in (1), (2), (3) or (4) above) and such failure continues for 60 days; (6) the Company or a Restricted Subsidiary fails to pay when due within any applicable grace period principal, interest or premium or the Indebtedness in an aggregate principal amount outstanding in excess of $10 million or the acceleration of any Indebtedness in an aggregate principal amount outstanding in excess of $10 million by the holders thereof; (7) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of is creditors; or takes any comparable action under any foreign laws relating to insolvency; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any Significant Subsidiary or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company or any Significant Subsidiary; or any similar relief is granted under any foreign laws, and any order or decree described in this Section 501(8) remains unstayed and in effect for 60 days; (9) any judgment or decree for the payment of money in excess of $10,000,000 or its Dollar Equivalent at the time is entered against the Company or any Restricted Subsidiary and is not discharged and either (A) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (B) there is a period of 60 consecutive days during which a stay of enforcement shall not be in effect following the entry of such judgment or decree during which, in the case of (A) or (B), such enforcement proceeding, judgment or decree is not discharged, waived or the execution thereof stayed and such default continues for 10 days after the notice specified below; or (10) a Subsidiary Guaranty ceases to be in full force and effect (other than in accordance with the terms of such Subsidiary Guaranty) or a Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary Guaranty. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by 20 19 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. The term "Bankruptcy Law" means Title 11, UNITED STATES CODE, or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clause (4) or (5) is not an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the 8% Notes notify the Company of the Default and the Company does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of (a) any event which with the giving of notice and the lapse of time would become an Event of Default under clause (4) or (5) or (b) any other Event of Default or Default, and, in either case, its status and what action the Company is taking or proposes to take with respect thereto. B. For purposes of the 8% Notes only, the first paragraph of Section 502 of the Indenture is hereby superseded in its entirety and replaced by the following: If an Event of Default (other than an Event of Default specified in Section 501(7) or (8) with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the outstanding 8% Notes by notice to the Company and the Trustee, may declare the principal of and accrued but unpaid interest on all the 8% Notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 501(7) or (8) with respect to the Company occurs, the principal of and interest on all the 8% Notes shall become and be immediately due and payable without any declaration or other action the part of the Trustee or any Noteholders. The Holders of a majority in principal amount of the 8% outstanding Notes by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. 5. PROVISIONS SUPPLEMENTAL TO ARTICLE SIX OF THE INDENTURE. A. Article Six is hereby amended so as to delete the second proviso from the first sentence of Section 601 in its entirety. B. For purposes of the 8% Notes only, the following sections are to be inserted immediately following Section 612 of the Indenture. SECTION 613. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Noteholders may communicate pursuant to TIA ss. 312(b) with other Noteholders with respect to their rights under this Indenture or the 8% Notes. The Company, the Trustee, the Security Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 614. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The Trustee may make reasonable rules for action by or a meeting of Noteholders. The Security Registrar and the Paying Agent may make reasonable rules for their functions. 21 20 6. PROVISIONS SUPPLEMENTAL TO ARTICLE EIGHT OF THE INDENTURE. A. For purposes of the 8% Notes only, Sections 801 and 802 of the Indenture are hereby superseded in their entirety and replaced by the following SECTION 801. MERGER AND CONSOLIDATION. The Company shall not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of related transactions, all or substantially all its assets to, any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; (ii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (iii) except in the case of a merger the sole purpose of which is to change the Company's jurisdiction of incorporation, immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of Section 1010; (iv) immediately after giving effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; and (v) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture. Notwithstanding the foregoing clauses (ii), (iii) and (iv), any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company or another Wholly Owned Subsidiary. SECTION 802. RIGHTS AND DUTIES OF SUCCESSOR CORPORATION. The Successor Company shall be the successor to the Company and shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture, but the predecessor Company in the case of a conveyance, transfer or lease shall not be released from the obligation to pay the principal of and interest on the Securities. 7. PROVISIONS SUPPLEMENTAL TO ARTICLE TEN OF THE INDENTURE. A. For purposes of the 8% Notes only, Section 901 of the Indenture is hereby superseded in its entirety and replaced by the following SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the Trustee may amend this Indenture or the 8% Notes without notice to or consent of any Noteholder: (1) to cure any ambiguity, omission, defect or inconsistency; 22 21 (2) to comply with Article 5; (3) to provide for uncertificated 8% Notes in addition to or in place of certificated 8% Notes; PROVIDED, HOWEVER, that the uncertificated 8% Notes are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated 8% Notes are described in Section 163(f)(2)(B) of the Code; (4) to add further Guarantees with respect to the 8% Notes or to release Subsidiary Guarantors when permitted by the terms hereof, or to secure the 8% Notes; (5) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (6) to comply with any requirements of the SEC in connection with qualifying, or maintaining the qualification of, this Indenture under the TIA; or (7) to make any change that does not adversely affect the rights of any Noteholder. An amendment under this Section may not make any change that adversely affects the rights under Article 10 or Article 12 of any holder of Senior Indebtedness of the Company or any Subsidiary Guarantor then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. After an amendment under this Section becomes effective, the Company shall mail to Noteholders a notice briefly describing such amendment. The failure to give such notice to all Noteholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. B. For purposes of the 8% Notes only, Section 902 of the Indenture is hereby superseded in its entirety and replaced by the following SECTION 902. MODIFICATION OF INDENTURE WITH CONSENT OF HOLDERS. The Company and the Trustee may amend this Indenture or the 8% Notes without notice to any Noteholders but with the written consent of the Holders of at least a majority in principal amount of the 8% Notes; PROVIDED, HOWEVER, without the consent of each Noteholder affected, an amendment may not: (1) reduce the amount of 8% Notes whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any 8% Note; (3) reduce the principal of or extend the Stated Maturity of any 8% Note; (4) reduce the premium payable upon the redemption of any 8% Note or change the time at which any 8% Note may be redeemed in accordance with Article V; (5) make any 8% Note payable in money other than that stated in the 8% Note; 23 22 (6) subordinate in right of payment, or otherwise subordinate, the 8% Notes to any other obligation of the Company; (7) make any change in Section 507, 5.08, 5.12, 5.13 or the second sentence of this Section. (8) make any change in any Subsidiary Guaranty that would adversely affect the Noteholders. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section becomes effective, the Company shall mail to Noteholders a notice briefly describing such amendment. The failure to give such notice to all Noteholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. 8. PROVISIONS SUPPLEMENTAL TO ARTICLE TEN OF THE INDENTURE. A. For purposes of the 8% Notes, Article Ten of the Indenture is hereby supplemented by inserting, following the final sentence of Section 1009, the following: SECTION 1010. LIMITATION ON INDEBTEDNESS. LIMITATION ON INDEBTEDNESS OF THE COMPANY. (a) The Company shall not Incur, directly or indirectly, any Indebtedness unless, on the date of such Incurrence, the Consolidated Coverage Ratio exceeds 2.0 to 1. (b) Notwithstanding the foregoing paragraph (a), the Company may Incur any or all of the following Indebtedness: (1) Indebtedness Incurred pursuant to any bank credit facility; PROVIDED, HOWEVER, that, after giving effect to any such Incurrence, the aggregate principal amount of such Indebtedness then outstanding, together with the aggregate amount of all Indebtedness then outstanding pursuant to clauses (a) and (b) of Section 1011, does not exceed the greater of (i) $100 million and (ii) the sum of (A) 60% of the book value of the inventory of the Company and its Restricted Subsidiaries and (B) 90% of the book value of the accounts receivables of the Company and its Restricted Subsidiaries, in each case determined in accordance with GAAP; (2) Indebtedness owed to and held by a Wholly Owned Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer of any Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness (other than to another Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the Company; (3) the 8% Notes; (4) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (1), (2) or (3) of this paragraph); (5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (3) or (4) or this clause (5); (6) Hedging Obligations consisting of Interest Rate Agreements and Currency Agreements entered into in the ordinary course of business and not for the purpose of speculation; PROVIDED, HOWEVER, that such Currency Agreements and Interest Rate Agreements do not increase the Indebtedness of the Company outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder; (7) Purchase Money Indebtedness and Capital Lease Obligations Incurred to finance the acquisition by the Company or a Restricted Subsidiary of any assets in the ordinary course of business and which do not, together with the aggregate amount of all Indebtedness then outstanding pursuant to clause (h) of Section 1011, exceed $10 million in the aggregate at any time outstanding; and (8) Indebtedness in an aggregate principal amount which, together with 24 23 all other Indebtedness of the Company outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (7) above or paragraph (a)) and all Indebtedness then outstanding pursuant to clause (i) of Section 1011, does not exceed $10 million. (c) Notwithstanding the foregoing, the Company shall not Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the 8% Notes to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with this Section, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. SECTION 1011. LIMITATION ON INDEBTEDNESS AND PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company shall not permit any Restricted Subsidiary to Incur, directly or indirectly, any Indebtedness or Preferred Stock except: (a) Indebtedness Incurred by the Receivables Subsidiary pursuant to the Receivables Facility or by any Restricted Subsidiary pursuant to any other bank credit arrangement; PROVIDED, HOWEVER, that, after giving effect to any such Incurrence, the aggregate principal amount of such Indebtedness then outstanding, together with the aggregate amount of all Indebtedness then outstanding pursuant to clause (b) of this provision and clause (1) of Section 1010, does not exceed the greater of (i) $100 million and (ii) sum of (A) 60% of the book value of the inventory of the Company and its Restricted Subsidiaries and (B) 90% of the book value of the accounts receivables of the Company and its Restricted Subsidiaries, in each case determined in accordance with GAAP; (b) Indebtedness Incurred pursuant to the U.K. Credit Facility; PROVIDED, HOWEVER, that, after giving effect to any such Incurrence, the aggregate principal amount of such Indebtedness then outstanding does not exceed $8 million; (c) Indebtedness or Preferred Stock issued to and held by the Company or a Wholly Owned Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer of any Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness or Preferred Stock (other than to the Company or a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the issuance of such Indebtedness or Preferred Stock by the issuer thereof; (d) Indebtedness or Preferred Stock of a Subsidiary Incurred and outstanding on or prior to the date on which such Subsidiary was acquired by the Company or a Restricted Subsidiary (other than Indebtedness or Preferred Stock Incurred in connection with, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Subsidiary became a Subsidiary or was acquired by the Company or a Restricted Subsidiary); PROVIDED, HOWEVER, that on the date of such acquisition and after giving effect thereto, the Company would have been able to Incur at least $1.00 of additional Indebtedness pursuant to clause (a) of Section 1010; 25 24 (e) Indebtedness or Preferred Stock outstanding on the Issue Date (other than Indebtedness described in clause (a), (b), (c) or (d) of this paragraph); (f) Refinancing Indebtedness Incurred in respect of Indebtedness or Preferred Stock referred to in clause (d) or (e) of this paragraph or this clause (f); PROVIDED, HOWEVER, that to the extent such Refinancing Indebtedness directly or indirectly Refinances Indebtedness or Preferred Stock of a Subsidiary described in clause (d), such Refinancing Indebtedness shall be Incurred only by such Subsidiary; (g) the Subsidiary Guaranties, if any; (h) Purchase Money Indebtedness and Capital Lease Obligations Incurred to finance the acquisition by such Restricted Subsidiary of any assets in the ordinary course of business and which do not, together with the aggregate amount of all Indebtedness then outstanding pursuant to clause (7) of Section 1010, exceed $10 million in the aggregate at any time outstanding; and (i) Indebtedness in an aggregate principal amount which, together with all other Indebtedness of Restricted Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (a) through (h) above) and all Indebtedness then outstanding pursuant to clause (8) of Section 1010, does not exceed $10 million. SECTION 1012. LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of Section 1010; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter ended August 31, 1997 to the end of the most recent fiscal quarter prior to the date of such Restricted Payment for which consolidated financial statements of the Company shall have been filed with the SEC or provided to the Noteholders pursuant to the Indenture (or, in case such Consolidated Net Income accrued during such period (treated as one accounting period) shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the Company from the issuance or sale of its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of the Company and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); (C) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date, of any Indebtedness of the Company convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company upon such conversion or exchange); (D) an amount equal to the sum of (i) the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or advances or other transfers of assets by any Unrestricted Subsidiary to the Company or any Restricted Subsidiary, or the receipt of proceeds by the Company or any Restricted Subsidiary from the sale or other disposition of any portion of the Capital Stock of any Unrestricted Subsidiary, in each case occurring subsequent to the Issue Date, and (ii) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; PROVIDED, 26 25 HOWEVER, that the foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary; and (E) $40 million. (b) The provisions of the foregoing paragraph (a) shall not prohibit: (i) any purchase or redemption of Capital Stock or Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); PROVIDED, HOWEVER, that (A) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above; (ii) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to Section 1010; PROVIDED, HOWEVER, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (iii) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with paragraph (a) of this Section; PROVIDED, HOWEVER, that at the time of payment of such dividend, no Default shall have occurred and be continuing (or result therefrom); PROVIDED FURTHER, HOWEVER, that such dividend shall be included in the calculation of the amount of Restricted Payments; or (iv) the repurchase of shares of, or options to purchase shares of, common stock of the Company or any of its Subsidiaries from employees, former employees, directors or former directors of the Company or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such common stock; PROVIDED, HOWEVER, that the aggregate amount of such repurchases shall not exceed $5 million; PROVIDED FURTHER, HOWEVER, that such repurchases shall be excluded in the calculation of the amount of Restricted Payments. SECTION 1013. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary (a) to pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company, (b) to make any loans or advances to the Company or (c) transfer any of its property or assets to the Company, except: (i) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date; (ii) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company or a Restricted Subsidiary (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company or a Restricted Subsidiary) and outstanding on such date; (iii) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (i) or (ii) of this Section or this clause (iii) or contained in any amendment to an agreement referred to in clause (i) or (ii) of this Section or this clause (iii); PROVIDED, HOWEVER, that the encumbrances and restrictions with respect to such 27 26 Restricted Subsidiary contained in any such refinancing agreement or amendment are no more restrictive in any material respect than the encumbrances and restrictions with respect to such Restricted Subsidiary contained in such agreements; (iv) any such encumbrance or restriction consisting of customary non assignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease or the property leased thereunder; (v) in the case of clause (c) above, restrictions contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements or mortgages; (vi) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; and (vii) any encumbrance or restriction with respect to any Receivables Subsidiary pursuant to any agreement entered into in connection with a Permitted Receivables Financing or pursuant to the organizational documents of the Receivables Subsidiary. SECTION 1014. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company shall not, and shall not permit any Restricted Subsidiary to consummate any Asset Disposition unless the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors, of the shares and assets subject to such Asset Disposition and at least 75% (or 100% in the case of lease payments received by the Company or such Restricted Subsidiary) of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents. In the event and to the extent that the Net Available Cash received by the Company or any Restricted Subsidiary from one or more Asset Dispositions occurring on or after the Issue Date exceeds $10 million, then the Company or such Restricted Subsidiary shall (i) within 360 days after the date such Net Available Cash so received exceeds $10 million and to the extent the Company or such Restricted Subsidiary elects (or is required by the terms of any Indebtedness) to (A) apply an amount equal to such excess Net Available Cash to prepay, repay or purchase Indebtedness of the Company or such Restricted Subsidiary (other than Indebtedness which is subordinated or junior in any respect (other than as a result of the Indebtedness being unsecured) to any other Indebtedness of the Company or such Restricted Subsidiary), in each case owing to a Person other than the Company or any Affiliate of the Company or (B) invest an equal amount, or the amount not so applied pursuant to clause (A), in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary) and (ii) apply such excess Net Available Cash (to the extent not applied pursuant to clause (i)) as provided in the following paragraphs of this Section; PROVIDED, HOWEVER, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) above, the Company or such Restricted Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. The amount of such excess Net Available Cash required to be applied pursuant to clause (ii) above and not theretofore so applied shall constitute "Excess Proceeds". Pending application of Net Available Cash pursuant to this provision, such Net Available Cash shall be invested in Temporary Cash Investments. If at any time the aggregate amount of Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined below) totals at least $10 million, the Company shall, not later than 30 days after the end of the period during which the Company is required to apply such Excess Proceeds pursuant to clause (i) of the immediately preceding paragraph (or, if the Company so elects, at any time within such period), make an offer (an "Excess Proceeds Offer") to purchase from the Holders on a pro rata basis an aggregate principal amount of Senior Notes equal to the Excess Proceeds 28 27 (rounded down to the nearest multiple of $1,000) on such date, at a purchase price equal to 100% of the principal amount of such Senior Notes, plus, in each case, accrued interest (if any) to the date of purchase (the "Excess Proceeds Payment"). Upon completion of an Excess Proceeds Offer, the amount of Excess Proceeds remaining after application pursuant to such Excess Proceeds Offer (including payment of the purchase price for Senior Notes duly tendered) may be used by the Company for any corporate purpose (to the extent not otherwise prohibited by the Indenture). For the purposes of this Section, the following are deemed to be cash: (x) the assumption of Indebtedness of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. (b) If the Company is obligated to make a Excess Proceeds Offer, the Company shall send a written notice, by first-class mail, to the Holders of the 8% Notes and the Trustee (the "Excess Proceeds Offer Notice"), accompanied by such information regarding the Company and its Subsidiaries as the Company in good faith believes will enable such holders of the 8% Notes to make an informed decision with respect to the Excess Proceeds Offer. The Excess Proceeds Offer Notice will state, among other things, (i) that the Company is offering to purchase 8% Notes pursuant to the provisions of this Section 1014, (ii) that any 8% Note (or any portion thereof) accepted for payment (and duly paid on the Purchase Date) pursuant to the Excess Proceeds Offer shall cease to accrue interest after the Purchase Date, (iii) the purchase price and purchase date, which shall be, subject to any contrary requirements of applicable law, no less than 30 days nor more than 60 days from the date the Excess Proceeds Offer Notice is mailed (the "Purchase Date"), (iv) the aggregate principal amount of 8% Notes (or portions thereof) to be purchased and (v) a description of the procedure which holders of 8% Notes must follow in order to tender their 8% Notes (or portions thereof) and the procedures that holders of 8% Notes must follow in order to withdraw an election to tender their 8% Notes (or portions thereof) for payment. (c) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations thereunder in the event that such Excess Proceeds are received by the Company under this Section and the Company is required to repurchase Senior Notes as described above. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 1015. LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction or series of related transactions (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof (1) are no less favorable, taken as a whole, to the Company or such Restricted Subsidiary than those that could be obtained at the time of such transaction or transactions in arm's-length dealings with a Person who is not such an Affiliate, (2) if such Affiliate Transaction involves an amount in excess of $1 million, (i) are set forth in writing, (ii) comply with clause (1) and (iii) have been approved by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction and (3) if such Affiliate Transaction involves an amount in excess of $25 million, (i) comply with clause (2) and (ii) have been determined by a nationally recognized 29 28 investment banking firm to be fair, from a financial standpoint, to the Company and its Restricted Subsidiaries. (b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any Restricted Payment permitted to be paid pursuant to Section 1012, (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iii) the grant of stock options or similar rights to employees and directors of the Company pursuant to plans approved by the Board of Directors, (iv) loans or advances to employees in the ordinary course of business in accordance with the past practices of the Company or its Restricted Subsidiaries, but in any event not to exceed $2 million in the aggregate outstanding at any one time, (v) the payment of reasonable fees to directors of the Company and its Restricted Subsidiaries who are not employees of the Company or its Restricted Subsidiaries, (vi) any Affiliate Transaction between the Company and any Restricted Subsidiary or between Restricted Subsidiaries in the ordinary course of business (so long as the stockholders of any participating Restricted Subsidiary which is not a Wholly Owned Subsidiary are not themselves Affiliates of the Company) and (vii) transactions between the Company or any Restricted Subsidiary and a Receivables Subsidiary pursuant to any Permitted Receivables Financing. SECTION 1016. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. The Company shall not sell or otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any shares of its Capital Stock except (i) to the Company or a Wholly Owned Subsidiary or (ii) if, immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary. SECTION 1017. LIMITATION ON LIENS. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any Lien of any nature whatsoever on any of its properties (including Capital Stock of a Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired, other than Permitted Liens, without effectively providing that the 8% Notes shall be secured equally and ratably with (or prior to) the obligations so secured for so long as such obligations are so secured; PROVIDED, HOWEVER, that the Company or any Restricted Subsidiary may Incur other Liens to secure Indebtedness as long as the amount of outstanding Indebtedness secured by Liens Incurred pursuant to this proviso does not exceed 5% of Consolidated Net Tangible Assets, as determined based on the consolidated balance sheet of the Company as of the end of the most recent fiscal quarter prior thereto for which consolidated financial statements of the Company shall have been filed with the SEC or provided to the Noteholders pursuant to the Indenture. SECTION 1018. LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless (i) the Company or such Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to the Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to Section 1010 and (B) create a Lien on such property securing such Attributable Debt without equally and ratably securing the 8% Notes pursuant to Section 1017, (ii) the net proceeds received by the Company or any Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at least equal to the fair value (as determined by the Board of Directors) of such property and (iii) the Company applies the proceeds of such transaction in compliance with Section 1014. SECTION 1019. FUTURE GUARANTORS. On or after the Issue Date, the 30 29 Company will cause each Domestic Restricted Subsidiary (other than the Receivables Subsidiary) that Incurs Indebtedness pursuant to clause (a) of Section 1011 to execute and deliver to the Trustee a supplemental indenture pursuant to which such Domestic Restricted Subsidiary will irrevocably and unconditionally Guarantee, as primary obligor and not merely as a surety, on an unsecured senior basis, the performance and punctual payment when due, whether at Stated Maturity, by acceleration or otherwise, of all obligations of the Company under the Indenture and the 8% Notes, whether for payment of principal of or interest on the 8% Notes, expenses, indemnification or otherwise (all such guaranteed obligations being herein called the "Guaranteed Obligations"). The Subsidiary Guarantors will agree to pay, in addition to the amount stated above, any and all expenses (including reasonable counsel fees and expenses) incurred by the Trustee or the Holders in enforcing any rights under the Subsidiary Guaranties. Each Subsidiary Guaranty will be limited in amount to an amount not to exceed the maximum amount that can be Guaranteed by the applicable Subsidiary Guarantor without rendering such Subsidiary Guaranty voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Initially there will be no Restricted Subsidiary that will be required to issue a Subsidiary Guaranty of the 8% Notes. Each Subsidiary Guaranty will be a continuing guarantee and shall (a) remain in full force and effect until payment in full of all the Guaranteed Obligations, (b) be binding upon each Subsidiary Guarantor and (c) enure to the benefit of and be enforceable by the Trustee, the Holders and their successors, transferees and assigns. A Subsidiary Guaranty will be released upon the sale of all the capital stock, or all or substantially all of the assets, of the applicable Subsidiary Guarantor if such sale is made in compliance with the Indenture. SECTION 1020. SEC REPORTS. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC and provide the Trustee and Noteholders and, upon request, prospective Noteholders and securities analysts with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections. 9. PROVISIONS SUPPLEMENTAL TO ARTICLE ELEVEN OF THE INDENTURE. A. Article Eleven of the Indenture is hereby supplemented with respect to the 8% Notes by inserting, following the first sentence of the second paragraph of Section 1103, the following: ; PROVIDED, HOWEVER, that no Note of $1,000 in original principal amount or less shall be redeemed in part. 10. PROVISIONS SUPPLEMENTAL TO ARTICLE FOURTEEN OF THE INDENTURE: A. The 8% Notes shall be subject to all of the provisions of Section 1402 of the Indenture and 1403 of the Indenture, as amended in paragraph B. below. B. For purposes of the 8% Notes only, Section 1403 of the Indenture is hereby superseded in its entirety and replaced by the following: 31 30 SECTION 1403. COVENANT DEFEASANCE. Upon the Company's exercise of the above option applicable to this Section with respect to the 8% Notes, the Company shall be released from its obligations under Sections 1004 to 1020 (other than Section 1006), inclusive, and Article XVI, and the operation of Sections 501(5), 501(6), 501(7), 501(8) and 501(9) (but, in the case of Sections 501(7) and 501(8), with respect only to Significant Subsidiaries) or contained in Sections 801(iii) and 801(iv) with respect to the 8% Notes (hereinafter, "covenant defeasance"), and the [ ]% Notes shall thereafter be deemed to be not "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such Sections, but shall continue to be deemed "Outstanding" for all other purposes hereunder. If the Company exercises its defeasance option, payment of the Securities may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 501(5), 501(6), 501(7), 501(8) and 501(9) (but, in the case of Sections 501(7) and 501(8), with respect only to Significant Subsidiaries) or because of the failure of the Company to comply with Section 801(iii) or (iv). If the Company exercises its legal defeasance option or its covenant defeasance option, each Subsidiary Guarantor, if any, shall be released from all its obligations under its Subsidiary Guaranty. Upon satisfaction of the conditions set forth herein and in Section 1404 and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. C. Article Fourteen of the Indenture is hereby supplemented by inserting, following Section 1405, the following Section 1406: SECTION 1406. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article Fourteen by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the 8% Notes shall be revived and reinstated as though no deposit had occurred pursuant to this Article Fourteen until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article Fourteen. 11. PROVISIONS SUPPLEMENTAL TO THE INDENTURE: ARTICLE SIXTEEN. The Indenture is hereby supplemented by adding, following Article Fifteen, the following Article Sixteen: ARTICLE SIXTEEN RIGHT TO REQUIRE REPURCHASE SECTION 1601. PURCHASE OF THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require that the Company repurchase such Holder's 8% Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant Interest Payment Date) (the "Purchase Price"). (b) Within 30 days following any Change of Control, the Company shall mail a notice to each Holder with a copy to the Trustee stating: 32 31 (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's 8% Notes at the Purchase Price; (2) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control); (3) the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Purchase Date"); and (4) the instructions determined by the Company, consistent with this Section, that a Holder must follow in order to have its Senior Notes purchased. (c) Not later than the date upon which written notice required by Section 1601(b) is delivered to the Trustee, the Company shall irrevocably deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own paying agent, segregate and hold in trust) in Temporary Cash Investments an amount equal to the Purchase Price, if any, to the Holders entitled thereto, to be held for payment in accordance with the provisions of this Section. Holders electing to have a 8% Note pur chased will be required to surrender the 8% Note, with an appropriate form duly completed, to the Company at the address specified in the notice at least five Business days prior to the Purchase Date. Holders will be entitled to withdraw their election if the Trustee or the Company receives not later than three Business Days prior to the Purchase Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the 8% Note which was delivered for purchase by the Holder, the certificate number of such 8% Note and a statement that such Holder is withdrawing his election to have such 8% Note purchased. (d) On the Purchase Date, the Company shall deliver to the Trustee the 8% Notes or portions thereof which have been properly tendered to and are to be accepted by the Company. The Trustee shall, on the Purchase Date, mail or deliver payment of the purchase price to each tendering Holder. In the event that the aggregate purchase price of the 8% Notes delivered by the Company to the Trustee is less than the amount deposited with the Trustee, the Trustee shall deliver the excess to the Company immediately after the end of the Payment Date. SECTION 1602. COVENANT TO COMPLY WITH SECURITIES LAWS UPON PURCHASE OF 8% NOTES. In connection with any purchase of 8% Notes under Section 1601 by the Company, the Company shall, to the extent then applicable and required by law, (i) comply with Rule 14e-1 (which term, as used herein, includes any successor provisions thereto) under the Exchange Act and (ii) otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Section 1601 to be exercised in the time and in the manner specified in such Sections. To the extent that the provisions of any such securities laws or regulations conflict with the provisions of Section 1601, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in such Section 1601 by virtue thereof. 33 32 II. GENERAL PROVISIONS OF THIS SUPPLEMENT A. GOVERNING LAW THIS SUPPLEMENT AND EACH 8% NOTE ISSUED HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. B. COUNTERPARTS This Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but both of which shall together constitute but one and the same instrument. C. MISCELLANEOUS (a) Except as expressly supplemented by this Supplement, the Indenture shall remain unchanged and in full force and effect. (b) This Supplement shall be construed as supplemental to the Indenture and shall form a part thereof with respect to the 8% Notes. (c) All references in the Indenture to any Section of the Indenture shall be deemed, for purposes of the 8% Notes, to refer to such Section of the Indenture as supplemented by the relevant provisions of this Supplement. 34 33 IN WITNESS WHEREOF, the Company and the Trustee have caused this Supplement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. WYMAN-GORDON COMPANY, by --------------------------- Name: Title: by --------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, as Trustee by --------------------------- Name: Title: EX-10.A 5 EXECUTIVE SEVERANCE AGREEMENT, J. STEWART SMITH 1 EXHIBIT 10.A EXECUTIVE SEVERANCE AGREEMENT. This AGREEMENT ("Agreement") dated October 15, 1997 by and between Wyman-Gordon Company, a Massachusetts corporation (the "Company"), and J. Stewart Smith (the "Executive"). W I T N E S S E T H WHEREAS, the Company desires to have the services of the Executive as its President, Manufacturing; and WHEREAS, the Executive is willing to serve the Company as its President, Manufacturing, but desires assurance that he will not be materially disadvantaged by a change in control of the company; NOW, THEREFORE, in consideration of the Executive's service to the Company and the mutual agreements herein contained, the Company and the Executive hereby agree, as follows: 2 ARTICLE I ELIGIBILITY FOR BENEFITS SECTION 1.1. QUALIFYING TERMINATION. The Company shall not be required to provide any benefits to the Executive pursuant to this Agreement unless a Qualifying Termination occurs before the Agreement expires in accordance with Section 6.1 hereof. For purposes of this Agreement, a Qualifying Termination shall occur only if (a) a Change in Control occurs, and (b) within three years after the Change in Control, (i) the Company terminates the Executive's employment other than for Cause; or (ii) the Executive terminates his employment with the Company for Good Reason; provided, that a Qualifying Termination shall not occur if the Executive's employment with the Company terminates by reason of the Executive's Disability, death, or retirement. For the purposes hereof "retirement" shall mean any termination of employment which occurs at or after age 65. SECTION 1.2. CHANGE IN CONTROL. Except as provided below, a Change in Control shall be deemed to occur when and only when the first of the following events occurs: (a) the acquisition (including by purchase, exchange, merger or other business combination, or any 2 3 combination of the foregoing) by any individuals, firms, corporations or other entities, acting in concert ("Person"), together with all Affiliates and Associates of such Person, of beneficial ownership of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding voting securities, or (b) members of the Incumbent Board cease to constitute a majority of the Board of Directors. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to paragraph (a), above, (i) solely because 20 percent or more of the combined voting power of the Company's outstanding securities is acquired by one or more employee benefit plans maintained by the Company, or (ii) if the Executive is included among the individuals, firms, corporations or other entities that, acting in concert, acquire the Company's securities. For purposes of this Section 1.2, the terms "Affiliates" and "Associates" shall have the meanings set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"); the terms "beneficial ownership" and "beneficially owned" shall have the meaning set forth in section 13(d) of the Exchange Act, as amended, and in Rule 13d-3 promulgated thereunder, the term "Board of Directors" shall mean the Board of Directors of the 3 4 Company and the term "Incumbent Board" shall mean (i) the members of the Board of Directors on the date hereof, to the extent that they continue to serve as members of the Board of Directors, and (ii) any individual who becomes a member of the Board of Directors after the date hereof, if his election or nomination for election as a director was approved by a vote of at least three quarters of the then Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors. SECTION 1.3. TERMINATION FOR CAUSE. The Company shall have Cause to terminate the Executive's employment with the Company for purposes of Section 1.1 hereof only if the Executive (a) engages in unlawful acts intended to result in the substantial personal enrichment of the Executive at the Company's expense, or (b) engages (except (i) by reason of incapacity due to illness or injury or (ii) in connection with an actual or anticipated termination of employment by the Executive for Good Reason) in a material violation of his responsibilities to the Company that results in a material injury to the Company. SECTION 1.4. TERMINATION FOR GOOD REASON. The Executive shall have a Good Reason for terminating employment with the 4 5 Company only if one or more of the following occurs after a Change in Control: (a) a change in the Executive's status or position (including for this purpose a change in the principal place of the Executive's employment on a basis that does not conform with the Company's present policies for executive relocation, but excluding required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations) with the Company that, in the Executive's reasonable judgment, represents an adverse change from the Executive's status or position in effect immediately before the Change in Control; (b) the assignment to the Executive of any duties or responsibilities that, in the Executive's reasonable judgment, are inconsistent with the Executive's status or position in effect immediately before the Change in Control; (c) layoff or involuntary termination of the Executive's employment, except in connection with the termination of the Executive's employment for Cause or as a result of the Executive's Disability, death or retirement; 5 6 (d) a reduction by the Company in the Executive's total compensation as in effect at the time of the Change in Control (which shall be deemed, for this purpose, to be equal to his base salary plus the most recent award that he has earned under the Company's Incentive Compensation Plan, as amended from time to time, or any successor thereto (the "ICP")) or as the same may be increased from time to time; (e) the failure by the Company to continue in effect any Plan in which the Executive is participating at the time of the Change in Control (or plans or arrangements providing the Executive with substantially equivalent benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the Change in Control; (f) any action or inaction by the Company that would adversely affect the Executive's continued participation in any Plan on at least as favorable a basis as was the case at the time of the Change in Control, or that would materially reduce the Executive's benefits in the future under the Plan or deprive him if any material benefits that he 6 7 enjoyed at the time of the Change in Control, except to the extent that such action or inaction by the Company is required by the terms of the Plan as in effect immediately before the Change in Control, or is necessary to comply with applicable law or to preserve the qualification of the Plan under section 401(a) of the Internal Revenue Code (the "Code"), and except to the extent that the Company provides the Executive with substantially equivalent benefits; (g) the Company's failure to obtain the express assumption of this Agreement by any successor to the Company as provided by Section 6.3 hereof; (h) any material violation by the Company of any agreement (including this Agreement) between it and the Executive; or (i) the failure by the Company, without the Executive's consent, to pay to him any portion of his current compensation, or to pay to the Executive any portion of any deferred compensation, within 30 days of the date the Executive notifies the Company that any such compensation payment is past due. Notwithstanding the foregoing, no action by the Company shall give rise to a Good Reason if it results from the Executive's 7 8 termination for Cause, death or retirement, and no action by the Company specified in paragraphs (a) through (d) of the preceding sentence shall give rise to a Good Reason if it results from the Executive's Disability. A Good Reason shall not be deemed to be waived by reason of the Executive's continued employment as long as the termination of the Executive's employment occurs within the time prescribed by Section 1.1(b) hereof. For purposes of this Section 1.4, "Plan" means any compensation plan, such as an incentive or stock option plan, or any employee benefit plan, such as a thrift, pension, profit-sharing, stock bonus, long-term performance award, medical, disability, accident, or life insurance plan, or any other plan, program or policy of the Company that is intended to benefit employees. SECTION 1.5. DISABILITY. For purposes of this Agreement, "Disability" shall mean illness or injury that prevents the Executive from performing his duties (as they existed immediately before the illness or injury) on a full-time basis for six consecutive months. SECTION 1.6. NOTICE. If a Change in Control occurs, the Company shall notify the Executive of the occurrence of the Change in Control within two weeks after the Change in Control. 8 9 ARTICLE II BENEFITS AFTER A QUALIFYING TERMINATION SECTION 2.1. BASIC SEVERANCE PAYMENT. If the Executive incurs a Qualifying Termination following a Change in Control that occurs on or before termination of this Agreement as provided in Section 6.1 hereof, the Company shall pay within 30 days after the date of the Qualifying Termination to the Executive a single lump sum cash amount equal to his Total Annual Compensation multiplied by the lesser of (a) 2.50 or (b) .0833 multiplied by the number of full months remaining between termination and his attaining age 65. "Total Annual Compensation" shall mean the sum of annual base salary in effect immediately preceding termination or the Change of Control, whichever is higher, and annual incentive compensation earned under the "ICP" (annualized in the case of less than a full year's service) in the last full fiscal year immediately preceding termination or the Change in Control, whichever is higher. SECTION 2.2. INSURANCE. If the Executive incurs a Qualifying Termination following a Change in Control that occurs on or before termination of this Agreement as provided in Section 6.1 hereof, the Company shall provide the Executive, at the Company's expense, for a period beginning on the date of the 9 10 Qualifying Termination, the same medical, accident, disability, life and any other insurance coverage as was provided to him by the Company immediately before the Change in Control (or, if greater, as in effect immediately before the Qualifying Termination occurs); such coverage shall end upon the earlier of (a) the expiration of 24 months after the Qualifying Termination or (b) with respect to each coverage, the date on which the Executive first becomes eligible for insurance coverage of a similar nature provided by a firm that employs him following the Qualifying Termination. SECTION 2.3. EXECUTIVE LONG-TERM INCENTIVE PROGRAM. If the Executive incurs a Qualifying Termination following a Change in Control that occurs on or before termination of this Agreement as provided in Section 6.1 hereof, all of the options to purchase common stock of the Company (and the alternative common stock appreciation rights) granted to the Executive prior to termination of this Agreement as provided in Section 6.1 hereof, under the Executive Long-Term Incentive Program shall become exercisable in accordance with the terms set forth in the applicable Agreement. SECTION 2.4. NONDUPLICATION. Nothing in this Agreement shall require the Company to make any payment or to provide any benefit or service credit that the Company is otherwise required to provide under any other contract, agreement, policy, plan or arrangement. 10 11 ARTICLE III EFFECT ON SEVERANCE POLICY SECTION 3.1. EFFECT ON SEVERANCE POLICY. If the Executive becomes entitled to receive benefits hereunder, the Executive shall not be entitled to any benefits under any other Company severance policy. ARTICLE IV TAX MATTERS SECTION 4.1. WITHHOLDING. The Company may withhold from any amount payable to the Executive hereunder all federal, state or other taxes that the Company may reasonably determine are required to be withheld pursuant to any applicable law or regulation. SECTION 4.2 SPECIAL LIMITATION. (a) If part or all of the payments or benefits payable to the Executive, when added to other payments payable to the Executive as a result of a Change in Control, constitute Parachute Payments, the following limitation shall apply. If the Parachute Payments, net of the sum of the Excise Tax and the Federal income and employment taxes, state and local income taxes on the amount of the Parachute Payments in excess of the Threshold 11 12 Amount, are greater than the Threshold Amount, the Executive shall be entitled to the full payments and benefits payable under this Agreement. If the Threshold Amount is greater than the Parachute Payments, net of the sum of the Excise Tax, and the Federal income and employment taxes, state and local income taxes on the amount of the Parachute Payments in excess of the Threshold Amount, then the payments and benefits under this Agreement shall be reduced to the extent necessary so that the maximum Parachute Payments shall not exceed the Threshold Amount. In the event a reduction is required, it shall be the Executive's choice as to which payments or benefits shall be so reduced. The Employer shall select a firm of independent certified public accountants to determine which of the foregoing alternative provisions shall apply. For purposes of determining the amount of the Federal income and employment taxes, and state and local income taxes on the amount of the Parachute Payments in excess of the Threshold Amount, the Executive shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation applicable to individuals for the calendar year in which the payments and benefits under this Agreement are payable and state and local income taxes at the 12 13 highest marginal rates of individual taxation in the state and locality of the Executive's residence for the calendar year in which the payments and benefits under this Agreement are payable, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. (b) ADDITIONAL DEFINITIONS "Code" shall mean the Internal Revenue Code of 1986, as amended. "Parachute Payments" shall mean any payment or provision by the Employer of any amount or benefit to and for the benefit of the Executive, whether paid or payable or provided or to be provided under the terms of this Agreement or otherwise, that would be considered "parachute payments" within the meaning of Section 280G(B)(2)(A) of the Code and the regulations promulgated thereunder. "Threshold Amount" shall mean three times the Executive's "base amount" within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder, less one dollar. "Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code. 13 14 ARTICLE V COLLATERAL MATTERS SECTION 5.1. NATURE OF PAYMENTS. All payments to the Executive under this Agreement shall be considered either payments in consideration of his continued service to the Company or severance payments in consideration of his past services thereto. SECTION 5.2. LEGAL EXPENSES. The Company shall pay all legal fees and expenses that the Executive may incur as a result of the Company's contesting the validity, the enforceability or the Executive's interpretation of, or determinations under, this Agreement. SECTION 5.3. MITIGATION. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement either by seeking other employment or otherwise. The amount of any payment provided for herein shall not be reduced by an remuneration that the Executive may earn from employment with another employer or otherwise following his Qualifying Termination. SECTION 5.4. AUTHORITY. The execution of this Agreement has been authorized by the Board of Directors of the Company. 14 15 ARTICLE VI GENERAL PROVISIONS SECTION 6.1. TERM OF AGREEMENT. This Agreement shall become effective on the date hereof and shall continue in effect until the earliest of (a)October 31, 1999, if no Change in Control has occurred before that date; provided, however, that commencing on November 1, 1999 and each November 1 thereafter, the term of this Agreement shall automatically be extended for an additional year unless, not later than January 30 of the same year, the Company shall have given notice that it does not wish to extend this Agreement; (b) the termination of the Executive's employment with the Company for any reason prior to a Change in Control; (c) the Company's termination of the Executive's employment for Cause, or the Executive's resignation for other than Good Reason, following a Change in Control and the Company's and the Executive's fulfillment of all of their obligations hereunder; and (d) the expiration following a Change in Control of three years and the fulfillment by the Company and the Executive of all of their obligations hereunder. Furthermore, nothing in this Article VI shall cause this Agreement to terminate before both the Company and the Executive have fulfilled all of their obligations hereunder. 15 16 SECTION 6.2. GOVERNING LAW. Except as otherwise expressly provided herein, this Agreement and the rights and obligations hereunder shall be construed and enforced in accordance with the laws of The Commonwealth of Massachusetts. SECTION 6.3. SUCCESSOR TO THE COMPANY. This Agreement shall inure to the benefit of and shall be binding upon and enforceable by the Company and any successor thereto, including, without limitation, any corporation or corporations acquiring directly or indirectly all or substantially all of the business or assets of the Company, whether by merger, consolidation, sale or otherwise, but shall not otherwise be assignable by the Company. Without limitation of the foregoing sentence, the Company shall require any successor (whether direct or indirect, by merger, consolidation, sale or otherwise) to all of substantially all of the business or assets of the Company, by agreement in form satisfactory to the Executive, expressly, absolutely and unconditionally to assume and to agree to perform this Agreement in the same manner and to the same extent as the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as heretofore defined and any successor to all or substantially all of its business or assets that executes and delivers the agreement provided for in this Section 6.3 or that becomes bound by this Agreement either pursuant to this Agreement or by operation of law. 16 17 SECTION 6.4. SUCCESSOR TO THE EXECUTIVE. This Agreement shall inure to the benefit of and shall be binding upon and enforceable by the Executive and his personal and legal representatives, executors, administrators, heirs, distributees, legatees and, subject to the Section 6.5 hereof, his designees ("Successors"). If the Executive should die while amounts are or may be payable to him under this Agreement, references hereunder to the "Executive" shall, where appropriate, be deemed to refer to his Successors; provided that nothing in this Section 6.5 shall supersede the terms of any plan or arrangement (other than this Agreement) that is affected by this Agreement. SECTION 6.5. NONALIENABILITY. No right of or amount payable to the Executive under this Agreement shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, hypothecation, encumbrance, charge, execution, attachment, levy or similar process or to setoff against any obligations or to assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall be void. However, this Section 6.5 shall not prohibit the Executive from designating one or more persons, on a form satisfactory to the Company, to receive amounts payable to him under this Agreement in the event that he should die before receiving them. SECTION 6.6. NOTICES. All notices provided for in this Agreement shall be in writing. Notices to the Company shall be 17 18 deemed given when personally delivered or sent by certified or registered mail or overnight delivery service to Wyman-Gordon Company, 244 Worcester Street, North Grafton, Massachusetts 01536, Attention: Vice President, General Counsel and Clerk. Notices to the Executive shall be deemed given when personally delivered or sent by certified or registered mail or overnight delivery service to the last address for the Executive shown on the records of the Company. Either the Company or the Executive may, by notice to the other, designate an address other than the foregoing for the receipt of subsequent notices. SECTION 6.7. AMENDMENT. No amendment to this Agreement shall be effective unless in writing and signed by both the Company and the Executive. SECTION 6.8. WAIVERS. No waiver of any provision of this Agreement shall be valid unless approved in writing by the party giving such waiver. No waiver of a breach under any provision of this Agreement shall be deemed to be a waiver of such provision or any other provision of this Agreement or any subsequent breach. No failure on the part of either the Company or the Executive to exercise, and no delay in exercising, any right or remedy conferred by law or this Agreement shall operate as waiver of such right or remedy, and no exercise or waiver, in whole or in part, or any right or remedy conferred by law or herein shall operate as a waiver of any other right or remedy. 18 19 SECTION 6.9. SEVERABILITY. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part, such invalidity or unenforceability shall not affect any other provision of this Agreement or part thereof, each of which shall remain in full force and effect. SECTION 6.10. CAPTIONS. The captions to this respective articles and section of this Agreement are intended for convenience of reference only and have no substantive significance. SECTION 6.11. COUNTERPARTS. This Agreement may be executed in a number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute a single instrument. SECTION 6.12. ENTIRE AGREEMENT. This Agreement contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof, superseding all previous oral statements and other writings (including the Prior Agreement) with respect thereto. 19 20 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATTEST: WYMAN-GORDON COMPANY /s/ Shirley A. Peco By: /s/ David P. Gruber - ------------------------------ -------------------------------- David P. Gruber, President Chief Executive Officer ATTEST: /s/ J. Stewart Smith 11/3/97 - ------------------------------ -------------------------------- J. Stewart Smith 20 EX-10.G 6 PERFORMANCE STK. OPT. AGRMNT., J. STEWART SMITH 1 EXHIBIT 10.G PERFORMANCE STOCK OPTION AGREEMENT UNDER THE WYMAN-GORDON COMPANY LONG-TERM INCENTIVE PLAN WYMAN-GORDON COMPANY, a Massachusetts corporation (the "Company"), hereby grants to Colin Stead (the "Grantee"), who is now employed by the Company or by a Subsidiary of the Company, a Non-qualified Stock Option (the "Option") to purchase prior to July 16, 2006 (the "Expiration Date") an aggregate of 37,375 shares of Common Stock of the Company ("Shares") at a price of $16.75 per Share pursuant to the terms and conditions set forth in the Wyman-Gordon Company Long-Term Incentive Plan as approved by the stockholders of the Company on October 18, 1995, as it may be amended from time to time in accordance with its terms (the "Plan") and this Stock Option Agreement, as it may be amended from time to time in accordance with its terms (the "Award Agreement"). By execution of this Award Agreement, the Grantee acknowledges receipt of a copy of the Plan and further agrees to be bound thereby and by the actions, pursuant to the Plan, of the Committee referred to in the Plan (the "Committee") and of the Wyman-Gordon Company Board of Directors. (1) The Option is in all respects governed by the terms of the Plan. All of the terms and provisions of the Plan are hereby incorporated into this Award Agreement by reference and are made a part of this Award Agreement. For the convenience of the Grantee, certain but not all of the provisions of the Plan are also summarized or elaborated upon in this Award Agreement. Each and every provision of this Award Agreement shall be administered, interpreted, and construed so that the 2 Option shall conform to the provisions of the Plan. Any provisions of this Award Agreement that cannot be so administered, interpreted, or construed shall be disregarded, and, accordingly, in the event of any conflict between the Award Agreement and the Plan, the latter will govern. Any capitalized terms used herein and not defined herein have the respective meanings ascribed to them in the Plan. Whenever the word "Grantee" is used herein in a context where the provision should logically be construed to apply to the Grantee's Beneficiary, the word "Grantee" shall be deemed to include such Beneficiary. (2) The date of grant of the Option is July 16, 1996. (3) The Option is a Non-qualified Stock Option and is not an Incentive Stock Option. (4) Subject to the terms of this Award Agreement, the Option shall be exercisable from and after July 16, 2003; provided, however, that the option may be exercised by the Grantee at any time after January 16, 1997 with respect to the number of shares set forth below if the average closing price during a period of 30 consecutive business days of the Common Stock of the Company, par value $1.00 per share, on the NASDAQ National Market System, or on any successor market or exchange in which the Common Stock is publicly traded, as quoted in the WALL STREET JOURNAL reaches the indicated price levels. 2 3 CUMULATIVE NO. OF STOCK PRICE OPTIONS VESTED ----------- -------------- Below $21.00 0 21.00 1,869 22.00 3,738 23.00 7,475 24.00 13,081 25.00 18,688 26.00 24,294 27.00 29,900 28.00 33,368 29.00 35,506 30.00 or above 37,375 (5) Grantee may exercise the Option only in the following manner: From time to time prior to the Expiration Date and subject to the provisions of Paragraph 4 above, the Grantee may give written notice to the Treasurer of the Company of his election to purchase some or all of the Shares purchasable at the time of such notice. Said notice shall specify the number of Shares to be purchased and shall be accompanied by payment therefor (a) in U.S. dollars by personal check, bank draft, or money order payable to the order of the Company; (b) in Shares that have been held by the Grantee for at least six (6) months and that have a Fair Market Value equal to the purchase price; (c) to the extent not limited or prohibited by the Committee, by payment made by the Grantee's broker, in U.S. dollars by personal check, bank draft, or money order payable to the order of the Company, pursuant to the Grantee's instructions; or (d) by a combination thereof; and by any agreement, statement, or other evidence that the Committee may require in order to satisfy itself that the issuance of the Shares being purchased pursuant to such exercise and any subsequent resale thereof will be in compliance with applicable laws and regulations relating to the issuance and sale of securities, including the provisions of the Securities Act of 1933 and regulations promulgated thereunder. 3 4 (6) The exercise of the Option shall be deemed to occur (a) on the date that the notice of exercise and the personal check, bank draft, money order or Shares are received by the Company, or (b) if such notice of exercise and payment are mailed in the United States, and the United States Postal Service has stamped its postmark thereon, then on the date of such postmark. As soon as practicable after each exercise of the Option and compliance by the Grantee with all applicable conditions, including any payments to the Company that may be required pursuant to Paragraphs 5 and 7 hereof, the Company shall mail or deliver or cause to be mailed or delivered to the Grantee a stock certificate or certificates for the number of Shares that the Grantee shall be entitled to receive upon such exercise under the provisions of this Award Agreement. (7) In each case where the Grantee shall exercise the Option, in whole or in part, the Company will notify the Grantee of the amount of withholding tax, if any, that must be paid under Federal and, where applicable, state and local law, by reason of such exercise. It shall be a condition to any delivery of Shares or payment to be made to the Grantee hereunder that provision satisfactory to the Company shall have been made for payment of any taxes the Company determines, in its reasonable opinion, are required to be paid or withheld pursuant to any applicable law or regulation. The Grantee may irrevocably elect to have any withholding tax obligation satisfied by either of the methods described in clause (a) or (c) of Paragraph 5, above, or a combination thereof, whether or not the same method is used to pay the purchase price of the Option. As an alternative to such an election with respect to all or any part of the withholding tax obligation, the Company and its Subsidiaries also shall, to the extent permitted by law, have the right to deduct from any payment or transfer of any kind (whether of cash, Shares, or other property, and whether or not related to the Plan) otherwise due to the Grantee any such taxes required to be withheld. 4 5 (8) This Award Agreement and the Grantee's right to exercise the Option shall terminate, as to any portion of the Option not theretofore exercised, whenever the Grantee is for any reason no longer employed by the Company or a Subsidiary; subject, however, to the following provisions: (a) If the Company or a Subsidiary terminates the Grantee's employment for reasons other than fraud, dishonesty, willful misconduct, retirement, or disability, or if the Grantee resigns from the Company and the Subsidiaries (as applicable), the Grantee shall have a period of 90 days immediately after such termination in which to exercise the Option to the extent then exercisable. The Option shall not become exercisable with respect to any Shares with respect to which it was not exercisable on the date of such termination of employment. (b) If the termination of Grantee's employment results from the Grantee's death, retirement or disability, the Grantee (or his Beneficiary in the case of his death) shall have a period of three years following such termination to exercise in whole or in part the Option with respect to Shares subject to the Option, to the extent then exercisable. The Option shall not become exercisable with respect to any Shares with respect to which it was not exercisable on the date of such termination of employment. (c) If the Grantee dies during the three-year period following retirement or disability referred to in Subsection (b) above, the Option may be exercised in whole or in part by his Beneficiary before the expiration of one year after the date of his death or the expiration of the three-year period following retirement or disability referred to in Subsection (b) above, whichever occurs later. For purposes of this Paragraph 8, the term "retirement" shall mean termination of employment after the Grantee has become eligible for an early, normal or late 5 6 retirement benefit (but not a terminated vested or deferred vested benefit) under the tax-qualified deferred benefit pension plan maintained by the Company and/or its Subsidiaries that covers the Grantee, and the term "disability" shall have the meaning ascribed to it in the Wyman-Gordon Company Savings/Investment Plan. (9) The Option is nontransferable other than by will or by the laws of descent and distribution, and the Option may be exercised during the lifetime of the Grantee only by him. (10) In the event that there is any change in the Shares through merger, consolidation, reorganization, recapitalization, or otherwise; or if there shall be any dividend on the Shares, payable in Shares, or an extraordinary cash dividend or other extraordinary distribution; or if there shall be a stock split, reverse stock split, combination of Shares, exercisability of stock purchase rights received under the Company's Stockholder Rights Plan, or other similar corporate transaction or event that affects the Shares, such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the rights of the Grantee or of the potential benefits intended to be made available under the Plan, the number and kind of Shares subject to the Option, the purchase price, and the other relevant provisions of this Award Agreement shall be appropriately adjusted as provided in Section 12 of the Plan. (11) As provided in Section 25 of the Plan in the event of a Triggering Event, as hereinafter defined, the Option, to the extent it has not theretofore been exercised, shall be fully exercisable without regard to the schedule in Paragraph 4 above, but the Option shall thereupon become a Limited Right, as hereinafter defined, and the terms thereof shall be modified as described in the remaining provisions of this Paragraph 11. In the event of a Triggering Event, the Grantee shall have the right (the "Limited Right") to have the Company, at the election of the Grantee (which election for each Triggering 6 7 Event, as hereinafter defined, may be made only during the period beginning on the effective date of such Triggering Event, as hereinafter defined, and ending on the 45th day following such date), purchase all or any Shares subject to the Option (to the extent not theretofore exercised) for an amount (payable entirely in cash) equal to the number of Shares with respect to which the Limited Right is exercised, multiplied by the excess of the higher of (a) the highest Fair Market Value of a Share during the period commencing on the ninetieth (90th) day preceding the exercise of the Limited Right and ending on the date of exercise and (b) either (i) if an event described in clause (b) of the definition of "Triggering Event," below, has occurred, the highest price per Share paid for any Share as shown on Schedule 13D (or an amendment thereto) filed pursuant to Section 13(d) of the 1934 Act by any person or group (as defined in that definition) whose acquisition caused the Triggering Event to occur, or (ii) if an event described in clause (a) of the definition of "Triggering Event," below, has occurred, the fixed or formula price specified in the reorganization (as defined in that definition) if such price is determinable as of the date of exercise of the Limited Right OVER the purchase price of the Option. Such purchase pursuant to the exercise of a Limited Right shall be deemed to be an exercise of the Option. Notwithstanding any other provision of this Award Agreement, no Limited Right may be exercised after the Expiration Date, but a Limited Right may be exercised within six months of the date hereof. For purposes of this Paragraph 11, a Triggering Event shall be deemed to occur when and if any of the following events occurs: (a) stockholder approval of a merger or consolidation involving the Company or a sale of all or substantially all of the assets of the Company (each a "reorganization"), in each case except for a transaction in which the Company's shareholders receive at least 50% of the stock of the surviving, resulting or acquiring corporation; (b) any "person" (other than the Company or an employee benefit plan of the Company or a corporation controlled by an employee benefit plan of the Company or a corporation controlled by the Company's shareholders) becomes the "beneficial owner" of shares of capital stock of the Company representing a majority of the votes entitled to be cast on matters submitted 7 8 to the shareholders of the Company; or (c) persons who, as of July 16, 1996 constituted the Company's Board (the "Incumbent Board") cease for any reason, including without limitation as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to July 16, 1996 whose election was approved by at least a majority of the directors then comprising the Incumbent Board shall, for purposes of this Agreement, be considered a member of the Incumbent Board. For purposes of this paragraph, the term "person" shall have the meaning used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "1934 Act") and "beneficial ownership" shall have the meaning set forth in Rule 13d-3 of the 1934 Act. (12) Notices hereunder shall be mailed or delivered to the Treasurer of the Company at its principal place of business at Grafton, Massachusetts, and shall be mailed or delivered to Grantee at his address set forth below or at such other address as he may subsequently furnish the Treasurer of the Company in writing. (13) The Grantee shall not have any rights of a shareholder by virtue of the Option except with respect to Shares actually issued to him, and the issuance of Shares shall confer no retroactive right to dividends. (14) The Committee may not, without the written consent of the Grantee, cause this Award Agreement to be revoked, and may not without such written consent make or change any determination or change any term, condition or provision affecting the Option if the determination or change would reduce or adversely affect the Option or the Grantee's rights thereto. (15) Notwithstanding anything herein to the contrary, on or after the occurrence of a Triggering Event, as defined above, the Committee may not under any 8 9 circumstances make or change any determination or change any term, condition, or provision affecting the Option if the determination or change would reduce or adversely affect the Option or the Grantee's rights thereto. (16) The Grantee shall designate a Beneficiary in writing and in such manner as is acceptable to the Company. If the Grantee fails so to designate a Beneficiary, or if no such designated Beneficiary survives the Grantee, the Grantee's beneficiary shall be the Grantee's estate. (17) The exercise of the Option shall be subject to the condition that if at any time the Company shall determine (in accordance with the provisions of the following sentence) that it is necessary as a condition of, or in connection with, such exercise (a) to satisfy withholding tax or other withholding liabilities, (b) to effect the listing, registration, or qualification on any securities exchange or under any state or Federal law of any Shares otherwise deliverable in connection with such exercise, or (c) to obtain the consent or approval of any regulatory body, then in any such event such exercise shall not be effective unless such withholding, listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company in its reasonable and good faith judgment. Any such determination (described in the preceding sentence) by the Company must be reasonable, must be made in good faith, and must be made without any intent to postpone or limit such exercise, grant or distribution beyond the minimum extent necessary and without any intent otherwise to deny or frustrate the Grantee's rights in respect of the Option. In seeking to effect or obtain any such withholding, listing, registration, qualification, consent or approval, the Company shall act with all reasonable diligence. Any such postponement or limitation affecting the right to exercise the Option shall not extend the time within which the Option may be exercised, unless the Company and the Grantee choose to amend the terms of this Award Agreement to provide for such an extension; and neither the Company nor its directors 9 10 or officers shall have any obligation or liability to the Grantee with respect to any Shares with respect to which the Option shall lapse, because of a postponement or limitation that conforms to the provisions of this Paragraph 17. (18) No fractional Shares shall be issued pursuant to this Award Agreement. The Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of fractional Shares, or whether fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated. (19) Nothing in this Award Agreement shall confer upon the Grantee the right to continue in the employment or service of the Company or any Subsidiary or affect any right that the Company or any Subsidiary may have to terminate the employment or service of (or to demote or to exclude from future Awards under the Plan) the Grantee at any time for any reason. The grant of the Option shall not give the Grantee any right to similar grants in future years. (20) So long as this Award Agreement shall remain in effect, the Company shall furnish to the Grantee, as and when available, a copy of any Prospectus issued with respect to the Shares covered hereby, and also a copy of all material hereinafter distributed by the Company to its stockholders generally. (21) This Award Agreement and the provisions thereof shall be binding upon, and inure to the benefit of, any successor or successors of the Company and the person or entity to whom the Option may have been transferred by will, the laws of descent and distribution, or beneficiary designation hereunder. (22) The Award Agreement shall be governed and its provisions construed, enforced and administered in accordance with the laws of the Commonwealth of 10 11 Massachusetts except to the extent that such laws may be superseded by any Federal law. It may not be modified orally. WYMAN-GORDON COMPANY By: /s/ David P. Gruber ------------------------------ David P. Gruber, President and Chief Executive Officer The foregoing Award Agreement is hereby accepted and the terms thereof hereby agreed to. GRANTEE /s/ J.S. Smith - ---------------------------------- Grantee's Signature Grantee's Address: - --------------------------------------- 11611 KNOBCREST DRIVE - --------------------------------------- HOUSTON, TEXAS 77070 - --------------------------------------- Social Security Number: ###-##-#### --------------- 11 EX-10.M 7 PERFORMANCE SHARE AGREEMENT, J. STEWART SMITH 1 EXHIBIT 10.M PERFORMANCE SHARE AGREEMENT UNDER THE WYMAN-GORDON LONG-TERM INCENTIVE PLAN This Agreement is made as of the 16th day of July 1996 between WYMAN-GORDON COMPANY, a Massachusetts corporation (the "Company") and J. Stewart Smith, 11611 Knobcrest Drive, Houston, Texas 77070 (the "Grantee") relating to 9,100 shares (the "Shares") of the Company's common stock, par value $1.00 per share (the "Common Stock") to be issued by the Company to the Grantee pursuant to the terms and conditions set forth in the Wyman-Gordon Company Long-Term Incentive Plan, as it may be amended from time to time in accordance with its terms (the "Plan") and this Performance Share Agreement, as it may be amended from time to time in accordance with its terms (the "Agreement") in consideration of services heretofore rendered and to be rendered by Grantee to the Company during the term of this Agreement. By execution of this Agreement, the Grantee acknowledges receipt of a copy of the Plan and further agrees to be bound thereby and by the actions, pursuant to the Plan, of the Committee referred to in the Plan (the "Committee") and of the Company's Board of Directors. 1. On the date hereof the Company shall issue the Shares to the Grantee which shall be subject to risk of loss and forfeiture during a period beginning on the date hereof and ending July 16, 2001 (the "Term of this Agreement"). During the Term of this Agreement, the Committee shall determine the average closing price of the Common Stock on the NASDAQ National Market System, or on any successor market or exchange in which the Common Stock is publicly traded, as quoted in the WALL STREET JOURNAL during each period of 30 consecutive business days during the Term of this Agreement, each such period being referred to herein as a "Measurement Period" and the average prices being referred to herein as the "Target Price." Restrictions on all or a portion of the Shares will lapse only if the Target Price during a Measurement Period has reached the amounts set forth below: 2 CUMULATIVE NUMBER OF SHARES ON WHICH TARGET PRICE RESTRICTIONS WILL LAPSE ------------ ----------------------- Below $21.00 0 21.00 455 22.00 910 23.00 1,820 24.00 3,185 25.00 4,550 26.00 5,915 27.00 7,280 28.00 8,190 29.00 8,645 30.00 and above 9,100 Upon achieving a Target Price for a Measurement Period as set forth above, the restrictions set forth above and in Section 3 below shall lapse with respect to the number of Shares indicated in the table as to which restrictions have not previously lapsed. At the end of the Term of this Agreement, Grantee shall forfeit all right, title and interest in the Shares to the extent that the Target Price with respect to such Shares has not been attained. 2. The Grantee acknowledges receipt of a stock certificate registered in his name for the Shares and bearing a legend setting forth the restrictions set forth in Section 1 of this Agreement. The Grantee agrees, concurrently with the execution of this Agreement, to deposit such stock certificate with the Company together with a stock power relating thereto endorsed in blank. 3. The Grantee acknowledges that the Shares may not be sold, assigned, transferred, conveyed, pledged or otherwise encumbered during the Term of this Agreement except in accordance with the provisions of this Agreement. If the Grantee ceases to be employed by the Company prior to the end of the Term of this Agreement, his rights to the Shares to the extent restrictions have not 2 3 previously lapsed as provided above in Section 1 will thereupon be forfeited and revert to the Company. 4. Upon the attainment of the Target Price as provided above in Section 1 and the satisfaction of all other conditions contained in this Agreement, the restrictions applicable to the designated number of Shares shall lapse and a stock certificate for the number of Shares with respect to which the restrictions have lapsed shall be delivered to the Grantee, free of all such restrictions except any that may be imposed by law. Any Shares as to which the restrictions shall not have lapsed at the end of the Term of this Agreement shall be transferred to the Company without any further action of the Grantee. 5. If an event of a Change of Control, as defined below, shall occur, the Committee in its sole discretion may, but need not, determine that the restrictions not previously lapsed and terminated shall be deemed lapsed and terminated with respect to some or all of the Shares and such Shares, if any as determined by the Committee, shall not be forfeited and shall vest in the Grantee upon such terms and conditions as the Committee may determine. "Change of Control" means any one of the following events: (1) stockholder approval of a merger or consolidation involving the Company or a sale of all or substantially all of the assets of the Company, in each case except for a transaction in which the Company's shareholders receive at least 50% of the stock of the surviving, resulting or acquiring corporation; (2) any "person" (other than the Company or an employee benefit plan of the Company or a corporation controlled by the Company's employee benefit plan of the Company or a corporation controlled by the Company's shareholders) becomes the "beneficial owner" of shares of capital stock of the Company representing a majority of the votes entitled to be cast on matters submitted to the shareholders of the Company; or (3) persons who, as of July 16, 1996, constituted the Company's Board (the "Incumbent Board") cease for any reason, including without limitation as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company 3 4 subsequent to July 16, 1996 whose election was approved by at least a majority of the directors then comprising the Incumbent Board shall for purposes of this Agreement, be considered a member of the Incumbent Board. For purposes of this paragraph, the term "person" shall have the meaning used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 as amended (the "1934 Act"), and "beneficial ownership" shall have the meaning set forth in Rule 13d-3 of the 1934 Act. 6. The Grantee shall have all voting and dividend rights with respect to the Shares, provided that non-cash dividends shall be deposited with the Company together with a stock power or other appropriate instrument of transfer endorsed in blank and shall be subject to the same restrictions as the Shares. 7. If Grantee properly elects, within 30 days of the date of this Agreement, to include in gross income for federal income tax purposes an amount equal to the aggregate value of the Shares subject to the Award based on the closing price of the Stock on the date of this Agreement, Grantee shall make arrangements satisfactory to the Committee to pay to the Company any federal, state or local taxes required to be withheld with respect to such Shares. If the Grantee shall fail to make such tax payments as are required, the Company, shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Grantee any federal, state or local taxes of any kind required by law to be withheld with respect to the Shares. If the Grantee does not make the election described above in this Section 7, Grantee shall, no later than the date as of which the restrictions referred to in Section 1 and such other restrictions as may have been imposed under this Agreement, shall lapse, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld with respect to the Shares, and the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Grantee any federal, state or local 4 5 taxes of any kind required by law to be withheld with respect to the Shares, and the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Grantee any federal, state or local taxes of any kind required by law to be withheld with respect to the Shares. Any tax withholding may be satisfied, at the discretion of the Committee, by the Company's withholding Shares, otherwise deliverable to Grantee hereunder with a Fair Market Value (as defined in the Plan) equal to all or a portion of the amount to be withheld. At the sole discretion of the Committee, the Company may make a loan to Grantee in such amount as may be required to discharge his federal income tax liability on account of the lapsing of restrictions under Section 1 above assuming the resulting income is taxable at the maximum applicable individual federal income tax rate. Such loan shall have such maturity and other terms and conditions as the Committee shall determine in its sole discretion, and shall bear interest at the applicable federal rate under Section 1274(d) of the Internal Revenue Code of any successor provision thereto. 8. The issuance of the Shares to Grantee shall be subject to the condition that if at any time the Company shall determine (in accordance with the provisions of the following sentence) that it is necessary as a condition of, or in connection with, such exercise (a) to satisfy withholding tax or other withholding liabilities, (b) to effect the listing, registration, or qualification on any securities exchange or under any state or Federal law of any Shares otherwise deliverable in connection with such exercise, or (c) to obtain the consent or approval of any regulatory body, then in any such event such exercise shall not be effective unless such withholding, listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the company in its reasonable and good faith judgment. 9. This Agreement is in all respects governed by the terms of the Plan. All of the terms and provisions of the Plan are hereby incorporated into this Agreement by reference and are made a part of this Agreement. Each and every provision of this Agreement shall be administered, interpreted and construed so that this Agreement shall conform to the provisions of the Plan. Any provisions of this 5 6 Agreement that cannot be so administered, interpreted, or construed shall be disregarded, and, accordingly, in the event of any conflict between this Agreement and the Plan, the latter will govern. Any capitalized terms used herein and not defined herein have the respective meanings ascribed to them in the Plan. Whenever the word "Grantee" is used herein in a context where the provision should logically be construed to apply to the Grantee's beneficiary, the word "Grantee" shall be deemed to include such Beneficiary. 10. In the event that there is any change in the Company Common Stock through merger, consolidation, reorganization, recapitalization, or otherwise; or if there shall be any dividend on the Shares, payable in Shares, or an extraordinary cash dividend or other extraordinary distribution; or if there shall be a stock split, reverse stock split, combination of Shares, exercisability of stock purchase rights received under the Company's Stockholder Rights Plan, or other similar corporate transaction or event that affects the Shares, such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the rights of the Grantee or of the potential benefits intended to be made available under this Agreement, the number and kind of Shares and the other relevant provisions of this Agreement shall be appropriately adjusted as provided in Section 12 of the Plan. 11. Notices hereunder shall be mailed or delivered to the Treasurer of the Company at its principal place of business at Grafton, Massachusetts, and shall be mailed or delivered to Grantee at his address set forth above or at such other address as he may subsequently furnish the Treasurer of the Company in writing. 12. The Committee may not, without the written consent of the Grantee, cause this Agreement to be revoked, and may not without such written consent make or change any determination or change any term, condition or provision hereunder if the determination or change would reduce or adversely affect the Grantee's rights hereunder. 6 7 13. Notwithstanding anything herein to the contrary, on or after the occurrence of a Change in Control, as defined above, the Committee may not under any circumstances make or change any determination or change any term, condition, or provision affecting this Agreement if the determination or change would reduce or adversely affect the Grantee's rights hereunder. 14. The Grantee shall designate a Beneficiary in writing and in such manner as is acceptable to the Company. If the Grantee fails so to designate a Beneficiary, or if no such designated Beneficiary survives the Grantee, the Grantee's beneficiary shall be the Grantee's estate. 15. Nothing in this Agreement shall confer upon the Grantee the right to continue in the employment or service of the Company or affect any right that the Company may have to terminate the employment or service of (or to demote or to exclude from future Awards under the Plan) the Grantee at any time for any reason. 16. So long as this Agreement shall remain in effect, the Company shall furnish to the Grantee, as and when available, a copy of any Prospectus issued with respect to the Shares covered hereby, and also a copy of all material hereinafter distributed by the Company to its stockholders generally. 17. This Agreement is nontransferable by Grantee other than by will or by the laws of descent and distribution. This Agreement and the provisions thereof shall be binding upon, and inure to the benefit of, any successor or successors of the Company and the person or entity to whom his rights hereunder may have been transferred by will, the laws of descent and distribution, or beneficiary designation hereunder. 18. This Agreement shall be governed and its provisions construed, enforced and administered in accordance with the laws of the Commonwealth of Massachusetts except to the extend that such laws may be superseded by any Federal law. It may not be modified orally. 7 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. WYMAN-GORDON COMPANY By: /s/ David P. Gruber ----------------------------------- David P. Gruber, President and Chief Executive Officer /s/ J. Stewart Smith ----------------------------------- J. Stewart Smith 8 EX-10.S 8 EXECUTIVE SEVERANCE AGREEMENT, COLIN STEAD 1 EXHIBIT 10.S EXECUTIVE SEVERANCE AGREEMENT This AGREEMENT ("Agreement") dated October 15, 1997 by and between Wyman-Gordon Company, a Massachusetts corporation (the "Company"), and Colin Stead (the "Executive"). W I T N E S S E T H WHEREAS, the Company desires to have the services of the Executive as its Senior Vice President, Quality and Technology; and WHEREAS, the Executive is willing to serve the Company as its Senior Vice President, Quality and Technology, but desires assurance that he will not be materially disadvantaged by a change in control of the Company; NOW, THEREFORE, in consideration of the Executive's service to the Company and the mutual agreements herein contained, the Company and the Executive hereby agree, as follows: 2 ARTICLE I ELIGIBILITY FOR BENEFITS SECTION 1.1. QUALIFYING TERMINATION. The Company shall not be required to provide any benefits to the Executive pursuant to this Agreement unless a Qualifying Termination occurs before the Agreement expires in accordance with Section 6.1 hereof. For purposes of this Agreement, a Qualifying Termination shall occur only if (a) a Change in Control occurs, and (b) within three years after the Change in Control, (i) the Company terminates the Executive's employment other than for Cause; or (ii) the Executive terminates his employment with the Company for Good Reason; provided, that a Qualifying Termination shall not occur if the Executive's employment with the Company terminates by reason of the Executive's Disability, death, or retirement. For the purposes hereof "retirement" shall mean any termination of employment which occurs at or after age 65. SECTION 1.2. CHANGE IN CONTROL. Except as provided below, a Change in Control shall be deemed to occur when and only when the first of the following events occurs: (a) the acquisition (including by purchase, exchange, merger or other business combination, or any 2 3 combination of the foregoing) by any individuals, firms, corporations or other entities, acting in concert ("Person"), together with all Affiliates and Associates of such Person, of beneficial ownership of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding voting securities, or (b) members of the Incumbent Board cease to constitute a majority of the Board of Directors. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to paragraph (a), above, (i) solely because 20 percent or more of the combined voting power of the Company's outstanding securities is acquired by one or more employee benefit plans maintained by the Company, or (ii) if the Executive is included among the individuals, firms, corporations or other entities that, acting in concert, acquire the Company's securities. For purposes of this Section 1.2, the terms "Affiliates" and "Associates" shall have the meanings set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"); the terms "beneficial ownership" and "beneficially owned" shall have the meaning set forth in section 13(d) of the Exchange Act, as amended, and in Rule 13d-3 promulgated thereunder, the term "Board of Directors" shall mean the Board of Directors of the 3 4 Company and the term "Incumbent Board" shall mean (i) the members of the Board of Directors on the date hereof, to the extent that they continue to serve as members of the Board of Directors, and (ii) any individual who becomes a member of the Board of Directors after the date hereof, if his election or nomination for election as a director was approved by a vote of at least three quarters of the then Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors. SECTION 1.3. TERMINATION FOR CAUSE. The Company shall have Cause to terminate the Executive's employment with the Company for purposes of Section 1.1 hereof only if the Executive (a) engages in unlawful acts intended to result in the substantial personal enrichment of the Executive at the Company's expense, or (b) engages (except (i) by reason of incapacity due to illness or injury or (ii) in connection with an actual or anticipated termination of employment by the Executive for Good Reason) in a material violation of his responsibilities to the Company that results in a material injury to the Company. SECTION 1.4. TERMINATION FOR GOOD REASON. The Executive shall have a Good Reason for terminating employment with the 4 5 Company only if one or more of the following occurs after a Change in Control: (a) a change in the Executive's status or position (including for this purpose a change in the principal place of the Executive's employment on a basis that does not conform with the Company's present policies for executive relocation, but excluding required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations) with the Company that, in the Executive's reasonable judgment, represents an adverse change from the Executive's status or position in effect immediately before the Change in Control; (b) the assignment to the Executive of any duties or responsibilities that, in the Executive's reasonable judgment, are inconsistent with the Executive's status or position in effect immediately before the Change in Control; (c) layoff or involuntary termination of the Executive's employment, except in connection with the termination of the Executive's employment for Cause or as a result of the Executive's Disability, death or retirement; 5 6 (d) a reduction by the Company in the Executive's total compensation as in effect at the time of the Change in Control (which shall be deemed, for this purpose, to be equal to his base salary plus the most recent award that he has earned under the Company's Incentive Compensation Plan, as amended from time to time, or any successor thereto (the "ICP")) or as the same may be increased from time to time; (e) the failure by the Company to continue in effect any Plan in which the Executive is participating at the time of the Change in Control (or plans or arrangements providing the Executive with substantially equivalent benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the Change in Control; (f) any action or inaction by the Company that would adversely affect the Executive's continued participation in any Plan on at least as favorable a basis as was the case at the time of the Change in Control, or that would materially reduce the Executive's benefits in the future under the Plan or deprive him if any material benefits that he 6 7 enjoyed at the time of the Change in Control, except to the extent that such action or inaction by the Company is required by the terms of the Plan as in effect immediately before the Change in Control, or is necessary to comply with applicable law or to preserve the qualification of the Plan under section 401(a) of the Internal Revenue Code (the "Code"), and except to the extent that the Company provides the Executive with substantially equivalent benefits; (g) the Company's failure to obtain the express assumption of this Agreement by any successor to the Company as provided by Section 6.3 hereof; (h) any material violation by the Company of any agreement (including this Agreement) between it and the Executive; or (i) the failure by the Company, without the Executive's consent, to pay to him any portion of his current compensation, or to pay to the Executive any portion of any deferred compensation, within 30 days of the date the Executive notifies the Company that any such compensation payment is past due. Notwithstanding the foregoing, no action by the Company shall give rise to a Good Reason if it results from the Executive's 7 8 termination for Cause, death or retirement, and no action by the Company specified in paragraphs (a) through (d) of the preceding sentence shall give rise to a Good Reason if it results from the Executive's Disability. A Good Reason shall not be deemed to be waived by reason of the Executive's continued employment as long as the termination of the Executive's employment occurs within the time prescribed by Section 1.1(b) hereof. For purposes of this Section 1.4, "Plan" means any compensation plan, such as an incentive or stock option plan, or any employee benefit plan, such as a thrift, pension, profit-sharing, stock bonus, long-term performance award, medical, disability, accident, or life insurance plan, or any other plan, program or policy of the Company that is intended to benefit employees. SECTION 1.5. DISABILITY. For purposes of this Agreement, "Disability" shall mean illness or injury that prevents the Executive from performing his duties (as they existed immediately before the illness or injury) on a full-time basis for six consecutive months. SECTION 1.6. NOTICE. If a Change in Control occurs, the Company shall notify the Executive of the occurrence of the Change in Control within two weeks after the Change in Control. 8 9 ARTICLE II BENEFITS AFTER A QUALIFYING TERMINATION SECTION 2.1. BASIC SEVERANCE PAYMENT. If the Executive incurs a Qualifying Termination following a Change in Control that occurs on or before termination of this Agreement as provided in Section 6.1 hereof, the Company shall pay within 30 days after the date of the Qualifying Termination to the Executive a single lump sum cash amount equal to his Total Annual Compensation multiplied by the lesser of (a) 2.50 or (b) .0833 multiplied by the number of full months remaining between termination and his attaining age 65. "Total Annual Compensation" shall mean the sum of annual base salary in effect immediately preceding termination or the Change of Control, whichever is higher, and annual incentive compensation earned under the "ICP" (annualized in the case of less than a full year's service) in the last full fiscal year immediately preceding termination or the Change in Control, whichever is higher. SECTION 2.2. INSURANCE. If the Executive incurs a Qualifying Termination following a Change in Control that occurs on or before termination of this Agreement as provided in Section 6.1 hereof, the Company shall provide the Executive, at the Company's expense, for a period beginning on the date of the 9 10 Qualifying Termination, the same medical, accident, disability, life and any other insurance coverage as was provided to him by the Company immediately before the Change in Control (or, if greater, as in effect immediately before the Qualifying Termination occurs); such coverage shall end upon the earlier of (a) the expiration of 24 months after the Qualifying Termination or (b) with respect to each coverage, the date on which the Executive first becomes eligible for insurance coverage of a similar nature provided by a firm that employs him following the Qualifying Termination. SECTION 2.3. EXECUTIVE LONG-TERM INCENTIVE PROGRAM. If the Executive incurs a Qualifying Termination following a Change in Control that occurs on or before termination of this Agreement as provided in Section 6.1 hereof, all of the options to purchase common stock of the Company (and the alternative common stock appreciation rights) granted to the Executive prior to termination of this Agreement as provided in Section 6.1 hereof, under the Executive Long-Term Incentive Program shall become exercisable in accordance with the terms set forth in the applicable Agreement. SECTION 2.4. NONDUPLICATION. Nothing in this Agreement shall require the Company to make any payment or to provide any benefit or service credit that the Company is otherwise required to provide under any other contract, agreement, policy, plan or arrangement. 10 11 ARTICLE III EFFECT ON SEVERANCE POLICY SECTION 3.1. EFFECT ON SEVERANCE POLICY. If the Executive becomes entitled to receive benefits hereunder, the Executive shall not be entitled to any benefits under any other Company severance policy. ARTICLE IV TAX MATTERS SECTION 4.1. WITHHOLDING. The Company may withhold from any amount payable to the Executive hereunder all federal, state or other taxes that the Company may reasonably determine are required to be withheld pursuant to any applicable law or regulation. SECTION 4.2 SPECIAL LIMITATION. (a) If part or all of the payments or benefits payable to the Executive, when added to other payments payable to the Executive as a result of a Change in Control, constitute Parachute Payments, the following limitation shall apply. If the Parachute Payments, net of the sum of the Excise Tax and the Federal income and employment taxes, state and local income taxes on the amount of the Parachute Payments in excess of the Threshold 11 12 Amount, are greater than the Threshold Amount, the Executive shall be entitled to the full payments and benefits payable under this Agreement. If the Threshold Amount is greater than the Parachute Payments, net of the sum of the Excise Tax, and the Federal income and employment taxes, state and local income taxes on the amount of the Parachute Payments in excess of the Threshold Amount, then the payments and benefits under this Agreement shall be reduced to the extent necessary so that the maximum Parachute Payments shall not exceed the Threshold Amount. In the event a reduction is required, it shall be the Executive's choice as to which payments or benefits shall be so reduced. The Employer shall select a firm of independent certified public accountants to determine which of the foregoing alternative provisions shall apply. For purposes of determining the amount of the Federal income and employment taxes, and state and local income taxes on the amount of the Parachute Payments in excess of the Threshold Amount, the Executive shall be deemed to pay Federal income taxes at the 12 13 highest marginal rate of Federal income taxation applicable to individuals for the calendar year in which the payments and benefits under this Agreement are payable and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Executive's residence for the calendar year in which the payments and benefits under this Agreement are payable, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. (b) ADDITIONAL DEFINITIONS "Code" shall mean the Internal Revenue Code of 1986, as amended. "Parachute Payments" shall mean any payment or provision by the Employer of any amount or benefit to and for the benefit of the Executive, whether paid or payable or provided or to be provided under the terms of this Agreement or otherwise, that would be considered "parachute payments" within the meaning of Section 280G(B)(2)(A) of the Code and the regulations promulgated thereunder. "Threshold Amount" shall mean three times the Executive's "base amount" within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder, less one dollar. "Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code. 13 14 ARTICLE V COLLATERAL MATTERS SECTION 5.1. NATURE OF PAYMENTS. All payments to the Executive under this Agreement shall be considered either payments in consideration of his continued service to the Company or severance payments in consideration of his past services thereto. SECTION 5.2. LEGAL EXPENSES. The Company shall pay all legal fees and expenses that the Executive may incur as a result of the Company's contesting the validity, the enforceability or the Executive's interpretation of, or determinations under, this Agreement. SECTION 5.3. MITIGATION. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement either by seeking other employment or otherwise. The amount of any payment provided for herein shall not be reduced by an remuneration that the Executive may earn from employment with another employer or otherwise following his Qualifying Termination. SECTION 5.4. AUTHORITY. The execution of this Agreement has been authorized by the Board of Directors of the Company. 14 15 ARTICLE VI GENERAL PROVISIONS SECTION 6.1. TERM OF AGREEMENT. This Agreement shall become effective on the date hereof and shall continue in effect until the earliest of (a) October 31, 1999, if no Change in Control has occurred before that date; provided, however, that commencing on November 1, 1999 and each November 1 thereafter, the term of this Agreement shall automatically be extended for an additional year unless, not later than January 30 of the same year, the Company shall have given notice that it does not wish to extend this Agreement; (b) the termination of the Executive's employment with the Company for any reason prior to a Change in Control; (c) the Company's termination of the Executive's employment for Cause, or the Executive's resignation for other than Good Reason, following a Change in Control and the Company's and the Executive's fulfillment of all of their obligations hereunder; and (d) the expiration following a Change in Control of three years and the fulfillment by the Company and the Executive of all of their obligations hereunder. Furthermore, nothing in this Article VI shall cause this Agreement to terminate before both the Company and the Executive have fulfilled all of their obligations hereunder. 15 16 SECTION 6.2. GOVERNING LAW. Except as otherwise expressly provided herein, this Agreement and the rights and obligations hereunder shall be construed and enforced in accordance with the laws of The Commonwealth of Massachusetts. SECTION 6.3. SUCCESSOR TO THE COMPANY. This Agreement shall inure to the benefit of and shall be binding upon and enforceable by the Company and any successor thereto, including, without limitation, any corporation or corporations acquiring directly or indirectly all or substantially all of the business or assets of the Company, whether by merger, consolidation, sale or otherwise, but shall not otherwise be assignable by the Company. Without limitation of the foregoing sentence, the Company shall require any successor (whether direct or indirect, by merger, consolidation, sale or otherwise) to all of substantially all of the business or assets of the Company, by agreement in form satisfactory to the Executive, expressly, absolutely and unconditionally to assume and to agree to perform this Agreement in the same manner and to the same extent as the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as heretofore defined and any successor to all or substantially all of its business or assets that executes and delivers the agreement provided for in this Section 6.3 or that becomes bound by this Agreement either pursuant to this Agreement or by operation of law. 16 17 SECTION 6.4. SUCCESSOR TO THE EXECUTIVE. This Agreement shall inure to the benefit of and shall be binding upon and enforceable by the Executive and his personal and legal representatives, executors, administrators, heirs, distributees, legatees and, subject to the Section 6.5 hereof, his designees ("Successors"). If the Executive should die while amounts are or may be payable to him under this Agreement, references hereunder to the "Executive" shall, where appropriate, be deemed to refer to his Successors; provided that nothing in this Section 6.5 shall supersede the terms of any plan or arrangement (other than this Agreement) that is affected by this Agreement. SECTION 6.5. NONALIENABILITY. No right of or amount payable to the Executive under this Agreement shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, hypothecation, encumbrance, charge, execution, attachment, levy or similar process or to setoff against any obligations or to assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall be void. However, this Section 6.5 shall not prohibit the Executive from designating one or more persons, on a form satisfactory to the Company, to receive amounts payable to him under this Agreement in the event that he should die before receiving them. SECTION 6.6. NOTICES. All notices provided for in this Agreement shall be in writing. Notices to the Company shall be 17 18 deemed given when personally delivered or sent by certified or registered mail or overnight delivery service to Wyman-Gordon Company, 244 Worcester Street, North Grafton, Massachusetts 01536, Attention: Vice President, General Counsel and Clerk. Notices to the Executive shall be deemed given when personally delivered or sent by certified or registered mail or overnight delivery service to the last address for the Executive shown on the records of the Company. Either the Company or the Executive may, by notice to the other, designate an address other than the foregoing for the receipt of subsequent notices. SECTION 6.7. AMENDMENT. No amendment to this Agreement shall be effective unless in writing and signed by both the Company and the Executive. SECTION 6.8. WAIVERS. No waiver of any provision of this Agreement shall be valid unless approved in writing by the party giving such waiver. No waiver of a breach under any provision of this Agreement shall be deemed to be a waiver of such provision or any other provision of this Agreement or any subsequent breach. No failure on the part of either the Company or the Executive to exercise, and no delay in exercising, any right or remedy conferred by law or this Agreement shall operate as waiver of such right or remedy, and no exercise or waiver, in whole or in part, or any right or remedy conferred by law or herein shall operate as a waiver of any other right or remedy. 18 19 SECTION 6.9. SEVERABILITY. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part, such invalidity or unenforceability shall not affect any other provision of this Agreement or part thereof, each of which shall remain in full force and effect. SECTION 6.10. CAPTIONS. The captions to this respective articles and section of this Agreement are intended for convenience of reference only and have no substantive significance. SECTION 6.11. COUNTERPARTS. This Agreement may be executed in a number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute a single instrument. SECTION 6.12. ENTIRE AGREEMENT. This Agreement contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof, superseding all previous oral statements and other writings (including the Prior Agreement) with respect thereto. 19 20 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATTEST: WYMAN-GORDON COMPANY /s/ Shirley A. Peco By: /s/ David P. Gruber - ------------------------------ ------------------------------ David P. Gruber, President Chief Executive Officer ATTEST: /s/ Awanda Fontenat /s/ Colin Stead - ------------------------------ ------------------------------ Colin Stead 20 EX-10.AI 9 PERFORMANCE STOCK OPTION AGREEMENT, COLIN STEAD 1 EXHIBIT 10.AI PERFORMANCE STOCK OPTION AGREEMENT UNDER THE WYMAN-GORDON COMPANY LONG-TERM INCENTIVE PLAN WYMAN-GORDON COMPANY, a Massachusetts corporation (the "Company"), hereby grants to Colin Stead (the "Grantee"), who is now employed by the Company or by a Subsidiary of the Company, a Non-qualified Stock Option (the "Option") to purchase prior to July 16, 2006 (the "Expiration Date") an aggregate of 37,375 shares of Common Stock of the Company ("Shares") at a price of $16.75 per Share pursuant to the terms and conditions set forth in the Wyman-Gordon Company Long-Term Incentive Plan as approved by the stockholders of the Company on October 18, 1995, as it may be amended from time to time in accordance with its terms (the "Plan") and this Stock Option Agreement, as it may be amended from time to time in accordance with its terms (the "Award Agreement"). By execution of this Award Agreement, the Grantee acknowledges receipt of a copy of the Plan and further agrees to be bound thereby and by the actions, pursuant to the Plan, of the Committee referred to in the Plan (the "Committee") and of the Wyman-Gordon Company Board of Directors. (1) The Option is in all respects governed by the terms of the Plan. All of the terms and provisions of the Plan are hereby incorporated into this Award Agreement by reference and are made a part of this Award Agreement. For the convenience of the Grantee, certain but not all of the provisions of the Plan are also summarized or elaborated upon in this Award Agreement. Each and every provision of this Award Agreement shall be administered, interpreted, and construed so that the 2 Option shall conform to the provisions of the Plan. Any provisions of this Award Agreement that cannot be so administered, interpreted, or construed shall be disregarded, and, accordingly, in the event of any conflict between the Award Agreement and the Plan, the latter will govern. Any capitalized terms used herein and not defined herein have the respective meanings ascribed to them in the Plan. Whenever the word "Grantee" is used herein in a context where the provision should logically be construed to apply to the Grantee's Beneficiary, the word "Grantee" shall be deemed to include such Beneficiary. (2) The date of grant of the Option is July 16, 1996. (3) The Option is a Non-qualified Stock Option and is not an Incentive Stock Option. (4) Subject to the terms of this Award Agreement, the Option shall be exercisable from and after July 16, 2003; provided, however, that the option may be exercised by the Grantee at any time after January 16, 1997 with respect to the number of shares set forth below if the average closing price during a period of 30 consecutive business days of the Common Stock of the Company, par value $1.00 per share, on the NASDAQ National Market System, or on any successor market or exchange in which the Common Stock is publicly traded, as quoted in the WALL STREET JOURNAL reaches the indicated price levels. 2 3 CUMULATIVE NO. OF STOCK PRICE OPTIONS VESTED ----------- -------------- Below $21.00 0 21.00 1,869 22.00 3,738 23.00 7,475 24.00 13,081 25.00 18,688 26.00 24,294 27.00 29,900 28.00 33,368 29.00 35,506 30.00 or above 37,375 (5) Grantee may exercise the Option only in the following manner: From time to time prior to the Expiration Date and subject to the provisions of Paragraph 4 above, the Grantee may give written notice to the Treasurer of the Company of his election to purchase some or all of the Shares purchasable at the time of such notice. Said notice shall specify the number of Shares to be purchased and shall be accompanied by payment therefor (a) in U.S. dollars by personal check, bank draft, or money order payable to the order of the Company; (b) in Shares that have been held by the Grantee for at least six (6) months and that have a Fair Market Value equal to the purchase price; (c) to the extent not limited or prohibited by the Committee, by payment made by the Grantee's broker, in U.S. dollars by personal check, bank draft, or money order payable to the order of the Company, pursuant to the Grantee's instructions; or (d) by a combination thereof; and by any agreement, statement, or other evidence that the Committee may require in order to satisfy itself that the issuance of the Shares being purchased pursuant to such exercise and any subsequent resale thereof will be in compliance with applicable laws and regulations relating to the issuance and sale of securities, including the provisions of the Securities Act of 1933 and regulations promulgated thereunder. 3 4 (6) The exercise of the Option shall be deemed to occur (a) on the date that the notice of exercise and the personal check, bank draft, money order or Shares are received by the Company, or (b) if such notice of exercise and payment are mailed in the United States, and the United States Postal Service has stamped its postmark thereon, then on the date of such postmark. As soon as practicable after each exercise of the Option and compliance by the Grantee with all applicable conditions, including any payments to the Company that may be required pursuant to Paragraphs 5 and 7 hereof, the Company shall mail or deliver or cause to be mailed or delivered to the Grantee a stock certificate or certificates for the number of Shares that the Grantee shall be entitled to receive upon such exercise under the provisions of this Award Agreement. (7) In each case where the Grantee shall exercise the Option, in whole or in part, the Company will notify the Grantee of the amount of withholding tax, if any, that must be paid under Federal and, where applicable, state and local law, by reason of such exercise. It shall be a condition to any delivery of Shares or payment to be made to the Grantee hereunder that provision satisfactory to the Company shall have been made for payment of any taxes the Company determines, in its reasonable opinion, are required to be paid or withheld pursuant to any applicable law or regulation. The Grantee may irrevocably elect to have any withholding tax obligation satisfied by either of the methods described in clause (a) or (c) of Paragraph 5, above, or a combination thereof, whether or not the same method is used to pay the purchase price of the Option. As an alternative to such an election with respect to all or any part of the withholding tax obligation, the Company and its Subsidiaries also shall, to the extent permitted by law, have the right to deduct from any payment or transfer of any kind (whether of cash, Shares, or other property, and whether or not related to the Plan) otherwise due to the Grantee any such taxes required to be withheld. 4 5 (8) This Award Agreement and the Grantee's right to exercise the Option shall terminate, as to any portion of the Option not theretofore exercised, whenever the Grantee is for any reason no longer employed by the Company or a Subsidiary; subject, however, to the following provisions: (a) If the Company or a Subsidiary terminates the Grantee's employment for reasons other than fraud, dishonesty, willful misconduct, retirement, or disability, or if the Grantee resigns from the Company and the Subsidiaries (as applicable), the Grantee shall have a period of 90 days immediately after such termination in which to exercise the Option to the extent then exercisable. The Option shall not become exercisable with respect to any Shares with respect to which it was not exercisable on the date of such termination of employment. (b) If the termination of Grantee's employment results from the Grantee's death, retirement or disability, the Grantee (or his Beneficiary in the case of his death) shall have a period of three years following such termination to exercise in whole or in part the Option with respect to Shares subject to the Option, to the extent then exercisable. The Option shall not become exercisable with respect to any Shares with respect to which it was not exercisable on the date of such termination of employment. (c) If the Grantee dies during the three-year period following retirement or disability referred to in Subsection (b) above, the Option may be exercised in whole or in part by his Beneficiary before the expiration of one year after the date of his death or the expiration of the three-year period following retirement or disability referred to in Subsection (b) above, whichever occurs later. For purposes of this Paragraph 8, the term "retirement" shall mean termination of employment after the Grantee has become eligible for an early, normal or late 5 6 retirement benefit (but not a terminated vested or deferred vested benefit) under the tax-qualified deferred benefit pension plan maintained by the Company and/or its Subsidiaries that covers the Grantee, and the term "disability" shall have the meaning ascribed to it in the Wyman-Gordon Company Savings/Investment Plan. (9) The Option is nontransferable other than by will or by the laws of descent and distribution, and the Option may be exercised during the lifetime of the Grantee only by him. (10) In the event that there is any change in the Shares through merger, consolidation, reorganization, recapitalization, or otherwise; or if there shall be any dividend on the Shares, payable in Shares, or an extraordinary cash dividend or other extraordinary distribution; or if there shall be a stock split, reverse stock split, combination of Shares, exercisability of stock purchase rights received under the Company's Stockholder Rights Plan, or other similar corporate transaction or event that affects the Shares, such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the rights of the Grantee or of the potential benefits intended to be made available under the Plan, the number and kind of Shares subject to the Option, the purchase price, and the other relevant provisions of this Award Agreement shall be appropriately adjusted as provided in Section 12 of the Plan. (11) As provided in Section 25 of the Plan in the event of a Triggering Event, as hereinafter defined, the Option, to the extent it has not theretofore been exercised, shall be fully exercisable without regard to the schedule in Paragraph 4 above, but the Option shall thereupon become a Limited Right, as hereinafter defined, and the terms thereof shall be modified as described in the remaining provisions of this Paragraph 11. In the event of a Triggering Event, the Grantee shall have the right (the "Limited Right") to have the Company, at the election of the Grantee (which election for each Triggering 6 7 Event, as hereinafter defined, may be made only during the period beginning on the effective date of such Triggering Event, as hereinafter defined, and ending on the 45th day following such date), purchase all or any Shares subject to the Option (to the extent not theretofore exercised) for an amount (payable entirely in cash) equal to the number of Shares with respect to which the Limited Right is exercised, multiplied by the excess of the higher of (a) the highest Fair Market Value of a Share during the period commencing on the ninetieth (90th) day preceding the exercise of the Limited Right and ending on the date of exercise and (b) either (i) if an event described in clause (b) of the definition of "Triggering Event," below, has occurred, the highest price per Share paid for any Share as shown on Schedule 13D (or an amendment thereto) filed pursuant to Section 13(d) of the 1934 Act by any person or group (as defined in that definition) whose acquisition caused the Triggering Event to occur, or (ii) if an event described in clause (a) of the definition of "Triggering Event," below, has occurred, the fixed or formula price specified in the reorganization (as defined in that definition) if such price is determinable as of the date of exercise of the Limited Right OVER the purchase price of the Option. Such purchase pursuant to the exercise of a Limited Right shall be deemed to be an exercise of the Option. Notwithstanding any other provision of this Award Agreement, no Limited Right may be exercised after the Expiration Date, but a Limited Right may be exercised within six months of the date hereof. For purposes of this Paragraph 11, a Triggering Event shall be deemed to occur when and if any of the following events occurs: (a) stockholder approval of a merger or consolidation involving the Company or a sale of all or substantially all of the assets of the Company (each a "reorganization"), in each case except for a transaction in which the Company's shareholders receive at least 50% of the stock of the surviving, resulting or acquiring corporation; (b) any "person" (other than the Company or an employee benefit plan of the Company or a corporation controlled by an employee benefit plan of the Company or a corporation controlled by the Company's shareholders) becomes the "beneficial owner" of shares of capital stock of the Company representing a majority of the votes entitled to be cast on matters submitted 7 8 to the shareholders of the Company; or (c) persons who, as of July 16, 1996 constituted the Company's Board (the "Incumbent Board") cease for any reason, including without limitation as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to July 16, 1996 whose election was approved by at least a majority of the directors then comprising the Incumbent Board shall, for purposes of this Agreement, be considered a member of the Incumbent Board. For purposes of this paragraph, the term "person" shall have the meaning used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "1934 Act") and "beneficial ownership" shall have the meaning set forth in Rule 13d-3 of the 1934 Act. (12) Notices hereunder shall be mailed or delivered to the Treasurer of the Company at its principal place of business at Grafton, Massachusetts, and shall be mailed or delivered to Grantee at his address set forth below or at such other address as he may subsequently furnish the Treasurer of the Company in writing. (13) The Grantee shall not have any rights of a shareholder by virtue of the Option except with respect to Shares actually issued to him, and the issuance of Shares shall confer no retroactive right to dividends. (14) The Committee may not, without the written consent of the Grantee, cause this Award Agreement to be revoked, and may not without such written consent make or change any determination or change any term, condition or provision affecting the Option if the determination or change would reduce or adversely affect the Option or the Grantee's rights thereto. (15) Notwithstanding anything herein to the contrary, on or after the occurrence of a Triggering Event, as defined above, the Committee may not under any 8 9 circumstances make or change any determination or change any term, condition, or provision affecting the Option if the determination or change would reduce or adversely affect the Option or the Grantee's rights thereto. (16) The Grantee shall designate a Beneficiary in writing and in such manner as is acceptable to the Company. If the Grantee fails so to designate a Beneficiary, or if no such designated Beneficiary survives the Grantee, the Grantee's beneficiary shall be the Grantee's estate. (17) The exercise of the Option shall be subject to the condition that if at any time the Company shall determine (in accordance with the provisions of the following sentence) that it is necessary as a condition of, or in connection with, such exercise (a) to satisfy withholding tax or other withholding liabilities, (b) to effect the listing, registration, or qualification on any securities exchange or under any state or Federal law of any Shares otherwise deliverable in connection with such exercise, or (c) to obtain the consent or approval of any regulatory body, then in any such event such exercise shall not be effective unless such withholding, listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company in its reasonable and good faith judgment. Any such determination (described in the preceding sentence) by the Company must be reasonable, must be made in good faith, and must be made without any intent to postpone or limit such exercise, grant or distribution beyond the minimum extent necessary and without any intent otherwise to deny or frustrate the Grantee's rights in respect of the Option. In seeking to effect or obtain any such withholding, listing, registration, qualification, consent or approval, the Company shall act with all reasonable diligence. Any such postponement or limitation affecting the right to exercise the Option shall not extend the time within which the Option may be exercised, unless the Company and the Grantee choose to amend the terms of this Award Agreement to provide for such an extension; and neither the Company nor its directors 9 10 or officers shall have any obligation or liability to the Grantee with respect to any Shares with respect to which the Option shall lapse, because of a postponement or limitation that conforms to the provisions of this Paragraph 17. (18) No fractional Shares shall be issued pursuant to this Award Agreement. The Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of fractional Shares, or whether fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated. (19) Nothing in this Award Agreement shall confer upon the Grantee the right to continue in the employment or service of the Company or any Subsidiary or affect any right that the Company or any Subsidiary may have to terminate the employment or service of (or to demote or to exclude from future Awards under the Plan) the Grantee at any time for any reason. The grant of the Option shall not give the Grantee any right to similar grants in future years. (20) So long as this Award Agreement shall remain in effect, the Company shall furnish to the Grantee, as and when available, a copy of any Prospectus issued with respect to the Shares covered hereby, and also a copy of all material hereinafter distributed by the Company to its stockholders generally. (21) This Award Agreement and the provisions thereof shall be binding upon, and inure to the benefit of, any successor or successors of the Company and the person or entity to whom the Option may have been transferred by will, the laws of descent and distribution, or beneficiary designation hereunder. (22) The Award Agreement shall be governed and its provisions construed, enforced and administered in accordance with the laws of the Commonwealth of 10 11 Massachusetts except to the extent that such laws may be superseded by any Federal law. It may not be modified orally. WYMAN-GORDON COMPANY By: /s/ David P. Gruber ------------------------------ David P. Gruber, President and Chief Executive Officer The foregoing Award Agreement is hereby accepted and the terms thereof hereby agreed to. GRANTEE /s/ - ---------------------------------- Grantee's Signature Grantee's Address: Colin Stead 17030 Country Bridge Rd Houston, Texas 77098 Social Security Number: ###-##-#### 11 EX-10.AJ 10 PERFORMANCE SHARE AGREEMENT, COLIN STEAD 1 EXHIBIT 10.AJ PERFORMANCE SHARE AGREEMENT UNDER THE WYMAN-GORDON LONG-TERM INCENTIVE PLAN This Agreement is made as of the 16th day of July 1996 between WYMAN-GORDON COMPANY, a Massachusetts corporation (the "Company") and Colin Stead, 17030 Country Bridge Road, Houston, Texas 77095 (the "Grantee"), relating to 9,100 shares (the "Shares") of the Company's common stock, par value $1.00 per share (the "Common Stock") to be issued by the Company to the Grantee pursuant to the terms and conditions set forth in the Wyman-Gordon Company Long-Term Incentive Plan, as it may be amended from time to time in accordance with its terms (the "Plan") and this Performance Share Agreement, as it may be amended from time to time in accordance with its terms (the "Agreement") in consideration of services heretofore rendered and to be rendered by Grantee to the Company during the term of this Agreement. By execution of this Agreement, the Grantee acknowledges receipt of a copy of the Plan and further agrees to be bound thereby and by the actions, pursuant to the Plan, of the Committee referred to in the Plan (the "Committee") and of the Company's Board of Directors. 1. On the date hereof the Company shall issue the Shares to the Grantee which shall be subject to risk of loss and forfeiture during a period beginning on the date hereof and ending July 16, 2001 (the "Term of this Agreement"). During the Term of this Agreement, the Committee shall determine the average closing price of the Common Stock on the NASDAQ National Market System, or on any successor market or exchange in which the Common Stock is publicly traded, as quoted in the WALL STREET JOURNAL during each period of 30 consecutive business days during the Term of this Agreement, each such period being referred to herein as a "Measurement Period" and the average prices being referred to herein as the "Target Price." Restrictions on all or a portion of the Shares will lapse only if the Target Price during a Measurement Period has reached the amounts set forth below: 2 CUMULATIVE NUMBER OF SHARES ON WHICH TARGET PRICE RESTRICTIONS WILL LAPSE ------------ ----------------------- Below $21.00 0 21.00 455 22.00 910 23.00 1,820 24.00 3,185 25.00 4,550 26.00 5,915 27.00 7,280 28.00 8,190 29.00 8,645 30.00 and above 9,100 Upon achieving a Target Price for a Measurement Period as set forth above, the restrictions set forth above and in Section 3 below shall lapse with respect to the number of Shares indicated in the table as to which restrictions have not previously lapsed. At the end of the Term of this Agreement, Grantee shall forfeit all right, title and interest in the Shares to the extent that the Target Price with respect to such Shares has not been attained. 2. The Grantee acknowledges receipt of a stock certificate registered in his name for the Shares and bearing a legend setting forth the restrictions set forth in Section 1 of this Agreement. The Grantee agrees, concurrently with the execution of this Agreement, to deposit such stock certificate with the Company together with a stock power relating thereto endorsed in blank. 3. The Grantee acknowledges that the Shares may not be sold, assigned, transferred, conveyed, pledged or otherwise encumbered during the Term of this Agreement except in accordance with the provisions of this Agreement. If the Grantee ceases to be employed by the Company prior to the end of the Term of this Agreement, his rights to the Shares to the extent restrictions have not 2 3 previously lapsed as provided above in Section 1 will thereupon be forfeited and revert to the Company. 4. Upon the attainment of the Target Price as provided above in Section 1 and the satisfaction of all other conditions contained in this Agreement, the restrictions applicable to the designated number of Shares shall lapse and a stock certificate for the number of Shares with respect to which the restrictions have lapsed shall be delivered to the Grantee, free of all such restrictions except any that may be imposed by law. Any Shares as to which the restrictions shall not have lapsed at the end of the Term of this Agreement shall be transferred to the Company without any further action of the Grantee. 5. If an event of a Change of Control, as defined below, shall occur, the Committee in its sole discretion may, but need not, determine that the restrictions not previously lapsed and terminated shall be deemed lapsed and terminated with respect to some or all of the Shares and such Shares, if any as determined by the Committee, shall not be forfeited and shall vest in the Grantee upon such terms and conditions as the Committee may determine. "Change of Control" means any one of the following events: (1) stockholder approval of a merger or consolidation involving the Company or a sale of all or substantially all of the assets of the Company, in each case except for a transaction in which the Company's shareholders receive at least 50% of the stock of the surviving, resulting or acquiring corporation; (2) any "person" (other than the Company or an employee benefit plan of the Company or a corporation controlled by the Company's employee benefit plan of the Company or a corporation controlled by the Company's shareholders) becomes the "beneficial owner" of shares of capital stock of the Company representing a majority of the votes entitled to be cast on matters submitted to the shareholders of the Company; or (3) persons who, as of July 16, 1996, constituted the Company's Board (the "Incumbent Board") cease for any reason, including without limitation as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company 3 4 subsequent to July 16, 1996 whose election was approved by at least a majority of the directors then comprising the Incumbent Board shall for purposes of this Agreement, be considered a member of the Incumbent Board. For purposes of this paragraph, the term "person" shall have the meaning used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 as amended (the "1934 Act"), and "beneficial ownership" shall have the meaning set forth in Rule 13d-3 of the 1934 Act. 6. The Grantee shall have all voting and dividend rights with respect to the Shares, provided that non-cash dividends shall be deposited with the Company together with a stock power or other appropriate instrument of transfer endorsed in blank and shall be subject to the same restrictions as the Shares. 7. If Grantee properly elects, within 30 days of the date of this Agreement, to include in gross income for federal income tax purposes an amount equal to the aggregate value of the Shares subject to the Award based on the closing price of the Stock on the date of this Agreement, Grantee shall make arrangements satisfactory to the Committee to pay to the Company any federal, state or local taxes required to be withheld with respect to such Shares. If the Grantee shall fail to make such tax payments as are required, the Company, shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Grantee any federal, state or local taxes of any kind required by law to be withheld with respect to the Shares. If the Grantee does not make the election described above in this Section 7, Grantee shall, no later than the date as of which the restrictions referred to in Section 1 and such other restrictions as may have been imposed under this Agreement, shall lapse, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld with respect to the Shares, and the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Grantee any federal, state or local 4 5 taxes of any kind required by law to be withheld with respect to the Shares. Any tax withholding may be satisfied, at the discretion of the Committee, by the Company's withholding Shares, otherwise deliverable to Grantee hereunder with a Fair Market Value (as defined in the Plan) equal to all or a portion of the amount to be withheld. At the sole discretion of the Committee, the Company may make a loan to Grantee in such amount as may be required to discharge his federal income tax liability on account of the lapsing of restrictions under Section 1 above assuming the resulting income is taxable at the maximum applicable individual federal income tax rate. Such loan shall have such maturity and other terms and conditions as the Committee shall determine in its sole discretion, and shall bear interest at the applicable federal rate under Section 1274(d) of the Internal Revenue Code of any successor provision thereto. 8. The issuance of the Shares to Grantee shall be subject to the condition that if at any time the Company shall determine (in accordance with the provisions of the following sentence) that it is necessary as a condition of, or in connection with, such exercise (a) to satisfy withholding tax or other withholding liabilities, (b) to effect the listing, registration, or qualification on any securities exchange or under any state or Federal law of any Shares otherwise deliverable in connection with such exercise, or (c) to obtain the consent or approval of any regulatory body, then in any such event such exercise shall not be effective unless such withholding, listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the company in its reasonable and good faith judgment. 9. This Agreement is in all respects governed by the terms of the Plan. All of the terms and provisions of the Plan are hereby incorporated into this Agreement by reference and are made a part of this Agreement. Each and every provision of this Agreement shall be administered, interpreted and construed so that this Agreement shall conform to the provisions of the Plan. Any provisions of this 5 6 Agreement that cannot be so administered, interpreted, or construed shall be disregarded, and, accordingly, in the event of any conflict between this Agreement and the Plan, the latter will govern. Any capitalized terms used herein and not defined herein have the respective meanings ascribed to them in the Plan. Whenever the word "Grantee" is used herein in a context where the provision should logically be construed to apply to the Grantee's beneficiary, the word "Grantee" shall be deemed to include such Beneficiary. 10. In the event that there is any change in the Company Common Stock through merger, consolidation, reorganization, recapitalization, or otherwise; or if there shall be any dividend on the Shares, payable in Shares, or an extraordinary cash dividend or other extraordinary distribution; or if there shall be a stock split, reverse stock split, combination of Shares, exercisability of stock purchase rights received under the Company's Stockholder Rights Plan, or other similar corporate transaction or event that affects the Shares, such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the rights of the Grantee or of the potential benefits intended to be made available under this Agreement, the number and kind of Shares and the other relevant provisions of this Agreement shall be appropriately adjusted as provided in Section 12 of the Plan. 11. Notices hereunder shall be mailed or delivered to the Treasurer of the Company at its principal place of business at Grafton, Massachusetts, and shall be mailed or delivered to Grantee at his address set forth above or at such other address as he may subsequently furnish the Treasurer of the Company in writing. 12. The Committee may not, without the written consent of the Grantee, cause this Agreement to be revoked, and may not without such written consent make or change any determination or change any term, condition or provision hereunder if the determination or change would reduce or adversely affect the Grantee's rights hereunder. 6 7 13. Notwithstanding anything herein to the contrary, on or after the occurrence of a Change in Control, as defined above, the Committee may not under any circumstances make or change any determination or change any term, condition, or provision affecting this Agreement if the determination or change would reduce or adversely affect the Grantee's rights hereunder. 14. The Grantee shall designate a Beneficiary in writing and in such manner as is acceptable to the Company. If the Grantee fails so to designate a Beneficiary, or if no such designated Beneficiary survives the Grantee, the Grantee's beneficiary shall be the Grantee's estate. 15. Nothing in this Agreement shall confer upon the Grantee the right to continue in the employment or service of the Company or affect any right that the Company may have to terminate the employment or service of (or to demote or to exclude from future Awards under the Plan) the Grantee at any time for any reason. 16. So long as this Agreement shall remain in effect, the Company shall furnish to the Grantee, as and when available, a copy of any Prospectus issued with respect to the Shares covered hereby, and also a copy of all material hereinafter distributed by the Company to its stockholders generally. 17. This Agreement is nontransferable by Grantee other than by will or by the laws of descent and distribution. This Agreement and the provisions thereof shall be binding upon, and inure to the benefit of, any successor or successors of the Company and the person or entity to whom his rights hereunder may have been transferred by will, the laws of descent and distribution, or beneficiary designation hereunder. 18. This Agreement shall be governed and its provisions construed, enforced and administered in accordance with the laws of the Commonwealth of Massachusetts except to the extend that such laws may be superseded by any Federal law. It may not be modified orally. 7 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. WYMAN-GORDON COMPANY By: /s/ David P. Gruber ----------------------------- David P. Gruber, President and Chief Executive Officer /s/ Colin Stead ----------------------------- Colin Stead 8 EX-10.AK 11 EXECUTIVE SEVERANCE AGREEMENT, EDWARD J. DAVIS 1 EXHIBIT 10.AK EXECUTIVE SEVERANCE AGREEMENT. This AGREEMENT ("Agreement") dated February 17, 1998 by and between Wyman-Gordon Company, a Massachusetts corporation (the "Company"), and Edward J. Davis (the "Executive"). W I T N E S S E T H WHEREAS, the Company desires to have the services of the Executive as its Vice President, Chief Financial Officer and Treasurer; and WHEREAS, the Executive is willing to serve the Company as its Vice President, Chief Financial Officer and Treasurer, but desires assurance that he will not be materially disadvantaged by a change in control of the Company; NOW, THEREFORE, in consideration of the Executive's service to the Company and the mutual agreements herein contained, the Company and the Executive hereby agree, as follows: 2 ARTICLE I ELIGIBILITY FOR BENEFITS SECTION 1.1. QUALIFYING TERMINATION. The Company shall not be required to provide any benefits to the Executive pursuant to this Agreement unless a Qualifying Termination occurs before the Agreement expires in accordance with Section 6.1 hereof. For purposes of this Agreement, a Qualifying Termination shall occur only if (a) a Change in Control occurs, and (b) within three years after the Change in Control, (i) the Company terminates the Executive's employment other than for Cause; or (ii) the Executive terminates his employment with the Company for Good Reason; provided, that a Qualifying Termination shall not occur if the Executive's employment with the Company terminates by reason of the Executive's Disability, death, or retirement. For the purposes hereof "retirement" shall mean any termination of employment which occurs at or after age 65. SECTION 1.2. CHANGE IN CONTROL. Except as provided below, a Change in Control shall be deemed to occur when and only when the first of the following events occurs: (a) the acquisition (including by purchase, exchange, merger or other business combination, or any 2 3 combination of the foregoing) by any individuals, firms, corporations or other entities, acting in concert ("Person"), together with all Affiliates and Associates of such Person, of beneficial ownership of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding voting securities, or (b) members of the Incumbent Board cease to constitute a majority of the Board of Directors. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to paragraph (a), above, (i) solely because 20 percent or more of the combined voting power of the Company's outstanding securities is acquired by one or more employee benefit plans maintained by the Company, or (ii) if the Executive is included among the individuals, firms, corporations or other entities that, acting in concert, acquire the Company's securities. For purposes of this Section 1.2, the terms "Affiliates" and "Associates" shall have the meanings set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"); the terms "beneficial ownership" and "beneficially owned" shall have the meaning set forth in section 13(d) of the Exchange Act, as amended, and in Rule 13d-3 promulgated thereunder, the term "Board of Directors" shall mean the Board of Directors of the 3 4 Company and the term "Incumbent Board" shall mean (i) the members of the Board of Directors on the date hereof, to the extent that they continue to serve as members of the Board of Directors, and (ii) any individual who becomes a member of the Board of Directors after the date hereof, if his election or nomination for election as a director was approved by a vote of at least three quarters of the then Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors. SECTION 1.3. TERMINATION FOR CAUSE. The Company shall have Cause to terminate the Executive's employment with the Company for purposes of Section 1.1 hereof only if the Executive (a) engages in unlawful acts intended to result in the substantial personal enrichment of the Executive at the Company's expense, or (b) engages (except (i) by reason of incapacity due to illness or injury or (ii) in connection with an actual or anticipated termination of employment by the Executive for Good Reason) in a material violation of his responsibilities to the Company that results in a material injury to the Company. SECTION 1.4. TERMINATION FOR GOOD REASON. The Executive shall have a Good Reason for terminating employment with the 4 5 Company only if one or more of the following occurs after a Change in Control: (a) a change in the Executive's status or position (including for this purpose a change in the principal place of the Executive's employment on a basis that does not conform with the Company's present policies for executive relocation, but excluding required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations) with the Company that, in the Executive's reasonable judgment, represents an adverse change from the Executive's status or position in effect immediately before the Change in Control; (b) the assignment to the Executive of any duties or responsibilities that, in the Executive's reasonable judgment, are inconsistent with the Executive's status or position in effect immediately before the Change in Control; (c) layoff or involuntary termination of the Executive's employment, except in connection with the termination of the Executive's employment for Cause or as a result of the Executive's Disability, death or retirement; 5 6 (d) a reduction by the Company in the Executive's total compensation as in effect at the time of the Change in Control (which shall be deemed, for this purpose, to be equal to his base salary plus the most recent award that he has earned under the Company's Management Incentive Plan, as amended from time to time, or any successor thereto (the "MIP")) or as the same may be increased from time to time; (e) the failure by the Company to continue in effect any Plan in which the Executive is participating at the time of the Change in Control (or plans or arrangements providing the Executive with substantially equivalent benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the Change in Control; (f) any action or inaction by the Company that would adversely affect the Executive's continued participation in any Plan on at least as favorable a basis as was the case at the time of the Change in Control, or that would materially reduce the Executive's benefits in the future under the Plan or deprive him if any material benefits that he 6 7 enjoyed at the time of the Change in Control, except to the extent that such action or inaction by the Company is required by the terms of the Plan as in effect immediately before the Change in Control, or is necessary to comply with applicable law or to preserve the qualification of the Plan under section 401(a) of the Internal Revenue Code (the "Code"), and except to the extent that the Company provides the Executive with substantially equivalent benefits; (g) the Company's failure to obtain the express assumption of this Agreement by any successor to the Company as provided by Section 6.3 hereof; (h) any material violation by the Company of any agreement (including this Agreement) between it and the Executive; or (i) the failure by the Company, without the Executive's consent, to pay to him any portion of his current compensation, or to pay to the Executive any portion of any deferred compensation, within 30 days of the date the Executive notifies the Company that any such compensation payment is past due. Notwithstanding the foregoing, no action by the Company shall give rise to a Good Reason if it results from the Executive's 7 8 termination for Cause, death or retirement, and no action by the Company specified in paragraphs (a) through (d) of the preceding sentence shall give rise to a Good Reason if it results from the Executive's Disability. A Good Reason shall not be deemed to be waived by reason of the Executive's continued employment as long as the termination of the Executive's employment occurs within the time prescribed by Section 1.1(b) hereof. For purposes of this Section 1.4, "Plan" means any compensation plan, such as an incentive or stock option plan, or any employee benefit plan, such as a thrift, pension, profit-sharing, stock bonus, long-term performance award, medical, disability, accident, or life insurance plan, or any other plan, program or policy of the Company that is intended to benefit employees. SECTION 1.5. DISABILITY. For purposes of this Agreement, "Disability" shall mean illness or injury that prevents the Executive from performing his duties (as they existed immediately before the illness or injury) on a full-time basis for six consecutive months. SECTION 1.6. NOTICE. If a Change in Control occurs, the Company shall notify the Executive of the occurrence of the Change in Control within two weeks after the Change in Control. 8 9 ARTICLE II BENEFITS AFTER A QUALIFYING TERMINATION SECTION 2.1. BASIC SEVERANCE PAYMENT. If the Executive incurs a Qualifying Termination following a Change in Control that occurs on or before termination of this Agreement as provided in Section 6.1 hereof, the Company shall pay within 30 days after the date of the Qualifying Termination to the Executive a single lump sum cash amount equal to his Total Annual Compensation multiplied by the lesser of (a) 2.50 or (b) .0833 multiplied by the number of full months remaining between termination and his attaining age 65. "Total Annual Compensation" shall mean the sum of annual base salary in effect immediately preceding termination or the Change of Control, whichever is higher, and annual incentive compensation earned under the "MIP" (annualized in the case of less than a full year's service) in the last full fiscal year immediately preceding termination or the Change in Control, whichever is higher. SECTION 2.2. INSURANCE. If the Executive incurs a Qualifying Termination following a Change in Control that occurs on or before termination of this Agreement as provided in Section 6.1 hereof, the Company shall provide the Executive, at the Company's expense, for a period beginning on the date of the 9 10 Qualifying Termination, the same medical, accident, disability, life and any other insurance coverage as was provided to him by the Company immediately before the Change in Control (or, if greater, as in effect immediately before the Qualifying Termination occurs); such coverage shall end upon the earlier of (a) the expiration of 24 months after the Qualifying Termination or (b) with respect to each coverage, the date on which the Executive first becomes eligible for insurance coverage of a similar nature provided by a firm that employs him following the Qualifying Termination. SECTION 2.3. EXECUTIVE LONG-TERM INCENTIVE PROGRAM. If the Executive incurs a Qualifying Termination following a Change in Control that occurs on or before termination of this Agreement as provided in Section 6.1 hereof, all of the options to purchase common stock of the Company (and the alternative common stock appreciation rights) granted to the Executive prior to termination of this Agreement as provided in Section 6.1 hereof, under the Executive Long-Term Incentive Program shall become exercisable in accordance with the terms set forth in the applicable Agreement. SECTION 2.4. NONDUPLICATION. Nothing in this Agreement shall require the Company to make any payment or to provide any benefit or service credit that the Company is otherwise required to provide under any other contract, agreement, policy, plan or arrangement. 10 11 ARTICLE III EFFECT ON SEVERANCE POLICY SECTION 3.1. EFFECT ON SEVERANCE POLICY. If the Executive becomes entitled to receive benefits hereunder, the Executive shall not be entitled to any benefits under any other Company severance policy. ARTICLE IV TAX MATTERS SECTION 4.1. WITHHOLDING. The Company may withhold from any amount payable to the Executive hereunder all federal, state or other taxes that the Company may reasonably determine are required to be withheld pursuant to any applicable law or regulation. SECTION 4.2 SPECIAL LIMITATION. (a) If part or all of the payments or benefits payable to the Executive, when added to other payments payable to the Executive as a result of a Change in Control, constitute Parachute Payments, the following limitation shall apply. If the Parachute Payments, net of the sum of the Excise Tax and the Federal income and employment taxes, state and local income taxes on the amount of the Parachute Payments in excess of the Threshold 11 12 Amount, are greater than the Threshold Amount, the Executive shall be entitled to the full payments and benefits payable under this Agreement. If the Threshold Amount is greater than the Parachute Payments, net of the sum of the Excise Tax, and the Federal income and employment taxes, state and local income taxes on the amount of the Parachute Payments in excess of the Threshold Amount, then the payments and benefits under this Agreement shall be reduced to the extent necessary so that the maximum Parachute Payments shall not exceed the Threshold Amount. In the event a reduction is required, it shall be the Executive's choice as to which payments or benefits shall be so reduced. The Company shall select a firm of independent certified public accountants to determine which of the foregoing alternative provisions shall apply. For purposes of determining the amount of the Federal income and employment taxes, and state and local income taxes on the amount of the Parachute Payments in excess of the Threshold Amount, the Executive shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation applicable to individuals for the calendar year in which the payments and benefits under this Agreement are payable and state and local income taxes at the 12 13 highest marginal rates of individual taxation in the state and locality of the Executive's residence for the calendar year in which the payments and benefits under this Agreement are payable, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. (b) ADDITIONAL DEFINITIONS "Code" shall mean the Internal Revenue Code of 1986, as amended. "Parachute Payments" shall mean any payment or provision by the Employer of any amount or benefit to and for the benefit of the Executive, whether paid or payable or provided or to be provided under the terms of this Agreement or otherwise, that would be considered "parachute payments" within the meaning of Section 280G(B)(2)(A) of the Code and the regulations promulgated thereunder. "Threshold Amount" shall mean three times the Executive's "base amount" within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder, less one dollar. "Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code. 13 14 ARTICLE V COLLATERAL MATTERS SECTION 5.1. NATURE OF PAYMENTS. All payments to the Executive under this Agreement shall be considered either payments in consideration of his continued service to the Company or severance payments in consideration of his past services thereto. SECTION 5.2. LEGAL EXPENSES. The Company shall pay all legal fees and expenses that the Executive may incur as a result of the Company's contesting the validity, the enforceability or the Executive's interpretation of, or determinations under, this Agreement. SECTION 5.3. MITIGATION. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement either by seeking other employment or otherwise. The amount of any payment provided for herein shall not be reduced by an remuneration that the Executive may earn from employment with another employer or otherwise following his Qualifying Termination. SECTION 5.4. AUTHORITY. The execution of this Agreement has been authorized by the Board of Directors of the Company. 14 15 ARTICLE VI GENERAL PROVISIONS SECTION 6.1. TERM OF AGREEMENT. This Agreement shall become effective on the date hereof and shall continue in effect until the earliest of (a) October 31, 1999, if no Change in Control has occurred before that date; provided, however, that commencing on November 1, 1999 and each November 1 thereafter, the term of this Agreement shall automatically be extended for an additional year unless, not later than January 30 of the same year, the Company shall have given notice that it does not wish to extend this Agreement; (b) the termination of the Executive's employment with the Company for any reason prior to a Change in Control; (c) the Company's termination of the Executive's employment for Cause, or the Executive's resignation for other than Good Reason, following a Change in Control and the Company's and the Executive's fulfillment of all of their obligations hereunder; and (d) the expiration following a Change in Control of three years and the fulfillment by the Company and the Executive of all of their obligations hereunder. Furthermore, nothing in this Article VI shall cause this Agreement to terminate before both the Company and the Executive have fulfilled all of their obligations hereunder. 15 16 SECTION 6.2. GOVERNING LAW. Except as otherwise expressly provided herein, this Agreement and the rights and obligations hereunder shall be construed and enforced in accordance with the laws of The Commonwealth of Massachusetts. SECTION 6.3. SUCCESSOR TO THE COMPANY. This Agreement shall inure to the benefit of and shall be binding upon and enforceable by the Company and any successor thereto, including, without limitation, any corporation or corporations acquiring directly or indirectly all or substantially all of the business or assets of the Company, whether by merger, consolidation, sale or otherwise, but shall not otherwise be assignable by the Company. Without limitation of the foregoing sentence, the Company shall require any successor (whether direct or indirect, by merger, consolidation, sale or otherwise) to all of substantially all of the business or assets of the Company, by agreement in form satisfactory to the Executive, expressly, absolutely and unconditionally to assume and to agree to perform this Agreement in the same manner and to the same extent as the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as heretofore defined and any successor to all or substantially all of its business or assets that executes and delivers the agreement provided for in this Section 6.3 or that becomes bound by this Agreement either pursuant to this Agreement or by operation of law. 16 17 SECTION 6.4. SUCCESSOR TO THE EXECUTIVE. This Agreement shall inure to the benefit of and shall be binding upon and enforceable by the Executive and his personal and legal representatives, executors, administrators, heirs, distributees, legatees and, subject to the Section 6.5 hereof, his designees ("Successors"). If the Executive should die while amounts are or may be payable to him under this Agreement, references hereunder to the "Executive" shall, where appropriate, be deemed to refer to his Successors; provided that nothing in this Section 6.5 shall supersede the terms of any plan or arrangement (other than this Agreement) that is affected by this Agreement. SECTION 6.5. NONALIENABILITY. No right of or amount payable to the Executive under this Agreement shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, hypothecation, encumbrance, charge, execution, attachment, levy or similar process or to setoff against any obligations or to assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall be void. However, this Section 6.5 shall not prohibit the Executive from designating one or more persons, on a form satisfactory to the Company, to receive amounts payable to him under this Agreement in the event that he should die before receiving them. SECTION 6.6. NOTICES. All notices provided for in this Agreement shall be in writing. Notices to the Company shall be 17 18 deemed given when personally delivered or sent by certified or registered mail or overnight delivery service to Wyman-Gordon Company, 244 Worcester Street, North Grafton, Massachusetts 01536, Attention: Vice President, General Counsel and Clerk. Notices to the Executive shall be deemed given when personally delivered or sent by certified or registered mail or overnight delivery service to the last address for the Executive shown on the records of the Company. Either the Company or the Executive may, by notice to the other, designate an address other than the foregoing for the receipt of subsequent notices. SECTION 6.7. AMENDMENT. No amendment to this Agreement shall be effective unless in writing and signed by both the Company and the Executive. SECTION 6.8. WAIVERS. No waiver of any provision of this Agreement shall be valid unless approved in writing by the party giving such waiver. No waiver of a breach under any provision of this Agreement shall be deemed to be a waiver of such provision or any other provision of this Agreement or any subsequent breach. No failure on the part of either the Company or the Executive to exercise, and no delay in exercising, any right or remedy conferred by law or this Agreement shall operate as waiver of such right or remedy, and no exercise or waiver, in whole or in part, or any right or remedy conferred by law or herein shall operate as a waiver of any other right or remedy. 18 19 SECTION 6.9. SEVERABILITY. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part, such invalidity or unenforceability shall not affect any other provision of this Agreement or part thereof, each of which shall remain in full force and effect. SECTION 6.10. CAPTIONS. The captions to this respective articles and section of this Agreement are intended for convenience of reference only and have no substantive significance. SECTION 6.11. COUNTERPARTS. This Agreement may be executed in a number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute a single instrument. SECTION 6.12. ENTIRE AGREEMENT. This Agreement contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof, superseding all previous oral statements and other writings (including the Prior Agreement) with respect thereto. 19 20 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATTEST: WYMAN-GORDON COMPANY /s/ [illegible] By: /s/ David P. Gruber - ------------------------------ ----------------------------------- David P. Gruber, Chairman Chief Executive Officer ATTEST: /s/ [illegible] /s/ Edward J. Davis - ------------------------------ ----------------------------------- Edward J. Davis 20 EX-21 12 LIST OF SUBSIDIARIES 1 EXHIBIT 21 WYMAN-GORDON COMPANY FISCAL 1998 FORM 10-K WYMAN-GORDON COMPANY AND SUBSIDIARIES The following is a list of Wyman-Gordon's subsidiaries as of May 31, 1998: PLACE OF INCORPORATION NAME OF SUBSIDIARY OR ORGANIZATION ------------------ --------------- Cameron Forged Products Limited United Kingdom Cypress Extrusion Press Corporation Delaware ForCast FSC, Ltd. Virgin Islands International Extruded Products, LLC New York Precision Founders, Inc. California Reisner Metals, Inc. California Scaled Composites, Inc. California Scaled Manufacturing, Inc. Delaware Wyman-Gordon Composites, Inc. Delaware Wyman-Gordon Composite Technologies, Inc. California Wyman-Gordon Forgings, Inc. Delaware Wyman-Gordon Investment Castings, Inc. Delaware Wyman-Gordon Limited United Kingdom/ Delaware Wyman-Gordon Receivables Corporation Delaware EX-23 13 CONSENT OF ERNST & YOUNG LLP 1
EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 10.AJ Colin Stead, Performance Share Agreement under the Wyman-Gordon Company Long-term Incentive Plan dated July 16, 1996. E-9 10.AK Edward J. Davis, Executive Severence Agreement dated February 17, 1998. E-10 21 List of Subsidiaries E-11 23 Consent of Ernst & Young LLP 61 27 Financial Data Schedule E-12
(b) Reports on Form 8-K On November 19, 1997, the Company filed a Form 8-K dated November 14, 1997 with the Commission for the following purposes: (1) to report that the Company has commenced a cash tender offer for certain of its debt securities and is soliciting to amend the related indenture; (2) to report developments relating to the previously reported industrial accident at the facility of Wyman-Gordon Forgings, Inc. in Houston, Texas; and (3) to report the commencement of an investigation by certain federal agencies involving alleged irregularities at the Company's Tilton, New Hampshire facility. On December 9, 1997, the Company filed a Form 8-K with the Commission to report that the Company had taken the 29,000 ton press at its Houston, Texas facility out of service for repairs. On February 9, 1998, the Company filed a Form 8-K with the Commission to update the statue of the 29,000 ton press and to announce an extraordinary one time charge relating to the refinancing of its 10 3/4% Senior Notes due 2003. On August 11, 1998, the Company filed a Form 8-K with the Commission to report that it and Titanium Metals Corporation completed a transaction in which the parties have combined their respective titanium castings businesses into a jointly-owned venture. 60 EX-27.1 14 FINANCIAL DATA SCHEDULE
5 1,000 US DOLLARS 12-MOS MAY-31-1998 JUN-01-1997 MAY-31-1998 1 64,561 7 124,838 0 133,134 329,064 489,303 293,440 551,610 105,300 162,573 0 0 37,053 167,767 551,610 747,402 752,913 637,267 637,267 0 0 12,548 55,437 16,355 39,082 0 (5,192) 0 33,890 0.93 0.91
EX-27.2 15 FDS RESTATED FOR YEAR END 1996
5 1,000 US DOLLARS 12-MOS 3-MOS 6-MOS 9-MOS MAY-31-1996 MAY-31-1997 MAY-31-1997 MAY-31-1997 JUN-01-1995 JUN-01-1996 JUN-01-1996 JUN-01-1996 MAY-31-1996 AUG-31-1996 NOV-30-1996 FEB-28-1997 1 1 1 1 30,134 27,904 36,277 37,258 7 7 7 7 93,094 87,160 95,654 103,893 0 0 0 0 65,873 72,820 84,150 94,048 205,273 221,605 230,710 250,323 400,708 410,366 416,612 421,284 260,300 268,438 270,230 271,586 375,890 390,562 404,501 426,367 88,739 96,082 96,523 101,727 90,231 90,231 90,231 96,231 0 0 0 0 0 0 0 0 37,053 37,053 37,053 37,053 72,890 82,316 96,140 107,306 375,890 390,562 404,501 426,367 497,240 133,583 271,571 424,144 499,624 134,235 272,890 426,222 421,492 122,744 237,823 362,540 421,492 122,744 237,823 362,540 0 0 0 0 0 0 0 0 11,272 2,722 5,382 8,053 25,234 (11,865) (2,732) 10,278 0 (19,680) (19,860) (19,680) 25,234 7,815 16,948 29,958 0 0 0 0 0 0 0 0 0 0 0 0 25,234 7,815 16,948 29,958 0.72 0.22 0.47 0.84 0.70 0.21 0.46 0.81
EX-27.3 16 FDS RESTATED FOR YEAR END 1997
5 1,000 US DOLLARS 12-MOS 3-MOS 6-MOS 9-MOS MAY-31-1997 MAY-31-1998 MAY-31-1998 MAY-31-1998 JUN-01-1996 JUN-01-1997 JUN-01-1997 JUN-01-1997 MAY-31-1997 AUG-31-1997 NOV-30-1997 FEB-28-1998 1 1 1 1 51,971 26,584 26,247 59,261 7 7 7 7 115,569 125,355 125,581 128,272 0 0 0 0 92,332 113,244 116,667 140,341 277,751 277,948 279,904 335,610 422,388 439,096 447,781 456,393 268,651 277,019 282,648 287,679 454,371 462,691 467,201 528,737 111,546 108,155 99,728 98,386 96,154 96,154 96,154 161,429 0 0 0 0 0 0 0 0 37,053 37,053 37,053 37,053 127,345 143,588 157,781 156,766 454,371 462,691 467,201 528,737 605,049 179,016 366,621 547,497 608,742 180,009 369,378 551,142 511,108 146,764 304,185 463,415 511,108 146,764 304,185 463,415 0 0 0 0 0 0 0 0 10,822 2,890 5,682 8,999 24,343 18,529 37,117 43,309 (25,680) 6,670 11,922 14,151 50,023 11,859 25,195 29,158 0 0 0 0 0 0 0 (5,192) 0 0 0 0 50,023 11,859 25,195 23,966 1.40 0.33 0.70 0.66 1.35 0.32 0.67 0.64
-----END PRIVACY-ENHANCED MESSAGE-----