-----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, DU575EuM4LJ/7KpoiivLaRGffNLe91/nbgpih7DD7Uq/2veO59m/26dD8NJKgCbo Ecb1pbY1Pczzl8RxZhA4PA== 0000893220-99-000387.txt : 19990331 0000893220-99-000387.hdr.sgml : 19990331 ACCESSION NUMBER: 0000893220-99-000387 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERCULES INC CENTRAL INDEX KEY: 0000046989 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 510023450 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-00496 FILM NUMBER: 99579056 BUSINESS ADDRESS: STREET 1: 1313 N MARKET ST STREET 2: HERCULES PLZ CITY: WILMINGTON STATE: DE ZIP: 19894 BUSINESS PHONE: 3025945000 MAIL ADDRESS: STREET 1: HERCULES PLAZA STREET 2: RM 8151 NW CITY: WILMINGTON STATE: DE ZIP: 19894-0001 FORMER COMPANY: FORMER CONFORMED NAME: HERCULES POWDER CO DATE OF NAME CHANGE: 19680321 10-K 1 HERCULES, INC. FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission file number 1-496 HERCULES INCORPORATED A DELAWARE CORPORATION I.R.S. EMPLOYER IDENTIFICATION NO. 51-0023450 HERCULES PLAZA 1313 NORTH MARKET STREET WILMINGTON, DELAWARE 19894-0001 TELEPHONE: 302-594-5000 Securities registered pursuant to Section 12(b) of the Act (Each class is registered on the New York Stock Exchange, Inc.) Title of each class Common Stock ($25/48 Stated Value) 6-1/2% Convertible Subordinated Debentures due June 30, 1999 8% Convertible Subordinated Debentures due August 15, 2010 9.42% Trust Originated Preferred Securities ($25 liquidation amount), issued by Hercules Trust I and guaranteed by Hercules Incorporated Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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. / / As of March 1, 1999, registrant had outstanding 100,820,245 shares of common stock, $25/48 stated value ("Common Stock"), which is registrant's only class of common stock. The aggregate market value of registrant's Common Stock held by non-affiliates based on the closing price on March 1, 1999 was approximately $3.0 billion. DOCUMENTS INCORPORATED BY REFERENCE (SPECIFIC PAGES INCORPORATED ARE IDENTIFIED UNDER THE APPLICABLE ITEM HEREIN.) Portions of the registrant's definitive Proxy Statement dated March 19, 1999 (the "Proxy Statement") are incorporated by reference in Part III of this Report. Other documents incorporated by reference in this report are listed in the Exhibit Index. 2 PART I ITEM 1. BUSINESS: Hercules Incorporated ("Hercules" or the "company") is a diversified, worldwide producer of chemicals and related products. The company was incorporated in Delaware in 1912. During 1998, Hercules made five major acquisitions with combined annual revenues of approximately $1,600 million. The largest of these was BetzDearborn Inc., a global specialty chemical company providing water and process treatment to a variety of commercial and industrial processes. This acquisition not only adds a new franchise to Hercules' portfolio, it transforms Hercules' paper chemicals business into a full service provider to the pulp and paper industry. BetzDearborn's 1997 reported revenues were $1,295 million. This business is included in the Process Chemicals and Services segment. The other four acquisitions and the segments in which they are reported are as follows: Houghton International's paper chemicals group (Process Chemicals and Services); Citrus Colloids, a pectin manufacturer (Functional Products); Alliance Technical Products, a manufacturer of resins serving the water-based adhesives industry (Chemical Specialties); and the 49% share of FiberVisions owned by Hercules' joint venture partner, making it a wholly owned subsidiary of Hercules. This business is the world's largest producer of thermal-bond fiber for disposable diapers and other hygienic products and is included in the Chemical Specialties segment. In 1997, the company joint ventured this business and retained a 51% ownership interest. The joint venture was accounted for under the equity method. Hercules divested its Composite Products Division (which produced graphite fiber) in 1996 and its Aerospace and Electronics and Printing businesses in 1995. Accordingly, information related to divested businesses has been omitted in this Form 10-K, except where relevant. REPORTABLE SEGMENTS Hercules operates, both domestically and throughout the world, in three reportable segments: Process Chemicals and Services, Functional Products, and Chemical Specialties. The financial information regarding Hercules' segments, which includes net sales and profit from operations for each of the three years in the period ended December 31, 1998 and capital employed as of December 31, 1998, 1997, and 1996, is provided in Note 24 to the Consolidated Financial Statements. See Part II, Item 8. Information regarding principal products produced and sold by each segment and principal markets served by each segment is presented in the columns so designated in the segment table presented below. These products are sold directly to customers from plants and warehouses, as well as being sold in some cases (particularly in markets outside the United States) to and through distributors.
BUSINESS SEGMENTS PRINCIPAL PRODUCTS PRIMARY MARKETS - ----------------- ------------------ --------------- Process Chemicals and Services - Offerings designed to enhance customers' processes and improve their manufacturing costs or environmental impact. On-site service is key to customer satisfaction. Low capital requirements. Divisions: Pulp and Paper Performance additives: Pulp and paper mills; makers of Wet strength, dry strength, rosin size, tissue, towel, packaging, beverage AKD/ASA size, surface size, dispersed size containers, newsprint, magazine and book papers, printing and writing paper, labels, envelopes, etc. Water treatment: Influent clarification/mill supply, cooling towers, boiler systems, wastewater systems Process treatment: Deposit control, biofouling control, foam control, clarification, retention/drainage, felt conditioning, deinking, fiber recovery, water closure, crepe and release aids, deposit removal
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BUSINESS SEGMENTS PRINCIPAL PRODUCTS PRIMARY MARKETS - ----------------- ------------------ --------------- BetzDearborn Water treatment: Industrial, commercial, and Influent water, boilers, cooling towers, institutional establishments wastewater Process treatment: Refineries, chemical plants, Petroleum refining, chemical manufacturers of metals, automobile processing, metals processing and assembly plants, makers of food and finishing, automotive manufacturing, beverage food and beverage processing, sugar and alcohol production, mineral processing Functional Products - Products valued for the characteristics they bring to customer formulations. Key raw materials derived from biomass. Capital-intensive businesses. Divisions: Aqualon Water-soluble polymers: Manufacturers of interior and - Hydroxyethylcellulose (HEC) exterior water-based paints. - Carboxymethylcellulose (CMC) Oilfield service companies for oil - Methylcellulose (MC) and gas exploration. Paper mills. - Hydroxypropylcellulose (HPC) Pharmaceutical companies. Makers of oral hygiene products, cosmetics, Solvent-soluble polymers: dairy and bakery products, building - Nitrocellulose (NC) materials, furniture lacquer, - Pentaerythritol (PE) printing inks, and aviation fluids Food Gums Pectin for jams and jellies, yogurt fruit Multinational and regional food preparations, confectionery, dairy processors located in 110 countries applications, bakery products, of the world low-fat/no-fat foods Carrageenan for dairy, meat, poultry, and fish products, bakery glazings, toothpaste Agar for confectionery gels, icings, biological media Chemical Specialties - Provides low-cost, technology-driven solutions to meet customer needs and market demands. Capital-intensive businesses. Divisions: FiberVisions Polypropylene and polyethylene Makers of disposable diapers, adult monocomponent fibers and bicomponent incontinence products, feminine care (PE/PP) fibers for disposable hygiene products, upholstered fabrics, products automotive textiles, agricultural fabrics Textile fibers for automotive, decorative, industrial applications Resins Rosin resins from wood, gum, and tall oil Makers of such consumer and for adhesives, food, rubber, plastics industrial products as adhesives for nonwoven fabrics, textile fibers, and Hydrocarbon resins for adhesives, graphic other materials; masking, packaging, arts and duct tape; construction materials; beverages; chewing gum;
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BUSINESS SEGMENTS PRINCIPAL PRODUCTS PRIMARY MARKETS - ----------------- ------------------ --------------- Terpene resins for chewing gum, adhesives; wire and cables; plastics; fragrance terpene specialties for flavor, fragrance, and flavors; printing inks; copier household products toner Peroxides for wire and cable insulation, plastics, rubber
Results of divested businesses (where applicable) are included in "reconciling items" for segment financial reporting. In general, Hercules does not produce against a backlog of firm orders; production is geared primarily to the level of incoming orders and the projections of future demand. Inventories of finished products, work in process, and raw materials are maintained to meet delivery requirements of customers and Hercules' production schedules. The businesses of each of the segments are not seasonal to any significant extent. RAW MATERIALS AND ENERGY Raw materials and supplies are purchased from a variety of industry sources, including agricultural, forestry, mining, petroleum, and chemical industries. Important raw materials for the Process Chemicals and Services segment are cationic and anionic polyacrylamides and emulsions, biocides, amines, surfactants, rosin, adipic acid, epichlorohydrin, fumaric acid, stearic acid, diethylenetriamine, phosphorus trichloride, wax and starch. Raw materials important to the Functional Products segment are acetaldehyde, fatty acids, chemical cotton, woodpulp, ethyl chloride, alcohols, chlorine, ethylene oxide, propylene oxide, monochloroacetic acid, methyl chloride, caustic, inorganic acids, fruit and floral extracts, guar splits, seaweed, terpenes, and citrus peel. The important raw materials for the Chemical Specialties segment are ketones, alcohols, phenol, adipic acid, epichlorohydrin, fumaric acid, stearic acid, diethylenetriamine, phosphorus trichloride, wax, casein, starch, pigments, antioxidants, d-limonene, turpentine, crude tall oil, rosin, pine wood stumps, aromatic and aliphatic resin formers, cumene, catalysts, pure monomers, toluene, clay, process oils, and polypropylene resin. Major requirements for key raw materials and fuels are typically purchased pursuant to multi-year contracts. Hercules is not dependent on any one supplier for a material amount of its raw material or fuel requirements, but certain important raw materials are obtained from sole-source or a few major suppliers. While temporary shortages of raw materials and fuels may occur occasionally, these items are currently readily available. However, their continuing availability and price are subject to domestic and world market and political conditions as well as to the direct or indirect effect of United States Government regulations. The impact of any future raw material and energy shortages on Hercules' business as a whole or in specific world areas cannot be accurately predicted. Operations and products may, at times, be adversely affected by legislation, shortages or international or domestic events. COMPETITION Hercules encounters substantial competition in each of its three segments. This competition, from other manufacturers of the same products and from manufacturers of different products designed for the same uses, is expected to continue in both the United States and markets outside the United States. Some of Hercules' competitors, such as companies engaged in petroleum operations, have more direct access to raw materials, and some have greater financial resources than Hercules. The number of Hercules' principal competitors varies from product to product. It is not practicable to estimate the number of all competitors because of the large variety of Hercules' products, the markets served and the worldwide business interests of Hercules. 4 5 PATENTS AND TRADEMARKS Patents covering a variety of products and processes have been issued to Hercules and its assignees. In addition, Hercules is licensed under certain other patents covering its products and processes. Taken as a whole, the rights of Hercules under these patents and licenses, which expire from time to time, are considered by Hercules to constitute a valuable asset. However, Hercules does not consider any single patent or license, or any group thereof related to a specific product or process, to be of material importance to its business as a whole. Hercules or its wholly owned subsidiaries also have registered trademarks for a number of its products. Some of the more significant trademarks include: AQUAPEL(R) sizing agent, HERCON(R) sizing emulsions, KYMENE(R) resin, REGALREZ(R) resin, AQUALON(R) water-soluble polymers, SLENDID(R) fat replacer, NATROSOL(R) hydroxyethylcellulose, CULMINAL(R) methylcellulose, KLUCEL(R) hydroxypropylcellulose, NATROSOL FPS(R) water-soluble polymer suspension, PRECIS(R) sizing agent, NOVUS(R) polymer, DIANODIC(R) cooling water products, CONTINUUM(R) cooling water products, and Herculon(R) fiber. RESEARCH AND DEVELOPMENT Research and development, which is directed toward the discovery and development of new products and processes, the improvement and refinement of existing products and processes and development of new applications for existing products, is primarily company-sponsored. Hercules spent $61 million on research activities during 1998, as compared to $53 million in 1997 and $56 million in 1996. ENVIRONMENTAL MATTERS Hercules believes that it is in compliance in all material respects with applicable federal, state, and local environmental laws and regulations. Expenditures relating to environmental cleanup costs have not materially affected, and are not expected to materially affect, capital expenditures or competitive position. Additional information regarding environmental matters is provided in Note 22 to the Consolidated Financial Statements. EMPLOYEES As of December 31, 1998, Hercules had 12,357 employees worldwide. Approximately 7,249 were located in the United States, and of these employees about 18% were represented by various local or national unions. INTERNATIONAL OPERATIONS Information on net sales and long-lived assets by geographic areas, for each of the three years ended December 31, 1998, appears in Note 24 to the Consolidated Financial Statements. Direct export sales from the United States to unaffiliated customers were $319 million, $309 million, and $295 million for 1998, 1997, and 1996, respectively. Hercules' operations outside the United States are subject to the usual risks and limitations related to investments in foreign countries, such as fluctuations in currency values, exchange control regulations, wage and price controls, employment regulations, effects of foreign investment laws, governmental instability (including expropriation or confiscation of assets) and other potentially detrimental domestic and foreign governmental policies affecting United States companies doing business abroad. ITEM 2. PROPERTIES: The company's corporate headquarters and major research center are located in Wilmington, Delaware. In addition, the administrative headquarters of the BetzDearborn Division is located in Trevose, Pennsylvania. Information as to Hercules' principal manufacturing facilities and the segment served by each is presented below. All principal properties are owned by Hercules, except for the company's corporate headquarters, which is leased. The following are Hercules' major worldwide plants: Process Chemicals and Services - Aberdeen, Scotland; Addison, Illinois; Bakersfield, California; Beaumont, Texas; Beringen, Belgium; Bogota, Colombia; Buenos Aires, Argentina; Burlington, Ontario, Canada; Busnago, Italy; Chicopee, Massachusetts; Crissey, France; Edmonton, Alberta, Canada; Ferentino, Italy; Franklin, Virginia; Garland, Texas; Hattiesburg, Mississippi; Helsingborg, Sweden; Herentals, Belgium; Houston, Texas; Hsin Chu Hsien, Taiwan; Iksan City, Korea; Ingleburn, Australia; Jurong Town, Singapore; Kalamazoo, Michigan; Kilafors, Sweden; Kim Cheon, Korea; Langhorne, Pennsylvania; Lilla Edet, Sweden; Macon, 5 6 Georgia; Mexico City, Mexico; Milwaukee, Wisconsin; Mississauga, Ontario, Canada; Nantou, Taiwan; New Philadelphia, Ohio; Orange, Texas; Pandaan, Indonesia; Paulinia, Brazil; Pendlebury, England; Point-Claire, Quebec, Canada; Portland, Oregon; Qualiano, Italy; Reserve, Louisiana; Sandarne, Sweden; Santiago, Chile; Savannah, Georgia; Shanghai, China ; Sobernheim, Germany; Sorocaba, Brazil; St.-Jean, Quebec, Canada; Tampere, Finland; Tarragona, Spain; Traun, Austria; Valencia, Venezuela; Voreppe, France; Washougal, Washington; Widnes, United Kingdom; Zwijndrecht, the Netherlands. Functional Products -. Alizay, France; Cebu, the Philippines ; Doel, Belgium; Grossenbrode, Germany; Hopewell, Virginia; Kenedy, Texas; La Calera, Chile; Lille Skensved, Denmark; Limeira, Brazil; Louisiana, Missouri; Parlin, New Jersey; Zwijndrecht, the Netherlands. Chemical Specialties - Athens, Georgia; Beringen, Belgium; Brunswick, Georgia; Burlington, Ontario, Canada; Covington, Georgia; Franklin, Virginia; Gibbstown, New Jersey; Hattiesburg, Mississippi; Jefferson, Pennsylvania; Middelburg, the Netherlands; Portland, Oregon; San Juan del Rio, Mexico; Savannah, Georgia; Suzhou, China; Tokushima, Japan; Uruapan, Mexico; Varde, Denmark. Hercules plants and facilities, which are continually added to and modernized, are generally considered to be in good condition and adequate for business operations. From time to time Hercules discontinues operations at, or disposes of, facilities that have for one reason or another become unsuitable. ITEM 3. LEGAL PROCEEDINGS: In September 1993, Hercules and the U.S. Environmental Protection Agency (EPA) Region 1 reached an agreement in principle in settlement of the EPA's claims that Hercules violated its wastewater permit with the City of Chicopee and the Federal pretreatment standard for industrial users of publicly owned treatment works at its Chicopee, Massachusetts facility. Hercules signed a Consent Decree, which was entered by the court on December 15, 1994, based on this agreement, requiring supplemental environmental projects (at a cost of approximately $375,000), compliance with permit limits in the future, and $250,000 in fines. Hercules has paid the $250,000 fine and has completed performance of the supplemental environmental projects. On March 26, 1998, the Court granted its approval for the termination of the Consent Decree. In December 1997, Hercules received notice of an enforcement action by the State of Georgia, Environmental Protection Department (EPD). In the notice, EPD requested that Hercules enter into a proposed Consent Order, alleged violations of the Resource Conservation and Recovery Act (RCRA) and sought a civil penalty of $250,000. Hercules, without admitting liability, has entered into a Consent Order with the State of Georgia settling these claims. The Consent Order was finalized and became effective in January 1999. The consent Order requires Hercules to pay a fine of $80,000, install 3 aquaria in the Brunswick, Georgia community, maintain the aquaria for 10 years and remediate certain soils that are located at Hercules Brunswick, Georgia plant. Environmental Hercules has been identified as a potentially responsible party (PRP) by U.S. federal and state authorities, or has been sued for contribution by private parties, for the cost of environmental investigation and/or cleanup at numerous sites. The estimated range of the reasonably possible share of costs for investigation and cleanup is between $63 million and $199 million. The actual costs will depend upon numerous factors, including the number of parties found responsible at each environmental site and their ability to pay, the actual methods of remediation, outcomes of negotiations with regulatory authorities, outcomes of litigation, changes in environmental laws and regulations, technological developments, and the years of remedial activity required, which could range up to 30 years. In 1992, Hercules brought suit against its insurance carriers for past and future costs for cleanup of certain environmental sites. In April 1998, the trial regarding insurance recovery for the Jacksonville, Arkansas site (see discussion below) was completed. The jury returned a "Special Verdict Form" with findings that will, in conjunction with the Court's other opinions, be used by the Court to enter a judgment. The judgment will determine the amount of Hercules recovery for past cleanup expenditures and will state that Hercules is entitled to similar coverage for costs incurred since September 30, 1997 and in the future. Hercules has not included any insurance recovery in the estimates above. 6 7 Hercules becomes aware of sites in which it may be, but has not yet been named a PRP, principally through its knowledge of investigation of sites by the U.S. Environmental Protection Agency (EPA) or other government agencies or through correspondence with previously named PRPs requesting information on Hercules' activities at sites under investigation. In addition, Hercules has established procedures for identifying environmental issues at its respective plant sites. Environmental coordinators, familiar with environmental laws and regulations, are resources for identification of environmental issues. Further, Hercules has environmental audit programs, which are designed to identify environmental issues at operating plant sites. Through these programs and information-gathering activities, Hercules identifies potential environmental, regulatory, and remedial issues. Litigation over liability at Jacksonville, Arkansas, the most significant site, has been pending since 1980. As a result of a pretrial Court ruling in October 1993, Hercules has been held jointly and severally liable for costs incurred, and for future remediation costs, at the Jacksonville site by the District Court, Eastern District of Arkansas (the Court). Other defendants in this litigation have either settled with the government or, in the case of the Department of Defense (DOD), have not been held liable. Hercules appealed the Court's order finding the DOD not liable. On January 31, 1995, the 8th Circuit Court of Appeals upheld the Court's order. Hercules filed a petition to the U.S. Supreme Court requesting review and reversal of the 8th Circuit Court ruling. This petition was denied on June 26, 1995, and the case was remanded to the District Court for further proceedings. On May 21, 1997, the Court issued a ruling that Uniroyal is liable and that Standard Chlorine is not liable to Hercules for contribution. A trial on allocation and damages among Hercules, Uniroyal, and the United States was scheduled to begin October 1998. Through the filing of separate summary judgment motions, Hercules and Uniroyal raised a number of defenses to the United States' ability to recover its costs. On October 23, 1998, the Court denied those motions and granted the United States' summary judgment motion, ordering Hercules and Uniroyal to pay the United States approximately $103 million plus any additional response costs incurred or to be incurred after July 31, 1997. Hercules expects that this amount will be reduced by approximately $7 million, the amount received by the United States in previous settlements with other parties. Trial testimony on the issue of allocation between Hercules and Uniroyal was completed on November 6, 1998. Once a final judgment has been entered, Hercules expects to appeal the Court's determination with respect to its liability, the United States' costs, the divisibility of harm issue, and Standard Chlorine's liability. At December 31, 1998, the accrued liability for environmental remediation represents management's best estimate of the probable and reasonably estimable costs related to environmental remediation. The extent of liability is evaluated quarterly. The measurement of the liability is evaluated based on currently available information, including the process of remedial investigations at each site and the current status of negotiations with regulatory authorities regarding the method and extent of apportionment of costs among other PRPs. Hercules does not anticipate that its financial condition will be materially affected by environmental remediation costs in excess of amounts accrued, although quarterly or annual operating results could be materially affected. Litigation The company is a defendant in numerous lawsuits that arise out of, and are incidental to, the conduct of its business. In these legal proceedings, no specifically identified director, officer, or affiliate is a party or a named defendant. These suits concern issues such as product liability, contract disputes, labor-related matters, patent infringement, environmental proceedings, property damage, and personal injury matters. Hercules was a defendant in three Qui Tam (Whistle Blower) lawsuits in the U.S. District Court for the Central District of Utah, brought by former employees of the Aerospace business sold to Alliant Techsystems Inc. in March 1995. The first suit (United States of America ex. rel, Katherine A. Colunga v. Hercules Incorporated, et al., Civil No. 89-C-954B), involved allegations relating to submission of false claims and records under various government contracts, delivery of defective products, a deficient quality control program, and wrongful termination claims. The second suit (United States of America ex. rel. Benny Hullinger, et al., Civil No. 92-CV-085) involved allegations relating to submission of false claims and records, mischarging of work performed under government contracts, misuse of government equipment, other acts of financial mismanagement, and wrongful termination claims. The government, after investigation of the allegations, declined to intervene in either lawsuit. (A third Qui Tam lawsuit is described in the following paragraph.) The first lawsuit was previously scheduled for trial in June 1998. The Court denied various motions filed by Hercules, including motions for summary judgment and other 7 8 motions designed to limit the scope of the trial and the extent of damages claimed. If any damages had been awarded by the jury under the False Claims Act, such damages would have been automatically tripled by the Court, and attorneys' fees and costs would also have been added. As a result of the Court's denial of Hercules' motions, and the Court's position as to how the relevant contracts should be interpreted, which position was adverse to Hercules, damage claims could have been presented to the jury in amounts which, if awarded, would have had a material adverse effect on Hercules. The damages in the second suit were not defined. In May 1998, Hercules announced that it had agreed to settle the first lawsuit. Under the terms of the settlement, Hercules was obligated to pay $36 million to settle the case, plus another $19 million to cover the plaintiff's attorneys fees, expenses, and costs. Hercules believed no damages were incurred by the government, no false claims were made to the government, and alleged damages were speculative and unsupportable. However, because of the mounting legal costs, the prospect of treble damages, uncertainty present in any litigation, and to avoid the major costs of a lengthy trial and subsequent appeal by the losing party, management determined that the settlement was in the best interest of Hercules' shareholders. The settlement was approved by the Court and the case was dismissed in July 1998. In August 1998, the parties to the second lawsuit reached a tentative settlement, subject to approval of the Court. Although it did not intervene in the case, the U.S. Department of Justice (DOJ) objected to approval of the tentative settlement, arguing that Hercules should only be released from claims that the government contended were actually investigated, and that the proposed allocation of settlement proceeds between False Claims Act claims and wrongful termination claims should be revised to attribute a higher percentage of recovery to claims arising under the False Claims Act. On February 9, 1999, the Court entered a judgment approving the settlement and dismissing the lawsuit. The DOJ has 60 days from that date in which to file a Notice of Appeal, if it chooses to do so. The settlement was recognized in the first quarter 1998. In March 1995, Hercules sold its Aerospace business to Alliant Techsystems, Inc. As part of the sale, Hercules received an ownership interest in Alliant. In March 1997, Alliant and Hercules received a partially unsealed complaint that named both as defendants, initiated on an unknown date, and filed in an undisclosed federal Court, in a Qui Tam action by a former employee alleging violations of the False Claims Act. The action was subsequently identified as United States of America ex. rel. P. Robert Pratt v. Alliant Techsystems, Inc and Hercules Incorporated, Civil No. 95-4812 SVW (JGx) in the U.S. District Court for the Central District of California. The action alleged labor mischarging at Alliant's Bacchus Works facility in Magna, Utah, and contained a claim for wrongful termination. Damages were not specified, and Alliant and Hercules agreed to share equally the cost of defense until such time as a determination is made as to the applicability of the indemnification provisions of the Purchase and Sale Agreement between Alliant and Hercules. In February 1998, the parties reached a tentative settlement, which has since been finalized, under which all claims alleging mischarging to the Intermediate Nuclear Forces Contract were settled. The settlement was recognized in the fourth quarter 1997. Other portions of the complaint, which included allegations of mischarging to other government contracts and claims for wrongful termination of employment were not resolved by the settlement. The government did not intervene in these other matters. In August 1998, the parties reached a tentative settlement of the remaining portions of the complaint, subject to approval of the Court. The DOJ objected to approval of the tentative settlement, arguing that Hercules should only be released from claims that the government contended were actually investigated, and that the settlement agreement should have contained certain provisions preventing Alliant from recovering certain costs under its government contracts. On February 17, 1999, the Court entered a judgment approving the settlement and dismissing the lawsuit. The DOJ has 60 days from that date in which to file a Notice of Appeal, if it chooses to do so. The settlement was recognized in the first quarter 1998. In addition to the Jacksonville, Arkansas, site litigation described above, two individuals have sued Hercules in a lawsuit captioned Jeffrey Shelton, Jr., et al. v. Hercules Incorporated, Civil No. LR-C-97-131 (E.D. Ark. 1997). These individuals seek medical monitoring and damages for loss of recreational opportunities. They have brought a Resource Conservation and Recovery Act (RCRA) citizens suit against Hercules seeking an injunction which would require Hercules to fund or perform various environmental and health studies and pay for any required remediation to the Bayou Meto. Trial is presently scheduled for August 1999. Further, 19 individuals have sued Hercules in a matter entitled Gary Graham, et al. v. Vertac Chemical Corporation and Hercules Incorporated, No. LR-C-98-678 (E.D. Ark. 1998). These individuals seek damages for personal injuries and diminution of property value as a result of alleged dioxin contamination from the Jacksonville site. Trial is presently scheduled for August 1999. Hercules denies liability in both actions, and Hercules intends to vigorously defend itself. BetzDearborn, along with Pacific Gas and Electric (PG&E), is a defendant in four lawsuits involving in the aggregate approximately 2,350 plaintiffs pending in the Superior Court of Los Angeles County, California (the 8 9 Lawsuits). Plaintiffs are comprised primarily of present and former PG&E employees, their families, and residents living in the vicinity of the three PG&E facilities that are the subject of the Lawsuits. Plaintiffs seek unspecified monetary damages (including punitive damages) for personal injuries arising from alleged exposures to chromate-based products sold or allegedly sold by Betz Laboratories, Inc. (predecessor to BetzDearborn) to PG&E for use in the cooling towers located at these facilities. The sales in question occurred or allegedly occurred at various times between 1952 and the mid-1980s, depending upon the facility. In the Acosta, Aguilar, and Aguayo cases, the parties have selected 20 plaintiffs and 2 alternates whose claims will be tried together, and prior to the claims for the remaining plaintiffs in the Lawsuits. It is anticipated that the 20 plaintiffs' claims will be tried in late 1999. BetzDearborn denies any legal liability to plaintiffs, believes it has substantial defenses, and intends to contest the claims vigorously. BetzDearborn further believes that any claim for punitive damages is without any legitimate basis in fact or law. The Lawsuits are captioned as follows: Acosta, et al. v. Betz Laboratories, et al., No. BC 161 669 (1996); Adams, et al. v. Betz Laboratories, et al., No. BC 113 000 (1994); Aguilar, et al. v. Betz Laboratories, et al., No. BC 158 588 (1996); and Aguayo et al. v. Betz Laboratories, et al., No. BC 123 749 (1995). Although both BetzDearborn and PG&E are named as defendants in each of the Lawsuits, not all plaintiffs seek damages from both defendants. PG&E previously settled a lawsuit brought by many of the same individuals who are plaintiffs in the Adams lawsuit; as a result, PG&E will have no additional liability to those plaintiffs. In October 1998, BetzDearborn and PG&E settled a fifth lawsuit relating to alleged exposure to chromate-based products sold or allegedly sold by Betz Laboratories, Inc. to PG&E for use in cooling towers at one or more of the PG&E facilities. That lawsuit was captioned Riep, et al. v. Betz Laboratories, et al., No. 984695 (San Francisco County, 1997). The amount of the settlement was not material. BetzDearborn maintained insurance coverage for the purpose of securing protection against alleged product and other liabilities, and certain of the insurance carriers have undertaken to pay the cost of the defense of the Lawsuits subject to various reservations of rights. BetzDearborn will pursue all available insurance coverage to fund any damages payable to plaintiffs in connection with the Lawsuits (excluding any punitive damages to the extent not recoverable under BetzDearborn's insurance policies). While it is not feasible to predict the outcome of all pending suits and claims, the ultimate resolution of these matters could have a material effect upon the financial position of Hercules, and the resolution of any of the matters during a specific period could have a material effect on the quarterly or annual operating results for that period. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: No matter was submitted to a vote of security holders during the fourth quarter of 1998, through the solicitations of proxies or otherwise. 9 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS: Hercules Incorporated common stock is listed on the New York Stock Exchange (ticker symbol HPC), The Stock Exchange, London, and the Swiss Stock Exchanges. It is also traded on the Philadelphia, Midwest, and Pacific Exchanges. The approximate number of holders of record of common stock ($25/48 stated value) as of February 24, 1999, was 19,039.
Period High Low ------ ---- --- 1997 First Quarter............................................... 47 7/8 41 1/2 Second Quarter.............................................. 49 3/16 37 3/4 Third Quarter............................................... 54 1/2 47 7/8 Fourth Quarter.............................................. 50 3/4 41 9/16 1998 First Quarter............................................... 51 3/8 45 3/16 Second Quarter.............................................. 50 1/2 40 1/2 Third Quarter............................................... 41 1/4 24 5/8 Fourth Quarter.............................................. 35 1/2 24 15/16
On December 31, 1998, the closing price of the common stock was 27 1/4. The company has paid quarterly cash dividends as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ----------- ----------- ----------- 1997 ................................. $0.25 $0.25 $0.25 $0.25 1998 ................................. $0.27 $0.27 $0.27 $0.27
10 11 ITEM 6. SELECTED FINANCIAL DATA: A summary of selected financial data for Hercules for the years and year ends specified is set forth in the table below.
(Dollars and shares in millions, except per share) - ------------------------------------------------------------------------------------------------------------------------------- FOR THE YEAR 1998* 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- Net sales $2,145 $1,866 $2,060 $2,427 $2,821 Profit from operations 192 228 441 363 419 Income before effect of change in accounting principle 9 324 325 333 274 Net income 9 319 325 333 274 Dividends 104 98 95 95 89 Per share of common stock Basic: Earnings before effect of change in accounting principle .10 3.27 3.10 2.98 2.32 Earnings .10 3.22 3.10 2.98 2.32 Diluted: Earnings before effect of change in accounting principle .10 3.18 2.98 2.87 2.23 Earnings .10 3.13 2.98 2.87 2.23 Dividends 1.08 1.00 .92 .84 .75 Total assets 5,833 2,411 2,386 2,493 2,941 Long-term debt 3,096 419 345 298 307 Company-obligated preferred securities of subsidiary trust 200 -- -- -- --
* 1998 includes significant acquisitions (see Notes 1 and 21.) ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: This discussion should be read in connection with the information contained in the Consolidated Financial Statements and Notes thereto. ACQUISITIONS, DIVESTITURES, AND ONE-TIME ITEMS In 1998, Hercules made five major acquisitions for an aggregate purchase price of approximately $3,620 million, primarily in cash and assumed debt. (See Note 1.) These acquisitions were accounted for on the purchase method of accounting, resulting in $2,531 million of goodwill and other intangible assets, and were financed with borrowed funds. Total debt increased by $2,968 million in the same period. The combined annual revenue of the acquired businesses is approximately $1,600 million. The largest of these acquisitions was the purchase of BetzDearborn Inc., a global specialty chemical company providing water and process treatment to a variety of commercial and industrial processes. BetzDearborn reported 1997 revenue of approximately $1,295 million. This acquisition not only adds a new franchise to Hercules' portfolio, it transforms Hercules' paper chemicals business into a full service provider to the pulp and paper industry. Additionally, the company acquired Houghton International's paper chemicals group; Citrus Colloids, a pectin manufacturer; Alliance Technical Products, a manufacturer of resins serving the water-based adhesives industry; and the 49% share of FiberVisions owned by Hercules' joint venture partner, making it a wholly owned subsidiary of Hercules. 11 12 This business is the world's largest producer of thermal-bond fiber for disposable diapers and other hygienic products. The results of operations of the acquired businesses are included in the consolidated financial statements from the dates of acquisition. In 1998, these businesses added $363 million and $41 million of revenue and operating profit, respectively, after amortization of goodwill and intangible assets of $19 million, reflected in selling, general and administrative expenses. Interest and debt expense increased significantly as a result of the increased debt. Primarily as a result of the acquisitions, Hercules incurred charges of $232 million before taxes ($197 million net of income taxes) in the fourth quarter of 1998; $215 million is reflected in Profit from operations and $17 million is reflected in Other income (expense). The largest portion of these charges is $130 million for purchased in-process research and development related to the acquisition of BetzDearborn. (See Note 14.) The remainder of the charges relates to the company's plans and actions to integrate the operations of BetzDearborn and improve the efficiencies of its existing operations and support activities. Charges include employee termination benefits, exit costs related to facility closures, write-downs of property, plant and equipment, integration expenses, and contract terminations. (See Notes 15 and 17.) These actions are anticipated to yield synergies of at least $125 million before taxes on an annual basis; approximately half of these are expected to be realized by the end of 1999 and the remainder by the end of 2000. Additional integration expenses are expected to be incurred during 1999. Other income (expense) in 1998 also includes a $62 million charge from the settlements of long-standing "whistle-blower" lawsuits related to the divested Aerospace business. (See Note 22.) Other operating expenses in 1997 included charges of $167 million for asset rationalizations and impairments, termination benefits primarily associated with reorganization of management and the adoption of new competitive strategies, and other costs. (See Note 15.) Additionally, Other income (expense) in 1997 reflects the following items: a $20 million charge related to acquisition activity; a $32 million charge for legal settlements; and a $368 million gain from the monetization of Hercules' investment in Tastemaker. (See Note 17.) Profit from operations in 1996 included $13 million of probable environmental recoveries, a $2 million favorable settlement of an environmental remediation claim, and a $3 million favorable adjustment to spare parts inventories. Hercules divested or joint ventured several businesses in 1996 and 1997. Revenues and operating profits related to these businesses were $84 million and $9 million, respectively, in 1997 and $286 million and $25 million, respectively, in 1996. SEGMENT REPORTING In 1998, Hercules adopted Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information." (See Note 24.) In compliance with SFAS 131 and as a result of the acquisition of BetzDearborn, the company has identified three reportable segments and has restated prior years to conform with the 1998 presentation. The three segments are: Process Chemicals and Services, comprised of Pulp and Paper, and BetzDearborn; Functional Products, comprised of Aqualon and Food Gums; and Chemical Specialties, comprised of Resins and FiberVisions. Accordingly, the segment comparisons provided herein are on the basis prescribed by this standard. RESULTS OF OPERATIONS (All comparisons are with the previous year, unless otherwise stated.) 1998 vs. 1997: Consolidated revenues increased $279 million or 15% as the increase in revenues from acquisitions was partially offset by the effects of the economic crisis in Southeast Asia, the strength of the U.S. dollar, and competitive pricing pressures. Consolidated profit from operations declined $36 million or 16%. However, after adjusting for the impact of the one-time items described in the previous section, profit from operations increased $12 million or 3%, while operating margins decreased from 21.2% in 1997 to 19.0% in 1998. These results are due to the operating profit impact of the revenue variance noted above, coupled with manufacturing cost improvement initiatives, partly offset by higher selling, general, and administrative expenses. Process Chemicals and Services segment revenues increased 62%, resulting from acquisitions. Excluding acquisitions, revenues in this segment were negatively impacted by competitive pricing pressures, the impact of 12 13 the economic crisis in Southeast Asia, and the weakness of foreign currencies relative to the dollar. Profit from operations increased 31% as the favorable impact of acquisitions was partly offset by the adverse revenue impacts described above, higher raw material costs used in the production of wet strength products in Europe, and higher selling, general, and administrative expenses. Functional Products segment revenues declined 4% on lower volumes, particularly in Asia and Eastern Europe, and also the U.S. oilfield markets, along with the negative impact of weaker foreign currencies relative to the dollar, partly offset by acquired revenues and improved pectin pricing. Profit from operations declined 4%. This was the result of improved manufacturing costs and pectin pricing mitigating the volume declines and the negative impact of the weaker foreign currencies noted above. Chemical Specialties segment revenues increased 8% as the additional revenues from acquisitions were partly offset by lower pricing across the major Resins product lines both in the U.S. and in Europe. Profit from operations rose 12% as the profit from acquisitions was partly offset by the pricing declines in Resins. 1997 VS. 1996: Consolidated revenues declined $194 million or 9%, primarily due to divestitures, partly offset by generally higher volumes. Weaker foreign currencies impacted consolidated sales $88 million, or 4%. Profit from operations declined $213 million or 48%. Excluding divestitures and one-time items described in the previous section, profit from operations decreased $12 million or 3%, on a comparable basis. Higher volumes and manufacturing cost improvements were offset by weaker foreign currencies, which negatively impacted consolidated profit from operations $19 million or 5%. Process Chemicals and Services revenues decreased 2% as higher volume from increased market share of wet strength products in Europe and in alkaline size associated with stronger industry-wide operating rates were essentially offset by regional competitive pricing pressure across all major product lines and weaker foreign currencies relative to the dollar. Profit from operations declined 7% primarily due to the effects of lower pricing, higher selling, general, and administrative expense spending, along with the negative effect of the weaker foreign currencies relative to the dollar. These negative impacts were only partly offset by lower raw material costs in the production of alkaline size and wet strength products and the beneficial impact of continuing manufacturing cost improvement initiatives. Functional Products revenues declined $26 million or 3% primarily due to the divestiture of a business unit, generally softer pricing, and weaker foreign currencies relative to the dollar. These declines were partly offset by higher water-soluble polymers and food gums volumes in various applications. Profit from operations increased $4 million or 2% as a result of the volume improvement described above, along with manufacturing cost improvement initiatives partly offset by the divested business. Chemical Specialties revenues declined 17% primarily due to the formation of the FiberVisions joint venture in June 1997, the divestiture of a business unit, and weaker foreign currencies relative to the dollar, partly offset by Resins volume improvements. Profit from operations decreased 29% primarily due to the divestitures, higher manufacturing costs at several Resins plants resulting from the introduction of new processes and operability issues, and the effect of the weaker foreign currencies relative to the dollar. Equity in income of affiliated companies declined in 1998 and in 1997 as a result of the monetization of Hercules' investment in Alliant Techsystems in 1997 and 1998 and the monetization of Hercules' investment in Tastemaker in 1997. (See Note 21.) The provision for income taxes reflects effective tax rates of 88% in 1998, 45% in 1997 and 33% in 1996. Both the 1998 and 1997 rates are significantly higher than the federal statutory income tax rate of 35%. The 1998 rate is high because the charges for purchased in-process research and development and goodwill amortization are not deductible for income tax purposes. The impact of these nondeductible items was reduced by favorable state tax settlements relating to a prior year's sale of an investment and favorable federal tax adjustments related to prior years' assessments. The 1997 rate reflects the relatively higher tax rate on the monetization of the Tastemaker and Alliant Techsystems investments, along with required increases to tax reserves related to anticipated assessments from federal, state, and foreign authorities. The 1996 rate was favorably affected by tax loss carryforwards. The 1999 tax rate is anticipated to be approximately 40%, reflecting the effects of the nondeductible goodwill. 13 14 FINANCIAL CONDITION Liquidity and financial resources: Net cash flow from operations was $181 million in 1998, $187 million in 1997, and $225 million in 1996. 1998 included higher interest payments related to increased debt and higher payments of legal settlements, offset by lower income tax payments and cash flow from acquired businesses. 1997 decreased primarily from lower trade payables, severance payments, and higher legal and environmental spending, partially offset by lower tax payments. As noted above, during 1998, the company completed five acquisitions for approximately $3.62 billion, primarily in cash and assumed debt. The company financed the acquisitions and refinanced existing debt with borrowings under a $3.65 billion credit facility with a syndicate of banks. Borrowings consisted of three tranches of varying maturity term loans totaling $2.75 billion due in various amounts through December 2003. The facility bears interest at London Interbank Offered Rate (LIBOR) plus 2% and may decrease to LIBOR plus .75% after six months if a $500 million term-loan tranche has been repaid. The credit facility includes a $900 million revolving credit agreement. The company's debt agreement contains restrictive covenants that require maintenance of certain financial covenants, including leverage, net worth, and interest coverage, and provides that the entry of a judgment or judgments involving aggregate liabilities of $50 million or more be vacated, discharged, stayed, or bonded within 60 days of entry of such judgment or judgments. In September 1998, the company filed a shelf registration to increase accessible securities from $300 million to $3.0 billion. The registration allows for issuance of equity, equity-like, and debt securities. In November 1998, a wholly owned subsidiary of the company completed a private placement of units consisting of $200 million in Trust-preferred securities and a forward underwriting contract to purchase Hercules common stock. The Trust's obligation is guaranteed by the company. (See Note 7.) The securities are expected to be remarketed within 12 months of their issuance. Under certain circumstances, Hercules may be required to redeem these securities. In addition, Hercules has agreed to sell $200 million of Hercules common stock following the successful remarketing or redemption of the securities. In March 1999, another wholly owned subsidiary trust of the company commenced a public offering, under the registration statement noted above, to sell $250 million of Trust Originated Preferred Securities. As an update to the foregoing, the offering was over-subscribed and the Trust sold an aggregate of $362 million of Trust Originated Preferred Securities on March 17, 1999. Proceeds of the offering were used to repay long-term debt. The Trust's obligations will be guaranteed by the company. Issuance of Hercules common stock and the Trust Originated Preferred Securities, in the updated amount, reduced the amount accessible under the shelf registration to $2.438 billion. Hercules anticipates issuing additional equity-like securities to repay long-term debt during 1999. As of December 31, 1998, the company has $612 million available under the revolving credit agreement and $219 million of short-term lines of credit. Capital Structure and Commitments: Total capitalization (stockholders' equity, trust-preferred securities, and debt) increased to $4.4 billion at December 31, 1998, from $1.4 billion in the prior year. The debt-to-total capitalization ratio increased to 83% at year-end 1998 from 50% at year-end 1997 and 43% at the end of 1996. The significant increase in the ratio in 1998 is from debt financing of acquisitions. The increase in 1997 is from lower stockholders' equity as a result of the company's stock repurchase program combined with an increase in total debt. Over the next several years, management plans to reduce the company's debt-to-total capitalization ratio to pre-acquisition levels. The company has maintained investment grade rating on outstanding debt. A quarterly dividend has been paid without interruption since 1913, the company's first year of operation. The annual dividend of $1.08 per share during 1998 represents a total pay out for the year of $104 million. This reflects an 8% increase announced in December 1997 and payable March 25, 1998, to shareholders of record on March 6, 1998. Capital expenditures during 1998 were $157 million, with 27% of the expenditures related to increased production capacity, compared with 38% in 1997 and 29% in 1996. The remainder mostly relates to cost-savings projects, capacity maintenance, and regulatory requirements. The increase in 1998 capital expenditures of approximately $38 million over 1997 and 1996 is primarily from companies acquired in 1998 and higher spending in the Functional Products segment. Capital expenditures are expected to approximate $240 million during 1999. This 14 15 includes funds for continuing or completing existing projects and new expansion projects, including the methylcellulose expansion in Doel, Belgium, and the pectin expansion in Grossenbrode, Germany. YEAR 2000 Readiness The company has recognized the need to ensure that its operations and relationships with its business partners will not be adversely affected by the Year 2000 problem, and thus has developed and implemented a comprehensive project that addresses those areas of vulnerability. A cross-functional Year 2000 Program Office has been created by the company at the corporate level to coordinate and provide policies, guidance, and support for its Year 2000 initiatives. Site compliance teams have been formed at all major sites worldwide. The areas addressed by the Program Office include: -- Corporate and plant computer systems -- Desktop and telecommunications systems -- Safety, environmental and quality systems -- Process control systems and plant floor equipment and devices with embedded chips -- Equipment manufactured by or for the BetzDearborn Division and sold to customers -- Business partner and supply chain risk management A risk management plan has been developed for Hercules' business partners, including suppliers, shippers, financial institutions and service providers involving direct communications to them and feedback analysis to assess their Year 2000 readiness as it relates to their potential impact on Hercules' business. Contingency plans are being developed in those cases where the company appears to be at risk. The company is engaged in a major project to implement SAP R/3(TM) software. All vendor supplied SAP code is Year 2000 compliant. The resulting systems comprise the company's core business systems, including sales and distribution, inventory and purchasing, finance and control, product costing, human resources and payroll, and fixed assets. Other internally developed programs are still in the process of being tested for Year 2000 compliance. The system is in the process of being rolled out in North America and Europe. The most critical applications are either already operational or will be in early 1999. Overall, the project is on schedule to be completed by third quarter 1999. In other regions of the world, only minor changes are required to make the core business systems Year 2000 compliant. The recently acquired BetzDearborn Division is also in the process of implementing SAP R/3(TM) software and is on schedule to complete its program in the second quarter of 1999 in North America. BetzDearborn's Information Technology (IT) systems in other regions are or will be Year 2000 compliant by second quarter 1999. For all plants and departments, inventories have been taken of equipment that may have an embedded chip. Assessments of the compliance status and potential impact on company operations and remediation plans are being completed. Additionally, suppliers of raw materials and other critical services have been identified. Questionnaires requesting Year 2000 status have been sent to all major identified suppliers. Identification of the most critical suppliers is in progress and, where necessary, additional research is being conducted. Contingency plans are being developed or alternate suppliers identified in those cases where the company appears at risk. The BetzDearborn Division sells chemical feed equipment installed at customer sites. Earlier versions of this equipment were not Year 2000 compliant. A kit to make this equipment Year 2000 compliant has been designed and tested. Affected equipment will be updated through both regular and Year 2000 specific service visits of the field technicians. It is also possible that some customers may be unable to place orders or conduct business due to their potential inability to cope with the Year 2000. Due to the broad dispersion of sales among Hercules' customer base, there are currently no plans to conduct any customer readiness assessments. 15 16 Costs The primary strategy for achieving Year 2000 compliance is the replacement of the core business systems through the installation of SAP R/3(TM) software. For non-IT systems, operational staff conducted departmental inventories under the direction of an outside consulting firm. The company is in the process of identifying the costs associated with any necessary process control equipment upgrades or replacements. The company has also engaged outside consultants specializing in Year 2000 readiness programs to provide support to the program office in the final stages of Year 2000 readiness and compliance. The total cost of the Year 2000 project is currently estimated to be approximately $8 million and approximately 45% has been spent to date. This cost estimate does not include the cost to upgrade or replace process control equipment. These costs are expensed as incurred and are being funded through operating cash flow. The cost of implementing the SAP R/3(TM) replacement system is not included in the Year 2000 project cost estimate. Risks and Contingency Plans Failure to complete implementation of the SAP system by the end of 1999 would represent the worst case Year 2000 scenario for Hercules. At the present time, the company believes that the implementation efforts will be completed as scheduled so that the risks of material adverse consequences to the company's results of operations, liquidity, or financial condition, as a result of its Year 2000 readiness, should be reduced. Some of Hercules' production facilities are similar in nature and products could be manufactured and shipped from alternate locations. At these locations, there are feasible manual procedures that can be implemented in the case of a Year 2000 related failure. For cases where product cannot be made in multiple locations or where manual procedures are not feasible, appropriate contingency plans are being developed and are targeted for completion in the third quarter of 1999. The company believes that it is unlikely to experience a material adverse effect to its business, results of operations, liquidity, or financial condition as a result of Year 2000 related failures. Forward-looking Statements The foregoing Year 2000 discussion includes forward-looking statements of the company's efforts and management's expectations relating to Year 2000 readiness. The company's ability to achieve Year 2000 compliance and the level of incremental costs associated therewith could be adversely affected by, among other things, the availability and cost of remediation and testing resources, vendors' and customers' abilities to install or modify IT and non-IT systems and unanticipated problems identified in the ongoing Year 2000 readiness review. The costs of the Year 2000 project and the dates by which the company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third parties' remediation plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained to perform Year 2000 modifications; the ability of the company to locate and correct all non-compliant computer codes and embedded controls; the ability of material customers, suppliers, and trading partners to successfully complete their own Year 2000 remediation projects; the accuracy of information received from third parties concerning the Year 2000 compliance of their information systems or automated equipment or concerning their Year 2000 business risk assessments; and similar uncertainties. CONVERSION TO THE EURO CURRENCY On January 1, 1999, the Euro was adopted as the common legal currency, in coexistence with the national currencies for 11 European Union member nations until January 1, 2002. Hercules started its preparations in early 1997 with internal Euro awareness training and the formation of a multifunctional project team. Since then the company's Euro team has developed and implemented a strategic action plan that positioned the company for the Euro by mid-1998. This plan consisted of a project portfolio that was implemented in the second half of 1998. The company has made the necessary adjustments to its IT systems to ensure compliance of all business transactional Euro requirements and is preparing its IT systems for the withdrawal of the national currencies by January 1, 2002, after which the 16 17 Euro becomes the sole legal currency for the 11 member states. The company will be prepared for any European Union nation that enters the Euro. The company has communicated its strategy to deal in Euro with its business partners in Euro-participating countries, and it will continuously reconcile its strategy with its business partners to maintain the competitive position of the company. The company has trained its employees and ensures compliance with all legal and tax implications of the Euro. The company does not expect major differences in its exchange rate and interest rate risk from the Euro. The company does not expect the Euro adoption to have a material adverse impact on its financial condition or results of operations. RISK FACTORS Market Risk - Fluctuations in interest and foreign currency exchange rates affect the company's financial position and results of operations. The company uses several strategies to actively hedge interest rate and foreign currency exposure and minimize the effect of such fluctuations on reported earnings and cash flow. (See "Foreign Currency Translation" and "Financial Instruments and Hedging" in the Summary of Significant Accounting Policies and Notes 17 and 20.) Sensitivity of the company's financial instruments to selected changes in market rates and prices, which are reasonably possible over a one-year period, are described below. Market values are the present value of projected future cash flows based on the market rates and prices chosen. The market values for interest rate risk are calculated by the company utilizing a third-party software model that utilizes standard pricing models to determine the present value of the instruments based on the market conditions as of the valuation date. The company's derivative and other financial instruments subject to interest rate risk consist of debt instruments, interest rate swaps, and currency swaps. In addition, at December 31, 1997, the company held a five-year $500 million note received as a result of the Tastemaker transaction, which it sold during 1998. At December 31, 1998 and 1997, net market value of these combined instruments was a liability of $3.66 billion and $239 million, respectively. The increase is primarily the result of acquisition debt incurred during 1998. The sensitivity analysis assumes an instantaneous 100-basis point move in interest rates from their levels, with all other variables held constant. A 100-basis point increase in interest rates at December 31, 1998 and 1997 would result in a $36 million and $24 million decrease in the net market value of the liability, respectively. A 100-basis point decrease in interest rates at December 31, 1998 and 1997 would result in a $45 million and $33 million increase in the net market value of the liability, respectively. The market value of the company's portfolio of financial instruments subject to equity price risk at December 31, 1998 and 1997, was an asset of $22 million and $51 million, respectively. The sensitivity analysis assumes an instantaneous 10% change in valuation with all other variables held constant. A 10% change at December 31, 1998 and 1997, would increase or decrease the asset position by $2 million and $5 million, respectively. The company's financial instruments subject to foreign currency exchange risk consist of foreign currency forwards and options and represent a net asset position of $6 million and $2 million at December 31, 1998 and 1997, respectively. The sensitivity analysis assumes an instantaneous 10% change in foreign currency exchange rates from year-end levels, with all other variables held constant. At December 31, 1998 and 1997, a 10% strengthening of the U.S. dollar versus other currencies would result in an increase in the net asset position of $63 million and $14 million, respectively, while a 10% weakening of the dollar versus all other currencies would result in a decrease of $78 million and $18 million, respectively. Foreign exchange forward and option contracts are used to hedge the company's firm and anticipated foreign currency cash flows. Thus, there is either an asset or cash flow exposure related to all the financial instruments in the above sensitivity analysis for which the impact of a movement in exchange rates would be in the opposite direction and substantially equal to the impact on the instruments in the analysis. There are presently no significant restrictions on the remittance of funds generated by the company's operations outside the United States. Environmental - Hercules has been identified by U.S. federal and state authorities as a potentially responsible party for environmental cleanup at numerous sites. The estimated range of reasonably possible costs for 17 18 remediation is between $63 million and $199 million. The company does not anticipate that its financial condition will be materially affected by environmental remediation costs in excess of amounts accrued, although quarterly or annual operating results could be materially affected. (See Note 22.) Environmental remediation expenses are funded from internal sources of cash. Such expenses are not expected to have a significant effect on the company's ongoing liquidity. Environmental cleanup costs, including capital expenditures for ongoing operations, are a normal, recurring part of operations and are not significant in relation to total operating costs or cash flows. Litigation - Hercules is a defendant in numerous lawsuits that arise out of, and are incidental to, the conduct of its business. These suits concern issues such as product liability, contract disputes, labor-related matters, patent infringement, environmental proceedings, property damage, and personal injury matters. While it is not feasible to predict the outcome of all pending suits and claims, the ultimate resolution of these matters could have a material effect upon the financial position of Hercules, and the resolution of any of the matters during a specific period could have a material effect on the quarterly or annual operating results for that period. (See Note 22.) FORWARD-LOOKING STATEMENT This annual report includes forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, reflecting management's current analysis and expectations, based on reasonable assumptions. Results could differ materially depending on such factors as business climate, economic and competitive uncertainties, higher manufacturing costs, reduced level of customer orders, ability to integrate BetzDearborn, changes in strategies, risks in developing new products and technologies, the ability of Hercules' customers and suppliers to achieve Year 2000 readiness, environmental and safety regulations and clean-up costs, foreign exchange rates, adverse legal and regulatory developments, and adverse changes in economic and political climates around the world. Accordingly, there can be no assurance that the company will meet analysts' earnings estimates. As appropriate, additional factors are contained in reports filed with the Securities and Exchange Commission. This paragraph is included to provide safe harbor for forward-looking statements, which are not required to be publicly revised as circumstances change. 18 19 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK: For discussion of quantitative and qualitative disclosures about market risk, see the caption "Risk Factors" under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND REQUIRED SUPPLEMENTARY DATA HERCULES INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Accountants................................................................ 20 Consolidated Statement of Income for the Years Ended December 31, 1998, 1997, and 1996.......................................................................................... 21 Consolidated Balance Sheet as of December 31, 1998 and 1997...................................... 22 Consolidated Statement of Cash Flow for the Years Ended December 31, 1998, 1997, and 1996.......................................................................................... 23 Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 1998, 1997, and 1996................................................................................ 24 Consolidated Statement of Comprehensive Income for the Years Ended December 31, 1998, 1997, and 1996.......................................................................... 25 Notes to Consolidated Financial Statements....................................................... 26-50 SUPPLEMENTARY DATA Summary of Quarterly Results (Unaudited)......................................................... 51 Subsidiaries of Registrant....................................................................... 52
19 20 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and the Board of Directors of Hercules Incorporated Wilmington, Delaware In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Hercules Incorporated and subsidiary companies at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page 54 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards that 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 23 to the financial statements, in 1997, the company changed its method of accounting for costs incurred in connection with its enterprise software installation. /s/ PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 19, 1999 20 21
HERCULES INCORPORATED CONSOLIDATED STATEMENT OF INCOME (Dollar in millions, except per share) Year ended December 31, - ------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 ---- ---- ---- Net sales $2,145 $1,866 $ 2,060 ------ ------ ------- Cost of sales 1,287 1,169 1,320 Selling, general, and administrative expenses 399 251 262 Research and development 61 53 56 Purchased in-process research and development (Note 14) 130 -- -- Other operating expenses (income), net (Note 15) 76 165 (19) ------ ------ ------- Profit from operations 192 228 441 Equity in income of affiliated companies 10 30 53 Interest and debt expense (Note 16) 103 39 35 Other income (expense), net (Note 17) (22) 374 26 ------ ------ ------- Income before income taxes and effect of change in accounting principle 77 593 485 Provision for income taxes (Note 18) 68 269 160 ------ ------ ------- Income before effect of change in accounting principle 9 324 325 Effect of change in accounting principle (Note 23) -- (5) -- ------ ------ ------- Net income $ 9 $ 319 $ 325 ====== ====== ======= Earnings per share (Note 19) Basic: Earnings before effect of change in accounting principle $.10 $3.27 $3.10 Effect of change in accounting principle -- (.05) -- ------ ------ ------- Earnings per share $.10 $3.22 $3.10 ====== ====== ======= Diluted: Earnings before effect of change in accounting principle $.10 $3.18 $2.98 Effect of change in accounting principle -- (.05) -- ------ ------ ------- Earnings per share $.10 $3.13 $2.98 ====== ====== =======
The accompanying accounting policies and notes are an integral part of the consolidated financial statements. 21 22
HERCULES INCORPORATED CONSOLIDATED BALANCE SHEET (Dollar in millions) December 31, - --------------------------------------------------------------------------------------------------------------------- 1998 1997 ---- ---- ASSETS Current assets Cash and cash equivalents $ 68 $ 17 Accounts receivable, net (Note 2) 663 389 Inventories (Note 3) 416 234 Deferred income taxes (Note 18) 93 49 ------ ------ Total current assets 1,240 689 Property, plant, and equipment, net (Note 12) 1,438 687 Investments (Note 4) 51 615 Goodwill (net of accumulated amortization - 1998, $28; 1997, $12) 2,356 41 Other intangible assets (net of accumulated amortization - 1998, $22; 1997, $15) 192 3 Prepaid pension (Note 13) 218 216 Deferred charges and other assets 338 160 ------ ------ Total assets $5,833 $2,411 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 270 $ 116 Short-term debt (Note 5) 566 275 Accrued expenses (Note 12) 481 408 ------ ------ Total current liabilities 1,317 799 Long-term debt (Note 6) 3,096 419 Deferred income taxes (Note 18) 225 160 Other postretirement benefits (Note 13) 136 139 Deferred credits and other liabilities 300 204 ------ ------ Total liabilities 5,074 1,721 Company-obligated preferred securities of subsidiary trust (Note 7) 200 -- Stockholders' equity Series preferred stock (Note 8) -- -- Common stock, $25/48 par value (Note 9) 81 80 (shares issued: 1998 - 154,823,496; 1997 - 154,357,015) Additional paid-in capital 504 504 Unearned compensation (Note 10) (130) -- Foreign currency translation adjustment (13) (2) Retained earnings 2,068 2,163 ------ ------ 2,510 2,745 Reacquired stock, at cost (shares: 1998 - 53,995,692; 1997 - 58,289,376) 1,951 2,055 ------ ------ Total stockholders' equity 559 690 ------ ------ Total liabilities and stockholders' equity $5,833 $2,411 ====== ======
The accompanying accounting policies and notes are an integral part of the consolidated financial statements. 22 23 HERCULES INCORPORATED CONSOLIDATED STATEMENT OF CASH FLOW
(Dollar in millions) Year Ended December 31, __________________________________________________________________________________________________ 1998 1997 1996 CASH FLOW FROM OPERATING ACTIVITIES: Net Income $ 9 $319 $325 Adjustments to reconcile net income to net cash provided from operations: Depreciation 86 73 106 Amortization 22 3 2 Write-off in-process research and development 130 -- -- Nonoperating gain on disposals (23) (398) (22) Noncash charges (credits) 38 92 (26) Other (6) 15 5 Accruals and deferrals of cash receipts and payments: Affiliates' earnings in excess of dividends received (6) (25) (25) Accounts receivable 26 (41) 6 Inventories (14) (6) (17) Accounts payable and accrued expenses (72) 137 (83) Noncurrent assets and liabilities (9) 18 (46) ------- ------ ----- Net cash provided by operations 181 187 225 ------- ------ ----- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures (157) (119) (120) Proceeds of investment and fixed asset disposals 600 295 196 Acquisitions, net of cash acquired (3,109) -- -- Other (25) (34) (6) ------- ------ ----- Net cash (used in) provided by investing activities (2,691) 142 70 ------- ------ ----- CASH FLOW FROM FINANCING ACTIVITIES: Long-term debt proceeds 3,111 343 75 Long-term debt repayments (247) (130) (27) Change in short-term debt (228) (35) 112 Payment of debt issuance costs and underwriting fees (66) -- -- Proceeds from trust preferred securities 200 -- -- Common stock issued 10 38 15 Common stock reacquired (114) (458) (417) Dividends paid (104) (98) (95) ------- ------ ----- Net cash provided by (used in) financing activities 2,562 (340) (337) Effect of exchange rate changes on cash (1) (2) (1) ------- ------ ----- Net increase (decrease) in cash and cash equivalents 51 (13) (43) Cash and cash equivalents at beginning of year 17 30 73 ------- ------ ----- Cash and cash equivalents at end of year $ 68 $ 17 $ 30 ======= ====== ===== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest (net of amount capitalized) $ 100 $ 37 $ 30 Income taxes paid, net 117 152 190 Noncash investing and financing activities: Conversion of notes and debentures 8 31 1 ESOP and incentive plan stock issuances 196 15 14 Accounts payable for common stock acquisitions -- 5 8 Investment in unconsolidated affiliates -- -- 1 Investment in long-term notes -- 504 -- Accounts receivable from sale of investment/asset disposals -- 8 9 Assumed debt of acquired businesses 307 -- -- The accompanying accounting policies and notes are an integral part of the consolidated financial statements.
23 24
HERCULES INCORPORATED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Dollars in millions) Unearned Common Paid-in Compen- Translation Retained Reacquired Stock Capital sation Adjustment Earnings Stock - -------------------------------------------------------------------------------------------------------------------------------- Balances at January 1, 1996 $79 $472 $-- $ 75 $1,712 $1,256 (Common shares: issued 151,663,465; reacquired, 43,176,841) Net income -- -- -- -- 325 -- Cash dividends, $.92 per common share -- -- -- -- (95) -- Foreign currency translation adjustment -- -- -- (30) -- -- Purchase of common stock, 7,970,784 shares -- -- -- -- -- 425 Issuance of common stock: Incentive plans, net, 844,751 shares including 281,063 from reacquired stock -- 20 -- -- -- (9) Conversion of notes and debentures, 41,923 shares -- 1 -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1996 $79 $493 $ -- $ 45 $1,942 $1,672 (Common shares: issued 152,269,076; reacquired, 50,866,562) Net income -- -- -- -- 319 -- Cash dividends, $1.00 per common share -- -- -- -- (98) -- Foreign currency translation adjustment -- -- -- (47) -- -- Purchase of common stock, 9,536,619 shares -- -- -- -- -- 455 Issuance of common stock: Incentive plans, net, 2,113,805 shares from reacquired stock -- (19) -- -- -- (72) Conversion of notes and debentures, 2,087,939 shares 1 30 -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1997 $80 $504 $ -- $ (2) $2,163 $2,055 (Common shares: issued 154,357,015; reacquired, 58,289,376) Net income -- -- -- -- 9 -- Cash dividends, $1.08 per common share -- -- -- -- (104) -- Foreign currency translation adjustment -- -- -- (11) -- -- Purchase of common stock, 2,361,390 shares -- -- -- -- -- 109 Issuance of common stock: Incentive plans, net, 764,201 shares from reacquired stock -- (7) -- -- -- (27) ESOP, 5,890,873 shares from reacquired stock -- -- (130) -- -- (186) Conversion of notes and debentures, 466,481 shares 1 7 -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1998 $81 $504 $(130) $(13) $2,068 $1,951 (Common shares: issued 154,823,496; reacquired, 53,995,692)
The accompanying accounting policies and notes are an integral part of the consolidated financial statements. 24 25
HERCULES INCORPORATED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Dollars in millions) Year Ended December 31, - ------------------------------------------------------------------------------------------------- 1998 1997 1996 ---- ---- ---- Net Income $ 9 $319 $325 Foreign currency translation, net of tax (11) (47) (30) ---- ---- ---- Comprehensive income (loss) $ (2) $272 $295 ===== ==== ====
The accompanying accounting policies and notes are an integral part of the consolidated financial statements. 25 26 HERCULES INCORPORATED SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Hercules Incorporated and all majority-owned subsidiaries. Following the acquisition of BetzDearborn, the company continued BetzDearborn's practice of using a November 30 fiscal year-end for all former BetzDearborn non-U.S. subsidiaries, excluding Canada, to expedite the year-end closing process. Investments in affiliated companies with a 20% or greater ownership interest are accounted for on an equity basis and, accordingly, consolidated income includes Hercules' share of their income. USE OF ESTIMATES 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. ENVIRONMENTAL EXPENDITURES Environmental expenditures that pertain to current operations or future revenues are expensed or capitalized according to the company's capitalization policy. Expenditures for remediation of an existing condition caused by past operations that do not contribute to current or future revenues are expensed. Liabilities are recognized for remedial activities when the cleanup is probable and the cost can be reasonably estimated. CASH AND CASH EQUIVALENTS Cash in excess of operating requirements is invested in short-term, income-producing instruments. Cash equivalents include commercial paper and other securities with original maturities of 90 days or less. Book value approximates fair value because of the short maturity of those instruments. INVENTORIES Inventories are stated at the lower of cost or market. Domestic inventories are valued predominantly on the last-in, first-out (LIFO) method. Foreign and certain domestic inventories, which in the aggregate represent 67% of total inventories at December 31, 1998, are valued principally on the average-cost method. PROPERTY AND DEPRECIATION Property, plant, and equipment are stated at cost. The company changed to the straight-line method of depreciation, effective January 1, 1991, for newly acquired processing facilities and equipment. Assets acquired before then continue to be depreciated by accelerated methods. The company believes straight-line depreciation provides a better matching of costs and revenues over the lives of the assets. The estimated useful lives of depreciable assets are as follows: buildings - 30 years; plant, machinery and equipment - 15 years; other machinery and equipment - 3 to 15 years. Maintenance, repairs, and minor renewals are charged to income; major renewals and betterments are capitalized. Upon normal retirement or replacement, the cost of property (less proceeds of sale or salvage) is charged to income. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and Other intangible assets are amortized on a straight-line basis over the estimated future periods to be benefited, generally 40 years for goodwill and 5 to 15 years for other intangible assets. LONG-LIVED ASSETS The company reviews its long-lived assets, including goodwill and other intangibles, for impairment on an exception basis whenever events or changes in circumstances indicate carrying amounts of the assets may not be recoverable through future cash flows. If an impairment loss has occurred based on expected future cash flows (undiscounted), the loss is recognized in the income statement. The amount of the impairment loss is the excess of the carrying amount of the impaired asset over the fair value of the asset. The fair value represents expected future cash flows from the use of the assets, discounted at the rate used to evaluate potential investments. 26 27 FOREIGN CURRENCY TRANSLATION With the exception of operations in countries with highly inflationary economies, the financial statements of Hercules' non-U.S. entities are translated into U.S. dollars using current rates of exchange, with gains or losses included in the foreign currency translation adjustment account in the stockholders' equity section of the balance sheet. The related allocation for income taxes is not significant. For operations in countries with highly inflationary economies, financial statements are translated at either current or historical exchange rates, as appropriate. These adjustments, along with gains and losses on currency transactions (denominated in currencies other than local currency), are reflected in net income. FINANCIAL INSTRUMENTS AND HEDGING Derivative financial instruments are used to hedge risk caused by fluctuating currency and interest rates. The company enters into forward-exchange contracts and currency swaps to hedge foreign currency exposure. Decisions regarding hedging are made on a case-by-case basis, taking into consideration the amount and duration of the exposure, market volatility, and economic trends. The company uses the fair-value method of accounting, recording realized and unrealized gains and losses on these contracts quarterly. They are included in other income (expense), net, except for gains and losses on contracts to hedge specific foreign currency commitments, which are deferred and accounted for as part of the transaction. Gains or losses on contracts used to hedge the value of investments in certain non-U.S. subsidiaries are accounted for under the deferral method and are included in the foreign currency translation adjustment account. It is the company's policy to match the term of financial instruments with the term of the underlying designated item. If the designated item is an anticipated transaction no longer likely to occur, gains or losses from the instrument designated as a hedge are recognized in current period earnings. The company does not hold or issue financial instruments for trading purposes. In the Consolidated Statement of Cash Flow, the company reports the cash flows resulting from its hedging activities in the same category as the related item that is being hedged. Net investment hedges, requiring cash receipts or payments from borrowed foreign currencies not identified with any specific cash flows, are classified as financing activities. The company uses interest rate swap agreements to manage interest costs and risks associated with changing rates. The differential to be paid or received is accrued as interest rates change and is recognized in interest expense over the life of the agreements. Counterparties to the forward exchange, currency swap, and interest rate swap contracts are major financial institutions. Credit loss from counterparty nonperformance is not anticipated. STOCK-BASED COMPENSATION Compensation costs attributable to stock option and similar plans are recognized based on any difference between the quoted market price of the stock on the date of grant over the amount the employee is required to pay to acquire the stock (the intrinsic-value method under Accounting Principles Board [APB] Opinion 25). Such amount, if any, is accrued over the related vesting period, as appropriate. Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation," requires companies electing to continue to use the intrinsic-value method to make pro forma disclosures of net income and earnings per share as if the fair-value-based method of accounting had been applied. NEW ACCOUNTING STANDARDS Effective January 1, 1998, the company adopted SFAS, No. 130, "Reporting Comprehensive Income." SFAS 130 establishes standards for reporting and display of comprehensive income and its components in financial statements. This statement requires all items that are required to be recognized under accounting standards as components of comprehensive income be reported in the financial statements and displayed with the same prominence as other financial statements. In 1998, the company adopted SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." (See Note 24). PENDING ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 is effective for fiscal years beginning after June 15, 1999. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction. For fair-value hedge transactions in which the company is hedging changes in the fair value of an asset, liability, or firm commitment, changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item's fair value. For cash-flow hedge transactions, in which the company is hedging the variability of cash flows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument 27 28 will be reported in other comprehensive income. Gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current-period earnings. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance on the capitalization and amortization of costs of computer software developed or obtained for internal use, and is effective for fiscal years beginning after December 15, 1998. The company is currently capitalizing the design and implementation costs of its ongoing enterprise-wide software installation program. The company is currently evaluating the impact that these statements will have on its results of operations or financial position. RECLASSIFICATIONS Certain amounts in the 1997 and 1996 consolidated financial statements and notes have been reclassified to conform to the 1998 presentation. 28 29 HERCULES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACQUISITIONS All acquisitions have been accounted for under the purchase method. The results of operations of the acquired businesses are included in the consolidated financial statements from the dates of acquisition. BetzDearborn - On October 15, 1998, the company acquired all of the outstanding shares of BetzDearborn Inc., a global specialty chemical company engaged in the treatment of water and industrial process systems, for $2,235 million in cash and $186 million in common stock exchanged for the shares held by the BetzDearborn ESOP Trust. In addition, the company assumed debt with a fair value of $117 million and repaid $557 million of other long-term debt held by BetzDearborn. This acquisition was financed with borrowings under a $3,650 million credit facility with a syndicate of banks. (See Note 6.) The purchase price was allocated to the estimated fair value of net assets acquired, with the excess of $2,074 million recorded as goodwill, which is being amortized over its estimated useful life of 40 years. Additionally, based on an independent appraisal, approximately $130 million of the purchase price was allocated to purchased in-process research and development and was charged to expense at the date of acquisition. (See Note 14.) As of the acquisition date, the company began to formulate plans to combine the operations of BetzDearborn and Hercules. It formed a program office, engaged outside consultants and established several functional integration teams to formulate and implement the plan and capture anticipated synergies. At December 31, 1998, the company had identified and approved various actions such as personnel reductions, consolidation of operations and support functions, closure of redundant or inefficient offices and facilities, and relocation of former BetzDearborn employees. Accordingly, the company has included a $94 million liability as part of the purchase price allocation. The liability includes approximately $78 million related to employee termination benefits for approximately 850 BetzDearborn manufacturing, technical, sales and marketing, administrative and support personnel worldwide. Also included is $16 million for office and facility closures, relocation of BetzDearborn employees and other related exit costs. Through December 31, 1998, the company paid $5 million of termination benefits for approximately 130 redundancies, and the remaining liability is $89 million. The purchase price allocation for BetzDearborn is a preliminary allocation and the goodwill recorded is subject to further adjustment resulting primarily from the completion of the integration and exit plans, which could result in additional liabilities; adjustments to the fair value of the net assets acquired; and the resolution of pre-acquisition contingencies, primarily legal matters and product liabilities, net of any related tax effects. The allocation of the purchase price is expected to be completed in 1999. FiberVisions L.L.C. - In July 1998, the company completed the acquisition of the 49% share of FiberVisions L.L.C. owned by its joint venture partner Jacob Holm & Sons A/S for approximately $230 million in cash, plus assumed debt of $188 million. The allocation of the purchase price resulted in $188 million of goodwill, which is being amortized over its estimated useful life of 40 years. 29 30 The following unaudited pro forma information presents a summary of consolidated results of operations of the company as if the BetzDearborn and FiberVisions acquisitions had occurred at the beginning of each of the periods presented below:
Years Ended December 31, 1998 1997 ---- ---- Net sales $3,276 $3,366 Income (loss) before effect of change in accounting principle (70) 237 Net income (loss) (70) 226 Net earnings per share: Basic Earnings before effect of change in accounting principle $ (.69) $ 2.25 Earnings per share (.69) 2.15 Diluted Earnings before effect of change in accounting principle $ (.69) $ 2.21 Earnings per share (.69) 2.11
The pro forma results of operations are for comparative purposes only and reflect increased amortization and interest expense resulting from the acquisitions described above, but do not include any potential cost savings from combining the acquired businesses with the company's operations. Consequently, the pro forma results do not reflect the actual results of operations had the acquisitions occurred on the dates indicated, and are not intended to be a projection of future results or trends. Other - The company also made three other acquisitions in 1998 for an aggregate purchase price of approximately $105 million in cash. These acquisitions included the worldwide paper chemicals group of Houghton International, Inc. and Citrus Colloids Ltd., a pectin manufacturer, in April 1998, and Alliance Technical Products, Ltd., a rosin dispersions company, in September 1998. Allocations of the purchase prices for these acquisitions resulted in approximately $67 million of goodwill, which is being amortized over estimated useful lives ranging from 30 to 40 years. 2. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net, consists of: (Dollars in millions) 1998 1997 ---- ---- Trade $598 $285 Other 78 107 ---- ---- Total 676 392 Less allowance for doubtful accounts 13 3 ---- ---- $663 $389 ==== ====
At December 31, 1998, net trade accounts receivable from customers located in the United States, Europe, the Americas, and Asia were $404 million, $150 million, $24 million, and $7 million, respectively. 3. INVENTORIES
The components of inventories are: (Dollars in millions) 1998 1997 ---- ---- Finished products $218 $121 Materials, supplies, and work in process 198 113 ---- ---- $416 $234 ==== ====
Inventories valued on the LIFO method were lower than if valued under the average-cost method, which approximates current cost, by $33 million and $37 million at December 31, 1998 and 1997, respectively. 30 31 4. INVESTMENTS Total equity investments in affiliated companies were $9 million at December 31, 1998, and $21 million at December 31, 1997. Dividends received from affiliated companies were $0 in 1998 and 1997, and $11 million in 1996. Other investments, at cost or less, were $42 million and $594 million at December 31, 1998 and 1997, respectively. Included in these amounts are non-current marketable securities aggregating $31 million and $81 million for the corresponding years, classified as "available for sale." The value of these investments, based on market quotes, approximates book values. At December 31, 1997, investments also included a $500 million 6.2% interest-bearing five-year note (the Tastemaker note), which was sold in October 1998 for a $3 million net loss as part of financing the BetzDearborn acquisition. 5. SHORT-TERM DEBT
A summary of short-term debt follows: (Dollars in millions) 1998 1997 ---- ---- Commercial paper $ -- $195 Banks 80 80 Current maturities of long-term debt 486 -- ---- ---- $566 $275 ==== ====
The commercial paper program was replaced by the debt syndication utilized for the acquisition of BetzDearborn. Previously, commercial paper was issued or renewed for varying periods, with interest at prevailing market rates. Bank borrowings represent primarily foreign overdraft facilities and short-term lines of credit, which are generally payable on demand with interest at various rates. Book values of commercial paper and bank borrowings approximate market value because of their short maturity period. At December 31, 1998, Hercules had $219 million of unused lines of credit that may be drawn as needed, with interest at a negotiated spread over lenders' cost of funds. Lines of credit in use at December 31, 1998, were $80 million. Weighted-average interest rates on short-term borrowings at December 31, 1998 and 1997, were 5.10% and 5.40%, respectively. 6. LONG-TERM DEBT
A summary of long-term debt follows: (Dollars in millions) 1998 1997 ---- ---- 6.15% notes due 2000 $100 $100 6.60% notes due 2027 (a) 100 100 7.85% notes due 2000 25 25 6.625% notes due 2003 (b) 125 125 8% convertible subordinated debentures due 2010 (c) 3 10 Term loan tranche A due in varying amounts through 2003 (d) 1,250 -- Term loan tranche B due 1999 (d) 470 -- Term loan tranche C due 2000 (d) 1,000 -- Revolving credit agreement due 2003 (d) 288 -- ESOP debt (e) 110 -- Term notes at various rates from 5.11% to 9.60% due in varying amounts through 2006 (f) 102 -- Commercial paper -- 50 Variable rate loans -- 2 Other 9 7 ------ ---- 3,582 419 Current maturities of long-term debt (486) -- ------ ---- Net long-term debt $3,096 $419 ====== ====
31 32 (a) 30-year debentures with a 10-year put option, exercisable by bondholder at a redemption price equal to principal amount. (b) Par value of $125 million issued June 1993. (c) Subordinated debentures are convertible into common stock at $14.90 per share and are redeemable at the option of the company at varying rates. The annual sinking fund requirement of $5 million, beginning in 1996, has been satisfied through conversions of debentures. (d) The BetzDearborn acquisition was financed with borrowings under a $3,650 million credit facility with a syndicate of banks, and was consummated on October 15, 1998. The syndication included three tranches of varying maturity term loans totaling $2,750 million and a $900 million revolving credit agreement. The facility bears interest at London Interbank Offered Rate (LIBOR) plus 2% and may decrease to LIBOR plus .75% after six months and after certain conditions are met, including repayments of term-loan tranche B. Interest rates are reset for one, three or six-month periods at the company's option. The company's debt agreement contains various restrictive covenants that, among other things, require maintenance of certain financial covenants: leverage, net worth and interest coverage, and provides that the entry of a judgment or judgments involving aggregate liabilities of $50 million or more be vacated, discharged, stayed or bonded pending appeal within 60 days of entry. Issuance costs of $59 million related to the financing are included in Deferred charges and other assets and are being amortized over the term of the loans, using the effective interest method. As of December 31, 1998, $612 million of the $900 million revolver is available for use. (e) The company assumed a loan with a fair market value of $110 million related to the BetzDearborn ESOP Trust. The proceeds of the loan were used by the ESOP Trust for the purchase of BetzDearborn preferred shares which, upon acquisition by Hercules, were converted into equivalent shares of Hercules common stock. The loan was recorded at fair market value at the date of acquisition, and the $16 million fair value step-up is being amortized over the term of the debt. The loan and guarantee mature in June 2009. (f) Debt assumed in conjunction with the acquisition of FiberVisions L.L.C. (see Note 1), less repayments through December 31, 1998. Long-term debt maturities during the next five years are $486 million in 1999, $1,342 million in 2000, $318 million in 2001, $366 million in 2002, and $831 million in 2003. 7. COMPANY-OBLIGATED PREFERRED SECURITIES OF SUBSIDIARY TRUST In the fourth quarter of 1998, Hercules Trust V (the Trust), the company's wholly owned consolidated subsidiary trust created under the laws of the State of Delaware, completed a private placement of units, consisting of Trust Preferred Securities (the Securities) in the amount of $200 million and a forward underwriting contract to purchase Hercules common stock. The proceeds of the Securities were invested by the Trust in the company's newly issued Junior Subordinated Debenture Notes (the Notes). Each Security will accrue and pay distributions equal to LIBOR plus 175 basis points, compounded quarterly. The obligations of the Trust are fully and unconditionally guaranteed by the company. The Securities are expected to be remarketed pursuant to their terms within 12 months from their issuance. The distribution rates will be reset to a fixed rate in the remarketing based on bids received in a private auction to qualified institutional buyers, and the maturity date will be reset to the one-year anniversary of the successful remarketing. Hercules will be required to redeem the Securities if remarketing does not occur within the established period. The remarketing of the Securities may be accelerated under certain circumstances, including the price of the company's common stock closing at or below $22.6875 (twenty-two and eleven-sixteenths). In addition, Hercules has agreed to offer and sell, and a third party has agreed to underwrite $200 million of Hercules common stock following the successful remarketing or redemption of the Securities. 8. SERIES PREFERRED STOCK The series preferred stock is without par value and is issuable in series. There are 2,000,000 shares authorized for issuance, none of which have been issued. 9. COMMON STOCK Hercules common stock has a stated value of $25/48, and 300,000,000 shares are authorized for issuance. At December 31, 1998, a total of 16,023,661 shares were reserved for issuance for the following purposes: 879,999 shares for sales to the Savings Plan Trustee; 11,382,530 shares for the exercise of awards under the Stock Option Plan; 2,197,137 shares for awards under incentive compensation plans; 337,440 shares for conversion of debentures and notes; and 1,226,555 shares for employee stock purchases. 32 33 For the company's stock repurchase program, from its start in 1991 through year-end 1998, the Board authorized the repurchase of up to 74,650,000 shares of company common stock. Of that total, 6,150,000 shares were intended to satisfy requirements of various employee benefit programs. During this period, a total of 66,490,592 shares of common stock were purchased in the open market at an average price of $37.33 per share. 10. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) In connection with the acquisition of BetzDearborn, the company acquired its ESOP and related trust as a long-term benefit for substantially all of BetzDearborn's U.S. employees. The plan is a supplement to the company's retirement plan. The ESOP trust has existing long-term debt of $94 million (fair value of $110 million - see Note 6) which is guaranteed by the company. The proceeds of the original loan were used to purchase BetzDearborn convertible preferred stock, which, at the date of the BetzDearborn acquisition, was converted into Hercules common stock. The BetzDearborn 401(k) program was previously integrated with the ESOP. Eligible employees may invest 2% to 15% of eligible compensation. The company's matching contributions equal to 50% of the first 6% of employees' investments, fully vest to employees upon the completion of 5 years of service. The company's matching contributions, which are made in the form of Hercules common stock, are included in ESOP expense. After satisfying the 401(k) matching contributions and the dividends on allocated shares, the remaining shares of ESOP stock are allocated to each participant based on the ratio of participants' compensation to total compensation of all participants. The company contribution and dividends on the shares held by the ESOP trust are used to repay the loan, and stock is allocated as the principal and interest are paid. Long-term debt is reduced as payments are made on the third-party financing. The loan and unearned compensation are recorded in the company's Consolidated Balance Sheet as long-term debt and a reduction in shareholders' equity, respectively. The number of shares allocated and unallocated at December 31 are as follows:
1998 ---- Allocated 1,776,338 Unallocated 4,052,556 --------- Total shares held by ESOP 5,828,894 =========
The company is required to make cash contributions to the Plan which enable the trust to service its indebtedness. ESOP expense was $1 million for 1998 which was net of $2 million of dividends paid and charged to retained earnings. 11. LONG-TERM INCENTIVE COMPENSATION PLANS The company's long-term incentive compensation plans provide for the grant of stock options and the award of common stock and other market-based units to certain key employees and nonemployee directors. Through 1994, shares of common stock awarded under these plans normally were either restricted stock or performance shares. During the restriction period, award holders have the rights of stockholders, including the right to vote and receive cash dividends, but they cannot transfer ownership. In 1995, Hercules changed the structure of the long-term incentive compensation plans to place a greater emphasis on shareholder value creation through grants of regular stock options, performance-accelerated stock options, and Cash Value Awards (performance-based awards denominated in cash and payable in shares of common or restricted stock, subject to the same restrictions as restricted stock). Restricted stock and other market-based units are awarded with respect to certain programs. The number of awarded shares outstanding was 1,083,613; 873,627; and 1,881,946 at December 31, 1998, 1997, and 1996, respectively. Under the company's incentive compensation plans, 2,197,137 shares of common stock were available for grant as stock awards or stock option awards. Stock awards are limited to approximately 15% of the total authorizations. Regular stock options are granted at the market price on the date of grant and are exercisable at various periods from one to five years after date of grant. Performance-accelerated stock options are also granted at the market price on the date of grant and are normally exercisable at nine and one-half years. Exercisability may be 33 34 accelerated based upon the achievement of predetermined performance goals. Both regular and performance-accelerated stock options expire 10 years after the date of grant. Restricted shares, options and performance-accelerated stock options are forfeited and revert to the company in the event of employment termination, except in the case of death, disability, retirement, or other specified events. The company applies APB Opinion 25 in accounting for its plans. Accordingly, no compensation cost has been recognized for the stock option plans. The cost of stock awards and other market-based units, which are charged to income over the restriction or performance period, amounted to $5 million for 1998; $4 million for 1997, and $9 million for 1996. Below is a summary of outstanding stock option grants under the incentive compensation plans during 1996, 1997, and 1998:
Regular Performance-Accelerated Weighted-average Weighted-average Number of Shares Price Number of Shares Price ---------------- ----- ---------------- ----- January 1, 1996 3,883,184 $26.24 786,375 $48.54 Granted 673,450 $55.40 2,303,750 $49.66 Exercised (646,247) $21.29 -- -- Forfeited (800) $47.25 (14,319) $48.29 - ----------------------------------------------------------------------------------------------------------------------- December 31, 1996 3,909,587 $32.49 3,075,806 $49.38 Granted 1,708,100 $40.14 810,125 $41.07 Exercised (1,611,449) $20.97 -- -- Forfeited (4,950) $56.26 (10,534) $53.07 - ----------------------------------------------------------------------------------------------------------------------- December 31, 1997 4,001,288 $40.41 3,875,397 $47.63 Granted 2,696,215 $32.75 1,170,890 $41.09 Exercised (279,795) $24.93 -- -- Forfeited (66,430) $41.58 (15,035) $46.09 - ----------------------------------------------------------------------------------------------------------------------- December 31, 1998 6,351,278 $37.83 5,031,252 $46.12
The weighted-average fair value of regular stock options granted during 1996, 1997, and 1998 was $14.36, $10.13, and $8.53 respectively. The weighted-average fair value of performance-accelerated stock options granted during 1996, 1997, and 1998 was $10.20, $9.39, and $9.24 respectively. Following is a summary of regular stock options exercisable at December 31, 1996, 1997, and 1998, and their respective weighted-average share prices:
Weighted-average Number of Shares Exercise Price ---------------- -------------- Options exercisable December 31, 1996 2,636,457 $25.08 Options exercisable December 31, 1997 2,013,148 $38.54 Options exercisable December 31, 1998 3,300,628 $41.57
There were no performance-accelerated stock options exercisable at December 31, 1996, 1997 and 1998. 34 35 Following is a summary of stock options outstanding at December 31, 1998:
Exercisable Options Outstanding Options Number Weighted-average Number Exercise Price Outstanding Remaining Weighted-average Exercisable at Weighted-average Range at 12/31/98 Contractual Life Exercise Price 12/31/98 Exercise Price ----- ----------- ---------------- -------------- -------------- -------------- Regular Stock Options $11 - $20 257,263 2.58 $15.62 257,263 $15.62 $21 - $30 1,915,600 9.31 $25.53 129,400 $25.00 $31 - $40 1,912,695 7.82 $38.75 1,491,140 $38.68 $41 - $60 2,265,720 7.79 $49.97 1,422,825 $50.79 --------- --------- 6,351,278 3,300,628 ========= ========= Performance-Accelerated Stock Options $25 - $40 1,094,733 9.01 $36.18 -- -- $41 - $50 3,114,778 7.83 $47.10 -- -- $51 - $61 821,741 7.08 $55.62 -- -- --------- 5,031,252 =========
The company estimates at December 31, 1998, 100% of performance-accelerated stock options will eventually vest. The company's Employee Stock Purchase Plan is a qualified noncompensatory plan, which allows eligible employees to acquire shares of common stock through systematic payroll deductions. The plan consists of three-month subscription periods, beginning July 1 of each year. The purchase price is 85% of the fair market value of the common stock on either the first or last day of that subscription period, whichever is lower. Purchases may range from 2% to 15% of an employee's base salary each pay period, subject to certain limitations. Currently, 1,226,555 shares of Hercules common stock are registered for offer and sale under the plan. Shares issued at December 31, 1998 and 1997, were 573,445 and 468,706, respectively. The company applies APB Opinion 25 and related interpretations in accounting for its Employee Stock Purchase Plan. Accordingly, no compensation cost has been recognized for the Employee Stock Purchase Plan. Had compensation cost for the company's Stock-Based Incentive Plans and Employee Stock Purchase Plan been determined on the basis of fair value according to SFAS No. 123, the fair value of each option granted or share purchased would be estimated on the grant date using the Black-Scholes option pricing model. The following assumptions would be used in estimating fair value for 1998, 1997, and 1996:
Performance accelerated Employee Stock Assumption Regular Plan Plan Purchase Plan ---------- ------------ ---- ------------- Dividend yield 3.0% 3.0% 3.0% Risk-free interest rate 5.84% 5.77% 5.32% Expected life 7.4 yrs. 5 yrs. 3 mos. Expected volatility 23.1% 21.9% 27.0%
35 36 The company's net income and earnings per share for 1998, 1997, and 1996 would approximate the pro forma amounts below:
(Dollars in millions, except per share) 1998 1997 1996 ---- ---- ---- Net income As reported $ 9 $319 $ 325 Pro forma $ (5) $308 $ 317 Basic earnings per share As reported $ .10 $3.22 $3.10 Pro forma $ (.06) $3.10 $3.02 Diluted earnings per share As reported $ .10 $3.13 $2.98 Pro forma $ (.06) $3.04 $2.92
SFAS No. 123 does not apply to awards prior to 1995, and additional awards in future years are anticipated. 12. ADDITIONAL BALANCE SHEET DETAIL
(Dollars in millions) 1998 1997 ---- ---- Property, plant, and equipment Land $ 74 $ 18 Buildings and equipment 2,837 1,957 Construction in progress 126 113 ------ ------ Total 3,037 2,088 Accumulated depreciation and amortization 1,599 1,401 ------ ------ Net property, plant, and equipment $1,438 $ 687 ====== ====== Accrued expenses Payroll and employee benefits $ 63 $ 37 Income taxes payable 15 91 Accrued pension benefits 29 -- Other 374 280 ------ ------ $ 481 $ 408 ====== ======
36 37 13. PENSION AND OTHER POSTRETIREMENT BENEFITS The company provides defined benefit pension and postretirement benefit plans to employees. The pension and postretirement benefit plans for BetzDearborn employees are included in the 1998 valuation. The following provides a reconciliation of benefit obligations, plan assets, and funded status of the plans.
(Dollars in millions) Other Postretirement Pension Benefits Benefits --------------------- ----------------------- 1998 1997 1998 1997 ---- ---- ---- ---- CHANGE IN BENEFIT OBLIGATION Benefit obligation at January 1 $ 1,114 $ 1,046 $ 141 $ 141 Service cost 20 17 1 1 Interest cost 83 78 10 10 Amendments -- 6 -- -- Assumption change 52 77 3 10 Divestiture -- (4) -- -- Acquisition 284 -- 9 -- Translation difference 7 (13) -- -- Actuarial loss 28 12 10 -- Benefits paid from plan assets (89) (105) (2) (2) Benefits paid by Company -- -- (18) (19) ------- ------- ------- ------- Benefit obligation at December 31 $ 1,499 $ 1,114 $ 154 $ 141 ======= ======= ======= ======= CHANGE IN PLAN ASSETS Fair value of plan assets at January 1 $ 1,237 $ 1,168 $ 9 $ 9 Actual return on plan assets 182 187 1 2 Divestiture -- (2) -- -- Acquisition 256 -- -- -- Company contributions (refund) (2) 4 -- -- Translation difference 6 (15) -- -- Benefits paid from plan assets (90) (105) (2) (2) ------- ------- ------- ------- Fair value of plan assets at December 31 $ 1,589 $ 1,237 $ 8 $ 9 ======= ======= ======= ======= Funded status of the plans $ 90 $ 124 $ (146) $ (132) Unrecognized actuarial loss 89 93 34 22 Unrecognized prior service cost (benefit) 35 39 (44) (50) Unrecognized net transition obligation (25) (40) -- -- Amount included in accrued expenses- other -- -- 20 21 ------- ------- ------- ------- Prepaid (accrued) benefit cost $ 189 $ 216 $ (136) $ (139) ======= ======= ======= ======= AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF: Prepaid benefit cost 218 216 -- -- Accrued benefit liability (29) -- (136) (139) ------- ------- ------- ------- $ 189 $ 216 $ (136) $ (139) ======= ======= ======= ======= ASSUMPTIONS AS OF DECEMBER 31 Weighted average discount rate 7.00% 7.25% 7.00% 7.25% Expected return on plan assets 9.25% 9.25% 9.25% 9.25% Rate of compensation increase 4.50% 4.50% 4.50% 4.50%
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS ---------------- ----------------------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Service cost $ 20 $ 17 $ 19 $ 1 $ 1 $ 1 Interest cost 83 78 77 10 10 11 Return on plan assets (expected) (114) (103) (99) (1) (1) (1) Amortization and deferrals 12 5 6 (4) (5) (5) Amortization of transition asset (14) (14) (14) -- -- -- ---- ------- ------- ------ ------ ------ Benefit cost (credit) $ (13) $ (17) $ (11) $ 6 $ 5 $ 6 ====== ======= ======= ==== ==== ====
37 38 Pension During 1997, the company recognized a charge of approximately $8 million for special termination benefits. Other Postretirement Benefits The non-pension postretirement benefit plans are contributory health care and life insurance plans. In August 1993, a Voluntary Employees' Beneficiary Association (VEBA) Trust was established and funded with $10 million of company funds. The company periodically obtains reimbursement for union retiree claims, while other claims are paid from company assets. The participant contributions are immediately used to cover claim payments, and for this reason do not appear as contributions to plan assets. The assumed health care cost trend rate at December 31, 1998 and 1997, was 5% for those under age 65 and 4.75% for those over age 65, decreasing to 4.5% in subsequent years. A one-percentage point increase or decrease in the assumed health care cost trend rate would increase or decrease the postretirement benefit obligation by $6 million or $7 million, respectively, and would not have a material effect on aggregate service and interest cost components. 14. PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT Purchased in-process research and development (IPR&D) represents the value assigned in a purchase business combination to research and development projects of the acquired business that were commenced but not yet completed at the date of the acquisition, and which, if unsuccessful, have no alternative future use in research and development activities or otherwise. Amounts assigned to purchased IPR&D must be charged to expense at the date of consummation of the purchase business combination. Accordingly, the company has charged approximately $130 million to expense at the acquisition date for IPR&D related to the BetzDearborn acquisition. (See Note 1.) The IPR&D projects were principally included in the water treatment and paper process divisions of the acquired business. The former Water Treatment Group (WTG) provided specialty water and process treatment programs for boiler, cooling, influent, and effluent applications to markets such as refining, chemical, paper, electric utility, food, industrial, commercial and institutional establishments. Overall, the products are used to control corrosion, scale, deposit formation, and microbiological growth, conserve energy and improve efficiency. Additionally, the former Paper Process Group (PPG) brought to market custom-engineered programs for the process-related problems associated with paper production. These problems include deposition, corrosion, microbiological fouling, foam control, deinking and felt conditioning. 38 39 The following is a summary of the significant projects and the values assigned:
(Dollars in millions) Estimated Percent Cost to Estimated Projected Project Group Complete Complete Total Cost Launch Date IPR&D Value ------- ----- -------- -------- ---------- ----------- ----------- New Blend of Actives (1) PPG 73% $.3 $1.0 1999 $38 New Corrosion Inhibitor (2) WTG 31% 1.5 2.1 2002 26 Alkaline Drainage Aid (3) PPG 39% 1.6 2.7 2000 6 Other major projects WTG 54% Avg. 3.5 7.6 1999-2001 27 Other major projects PPG 80% Avg. .7 3.7 1999-2001 15 All other projects Various 29% Avg. 4.3 6.1 Various 18 -------- ----- ----- ---- Total IPR&D 49% $11.9 $23.2 $130 ======== ===== ===== ====
1) This project will continuously screen new microbiocidal actives in order to identify promising compounds that may improve current product mix of offerings. 2) This project involves the development of new corrosion control chemistry for application in a range of water treatment systems. 3) This project involves the development of advanced retention, drainage, and formation systems for printing and writing paper. Due to the uniqueness of each of the projects, the costs and effort required are estimated based on the latest available information. Additionally, the launch date reflects management's best estimate of the time that the company will begin to benefit from cash inflow of the projects. However, there is a risk that certain projects may not be completed successfully for a variety of reasons including: change in strategies, inability to develop a cost efficient treatment, and changes in market demand or customer requirements. The IPR&D valuation charge was measured by the stage of completion method, primarily calculated by dividing the costs incurred to date by the total estimated costs. These percentages were applied to the results of project-by-project discounted cash flow models that estimated the present value of residual cash flows deemed attributable solely to the underlying IPR&D. The projected revenues, costs, and margins in the cash flow forecasts are consistent with projections by management based on available historical data. The revenue projections are based on an opportunity analysis for each project, which takes into account market and competitive conditions, potential customers, and strategic goals. The weighted average cost of capital for the overall business was estimated at 11% and the risk-adjusted discount rate used in the IPR&D project valuation model was 13%. 15. OTHER OPERATING EXPENSES (INCOME), NET As a result of the BetzDearborn acquisition in the fourth quarter of 1998, Hercules began to formulate and implement a plan to merge the operations of BetzDearborn with Hercules (see Note 1). Additionally, the company reviewed its existing operations and support infrastructure and approved a plan to terminate Hercules employees and exit activities to eliminate redundancies and inefficiencies. As a result, the company incurred charges of approximately $76 million. These charges include employee termination benefits of $31 million; exit costs related to facility closures of $10 million; write-downs of property, plant and equipment of $24 million; and integration expenses of $11 million. Employee termination benefits are for approximately 350 Hercules manufacturing, sales 39 40 and marketing, administration, technology and support personnel. Facility closures and exit costs relate primarily to Process Chemicals and Services in connection with the acquisition. Write-downs of property, plant and equipment relate to asset impairments in Chemical Specialties and Functional Products resulting from adverse business negotiations, the effects of the BetzDearborn acquisition, and the loss of a customer. Integration expenses include consulting and legal fees, integration bonuses, travel and training, and are expensed as incurred. Other operating expenses in 1997 included charges of $146 million, primarily associated with reorganization of management and the adoption of new competitive strategies (announced in early 1997). The charges included $122 million related to asset rationalizations and impairment and $24 million related to severance benefits. Included in the $122 million is an impairment loss of $95 million. Additionally, the company recognized approximately $27 million of rationalization charges primarily associated with certain assets, which were no longer being utilized, and lease abandonment costs. Concurrently, management authorized and committed the company to a plan to reduce its work force by approximately 270 employees and accrued $24 million of severance-related benefits. The plan included reorganization of management, reductions in operating personnel at certain domestic and foreign facilities, and the consolidation of certain support functions. Other operating expenses in 1997 also include $13 million of net environmental cleanup costs, principally for nonoperating sites and $8 million of executive retirement benefits. In 1996, other operating expenses (income), net, included probable recoveries related to environmental remediation of $13 million and reduction in the estimated loss on the divestiture of the Composite Products Division of $5 million. During 1998, the company paid $10 million of these liabilities. As of December 31, 1998, the remaining liability for these charges is $36 million for termination benefits representing approximately 370 employees and $10 million for other exit costs. Reorganization in the foreign facilities has proceeded slower than anticipated due to changes in the information system implementation schedule, acquisition activity and other corporate initiatives. Management expects to complete remaining actions under this plan during 2000. 16. INTEREST AND DEBT EXPENSE Interest and debt costs are summarized as follows:
(Dollars in millions) 1998 1997 1996 ---- ---- ---- Costs incurred $114 $47 $40 Amount capitalized 11 8 5 ---- --- --- Amount expensed $103 $39 $35 ==== === ===
17. OTHER INCOME (EXPENSE), NET Other income (expense), net, consists of the following:
(Dollars in millions) 1998 1997 1996 ---- ---- ---- Interest income $ 36 $ 29 $ 5 Net gains on dispositions 23 398 22 Acquisition costs -- (20) -- Legal settlements and accruals (66) (41) -- Interest rate swap termination (13) -- -- Miscellaneous income (expense), net (2) 8 (1) ----- ---- --- $(22) $374 $26 ===== ==== ===
Interest income in 1998 and 1997 relates primarily to the $500 million note received upon completion of the Tastemaker monetization. The note was sold during the fourth quarter of 1998 with a net loss of $3 million reported in net gains on dispositions. Also, gains of $12 million and $19 million in 1998 and 1997, respectively, were recorded from the sale of Alliant Techsystems common stock held by Hercules. (See Note 21.) Additionally, 1997 includes a gain of $368 million on the completion of transactions that monetized the company's investment in Tastemaker, a 50%-owned flavors joint venture. Net gains on dispositions in 1996 reflect the sale of real estate and the sale of a product line. Acquisition costs in 1997 represent a charge primarily related to the company's 40 41 unsuccessful bid for Allied Colloids. The 1998 legal settlements and accruals relate primarily to settlements of Qui Tam ("Whistle Blower") lawsuits. (See Note 22.) The 1998 loss from terminated interest rate swaps is related to the company's financing effort upon the acquisition of BetzDearborn. Miscellaneous income (expense), net, includes net foreign currency gains of $5 million, $19 million, and $11 million in 1998, 1997, and 1996, respectively. 18. INCOME TAXES The domestic and foreign components of income before taxes and effect of change in accounting principle are presented below:
(Dollars in millions) 1998 1997 1996 ---- ---- ---- Domestic $(147) $396 $250 Foreign 224 197 235 ----- ---- ---- $ 77 $593 $485 ===== ==== ====
A summary of the components of the tax provision follows:
(Dollars in millions) 1998 1997 1996 ---- ---- ---- Currently payable U.S. federal $(26) $169 $33 Foreign 74 63 60 State (4) 2 9 Deferred Domestic 17 30 41 Foreign 7 5 17 --- ---- ---- Provision for income taxes $68 $269 $160 === ==== ====
Deferred tax liabilities (assets) at December 31 consist of:
(Dollars in millions) 1998 1997 ---- ---- Depreciation $153 $119 Prepaid pension 93 82 Inventory 6 15 Investments 84 84 Other 46 22 ---- ---- Gross deferred tax liabilities 382 322 ---- ---- Postretirement benefits other than pensions (81) (66) Accrued expenses (126) (110) Loss carryforwards (24) (15) Other (31) (32) ---- ---- Gross deferred tax assets (262) (223) ---- ---- Valuation allowance 12 12 ---- ---- $132 $111 ==== ====
41 42 A reconciliation of the U.S. statutory income tax rate to the effective rate follows:
1998 1997 1996 ---- ---- ---- U.S. statutory income tax rate 35% 35% 35% Purchased in-process research and development (Note 14) 59 -- -- Goodwill amortization 7 -- -- Foreign dividends net of credits -- 2 -- State taxes 2 -- 1 Utilization of operating losses -- -- (2) Reserves (17) 7 -- Other 2 1 (1) --- --- --- Effective tax rate 88% 45% 33% === === ===
The company provides taxes on undistributed earnings of subsidiaries and affiliates included in consolidated retained earnings to the extent such earnings are planned to be remitted and not reinvested permanently. The undistributed earnings of subsidiaries and affiliates on which no provision for foreign withholding or U.S. income taxes has been made amounted to approximately $400 million at December 31, 1998. U.S. and foreign income taxes that would be payable if such earnings were distributed may be lower than the amount computed at the U.S. statutory rate because of the availability of tax credits. 19. EARNINGS PER SHARE The following table shows the amounts used in computing earnings per share and the effect on income and the weighted-average number of shares of dilutive potential common stock:
(Dollars and shares in millions, except per share) 1998 1997 1996 ---- ---- ---- Basic EPS computation: Income before effect of change in accounting principle $ 9 $ 324 $ 325 Effect of change in accounting principle -- (5) -- ------- ------- ------- Net income $ 9 $ 319 $ 325 ======= ======= ======= Weighted-average shares outstanding 96.3 99.2 104.9 Earnings per share before effect of change in accounting principle $ .10 $ 3.27 $ 3.10 Effect of change in accounting principle -- (.05) -- ------- ------- ------- Earnings per share $ .10 $ 3.22 $ 3.10 ======= ======= ======= Diluted EPS computation: Income before effect of change in accounting principle $ 9 $ 324 $ 325 Interest on convertible debentures -- 2 2 Effect of change in accounting principle -- (5) -- ------- ------- ------- Net Income $ 9 $ 321 $ 327 ======= ======= ======= Weighted-average shares outstanding 96.3 99.2 104.9 Options .6 1.1 1.9 Convertible debentures .5 2.1 2.9 ------- ------- ------- Adjusted weighted-average shares 97.4 102.4 109.7 ======= ======= ======= Earnings per share before effect of change in accounting principle $ .10 $ 3.18 $ 2.98 Effect of change in accounting principle -- (.05) -- ------- ------- ------- Earnings per share $ .10 $ 3.13 $ 2.98 ======= ======= =======
42 43 20. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Notional Amounts and Credit Exposure of Derivatives The notional amounts of derivatives summarized below do not represent amounts exchanged by the parties and, thus, are not a measure of the exposure of the company through its use of derivatives. The amounts exchanged are calculated on the basis of the notional amounts and the other terms of the derivatives, which relate to interest rates or exchange rates. Interest Rate Risk Management During 1998, interest rate swaps which converted 6.02% average fixed-rate debt to floating-rate debt expired. During the fourth quarter, a series of interest rate swap agreements converting floating rate debt into fixed rate debt ranging from 6.05% to 7.08% per year were terminated primarily in conjunction with the sale of the Tastemaker note (see Note 4) and the BetzDearborn acquisition. New interest rate swaps totaling $1.0 billion were added in the fourth quarter 1998. This series of interest rate swap agreements, maturing from 1999 through December 2002, effectively converts floating-rate debt into debt with a fixed rate ranging from 4.91% to 5.21% per year as a hedge against the company's interest rate exposure on its variable rate debt outstanding. For the years 1998, 1997, and 1996, these contracts resulted in a less than 1% change in the effective interest rate on the weighted-average notional principal amounts outstanding. The aggregate notional principal amounts at the end of 1998 and 1997 were $1.0 billion and $650 million, respectively. The following table indicates the types of swaps used and their weighted-average interest rates:
(Dollars in millions) 1998 1997 ---- ---- Pay fixed on swaps notional amount (at year-end) $ 1,000 $ 650 Average pay rate 6.4% 6.4% Average receive rate 5.5% 5.7%
Foreign Exchange Risk Management The company selectively uses foreign currency forward contracts and currency swaps to offset the effects of exchange rate changes on reported earnings, cash flow, and net asset positions. The primary exposures are denominated in Danish kroner, Dutch guilder, Belgian franc, British pound sterling, and the German mark. Some of the contracts involve the exchange of two foreign currencies, according to local needs in foreign subsidiaries. The term of the currency derivatives is rarely more than one year. At December 31, 1998 and 1997, the company had outstanding forward-exchange contracts to purchase foreign currencies aggregating $117 million and $29 million and to sell foreign currencies aggregating $320 million and $171 million, respectively. Non-U.S. dollar cross-currency trades aggregated $380 million and $630 million at December 31, 1998 and 1997, respectively. Currency swap agreements, used to hedge net investment positions, totaled $512 million at December 31, 1998. The forward-exchange contracts and currency swap agreements outstanding at December 31, 1998 will mature during 1999. Fair Values The following table presents the carrying amounts and fair values of the company's financial instruments at December 31, 1998 and 1997:
(Dollars in millions) 1998 1997 ---------------------------- --------------------------- Carrying Amount Fair Value Carrying Amount Fair Value --------------- ---------- --------------- ---------- Investment securities (available for sale) $ 31 $ 31 $ 81 $ 81 Investment securities (held to maturity) -- -- 500 500 Long-term debt (3,096) (3,101) (419) (452) Company-obligated preferred securities of subsidiary trust (200) (200) -- -- Foreign exchange contracts 6* 6 2* 2 Currency swaps 8* 8 -- -- Interest rate swap contracts -- 1 (1)* (12)
*The carrying amount represents the net unrealized gain or net interest payable associated with the contracts at the end of the period. 43 44 Fair values of derivative contracts are indicative of cash that would have been required had settlement been December 31, 1998. Basis of Valuation Investment securities: Quoted market prices. Long-term debt: Present value of expected cash flows related to existing borrowings discounted at rates currently available to the company for long-term borrowings with similar terms and remaining maturities. Company obligated preferred securities of subsidiary trust: Year-end interest rates and company common stock price. Foreign exchange contracts: Year-end exchange rates. Currency swaps: Year-end interest and exchange rates. Interest rate swap contracts: Bank or market quotes or discounted cash flows using year-end interest rates. 21. DIVESTITURES In March 1997, the company completed transactions to monetize its investment in Tastemaker for approximately $608 million, including $108 million in cash and a $500 million, 6.2%, interest-bearing five-year note. Equity in income of affiliated companies included Tastemaker earnings of $11 million in 1997 and $32 million in 1996. In June 1997, the company completed a joint venture of its polypropylene fiber business with Jacob Holm & Sons A/S (Denmark) in which Hercules owned 51% of the joint venture, which was accounted for on the equity method at that time. In July 1998, Hercules purchased its partner's 49% share of the joint venture, with the operating results of FiberVisions being included in Hercules' consolidated financial statements since the date of acquisition. (See Note 1.) Pursuant to a 1997 agreement, Hercules sold its remaining shares of Alliant Techsystems Inc. for $12 million in 1998. In June 1996, the company sold its Composite Products Division for $141 million in cash. Net sales and operating profit of this business were $49 million and $8 million, respectively in 1996. 22. COMMITMENTS AND CONTINGENCIES Leases Hercules has operating leases (including office space, transportation, and data processing equipment) expiring at various dates. Rental expense was $35 million in 1998, and $31 million in both 1997 and 1996. At December 31, 1998, minimum rental payments under noncancelable leases aggregated $317 million with subleases of $30 million. A significant portion of these payments relates to a long-term operating lease for corporate office facilities. The net minimum payments over the next five years are $39 million in 1999, $32 million in 2000, $24 million in 2001, $20 million in 2002, and $18 million in 2003. Environmental Hercules has been identified as a potentially responsible party (PRP) by U.S. federal and state authorities, or has been sued for contribution by private parties, for the cost of environmental investigation and/or cleanup at numerous sites. The estimated range of the reasonably possible share of costs for investigation and cleanup is between $63 million and $199 million. The actual costs will depend upon numerous factors, including the number of parties found responsible at each environmental site and their ability to pay, the actual methods of remediation, outcomes of negotiations with regulatory authorities, outcomes of litigation, changes in environmental laws and regulations, technological developments, and the years of remedial activity required, which could range up to 30 years. In 1992, Hercules brought suit against its insurance carriers for past and future costs for cleanup of certain environmental sites. In April 1998, the trial regarding insurance recovery for the Jacksonville, Arkansas site (see discussion below) was completed. The jury returned a "Special Verdict Form" with findings that will, in conjunction with the court's other opinions, be used by the Court to enter a judgment. The judgment will determine the amount of Hercules recovery for past cleanup expenditures and will state that Hercules is entitled to similar coverage for costs incurred since September 30, 1997 and in the future. Hercules has not included any insurance recovery in the estimates above. 44 45 Hercules becomes aware of sites in which it may be, but has not yet been named a PRP, principally through its knowledge of investigation of sites by the U.S. Environmental Protection Agency (EPA) or other government agencies or through correspondence with previously named PRPs requesting information on Hercules' activities at sites under investigation. In addition, Hercules has established procedures for identifying environmental issues at its respective plant sites. Environmental coordinators, familiar with environmental laws and regulations, are resources for identification of environmental issues. Further, Hercules has environmental audit programs, which are designed to identify environmental issues at operating plant sites. Through these programs and information-gathering activities, Hercules identifies potential environmental, regulatory, and remedial issues. Litigation over liability at Jacksonville, Arkansas, the most significant site, has been pending since 1980. As a result of a pretrial court ruling in October 1993, Hercules has been held jointly and severally liable for costs incurred, and for future remediation costs, at the Jacksonville site by the District Court, Eastern District of Arkansas (the Court). Other defendants in this litigation have either settled with the government or, in the case of the Department of Defense (DOD), have not been held liable. Hercules appealed the Court's order finding the DOD not liable. On January 31, 1995, the 8th Circuit Court of Appeals upheld the Court's order. Hercules filed a petition to the U.S. Supreme Court requesting review and reversal of the 8th Circuit Court ruling. This petition was denied on June 26, 1995, and the case was remanded to the District Court for further proceedings. On May 21, 1997, the Court issued a ruling that Uniroyal is liable and that Standard Chlorine is not liable to Hercules for contribution. A trial on allocation and damages among Hercules, Uniroyal, and the United States was scheduled to begin October 1998. Through the filing of separate summary judgment motions, Hercules and Uniroyal raised a number of defenses to the United States' ability to recover its costs. On October 23, 1998, the Court denied those motions and granted the United States' summary judgment motion, ordering Hercules and Uniroyal to pay the United States approximately $103 million plus any additional response costs incurred or to be incurred after July 31, 1997. Hercules expects that this amount will be reduced by approximately $7 million, the amount received by the United States in previous settlements with other parties. Trial testimony on the issue of allocation between Hercules and Uniroyal was completed on November 6, 1998. Once a final judgment has been entered, Hercules expects to appeal the Court's determination with respect to its liability, the United States' costs, the divisibility of harm issue, and Standard Chlorine's liability. At December 31, 1998, the accrued liability for environmental remediation represents management's best estimate of the probable and reasonably estimable costs related to environmental remediation. The extent of liability is evaluated quarterly. The measurement of the liability is evaluated based on currently available information, including the process of remedial investigations at each site and the current status of negotiations with regulatory authorities regarding the method and extent of apportionment of costs among other PRPs. Hercules does not anticipate that its financial condition will be materially affected by environmental remediation costs in excess of amounts accrued, although quarterly or annual operating results could be materially affected. Litigation: The company is a defendant in numerous lawsuits that arise out of, and are incidental to, the conduct of its business. In these legal proceedings, no specifically identified director, officer, or affiliate is a party or a named defendant. These suits concern issues such as product liability, contract disputes, labor-related matters, patent infringement, environmental proceedings, property damage, and personal injury matters. Hercules was a defendant in three Qui Tam (Whistle Blower) lawsuits brought by former employees of the Aerospace business sold to Alliant Techsystems Inc. in March 1995. Among the allegations made in the three lawsuits were allegations relating to submission of false claims and records under various government contracts, delivery of defective products, a deficient quality control program, mischarging of work performed under government contracts, misuse of government equipment, other acts of financial mismanagement, and wrongful termination claims. The government, after investigation of the allegations, declined to intervene in two of these lawsuits and partially intervened in the third. In May 1998, Hercules announced that it had agreed to settle the first lawsuit. The settlement was approved by the court and the case was dismissed in July 1998. In August 1998, the parties to the second lawsuit reached a tentative settlement, subject to approval of the court. Although it did not intervene in the case, the U.S. Department of Justice (DOJ) objected to approval of the tentative 45 46 settlement, arguing that Hercules should only be released from claims that the government contended were actually investigated, and that the proposed allocation of settlement proceeds between False Claims Act claims and wrongful termination claims should be revised to attribute a higher percentage of recovery to claims arising under the False Claims Act. On February 9, 1999, the court entered a judgment approving the settlement and dismissing the lawsuit. The DOJ has 60 days from that date in which to file a Notice of Appeal, if it chooses to do so. In February 1998, the parties to the third lawsuit reached a tentative settlement, which has since been finalized, under which all claims alleging mischarging to the Intermediate Nuclear Forces Contract were settled. Other portions of the complaint were not resolved by the settlement. In August 1998, the parties reached a tentative settlement of the remaining portions of the complaint, subject to approval of the Court. The DOJ objected to approval of the tentative settlement, arguing that Hercules should only be released from claims that the government contended were actually investigated, and that the settlement agreement should have contained certain provisions preventing Alliant Techsystems Inc., which was also a defendant in the lawsuit, from recovering certain costs under its government contracts. On February 17, 1999, the Court entered a judgment approving the settlement and dismissing the lawsuit. The DOJ has 60 days from that date in which to file a Notice of Appeal, if it chooses to do so. As a result of these settlements, the company recognized charges of $4 million and $62 million in 1997 and 1998, respectively. In addition to the Jacksonville, Arkansas, site litigation described above, two individuals have sued Hercules in a lawsuit captioned Jeffrey Shelton, Jr., et al. v. Hercules Incorporated, Civil No. LR-C-97-131 (E.D. Ark. 1997). These individuals seek medical monitoring and damages for loss of recreational opportunities. They have brought a Resource Conservation and Recovery Act (RCRA) citizens suit against Hercules seeking an injunction which would require Hercules to fund or perform various environmental and health studies and pay for any required remediation to the Bayou Meto. Trial is presently scheduled for August 1999. Further, 19 individuals have sued Hercules in a matter entitled Gary Graham, et al. v. Vertac Chemical Corporation and Hercules Incorporated, No. LR-C-98-678 (E.D. Ark. 1998). These individuals seek damages for personal injuries and diminution of property value as a result of alleged dioxin contamination from the Jacksonville site. Trial is presently scheduled for August 1999. Hercules denies liability in both actions, and Hercules intends to vigorously defend itself. BetzDearborn, along with Pacific Gas and Electric (PG&E), is a defendant in four lawsuits involving in the aggregate approximately 2,350 plaintiffs pending in the Superior Court of Los Angeles County, California (the Lawsuits). Plaintiffs are comprised primarily of present and former PG&E employees, their families, and residents living in the vicinity of the three PG&E facilities that are the subject of the Lawsuits. Plaintiffs seek unspecified monetary damages (including punitive damages) for personal injuries arising from alleged exposures to chromate-based products sold or allegedly sold by Betz Laboratories, Inc. (predecessor to BetzDearborn) to PG&E for use in the cooling towers located at these facilities. The sales in question occurred or allegedly occurred at various times between 1952 and the mid-1980s, depending upon the facility. In the Acosta, Aguilar, and Aguayo cases, the parties have selected 20 plaintiffs and 2 alternates whose claims will be tried together, and prior to the claims for the remaining plaintiffs in the Lawsuits. It is anticipated that the 20 plaintiffs' claims will be tried in late 1999. BetzDearborn denies any legal liability to plaintiffs, believes it has substantial defenses, and intends to contest the claims vigorously. BetzDearborn further believes that any claim for punitive damages is without any legitimate basis in fact or law. The Lawsuits are captioned as follows: Acosta, et al. v. Betz Laboratories, et al., No. BC 161 669 (1996); Adams, et al. v. Betz Laboratories, et al., No. BC 113 000 (1994); Aguilar, et al. v. Betz Laboratories, et al., No. BC 158 588 (1996); and Aguayo et al. v. Betz Laboratories, et al., No. BC 123 749 (1995). Although both BetzDearborn and PG&E are named as defendants in each of the Lawsuits, not all plaintiffs seek damages from both defendants. PG&E previously settled a lawsuit brought by many of the same individuals who are plaintiffs in the Adams lawsuit; as a result, PG&E will have no additional liability to those plaintiffs. In October 1998, BetzDearborn and PG&E settled a fifth lawsuit relating to alleged exposure to chromate-based products sold or allegedly sold by Betz Laboratories, Inc. to PG&E for use in cooling towers at one or more of the PG&E facilities. That lawsuit was captioned Riep, et al. v. Betz Laboratories, et al., No. 984695 (San Francisco County, 1997). The amount of the settlement was not material. 46 47 BetzDearborn maintained insurance coverage for the purpose of securing protection against alleged product and other liabilities, and certain of the insurance carriers have undertaken to pay the cost of the defense of the Lawsuits subject to various reservations of rights. BetzDearborn will pursue all available insurance coverage to fund any damages payable to plaintiffs in connection with the Lawsuits (excluding any punitive damages to the extent not recoverable under BetzDearborn's insurance policies). While it is not feasible to predict the outcome of all pending suits and claims, the ultimate resolution of these matters could have a material effect upon the financial position of Hercules, and the resolution of any of the matters during a specific period could have a material effect on the quarterly or annual operating results for that period. 23. CHANGE IN ACCOUNTING PRINCIPLE In November 1997, FASB's Emerging Issues Task Force (EITF) reached a final consensus on Issue 97-13, "Accounting for Costs Incurred in Connection With a Consulting Contract That Combines Business Process Reengineering and Information Technology Transformation." Activities deemed to be business process reengineering include the following: current state assessments, configuring and prototyping, process reengineering, and work force restructuring. The consensus requires that the unamortized amounts of such costs previously capitalized as of the beginning of the quarter, which includes November 20, 1997, be charged during that quarter as the cumulative effect of a change in accounting principle. The company adopted the consensus during the fourth quarter of 1997 and recorded a cumulative-effect adjustment of $5 million. 24. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA In 1998, Hercules adopted Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information." The statement establishes new standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports. It also establishes standards for related disclosure about products and services, geographic area, and major customers. In compliance with SFAS 131 and with the acquisition of BetzDearborn, the company has identified three reportable segments and has restated prior years to conform with the 1998 presentation. Process Chemicals and Services: (Pulp and Paper and BetzDearborn.) Products and services in this segment are designed to enhance customers' processes and improve their manufacturing costs or environmental impact. Principal products and markets include performance additives and water and process treatment chemicals and related on-site services for a wide variety of industrial and commercial applications including pulp and paper mills, refineries, chemical plants, metals manufacturers, automobile assembly plants and makers of food and beverages. Functional Products: (Aqualon and Food Gums.) Products from this segment are principally derived from natural resources and are sold as key raw materials to other manufacturers. Principal products and markets include water-soluble polymers and natural gums, used as thickeners, emulsifiers and stabilizers for water-based paints, oil and gas exploration, building materials, dairy and bakery products and other processed food products such as jams, jellies and meats. Chemical Specialties: (Resins and FiberVisions.) Products in this segment provide low-cost, technology driven solutions to meet customer needs and market demands. Principal products and markets include rosin and hydrocarbon resins for adhesives used in nonwoven fabrics, textile fibers, and adhesive tapes; thermal-bond polypropylene staple fiber for disposable diapers and other hygienic products; and automotive textiles. The company evaluates performance and makes decisions based primarily on "Profit from Operations" and "Capital Employed." Consolidated capital employed represents the total resources employed in the company and is the sum of total debt, trust preferred securities and stockholders' equity. Capital employed in each reportable segment represents the net operating assets employed to conduct business in that segment and generally includes working capital (excluding cash) and property, plant and equipment. Other assets and liabilities, primarily goodwill and other intangibles, not specifically allocated to business segments, are reflected in "Reconciling Items" in the table below. Hercules has no single customer representing greater than 10% of its revenues. 47 48 GEOGRAPHIC REPORTING For geographic reporting, no single country, outside the United States, is material for separate disclosure. However, because the company has significant foreign operations, revenues and long-lived assets are disclosed by geographic region. Revenues are reported on a "customer basis," meaning that net sales are included in the geographic area where the customer is located. Long-lived assets are included in the geographic areas in which the producing entities are located. Intersegment sales are eliminated in consolidation. 48 49 (Dollars in millions)
PROCESS CHEMICALS AND FUNCTIONAL CHEMICAL RECONCILING INDUSTRY SEGMENTS SERVICES PRODUCTS SPECIALTIES ITEMS CONSOLIDATED - ------------------------------------------------------------------------------------------------------------------------------------ 1998 Net sales $717 $863 $566 $ (1) $2,145 Profit (loss) from operations 131 215 75 (229)(a) 192 Equity in income of affiliated companies 10 Interest and debt expense 103 Other income (expense), net (22) ------ Income before income taxes 77 Capital employed 756 392 388 2,885 (d) 4,421 Capital expenditures 44 53 36 24 157 Depreciation and amortization 22 32 19 35 108 - ------------------------------------------------------------------------------------------------------------------------------------ 1997 Net sales $443 $898 $526 $ (1) $1,866 Profit (loss) from operations 100 224 67 (163)(b) 228 Equity in income of affiliated companies 30 Interest and debt expense 39 Other income, net 374 ------ Income before income taxes 593 Capital employed 138 355 168 723 (d) 1,384 Capital expenditures 22 47 30 20 119 Depreciation and amortization 11 34 13 18 76 - ------------------------------------------------------------------------------------------------------------------------------------ 1996 Net sales $452 $924 $633 $ 51 (c) $2,060 Profit (loss) from operations 108 220 95 18 (c) 441 Equity in income of affiliated companies 21 32 53 Interest and debt expense 35 Other income, net 26 ------ Income before income taxes 485 Capital employed 137 398 268 742 (d) 1,545 Capital expenditures 14 48 31 27 120 Depreciation and amortization 13 49 20 26 108
UNITED GEOGRAPHIC AREAS STATES EUROPE AMERICAS (e) ASIA PACIFIC TOTAL - -------------------------------------------------------------------------------------------------- 1998 Net sales $ 944 $ 785 $ 258 $ 158 $2,145 Long-lived assets (f) 3,083 681 125 97 3,986 1997 Net sales 826 655 212 173 1,866 Long-lived assets (f) 387 309 19 16 731 1996 Net sales 929 726 223 182 2,060 Long-lived assets (f) 529 339 39 9 916
49 50 (a) Includes costs for purchased in-process research and development, facility closure and contract termination, employee termination benefits, write-downs of property, plant and equipment, other integration expenses, and amortization of goodwill and intangibles. (See Notes 14 and 15.) (b) Primarily includes asset rationalizations, impairments and severance costs. (See Note 15.) (c) Includes revenues and profits pertaining to the Composite Products business sold in June 1996. (d) Assets and liabilities not specifically allocated to business segments, primarily goodwill, intangibles, and other long-term assets net of liabilities. (e) Ex-U.S.A. (f) Long-lived assets include Property, plant and equipment, Goodwill and Other intangible assets. In 1998, the goodwill and other intangible assets related to the BetzDearborn acquisition are reflected in the United States region. Once the purchase price allocation is completed, these assets will be reported in the appropriate regions. 50 51 Hercules Incorporated Summary of Quarterly Results (Unaudited) (Dollars in millions, except per share)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year 1998 1997 1998 1997 1998 1997 1998 1997 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Results ----------------- Net sales $ 430 $ 495 $ 445 $ 502 $ 510 $ 448 $ 760 $ 421 $2,145 $1,866 Cost of sales 262 320 267 314 323 270 435 265 1,287 1,169 SG&A and R&D 74 80 80 82 88 71 218 71 460 304 Purchased in-process research and development -- -- -- -- -- -- 130 -- 130 -- Other operating expenses (income), net -- 163 (3) (1) (2) -- 81 3 76 165 ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ Profit (loss) from operations 94 (68) 101 107 101 107 (104) 82 192* 228* Equity income 5 17 5 4 -- 4 -- 5 10 30 Interest and debt expense 11 10 13 9 18 10 61 10 103 39 Other income (expense), net (44) 335 16 13 18 22 (12) 4 (22) 374 ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ Income (loss) before income taxes and effect of change in accounting principle 44 274 109 115 101 123 (177) 81 77 593 Income taxes 16 166 35 40 30 41 (13) 22 68 269 ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ Income (loss) before effect of change in accounting principle 28 108 74 75 71 82 (164) 59 9 324 Effect of change in accounting principle -- -- -- -- -- -- -- (5) -- (5) ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ Net income (loss) $ 28 $ 108 $ 74 $ 75 $ 71 $ 82 $ (164) $ 54 $ 9 $ 319 ======= ======= ======= ======= ======= ======= ======= ======= ====== ====== Earnings per share** Basic: Earnings before effect of change in accounting principle $ .29 $ 1.07 $ .78 $ .75 $ .75 $ .83 $ (1.64) $ .62 $ .10 $ 3.27 Effect of change in accounting principle -- -- -- -- -- -- -- (.05) -- (.05) ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ Earnings (loss) per share $ .29 $ 1.07 $ .78 $ .75 $ .75 $ .83 $ (1.64) $ .57 $ .10 $ 3.22 ======= ======= ======= ======= ======= ======= ======= ======= ====== ====== Diluted: Earnings before effect of change in accounting principle $ .29 $ 1.03 $ .77 $ .73 $ .74 $ .81 $ (1.64) $ .61 $ .10 $ 3.18 Effect of change in accounting principle -- -- -- -- -- -- -- (.05) -- (.05) ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ Earnings (loss) per share $ .29 $ 1.03 $ .77 $ .73 $ .74 $ .81 $ (1.64) $ .56 $ .10 $ 3.13 ======= ======= ======= ======= ======= ======= ======= ======= ====== ======
*Includes one-time charges of $215 million in 1998 (see Notes 14 and 15) and $167 million in 1997 (see Note 15). **Earnings per share calculations for each of the quarters are based on the weighted-average number of shares outstanding for each period. The sum of the quarters may not necessarily be equal to the full year's earnings per share amounts. 51 52 PRINCIPAL CONSOLIDATED, WHOLLY OWNED SUBSIDIARIES (DIRECTLY OR INDIRECTLY) AUSTRIA Patex Chemie GmbH, Traun THE BAHAMAS Hercules International Trade Corporation Limited (HINTCO), Nassau BELGIUM Hercules Belgium N.V., Doel/Beringen S.A. Hercules Europe N.V., Brussels BERMUDA Curtis Bay Insurance Co., Ltd., Hamilton BRAZIL Citrus Colloids SA, Limeira CANADA Genu Products Canada Ltd., Pubnico, Nova Scotia Hercules Canada Inc., Mississauga, Ontario CHINA Hercules China Limited, Hong Kong Special Administrative Region CZECH REPUBLIC Hercules CZ s.r.o., Prague DENMARK Copenhagen Pectin A/S, Lille Skensved ENGLAND Hercules Limited, Surrey Alliance Technical Products, Stonehouse FINLAND Oy Hercofinn Ab, Helsinki FRANCE Aqualon France B.V., Rueil Hercules S.A., Rueil GERMANY Hercules GmbH, Dusseldorf Pomosin GmbH, Grossenbrode ITALY Hercules Italia S.p.A., Milan JAPAN Hercules Japan Ltd., Tokyo MEXICO Quimica Hercules, S.A. de C.V., Mexico City THE NETHERLANDS Hercules B.V., Rijswijk THE PHILIPPINES Hercules Ultramarine Inc., Cebu POLAND Hercules Polska Sp. z. o. o., Warsaw SINGAPORE (REPUBLIC OF) Hercules Singapore Pte Ltd., Singapore SPAIN Hercules Quimica, S.A., Tarragona SWEDEN Hercules AB, Goteborg UNITED STATES BetzDearborn Inc., Trevose, Pennsylvania Hercules Finance Company, Wilmington, Delaware FiberVisions L.L.C., Wilmington, Delaware VIRGIN ISLANDS Hercules Overseas Corporation, St. Thomas ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: None. 52 53 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: Information regarding directors and nominees for directors of the company is included under the caption entitled "Re-election of Directors" on page 8 of the Proxy Statement and is incorporated herein by reference. Information regarding executive officers begins on page 16 of that report. Disclosure of information for directors, officers, and other persons not meeting the timely reporting requirements under section 16(a) of the Exchange Act is contained in the Proxy Statement under the caption entitled "Compliance With Section 16(a) Reporting" on page 22 and is incorporated herein by reference. EXECUTIVE OFFICERS OF THE REGISTRANT: The name, age, and current position of each executive officer (as defined by Securities and Exchange Commission rules) of the company as of March 1, 1999, are listed below. Each of the officers, except Richard G. Dahlen, has served in one or more executive capacities with the company and/or its affiliates during the past five years. Richard Dahlen was employed by Monsanto Company for 30 years, holding positions in its Law Department. He joined Hercules in 1996 as vice president and general counsel. There are no family relationships among executive officers.
NAME AGE CURRENT POSITION R. Keith Elliott 57 Chairman and Chief Executive Officer Vincent J. Corbo 55 President and Chief Operating Officer Dominick W. DiDonna 50 Senior Vice President and General Manager, Pulp and Paper George MacKenzie 49 Senior Vice President and Chief Financial Officer Larry V. Rankin 55 Senior Vice President and General Manager, BetzDearborn Harry J. Tucci 58 Senior Vice President, Corporate Development June B. Barry 47 Vice President, Human Resources Thomas A. Ciconte, Jr. 51 Vice President, External Affairs and International Richard G. Dahlen 59 Vice President and General Counsel Israel J. Floyd 52 Corporate Secretary and Assistant General Counsel Bruce W. Jester 47 Vice President, Taxes Vikram Jog 42 Vice President and Controller Jan M. King 49 Vice President and Treasurer Michael J. Scott 47 Vice President, Business Analysis, and Assistant Controller David L. Chester 47 Assistant Controller Stuart C. Shears 48 Assistant Treasurer
ITEM 11. EXECUTIVE COMPENSATION: Information regarding executive compensation of Hercules' directors and executive officers is included in the Proxy Statement under the caption entitled "Board of Directors - Highlights" on page 13, and the caption entitled "Report of the Compensation Committee" on pages 19 through 21, respectively, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT: Information regarding beneficial ownership of the Common Stock by certain beneficial owners and by management of the company is included under the caption entitled "Stock Ownership of Directors and Officers" on page 22 of the Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: In 1998, no director or officer had an involvement in such transactions of a nature or magnitude to require disclosure under the applicable SEC thresholds. 53 54 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K: (a) Documents filed as part of this Report: 1. Financial Statements See Item 8 for an Index to the Consolidated Financial Statements of Hercules Incorporated. Also filed herewith are BetzDearborn Inc. Unaudited Interim Financial Statements and an Unaudited Pro Forma Condensed Combined Statement of Income of Hercules Incorporated.
BETZDEARBORN INTERIM FINANCIAL STATEMENTS PAGE ----------------------------------------- Consolidated Statements of Income for the nine months ended September 30, 1998 and 1997 (Unaudited) ..................................................... 55 Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (Unaudited) ..................................................... 56 Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 1998 and 1997 (Unaudited) .................................. 57 Notes to Consolidated Financial Statements (Unaudited) ............................... 58-59 PRO FORMA FINANCIAL STATEMENTS OF HERCULES INCORPORATED ------------------------------------------------------- Unaudited Pro Forma Condensed Combined Statement of Income for the Year Ended December 31, 1998 ........................................................ 60 Notes to Unaudited Pro Forma Condensed Combined Statement of Income .................. 61 2. Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts ...................................... 62
All other schedules are omitted because they are not applicable, not required, or the information required is either presented in the Notes to Financial Statements or has not changed materially from that previously reported. 3. Exhibits: A complete listing of exhibits required is given in the Exhibit Index which precedes the exhibits filed with this Report. (b) Reports on Form 8-K.
Financial Statements Report Date of Report Item Nos. Included -------------------------------------------------------------------------------- 8-K October 15, 1998 2, 5 and 7 Yes 8-K November 12, 1998 5 No 8-K/A October 15, 1998 7 Yes 8-K March 5, 1999 5 and 7 Yes 8-K March 17, 1999 5 No
54 55 BETZDEARBORN INC. CONSOLIDATED INCOME STATEMENT (UNAUDITED) (Dollars in millions, except per share)
Nine months ended September 30, - ------------------------------------------------------------------------------------- 1998 1997 ----- ----- Net Sales $ 948 $ 961 Cost of Sales 390 384 Selling, general, and administrative expenses 400 407 Research and development 30 31 ----- ----- Profit from operations 128 139 Interest and debt expense 29 35 Other income (expense), net (12) (1) ----- ----- Income before income taxes 87 103 Income tax expense 31 37 ----- ----- Net Income $ 56 $ 66 ===== ===== Earnings per share: Basic $1.76 $2.18 Diluted 1.66 2.02
See notes to consolidated financial statements. 55 56 BETZDEARBORN INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (Dollars in millions)
Nine months ended September 30, 1998 1997 ----- ----- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 122 $ 62 INVESTING ACTIVITIES Expenditures for property, plant and equipment (71) (55) Proceeds from sales of long-term assets 6 8 Purchases of businesses and long-term investments (3) -- Other, net -- (1) ----- ----- Net cash used in investing activities (68) (48) FINANCING ACTIVITIES Net long-term repayments under credit facilities (17) (17) Net short-term (repayments) borrowings (22) 10 Dividends paid (39) (38) Proceeds from issuance of common shares, including treasury shares 12 40 ----- ----- Net cash used in financing activities (66) (5) Effect of exchange rate changes on cash (3) (1) ----- ----- Increase (decrease) in cash and cash equivalents (15) 8 Cash and cash equivalents at beginning of period 37 38 ----- ----- Cash and cash equivalents at end of period $ 22 $ 46 ===== =====
See notes to consolidated financial statements 56 57 BETZDEARBORN INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (Dollars in millions)
Capital in Foreign excess of currency Common par value of Retained Treasury Unearned translation stock stock earnings stock compensation adjustments ------ ------------ -------- -------- ------------ ----------- Balance at December 31, 1996 $ 3 $ 94 $464 $ (188) $(4) $ 10 (common shares: issued 33,637,359; reacquired, 5,509,124) Net earnings 66 Dividends on preferred shares ($12.00 per share) (6) Dividends on common shares ($1.13 per share) (21) Impact of shares issued under employee stock plans 22 6 23 -- Incentive plans, net, 998,158 shares including 992,129 from reacquired stock Currency translation adjustments (42) ------ ---- -------- ------ --- --------- Balance at September 30, 1997 $ 3 $116 $ 509 $ (165) $(4) $(32) ====== ==== ======== ====== ==== =========
Capital in Foreign excess of currency Common par value of Retained Treasury Unearned translation stock stock earnings stock compensation adjustments ------ ------------ -------- -------- ------------ ----------- Balance at December 31, 1997 $ 3 $132 $501 $(155) $(4) $(31) (common shares: issued 33,631,330; reacquired, 4,181,807) Net earnings 56 Dividends on preferred shares ($12.00 per (6) share) Dividends on common shares ($1.14 per share) (22) Impact of shares issued under employee stock plans 6 11 -- Incentive plans, net, 389,282 shares including 386,675 from reacquired stock Currency translation adjustments (18) ------ ---- -------- ------ --- --------- Balance at September 30, 1998 $ 3 $138 $529 $(144) $(4) $(49) ====== ==== ======== ====== ==== =========
See notes to consolidated financial statements. 57 58 BETZDEARBORN INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1998 AND 1997 Note 1 - Basis of Presentation The accompanying unaudited consolidated financial statements of BetzDearborn Inc. (the "Company") for the nine-month periods ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. Certain amounts in the financial statements for the year ended December 31, 1997 have been reclassified to conform with 1998 classifications. Operating results for the nine-month period ended September 30, 1998 are not necessarily indicative of the results for the full year ended December 31, 1998. Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income," requires the Company to report in its financial statements all non-owner related changes in equity for the periods being reported. Comprehensive income for the nine-month periods ended September 30, 1998 and 1997 was $38 million and $24 million, respectively, consisting of net income and foreign currency translation adjustments. In the fourth quarter of 1997, the Company changed its method of accounting for business process reengineering costs incurred in connection with its ongoing major project that combined business process reengineering and information technology transformation. This accounting change was mandated by the consensus position of the Financial Accounting Standards Board's Emerging Issues Task Force (Issue No. 97-13). Effective October 1, 1997, all such costs were expensed as incurred, whereas previously such costs were capitalized. In the fourth quarter of 1997, business process reengineering costs capitalized through September 30, 1997 were written off as a cumulative effect type adjustment. Note 2 - Common Shares Reserved for Stock Plans At September 30, 1998, 4,917,827 and 426,482 Common Shares were reserved for possible issuance pursuant to the exercise of stock options and grants under the Company's Stock Option and Incentive Plans, respectively. An additional 256,508 Common Shares were reserved for purchase through payroll deductions under the terms of the Employee Stock Purchase Plan. Further, 2,673,000 Common Shares were reserved for possible conversion of the Series A ESOP Convertible preferred stock. 58 59 Note 3 - Earnings per Share In compliance with Financial Accounting Standards Board Statement No. 128, "Earnings per share," the Company changed its method of computing earnings per share and restated the prior year to conform to the new requirements. Basic and diluted earnings per share as calculated under Statement 128 were as follows (in millions, except per share amounts):
Nine months ended September 30, 1998 1997 Basic Earnings per Share: Net earnings $ 56 $ 66 Effect of preferred stock dividends, net of taxes (4) (4) -------- -------- Net earnings available to common shareholders $ 52 $ 62 ======== ======== Average Common Shares outstanding - basic 29.5 28.6 Basic Earnings per Common Share $ 1.76 $ 2.18 ======== ======== Diluted Earnings per Share: Net earnings $ 56 $ 66 Effect of ESOP charge to operations assuming conversion of Series A ESOP Convertible Preferred Shares, net of taxes (2) (2) -------- -------- Net earnings available to common shareholders $ 54 $ 64 ======== ======== Average Common Shares outstanding - basic 29.5 28.6 Effect of dilutive securities: Contingently issuable shares .2 .1 Employee stock options .1 .5 Assumed conversion of Series A ESOP Convertible Preferred Shares 2.6 2.7 -------- -------- Average Common Shares outstanding - diluted 32.4 31.9 ======== ======== Diluted Earnings per Common Share $ 1.66 $ 2.02 ======== ========
Note 4 - Subsequent Event On October 15, 1998, BetzDearborn and Hercules Incorporated completed the Agreement and Plan of Merger, dated July 30, 1998, with BetzDearborn surviving the merger as a wholly owned subsidiary of Hercules Incorporated. 59 60 PRO FORMA FINANCIAL STATEMENTS OF HERCULES INCORPORATED (Unaudited) The Unaudited Pro Forma Condensed Combined Statement of Income of Hercules Incorporated for the year ended December 31, 1998 reflects the acquisition of BetzDearborn Inc. as if it had occurred at the beginning of the year ended December 31, 1998. The pro forma information is based on the historical financial statements of Hercules and BetzDearborn after giving effect to the acquisition using the purchase method of accounting and a preliminary purchase price allocation. The actual allocation of the purchase price is expected to be completed during 1999, based on a complete evaluation of the assets acquired and liabilities assumed. Accordingly, the information presented herein may differ from the final purchase price allocation. The Unaudited Pro Forma Condensed Combined Statement of Income also reflects assumptions and adjustments deemed appropriate by Hercules management, which are described in the accompanying notes to the Unaudited Pro Forma Condensed Combined Statement of Income. Cost savings benefits from synergies to be derived from the planned acquisition, which may be significant, are not reflected in the Unaudited Pro Forma Condensed Combined Statement of Income. The Unaudited Pro Forma Condensed Combined Statement of Income does not purport to be indicative of Hercules' results of operations had the planned acquisition actually occurred on the date assumed nor is it necessarily indicative of Hercules' future operating results. The Unaudited Pro Forma Condensed Combined Statement of Income should be read in conjunction with the audited consolidated financial statements of Hercules and the notes thereto set forth in Part II, Item 8, of this Form 10-K, and the historical consolidated financial statements of BetzDearborn and the notes thereto set forth in BetzDearborn's 1997 Annual Report on Form 10-K and the unaudited financial statements of BetzDearborn for the periods ended March 31, 1998 and June 30, 1998, as set forth in its quarterly reports on Form 10-Q for those periods. HERCULES INCORPORATED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED) (Dollars in millions, except per share)
Year ended December 31, 1998 --------------------------------------------------------------- BetzDearborn Hercules as 1/1/98 - Pro forma Pro forma Reported 9/30/98 Adjustments Combined --------------------------------------------------------------- Net sales $ 2,145 $ 948 $ $ 3,093 Cost of sales 1,287 390 (12)(a) 1,665 Selling, general, and administrative expenses 399 400 48 (b) 835 (12)(c) Research and development 61 30 91 Purchased in-process research and development 130 -- (130)(d) -- Other operating expenses (income), net 76 (11)(e) 65 ------- ------- ------ ------- Profit from operations 192 128 117 437 Equity in income of affiliated companies 10 -- 10 Interest and debt expense 103 29 150(f) 282 Other income (expense), net (22) (12) (34) ------- ------- ------ ------- Income before income taxes 77 87 (33) 131 Income tax expense 68 31 (44)(g) 55 ------- ------- ------ ------- Net income $ 9 $ 56 $ 11 $ 76 ======= ======= ====== ======= Earnings per share Basic $ .10 $ .75 Diluted $ .10 $ .75 Weighted-average shares outstanding Basic 96.3 100.7 (h) Diluted 97.4 101.8 (h)
The accompanying notes are an integral part of the unaudited pro forma condensed combined statement of income. 60 61 HERCULES INCORPORATED NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED) (Dollars in millions) (a) To record the net change in depreciation expense resulting from the increase in fair value of fixed assets and the adjustment to estimated useful lives. (b) To record amortization of goodwill of $2,074 over its estimated useful life of 40 years, and amortization of other identified intangible assets of $145 over their estimated useful lives ranging from 10 to 15 years. (c) To eliminate historical BetzDearborn goodwill and intangible amortization. (d) To remove nonrecurring write-off of purchased in-process research and development. (e) To remove nonrecurring integration charges related to the acquisition. (f) To record incremental interest expense at an assumed interest rate of 7.3%, approximate borrowing rate for Hercules, on borrowings under the $3,650 credit facility used to finance the BetzDearborn acquisition and amortization of debt issuance costs. (g) To record the tax effect of the pro forma adjustments at the statutory rate of 35% for the period presented. In-process research and development and amortization of goodwill (substantially non-deductible) have not been tax effected. (h) Shares of the BetzDearborn ESOP were exchanged for approximately 5.9 million Hercules common shares and are considered outstanding. 61 62 HERCULES INCORPORATED SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Dollars in millions)
Col. A. Col. B Col. C Col. D Col. E - ---------------------------------------------------------------------------------------------------------------------------------- Additions ------------------------- Balance at Charged to Charged to Balance beginning of costs and other at end of Description period expenses accounts Deductions period - ---------------------------------------------------------------------------------------------------------------------------------- 1998 - --------- Allowance for doubtful accounts $ 3 -- $10(a) -- $13 Tax valuation allowance 12 -- -- -- 12 1997 - --------- Allowance for doubtful accounts $ 4 -- -- 1(b) $ 3 Tax valuation allowance 15 -- -- 3(c) 12 1996 - --------- Allowance for doubtful accounts $ 5 -- -- 1(b) $ 4 Tax valuation allowance 15 -- -- -- 15
(a) Primarily a result of 1998 acquisitions. (b) Write-off of uncollectible accounts, net of recoveries. (c) Utilization of net operating loss carryforwards. 62 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 on March 30, 1999. HERCULES INCORPORATED By GEORGE MACKENZIE ----------------------------------- George MacKenzie, Senior Vice President and Chief Financial Officer 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 in the capacities indicated on March 30, 1999. PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR: Chairman and Chief Executive Officer R. KEITH ELLIOTT ----------------- R. Keith Elliott PRINCIPAL FINANCIAL OFFICER: Senior Vice President and Chief Financial Officer GEORGE MACKENZIE ----------------- George MacKenzie PRINCIPAL ACCOUNTING OFFICER: Vice President and Controller VIKRAM JOG ----------------- Vikram Jog DIRECTORS: VINCENT J. CORBO ------------------------- Vincent J. Corbo JOHN G. DROSDICK ------------------------- John G. Drosdick RICHARD M. FAIRBANKS, III ------------------------- Richard M. Fairbanks, III ALAN R. HIRSIG ------------------------- Alan R. Hirsig EDITH E. HOLIDAY ------------------------- Edith E. Holiday ROBERT G. JAHN ------------------------- Robert G. Jahn GAYNOR N. KELLEY ------------------------- Gaynor N. Kelley RALPH L. MACDONALD, JR. ------------------------- Ralph L. MacDonald, Jr. H. EUGENE MCBRAYER ------------------------- H. Eugene McBrayer PETER MCCAUSLAND ------------------------- Peter McCausland JOHN A. H. SHOBER ------------------------- John A. H. Shober PAULA A. SNEED ------------------------- Paula A. Sneed 63 64 EXHIBIT INDEX
NUMBER DESCRIPTION INCORPORATED BY REFERENCE TO 2-A Agreement and Plan of Merger among Hercules Incorporated, Water Exhibit 2.1, BetzDearborn Inc. Current Report on Acquisition Company, and BetzDearborn Inc., dated July 30, 1998 Form 8-K, filed July 30, 1998 3-A.1 Restated Certificate of Incorporation of Hercules Incorporated as Exhibit 3-A, Annual Report on Form 10-K, filed revised and amended July 6, 1988 March 26, 1993 3-A.2 Certificate of Amendment to Hercules' Restated Certificate of Exhibit 4.1a, Registration Statement on Form S-3, Incorporation as revised and amended October 24, 1995 filed September 15, 1998 3-B By-Laws of Hercules Incorporated as revised and amended October 30, Exhibit 3-B, Annual Report on Form 10-K, filed 1991 March 26, 1993 4-C Junior Subordinated Debentures Indenture, dated November 12, 1998, between Hercules Incorporated and The Chase Manhattan Bank, as Trustee 4-D First Supplemental Indenture, dated November 12, 1998, between Hercules Incorporated and The Chase Manhattan Bank, as Trustee 4-E Preferred Securities Guarantee Agreement, dated November 12, 1998, executed by Hercules Incorporated and The Chase Manhattan Bank, as Trustee, with respect to Hercules Trust V 4-F Amended and Restated Trust Agreement of Hercules Trust V, dated November 12, 1998 4-G Remarketing Agreement, dated November 12, 1998, among Hercules Incorporated, Hercules Trust V and NationsBanc Montgomery Securities LLC 4-H Form of Junior Subordinated Debenture Indenture between Hercules Exhibit 4.4, Amendment No. 1 to Registration Incorporated and The Chase Manhattan Bank, as Trustee Statement on Form S-3, filed October 29, 1998 4-I Officers' Certificate, dated as of March 17, 1999, pursuant to the Exhibit 4.1, Current Report on Form 8-K, dated Junior Subordinated Debenture Indenture between Hercules Incorporated March 17, 1999 and The Chase Manhattan Bank, as Trustee 4-J Form of Preferred Securities Guarantee by Hercules Incorporated and The Exhibit 4.28, Amendment No. 1 to Registration Chase Manhattan Bank, as trustee, with respect to Hercules Trust I Statement on Form S-3, filed October 29, 1998 4-K Form of Amended and Restated Trust Agreement of Hercules Trust I Exhibit 4.13, Amendment No. 1 to Registration Statement on Form S-3, filed October 29, 1998
65
NUMBER DESCRIPTION INCORPORATED BY REFERENCE TO 4-L Form of 9.42% Trust Originated Preferred Securities of Hercules Trust I Exhibit 4.2, Current Report on Form 8-K, dated March 17, 1999 4-M Form of 9.42% Junior Subordinated Deferrable Interest Debentures due Exhibit 4.3, Current Report on Form 8-K, dated 2029 March 17, 1999
Hercules is party to several long-term debt instruments under which in each case the total amount of securities authorized does not exceed 10% of the total assets of Hercules. Hercules agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request. 10-A Hercules Incorporated Unit Incentive Plan Appendix A, Notice of Annual Meeting and Proxy Statement Dated February 10, 1969*. 10-B Hercules Executive Survivor Benefit Plan Exhibit 10-D, Annual Report on Form 10-K, filed March 27, 1981*. 10-C Hercules Incorporated Phantom Stock Plan Exhibit E, Notice of Annual Meeting and Proxy Statement Dated February 14, 1986* 10-D Hercules Incorporated Restricted Stock Plan of 1986 Exhibit B. Notice of Annual Meeting and Proxy Statement Dated February 14, 1986* 10-E Hercules Incorporated Stock Option Plan of 1986 Exhibit D. Notice of Annual Meeting and Proxy Statement Dated February 14, 1986* 10-F Hercules Incorporated Deferred Compensation Plan Exhibit 10-I, Annual Report on Form 10-K, filed March 29, 1988* 10-H Hercules Incorporated Annual Management Incentive Compensation Plan Exhibit 10-H, Annual Report on Form 10-K, filed March 26, 1993 10-I Hercules Incorporated 1993 Nonemployee Director Stock Accumulation Plan Exhibit 4.1, Registration Statement on Form S-8, filed July 16, 1993 10-J Hercules Incorporated Deferred Compensation Plan for Nonemployee Exhibit 10-J, Annual Report on Form 10-K, filed Directors March 26, 1993 10-L Hercules Employee Pension Restoration Plan Exhibit 10-L, Annual Report on Form 10-K, filed March 26, 1993 10-M Form of Employment Contract between the company and certain directors Exhibit 10-J, Annual Report on Form 10-K, filed and officers of the company March 29, 1988* 10-N Form of Indemnification Agreement between the company and certain Annex II, Notice of Annual Meeting and Proxy directors and officers of the company Statement Dated February 19, 1987* 10-P Hercules Incorporated Amended and Restated Long Term Incentive Exhibit 10-P, Annual Report on Form 10-K, filed Compensation Plan March 31, 1995
66
NUMBER DESCRIPTION INCORPORATED BY REFERENCE TO 10-Q Credit Agreement, dated October 15, 1998, among the company, Exhibit 10.1, Current Report on Form 8-K, filed Administrative Agent, and the lender's party thereto October 29, 1998 10-R Forward Underwriting Agreement, dated November 12, 1998, between NationsBanc Montgomery Securities and Hercules Incorporated 10-S Underwriting Agreement, dated March 12, 1999, among Hercules Exhibit 1.1, Current Report on Form 8-K, dated Incorporated, Hercules Trust I and the Underwriters named therein March 17, 1999 10-T Employment Agreement effective August 1 1998, between the company and Vincent J. Corbo 10-U Employment Agreement dated October 15, 1998, between the company and William R. Cook 21 Subsidiaries of the Registrant Page 52 of 1998 Form 10-K. See Part II, Item 8 23-A Consent of Independent Accountants 27 Financial Data Schedule
* Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference should be located in SEC File No. 1-496. EX-4.C 2 JUNIOR SUBORDINATED DEBENTURES INDENTURE, 11/12/98 1 Exhibit 4-C HERCULES INCORPORATED, AS ISSUER AND THE CHASE MANHATTAN BANK, AS TRUSTEE INDENTURE DATED AS OF NOVEMBER 12, 1998 JUNIOR SUBORDINATED DEBENTURES 2 TABLE OF CONTENTS
Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions............................................................................1 Section 1.02 Other Definitions......................................................................6 Section 1.03 Incorporation by Reference of TIA......................................................6 Section 1.04 Rules of Construction..................................................................7 Section 1.05 Acts of Holders and Holders of Preferred Securities....................................7 ARTICLE 2 THE DEBENTURES Section 2.01 Amount Unlimited; Issuable in Series...................................................8 Section 2.02 Payment of Principal and Interest.....................................................10 Section 2.03 Execution, Authentication and Delivery................................................12 Section 2.04 Registrar and Paying and Conversion Agents............................................14 Section 2.05 Paying Agent to Hold Money in Trust...................................................15 Section 2.06 Debentureholder Lists.................................................................15 Section 2.07 Transfer and Exchange.................................................................15 Section 2.08 Replacement Debentures................................................................16 Section 2.09 Outstanding Debentures; Determinations of Holders' Action.............................16 Section 2.10 Temporary Debentures..................................................................17 Section 2.11 Book-Entry System.....................................................................17 Section 2.12 Cancellation..........................................................................18 ARTICLE 3 REDEMPTION Section 3.01 Redemption: Notice to Trustee.........................................................19 Section 3.02 Selection of Debentures to be Redeemed................................................19 Section 3.03 Notice of Redemption..................................................................19 Section 3.04 Effect of Notice of Redemption........................................................20 Section 3.05 Deposit of Redemption Price...........................................................21 Section 3.06 Debentures Redeemed in Part...........................................................21 ARTICLE 4 COVENANTS Section 4.01 Payment of Principal, Premium and Interest............................................21 Section 4.02 Prohibition Against Dividends.........................................................22 Section 4.03 SEC Reports...........................................................................22 Section 4.04 Compliance Certificates...............................................................23 Section 4.05 Further Instruments and Acts..........................................................23
i 3 Section 4.06 Payment of Expenses of each Trust.....................................................23 Section 4.07 Ownership of Common Securities........................................................23 ARTICLE 5 SUCCESSOR CORPORATION Section 5.01 When the Company May Merge............................................................24 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01 Events of Default.....................................................................24 Section 6.02 Acceleration..........................................................................26 Section 6.03 Other Remedies........................................................................27 Section 6.04 Waiver of Past Defaults...............................................................27 Section 6.05 Control by Holders....................................................................27 Section 6.06 Limitation on Suits...................................................................28 Section 6.07 Unconditional Right of Holders to Receive Principal, Premium and Interest..............................................................................28 Section 6.08 Direct Action Right of Holders of Trust Preferred Securities..........................29 Section 6.09 Collection Suits by the Trustee.......................................................29 Section 6.10 Trustee May File Proofs of Claim......................................................30 Section 6.11 Priorities............................................................................30 Section 6.12 Undertaking for Costs.................................................................31 ARTICLE 7 THE TRUSTEE Section 7.01 Duties and Responsibilities of the Trustee............................................31 Section 7.02 Rights of the Trustee.................................................................32 Section 7.03 Not Responsible for Recitals or Issuances of Debentures...............................33 Section 7.04 Notice of Defaults....................................................................33 Section 7.05 Reports by Trustee to Holders.........................................................33 Section 7.06 Compensation and Indemnity............................................................34 Section 7.07 Eligibility; Disqualification.........................................................34 Section 7.08 Resignation and Removal; Appointment of Successor.....................................35 Section 7.09 Acceptance of Appointment by Successor................................................36 Section 7.10 Successor Trustee by Merger...........................................................37
ii 4 ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS Section 8.01 Satisfaction and Discharge of Indenture...............................................37 Section 8.02 Application by Trustee of Funds Deposited for Payment of Debentures...................38 Section 8.03 Repayment of Moneys Held by Paying Agent..............................................39 Section 8.04 Return of Moneys Held by the Trustee and Paying Agent Unclaimed for Two Years.........................................................................39 ARTICLE 9 SUPPLEMENTAL INDENTURES Section 9.01 Supplemental Indentures Without Consent of Holders....................................39 Section 9.02 Supplemental Indentures With Consent of Holders.......................................40 Section 9.03 Compliance with Trust Indenture Act...................................................42 Section 9.04 Revocation and Effect of Consents, Waivers and Actions................................42 Section 9.05 Notation on or Exchange of Debentures.................................................42 Section 9.06 Execution of Supplemental Indentures..................................................42 Section 9.07 Effect of Supplemental Indentures.....................................................43 ARTICLE 10 SUBORDINATION Section 10.01 Debentures Subordinated to Senior Indebtedness........................................43 Section 10.02 Priority and Payment of Proceeds in Certain Events: Remedies Standstill...............43 Section 10.03 Payments which May Be Made Prior to Notice............................................44 Section 10.04 Rights of Holders of Senior Indebtedness Not to Be Impaired...........................44 Section 10.05 Trustee May Take Action to Effectuate Subordination...................................45 Section 10.06 Subrogation...........................................................................45 Section 10.07 Obligations of Company Unconditional; Reinstatement...................................45 Section 10.08 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice...............46 Section 10.09 Right of Trustee to Hold Senior Indebtedness..........................................46 ARTICLE 11 SINKING FUNDS Section 11.01 Applicability of Article..............................................................46 Section 11.02 Satisfaction of Sinking Fund Payments with Debentures.................................47 Section 11.03 Redemption of Debentures for Sinking Fund.............................................47 ARTICLE 12 MEETINGS OF DEBENTUREHOLDERS Section 12.01 Purposes for Which Meetings May Be Called.............................................48 Section 12.02 Call, Notice and Place of Meetings....................................................48 Section 12.03 Persons Entitled to Vote at Meetings..................................................48
iii 5 Section 12.04 Quorum; Action........................................................................48 Section 12.05 Determination of Voting Rights; Conduct and Adjournment of Meetings..................49 Section 12.06 Counting Votes and Recording Action of Meetings.......................................50 ARTICLE 13 MISCELLANEOUS Section 13.01 Trust Indenture Act Controls..........................................................50 Section 13.02 Notices...............................................................................51 Section 13.03 Communication by Holders with Other Holders...........................................52 Section 13.04 Certificate and Opinion as to Conditions Precedent....................................52 Section 13.05 Statements Required in Certificate or Opinion.........................................52 Section 13.06 Severability Clause...................................................................52 Section 13.07 Rules by Trustee, Paying Agent and Registrar..........................................53 Section 13.08 Legal Holidays........................................................................53 Section 13.09 Governing Law.........................................................................53 Section 13.10 No Recourse Against Others............................................................53 Section 13.11 Successors and Assigns................................................................53 Section 13.12 Counterparts..........................................................................53 Section 13.13 No Adverse Interpretation of Other Agreements.........................................53 Section 13.14 Table of Contents, Headings...........................................................54 Section 13.15 Holders of Preferred Securities as Third Party Beneficiaries..........................54 Section 13.16 Benefits of the Indenture.............................................................54
iv 6 Hercules Indenture Certain Sections of this Indenture relating to Sections 310 through 318 of the Trust Indenture Act of 1939
Trust Indenture Indenture Act Section Section - ---------------- --------------- Section 310(a)(1) .......................................................... 2.03; 7.07 (a)(2) .......................................................... 2.03; 7.07 (a)(3) .......................................................... Not Applicable (a)(4) .......................................................... Not Applicable (a)(5) .......................................................... Not Applicable (b) .......................................................... 7.07; 7.08 (c) .......................................................... Not Applicable Section 311(a) .......................................................... Not Applicable (b) .......................................................... Not Applicable (c) .......................................................... Not Applicable Section 312(a) .......................................................... 2.06 (b) .......................................................... 13.03 (c) .......................................................... 13.03 Section 313(a) .......................................................... 7.05 (b)(1) .......................................................... Not Applicable (b)(2) .......................................................... Not Applicable (c) .......................................................... 7.05 (d) .......................................................... 7.05 Section 314(a) .......................................................... 4.03; 4.04 (b) .......................................................... Not Applicable (c)(1) .......................................................... 2.03; 13.04; 13.05 (c)(2) .......................................................... 2.03; 13.04; 13.05 (c)(3) .......................................................... Not Applicable (d) .......................................................... Not Applicable (e) .......................................................... 13.05 (f) .......................................................... Not Applicable Section 315(a) .......................................................... 7.01(b); 7.02 (b) .......................................................... 7.02; 7.04; 13.02 (c) .......................................................... 7.01(a); 7.02 (d) .......................................................... 7.01(c); 7.02 (e) .......................................................... 6.12 Section 316(a)(1)(A) .......................................................... 6.05 (a)(1)(B) .......................................................... 6.02; 6.04 (a)(2) .......................................................... Not Applicable (a)(last sentence) .......................................................... 2.09 (b) .......................................................... 6.07 (c) .......................................................... 1.05 Section 317(a)(1) .......................................................... 6.09 (a)(2) .......................................................... 6.10 (b) .......................................................... 2.05 Section 318(a) .......................................................... 13.01 (b) .......................................................... Not Applicable (c) .......................................................... 13.01
- ---------------------- Note: This reconciliation and tie sheet shall not, for any purpose, be deemed to be a part of the Indenture. v 7 INDENTURE, dated as of November 12, 1998 by and between Hercules Incorporated, a corporation duly organized and existing under the laws of the State of Delaware (the "Company"), and The Chase Manhattan Bank, a banking corporation duly organized and existing under the laws of the State of New York, as trustee (the "Trustee"). WHEREAS, the Company may from time to time create or establish one or more statutory business trusts for the purpose of issuing undivided beneficial interests in the assets thereof (the "Trust Securities") and using the proceeds thereof to acquire the Company's Debentures (as hereinafter defined). WHEREAS, all things necessary to make the Debentures, when duly issued and executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid and binding agreement of the Company, enforceable in accordance with its terms, have been done. NOW THEREFORE: Each of the Company and the Trustee, intending to be legally bound hereby, agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders (as hereinafter defined) of the securities issued hereunder: ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 DEFINITIONS. "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. When used with respect to any Person, "control" 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. "Board of Directors" means either the Board of Directors of the Company or the Finance Committee of such Board or any other committee of such Board duly authorized to act generally or in any particular respect for the Company hereunder. "Board Resolution" means (i) a copy of a resolution certified by the Secretary or the 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 or (ii) a certificate signed by the authorized officer or officers to whom the Board of Directors has delegated its authority, and in each case, delivered to the Trustee. "Business Day" means any day that is not a Saturday, a Sunday or a day on which banking institutions in the City of New York or Wilmington, Delaware are authorized or required by law, regulation or executive order to close. 8 "Capital Lease Obligations" of a Person means any obligation which is required to be classified and accounted for as a capital lease on the face of a balance sheet of such Person prepared in accordance with GAAP. "Capital Stock" means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock or similar interests in other types of entities. "Company" means Hercules Incorporated, a Delaware corporation, or any successor thereto. "Company Order" means a written request or order signed in the name of the Company by an Officer of the Company and delivered to the Trustee. "Debentureholder" or "Holder" means a Person in whose name a Debenture is registered on the Registrar's books. "Debentures" shall mean any of the junior subordinated debentures of any series issued, authenticated and delivered under this Indenture. "Default" means any event which is, or after notice or passage of time, or both, would be, an Event of Default pursuant to Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Extension Period," with respect to any series of Debentures, means any period during which the Company elects to extend the interest payment period on such series of Debentures pursuant to Section 4.01(b); provided that an Extension Period (or any extension thereof) must end on an Interest Payment Date for such Debentures and may not extend beyond the Stated Maturity Date or the Redemption Date of any Debenture of such series. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board. "Guarantee" means each Guarantee Agreement executed by the Company with respect to the Preferred Securities issued by any Trust pursuant to which the Company irrevocably and unconditionally agrees to pay the Guarantee Payments (as defined in such Guarantee Agreement) to the holders of such Preferred Securities. "Indebtedness" means, without duplication, (i) every obligation of the Company for money borrowed; (ii) every obligation of the Company evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of the Company with respect to letters of credit, banker's acceptances or similar facilities issued for the account of the Company; (iv) every obligation of the Company issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) every Capital Lease Obligation of the Company; (vi) all indebtedness of the Company, whether incurred on or prior to the 2 9 date of this Indenture or thereafter incurred, for claims in respect of derivative products, including interest rate, foreign exchange rate and commodity forward contracts, options and swaps and similar arrangements; (vii) every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, the Company has guaranteed or is responsible or liable for, directly or indirectly, as obligor or otherwise; and (viii) obligations of the type referred to in clauses (i) through (vii) of another Person secured by any lien on any property or asset of the Company (whether or not such obligation is assumed by the Company); and all deferrals, renewals, extensions and refundings of, and amendments, modifications and supplements to, any of the foregoing obligations. "Indebtedness Ranking on a Parity with the Debentures" means (i) Indebtedness, whether outstanding on the date of execution of this Indenture or thereafter created, assumed or incurred, to the extent such Indebtedness specifically by its terms ranks pari passu with and not prior to the Debentures in the right of payment upon the happening of the dissolution, winding-up, liquidation or reorganization of the Company and (ii) all other debt securities, and guarantees in respect of those debt securities, issued to any other trust, or a trustee of such trust, partnership or other entity affiliated with the Company that is a financing vehicle of the Company (a "financing entity") in connection with the issuance by such financing entity of equity securities or other securities guaranteed by the Company pursuant to an instrument that ranks pari passu with or junior in right of payment to the Guarantees. The securing of any Indebtedness otherwise constituting Indebtedness Ranking on a Parity with the Debentures shall not be deemed to prevent such Indebtedness from constituting Indebtedness Ranking on a Parity with the Debentures. "Indebtedness Ranking Junior to the Debentures" means any Indebtedness, whether outstanding on the date of execution of this Indenture or thereafter created, assumed or incurred, to the extent such Indebtedness by its terms ranks junior to and not pari passu with or prior to the Debentures (and any other Indebtedness Ranking on a Parity with the Debentures) in right of payment upon the happening of the dissolution, winding-up, liquidation or reorganization of the Company. The securing of any Indebtedness otherwise constituting Indebtedness Ranking Junior to the Debentures shall not be deemed to prevent such Indebtedness from constituting Indebtedness Ranking Junior to the Debentures. "Indenture" means this indenture, as amended or supplemented from time to time in accordance with the terms hereof, including the provisions of the TIA that are deemed to be a part hereof. "Interest Payment Date," when used with respect to the Debentures of any series, means the stated maturity of any installment of interest on the Debentures of that series. "Issue Date," with respect to a series of Debentures, means the date on which the Debentures of such series are originally issued. "Office" or "Agency," with respect to any Debentures, means an office or agency of the Company maintained or designated in a Place of Payment for such Debentures pursuant to Section 2.04 or any other office or agency of the Company maintained or designated for such Debentures pursuant to Section 2.04 or, to the extent designated or required by Section 2.04 in lieu of such office or agency, the Corporate Trust Office of the Trustee. 3 10 "Officer" means, with respect to any corporation, any Chief Executive Officer, the Chief Financial Officer, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of such corporation. "Officers' Certificate" means a certificate signed by either Co-Chief Executive Officer, the Chief Financial Officer, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, that complies with the requirements of Sections 13.04 and 13.05 and is delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be an employee of the Company, or any other counsel who shall be reasonably acceptable to the Trustee and provided that the General Counsel and the Assistant General Counsel of the Company shall be deemed to be reasonably acceptable to the Trustee, containing the applicable information specified in Sections 13.04 and 13.05. "Paying Agent" means any Person authorized by the Company to pay the principal of and premium, if any, and interest on the Debentures of any series on behalf of the Company. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Predecessor Debentures" of any particular Debenture means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and for purposes of this definition, any Debenture authenticated and delivered under Section 2.08 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Debenture shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Debenture. "Preferred Securities" means the preferred securities of a Trust, representing undivided beneficial interests in the assets of such Trust. "Record Date," with respect to any series of the Debentures, means the Regular Record Date, the Special Record Date or any date set to determine the Holders of Debentures of such series entitled to vote, consent, make a request or exercise any other right associated with such Debentures. "Redemption Date," with respect to the Debentures of any series to be redeemed, means the date specified for the redemption thereof in accordance with the terms thereof and pursuant to Article 3 of this Indenture. "Redemption Price," with respect to the Debentures of any series to be redeemed, means the price at which such Debenture is to be redeemed in accordance with the terms thereof and pursuant to Article 3 of this Indenture. "Regular Record Date," with respect to an Interest Payment Date for the Debentures of a series, means the date specified for such Debentures for the determination of Holders entitled to receive the payment of interest on such Interest Payment Date. 4 11 "Responsible Officer," when used with respect to the Trustee, means any Senior Vice President, any Vice President, any Assistant Vice President, any Trust Officer, or Assistant Trust Officer or any other officer of the Corporate Trust Department 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 that officer's knowledge of and familiarity with the particular subject. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, amended. "Security Exchange," when used with respect to the Debentures of any series which are held as assets of a Trust pursuant to the Trust Agreement of such Trust, means the distribution of the Debentures of such series by such Trust to the holders of the Trust Securities of such Trust in exchange for such Trust Securities upon certain events described in the applicable Trust Agreement of such Trust. "Senior Indebtedness" means all Indebtedness, whether outstanding on the date of execution of this Indenture or thereafter created, assumed or incurred, except Indebtedness Ranking on a Parity with the Debentures or Indebtedness Ranking Junior to the Debentures. A "series" of Debentures means all Debentures denoted as part of the same series authorized by or pursuant to a particular Board Resolution or a supplemental indenture. "Special Record Date" for the payment of any Defaulted Interest on the Debentures of any series means the date determined pursuant to Section 2.02. "Stated Maturity Date," with respect to the Debentures of any series, means the date specified for such Debentures as the date on which the principal of such Debenture is due and payable. "Subsidiary" means any corporation, association, partnership, trust, limited liability company or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, trustees or the governing individuals or body thereof is at the time owned or controlled, directly or indirectly, by (i) the Company, (ii) the Company and one or more Subsidiaries, or (iii) one or more Subsidiaries. "TIA" means the Trust Indenture Act of 1939, as amended and as in effect on the date of this Indenture; provided, however, that if such Act is amended after such date, TIA means, to the extent required by any such amendment, such Act as so amended. "Trust" means any statutory business trust created or established by the Company to issue Trust Securities and to use the proceeds from the sale thereof to purchase Debentures. "Trust Agreement" means the Amended and Restated Trust Agreement for a Trust, among the Company, as sponsor, The Chase Manhattan Bank, as Property Trustee, the Delaware Trustee named therein and the Administrative Trustees named therein, as the same may be amended and modified from time to time. 5 12 "Trust Securities" means the undivided beneficial interests in the assets of a Trust. "Trustee" means the Person named as "Trustee" in the first paragraph of this Indenture, until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor, and if at any time there is more than one such Person, "Trustee" as used with respect to Debentures of any series shall mean the Trustee with respect to Debentures of that series. "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. "Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly Owned Subsidiary. SECTION 1.02 OTHER DEFINITIONS.
Term Defined in Section "Act".......................................................................... 1.05 "Bankruptcy Law"............................................................... 6.01 "Conversion Agent"............................................................. 2.04 "Custodian".................................................................... 6.01 "Defaulted Interest"........................................................... 2.02 "Depository"................................................................... 2.11 "Direct Action"................................................................ 6.08 "Event of Default"............................................................. 6.01 "Global Debenture"............................................................. 2.11 "Legal Holiday"................................................................ 13.08 "Notice of Default"............................................................ 6.01 "Property Trustee"............................................................. 6.01 "Register"..................................................................... 2.04 "Registrar".................................................................... 2.04 "Successor".................................................................... 5.01
SECTION 1.03 INCORPORATION BY REFERENCE OF TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Debentures. "indenture security holder" means a Debentureholder or Holder. "indenture to be qualified" means this Indenture. 6 13 "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and any other obligor on the Debentures. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04 RULES OF CONSTRUCTION. Unless the context otherwise requires: (a) each capitalized term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means including, without limitation; (e) words in the singular include the plural, and words in the plural include the singular; and (f) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. SECTION 1.05 ACTS OF HOLDERS AND HOLDERS OF PREFERRED SECURITIES. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders or by holders of Preferred Securities may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders or holders of Preferred Securities, as applicable, in person or by an agent duly appointed in writing and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Holders or holders of Preferred Securities signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. Without limiting the generality of this Section, unless otherwise provided in or pursuant to this Indenture, a Holder, including a Depository that is a Holder of a Global Debenture, may make, give or take, by a proxy, or proxies, duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in or pursuant to this Indenture to be made, given or taken by Holders, and a Depository that is a Holder of a Global Debenture may provide its proxy or proxies to the beneficial owners of interests in any such Global Debenture through such Depository's standing instructions and customary practices. 7 14 (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Trustee deems sufficient. (c) The ownership of Debentures shall be proved by the Register. (d) Any Act of the Holder of any Debenture shall bind every future Holder of the same Debenture and the Holder of every Debenture issued upon the transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debenture. (e) If the Company solicits from the Holders any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, by or pursuant to a resolution of its Board of Directors, fix in advance a Record Date for the determination of Holders entitled to give such Act, but the Company shall have no obligation to do so. If such a Record Date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after such Record Date, but only 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 Debentures have authorized or agreed or consented to such Act, and for that purpose the outstanding Debentures shall be computed as of such Record Date. ARTICLE 2 THE DEBENTURES SECTION 2.01 AMOUNT UNLIMITED; ISSUABLE IN SERIES. The aggregate principal amount of Debentures which may be authenticated and delivered under this Indenture is unlimited. The Debentures may be issued in one or more series in an amount not to exceed the aggregate principal amount of Debentures of that series from time to time authorized by or pursuant to a Board Resolution, or pursuant to one or more indentures supplemental hereto, prior to the initial issuance of Debentures of a particular series. With respect to any Debentures of each series to be authenticated and delivered hereunder, there shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto: (a) the title of the Debentures of the series (which shall distinguish the Debentures of the series from all other Debentures); (b) any limit upon the aggregate principal amount of the Debentures of that series which may be authenticated and delivered under this Indenture (except for Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debentures of that series); (c) Stated Maturity Date or Dates, which may be serial and the Company's option, if any, to change the Stated Maturity Date or Dates; 8 15 (d) the rate or rates (which may be fixed or variable) at which the Debentures of the series shall bear interest or the manner of calculation of such rate or rates, if any; (e) the basis upon which interest shall be computed if other than a 360-day year composed of twelve 30-day months; (f) the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest will be payable or the manner of determination and frequency of such Interest Payment Dates and the Regular Record Dates therefor; (g) the right, if any, to extend the interest payment periods and the duration of any such Extension Period, including the maximum consecutive period during which interest payment periods may be extended; (h) Issue Date or Dates; (i) authorized denominations; (j) the place or places for the payment of principal and premium, if any, and interest; (k) the date or dates on which or the period or periods within which, the price or prices at which, and the terms and conditions upon which, Debentures of the series may be redeemed, in whole or in part, at the option of the Company; (l) the obligation, if any, of the Company to redeem or purchase Debentures of the series pursuant to any sinking fund or analogous provisions (including payments made in cash in anticipation of future sinking fund obligations) or at the option of a Holder and the date or dates on which or the period or periods within which, the price or prices at which, and the terms and conditions upon which, Debentures of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (m) the form of the Debentures of the series, including the form of the Certificate of Authentication for such series; (n) the right or obligation of any Holder or the Company or the applicable Trust to convert or exchange any Debenture into other securities of the Company or such Trust and the terms and conditions of any such conversion or exchange and, if so provided, the terms and conditions upon which such conversion or exchange will be effected, including, the conversion or exchange price, the conversion or exchange date(s) or period(s), provisions as to whether conversion or exchange will be at the option of the Holder or the Company or such Trust, the events requiring adjustment of the conversion or exchange price and provisions affecting conversion or exchange in the event of redemption of the Debenture of any series and any deletions from or modifications or additions to this Indenture to permit or to facilitate the issuance of such convertible or exchangeable Debentures or the administration thereof; (o) whether the Debentures are issuable as a Global Debenture and, in such case, the identity of the Depository for such series; 9 16 (p) any and all other terms with respect to such series (which terms shall not be inconsistent with the terms of this Indenture); and (q) the name of the applicable Trust (which shall distinguish such statutory business trust from all other Trusts) to which the Debentures of such series are to be deposited as assets and the date of its Trust Agreement. The Debentures of any series and the Trustee's Certificate of Authentication to be borne by such Debentures shall be substantially of the tenor and purport as set forth in one or more indentures supplemental hereto or as provided in a Board Resolution and as set forth in an Officers' Certificate, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved 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 Debentures of that series may be listed, or to conform to usage. All Debentures of any one series shall be substantially identical except as may otherwise be provided by the Company in or pursuant to the Board Resolution and set forth in the Officers' Certificate or in any indenture or indentures supplemental hereto pertaining to such series of Debentures. The terms of the Debentures of any series may provide, without limitation, that the Debentures shall be authenticated and delivered by the Trustee on original issue from time to time upon telephonic or written order of persons designated in the Officers' Certificate or supplemental indenture (telephonic instructions to be promptly confirmed in writing by such person) and that such persons are authorized to determine, consistent with such Officers' Certificate or any applicable supplemental indenture, such terms and conditions of the Debentures of such series as are specified in such Officers' Certificate or supplemental indenture. All Debentures of any one series need not be issued at the same time and, unless otherwise so provided by the Company, a series may be reopened for issuances of additional Debentures of such series or to establish additional terms of such series of Debentures. If any of the terms of the Debentures of any series shall be established by action taken by or pursuant to a Board Resolution, the Board Resolution shall be delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of such series. SECTION 2.02 PAYMENT OF PRINCIPAL AND INTEREST. Unless otherwise specified pursuant to Section 2.01(e), interest on the Debentures shall be computed on the basis of a 360-day year composed of twelve 30-day months. Unless otherwise provided with respect to a series of Debentures, (a) the principal and Redemption Price of and interest on each Debenture shall be payable 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; (b) the principal and Redemption Price of any Debenture and interest payable on the Stated Maturity Date (if other than an Interest Payment Date) or Redemption Date shall be payable upon surrender of such Debenture at the Office or Agency of any Paying Agent therefor; and 10 17 (c) interest on any Debenture shall be paid on each Interest Payment Date therefor to the Holder thereof at the close of business on the Record Date therefor, such interest to be payable by check mailed to the address of the Person entitled thereto as such address appears on the Register; provided however, that (i) at the written request of any Holder of at least $10,000,000 aggregate principal amount of Debentures received by the Registrar not later than the Regular Record Date for such Interest Payment Date, interest accrued on such Debentures will be payable by wire transfer within the continental United States in immediately available funds to the bank account number of such Holder specified in such request and entered on the Register by the Registrar and (ii) payments made in respect of Global Debentures shall be made in immediately available funds to the Depository. Except as specified pursuant to Section 2.01 or Section 4.01(b), interest on any Debenture which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Debenture (or one or more Predecessor Debentures) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Debenture which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (i) and (ii) below: (i) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Debentures (or their respective Predecessor Debentures) 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, not less than 15 Business Days prior to the date of the proposed payment, notify the Trustee and the Paying Agent in writing of the amount of Defaulted Interest proposed to be paid on each Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Paying Agent an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Paying Agent for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as provided in this clause. The Special Record Date for the payment of such Defaulted Interest shall be the close of business not more than 15 nor less than 10 days prior to the date of the proposed payment. The Trustee shall, in the name and at the expense of the Company, cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to the Holders thereof, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been given, such Defaulted Interest shall be paid to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (ii). (ii) The Company may make payment of any Defaulted Interest on the Debentures in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Debentures may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee and the Paying Agent of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Paying Agent. 11 18 Subject to the foregoing provisions of this Section, each Debenture delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debenture shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Debenture. If any convertible Debenture of any series is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Debenture with respect to which the Stated Maturity Date is prior to such Interest Payment Date), interest that is due on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Debenture is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Debenture that is converted, interest shall not be payable if the Regular Record Date is after the date of conversion of such Debenture. SECTION 2.03 EXECUTION, AUTHENTICATION AND DELIVERY. (a) The Debentures shall be executed on behalf of the Company by either of its Co-Chief Executive Officers, its Chief Financial Officer, its President or one of its Vice Presidents, its Treasurer or one of its Assistant Treasurers under its corporate seal imprinted or reproduced thereon and attested by its Secretary or one of its Assistant Secretaries. The signature of any such Officer on the Debentures may be manual or facsimile. (b) Debentures 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 Debentures or did not hold such offices at the date of such Debentures. (c) No Debenture shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Debenture a Certificate of Authentication duly executed by the Trustee by manual signature of a Responsible Officer, and such Certificate of Authentication upon any Debenture shall be conclusive evidence, and the only evidence, that such Debenture has been duly authenticated and made available for delivery hereunder. (d) The Trustee shall authenticate and deliver Debentures of a series, for original issue, at one time or from time to time in accordance with the Company Order referred to below, upon receipt by the Trustee of: (i) a Board Resolution as required by Section 2.01; (ii) a Company Order requesting the authentication and delivery of such Debentures and stating the identity of the applicable Trust and the aggregate liquidation amount of the Trust Securities to be issued by such Trust concurrently with such Debentures; (iii) an Officers' Certificate or, unless previously delivered, a supplemental indenture hereto setting forth the form of such Debentures and, except as set forth in a Board Resolution, establishing the terms thereof; 12 19 (iv) such Debentures, executed on behalf of the Company in accordance with clause (a) of this Section; (v) an Opinion of Counsel to the effect that: (1) the form or forms of such Debentures have been duly authorized by the Company and have been established in conformity with the provisions of this Indenture; (2) such Debentures, when authenticated and delivered by the Trustee and issued and delivered by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will have been duly issued under this Indenture and will constitute valid and legally binding obligations of the Company, entitled to the benefits provided by this Indenture, and enforceable in accordance with their terms, subject, as to enforcement to laws relating to or affecting generally the enforcement of creditors' rights, including, without limitation, bankruptcy and insolvency laws and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); (3) that any supplemental indenture referred to in clause (iii) above has been duly authorized, executed and delivered by the Company and is a valid instrument legally binding upon the Company, enforceable in accordance with its terms, subject as to enforcement to laws relating to or affecting creditors' rights, including without limitation, bankruptcy and insolvency laws and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and (4) that all consents, approvals and orders of any commission, governmental authority or agency required in connection with the issuance and delivery of such Debentures have been obtained; and (vi) an Officers' Certificate certifying that no Default or Event of Default has occurred and is continuing. (e) The Trustee shall act as the initial authenticating agent. Thereafter, the Trustee may appoint an authenticating agent. Each authenticating agent shall be acceptable to the Company and, except as provided in or pursuant to this Indenture, shall at all times be a corporation that would be permitted by the TIA to act as trustee under an indenture qualified under the TIA, is authorized under applicable law and by its charter to act as an authenticating agent and has a combined capital and surplus (computed in accordance with Section 310(a)(2) of the TIA) of at least $50,000,000. If at any time an authenticating agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in this Section. An authenticating agent may authenticate Debentures whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by an authenticating agent. The Trustee shall pay any authenticating agent appointed by the Trustee reasonable compensation for its services and the Trustee shall be reimbursed for such payment by the Company pursuant to Section 7.06. The provisions set forth in Sections 7.02, 7.03 and 7.06 shall be applicable to any authenticating agent. 13 20 (f) If all the Debentures of any series are not to be issued at one time, it shall not be necessary to deliver an Opinion of Counsel and an Officers' Certificate at the time of issuance of each Debenture, but such opinion and certificate, with appropriate modifications, shall be delivered at or before the time of issuance of the first Debenture of such series. After any such first delivery, any separate request by the Company that the Trustee authenticate Debentures of such series for original issue will be deemed to be a certification by the Company that all conditions precedent provided for in this Indenture relating to authentication and delivery of such Debentures continue to have been complied with. SECTION 2.04 REGISTRAR AND PAYING AND CONVERSION AGENTS. The Company shall maintain or cause to be maintained, in the City of New York, an Office or Agency where the Debentures may be presented for registration of transfer or for exchange ("Registrar"), a Paying Agent at whose Office the Debentures may be presented or surrendered for payment, a Conversion Agent at whose Office the Debentures may be presented and surrendered in the event of a conversion or exchange ("Conversion Agent"), and an Office or Agency where notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Registrar shall keep a register (the "Register") of the Debentures and of their transfer and exchange. The Company may have one or more co-Registrars and one or more additional Paying Agents and Conversion Agents. The term Registrar includes any additional registrar, the term Paying Agent includes any additional paying agent and the term Conversion Agent includes any additional conversion agent. Unless otherwise specified in or pursuant to this Indenture or the Debentures, the Trustee shall be the initial Registrar for each series of Debentures. The Company shall have the right to remove and replace from time to time the Registrar for any series of Debentures; provided that no such removal or replacement shall be effective until a successor Registrar with respect to such series of Debentures shall have been appointed by the Company and shall have accepted such appointment by the Company. In the event that the Trustee shall not be or shall cease to be Registrar with respect to a series of Debentures, it shall have the right to examine the Register for such series at all reasonable times. There shall be only one Register for each series of Debentures. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent, Conversion Agent or co-Registrar (if not the Company or the Trustee or an Affiliate of the Trustee). The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall give prompt written notice to the Trustee and to the Holders of any change of location of such Office or Agency. If at any time the Company shall fail to maintain or cause to be maintained 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 address of the Trustee set forth in Section 13.02 hereof. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar, Paying Agent, Conversion Agent or agent for service of notices or demands, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.06. The Company or any Affiliate of the Company may act as Paying Agent, Registrar, Conversion Agent or co-Registrar or agent for service of notices and demands. The Company may also from time to time designate one or more other Offices or Agencies where the Debentures may be presented or surrendered for any or all such purposes and may from time to time 14 21 rescind such designations. The Company will give prompt written notice to the Trustee and to the Holders of any such designation or rescission and of any change in location of any such other Office or Agency. SECTION 2.05 PAYING AGENT TO HOLD MONEY IN TRUST. Except as otherwise provided herein, prior to or on each due date of the principal of and premium, if any, and interest on any Debenture, the Company shall deposit with the Paying Agent a sum of money sufficient to pay such principal, premium, if any, and interest so becoming due. The Company shall require each Paying Agent (other than the Trustee or the Company) to agree in writing that such Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of and premium, if any, and interest on the Debentures and shall notify the Trustee of any default by the Company in making any such payment. At any time during the continuance of any such default, the Paying Agent shall, upon the request of the Trustee, pay to the Trustee all money so held in trust and account for any money disbursed by it. The Company at any time may require the Paying Agent to pay all money held by it to the Trustee and to account for any money disbursed by it. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company, a Subsidiary or an Affiliate of either of them acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. SECTION 2.06 DEBENTUREHOLDER 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 Debentureholders. If the Trustee is not the Registrar, the Company shall cause to be furnished to the Trustee on or before the Record Date for each Interest Payment Date and at such other times as the Trustee may request in writing, within five Business Days of such request, a list, in such form as the Trustee may reasonably require of the names and addresses of Debentureholders. SECTION 2.07 TRANSFER AND EXCHANGE. When Debentures are presented to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Debentures of the same series of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transactions are met. To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Debentures, all at the Registrar's request. Every Debenture presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed by the Holder or his attorney duly authorized in writing. The Company shall not require payment of a service charge for any registration of transfer or exchange of Debentures, but the Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with the registration of the transfer or exchange of Debentures from the Debentureholder requesting such transfer or exchange (other than any exchange of a temporary Debenture for a definitive Debenture not involving any change in ownership). 15 22 The Company shall not be required to make, and the Registrar need not register, transfers or exchanges of (a) any Debenture for a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Debentures and ending at the close of business on the day of such mailing or (b) any Debenture selected, called or being called for redemption, except, in the case of any Debenture to be redeemed in part, the portion thereof not to be redeemed. SECTION 2.08 REPLACEMENT DEBENTURES. If (a) any mutilated Debenture is surrendered to the Company or the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Debenture, and there is delivered to the Company and the Trustee such Debenture or indemnity as may reasonably be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Debenture has been acquired by a bona fide purchaser, the Company shall execute in exchange for any such mutilated Debenture, or in lieu of any such destroyed, lost or stolen Debenture, a new Debenture of the same series and of like tenor and principal amount, bearing a number not contemporaneously outstanding, and the Trustee shall authenticate and make such new Debenture available for delivery. In case any such mutilated, destroyed, lost or stolen Debenture has become or is about to become due and payable, or is about to be redeemed by the Company pursuant to Article 3, the Company in its discretion may, instead of issuing a new Debenture, pay or purchase such Debenture, as the case may be. Upon the issuance of any new Debentures 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 reasonable fees and expenses of the Trustee) in connection therewith. Every new Debenture issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Debenture shall constitute an original additional contractual obligation of the Company (whether or not the mutilated, destroyed, lost or stolen Debenture shall be at any time enforceable) and shall be entitled to all benefits of this Indenture equally and ratably with any and all other Debentures 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 Debentures. SECTION 2.09 OUTSTANDING DEBENTURES; DETERMINATIONS OF HOLDERS' ACTION. Debentures outstanding at any time are all the Debentures authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those mutilated, destroyed, lost or stolen Debentures referred to in Section 2.08, those redeemed by the Company pursuant to Article 3, and those described in this Section as not outstanding. A Debenture does not cease to be outstanding because the Company or a Subsidiary or Affiliate thereof holds the Debenture; provided, however, that in determining whether the Holders of the requisite principal amount of Debentures have given or concurred in any request, demand, authorization, direction, notice, consent or waiver hereunder, Debentures owned by the 16 23 Company or a Subsidiary or Affiliate (other than any Trust so long as any of the Preferred Securities of such Trust are outstanding) shall be disregarded and deemed not to be outstanding. Subject to the foregoing, only Debentures outstanding at the time of such determination shall be considered in any such determination (including determinations pursuant to Articles 3, 6 and 9). If a Debenture is replaced pursuant to Section 2.08, it ceases to be outstanding unless the Trustee receives proof reasonably satisfactory to it that the replaced Debenture is held by a bona fide purchaser. If the Paying Agent (other than the Company) holds, in accordance with this Indenture, at the Stated Maturity Date or on a Redemption Date, money sufficient to pay the Debentures payable on that date, then immediately on the Stated Maturity Date or such Redemption Date, as the case may be, such Debentures shall cease to be outstanding, and interest, if any, on such Debentures shall cease to accrue. SECTION 2.10 TEMPORARY DEBENTURES. The Company may execute temporary Debentures, and upon the Company's Order, the Trustee shall authenticate and make such temporary Debentures available for delivery. Temporary Debentures shall be printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, in the same series and principal amount and of like tenor as the definitive Debentures in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the Officers of the Company executing such Debentures may determine, as conclusively evidenced by their execution of such Debentures. Such temporary Debentures may be in global form. Except in the case of temporary Debentures in global form, which shall be exchanged in accordance with the provisions thereof, after the preparation of definitive Debentures, the temporary Debentures shall be exchangeable for definitive Debentures of the same series upon surrender of the temporary Debentures at the Office or Agency of the Company designated for such purpose pursuant to Section 2.04, without charge to the Holders thereof. Upon surrender for cancellation of any one or more temporary Debentures, the Company shall execute a like principal amount of definitive Debentures of the same series of authorized denominations, and the Trustee, upon receipt of a Company Order, shall authenticate and make such Debentures available for delivery in exchange therefor. Until so exchanged, the temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as definitive Debentures. SECTION 2.11 BOOK-ENTRY SYSTEM. In order to utilize a book-entry-only system for all or any portion of the Debentures of any series, all or a portion of the Debentures of any series may be issued in the form of one or more fully registered Debentures of the same series for the aggregate principal amount of such Debentures (a "Global Debenture"), which Global Debenture shall be registered in the name of the depository (the "Depository") selected by the Company or in the name of such Depository's nominee. Each Global Debenture shall be delivered by the Trustee to the Depository or pursuant to the Depository's instruction and shall bear a legend substantially to the following effect: "This Debenture may be transferred, in whole but not in part, only to another nominee of the Depository or to a successor Depository or to a nominee of such successor Depository." 17 24 Notwithstanding any other provision of this Section or of Section 2.07, a Global Debenture may be transferred in whole but not in part and in the manner provided in Section 2.07, only by a nominee of the Depository for such series, or by the Depository or any such nominee of a successor Depository for such series selected or approved by the Company or to a nominee of such successor Depository. If (a) at any time the Depository for Global Debentures of any series of Debentures notifies the Company that it is unwilling or unable to continue as Depository for such Global Debentures or if at any time the Depository for such Global Debentures shall no longer be a clearing agency registered or in good standing under the Exchange Act or other applicable statute or regulation, and a successor Depository for such Global Debentures is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, (b) the Company determines in its sole discretion, that the Debentures of any series shall no longer be represented by one or more Global Debentures and delivers to the Trustee an Officers' Certificate evidencing such determination or (c) a Default or an Event of Default occurs and is continuing, then the provisions of this Section shall no longer apply to the Debentures of such series. In such event, the Company will execute and the Trustee, upon receipt of an Officers' Certificate evidencing such determination by the Company, will authenticate and deliver Debentures of such series and of like tenor in definitive registered form, in authorized denominations, and in aggregate principal amount equal to the principal amount of the Global Debentures of such series in exchange for such Global Debentures. Upon the exchange of Global Debentures for such Debentures in definitive registered form without coupons, in authorized denominations, the Global Debentures shall be canceled by the Trustee. Such Debentures in definitive registered form issued in exchange for Global Debentures pursuant to this Section shall be registered in such names and in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Debentures to the Persons in whose names such Debentures are so registered. Except as provided above or as provided in any supplemental indenture, owners of beneficial interests in a Global Debenture shall not be entitled to receive physical delivery of Debentures in definitive form and will not be considered the Holders thereof for any purpose under this Indenture. Members of or participants in the Depository shall have no rights under this Indenture with respect to any Global Debenture held on their behalf by the Depository, and such Depository or its nominee, as the case may be, may be treated by the Company, the Trustee, and any agent of the Company or the Trustee as the Holder of such Global Debentures for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its members or participants, the operation of customary practices governing exercise of the rights of a Holder of any Debenture, including without limitation the granting of proxies or other authorization of participants to give or take any request, demand, authorization, direction, notice, consent, waiver or other action which a Holder is entitled to give or take under this Indenture. SECTION 2.12 CANCELLATION. All Debentures surrendered for payment, redemption, registration of transfer, exchange or conversion or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by the Trustee. The Company 18 25 may at any time deliver to the Trustee for cancellation any Debentures previously authenticated and made available for delivery hereunder which the Company may have acquired in any manner whatsoever, and all Debentures so delivered shall be promptly canceled by the Trustee. The Company may not reissue or issue new Debentures to replace Debentures it has paid or delivered to the Trustee for cancellation. No Debentures shall be authenticated in lieu of or in exchange for any Debentures canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Debentures held by the Trustee shall be destroyed by the Trustee, and the Trustee shall deliver a certificate of destruction to the Company. ARTICLE 3 REDEMPTION SECTION 3.01 REDEMPTION: NOTICE TO TRUSTEE. (a) The Company may redeem the Debentures of any series issued hereunder on and after the dates and in accordance with the terms established for such series pursuant to Section 2.01. (b) If any or all of the Debentures are to be redeemed pursuant to this Section, the Company shall deliver to the Trustee no more than 60 and no less than 45 days prior to the Redemption Date a Company Order specifying the series and principal amount of Debentures to be redeemed and the Redemption Date and Redemption Price for such Debentures. Such Company Order shall be accompanied by a Board Resolution authorizing such redemption. If the Debentures of a series are held by a Trust, the Company shall also deliver a copy of such Company Order to the Property Trustee for such Trust. SECTION 3.02 SELECTION OF DEBENTURES TO BE REDEEMED. If less than all the outstanding Debentures of a series are to be redeemed at any time, the Trustee shall select the Debentures of such series to be redeemed by lot or by any other method the Trustee considers fair and appropriate. The Trustee shall make the selection at least 30 but not more than 60 days before the Redemption Date from outstanding Debentures of such series not previously called for redemption. Provisions of this Indenture that apply to Debentures called for redemption also apply to portions of Debentures called for redemption. The Trustee shall notify the Company promptly of the Debentures or portions of Debentures to be redeemed. SECTION 3.03 NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before the Redemption Date, the Trustee, in the Company's name and at the Company's expense, shall mail or cause to be mailed a notice of redemption by first-class mail, postage prepaid, to each Holder of Debentures to be redeemed at such Holder's last address as it appears in the Register. The notice of redemption shall identify the Debentures to be redeemed, the provision of the Debentures or this Indenture pursuant to which the Debentures called for redemption are being redeemed and shall state: 19 26 (a) the Redemption Date; (b) the Redemption Price; (c) the name and address of the Paying Agent; (d) that payment of the Redemption Price of Debentures called for redemption will be made only upon surrender of such Debentures to the Paying Agent; (e) if fewer than all the outstanding Debentures of any series are to be redeemed, the identification and principal amounts of the particular Debentures to be redeemed and that, on and after the Redemption Date, upon surrender of such Debentures, a new Debenture or Debentures of the same series and of like tenor and in a principal amount equal to the unredeemed portion thereof will be issued; (f) that, unless the Company defaults in paying the Redemption Price of the Debentures called for redemption, including accrued interest thereon to the Redemption Date, interest will cease to accrue on such Debentures on and after the Redemption Date; (g) that the redemption is for a sinking fund, if such is the case; and (h) in the case of Debentures of any series that are convertible or exchangeable into Capital Stock, the conversion or exchange price or rate, the date or dates on which or the period or periods during which the right to convert or exchange the principal of the Debentures of such series to be redeemed will commence or terminate and the place or places where such Debentures may be surrendered for conversion or exchange. Any notice of redemption given in the manner provided herein shall be conclusively presumed to have been given, whether or not such notice is actually received. Failure to mail any notice or defect in the mailed notice or the mailing thereof in respect of any Debenture shall not affect the validity of the redemption of any other Debenture. SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION. After notice of redemption has been given, Debentures called for redemption shall become due and payable on the Redemption Date at the Redemption Price and from and after the Redemption Date (unless the Company shall default in the payment of the Redemption Price and accrued interest), such Debentures shall cease to bear interest. Upon the later of the Redemption Date and the date such Debentures are surrendered to the Paying Agent, such Debentures shall be paid at the Redemption Price, plus accrued interest to the Redemption Date, provided that installments of interest on Debentures with an Interest Payment Date which is on or prior to the Redemption Date shall be payable to the Holders of such Debentures, registered as such at the close of business on the Regular Record Dates therefor according to their terms and provisions. 20 27 SECTION 3.05 DEPOSIT OF REDEMPTION PRICE. On or prior to the Redemption Date, the Company shall deposit with the Paying Agent (or if the Company or an Affiliate is the Paying Agent, shall segregate and hold in trust or cause such Affiliate to segregate and hold in trust) money sufficient to pay the Redemption Price of, and accrued interest on, all Debentures to be redeemed on that Redemption Date. The Paying Agent shall return to the Company any money in excess of the amount sufficient to pay the Redemption Price of, and accrued interest on, all Debentures to be redeemed and any interest accrued on the amount deposited pursuant to this Section. SECTION 3.06 DEBENTURES REDEEMED IN PART. Upon surrender of a Debenture that is redeemed in part, the Trustee shall authenticate for the Holder a new Debenture of the same series and in a principal amount equal to the unredeemed portion of such Debenture. ARTICLE 4 COVENANTS SECTION 4.01 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST (a) The Company shall pay the principal of and premium, if any, and interest (including interest accruing during any Extension Period and/or on or after the filing of a petition in bankruptcy or reorganization relating to the Company, whether or not a claim for post-filing interest is allowed in such proceeding) on the Debentures on or prior to the dates and in the manner provided in such Debentures or pursuant to this Indenture. An installment of principal, premium, if any, or interest shall be considered paid on the applicable due date if on such date the Trustee or the Paying Agent holds, in accordance with this Indenture, money sufficient to pay all of such installment then due. With respect to any Debenture, the Company shall pay interest on overdue principal and interest on overdue installments of interest (including interest accruing during any Extension Period and/or on or after the filing of a petition in bankruptcy or reorganization relating to the Company, whether or not a claim for post-filing interest is allowed in such proceeding), to the extent lawful, at the rate accruing on such Debenture, compounded with the same frequency as interest is payable on such Debentures. Interest on overdue interest shall accrue from the date such amounts become overdue. (b) Notwithstanding the provisions of Section 4.01(a) or any other provision herein to the contrary, the Company shall have the right, as provided in a Board Resolution or supplemental indenture issued pursuant to Section 2.01, in its sole and absolute discretion at any time and from time to time while the Debentures of any series are outstanding, so long as no Event of Default with respect to such series of Debentures has occurred and is continuing, to defer payments of interest by extending the interest payment period for such series of Debentures for the maximum consecutive period, if any, specified for such series of Debentures, provided that such Extension Period must end on an Interest Payment Date and shall not extend beyond the Stated Maturity Date or Redemption Date of any Debenture of such series, and provided further that at the end of each Extension Period the Company shall pay all interest then accrued and unpaid (together with interest thereon to the extent permitted by applicable law at the rate accruing on such Debentures). Prior to the termination of an Extension Period, the Company may shorten or may further extend the interest payment period for such series of Debentures, provided that such 21 28 Extension Period together with all such previous and further extensions may not exceed the maximum consecutive period specified for such series of Debentures, end on a date other than an Interest Payment Date or extend beyond the Stated Maturity Date or Redemption Date of any Debenture of such series. The Company shall give the Trustee notice of the Company's election to begin an Extension Period for any series of Debentures and any shortening or extension thereof at least five Business Days prior to: (i) the date notice of payment of interest on such Debentures is required to be given to any national securities exchange on which the related Preferred Securities, if any, or Debentures are then listed or other applicable self-regulatory organization or (ii) the date of the notice of the record or payment date of the related distribution on the Preferred Securities issued by the Trust which is the Holder of the Debentures of such series, but in any event not less than five Business Days prior to the Record Date fixed by the Company for the payment of such interest. The Company shall give or cause the Trustee to give notice (a form of which shall be provided by the Company to the Trustee) of the Company's election to begin an Extension Period to the Holders by first class mail, postage prepaid. SECTION 4.02 PROHIBITION AGAINST DIVIDENDS, ETC. The Company shall not (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's Capital Stock or (b) make any payment of principal of or premium, if any, or interest on or repay or repurchase or redeem any debt securities of the Company (including Debentures) that rank pari passu with or junior in right of payment to the Debentures or (c) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company (including any Guarantee) if such guarantee ranks pari passu or junior in right of payment to the Debentures (other than (i) dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, Common Stock of the Company, (ii) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (iii) payments under any Guarantee, (iv) as a result of a reclassification of the Company's Capital Stock or the exchange or conversion of one class or series of the Company's Capital Stock for another class or series of the Company's Capital Stock, (v) the purchase of fractional interests in shares of the Company's Capital Stock pursuant to the conversion or exchange provisions of such Capital Stock or the security being converted or exchanged, and (vi) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees or any of the Company's dividend reinvestment plans): (X) during any Extension Period, (Y) if at such time there shall have occurred and is continuing any Default or Event of Default, or (Z) if the Company shall be in default with respect to its payment or other obligations under any Guarantee. SECTION 4.03 SEC REPORTS. The Company shall file with the Trustee, within 15 days after it files them with the SEC, copies of its annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the Trustee such information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which are specified in Section 13 or 15(d) of the Exchange Act. The Company shall also comply with the provisions of Section 314(a) of the TIA. 22 29 SECTION 4.04 COMPLIANCE CERTIFICATES. (a) The Company shall deliver to the Trustee, within 120 days after the end of each of the Company's fiscal years, an Officers' Certificate stating whether or not the signer knows of any Default or Event of Default. Such certificate shall contain a certification from the Principal Executive Officer, Principal Financial Officer or Principal Accounting Officer of the Company as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this Section, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. If such Officer does know of such a Default or Event of Default, the Officers' Certificate shall describe any such Default or Event of Default, and its status. Such Officers' Certificate need not comply with Sections 13.04 and 13.05. (b) The Company shall deliver to the Trustee any information reasonably requested by the Trustee in connection with the compliance by the Trustee or the Company with the TIA. SECTION 4.05 FURTHER INSTRUMENTS AND ACTS. Upon request of the Trustee, the Company shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture. SECTION 4.06 PAYMENT OF EXPENSES OF EACH TRUST. The Company covenants for the benefit of the Holders of each series of Debentures to pay all of the obligations, costs and expenses of such Trust (other than payments in respect of Trust Securities) in accordance with the provisions of its Trust Agreement and to pay the taxes of such Trust in accordance with the provisions of its Trust Agreement in order to permit such Trust to make distributions on and redemptions of its Preferred Securities in accordance with such Trust Agreement. SECTION 4.07 OWNERSHIP OF COMMON SECURITIES. So long as the Trust Securities of each Trust remain outstanding, the Company hereby covenants (a) to maintain 100% direct or indirect ownership of the common securities issued by such Trust (it being understood that any permitted successor of the Company under this Indenture may succeed to the Company's ownership of such common securities), (b) to use its best efforts to cause each Trust (i) to remain a business trust, except in connection with the distribution of Debentures to the holders of related Trust Securities in liquidation of such Trust, the conversion, exchange or redemption of all of such Trust Securities, or certain mergers, consolidations or amalgamations, each as permitted by the applicable Trust Agreement, and (ii) to otherwise continue to be classified as a grantor trust for United States federal income tax purposes, (c) to use its best efforts to cause each holder of each Trust's Trust Securities to be treated as owning an undivided beneficial interest in the related Debentures and (d) not to cause, as sponsor of each Trust, or to permit, as holder of the common securities, the dissolution, liquidation or winding-up of any Trust, except as provided in the applicable Trust Agreement. 23 30 ARTICLE 5 SUCCESSOR CORPORATION SECTION 5.01 WHEN THE COMPANY MAY MERGE, ETC. The Company may not consolidate with or merge with or into, or sell, convey, transfer or lease its properties and assets as an entirety or substantially as an entirety (either in one transaction or a series of transactions) to, any Person, and no Person shall consolidate with or merge into the Company or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to the Company, unless: (a) the Person formed by or surviving such consolidation or merger or to which such sale, conveyance, transfer or lease shall have been made (the "Successor") if other than the Company (i) is organized and existing under the laws of the United States of America or any state thereof or the District of Columbia, and (ii) shall expressly assume by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Debentures, this Indenture and the Guarantees; (b) immediately prior to and after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Person or any Subsidiary as a result of such transaction as having been incurred by such Person or such Subsidiary at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; and (c) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, conveyance, transfer or lease and such supplemental indenture comply with this Indenture. The Successor will be the successor to the Company, and will be substituted for, and may exercise every right and power and become the obligor on the Debentures with the same effect as if the Successor had been named as the Company herein but, in the case of a sale, conveyance, transfer or lease of all or substantially all of the assets of the Company, the predecessor Company will not be released from its obligation to pay the principal of and premium, if any, and interest on the Debentures. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01 EVENTS OF DEFAULT. "Event of Default," wherever used herein with respect to Debentures of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless such event is specifically deleted or modified in or pursuant to the supplemental indenture, Board Resolution or Officers' Certificate establishing the terms of such series pursuant to this Indenture: 24 31 (a) default in the payment, when due, of interest on any Debenture of that series and the default continues for a period of 30 days; provided, that during any Extension Period for the Debentures of that series, failure to pay interest on the Debentures of that series shall not constitute a Default or Event of Default hereunder, or (b) default in the payment of the principal of or premium, if any, on any Debenture of such series when it becomes due, whether at maturity, upon any redemption, by declaration of acceleration of maturity or otherwise; or (c) default in the deposit of any sinking fund payment when and as due by the terms of a Debenture of such series; or (d) default in the performance or breach of any covenant or agreement of the Company in this Indenture (other than a covenant or agreement a default in the performance or the breach of which is elsewhere in this Section specifically dealt with or which has been expressly included in this Indenture solely for the benefit of a series of Debentures), and continuance of such breach or default for a period of 90 days after receipt by the Company of a "Notice of Default"; or (e) a court of competent jurisdiction enters: (i) a decree or order for relief in respect of the Company in an involuntary proceeding under any applicable Bankruptcy Law and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (ii) a decree or order adjudging the Company to be insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of the Company and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (iii) a final and non-appealable order appointing a Custodian of the Company or of any substantial part of the property of the Company, or ordering the winding up or liquidation of the affairs of the Company; or (f) the Company pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case or proceeding; (ii) consents to the entry of an order for relief against it in an involuntary case or proceeding; (iii) files a petition or answer or consent seeking reorganization or relief or consents to such filing or to the appointment of or taking possession by a Custodian of it or for all or substantially all of its property, and such Custodian is not discharged within 60 days; (iv) makes a general assignment for the benefit of its creditors; or (v) admits in writing its inability to pay its debts generally as they become due; or (g) if applicable, failure by the Company to deliver the required securities or other rights upon an appropriate conversion or exchange election by Holders of the Debentures or the related Preferred Securities; or (h) any other Event of Default provided in or pursuant to this Indenture with respect to Debentures of such series. 25 32 The term "Bankruptcy Law" means Title 11 of the United States Code, or any similar federal or state bankruptcy, insolvency, reorganization or other law for the relief of debtors. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator, custodian or similar official under any Bankruptcy Law. A Default under clause (d) above is not an Event of Default until (i) the Trustee provides a "Notice of Default" to the Company or the Holders of at least 25% in aggregate principal amount of the Debentures of that series at the time outstanding or, if that series of Debentures is held by a Trust, the holders of at least 25% in aggregate liquidation amount of the outstanding Preferred Securities of that Trust provide a "Notice of Default" to the Company and the Trustee and (ii) the Company does not cure such Default within the time specified in clause (d) above after receipt of such notice. Any such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default." SECTION 6.02 ACCELERATION. If any Event of Default with respect to the Debentures of any series other than an Event of Default under clause (e) or (f) of Section 6.01 occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Debentures of that series then outstanding may declare the principal of, and any accrued interest on, all the Debentures of that series due and payable immediately, provided that in the case of a series of Debentures then held by a Trust, if upon an Event of Default with respect to the Debentures of that series the Trustee has, or the Holders of at least 25% in aggregate principal amount of the Debentures of that series then outstanding have, failed to declare the principal of, and any accrued interest on, the Debentures of that series to be immediately due and payable, the holders of at least 25% in aggregate liquidation amount of the outstanding Preferred Securities of that Trust shall have such right by a notice in writing to the Company and the Trustee. If an Event of Default specified in clause (e) or (f) of Section 6.01 occurs, the principal of, and any accrued interest on, all the Debentures shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Debentureholders. The foregoing paragraph, however, is subject to the condition that if, at any time after the principal of the Debentures of that series shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debentures of that series and the principal of and premium, if any, on all Debentures of that series which shall have become due otherwise than by acceleration (with interest upon such principal and premium, if any, and, to the extent that such payment is enforceable under applicable law, upon overdue installments of interest, at the rate accruing on the Debentures of that series to the date of such payment or deposit) and the amount payable to the Trustee under Section 7.06, and any and all Defaults under the Indenture, other than the nonpayment of principal of and interest on Debentures of that series which shall not have become due by their terms, shall have been remedied or waived as provided in Section 6.04, then and in every such case the Holders of at least a majority in aggregate principal amount of the Debentures of that series then outstanding (subject to, in the case of any series of Debentures held as assets of a Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of the holders of the Preferred Securities and the Common Securities of such Trust as may be required under the Trust Agreement of such Trust), by written notice to the Company and to the Trustee, may rescind and annul such declaration and its consequences with respect to 26 33 that series of Debentures; but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair any right consequent thereon. SECTION 6.03 OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may, in its own name or as trustee of an express trust, institute, pursue and prosecute any proceeding, including without limitation, any action at law or suit in equity or other judicial or administrative proceeding to collect the payment of principal of or premium, if any, or interest on the Debentures of the series that is in default, to enforce the performance of any provision of the Debentures of that series or this Indenture or to obtain any other available remedy. The Trustee may maintain a proceeding even if it does not possess any of the Debentures or does not produce any of the Debentures in the proceeding. A delay or omission by the Trustee, any Debentureholder or the holders of Preferred Securities in exercising any right or remedy accruing upon an Event of Default shall not impair such right or remedy or constitute a waiver of, or acquiescence in, such Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.04 WAIVER OF PAST DEFAULTS. If a Default or Event of Default with respect to a series of Debentures has occurred and is continuing, the Holders of at least a majority in aggregate principal amount of the Debentures of that series at the time outstanding, or, if that series of Debentures is held by a Trust, the holders of at least a majority in aggregate liquidation amount of the Preferred Securities of that Trust, in each case by notice to the Trustee and the Company, may waive an existing Default or Event of Default and its consequences except a Default or Event of Default in the payment of the principal of or premium, if any, or interest on any Debenture of that series (unless such Event of Default has been cured and a sum sufficient to pay all matured installments of interest and premium, if any and principal due otherwise than by acceleration has been deposited with the Trustee) or a default in respect of a covenant or provision which under this Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture of that series. When a Default or Event of Default is waived, it is deemed cured and shall cease to exist, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any consequent right. SECTION 6.05 CONTROL BY HOLDERS. The Holders of at least a majority in aggregate principal amount of the Debentures of a series or, if that series of Debentures is held by a Trust, the holders of at least a majority in aggregate liquidation amount of the Preferred Securities of that Trust, may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or of exercising any trust or power conferred on the Trustee, in respect of such series of Debentures. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines in good faith is unduly prejudicial to the rights of other Debentureholders or may involve the Trustee in personal liability. The Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, including withholding notice to the Holders of the Debentures of continuing default (except in the payment of the principal of (other than any mandatory sinking fund payment) or premium, if any, or 27 34 interest on any Debentures) if the Trustee considers it in the interest of the Holders of the Debentures to do so. SECTION 6.06 LIMITATION ON SUITS. Except as provided in Section 6.07 or 6.08, no Holder of Debentures of any series or holder of Preferred Securities of the Trust which is the Holder of that series of Debentures may pursue any remedy with respect to this Indenture or the Debentures unless: (a) the Holders of Debentures of such series or the holders of such Preferred Securities give to the Trustee written notice stating that an Event of Default with respect to the corresponding Debentures of such series has occurred and is continuing; (b) the Holders of at least 25% in aggregate principal amount of the outstanding Debentures of that series or the holders of at least 25% in aggregate liquidation amount of such Preferred Securities make a written request to the Trustee to pursue a remedy; (c) the Holders of Debentures of such series or the holders of such Preferred Securities provide to the Trustee reasonable security and indemnity against any loss, liability or expense satisfactory to the Trustee; (d) the Trustee does not comply with the request within 60 days after receipt of the notice, the request and the offer of security and indemnity; and (e) during such 60 day period, the Holders of at least a majority in aggregate principal amount of the Debentures of that series or the holders of at least a majority in aggregate liquidation amount of such Preferred Securities do not give the Trustee a direction inconsistent with the request, 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 or any Debenture to affect, disturb or prejudice the rights of any other such Holders, or to obtain or 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 6.07 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST. Notwithstanding any other provision of this Indenture, the Holder of any Debenture shall have the right which is absolute and unconditional to receive payment of the principal of, premium, if any, and (subject to Section 2.02) interest on such Debenture on the respective due dates expressed in such Debenture (or, in the case of redemption, on the Redemption Date) and to convert or exchange such Debentures in accordance with its terms, if applicable, and to institute suit for the enforcement of such payment or conversion or exchange, and such right shall not be impaired without the consent of such Holder. 28 35 SECTION 6.08 DIRECT ACTION RIGHT OF HOLDERS OF TRUST PREFERRED SECURITIES. If an Event of Default has occurred and is continuing and is attributable either to (a) the failure of the Company to pay the principal of or premium, if any, or interest on the Debentures on the due date therefor or (b) the failure by the Company to deliver the required securities or other rights upon an appropriate conversion or exchange right election, and an event of default has occurred and is continuing under the applicable Trust Agreement, a holder of the related Preferred Securities, in lieu of any action that may otherwise be taken hereunder as a Holder of Debentures, may institute a legal proceeding directly against the Company for enforcement of payment to such holder of the principal of or premium, if any, or interest on such Debentures having a principal amount equal to the liquidation amount of the Preferred Securities held by such holder or for enforcement of such conversion or exchange rights, as the case may be (a "Direct Action"). Notwithstanding anything contained herein to the contrary, the Company may not amend this Indenture to remove the foregoing right to bring a Direct Action without the prior written consent of the holders of all of the Preferred Securities outstanding. Notwithstanding any payments made to a holder of Preferred Securities by the Company in connection with a Direct Action, the Company shall remain obligated to pay the principal of and premium, if any, or interest on the related Debentures, and the Company shall be subrogated to the rights of the holder of such Preferred Securities with respect to payments on the Preferred Securities to the extent of any payments made by the Company to such holder in any Direct Action. SECTION 6.09 COLLECTION SUITS BY THE TRUSTEE. The Company covenants that if (a) default is made in the payment of any interest on any Debenture when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of or premium, if any, on any Debenture on the Stated Maturity Date or Redemption Date thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holder of such Debenture, the whole amount then due and payable on such Debenture for principal, premium, if any, and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium, if any, and on any overdue interest, at the rate or rates prescribed therefor in such Debenture 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, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Debenture 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 Debenture, wherever situated. If an Event of Default with respect to Debentures 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 29 36 Debentures of such series 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 such Debentures or in aid of the exercise of any power granted herein, or to enforce any other remedy available under this Indenture or by law. SECTION 6.10 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 its properties or assets, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise: (a) to file and prove a claim for the whole amount of the principal of and premium, if any, and interest on the Debentures and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders of Debentures allowed in such judicial proceeding; and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.06. 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 Debenture any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.11 PRIORITIES. If the Trustee collects any money pursuant to this Article 6, it shall, subject to Article 10, pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 7.06; SECOND: to Holders of Debentures in respect of which or for the benefit of which such money has been collected for amounts due and unpaid on such Debentures for the principal thereof or premium, if any, or interest, if any, thereon ratably, without preference or priority of any kind, according to such amounts due and payable on such Debentures; and THIRD: the balance, if any, to the Company. Except as otherwise set forth in the Debentures, the Trustee may fix a Record Date and payment date for any payment to Debentureholders pursuant to this Section. 30 37 SECTION 6.12 UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant (other than the Trustee) in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of Debentures or holder of Preferred Securities pursuant to Section 6.07 or 6.08 or a suit by Holders of Debentures of more than 10% in aggregate principal amount of the outstanding Debentures of any series or, if a series of Debentures is held by a Trust, the holders of more than 10% in aggregate liquidation amount of the Preferred Securities of that Trust. ARTICLE 7 THE TRUSTEE SECTION 7.01 DUTIES AND RESPONSIBILITIES OF THE TRUSTEE. (a) If an Event of Default occurs and is continuing with respect to the Debentures of any series, the Trustee shall exercise the rights and powers vested in it by this Indenture with respect to that series and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) Except during the continuance of an Event of Default with respect to the Debentures of any series, (i) the Trustee need perform only those duties with respect to that series that are specifically set forth in this Indenture or the TIA and no others; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but shall not be required to confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) this clause (c) does not limit the effect of Section 7.01(b); (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. 31 38 (d) Every provision of this Indenture that in any way relates to the Trustee is subject to Section 7.01(a), (b), (c) and (e) and Section 7.02. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives security and indemnity reasonably satisfactory to it against any loss, liability or expense (including reasonable counsel fees). (f) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Indenture or indemnity reasonably satisfactory to the Trustee against such risk or liability is not reasonably assured to it. (g) 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 not be liable for interest on any money held by it hereunder except as otherwise agreed with the Company. SECTION 7.02 RIGHTS OF THE TRUSTEE. Subject to Sections 315(a) through 315(d) of the TIA: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Order (in each case, other than delivery of any Debenture to the Trustee for authentication and delivery pursuant to Section 2.03 which shall be sufficiently evidenced as provided therein) and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence shall be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by or pursuant to this Indenture at the request or direction of any of the Holders of Debentures of any series pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; 32 39 (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, coupon or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine, during business hours and upon reasonable notice, the books, records and premises of the Company, personally or by agent or attorney; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 7.03 NOT RESPONSIBLE FOR RECITALS OR ISSUANCES OF DEBENTURES. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Debentures. The Trustee shall not be accountable for the Company's use of the proceeds from the Debentures, and the Trustee shall not be responsible for any statement in this Indenture or the Debentures or any report or certificate issued by the Company hereunder or any registration statement relating to the Debentures (other than the Trustee's Certificate of Authentication and the Trustee's Statement of Eligibility on Form T-1), or the determination as to which beneficial owners are entitled to receive any notices hereunder. SECTION 7.04 NOTICE OF DEFAULTS. If a Default occurs and is continuing with respect to the Debentures of any series and if it is known to the Trustee, the Trustee shall mail to each Holder of a Debenture of that series notice of the Default within 90 days after it becomes known to the Trustee unless such Default shall have been cured or waived. Except in the case of a Default described in Section 6.01(a), (b) or (g), the Trustee may withhold such notice if and so long as a committee of Responsible Officers in good faith determines that the withholding of such notice is in the interests of the Holders of the Debentures of that series. The Trustee shall not be charged with knowledge of any Default unless a Responsible Officer assigned to the Corporate Trust Department of the Trustee shall have actual knowledge of the Default. The second sentence of this Section shall be in lieu of the proviso to TIA Section 315(b). Said proviso is hereby expressly excluded from this Indenture, as permitted by the TIA. SECTION 7.05 REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each September 1, beginning with the September 1 next following the date of this Indenture, the Trustee shall mail to each Debentureholder, and such other holders that have submitted their names to the Trustee for such purpose, a brief report dated as of such September 1 in accordance with and to the extent required under TIA Section 313. A copy of each report at the time of its mailing to Debentureholders shall be filed with the Company, the SEC and any securities exchange on which the Debentures are listed. The Company agrees to promptly notify the Trustee whenever the Debentures become listed on any securities exchange and of any listing thereof. 33 40 SECTION 7.06 COMPENSATION AND INDEMNITY. The Company covenants and agrees: (a) to pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee 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); (b) to reimburse the Trustee upon its request for reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, and advances of its agents and counsel; provided that, prior to any Default or Event of Default, the Trustee shall only have one outside counsel), including all reasonable expenses and advances incurred or made by the Trustee in connection with any Default or Event of Default or any membership on any creditors' committee, except any such expense or advance as may be attributable to its negligence or bad faith; and (c) to indemnify the Trustee, its officers, employees, directors and shareholders, for, and to hold it harmless against, any and all loss, liability or expense, incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this trust, 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. Before, after or during an Event of Default with respect to the Debentures of a series, the Trustee shall have a claim and lien prior to the Debentures of that series as to all property and funds held by it hereunder for any amount owing it for its fees and expenses or any predecessor Trustee pursuant to this Section, except with respect to funds held by the Trustee or any Paying Agent in trust for the payment of principal of or premium, if any, or interest on Debentures pursuant to Section 2.05 or Section 8.01. The Company's payment and indemnity obligations pursuant to this Section are not subject to Article 10 of this Indenture and shall survive the discharge of this Indenture. When the Trustee renders services or incurs expenses after the occurrence of a Default specified in Section 6.01, the compensation for services and expenses are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.07 ELIGIBILITY; DISQUALIFICATION. (a) The Trustee shall at all times satisfy the requirements of the TIA Sections 310(a)(1) and 310(a)(2). The Trustee (or any Affiliate thereof which has unconditionally guaranteed the obligations of the Trustee hereunder) shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recently published annual report of condition. 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. (b) The Trustee shall comply with TIA Section 310(b). In determining whether the Trustee has conflicting interests as defined in TIA Section 310(b)(1), the provisions contained in the proviso to TIA Section 310(b)(1) and the Trustee's Statement of Eligibility on Form T-1 shall be deemed incorporated herein. 34 41 SECTION 7.08 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 7.09. (b) The Trustee may resign at any time with respect to the Debentures of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 7.09 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 with respect to the Debentures of such series. (c) If the Trustee has or shall acquire any conflicting interest, as defined in Section 310(b) of the TIA, with respect to the Debentures of any series, it shall, within 90 days after ascertaining it has such conflicting interest, either eliminate the conflicting interest or resign with respect to the Debentures of that series in the manner set forth in this Section. (d) The Trustee may be removed at any time with respect to the Debentures of any series by Act of the Holders of at least a majority in principal amount of the outstanding Debentures of such series, delivered to the Trustee and to the Company. (e) If at any time: (i) the Trustee shall fail to comply with clause (c) of this Section after written request therefor by the Company or by any Holder of a Debenture who has been a bona fide Holder of a Debenture for at least six months, or (ii) the Trustee shall cease to be eligible under Section 7.07(a) and shall fail to resign after written request therefor by the Company or by any such Holder, or (iii) the Trustee shall become incapable of acting or shall be adjudged bankrupt or insolvent, or a receiver of Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (1) the Company by a Board Resolution may remove the Trustee with respect to all Debentures, or (2) subject to Section 6.12, any Holder of a Debenture who has been a bona fide Holder of a Debenture 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 Debentures of such series and the appointment of a successor Trustee or Trustees. (f) 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 Debentures 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 Debentures of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Debentures of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Debentures of any particular series) and shall comply with the applicable requirements of Section 7.09. If, within one year after such 35 42 resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Debentures of any series shall be appointed by Act of the Holders of at least a majority in principal amount of the outstanding Debentures of such series, notice of such appointment shall be delivered to the Company and the retiring Trustee. The successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 7.09, become the successor Trustee with respect to the Debentures of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Debentures of any series shall have been so appointed by the Company or the Holders of Debentures and accepted appointment in the manner required by Section 7.09, any Holder of a Debenture who has been a bona fide Holder of a Debenture 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 the Debentures of such series. (g) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Debentures of any series and each appointment of a successor Trustee with respect to the Debentures of any series in the manner provided in Section 13.02. Each notice shall include the name of the successor Trustee with respect to the Debentures of such series and the address of its Corporate Trust Office. SECTION 7.09 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor Trustee with respect to all Debentures, 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 duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor Trustee with respect to the Debentures of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Debentures of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (i) 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 deeds of the Trustee with respect to the Debentures of that or those series which the appointment of such successor Trustee relates, (ii) if the retiring Trustee is not retiring with respect to all Debentures, 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 Debentures of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (iii) 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 as 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 36 43 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 Debentures 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 Debentures 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, 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. SECTION 7.10 SUCCESSOR TRUSTEE BY MERGER. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 8.01 SATISFACTION AND DISCHARGE OF INDENTURE. Upon the direction of the Company by a Company Order, this Indenture shall cease to be of further effect with respect to any series of Debentures as specified in such Company Order, and the Trustee, on receipt of a Company Order, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series, when (a) either (i) all Debentures of such series theretofore authenticated and delivered (other than (1) Debentures of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.08, and (2) Debentures 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 8.04) have been delivered to the Trustee for cancellation; or (ii) all Debentures of such series not theretofore delivered to the Trustee for cancellation (1) have become due and payable, or 37 44 (2) will become due and payable at their stated maturity within one year, or (3) 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 (1), (2) or (3) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose, (a) cash (which may be held in an interest bearing account insured by the Federal Deposit Insurance Corporation) in an amount, or (b) U.S. Government Obligations, maturing as to principal and interest at such times and in such amounts as will ensure the availability of cash, or (c) a combination thereof, in an amount sufficient to pay and discharge the entire indebtedness on such Debentures not theretofore delivered to the Trustee for cancellation, including the principal of, and premium, if any, and interest on such Debentures, to the date of such deposit (in the case of Debentures which have become due and payable) or to the Stated Maturity Date or Redemption Date thereof, as the case may be; and (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to the outstanding Debentures of such series. In the event there are Debentures of two or more series hereunder, the Trustee shall be required to execute an instrument acknowledging satisfaction and discharge of this Indenture only if requested to do so with respect to Debentures of such series as to which it is Trustee and if the other conditions thereto are met. Notwithstanding the satisfaction and discharge of this Indenture, with respect to any series of Debentures, the obligations of the Company to the Trustee under Section 7.06 and, if money shall have been deposited with the Trustee pursuant to clause (a)(ii) of this Section, the following obligations of the Company and the Trustee with respect to the Debentures of such series, shall survive: (i) the rights of registration of transfer and exchange of Debentures of such series, (ii) the replacement of apparently mutilated, defaced, destroyed, lost or stolen Debentures of such series, (iii) the rights of the Holders of the Debentures of such series to receive payments of the principal of and premium, if any, interest on the Debentures of such series, (iv) the rights of the Holders of the Debentures of such series as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them, (v) the obligation of the Company to maintain an Office or Agency for payments on and registration of transfer of the Debentures of such series, (vi) the rights, obligations and immunities of the Trustee hereunder, and (vii) any rights to convert or exchange the Debentures of such series into other securities or rights in accordance with their terms. SECTION 8.02 APPLICATION BY TRUSTEE OF FUNDS DEPOSITED FOR PAYMENT OF DEBENTURES. Subject to Section 8.04, all moneys deposited with the Trustee pursuant to Section 8.01 shall be held in trust and applied by it to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), to the Holders of the Debentures of the series for the payment 38 45 or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest, but such money need not be segregated from other funds except to the extent required by law. SECTION 8.03 REPAYMENT OF MONEYS HELD BY PAYING AGENT. In connection with the satisfaction and discharge of this Indenture, all moneys then held by any Paying Agent under this Indenture shall, upon demand of the Company, be repaid to it or paid to the Trustee, and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. SECTION 8.04 RETURN OF MONEYS HELD BY THE TRUSTEE AND PAYING AGENT UNCLAIMED FOR TWO YEARS. Any moneys deposited with or paid to the Trustee or any Paying Agent for the payment of the principal of and premium, if any, or interest on the Debentures of any series and not applied but remaining unclaimed for two years after the date when such principal, premium, if any, or interest shall have become due and payable shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Company by the Trustee or such Paying Agent, and the Holders of such Debentures shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Company for any payment which such Holder may be entitled to collect as a general unsecured creditor, and all liability of the Trustee or any Paying Agent with respect to such moneys shall thereupon cease. ARTICLE 9 SUPPLEMENTAL INDENTURES SECTION 9.01 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. From time to time, when authorized by a resolution of the Board of Directors, the Company and the Trustee, without notice to or the consent of any Holders of the Debentures, may amend or supplement this Indenture: (a) 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 Debentures; or (b) to add to the covenants of the Company for the benefit of the Holders of all or any series of Debentures (as shall be specified in such supplemental indenture or indentures) or to surrender any right or power herein conferred upon the Company; provided, however, that in respect of any such additional covenant, or restriction or condition on the Company, 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 enforcement upon such default or may limit the remedies available to the Trustee upon such default; or (c) to add any additional Events of Default with respect to all or any series of Debentures (as shall be specified in such supplemental indenture); or 39 46 (d) 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 Debenture outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (e) to establish the form or terms of Debentures of any series as permitted by Section 2.01 or, in lieu of any such supplemental indenture, the Company may provide the Trustee with an Officers' Certificate with respect to the form or terms of such Debentures; or (f) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Debentures 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 (g) to cure any ambiguity, to correct or supplement any provision herein or in any supplemental indenture which may be defective or inconsistent with any other provision herein or in any supplemental indenture, or to make any other provisions with respect to matters or questions arising under this Indenture, which shall not adversely affect the interests of the Holders of Debentures of any series then outstanding in any material respect; or (h) to add to, delete from or revise the conditions, limitations and restrictions on the authorized amount, terms or purposes of issue, authentication and delivery of Debentures as herein set forth; or (i) to maintain qualification of this Indenture under the TIA; or (j) 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 Debentures provided that any such action shall not adversely affect the interests of any Holder of a Debenture of such series or any other Debenture in any material respect. SECTION 9.02 SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. The Company and the Trustee may amend this Indenture in any manner not permitted by Section 9.01 or may waive future compliance by the Company with any provisions of this Indenture with the consent of the Holders of at least a majority in aggregate principal amount of the Debentures of each series affected thereby then outstanding (and, in the case of any series of Debentures held as assets of a Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of holders of the Preferred Securities and the Common Securities of such Trust as may be required under the Trust Agreement of such Trust). Such an amendment or waiver may not, without the consent of each Holder of any Debenture affected thereby: (a) reduce the principal amount of such Debentures; (b) reduce the percentage of the principal amount of such Debentures the Holders of which must consent to an amendment of this Indenture or a waiver; 40 47 (c) change (i) the stated maturity of the principal of or the interest on such Debentures, except in connection with any Extension Period, (ii) the rate of interest (or the manner of calculation thereof) on such Debentures, or (iii) the duration of the maximum consecutive period that payments of interest on such Debentures may be deferred; (d) change adversely to the Holders the redemption, conversion or exchange provisions applicable to such Debentures, if any; (e) change the currency in respect of which the payments on such Debentures are to be made; (f) make any change in Article 10 that adversely affects the rights of the Holders of the Debentures or any change to any other Section hereof that adversely affects their rights under Article 10; or (g) change Section 6.07 or 6.08; provided that, in the case of the outstanding Debentures of a series then held by a Trust, no such amendment shall be made that adversely affects the holders of the Preferred Securities of that Trust, and no waiver of any Event of Default with respect to the Debentures of that series or compliance with any covenant under this Indenture shall be effective, without the prior consent of the holders of at least a majority of the aggregate liquidation amount of the outstanding Preferred Securities of that Trust or the holder of each such Preferred Security, as applicable. A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture that has expressly been included solely for the benefit of one or more particular series of Debentures, or which modifies the rights of the Holders of Debentures 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 Debentures of any other series. It shall not be necessary for the consent of the Holders of Debentures or holders of Preferred Securities under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. If certain Holders agree to defer or waive certain obligations of the Company hereunder with respect to Debentures held by them, such deferral or waiver shall not affect the rights of any other Holder to receive the payment or performance required hereunder in a timely manner. After an amendment or waiver under this Section becomes effective, the Company shall mail to each Holder a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notices, or any defect therein, shall not, however, in any way impair or affect the validity of such amendment or waiver. 41 48 SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT. Every supplemental indenture executed pursuant to this Article 9 shall comply with the TIA. SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS, WAIVERS AND ACTIONS. Until an amendment, waiver or other action by Holders becomes effective, a consent, waiver or any other action by a Holder of a Debenture hereunder is a continuing consent by the Holder and every subsequent Holder of that Debenture or portion of the Debenture that evidences the same obligation as the consenting Holder's Debenture, even if notation of the consent, waiver or action is not made on such Debenture. However, any such Holder or subsequent Holder may revoke the consent, waiver or action as to such Holder's Debenture or portion of the Debenture if the Trustee receives the notice of revocation before the consent of the requisite aggregate principal amount of such Debentures then outstanding has been obtained and not revoked. After an amendment, waiver or action becomes effective, it shall bind every Holder of the Debentures of the related series, except as provided in Section 9.02. The Company may, but shall not be obligated to, fix a Record Date for the purpose of determining the Persons entitled to consent to any amendment or waiver. If a Record Date is fixed, then, notwithstanding the first two sentences of the immediately preceding paragraph, only Holders of Debentures or holders of Preferred Securities, as applicable, on such Record Date or their duly designated proxies, and only those Persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be such after such Record Date. No such consent shall be valid or effective for more than 90 days after such Record Date. SECTION 9.05 NOTATION ON OR EXCHANGE OF DEBENTURES. Debentures of the related series authenticated and made available for delivery after the execution of any supplemental indenture pursuant to this Article 9 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 Debentures so modified to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and made available for delivery by the Trustee in exchange for outstanding Debentures. SECTION 9.06 EXECUTION OF SUPPLEMENTAL INDENTURES. The Trustee shall execute any supplemental indenture authorized pursuant to this Article 9 if the supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, execute it. In executing such supplemental indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officers' Certificate and Opinion of Counsel stating that such supplemental indenture is authorized or permitted by this Indenture. 42 49 SECTION 9.07 EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article 9, 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 Debentures of the related series theretofore or thereafter authenticated and made available for delivery hereunder shall be bound thereby. ARTICLE 10 SUBORDINATION SECTION 10.01 DEBENTURES SUBORDINATED TO SENIOR INDEBTEDNESS. Notwithstanding the provisions of Section 6.11 or any other provision herein or in any Debenture, the Company and the Trustee and, by their acceptance thereof, the Holders of the Debentures (a) covenant and agree that all payments by the Company of the principal of and premium, if any, and interest on the Debentures (other than Debentures which have been discharged pursuant to Article 8) shall be subordinated in accordance with the provisions of this Article 10 to the prior payment in full, in cash or cash equivalents, of all amounts payable on, under or in connection with Senior Indebtedness, and (b) acknowledge that holders of Senior Indebtedness are or shall be relying on this Article 10. Nothing herein or in any Debenture is intended to or shall limit the amount of Senior Indebtedness the Company may incur. SECTION 10.02 PRIORITY AND PAYMENT OF PROCEEDS IN CERTAIN EVENTS: REMEDIES STANDSTILL. (a) Upon any payment or distribution of assets or securities of the Company, as the case may be, of any kind or character, whether in cash, property or securities, upon any dissolution or winding up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all amounts payable on, under or in connection with Senior Indebtedness (including any interest accruing on such Senior Indebtedness subsequent to the commencement of a bankruptcy, insolvency, receivership or similar proceeding) shall first be paid in full in cash, or payment provided for in cash or cash equivalents, before the Holders or the Trustee on behalf of the Holders or the holders of Preferred Securities shall be entitled to receive from the Company any payment of principal of or premium, if any, or interest on the Debentures or distribution of any assets or securities. (b) No direct or indirect payment by or on behalf of the Company of principal of or premium, if any, or interest on the Debentures (other than Debentures which have been discharged pursuant to Article 8), whether pursuant to the terms of the Debentures or upon acceleration or otherwise, shall be made if, at the time of such payment, there exists (i) a default in the payment of all or any portion of any Senior Indebtedness and the Trustee has received written notice thereof from the Company, from holders of Senior Indebtedness or from any trustee, representative or agent therefor, or (ii) any other default affecting Senior Indebtedness as a result of which the maturity of Senior Indebtedness has been accelerated and the Trustee has received written notice from the Company, from holders of Senior Indebtedness or from any trustee, representative or agent therefor, and such default shall not have been cured or waived by or on behalf of the holders of such Senior Indebtedness. 43 50 (c) If, notwithstanding the foregoing provisions prohibiting such payment or distribution, the Trustee or any Holder shall have received any payment on account of the principal of or premium, if any, or interest on the Debentures when such payment is prohibited by this Section and before all amounts payable on, under or in connection with Senior Indebtedness are paid in full in cash or cash equivalents, then and in such event (subject to the provisions of Section 10.08) such payment or distribution shall be received and held in trust for the holders of Senior Indebtedness and, at the written direction of the trustee, representative or agent for the holders of the Senior Indebtedness, shall be paid to the holders of the Senior Indebtedness remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in cash or cash equivalents. Upon any payment or distribution of assets or securities referred to in this Article 10, the Trustee and the Holders shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, and upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making any such payment or distribution, delivered to the Trustee for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.03 PAYMENTS WHICH MAY BE MADE PRIOR TO NOTICE. Nothing in this Article 10 or elsewhere in this Indenture shall prevent (a) the Company, except under the conditions described in Section 10.02, from making payments of principal of or premium, if any, or interest on the Debentures or from depositing with the Trustee any monies for such payments, or (b) the application by the Trustee of any monies deposited with it for the purpose of making such payments of principal of or premium, if any, or interest on the Debentures, to the Holders entitled thereto, unless at least one Business Day prior to the date when such payment would otherwise (except for the prohibitions contained in Section 10.02) become due and payable, the Trustee shall have received the written notice provided for in Section 10.02(b)(i) or (ii). SECTION 10.04 RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS NOT TO BE IMPAIRED. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time or in any way be prejudiced or impaired by any act or failure to act in good faith by any such holder, or by any noncompliance by the Company with the terms and provisions and covenants herein regardless of any knowledge thereof any such holder may have or otherwise be charged with. The provisions of this Article 10 are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness. Notwithstanding anything to the contrary in this Article 10, to the extent any Holders or the Trustee have paid over or delivered to any holder of Senior Indebtedness any payment or distribution received on account of the principal of or premium, if any, or interest on the Debentures to which any other holder of Senior Indebtedness shall be entitled to share in accordance with Section 10.02, no holder of Senior Indebtedness shall have a claim or right against any Holders or the Trustee with respect to any such payment or distribution or as a result of the failure to make payments or distributions to such other holder of Senior Indebtedness. 44 51 SECTION 10.05 TRUSTEE MAY TAKE ACTION TO EFFECTUATE SUBORDINATION. Each Holder of a Debenture, by his acceptance thereof, authorizes and directs the Trustee on his behalf to take such action as may be required by the trustee, representative or agent for holders of Senior Indebtedness or by the Company to effectuate, as between the holders of Senior Indebtedness and the Holders, the subordination as provided in this Article 10 and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 10.06 SUBROGATION. Upon the payment in full, in cash or cash equivalents, of all Senior Indebtedness, any Holder shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of assets of the Company in respect of such Senior Indebtedness until the Debentures shall be paid in full; and for the purposes of such subrogation, no payments or distributions to holders of such Senior Indebtedness of any cash property or securities to which such Holders of the Debentures would be entitled except for this Article 10, and no payment pursuant to this Article 10 to holders of such Senior Indebtedness by such Holders of the Debentures, shall, as between the Company, its creditors other than holders of such Senior Indebtedness and such Holders of the Debentures, be deemed to be a payment by the Company to or on account of such Senior Indebtedness, it being understood that the provisions of this Article 10 are solely for the purpose of defining the relative rights of the holders of such Senior Indebtedness, on the one hand, and such Holders of the Debentures, on the other hand. If any payment or distribution to which Holders of Debentures would otherwise have been entitled but for the provisions of this Article 10 shall have been applied, pursuant to this Article 10, to the payment of all Senior Indebtedness, then and in such case such Holders of the Debentures shall be entitled to receive from the holders of such Senior Indebtedness at the time outstanding any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay, in cash or cash equivalents, all such Senior Indebtedness in full. SECTION 10.07 OBLIGATIONS OF COMPANY UNCONDITIONAL; REINSTATEMENT. Nothing in this Article 10 or elsewhere in this Indenture or in any Debenture is intended to or shall impair, as between the Company and Holders of the Debentures, the obligations of the Company, which are absolute and unconditional, to pay to such Holders the principal of and premium, if any, and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of such Holders of the Debentures and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder of Debentures or holder of Preferred Securities, as applicable, from exercising all remedies otherwise permitted by applicable law under this Indenture, subject to the rights, if any, under this Article 10 of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. The failure to make a scheduled payment of principal of or premium, if any, or interest on the Debentures by reason of Section 10.02 shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 6.01; provided, however, that if (a) the conditions preventing the making of such payment no longer exist, and (b) such Holders of the Debentures are made whole with respect to such omitted payments, the Default or Event of Default relating thereto (including any failure 45 52 to pay any accelerated amounts) shall be automatically waived, and the provisions of the Indenture shall be reinstated as if no such Event of Default had occurred. SECTION 10.08 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN ABSENCE OF NOTICE. The Trustee or Paying Agent shall not be charged with the knowledge of the existence of any default in the payment of all or a portion of any Senior Indebtedness or any other default affecting Senior Indebtedness as a result of which the maturity of the Senior Indebtedness has been accelerated, unless and until the Trustee or Paying Agent shall have received written notice thereof; from the Company or one or more holders of Senior Indebtedness or from any trustee, representative or agent therefor; and, prior to the receipt of any such written notice, the Trustee or Paying Agent may conclusively assume that no such facts exist. Unless at least two Business Days prior to the date when by the terms of this Indenture any monies are to be deposited by the Company with the Trustee or any Paying Agent for any purpose (including, without limitation, the payment of the principal of or premium, if any, or interest on any Debenture), the Trustee or Paying Agent shall have received with respect to such monies the notice provided for in Section 10.02, the Trustee or Paying Agent shall have full power and authority to receive and apply such monies to the purpose for which they were received. Neither of them shall be affected by any notice to the contrary, which may be received by either on or after such second Business Day. The foregoing shall not apply to the Paying Agent if the Company is acting as Paying Agent. Nothing in this Section shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by Section 10.02. The Trustee or Paying Agent shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of such Senior Indebtedness (or a trustee, representative or agent on behalf of such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee, representative or agent on behalf of any such holder. The Trustee shall not be deemed to have any duty to the holders (and shall be fully protected in relying upon such notice) of Senior Indebtedness. SECTION 10.09 RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS. The Trustee and any Paying Agent shall be entitled to all of the rights set forth in this Article 10 in respect of any Senior Indebtedness at any time held by them to the same extent as any other holder of such Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee or any Paying Agent of any of its rights as such holder. ARTICLE 11 SINKING FUNDS SECTION 11.01 APPLICABILITY OF ARTICLE. The provisions of this Article shall be applicable to any sinking fund for the retirement of Debentures of a series, except as otherwise permitted or required in or pursuant to this Indenture or any Debenture of such series issued pursuant to this Indenture. 46 53 The minimum amount of any sinking fund payment provided for by the terms of Debentures 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 Debentures of such series is herein referred to as an "optional sinking fund payment." If provided for by the terms of Debentures of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 11.02. Each sinking fund payment shall be applied to the redemption of Debentures of any series as provided for by the terms of Debentures of such series and this Indenture. SECTION 11.02 SATISFACTION OF SINKING FUND PAYMENTS WITH DEBENTURES. The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Debentures of any series to be made pursuant to the terms of such Debentures (a) deliver outstanding Debentures of such series (other than any of such Debentures previously called for redemption or any of such Debentures in respect of which cash shall have been released to the Company), and (b) apply as a credit Debentures of such series which have been redeemed either at the election of the Company pursuant to the terms of such series of Debentures or through the application of permitted optional sinking fund payments pursuant to the terms of such Debentures, provided that such series of Debentures have not been previously so credited. Such Debentures shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Debentures for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If as a result of the delivery or credit of Debentures of any series in lieu of cash payments pursuant to this Section, the principal amount of Debentures of such series to be redeemed in order to exhaust the aforesaid cash payment shall be less than $100,000, the Trustee need not call Debentures of such series for redemption, except upon a Company Order, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment on Debentures of such series, provided, however, that the Trustee or such Paying Agent shall at the request of the Company from time to time pay over and deliver to the Company any cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company to the Trustee of Debentures of that series purchased by the Company having an unpaid principal amount equal to the cash payment requested to be released to the Company. SECTION 11.03 REDEMPTION OF DEBENTURES FOR SINKING FUND. Not less than 60 days prior to each sinking fund payment date for any series of Debentures, the Company shall 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 and the portion thereof, if any, which is to be satisfied by delivering and crediting of Debentures of that series pursuant to Section 11.02, 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 Debentures to be so credited and not theretofore delivered. 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 Debentures to be redeemed upon such sinking fund payment date in the manner specified in Section 3.02 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 3.03. Such notice having been duly given, the redemption of such Debentures shall be made upon the terms and in the manner stated in Sections 3.04 and 3.06. 47 54 ARTICLE 12 MEETINGS OF DEBENTUREHOLDERS SECTION 12.01 PURPOSES FOR WHICH MEETINGS MAY BE CALLED. A meeting of Holders of Debentures of any series may be called at any time and from time to time pursuant to this Article 12 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 Debentures of such series. SECTION 12.02 CALL, NOTICE AND PLACE OF MEETINGS. (a) The Trustee may at any time call a meeting of Holders of Debentures of any series for any purpose specified in Section 12.01, to be held at such time and at such place in the Borough of Manhattan, the City of New York, or in such other place as the Trustee shall determine. Notice of every meeting of Holders of Debentures 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 13.02, 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, by or pursuant to a Board Resolution, or the Holders of at least 10% in principal amount of the outstanding Debentures of any series shall have requested the Trustee to call a meeting of the Holders of Debentures of such series for any purpose specified in Section 12.01, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed 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 Debentures 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 clause (a) of this Section. SECTION 12.03 PERSONS ENTITLED TO VOTE AT MEETINGS. To be entitled to vote at any meeting of Holders of Debentures of any series, a Person shall be (a) a Holder of one or more outstanding Debentures of such series, or (b) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more outstanding Debentures 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 Debentures 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. SECTION 12.04 QUORUM; ACTION. The Persons entitled to vote at least a majority in principal amount of the outstanding Debentures of a series shall constitute a quorum for a meeting of Holders of Debentures 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 at least 66-2/3% in principal amount of the outstanding Debentures of a series, the Persons entitled to vote such percentage in principal amount of the 48 55 outstanding Debentures 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 Debentures 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 any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 12.02(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. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the outstanding Debentures of such series which shall constitute a quorum. Except as limited by the proviso to Section 9.02, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted only by the affirmative vote of the Holders of at least a majority in principal amount of the outstanding Debentures of that series; provided, however, that, except as limited by the proviso to Section 9.02, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture or any supplemental indenture expressly provides may be made, given or taken by the Holders of a specified percentage in principal amount of the outstanding Debentures 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 Debentures of such series. Any resolution passed or decision taken at any meeting of Holders of Debentures of any series duly held in accordance with this Section shall be binding on all the Holders of Debentures of such series, whether or not such Holders were present or represented at the meeting. SECTION 12.05 DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF MEETINGS. (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Debentures of a series in regard to proof of the holding of Debentures 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 Debentures shall be proved in the manner specified in Section 1.05 and the appointment of any proxy shall be proved in the manner specified in Section 1.05. 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 1.05 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 Debentures as provided in Section 12.02(b), in which case the Company or the Holders of Debentures 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 at least a majority in principal amount of the outstanding Debentures of such series represented at the meeting. 49 56 (c) At any meeting each Holder of a Debenture of such series or proxy shall be entitled to one vote for each $1,000 principal amount of the outstanding Debentures 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 Debenture 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 Debenture of such series or proxy. (d) Any meeting of Holders of Debentures of any series duly called pursuant to Section 12.02 at which a quorum is present may be adjourned from time to time by Persons entitled to vote at least a majority in principal amount of the outstanding Debentures of such series represented at the meeting; and the meeting may be held as so adjourned without further notice. SECTION 12.06 COUNTING VOTES AND RECORDING ACTION OF MEETINGS. The vote upon any resolution submitted to any meeting of Holders of Debentures of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Debentures of such series or of their representatives by proxy and the principal amounts and serial numbers of the outstanding Debentures 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 Debentures 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 facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 12.02 and, if applicable, Section 12.04. 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. ARTICLE 13 MISCELLANEOUS SECTION 13.01 TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by operation of Section 318(c) of the TIA, the imposed duties shall control. The provisions of Sections 310 to 317, inclusive, of the TIA that impose duties on any Person (including provisions automatically deemed included in an indenture unless the indenture provides that such provisions are excluded) are a part of and govern this Indenture, except as, and to the extent, they are expressly excluded from this Indenture, as permitted by the TIA. 50 57 SECTION 13.02 NOTICES. Any notice, request or other communication required or permitted to be given hereunder shall be in writing and delivered, telecopied or mailed by first-class mail, postage prepaid, addressed as follows: if to the Company: Hercules Incorporated Hercules Plaza, 1313 North Market Street Wilmington, Delaware 19894-0001 Facsimile No.: (302) 594-5210 Attention: Vice President and Treasurer, and Corporate Secretary if to the Trustee: The Chase Manhattan Bank One Liberty Place, 52nd Floor 1650 Market Street Philadelphia, PA 19103 Facsimile No.: (215) 972-8372 Attention: Corporate Trust Department The Company or the Trustee, by giving notice to the other, may designate additional or different addresses for subsequent notices of communications. The Company shall notify the holder, if any, of Senior Indebtedness of any such additional or different addresses of which the Company receives notice from the Trustee. Any notice or communication given to a Debentureholder shall be mailed or delivered to the Debentureholder at the Debentureholder's address as it appears on the Register of the Registrar and shall be sufficiently given if mailed within the time prescribed. Failure to give a notice or communication to a Debentureholder or any defect in it shall not affect its sufficiency with respect to other Debentureholders. If a notice or communication is given in the manner provided above, it is duly given, whether or not received by the addressee. If the Company gives a notice or communication to the Debentureholders, it shall deliver a copy to the Trustee and each Registrar, Paying Agent or co-Registrar. 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 Debentureholders 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. 51 58 SECTION 13.03 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Debentureholders may communicate pursuant to Section 312(b) of the TIA with other Debentureholders with respect to their rights under this Indenture or the Debentures. The Company, the Trustee, the Registrar, the Paying Agent and anyone else shall have the protection Section 312(c) of the TIA. SECTION 13.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate (complying with Section 13.05) stating that, in the opinion of such Officer, all conditions precedent to the taking of such action have been complied with; and (b) if applicable, an Opinion of Counsel (complying with Section 13.05) stating that, in the opinion of such counsel all such conditions precedent to the taking of such action have been complied with. SECTION 13.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each Officers' Certificate and Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include: (a) a statement that each Person making such Officers' Certificate or Opinion of Counsel has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officers' Certificate or Opinion of Counsel are based; (c) a statement that, in the opinion of each such Person, such Person has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement that, in the opinion of such Person, such covenant or condition has been complied with; provided, however, that with respect to matters of fact not involving any legal conclusion, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 13.06 SEVERABILITY CLAUSE. If any provision in this Indenture or in the Debentures 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. 52 59 SECTION 13.07 RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The Trustee may make reasonable rules for action by or a meeting of Debentureholders. The Registrar and Paying Agent may make reasonable rules for their functions. SECTION 13.08 LEGAL HOLIDAYS. A "Legal Holiday" is any day other than a Business Day. If any specified date (including a date for giving notice) is a Legal Holiday, the action to be taken on such date shall be taken on the next succeeding day that is not a Legal Holiday, and if such action is a payment in respect of the Debentures, unless otherwise specified pursuant to Section 2.01 no principal, premium, if any, or interest shall accrue in respect of such payment for the intervening period. SECTION 13.09 GOVERNING LAW. This Indenture and the Debentures shall be governed by and construed in accordance with the laws of the State of New York without regard to its principles of conflicts of laws. SECTION 13.10 NO RECOURSE AGAINST OTHERS. No director, officer, employee or stockholder, as such, of the Company shall have any liability for any obligations of the Company under the Debentures or this Indenture or for any claim based on, in respect of or by reason of such obligations. By accepting a Debenture, each Debentureholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issuance and sale of the Debentures. SECTION 13.11 SUCCESSORS AND ASSIGNS. All agreements of the Company in this Indenture and Debentures shall bind its successors and assigns. All agreements of the Trustee in this Indenture shall bind its successors and assigns. SECTION 13.12 COUNTERPARTS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this Indenture. SECTION 13.13 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. 53 60 SECTION 13.14 TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 13.15 HOLDERS OF PREFERRED SECURITIES AS THIRD PARTY BENEFICIARIES. The Company hereby acknowledges that, to the extent specifically set forth herein, prior to a Security Exchange with respect to the Debentures of any series held as assets of a Trust, the holders of the Preferred Securities of such Trust shall expressly be third party beneficiaries of this Indenture. The Company further acknowledges that, prior to a Security Exchange with respect to Debentures of any series held as assets of a Trust, if an Event of Default has occurred and is continuing and is attributable to (i) the failure of the Company to pay the principal of or premium, if any, or interest on the Debentures or (ii) the failure by the Company to deliver the required securities or other rights upon an appropriate conversion or exchange right election, any holder of the Preferred Securities of such Trust may institute a Direct Action against the Company. SECTION 13.16 BENEFITS OF THE INDENTURE. Except as otherwise expressly provided herein with respect to holders of Senior Indebtedness and holders of Preferred Securities, nothing in this Indenture or in the Debentures, express or implied, shall give to any person, other than the parties hereto and their successors hereunder and the Holders of the Debentures, any benefit or any legal or equitable right, remedy or claim under this Indenture. [remainder of page intentionally left blank] 54 61 SIGNATURES IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Indenture on behalf of the respective parties hereto as of the date first above written. HERCULES INCORPORATED By: /s/ R K Elliott Name: R. Keith Elliott Title: Chairman and Co-Chief Executive Officer THE CHASE MANHATTAN BANK, AS TRUSTEE By: /s/ J D Heaney Name: James D. Heaney Title: Vice President 62 STATE OF DELAWARE ) : ss.: COUNTY OF NEWCASTLE ) On the 11th day of November, 1998, before me personally came R. Keith Elliott, to me known, who, being by me duly sworn, did depose and say that he is Chairman and Co-Chief Executive Officer of Hercules Incorporated, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. /s/ Jean M. Watkins Notary Public (SEAL) Commission expires 2/18/00 EX-4.D 3 FIRST SUPPLEMENTAL INDENTURE DATED 11/12/1998 1 Exhibit 4-D EXECUTION COPY FIRST SUPPLEMENTAL INDENTURE between HERCULES INCORPORATED, as Issuer and THE CHASE MANHATTAN BANK, as Trustee Dated as of November 12, 1998 2 TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS SECTION 1.01. Definition of Terms...............................................................2 ARTICLE 2 GENERAL TERMS AND CONDITIONS OF THE SUBORDINATED NOTES SECTION 2.01. Designation and Principal Amount..................................................8 SECTION 2.02. Maturity..........................................................................8 SECTION 2.03. Form and Payment; Minimum Transfer Restriction....................................8 SECTION 2.04. Exchange and Registration of Transfer of Securities; Restrictions on Transfers; Depository..........................................9 SECTION 2.05. Interest.........................................................................12 ARTICLE 3 REDEMPTION OF THE SUBORDINATED NOTES SECTION 3.01. Redemption.......................................................................14 SECTION 3.02. Optional Redemption by Company...................................................15 SECTION 3.03. No Sinking Fund..................................................................15 SECTION 3.04. Mandatory Redemption upon a Failed Remarketing...................................15 ARTICLE 4 EXTENSION OF INTEREST PAYMENT PERIOD SECTION 4.01. Extension of Interest Payment Period.............................................15 ARTICLE 5 EXPENSES SECTION 5.01. Payment of Expenses..............................................................15 SECTION 5.02. Payment upon Resignation or Removal..............................................16 ARTICLE 6 NOTICE AND POWER OF ATTORNEY SECTION 6.01. Notice by the Company............................................................16 SECTION 6.02. Power of Attorney................................................................17
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PAGE ARTICLE 7 CONVERSION OF SUBORDINATED NOTES SECTION 7.01. Conversion Rights................................................................17 ARTICLE 8 FORM OF SUBORDINATED NOTES SECTION 8.01. Form of Subordinated Note........................................................18 ARTICLE 9 ORIGINAL ISSUE OF SUBORDINATED NOTES SECTION 9.01. Subordinated Notes...............................................................18 ARTICLE 10 RESET RATE; REMARKETING; MANDATORY REDEMPTION SECTION 10.01. Effectiveness of this Article; Incorporation of Remarketing Agreement............18 SECTION 10.02. Determination of Reset Date; Remarketing Procedures..............................19 SECTION 10.03. Reset of Interest Rate and Maturity Date.........................................21 SECTION 10.04. Renewed Remarketing..............................................................21 SECTION 10.05. Failed Remarketing; Mandatory Redemption.........................................21 SECTION 10.06. Early Remarketing................................................................21 ARTICLE 11 EVENTS OF DEFAULT; ACCELERATION SECTION 11.01. Events of Default................................................................23 SECTION 11.02. Acceleration.....................................................................23 ARTICLE 12 MISCELLANEOUS SECTION 12.01. Ratification of Base Indenture; First Supplemental Indenture Controls............23 SECTION 12.02. Trustee Not Responsible for Recitals.............................................23 SECTION 12.03. Governing Law....................................................................23 SECTION 12.04. Severability.....................................................................23
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PAGE SECTION 12.05. Counterparts....................................................................24
EXHIBIT A-1 - Form of Subordinated Note EXHIBIT A-2 - Form of Replacement Note EXHIBIT B - Form of Remarketing Agreement iii 5 FIRST SUPPLEMENTAL INDENTURE, dated as of November 12, 1998 (the "FIRST SUPPLEMENTAL INDENTURE"), between Hercules Incorporated, a Delaware corporation (the "COMPANY"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (the "TRUSTEE") under the Junior Subordinated Debenture Indenture dated as of November 12, 1998 between the Company and the Trustee (the "BASE INDENTURE" and together with this First Supplemental Indenture, the "INDENTURE"). WHEREAS, the Company executed and delivered the Base Indenture to the Trustee to provide for the future issuance of the Company's unsecured junior subordinated debentures (the "DEBENTURES") to be issued from time to time in one or more series as might be determined by the Company under the Indenture, in an unlimited aggregate principal amount which may be authenticated and delivered as provided in the Base Indenture; WHEREAS, pursuant to the terms of the Indenture, the Company desires to provide for the establishment of a new series of its Debentures to be known as its Auction Rate Reset Junior Subordinated Notes Series A (the "SUBORDINATED NOTES"), the form and substance of such Subordinated Notes and the terms, provisions and conditions thereof to be set forth as provided in the Base Indenture and this First Supplemental Indenture; WHEREAS, Hercules Trust V, a Delaware statutory business trust (the "TRUST"), has offered to NMS Services, Inc. $200,000,000 aggregate liquidation amount of its Auction Rate Reset Preferred Securities (the "PREFERRED SECURITIES"), representing undivided beneficial interests in the assets of the Trust, and proposes to invest the proceeds from such offering, together with the proceeds of the issuance and sale by the Trust to the Company of $6,200,000 aggregate liquidation amount of its Common Securities, in $206,200,000 aggregate principal amount of the Subordinated Notes; WHEREAS, pursuant to the terms of the Remarketing Agreement dated as of November 12, 1998, (the "REMARKETING AGREEMENT") by and among the Company, the Trust, and NationsBanc Montgomery Securities LLC, as remarketing agent (the "REMARKETING AGENT"), the Preferred Securities or, following any distribution of Subordinated Notes to the holders of Preferred Securities, such Subordinated Notes, as the case may be, shall be remarketed in accordance with the terms hereof by the Remarketing Agent on the Reset Date (as defined herein); and WHEREAS, the Company has requested that the Trustee execute and deliver this First Supplemental Indenture, and all requirements necessary to make this First Supplemental Indenture a valid instrument in accordance with its terms, 6 and to make the Subordinated Notes, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, have been performed, and the execution and delivery of this First Supplemental Indenture has been duly authorized in all respects. NOW THEREFORE, in consideration of the purchase and acceptance of the Subordinated Notes by the Holder thereof, and for the purpose of setting forth, as provided in the Indenture, the form and substance of the Subordinated Notes and the terms, provisions and conditions thereof, the Company covenants and agrees with the Trustee as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definition of Terms. For all purposes of this First Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms which are defined in the Base Indenture have the same meanings when used in this First Supplemental Indenture; (b) the terms defined in this Article have the meaning assigned to them in this Article and include the plural as well as the singular; (c) all other terms used herein which are defined in the Trust Indenture Act, whether directly or by reference therein, have the meanings assigned to them therein; (d) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP, and, except as otherwise herein expressly provided, the term "GAAP" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States of America at the date of such computation; (e) a reference to a Section or Article is to a Section or Article of this First Supplemental Indenture; 2 7 (f) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this First Supplemental Indenture as a whole and not to any particular Article, Section or other subdivision; (g) headings are for convenience of reference only and do not affect interpretation; and (h) the following terms have the meanings given to them in the Trust Agreement: ADMINISTRATIVE TRUSTEE AFFILIATE CLOSING PRICE COMMON SECURITIES COMMON STOCK CREDIT AGREEMENT CROSS DEFAULT DELAWARE TRUSTEE FORWARD UNDERWRITING AGREEMENT LIKE AMOUNT LIQUIDATION AMOUNT MANDATORY REDEMPTION PRICE PERSON PORTAL MARKET PRO RATA PROPERTY TRUSTEE PURCHASE AGREEMENT REFERENCE CORPORATE DEALER REMARKETING FEE REPLACEMENT SECURITIES RULE 144A SECONDARY PURCHASE AGREEMENT SECURITIES ACT SPECIAL EVENT TRADING DAY TRIGGER PRICE UNDERWRITER. "90 DAY PERIOD" has the meaning set forth in Section 3.01. "ADDITIONAL INTEREST" has the meaning set forth in Section 2.05(f). 3 8 "BID" means an irrevocable offer to purchase the aggregate outstanding principal amount of Subordinated Notes at the Remarketing Price with an Interest Rate equal to the Bid Rate specified in such Bid and with a Maturity Date on the Maturity Extension Date. "BID RATE" means the proposed Interest Rate on the Subordinated Notes specified in a Bid. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which banking institutions in The City of New York or Wilmington, Delaware are authorized or required by law, regulation or executive order to close and, until the Remarketing Settlement Date, that is also a London Banking Day. "CALCULATION AGENT" means NationsBanc Montgomery Securities LLC. "COMMENCEMENT DATE" means November 12, 1999, subject to acceleration pursuant to Section 7 of the Forward Underwriting Agreement. "CREDIT AGREEMENT" means the Credit Agreement dated as of October 15, 1998 among the Sponsor, certain subsidiaries of the Company from time to time parties thereto, the several lenders from time to time parties thereto, NationsBank, N.A., as Administrative Agent, The Chase Manhattan Bank, Morgan Guaranty Trust Company of New York and Citibank, N.A., as Co-Syndication Agents, as amended, supplemented, modified or superseded from time to time. "CURED DEFAULT TRIGGER EVENT" has the meaning set forth in Section 10.06(b). "DEFAULT RATE" means the Interest Rate that would be applicable under Section 2.05 hereof if not for the applicability of the Default Rate plus 75 basis points. "DEPOSITORY" has the meaning set forth in the Base Indenture. "DISSOLUTION EVENT" means that, as a result of the occurrence and continuation of a Special Event or pursuant to Section 8.01 of the Trust Agreement the Trust is to be dissolved in accordance with the Trust Agreement, and the Subordinated Notes held by the Property Trustee are to be distributed to the holders of the Preferred Securities issued by the Trust pro rata in accordance with the Trust Agreement. "EXPECTED RESET DATE" has the meaning set forth in Section 10.02(a). 4 9 "FAILED REMARKETING" means any event specified as such, at the time so specified in Article 10 hereof or in Article 6 of the Trust Agreement. "FINAL RESET DATE" means the third scheduled Trading Day prior to the Remarketing Termination Date. "FORMER HOLDERS" has the meaning set forth in Section 10.02(i). "GAAP" has the meaning set forth in the Base Indenture. "GLOBAL DEBENTURE" has the meaning set forth in the Base Indenture. "GLOBAL SUBORDINATED NOTE" has the meaning set forth in Section 2.04(a)(i). "GUARANTEE TRUSTEE" means the Preferred Securities Guarantee Trustee as defined in the Preferred Securities Guarantee Agreement dated as of November 12, 1998 between Hercules Incorporated, as Guarantor, and The Chase Manhattan Bank, as Preferred Securities Guarantee Trustee. "HOLDER" has the meaning set forth in the Base Indenture. "INTEREST PAYMENT DATE" has the meaning set forth in Section 2.05(d). "INTEREST RATE" has the meaning set forth in Section 2.05(a). "LIBOR" means the rate determined by the Calculation Agent as the rate for deposits for a period of three months in U.S. Dollars which appears on the Telerate Page 3750 as of 11:00 a.m., London time, on the date of determination. If such rate does not appear on the Telerate Page 3750, the rate on the date of determination will be determined as if the parties had specified the LIBOR-Reference Banks Rate as the applicable rate. "LIBOR-REFERENCE BANKS RATE" means that the rate will be determined on the basis of the rates which deposits in U.S. Dollars are offered by the Reference Banks at approximately 11:00 a.m., London time, on the date of determination to prime banks in the London interbank market for a period of three months commencing two London Banking Days following such date of determination and in the Representative Amount. The Calculation Agent will request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two such quotations are provided, the rate will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate will be the arithmetic mean of the rates quoted by major 5 10 banks in New York City, selected by the Calculation Agent, at approximately 11:00 a.m., New York City time, on the date of determination for loans in U.S. Dollars to leading banks for a period of three months commencing two London Banking Days following such date of determination and in the Representative Amount. "LONDON BANKING DAY" means any day on which dealings in deposits in U.S. Dollars are transacted in the London interbank market. "MATURITY DATE" means November 10, 1999; provided that in the event of a successful Remarketing of the Subordinated Notes or the Preferred Securities, the Maturity Date shall be the Maturity Extension Date. "MATURITY EXTENSION DATE" means the first anniversary of the Remarketing Settlement Date on which Replacement Notes are issued. "MINISTERIAL ACTION" has the meaning set forth in Section 3.01. "PRE-REMARKETING INTEREST PAYMENT DATE" has the meaning set forth in Section 2.05(b). "PRE-REMARKETING REGULAR RECORD DATE" has the meaning set forth in Section 2.05(d). "REDEMPTION DATE" has the meaning set forth in the Base Indenture. "REDEMPTION PRICE" has the meaning set forth in Section 3.01. "REFERENCE BANKS" means, for the purposes of any LIBOR rate, four major banks in the London interbank market. "REGULAR RECORD DATE" has the meaning set forth in Section 2.05(e). "REMARKETING" means a remarketing of Subordinated Notes pursuant to Article 10 hereof or Article 6 of the Trust Agreement. "REMARKETING PRICE" means 100.5% of the aggregate principal amount of the Subordinated Notes plus accrued and unpaid interest (if any). "REMARKETING SETTLEMENT DATE" means the third Business Day immediately following the Reset Date. "REMARKETING TERMINATION DATE" means November 10, 1999. 6 11 "RENEWED REMARKETING" has the meaning set forth in Section 10.04. "REPLACEMENT NOTES" has the meaning set forth in Section 10.02(j). "REPRESENTATIVE AMOUNT" means, for the purposes of any LIBOR rate for which a Representative Amount is relevant, an amount that is equal to the aggregate principal amount of all of the Subordinated Notes. "RESET DATE" means any date established as a Reset Date pursuant to Article 10 hereof or Article 6 of the Trust Agreement. "RESTRICTED SECURITY" has the meaning set forth in Section 2.04(c). "SECONDARY PURCHASER" has the meaning set forth in Section 10.02(c). "SENIOR BANK DEBT ACCELERATION" means an acceleration under the Credit Agreement resulting in the obligations of the Company under the Credit Agreement becoming or having been declared due and payable under Section 6 of the Credit Agreement before such obligations would otherwise have been due and payable. "STOCK PRICE TRIGGER EVENT" has the meaning set forth in Section 10.06(a). "SUBORDINATED NOTE REPAYMENT PRICE" has the meaning set forth in Section 10.06. "TRANSFER RESTRICTION TERMINATION DATE" means the first date on which the Subordinated Notes (other than Subordinated Notes acquired by the Company or any Affiliate thereof) may be sold pursuant to Rule 144(k). "TRIGGER EVENT" has the meaning set forth in Section 10.06. "TRUST AGREEMENT" means the Amended and Restated Trust Agreement of Hercules Trust V, a Delaware statutory business trust, dated as of November 12, 1998. "TRUST SECURITIES" means the Preferred Securities and common securities of the Trust. "UNDERWRITING TRIGGER EVENT" has the meaning set forth in Section 10.06(c). 7 12 "U.S. DOLLAR," "DOLLAR," "U.S.$," "$" and "USD" means the lawful currency of the United States of America. "WINNING BID RATE" has the meaning set forth in Section 10.02(b) hereof or in Section 6.02(b) of the Trust Agreement. ARTICLE 2 GENERAL TERMS AND CONDITIONS OF THE SUBORDINATED NOTES SECTION 2.01. Designation and Principal Amount. There is hereby authorized a series of Debentures designated the "Auction Rate Reset Junior Subordinated Notes Series A," limited in aggregate principal amount to $206,200,000, which amount shall be as set forth in any written order of the Company for the authentication and delivery of Subordinated Notes pursuant to Section 2.03 of the Base Indenture except for Subordinated Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Subordinated Notes under the terms of the Indenture. SECTION 2.02. Maturity. The principal of the Subordinated Notes shall be due and payable on the Maturity Date. SECTION 2.03. Form and Payment; Minimum Transfer Restriction. (a) Except as provided in Section 2.04, the Subordinated Notes shall be issued in fully registered certificated form without coupons in denominations of $1,000 in principal amount and integral multiples of $1,000 thereof. Principal and interest on the Subordinated Notes issued in certificated form will be payable by check or wire transfer, the transfer of such Subordinated Notes will be registrable and such Subordinated Notes will be exchangeable for Subordinated Notes bearing identical terms and provisions at the office or agency of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the Holder at such address as shall appear in the Register. Notwithstanding the foregoing, so long as the Holder of any Subordinated Notes is the Property Trustee, the payment of the principal of and interest (including any Additional Interest, if any) on such Subordinated Notes held by the Property Trustee will be made at such place and to such account as may be designated by the Property Trustee. (b) The Subordinated Notes may be transferred or exchanged only in minimum denominations of $100,000 and integral multiples of $1,000 in excess thereof, and any attempted transfer, sale or other disposition of Subordinated 8 13 Notes in a denomination of less than $100,000 shall be deemed to be void and of no legal effect whatsoever. SECTION 2.04. Exchange and Registration of Transfer of Securities; Restrictions on Transfers; Depository. (a) If distributed to holders of Preferred Securities in connection with a Dissolution Event, the Subordinated Notes will be issued in the same form as the Preferred Securities that such Subordinated Notes replace in accordance with the following procedures. (i) If the Preferred Securities are held in global form, the Subordinated Notes shall be presented to the Trustee by the Property Trustee in exchange for a Global Debenture in an aggregate principal amount equal to the aggregate principal amount of all outstanding Subordinated Notes (a "GLOBAL SUBORDINATED NOTE"), to be registered in the name of the Depository, or its nominee, and delivered by the Property Trustee to the Depository for crediting to the accounts of its participants pursuant to the instructions of the Administrative Trustees. The Company upon any such presentation shall execute a Global Subordinated Note in such aggregate principal amount and deliver the same to the Trustee for authentication and delivery in accordance with the Indenture. Payments on the Subordinated Notes issued as a Global Subordinated Note will be made to the Depository. (ii) If the Preferred Securities are held in certificated form, the Subordinated Notes shall be presented to the Trustee by the Property Trustee and each outstanding Preferred Security certificate will be deemed to represent a beneficial interest in such Subordinated Note in an aggregate principal amount equal to the aggregate Liquidation Amount of the Preferred Securities represented by such Preferred Security certificate. When the holder of a Preferred Security certificate presents such certificate for transfer or reissuance, such certificate will be canceled and a Subordinated Note, registered in the name of such holder or such holder's transferee, as the case may be, in an aggregate principal amount equal to the aggregate Liquidation Amount of the canceled certificate, will be executed by the Company and delivered to the Trustee for authentication and delivery in accordance with the Indenture. On issue of such Subordinated Notes, Subordinated Notes with an equivalent aggregate principal amount that were presented by the Property Trustee to the Trustee will be deemed to have been canceled. (b) Any Global Subordinated Note may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the 9 14 Depository, by a national securities exchange or by the National Association of Securities Dealers, Inc. in order for the Subordinated Notes to be tradeable on the PORTAL Market or as may be required for the Subordinated Notes to be tradeable on any other market developed for trading of securities pursuant to Rule 144A or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange upon which the Subordinated Notes may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Subordinated Notes are subject. (c) Each Subordinated Note that bears or is required to bear the legend set forth in this Section 2.04(c) (a "RESTRICTED SECURITY") shall be subject to the restrictions on transfer provided in the legend set forth in this Section 2.04(c), unless such restrictions on transfer shall be waived by the written consent of the Company, and the Holder of each Restricted Security, by such Holder's acceptance thereof, agrees to be bound by such restrictions on transfer. As used in this Section 2.04(c) and in Section 2.04(d), the term "transfer" encompasses any sale, pledge, transfer or other disposition of any Restricted Security. Prior to the Transfer Restriction Termination Date, any certificate evidencing a Subordinated Note shall bear a legend in substantially the following form, unless otherwise agreed by the Company (with written notice thereof to the Trustee): THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITIES EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY EXCEPT (A) TO HERCULES INCORPORATED OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT OR (C) TO A SECONDARY PURCHASER (AS DEFINED IN THE 10 15 AMENDED AND RESTATED TRUST AGREEMENT OF HERCULES TRUST V DATED AS OF NOVEMBER 12, 1998 (AS AMENDED FROM TIME TO TIME, THE "TRUST AGREEMENT")) THAT HAS ENTERED INTO A SECONDARY PURCHASE AGREEMENT (AS DEFINED IN THE TRUST AGREEMENT) WITH THE TRUST, (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AT THE REQUEST OF THE HOLDER, THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO THE SALE OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT AND (4) AGREES WITH RESPECT TO ANY TRANSFER OCCURRING PRIOR TO THE REMARKETING DATE ON WHICH REPLACEMENT NOTES ARE ISSUED TO ANY PERSON OTHER THAN THE PROPERTY TRUSTEE, TO PROVIDE TO THE INDENTURE TRUSTEE A DULY EXECUTED CERTIFICATE SUBSTANTIALLY TO THE EFFECT OF CLAUSES (1), (2) AND (3), ABOVE. THIS SECURITY WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSE. THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE, AND YIELD TO MATURITY WILL BE PROMPTLY MADE AVAILABLE UPON REQUEST TO THE VICE PRESIDENT - TAXES (AT (302) 594-5887) OR THE SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (AT (302) 594-5175), HERCULES INCORPORATED, HERCULES PLAZA, 1313 NORTH MARKET STREET, WILMINGTON, DE 19894-0001. Following the Transfer Restriction Termination Date, any Subordinated Note or security issued in exchange or substitution therefor (other than Subordinated Notes acquired by the Company or any Affiliate), may upon surrender of such Subordinated Note or security for exchange to the Trustee in accordance with the provisions of this Section 2.04, be exchanged for a new Subordinated Note or Subordinated Notes, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.04(c). (d) Any Subordinated Note that, prior to the Transfer Restriction Termination Date, is purchased or owned by the Company or any Affiliate thereof 11 16 may not be resold by the Company or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements thereof that results in such Subordinated Note no longer being a "restricted security" as defined under Rule 144 under the Securities Act. SECTION 2.05. Interest. (a) Interest on the principal amount of each Subordinated Note will accrue and be payable at a rate (the "INTEREST RATE") per annum equal to (i) from and including the date of issuance to but excluding the earlier of (A) the Remarketing Settlement Date on which Replacement Notes are issued and (B) the date such principal amount is paid, LIBOR plus 175 basis points, compounded quarterly; (ii) from and including the Remarketing Settlement Date on which Replacement Notes are issued to but excluding the date such principal amount is paid, the Winning Bid Rate, compounded quarterly; and (iii) notwithstanding clauses (i) and (ii) above, if the Company fails to pay the principal amount on the date such amount becomes due, then from and including such due date to but excluding the date such principal amount is paid, the Default Rate, compounded quarterly, but only to the extent permitted by applicable law. Interest that is not paid when due will bear additional interest thereon compounded quarterly at the applicable periodic Interest Rate specified above (to the extent permitted by applicable law). The term "INTEREST", as used herein, includes any such additional interest and Additional Interest unless otherwise stated. (b) Until the Remarketing Settlement Date on which Replacement Notes are issued, interest on the Subordinated Notes will be cumulative, will be payable quarterly in arrears on February 12, May 12, August 12 and November 12 of each year, commencing February 12, 1999, and on such Remarketing Settlement Date (each, a "PRE-REMARKETING INTEREST PAYMENT DATE"), will accumulate from and including the most recent date to which interest has been paid or, if no interest has been paid, from November 12, 1998, to but excluding the related Pre-Remarketing Interest Payment Date, except as otherwise described below. The Interest Rate in effect for the period from and including November 12, 1998 to but excluding February 12, 1999 shall be the rate determined by the Calculation Agent two London Banking Days prior to November 12, 1998 and 12 17 shall equal LIBOR plus 175 basis points. The Interest Rate in effect thereafter, for each quarterly period from and including the immediately preceding Pre-Remarketing Interest Payment Date to but excluding the applicable Pre-Remarketing Interest Payment Date, shall be determined by the Calculation Agent two London Banking Days prior to such immediately preceding Pre-Remarketing Interest Payment Date and shall equal LIBOR plus 175 basis points. The amount of interest payable for any quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the last sentence of this paragraph, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed will be computed on the basis of the actual number of days elapsed per 30-day month. If a Pre-Remarketing Interest Payment Date is not a Business Day, then such Pre-Remarketing Interest Payment Date will be the next succeeding Business Day, except if such Business Day is in the next succeeding calendar month, such Pre-Remarketing Interest Payment Date will be the immediately preceding Business Day. (c) Interest shall be paid to the Person in whose name such Subordinated Note or any predecessor Subordinated Note is registered on the books and records of the Company at the close of business on the Regular Record Date for such interest installment, which shall be fifteen (15) days prior to a Pre-Remarketing Interest Payment Date (the "PRE-REMARKETING REGULAR RECORD DATE"). (d) From and including the Remarketing Settlement Date on which Replacement Notes are issued, interest on the Replacement Notes will be cumulative, will be payable quarterly in arrears on February 12, May 12, August 12 and November 12 of each year, commencing on the Remarketing Settlement Date, and on the Maturity Date (each, an "INTEREST PAYMENT DATE"), will accumulate from the most recent date to which interest has been paid or, if no interest has been paid, from and including the Remarketing Settlement Date, to but excluding the related Interest Payment Date, except as otherwise described below. The amount of interest payable for any quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the last sentence of this paragraph, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed will be computed on the basis of the actual number of days elapsed per 30-day month. If an Interest Payment Date is not a Business Day, then such Interest Payment Date will be the next succeeding Business Day, except if such Business Day is in the next succeeding calendar month, such Interest Payment Date will be the immediately preceding Business Day. (e) Interest shall be paid to the Person in whose name the Subordinated Note or any predecessor Subordinated Note is registered on the books and records of the Company, at the close of business on the Regular Record Date for such 13 18 interest installment, which, in respect of (i) Subordinated Notes of which the Property Trustee is the Holder and the related Preferred Securities are in book-entry only form or (ii) a Global Subordinated Note, shall be the close of business on the Business Day next preceding that Interest Payment Date (the "REGULAR RECORD DATE"). If the Subordinated Notes are not represented by a Global Subordinated Note, the Regular Record Date for such interest installment shall be fifteen (15) days prior to that Interest Payment Date. (f) If, at any time while the Property Trustee is the Holder of any Subordinated Notes, the Trust or the Property Trustee is required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any such case, the Company will pay as additional interest ("ADDITIONAL INTEREST") on the Subordinated Notes held by the Property Trustee, such additional amounts as shall be required so that the net amounts received and retained by the Trust and the Property Trustee after paying such taxes, duties, assessments or other governmental charges will be equal to the amounts the Trust and the Property Trustee would have received had no such taxes, duties, assessments or other government charges been imposed. ARTICLE 3 REDEMPTION OF THE SUBORDINATED NOTES SECTION 3.01. Redemption. If at any time a Special Event occurs, the Company shall have the right (subject to the conditions set forth in the Indenture) at any time, upon not less than 30 nor more than 60 days notice, to redeem the Subordinated Notes in whole, but not in part, within the 90 days following the occurrence of such Special Event (the "90 DAY PERIOD"), and, simultaneous with such redemption, to cause a Like Amount of the Trust Securities to be redeemed by the Trust at the Mandatory Redemption Price on a Pro Rata basis at a redemption price equal to 100% of the principal amount of the Subordinated Notes plus any accrued and unpaid interest thereon to the date of such redemption (the "REDEMPTION PRICE"), provided that if at the time there is available to the Company or the Trust the opportunity to eliminate, within the 90-Day Period, the Special Event by taking some ministerial action ("MINISTERIAL ACTION"), such as filing a form or making an election, or pursuing some other similar reasonable measure which has no adverse effect on the Company, the Trust or the Holders of the Trust Securities issued by the Trust, the Company shall pursue such Ministerial Action in lieu of redemption, and, provided, further, that the Company shall have no right to redeem the Subordinated Notes while the Trust is pursuing 14 19 any Ministerial Action pursuant to its obligations under the Trust Agreement. The Redemption Price shall be paid prior to 12:00 noon, New York City time, on the date of such redemption or such earlier time as the Company determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price prior to the Redemption Date. SECTION 3.02. Optional Redemption by Company. The Subordinated Notes are not entitled to any optional redemption by the Company. SECTION 3.03. No Sinking Fund. The Subordinated Notes are not entitled to the benefit of any sinking fund. SECTION 3.04. Mandatory Redemption upon a Failed Remarketing. If a Failed Remarketing occurs, the Company shall redeem the Subordinated Notes in whole at the Redemption Price on the third Business Day following the date such Failed Remarketing occurs or is deemed to occur in the manner set forth in Article 3 of the Base Indenture as though a notice of redemption had been timely given as required by Sections 3.01 and 3.03 of the Base Indenture. The Redemption Price shall be paid prior to 12:00 noon, New York City time, on the date of such redemption or such earlier time as the Company determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price prior to the Redemption Date ARTICLE 4 EXTENSION OF INTEREST PAYMENT PERIOD SECTION 4.01. Extension of Interest Payment Period. The Company is not entitled at any time during the term of the Subordinated Notes to the benefit of any interest payment deferral or extension. ARTICLE 5 EXPENSES SECTION 5.01. Payment of Expenses. In connection with the offering, sale and issuance of the Subordinated Notes to the Property Trustee and in connection with the sale of the Trust Securities by the Trust, the Company, in its capacity as borrower with respect to the Subordinated Notes, shall: 15 20 (a) pay all costs and expenses relating to the offering, sale and issuance of the Subordinated Notes payable pursuant to the Purchase Agreement and compensation of the Trustee under the Indenture in accordance with the provisions of Section 7.06 of the Base Indenture; (b) pay all costs and expenses of the Trust (other than payment in respect of Trust Securities) (including, but not limited to, costs and expenses relating to the organization of the Trust; the fees and expenses of the Property Trustee and the Delaware Trustee; the costs and expenses relating to the operation of the Trust, including without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing, engraving, computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating and travel; telephone and other telecommunications expenses; and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets); (c) pay all costs and expenses of the Trust or Property Trustee related to the enforcement by the Property Trustee of the rights of the holders of the Preferred Securities; (d) be primarily liable for any indemnification obligations arising with respect to the Trust Agreement; and (e) pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. SECTION 5.02. Payment upon Resignation or Removal. Upon termination of this First Supplemental Indenture or the Base Indenture or the removal or resignation of the Trustee pursuant to Section 7.08 of the Base Indenture, the Company shall pay to the Trustee all amounts accrued to the date of such termination, removal or resignation. Upon termination of the Trust Agreement or the removal or resignation of the Delaware Trustee, the Guarantee Trustee or the Property Trustee, as the case may be, the Company shall pay to the Delaware Trustee, the Guarantee Trustee or the Property Trustee and their respective counsel, as the case may be, all amounts accrued to the date of such termination, removal or resignation. 16 21 ARTICLE 6 NOTICE AND POWER OF ATTORNEY SECTION 6.01. Notice by the Company. The Company shall give prompt written notice to the Trustee of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee in respect of the Subordinated Notes pursuant to the provisions of this Article. Notwithstanding any of the provisions of the Base Indenture or this First Supplemental Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Subordinated Notes pursuant to the provisions of the Base Indenture; provided, however, that if the Trustee shall not have received the notice provided for in this Article at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (or premium, if any) or interest on any Subordinated Note), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which it was received, and shall not be affected by any notice to the contrary that may be received by it on or after the second Business Day prior to such date. SECTION 6.02. Power of Attorney. Each Holder by acceptance of the Subordinated Notes hereby irrevocably constitutes and appoints the Remarketing Agent and each of its officers as such Holder's true and lawful representative and attorney-in-fact, with full power and authority in such person's name, place and stead to make, execute, acknowledge, deliver, swear to, record and file with respect to the Subordinated Notes any and all instruments, documents and certificates which, from time to time, may be required in connection with the Remarketing and to take any other action which the Remarketing Agent may deem necessary or appropriate, in its discretion, in connection with Remarketing the Subordinated Notes. This power of attorney is coupled with an interest and shall continue in full force and effect and shall not be affected by the subsequent death, disability, insolvency, bankruptcy, termination or incapacity of a Holder and may be exercised by an officer of the Remarketing Agent signing individually for any Holder or for all Holders executing any particular instrument. 17 22 ARTICLE 7 CONVERSION OF SUBORDINATED NOTES SECTION 7.01. Conversion Rights. The Subordinated Notes are not convertible at any time. ARTICLE 8 FORM OF SUBORDINATED NOTES SECTION 8.01. Form of Subordinated Note. The Subordinated Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A-1. Following the Remarketing, the Replacement Notes shall be substantially in the form of Exhibit A-2. Each of Exhibit A-1 and Exhibit A-2 is hereby incorporated in and expressly made a part of this First Supplemental Indenture. ARTICLE 9 ORIGINAL ISSUE OF SUBORDINATED NOTES SECTION 9.01. Subordinated Notes. Each Subordinated Note shall be issued in denominations of $1,000 and in integral multiples thereof and may, upon execution of this First Supplemental Indenture, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Subordinated Notes to or upon the written order of the Company, signed by either of its Co-Chief Executive Officers, its President, or any Vice President and its Treasurer or an Assistant Treasurer, without any further action by the Company. ARTICLE 10 RESET RATE; REMARKETING; MANDATORY REDEMPTION SECTION 10.01. Effectiveness of this Article; Incorporation of Remarketing Agreement. (a) Sections 10.02, 10.04 and 10.06 shall become effective if and only if the Subordinated Notes have been distributed to the Holders of the Trust Securities prior to Remarketing. Notwithstanding the foregoing, on the Remarketing Settlement Date (except in the case of a Failed 18 23 Remarketing), the certificates representing the Subordinated Notes held by the Property Trustee shall be exchanged for certificates representing Replacement Notes. (b) Every Person, by virtue of having become a Holder in accordance with the terms of this Agreement, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Indenture, including the terms of Exhibit B. Exhibit B is hereby incorporated in and expressly made a part of this First Supplemental Indenture. SECTION 10.2. Determination of Reset Date; Remarketing Procedures. (a) Subject to Sections 10.04 and 10.06, the Reset Date shall be September 28, 1999 (the "EXPECTED RESET DATE"); provided that (i) the Company may, by notice to the Remarketing Agent, direct that the Reset Date be delayed if the Company believes it will be unable to meet the conditions to Remarketing in the absence of such a delay; and (ii) the Remarketing Agent may, by notice to the Company, direct that the Reset Date be delayed if the Remarketing Agent believes that a Remarketing will not be successful in the absence of such a delay; and, in either such event, the Company and the Remarketing Agent will use their best efforts to establish a delayed Reset Date that is within five Business Days after the Expected Reset Date, but in no event later than the Final Reset Date; and provided further, that no Reset Date may be established if any Default (as defined in the Credit Agreement) has occurred, except in connection with a Remarketing following a Cured Default Trigger Event pursuant to Section 10.06. If the Company and the Remarketing Agent have not agreed, on or prior to the sixth Business Day preceding the Final Reset Date, to a Reset Date that is not later than the Final Reset Date, no Remarketing shall occur and the Company shall repay the Subordinated Notes in accordance with their terms. (b) The Company shall, by notice to the Remarketing Agent no later than five Business Days prior to the Reset Date, select and specify three Reference Corporate Dealers. By 3:00 p.m., New York City time, on the Reset Date, the Remarketing Agent shall request Bids from such Reference Corporate Dealers. The Remarketing Agent shall determine the lowest Bid Rate (the "WINNING BID RATE") from among the Bids obtained on the Reset Date. By approximately 4:30 p.m., New York City time, on the Reset Date, the Remarketing Agent shall notify the Company, the Underwriter and the Trustee of the Winning Bid Rate. If on a Reset Date, Bids are not submitted by at least two 19 24 Reference Corporate Dealers, or if the lowest Bid submitted would result in a Winning Bid Rate in excess of the rate permitted by applicable law, such Remarketing shall be deemed to be a Failed Remarketing on the corresponding Remarketing Settlement Date. The Winning Bid Rate determined by the Remarketing Agent, absent manifest error, shall be binding and conclusive upon the Holders of the Subordinated Notes and the Company. (c) On the Reset Date, the Remarketing Agent shall designate as the Secondary Purchaser (the "SECONDARY PURCHASER") the Reference Corporate Dealer providing the Bid containing the Winning Bid Rate. If the Winning Bid Rate is specified in the Bids submitted by two or more Reference Corporate Dealers, the Remarketing Agent shall, in its sole discretion, designate one of such Reference Corporate Dealers as the Secondary Purchaser. (d) On the Reset Date, the Secondary Purchaser shall enter into a Secondary Purchase Agreement for the purchase by such Secondary Purchaser at the Remarketing Price of the aggregate principal amount of Subordinated Notes, with an Interest Rate equal to the Winning Bid Rate and with a Maturity Date on the Maturity Extension Date. (e) If a Remarketing has occurred pursuant to this Section 10.02 but settlement of the purchase and sale of the Subordinated Notes does not occur on the corresponding Remarketing Settlement Date, then, unless the provisions of Section 10.04 with respect to a Renewed Remarketing shall apply, a Failed Remarketing shall be deemed to occur on such Remarketing Settlement Date. (f) At the time and in the manner specified in the Secondary Purchase Agreement, the Secondary Purchaser shall pay to the Remarketing Agent on behalf of the Holders of the Subordinated Notes on the Remarketing Settlement Date, an amount of cash equal to the Remarketing Price. (g) Unless otherwise agreed among the Remarketing Agent, the Paying Agent and any Former Holder, the Remarketing Agent shall pay the Remarketing Price, less the Remarketing Fee, to the Paying Agent, acting solely as agent for the Former Holders, and the Paying Agent shall promptly pay such amounts to the Former Holders in the same manner as is specified in Section 2.02 of the Base Indenture for payments of interest, except that the Record Date therefor shall be the Business Day immediately preceding the Remarketing Settlement Date. (h) The obligation of the Remarketing Agent to make payment to the Former Holders in connection with the Remarketing shall be limited to the extent that the Secondary Purchaser has delivered the Remarketing Price therefor to the Remarketing Agent. 20 25 (i) Any outstanding Subordinated Notes purchased on the Remarketing Settlement Date shall be deemed to be transferred to the Secondary Purchaser and shall be replaced in the manner provided in Section 10.02(j). On and after the Remarketing Settlement Date (except in the event of a Failed Remarketing), the Company shall make no further payments to, and the Company shall have no further obligations under this First Supplemental Indenture in respect of, the Holders of such replaced Subordinated Notes (the "FORMER HOLDERS"), the Company shall only be obligated to make payments to the Holders of Replacement Notes, and the Subordinated Notes of the Former Holders shall no longer represent an obligation of the Company but shall only represent a right to receive the proceeds of the Remarketing from the Paying Agent. (j) The Company shall cause replacement certificates evidencing the remarketed Subordinated Notes to be executed by the Company and authenticated by the Trustee in accordance with the provisions of Section 2.03 of the Base Indenture (the "REPLACEMENT NOTES"). The Replacement Notes shall be delivered to the purchaser or purchasers of the remarketed Subordinated Notes in accordance with the terms of the Secondary Purchase Agreement. SECTION 10.03. Reset of Interest Rate and Maturity Date. Unless a Failed Remarketing shall have occurred, from and including the Reset Settlement Date, the Interest Rate on the Subordinated Notes shall be the Winning Bid Rate and the Maturity Date shall be the Maturity Extension Date. SECTION 10.04. Renewed Remarketing. If a Remarketing has occurred pursuant to Section 10.02 that would be a Failed Remarketing solely pursuant to Section 10.02(e), but the purchase and sale of the Subordinated Notes does not take place on the corresponding Remarketing Settlement Date, and the reason for such failure shall, in the good faith determination of the Remarketing Agent (made after consultation with the Company), result from facts or circumstances that are not due to the action or inaction of the Company, then the provisions of Sections 10.02 and 10.06 shall apply to a second remarketing (a "RENEWED REMARKETING") of the Subordinated Notes, except that the Expected Reset Date shall be the sixth Business Day following such corresponding Remarketing Settlement Date; provided that the provisions of this Section 10.04 shall be applied only once. SECTION 10.05. Failed Remarketing; Mandatory Redemption. The Remarketing Agent shall give notice of any Failed Remarketing on the date such Failed Remarketing occurs or is deemed to have occurred, by 4:00 p.m., New York City time, on the date of such Failed Remarketing, to the Company, the Trustee, the Underwriter and the Paying Agent. In the case of any Failed 21 26 Remarketing, the Company shall redeem the Subordinated Notes in whole, but not in part, within three Business Days following the date such Failed Remarketing occurs or is deemed to occur as provided in Section 3.04. SECTION 10.06. Early Remarketing. If any of the following events (each, a "TRIGGER EVENT") shall have occurred: (a) the Closing Price of the Common Stock on any Trading Day, as determined by the Remarketing Agent, is less than the Trigger Price (a "STOCK PRICE TRIGGER EVENT"); (b) a Cross Default shall have occurred but such Cross Default shall have ceased to be continuing (a "CURED DEFAULT TRIGGER EVENT"); or (c) the Company (i) shall have made a written request to the Underwriter to enter into a firm commitment underwriting of the Common Stock, and the Company and the Underwriter shall have substantially agreed to the terms of such underwriting in the manner described in Section 12 of the Forward Underwriting Agreement or (ii) shall have given notice to accelerate the Commencement Date in the manner described in Section 7 of the Forward Underwriting Agreement (an "UNDERWRITING TRIGGER EVENT"); then a Remarketing shall occur pursuant to Sections 10.02 and, if applicable, Section 10.04, except that: (A) the Expected Reset Date shall be the sixth Business Day following the date such Trigger Event first occurs; (B) in the case of a Stock Price Trigger Event or a Cured Default Trigger Event, the Final Reset Date shall be the 15th day following the date such Trigger Event occurs, or the 20th day in the case of a Renewed Remarketing to which the provisions of Section 10.04 apply, but in no event later than the third scheduled Trading Day prior to November 10, 1999; (C) in the case of an Underwriting Trigger Event, the Final Reset Date shall be the 45th day following the date such Trigger Event occurs, but in no event later than the third scheduled Trading Day prior to November 10, 1999; and (D) notwithstanding the provisions of clauses (A), (B) and (C) above, if a Reset Date has already been established or a Remarketing has already taken place at the time such Trigger Event occurs, the Remarketing shall occur on such established Reset Date or settled on the corresponding Remarketing Settlement Date. 22 27 ARTICLE 11 EVENTS OF DEFAULT; ACCELERATION SECTION 11.01. Events of Default. A Senior Bank Debt Acceleration shall be an Event of Default under Section 6.01(h) of the Base Indenture. SECTION 11.02. Acceleration. Notwithstanding the provisions of Section 6.02 of the Base Indenture, if a Senior Bank Debt Acceleration shall occur, the principal of, and any accrued interest on, all the Subordinated Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders of Subordinated Notes. ARTICLE 12 MISCELLANEOUS SECTION 12.01. Ratification of Base Indenture; First Supplemental Indenture Controls. The Base Indenture, as supplemented by this First Supplemental Indenture, is in all respects ratified and confirmed, and this First Supplemental Indenture shall be deemed part of the Base Indenture in the manner and to the extent herein and therein provided. The provisions of this First Supplemental Indenture shall supersede the provisions of the Base Indenture to the extent the Base Indenture is inconsistent herewith. SECTION 12.02. Trustee Not Responsible for Recitals. The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this First Supplemental Indenture. SECTION 12.03. Governing Law. This First Supplemental Indenture and each Subordinated Note shall be governed by and construed in accordance with the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to its principles of conflicts of laws. SECTION 12.04. Severability. If any provision in the Base Indenture, this First Supplemental Indenture or in the Subordinated Notes shall be invalid, illegal 23 28 or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 12.05. Counterparts. The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this First Supplemental Indenture. 24 29 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written. HERCULES INCORPORATED By /s/ R. K. Elliott Name: R. K. Elliott Title: Chairman and Co-Chief Executive Officer THE CHASE MANHATTAN BANK, as Trustee By /s/ J D Heaney Name: James D. Heaney Title: Vice President 25 30 EXHIBIT A-1 [FORM OF SUBORDINATED NOTE] THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY EXCEPT (A) TO HERCULES INCORPORATED OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT OR (C) TO A SECONDARY PURCHASER (AS DEFINED IN THE AMENDED AND RESTATED TRUST AGREEMENT OF HERCULES TRUST V DATED AS OF NOVEMBER 12, 1998 (AS AMENDED FROM TIME TO TIME, THE "TRUST AGREEMENT")) THAT HAS ENTERED INTO A SECONDARY PURCHASE AGREEMENT (AS DEFINED IN THE TRUST AGREEMENT) WITH THE TRUST, (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND AND (4) AGREES WITH RESPECT TO ANY TRANSFER OCCURRING PRIOR TO THE REMARKETING DATE ON WHICH REPLACEMENT NOTES ARE ISSUED TO ANY PERSON OTHER THAN THE PROPERTY TRUSTEE, TO PROVIDE TO THE INDENTURE TRUSTEE A DULY EXECUTED CERTIFICATE SUBSTANTIALLY TO THE EFFECT OF CLAUSES (1), (2) AND (3), ABOVE. AT THE REQUEST OF THE HOLDER, THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO THE SALE OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT. FROM AND AFTER THE REMARKETING SETTLEMENT DATE ON WHICH REPLACEMENT NOTES ARE ISSUED TO ANY PERSON OTHER THAN THE PROPERTY TRUSTEE, THIS CERTIFICATE SHALL REPRESENT ONLY THE RIGHT TO RECEIVE THE REMARKETING PRICE, AS PROVIDED IN THE TRUST AGREEMENT, AND SHALL NO LONGER REPRESENT AN OBLIGATION OF THE COMPANY. A1-1 31 THIS SECURITY WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE AND YIELD TO MATURITY WILL BE PROMPTLY MADE AVAILABLE UPON REQUEST TO THE VICE PRESIDENT - TAXES (AT (302) 594-5887) OR THE SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (AT (302) 594-5175), HERCULES INCORPORATED, HERCULES PLAZA, 1313 NORTH MARKET STREET, WILMINGTON, DE 19894-0001. A1-2 32 No. CUSIP NO. HERCULES INCORPORATED AUCTION RATE RESET JUNIOR SUBORDINATED NOTE SERIES A Hercules Incorporated, a Delaware corporation (the "COMPANY", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay the principal sum of _________ Dollars ($ ) on November 10, 1999, or such other date as may be provided pursuant to the terms of the Indenture. (a) Interest on the principal amount of this Subordinated Note will accrue and be payable at a rate (the "INTEREST RATE") per annum equal to (i) from and including the date of issuance to but excluding the date on which the principal amount of this Subordinated Note becomes due upon the maturity, acceleration or redemption thereof, LIBOR plus 175 basis points, compounded quarterly; (ii) except as provided in clause (iii) below, from and including the Remarketing Settlement Date on which Replacement Notes are issued to but excluding the date on which the principal amount of the Subordinated Notes becomes due upon the maturity, acceleration or redemption thereof, the Winning Bid Rate, compounded quarterly; and (iii) if the Company fails to pay the principal amount due upon the maturity, acceleration or redemption of this Subordinated Notes on the date such amount becomes due (other than as a result of an acceleration pursuant to Section 6.01(e) or (f) of the Base Indenture), from and including such due date to but excluding the date of actual payment by the Company, the Default Rate, compounded quarterly. Interest that is not paid when due will bear additional interest thereon compounded quarterly at the applicable periodic Interest Rate (to the extent permitted by applicable law). The term "INTEREST", as used herein, includes any such additional interest and Additional Interest unless otherwise stated. A1-3 33 (b) Until the Remarketing Settlement Date on which Replacement Notes are issued, interest on this Subordinated Note will be cumulative, will be payable quarterly in arrears on February 12, May 12, August 12 and November 12 of each year, commencing February 12, 1999, and on such Remarketing Settlement Date (each, a "PRE-REMARKETING INTEREST PAYMENT DATE"), will accumulate from and including the most recent date to which interest has been paid or, if no interest has been paid, from November 12, 1998, to but excluding the related Pre-Remarketing Interest Payment Date, except as otherwise described below. The Interest Rate in effect for the period from and including November 12, 1998 to but excluding February 12, 1999 shall be the rate determined by the Calculation Agent two London Banking Days prior to November 12, 1998 and shall equal LIBOR plus 175 basis points. The Interest Rate in effect thereafter, for each quarterly period from and including the immediately preceding Pre-Remarketing Interest Payment Date to but excluding the applicable Pre-Remarketing Interest Payment Date, shall be determined by the Calculation Agent two London Banking Days prior to such immediately preceding Pre-Remarketing Interest Payment Date and shall equal LIBOR plus 175 basis points. The amount of interest payable for any quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the last sentence of this paragraph, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed will be computed on the basis of the actual number of days elapsed per 30-day month. If a Pre-Remarketing Interest Payment Date is not a Business Day, then such Pre-Remarketing Interest Payment Date will be the next succeeding Business Day, except if such Business Day is in the next succeeding calendar month, such Pre-Remarketing Interest Payment Date will be the immediately preceding Business Day. As used herein, "LONDON BANKING DAY" means any day on which dealings in deposits in U.S. Dollars are transacted in the London interbank market. (c) From and including the Remarketing Settlement Date on which Replacement Notes are issued, interest on the Replacement Notes will be cumulative, will be payable quarterly in arrears on February 12, May 12, August 12 and November 12 of each year, commencing on the Remarketing Settlement Date, and on the Maturity Date (each, an "INTEREST PAYMENT DATE"), will accumulate from the most recent date to which interest has been paid or, if no interest has been paid, from and including the Remarketing Settlement Date, to but excluding the related Interest Payment Date, except as otherwise described below. The amount of interest payable for any quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the last sentence of this paragraph, the amount of interest payable for any period A1-4 34 shorter than a full quarterly period for which interest is computed will be computed on the basis of the actual number of days elapsed per 30-day month. If an Interest Payment Date is not a Business Day, then such Interest Payment Date will be the next succeeding Business Day, except if such Business Day is in the next succeeding calendar month, such Interest Payment Date will be the immediately preceding Business Day. (d) Interest shall be paid to the Person in whose name this Subordinated Note or any predecessor Subordinated Note is registered on the books and records of the Company at the close of business on the Regular Record Date for such interest installment, which shall be fifteen (15) days prior to a Pre-Remarketing Interest Payment Date (the "PRE-REMARKETING REGULAR RECORD DATE"). Notwithstanding the foregoing, so long as the Holder of this Subordinated Note is the Property Trustee, the payment of the principal of (and premium, if any) and interest on this Subordinated Note will be made at such place and to such account as may be designated by the Property Trustee. The indebtedness evidenced by this Subordinated Note is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all existing and future Senior Indebtedness, and this Subordinated Note is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Subordinated Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Subordinated Note shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Subordinated Note are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. A1-5 35 IN WITNESS WHEREOF, the Company has caused this instrument to be executed. HERCULES INCORPORATED By: Name: Title Attest: By: Name: Title: A1-6 36 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Subordinated Notes of the series of Debentures described in the within-mentioned Indenture. Dated: THE CHASE MANHATTAN BANK, as Trustee or as Authentication Agent By By Authorized Signatory Authorized Signatory A1-7 37 [FORM OF REVERSE OF NOTE] This Subordinated Note is one of a duly authorized series of Debentures of the Company (herein sometimes referred to as the "DEBENTURES"), specified in the Indenture, all issued or to be issued in one or more series under and pursuant to a Junior Subordinated Debenture Indenture dated as of November 12, 1998, duly executed and delivered between the Company and The Chase Manhattan Bank, as Trustee (the "TRUSTEE"), as supplemented by the First Supplemental Indenture dated as of November 12, 1998, between the Company and the Trustee (the Indenture as so supplemented, the "INDENTURE"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Subordinated Notes. By the terms of the Indenture, the Debentures are issuable thereunder in series that may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Indenture. This series of Debentures is limited in aggregate principal amount as specified in said First Supplemental Indenture and herein sometimes referred to as the "SUBORDINATED NOTES." Because of the occurrence and continuation of a Special Event or a Failed Remarketing, in certain circumstances, this Subordinated Note may become due and payable at the principal amount together with any interest accrued thereon (the "REDEMPTION PRICE"). The Redemption Price shall be paid prior to 12:00 noon, New York City time, on the date of such redemption or at such earlier time as the Company determines. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Subordinated Notes may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of at least a majority in aggregate principal amount of the Debentures of each series affected thereby then outstanding (and, in the case of any series of Debentures held as assets of a Trust and with respect to which a Dissolution Event has not theretofore occurred, such consent of holders of the Preferred Securities and the Common Securities of such Trust as may be required under the Trust Agreement), as defined in the Indenture, to reduce the principal amount of such Debentures; reduce the percentage of the principal amount of such Debentures the Holders of which must consent to an amendment of this Indenture or a waiver; change (i) the stated maturity of the principal of or the interest on such Debentures, or (ii) the rate of interest (or the manner of calculation thereof) on such Debentures, change adversely to the A1-8 38 Holders the redemption, conversion or exchange provisions applicable to such Debentures, if any; change the currency in respect of which the payments on such Debentures are to be made; make any change in the Subordination provisions of the Indenture (Article 10) that adversely affects the rights of the Holders of the Debentures or any change to any other Section hereof that adversely affects their rights; or change the direct action rights of holders of Preferred Securities; provided that, in the case of the outstanding Debentures of a series then held by a Trust, no such amendment shall be made that adversely affects the holders of the Preferred Securities of that Trust, and no waiver of any Event of Default with respect to the Debentures of that series or compliance with any covenant under this Indenture shall be effective, without the prior consent of the holders of at least a majority of the aggregate liquidation amount of the outstanding Preferred Securities of that Trust or the holder of each such Preferred Security, as applicable. A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture that has expressly been included solely for the benefit of one or more particular series of Debentures, or which modifies the rights of the Holders of Debentures 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 Debentures of any other series. No reference herein to the Indenture and no provision of this Subordinated Note 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, if any, and interest on this Subordinated Note at the time and place and at the rate or rates and in the currency herein prescribed. As provided in the Indenture and subject to certain limitations herein and therein set forth, this Subordinated Note is transferable by the registered Holder hereof on the Register of the Company, upon surrender of this Subordinated Note for registration of transfer at the office or agency of the Trustee in the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Subordinated Notes of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Subordinated Note, the Company, the Trustee, any paying agent and the Registrar may deem A1-9 39 and treat the registered holder hereof as the absolute owner hereof (whether or not this Subordinated Note shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Subordinated Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, 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 issuance hereof, expressly waived and released. The Subordinated Notes of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple of $1,000 thereof. The Subordinated Notes may be transferred or exchanged only in minimum denominations of $100,000 and integral multiples of $1,000 in excess thereof, and any attempted transfer, sale or other disposition of Subordinated Notes in a denomination of less than $100,000 shall be deemed void and of no legal effect whatsoever. All terms used in this Subordinated Note that are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INDENTURE AND THE DEBENTURES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. A1-10 40 EXHIBIT A-2 [FORM OF REPLACEMENT NOTE] IF THE NOTE IS TO BE A GLOBAL NOTE, INSERT THE FOLLOWING--This Note is a Book-Entry Note within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depository or a nominee of a Depository. This Note is exchangeable for Subordinated Notes registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Indenture, and no transfer of this Note (other than a transfer of this Note 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) may be registered except in limited circumstances. Unless this Note is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any Note issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY EXCEPT (A) TO HERCULES INCORPORATED OR ANY SUBSIDIARY THEREOF OR (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AT THE REQUEST OF THE HOLDER, THIS LEGEND A2-1 41 WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO THE SALE OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT AND (4) AGREES WITH RESPECT TO ANY TRANSFER OCCURRING PRIOR TO THE REMARKETING DATE ON WHICH REPLACEMENT NOTES ARE ISSUED, TO PROVIDE TO THE INDENTURE TRUSTEE A DULY EXECUTED CERTIFICATE SUBSTANTIALLY TO THE EFFECT OF CLAUSES (1), (2) AND (3), ABOVE. THIS SECURITY WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE, AND YIELD TO MATURITY WILL BE PROMPTLY MADE AVAILABLE UPON REQUEST TO THE VICE PRESIDENT - TAXES (AT (302) 594-5887) OR THE SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (AT (302) 594-5175), HERCULES INCORPORATED, HERCULES PLAZA, 1313 NORTH MARKET STREET, WILMINGTON, DE 19894-0001. A2-2 42 No. CUSIP NO. HERCULES INCORPORATED AUCTION RATE RESET JUNIOR SUBORDINATED NOTE SERIES A REPLACEMENT NOTE Hercules Incorporated, a Delaware corporation (the "COMPANY", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay the principal sum of _________ Dollars ($ ) on the Maturity Date or such earlier date as may be provided pursuant to the terms of the Indenture. Interest on the principal amount of this Subordinated Note will accrue and be payable at a rate (the "INTEREST RATE") per annum equal to (i) from and including the date of issuance to but excluding the date such principal amount is paid, the Winning Bid Rate, compounded quarterly; and (ii) notwithstanding clause (i) above, if the Company fails to pay the principal amount on the date such amount becomes due, then from and including such due date to but excluding the date such principal amount is paid, the Default Rate, compounded quarterly, but only to the extent permitted by applicable law. Interest that is not paid when due will bear additional interest thereon compounded quarterly at the applicable periodic Interest Rate specified above (to the extent permitted by applicable law). The term "INTEREST", as used herein, includes any such additional interest and Additional Interest unless otherwise stated. From and including the date of issuance, interest on this Replacement Note will be cumulative, will be payable quarterly in arrears on February 12, May 12, August 12 and November 12 of each year, commencing on the Remarketing Settlement Date, and on the Maturity Date (each, an "INTEREST PAYMENT DATE"), will accumulate from the most recent date to which interest has been paid or, if no interest has been paid, from and including the date of issuance, to but excluding the related Interest Payment Date, except as otherwise described below. The amount of interest payable for any quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the last sentence of this paragraph, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed will be computed on the basis of the actual number of days elapsed per 30-day month. If an Interest Payment Date is not a Business Day, then such Interest Payment Date will be the next succeeding Business Day, except if such Business Day is in the next A2-3 43 succeeding calendar month, such Interest Payment Date will be the immediately preceding Business Day. Interest shall be paid to the Person in whose name the Subordinated Note or any predecessor Subordinated Note is registered on the books and records of the Company at the close of business on the Regular Record Date for such interest installment, which, in respect of (iii) Subordinated Notes of which the Property Trustee is the Holder and the related Preferred Securities are in book-entry only form or (iv) a Global Subordinated Note, shall be the close of business on the Business Day next preceding that Interest Payment Date (the "REGULAR RECORD DATE"). If the Subordinated Notes are not represented by a Global Subordinated Note, the Regular Record Date for such interest installment shall be fifteen (15) days prior to an Interest Payment Date. Notwithstanding the foregoing, so long as the Holder of this Subordinated Note is the Property Trustee, the payment of the principal of (and premium, if any) and interest on this Subordinated Note will be made at such place and to such account as may be designated by the Property Trustee. The indebtedness evidenced by this Subordinated Note is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all existing and future Senior Indebtedness, and this Subordinated Note is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Subordinated Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Subordinated Note shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Subordinated Note are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. A2-4 44 IN WITNESS WHEREOF, the Company has caused this instrument to be executed. HERCULES INCORPORATED By: Name: Title Attest: By: Name: Title: A2-5 45 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Subordinated Notes of the series of Debentures described in the within-mentioned Indenture. Dated: THE CHASE MANHATTAN BANK, as Trustee or as Authentication Agent By By Authorized Signatory Authorized Signatory A2-6 46 [FORM OF REVERSE OF NOTE] This Subordinated Note is one of a duly authorized series of Debentures of the Company (herein sometimes referred to as the "DEBENTURES"), specified in the Indenture, all issued or to be issued in one or more series under and pursuant to a Junior Subordinated Debenture Indenture dated as of November 12, 1998, duly executed and delivered between the Company and The Chase Manhattan Bank, as Trustee (the "TRUSTEE"), as supplemented by the First Supplemental Indenture dated as of November 12, 1998, between the Company and the Trustee (the Indenture as so supplemented, the "INDENTURE"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Subordinated Notes. By the terms of the Indenture, the Debentures are issuable thereunder in series that may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Indenture. This series of Debentures is limited in aggregate principal amount as specified in said First Supplemental Indenture and herein sometimes referred to as the "SUBORDINATED NOTES." Because of the occurrence and continuation of a Special Event, in certain circumstances, this Subordinated Note may become due and payable at the principal amount together with any interest accrued thereon (the "REDEMPTION PRICE"). The Redemption Price shall be paid prior to 12:00 noon, New York City time, on the date of such redemption or at such earlier time as the Company determines. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Subordinated Notes may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of at least a majority in aggregate principal amount of the Debentures of each series affected thereby then outstanding (and, in the case of any series of Debentures held as assets of a Trust and with respect to which a Dissolution Event has not theretofore occurred, such consent of holders of the Preferred Securities and the Common Securities of such Trust as may be required under the Trust Agreement), as defined in the Indenture, to reduce the principal amount of such Debentures; reduce the percentage of the principal amount of such Debentures the Holders of which must consent to an amendment of this Indenture or a waiver; change (i) the stated maturity of the principal of or the interest on such Debentures, or (ii) the rate of interest (or the manner of calculation thereof) on such Debentures, change adversely to the A2-7 47 Holders the redemption, conversion or exchange provisions applicable to such Debentures, if any; change the currency in respect of which the payments on such Debentures are to be made; make any change in the Subordination provisions of the Indenture (Article 10) that adversely affects the rights of the Holders of the Debentures or any change to any other Section hereof that adversely affects their rights; or change the direct action rights of holders of Preferred Securities; provided that, in the case of the outstanding Debentures of a series then held by a Trust, no such amendment shall be made that adversely affects the holders of the Preferred Securities of that Trust, and no waiver of any Event of Default with respect to the Debentures of that series or compliance with any covenant under this Indenture shall be effective, without the prior consent of the holders of at least a majority of the aggregate liquidation amount of the outstanding Preferred Securities of that Trust or the holder of each such Preferred Security, as applicable. A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture that has expressly been included solely for the benefit of one or more particular series of Debentures, or which modifies the rights of the Holders of Debentures 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 Debentures of any other series. No reference herein to the Indenture and no provision of this Subordinated Note 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, if any, and interest on this Subordinated Note at the time and place and at the rate or rates and in the currency herein prescribed. As provided in the Indenture and subject to certain limitations herein and therein set forth, this Subordinated Note is transferable by the registered Holder hereof on the Register of the Company, upon surrender of this Subordinated Note for registration of transfer at the office or agency of the Trustee in the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Subordinated Notes of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Subordinated Note, the Company, the Trustee, any paying agent and the Registrar may deem A2-8 48 and treat the registered holder hereof as the absolute owner hereof (whether or not this Subordinated Note shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Subordinated Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, 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 issuance hereof, expressly waived and released. The Subordinated Notes of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple of $1,000 thereof. The Subordinated Notes may be transferred or exchanged only in minimum denominations of $100,000 and integral multiples of $1,000 in excess thereof, and any attempted transfer, sale or other disposition of Subordinated Notes in a denomination of less than $100,000 shall be deemed void and of no legal effect whatsoever. This Global Subordinated Note is exchangeable for Subordinated Notes in definitive form only under certain limited circumstances set forth in the Indenture. All terms used in this Subordinated Note that are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INDENTURE AND THE DEBENTURES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. A2-9 EX-4.E 4 PREFERRED SECURITIES GUARANTEE AGREEMENT 1 Exhibit 4-E EXECUTION COPY PREFERRED SECURITIES GUARANTEE AGREEMENT HERCULES INCORPORATED Dated as of November 12, 1998 HERCULES TRUST V 2 TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS AND INTERPRETATION SECTION 1.01. Definitions and Interpretation...................................................2 ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. Trust Indenture Act; Application.................................................6 SECTION 2.02. Lists of Holders of Securities...................................................6 SECTION 2.03. Reports by the Preferred Securities Guarantee Trustee............................7 SECTION 2.04. Periodic Reports to Preferred Securities Guarantee Trustee........................................................................7 SECTION 2.05. Evidence of Compliance with Conditions Precedent.................................7 SECTION 2.06. Events of Default; Waiver........................................................7 SECTION 2.07. Event of Default; Notice.........................................................8 SECTION 2.08. Conflicting Interests............................................................8 ARTICLE 3 POWERS, DUTIES AND RIGHTS OF PREFERRED SECURITIES GUARANTEE TRUSTEE SECTION 3.01. Powers and Duties of the Preferred Securities Guarantee Trustee........................................................................8 SECTION 3.02. Certain Rights of Preferred Securities Guarantee Trustee........................10 SECTION 3.03. Not Responsible for Recitals or Issuance of Preferred Securities Guarantee..........................................................13 ARTICLE 4 PREFERRED SECURITIES GUARANTEE TRUSTEE SECTION 4.01. Preferred Securities Guarantee Trustee; Eligibility.............................13 SECTION 4.02. Appointment, Removal and Resignation of Preferred Securities Guarantee Trustee..................................................14 ARTICLE 5 GUARANTEE SECTION 5.01. Guarantee.......................................................................15 SECTION 5.02. Waiver of Notice and Demand.....................................................15
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PAGE SECTION 5.03. Obligations Not Affected........................................................16 SECTION 5.04. Rights of Holders...............................................................16 SECTION 5.05. Guarantee of Payment............................................................17 SECTION 5.06. Subrogation.....................................................................17 SECTION 5.07. Independent Obligations.........................................................17 ARTICLE 6 LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.01. Limitation of Transactions......................................................17 SECTION 6.02. Ranking.........................................................................18 ARTICLE 7 TERMINATION SECTION 7.01. Termination.....................................................................19 ARTICLE 8 EXCULPATION AND INDEMNIFICATION SECTION 8.01. Exculpation.....................................................................19 SECTION 8.02. Indemnification.................................................................19 ARTICLE 9 COMPENSATION SECTION 9.01. Compensation....................................................................20 ARTICLE 10 MISCELLANEOUS SECTION 10.01. Successors and Assigns.........................................................21 SECTION 10.02. Amendments.....................................................................21 SECTION 10.03. Notices........................................................................21 SECTION 10.04. Benefit........................................................................22 SECTION 10.05. Governing Law..................................................................23
ii 4 PREFERRED SECURITIES GUARANTEE AGREEMENT THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (the "PREFERRED SECURITIES GUARANTEE"), dated as of November 12, 1998, is executed and delivered by Hercules Incorporated, a Delaware corporation (the "GUARANTOR"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (the "PREFERRED SECURITIES GUARANTEE TRUSTEE"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of Hercules Trust V, a statutory business trust formed under the laws of the State of Delaware (the "ISSUER"). WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "TRUST AGREEMENT"), dated as of November 12, 1998, among the Trustees of the Issuer, the Guarantor, as sponsor, and the Holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing on the date hereof 200,000 Auction Rate Reset Preferred Securities, having an aggregate Liquidation Amount of $200,000,000 (collectively, the "PREFERRED SECURITIES"). WHEREAS, as an incentive for the Holders to purchase the Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Preferred Securities Guarantee, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "COMMON SECURITIES GUARANTEE") with substantially identical terms to this Preferred Securities Guarantee, for the benefit of the holders of the Common Securities (as defined herein), except that if an event of default under the Trust Agreement has occurred and is continuing, the rights of holders of the Common Securities to receive Guarantee Payments under the Common Securities Guarantee are subordinated, to the extent and in the manner set forth in the Common Securities Guarantee, to the rights of Holders of Preferred Securities to receive Guarantee Payments under this Preferred Securities Guarantee. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby acknowledges shall benefit the Guarantor, the Guarantor executes and delivers this Preferred Securities Guarantee for the benefit of the Holders. 5 ARTICLE 1 DEFINITIONS AND INTERPRETATION SECTION 1.01. Definitions and Interpretation. In this Preferred Securities Guarantee, unless the context otherwise requires: (a) capitalized terms used in this Preferred Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; (b) terms defined in the Trust Agreement as of the date of execution of this Preferred Securities Guarantee have the same meaning when used in this Preferred Securities Guarantee unless otherwise defined in this Preferred Securities Guarantee; (c) a term defined anywhere in this Preferred Securities Guarantee has the same meaning throughout; (d) all references to "THE PREFERRED SECURITIES GUARANTEE" or "THIS PREFERRED SECURITIES GUARANTEE" are to this Preferred Securities Guarantee as modified, supplemented or amended from time to time; (e) all references in this Preferred Securities Guarantee to Articles and Sections are to Articles and Sections of this Preferred Securities Guarantee, unless otherwise specified; (f) a term defined in the Trust Indenture Act has the same meaning when used in this Preferred Securities Guarantee, unless otherwise defined in this Preferred Securities Guarantee or unless the context otherwise requires; and (g) a reference to the singular includes the plural and vice versa. "AFFILIATE" has the same meaning as given to that term in Rule 405 under the Securities Act of 1933, as amended, or any successor rule thereunder. "BUSINESS DAY" means any day other than a Saturday or a Sunday, or a day on which banking institutions in The City of New York or Wilmington, Delaware are authorized or required by law, regulation or executive order to close and, until the Remarketing Settlement Date on which Replacement Securities are issued, that is also a London Banking Day. 2 6 "COMMON SECURITIES" means the securities representing common undivided beneficial interests in the assets of the Issuer. "CORPORATE TRUST OFFICE" means the office of the Preferred Securities Guarantee Trustee for the conduct of corporate trust business at which matters related to this Preferred Securities Guarantee shall, at any particular time, be principally administered, which office at the date of execution of this Preferred Securities Guarantee is located at One Liberty Place, 52nd Floor, 1650 Market Street, Philadelphia, Pennsylvania 19103. "COVERED PERSON" means any Holder or beneficial owner of Preferred Securities. "EVENT OF DEFAULT" means (i) a default by the Guarantor in respect of any of its payment or other obligations under this Preferred Securities Guarantee or (ii) if applicable, the failure of the Guarantor to deliver the required securities upon an appropriate election by any Holder of Preferred Securities to convert such Preferred Securities into such securities in accordance with their terms. "GUARANTEE PAYMENTS" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Issuer: (i) any accumulated and unpaid Distributions that are required to be paid on such Preferred Securities, to the extent the Issuer has funds legally available therefor at such time, (ii) the redemption price (including the Mandatory Redemption Price), including all accumulated and unpaid Distributions to the date of redemption (the "REDEMPTION PRICE"), to the extent the Issuer has funds legally available therefor at such time, with respect to any Preferred Securities called for redemption by the Issuer, and (iii) upon a voluntary or involuntary dissolution and liquidation of the Issuer (other than in connection with the distribution of the Subordinated Notes to Holders of the Preferred Securities or the redemption of the Preferred Securities as provided in the Trust Agreement, the lesser of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid Distributions on the Preferred Securities to the date of payment, to the extent the Issuer has funds legally available therefor at such time, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the "LIQUIDATION DISTRIBUTION"). If an event of default under the Trust Agreement has occurred and is continuing, no Guarantee Payments under the Common Securities Guarantee with respect to the Common Securities or any guarantee payment under any Other Common Securities Guarantees shall be made until the Holders of Preferred Securities shall be paid in full the Guarantee Payments to which they are entitled under this Preferred Securities Guarantee. 3 7 "HOLDER" shall mean any holder, as registered on the books and records of the Issuer, of any Preferred Securities; provided, however, that, in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "HOLDER" shall not include the Guarantor or any Affiliate of the Guarantor. "INDEMNIFIED PERSON" means the Preferred Securities Guarantee Trustee, any Affiliate of the Preferred Securities Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Preferred Securities Guarantee Trustee. "INDENTURE" means the Junior Subordinated Debenture Indenture dated as of November 12, 1998, between the Hercules Incorporated, as Issuer (the "DEBENTURE ISSUER"), and The Chase Manhattan Bank, as Trustee, as supplemented by the First Supplemental Indenture dated as of November 12, 1998, pursuant to which the Subordinated Notes are to be issued to the Property Trustee of the Issuer. "LIQUIDATION AMOUNT" means $1000 per Preferred Security. "LIST OF HOLDERS" has the meaning set forth in Section 2.02. "LONDON BANKING DAY" means any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market. "MAJORITY IN LIQUIDATION AMOUNT OF THE PREFERRED SECURITIES" means, except as provided by the Trust Indenture Act, a vote by Holder(s) of Preferred Securities, voting separately as a class, of more than 50% of the aggregate Liquidation Amount (including the amount payable on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all Preferred Securities. "OFFICERS' CERTIFICATE" means, with respect to any person, a certificate signed by either Co-Chief Executive Officer, the President or a Vice President, and by the Treasurer, the Secretary or an Assistant Secretary of the Guarantor. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Securities Guarantee shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; and 4 8 (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "OTHER COMMON SECURITIES GUARANTEES" shall have the same meaning as "OTHER GUARANTEES" in the Common Securities Guarantee. "OTHER DEBENTURES" means all junior subordinated debentures issued by the Guarantor from time to time and sold to trusts established by the Guarantor, in each case similar to the Issuer. "OTHER GUARANTEES" means all guarantees issued by the Guarantor with respect to preferred securities similar to the Preferred Securities issued by other trusts established by the Guarantor, in each case similar to the Issuer. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PREFERRED SECURITIES GUARANTEE TRUSTEE" means The Chase Manhattan Bank, a New York banking corporation, until a Successor Preferred Securities Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Preferred Securities Guarantee and thereafter means each such Successor Preferred Securities Guarantee Trustee. "RESPONSIBLE OFFICER" means, with respect to the Preferred Securities Guarantee Trustee, any officer within the Corporate Trust Office of the Preferred Securities Guarantee Trustee, including any vice-president, any assistant vice-president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Preferred Securities Guarantee 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 of the Preferred Securities Guarantee Trustee to whom 5 9 such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "SUBORDINATED NOTES" means the series of junior subordinated debt securities of the Guarantor designated the Auction Rate Reset Junior Subordinated Notes Series A, of the Issuer held by the Property Trustee. "SUCCESSOR PREFERRED SECURITIES GUARANTEE TRUSTEE" means a successor Preferred Securities Guarantee Trustee possessing the qualifications to act as Preferred Securities Guarantee Trustee under Section 4.01. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended. "TRUST SECURITIES" means, collectively, the Common Securities and the Preferred Securities. ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. Trust Indenture Act; Application. (a) This Preferred Securities Guarantee is subject to the provisions of the Trust Indenture Act that are required to be part of this Preferred Securities Guarantee and shall, to the extent applicable, be governed by such provisions. (b) If and to the extent that any provision of this Preferred Securities Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 2.02. Lists of Holders of Securities. (a) The Guarantor shall provide the Preferred Securities Guarantee Trustee (unless the Preferred Securities Guarantee Trustee is otherwise the registrar of the Preferred Securities) with a list, in such form as the Preferred Securities Guarantee Trustee may reasonably require, of the names and addresses of the Holders of the Preferred Securities ("LIST OF HOLDERS"), (i) within 14 days after each record date for payment of Distributions, as of such record date and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Preferred Securities Guarantee Trustee, provided that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most 6 10 recent List of Holders given to the Preferred Securities Guarantee Trustee by the Guarantor. The Preferred Securities Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Preferred Securities Guarantee Trustee shall comply with the obligations set forth under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.03. Reports by the Preferred Securities Guarantee Trustee. Within 60 days after September 1 of each year, commencing September 1, 1999, the Preferred Securities Guarantee Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Preferred Securities Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.04. Periodic Reports to Preferred Securities Guarantee Trustee. The Guarantor shall provide to the Preferred Securities Guarantee Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Preferred Securities Guarantee Trustee is for informational purposes only and the Preferred Securities Guarantee Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Guarantor's compliance with any of its covenants hereunder (as to which the Preferred Securities Guarantee Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 2.05. Evidence of Compliance with Conditions Precedent. The Guarantor shall provide to the Preferred Securities Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Preferred Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.06. Events of Default; Waiver. The Holders of a Majority in Liquidation Amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, 7 11 for every purpose of this Preferred Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.07. Event of Default; Notice. (a) The Preferred Securities Guarantee Trustee shall, within 90 days after the occurrence of a default with respect to this Preferred Securities Guarantee, mail by first class postage prepaid, to all Holders of the Preferred Securities, notices of all defaults actually known to a Responsible Officer of the Preferred Securities Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, that, except in the case of default in the payment of any Guarantee Payment, the Preferred Securities Guarantee Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers of the Preferred Securities Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Preferred Securities. (b) The Preferred Securities Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Preferred Securities Guarantee Trustee shall have received written notice or a Responsible Officer of the Preferred Securities Guarantee Trustee shall have obtained actual knowledge of such Event of Default. SECTION 2.08. Conflicting Interests. The Indenture shall be deemed to be specifically described in this Preferred Securities Guarantee for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE 3 POWERS, DUTIES AND RIGHTS OF PREFERRED SECURITIES GUARANTEE TRUSTEE SECTION 3.01. Powers and Duties of the Preferred Securities Guarantee Trustee. (a) This Preferred Securities Guarantee shall be held by the Preferred Securities Guarantee Trustee for the benefit of the Holders of the Preferred Securities, and the Preferred Securities Guarantee Trustee shall not transfer this Preferred Securities Guarantee to any Person except a Holder of Preferred Securities exercising his or her rights pursuant to Section 5.04(b) or to a Successor Preferred Securities Guarantee Trustee on acceptance by such Successor Preferred Securities Guarantee Trustee of its appointment to act as Successor Preferred Securities Guarantee Trustee. The right, title and interest of 8 12 the Preferred Securities Guarantee Trustee shall automatically vest in any Successor Preferred Securities Guarantee Trustee, and such vesting and succession of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Preferred Securities Guarantee Trustee. (b) If an Event of Default actually known to a Responsible Officer of the Preferred Securities Guarantee Trustee has occurred and is continuing, the Preferred Securities Guarantee Trustee shall enforce this Preferred Securities Guarantee for the benefit of the Holders of the Preferred Securities. In such event, any moneys collected shall first be paid to the Preferred Securities Guarantee Trustee for amounts due under Section 8.03 and then to the Holders of the Preferred Securities. (c) The Preferred Securities Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Preferred Securities Guarantee, and no implied covenants shall be read into this Preferred Securities Guarantee against the Preferred Securities Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06) and is actually known to a Responsible Officer of the Preferred Securities Guarantee Trustee, the Preferred Securities Guarantee Trustee shall exercise such of the rights and powers vested in it by this Preferred Securities Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Preferred Securities Guarantee shall be construed to relieve the Preferred Securities Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, its own bad faith or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Preferred Securities Guarantee Trustee shall be determined solely by the express provisions of this Preferred Securities Guarantee, and the Preferred Securities Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Preferred Securities Guarantee, and no implied covenants or obligations shall be read into this Preferred Securities Guarantee against the Preferred Securities Guarantee Trustee; and 9 13 (B) in the absence of bad faith on the part of the Preferred Securities Guarantee Trustee, the Preferred Securities Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Preferred Securities Guarantee Trustee and conforming to the requirements of this Preferred Securities Guarantee; provided, however, that in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Securities Guarantee Trustee, the Preferred Securities Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Preferred Securities Guarantee (but shall not be required to confirm or investigate the accuracy of mathematical calculations or other facts stated therein); (ii) the Preferred Securities Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Securities Guarantee Trustee, unless it shall be proved that the Preferred Securities Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Preferred Securities Guarantee 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 Liquidation Amount of the Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Securities Guarantee Trustee, or exercising any trust or power conferred upon the Preferred Securities Guarantee Trustee under this Preferred Securities Guarantee; and (iv) no provision of this Preferred Securities Guarantee shall require the Preferred Securities Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Preferred Securities Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Preferred Securities Guarantee or indemnity reasonably satisfactory to the Preferred Securities Guarantee Trustee against such risk or liability is not reasonably assured to it. SECTION 3.02. Certain Rights of Preferred Securities Guarantee Trustee. 10 14 (a) Subject to the provisions of Section 3.01: (i) The Preferred Securities Guarantee Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (ii) Any direction or act of the Guarantor contemplated by this Preferred Securities Guarantee may be sufficiently evidenced by an Officers' Certificate. (iii) Whenever, in the administration of this Preferred Securities Guarantee, the Preferred Securities Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Securities Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor. (iv) The Preferred Securities Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or any continuation statement or any filing under tax or securities laws) or any re-recording, refiling or registration thereof. (v) The Preferred Securities Guarantee Trustee may consult with counsel or other experts of its selection, and the advice or opinion of such counsel and experts with respect to legal matters or advice within the scope of such experts' area of expertise 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 accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Preferred Securities Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Preferred Securities Guarantee from any court of competent jurisdiction. (vi) The Preferred Securities Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Preferred Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Securities 11 15 Guarantee Trustee such security and indemnity, reasonably satisfactory to the Preferred Securities Guarantee Trustee, against the costs, expenses (including reasonable attorneys' fees and expenses and the expenses of the Preferred Securities Guarantee Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Preferred Securities Guarantee Trustee; provided that, nothing contained in this Section 3.02(a)(vi) shall be taken to relieve the Preferred Securities Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by the terms of this Preferred Securities Guarantee. (vii) The Preferred Securities Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Preferred Securities Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (viii) The Preferred Securities Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Preferred Securities Guarantee 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. (ix) Any action taken by the Preferred Securities Guarantee Trustee or its agents hereunder shall bind the Holders of the Preferred Securities, and the signature of the Preferred Securities Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Preferred Securities Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Preferred Securities Guarantee, both of which shall be conclusively evidenced by the Preferred Securities Guarantee Trustee's or its agent's taking such action. (x) Whenever in the administration of this Preferred Securities Guarantee the Preferred Securities Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Preferred Securities Guarantee Trustee (A) may request instructions from the Holders of a Majority in Liquidation Amount of the Preferred Securities, (B) may 12 16 refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (C) shall be protected in conclusively relying on or acting in accordance with such instructions. (xi) Except as otherwise expressly provided by this Preferred Securities Guarantee, the Preferred Securities Guarantee Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Preferred Securities Guarantee Agreement. (xii) The Preferred Securities Guarantee Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith, without negligence, and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Preferred Securities Guarantee. (b) No provision of this Preferred Securities Guarantee shall be deemed to impose any duty or obligation on the Preferred Securities Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Preferred Securities Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Preferred Securities Guarantee Trustee shall be construed to be a duty. SECTION 3.03. Not Responsible for Recitals or Issuance of Preferred Securities Guarantee. The recitals contained in this Preferred Securities Guarantee shall be taken as the statements of the Guarantor, and the Preferred Securities Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Securities Guarantee Trustee makes no representation as to the validity or sufficiency of this Preferred Securities Guarantee. ARTICLE 4 PREFERRED SECURITIES GUARANTEE TRUSTEE SECTION 4.01. Preferred Securities Guarantee Trustee; Eligibility. (a) There shall at all times be a Preferred Securities Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and 13 17 (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.01(a)(ii), 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. (b) If at any time the Preferred Securities Guarantee Trustee shall cease to be eligible to so act under Section 4.01(a), the Preferred Securities Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 310(b) of the Trust Indenture. (c) If the Preferred Securities Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Securities Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.02. Appointment, Removal and Resignation of Preferred Securities Guarantee Trustee. (a) Subject to Section 4.02, the Preferred Securities Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor except during the occurrence and continuance of an Event of Default. (b) The Preferred Securities Guarantee Trustee shall not be removed in accordance with Section 4.02(a) until a Successor Preferred Securities Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Securities Guarantee Trustee and delivered to the Guarantor. (c) The Preferred Securities Guarantee Trustee shall hold office until a Successor Preferred Securities Guarantee Trustee shall have been appointed or until its removal or resignation. The Preferred Securities Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Securities Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a 14 18 Successor Preferred Securities Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Preferred Securities Guarantee Trustee and delivered to the Guarantor and the resigning Preferred Securities Guarantee Trustee. (d) If no Successor Preferred Securities Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.02 within 60 days after delivery of an instrument of removal or resignation, the Preferred Securities Guarantee Trustee resigning or being removed may petition any court of competent jurisdiction for appointment of a Successor Preferred Securities Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Preferred Securities Guarantee Trustee. (e) No Preferred Securities Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Preferred Securities Guarantee Trustee. (f) Upon termination of this Preferred Securities Guarantee or removal or resignation of the Preferred Securities Guarantee Trustee pursuant to this Section 4.02, the Guarantor shall pay to the Preferred Securities Guarantee Trustee all amounts due to the Preferred Securities Guarantee Trustee accrued to the date of such termination, removal or resignation. ARTICLE 5 GUARANTEE SECTION 5.01. Guarantee. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. SECTION 5.02. Waiver of Notice and Demand. The Guarantor hereby waives notice of acceptance of this Preferred Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. 15 19 SECTION 5.03. Obligations Not Affected. The obligations, covenants, agreements and duties of the Guarantor under this Preferred Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Issuer; (b) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (c) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (d) any invalidity of, or defect or deficiency in, the Preferred Securities; (e) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (f) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor; it being the intent of this Section 5.03 that the obligations of the Guarantor with respect to the Guarantee Payments shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.04. Rights of Holders. (a) The Holders of a Majority in Liquidation Amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Preferred Securities Guarantee Trustee in respect of this Preferred Securities Guarantee or exercising any trust or power conferred upon the Preferred Securities Guarantee Trustee under this Preferred Securities Guarantee. (b) If the Preferred Securities Guarantee Trustee fails to enforce this Preferred Securities Guarantee, any Holder of Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce the rights of such Holder under this Preferred Securities Guarantee, without first instituting a legal 16 20 proceeding against the Issuer, the Preferred Securities Guarantee Trustee or any other person or entity. The Guarantor waives any right or remedy to require that any action be brought first against the Issuer or any other person or entity before proceeding directly against the Guarantor. Notwithstanding the foregoing, if the Guarantor has failed to make a required Guarantee Payment, a Holder of Preferred Securities may directly institute a proceeding against the Guarantor for enforcement of this Preferred Securities Guarantee for such Guarantee Payment. SECTION 5.05. Guarantee of Payment. This Preferred Securities Guarantee creates a guarantee of payment and not of collection. SECTION 5.06. Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders of Preferred Securities against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Preferred Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Preferred Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Preferred Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.07. Independent Obligations. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (f), inclusive, of Section 5.03 hereof. ARTICLE 6 LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.01. Limitation of Transactions. So long as any Preferred Securities remain outstanding, the Guarantor shall not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation 17 21 payment with respect to, any of the Guarantor's capital stock (which includes common and preferred stock), (ii) make any payment of principal, interest or premium, if any, on or repay or repurchase or redeem any debt securities of the Guarantor (including any Other Debentures) that rank pari passu with or junior in right of payment to the Debentures or (iii) make any guarantee payments with respect to any guarantee by the Guarantor of the debt securities of any subsidiary of the Guarantor (including Other Guarantees) if such guarantee ranks pari passu or junior in right of payment to the Debentures (other than (a) dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, common stock of the Guarantor; (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto; (c) payments under the Preferred Securities Guarantee; (d) as a result of a reclassification of the Guarantor's capital stock or the exchange or the conversion of one class or series of the Guarantor's capital stock for another class or series of the Guarantor's capital stock; (e) the purchase of fractional interests in shares of the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged; and (f) purchases of common stock related to the issuance of common stock or rights under any of the Guarantor's benefit and compensation plans for its directors, officers or employees or any of the Guarantor's dividend reinvestment plans) if at such time (i) there shall have occurred any event of which the Guarantor has actual knowledge that is, or with the giving of notice or the lapse of time, or both, would be an Event of Default or (ii) the Guarantor shall be in default with respect to its payment obligations under this Preferred Securities Guarantee. SECTION 6.02. Ranking. This Preferred Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor except any liabilities (including the Other Guarantees, the Common Securities Guarantee and the Other Common Securities Guarantees) that may be pari passu or junior expressly by their terms, and (ii) senior to the Guarantor's capital stock now or hereafter issued by the Guarantor, if any, and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor. The foregoing subordination shall not apply to amounts payable under Article 8. 18 22 ARTICLE 7 TERMINATION SECTION 7.01. Termination. This Preferred Securities Guarantee shall terminate upon (i) full payment of the Redemption Price of all Preferred Securities, or (ii) liquidation of the Issuer, the full payment of the amounts payable in accordance with the Trust Agreement or the distribution of the Debentures to the Holders of all of the Preferred Securities. Notwithstanding the foregoing, this Preferred Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Preferred Securities must restore payment of any sums paid under the Preferred Securities or under this Preferred Securities Guarantee. ARTICLE 8 EXCULPATION AND INDEMNIFICATION SECTION 8.01. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage, liability, expense or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Preferred Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Preferred Securities Guarantee or by law, except that this provision shall not be deemed to modify Section 3.01(d). (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Preferred Securities might properly be paid. SECTION 8.02. Indemnification. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any and all loss, liability, damage, claim or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or 19 23 administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 8.02 shall survive the termination of this Preferred Securities Guarantee or the resignation or removal of the Preferred Securities Guarantee Trustee. The Preferred Securities Guarantee Trustee will not claim or exact any lien or charge on any Guarantee Payments as a result of any amount due to it under this Preferred Securities Guarantee. ARTICLE 9 COMPENSATION SECTION 9.01. Compensation. The Guarantor agrees: (a) to pay to the Preferred Securities Guarantee Trustee from time to time such compensation as shall be agreed in writing between the Company and the Preferred Securities Guarantee Trustee 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); and (b) to reimburse the Preferred Securities Guarantee Trustee upon its request for reasonable expenses, disbursements and advances incurred or made by the Preferred Securities Guarantee Trustee in accordance with any provision of this Preferred Securities Guarantee (including the reasonable compensation and the expenses and advances of its agents and counsel), except any such expense or advance as may be attributable to its negligence or bad faith. (c) Subject to Section 8.02, the Preferred Securities Guarantee Trustee shall have a claim and lien prior to the Preferred Securities holders as to all property and funds held by it hereunder for any amount owing to it or any predecessor Preferred Securities Guarantee Trustee for fees and expenses pursuant to this Article. 20 24 ARTICLE 10 MISCELLANEOUS SECTION 10.01. Successors and Assigns. All guarantees and agreements contained in this Preferred Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. Except in connection with any merger or consolidation of the Guarantor with or into another entity permitted by the Indenture or any sale, transfer or lease of the Guarantor's assets to another entity permitted by the Indenture, the Guarantor may not assign its rights or delegate its obligations under this Preferred Securities Guarantee. SECTION 10.02. Amendments. Except with respect to any changes that do not materially adversely affect the rights of Holders (in which case no approval of Holders will be required), this Preferred Securities Guarantee may only be amended with the prior approval of the Holders of a Majority in Liquidation Amount of the outstanding Preferred Securities (including the amount payable on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined). The provisions of Section 12.2 of the Trust Agreement with respect to meetings of Holders of the Securities apply to the giving of such approval. Except in connection with any permitted merger or consolidation of the Guarantor with or into another entity or any permitted sale, transfer or lease of the Guarantor's assets to another entity (as described in Article 5 of the Indenture), the Guarantor may not assign its rights or delegate its obligations under the Common Securities Guarantee without the prior approval of the Holders of at least a Majority in Liquidation Amount of the Common Securities then outstanding. SECTION 10.03. Notices. All notices provided for in this Preferred Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) If given to the Issuer, in care of the Administrative Trustee at the Issuer's mailing address set forth below (or such other address as the Issuer may give notice of to the Holders of the Common Securities): Hercules Trust V c/o Hercules Incorporated Hercules Plaza 1313 North Market Street 21 25 Wilmington, Delaware 19894-0001 Attention: Israel J. Floyd Esq. Administrative Trustee Telecopy: (302) 594-7252 (b) If given to the Preferred Securities Guarantee Trustee, at the Preferred Securities Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Securities Guarantee Trustee may give notice of to the Holders of the Preferred Securities): The Chase Manhattan Bank One Liberty Place, 52nd Floor 1650 Market Street Philadelphia, Pennsylvania 19103 Attention: Corporate Trust Department Telecopy: (215) 972-8372 (c) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Preferred Securities): Hercules Incorporated Hercules Plaza 1313 North Market Street Wilmington, Delaware 19894-0001 Attention: Vice President and Treasurer Telecopy: (302) 594-5210 Hercules Incorporated Hercules Plaza 1313 North Market Street Wilmington, Delaware 19894-0001 Attention: Corporate Secretary Telecopy: (302) 594-7252 (d) If given to any Holder of Preferred Securities, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice 22 26 or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 10.04. Benefit. This Preferred Securities Guarantee is solely for the benefit of the Holders of the Preferred Securities and, subject to Section 3.01(a), is not separately transferable from the Preferred Securities. SECTION 10.05. Governing Law. THIS PREFERRED SECURITIES GUARANTEE AND THE RIGHTS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. 23 27 THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and year first above written. HERCULES INCORPORATED, as Guarantor By: /s/ R. K Elliott Name: R. Keith Elliott Title: Chairman and Co-Chief Executive Officer THE CHASE MANHATTAN BANK, as Preferred Securities Guarantee Trustee By: /s/ J D Heaney Name: James D. Heaney Title: Vice President 1 EX-4.F 5 AMENDED AND RESTATED TRUST AGREEMENT 1 Exhibit 4-F EXECUTION COPY AMENDED AND RESTATED TRUST AGREEMENT HERCULES TRUST V Dated as of November 12, 1998 2 TABLE OF CONTENTS
PAGE ARTICLE 1 INTERPRETATION AND DEFINITIONS SECTION 1.01. Definitions......................................................................2 ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. Trust Indenture Act; Application................................................16 SECTION 2.02. Lists of Holders of Securities..................................................16 SECTION 2.03. Reports by the Property Trustee.................................................17 SECTION 2.04. Periodic Reports to Property Trustee............................................17 SECTION 2.05. Evidence of Compliance with Conditions..........................................17 SECTION 2.06. Events of Default; Waiver.......................................................17 SECTION 2.07. Event of Default; Notice........................................................19 ARTICLE 3 ORGANIZATION SECTION 3.01. Name............................................................................20 SECTION 3.02. Office..........................................................................20 SECTION 3.03. Purpose.........................................................................20 SECTION 3.04. Authority.......................................................................20 SECTION 3.05. Title to Property of the Trust..................................................21 SECTION 3.06. Powers and Duties of the Administrative Trustees................................21 SECTION 3.07. Prohibition of Actions by the Trust and the Trustees............................24 SECTION 3.08. Powers and Duties of the Property Trustee.......................................25 SECTION 3.09. Certain Duties and Responsibilities of the Property Trustee.......................................................................28 SECTION 3.10. Certain Rights of Property Trustee..............................................30 SECTION 3.11. Delaware Trustee................................................................33 SECTION 3.12. Execution of Documents..........................................................34 SECTION 3.13. Not Responsible for Recitals or Issuance of Securities..........................34 SECTION 3.14. Duration of Trust...............................................................34 SECTION 3.15. Mergers.........................................................................34
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PAGE ARTICLE 4 SPONSOR SECTION 4.01. Sponsor's Purchase of Common Securities.........................................36 SECTION 4.02. Covenants of the Common Securities Holder.......................................36 SECTION 4.03. Responsibilities of the Sponsor.................................................37 SECTION 4.04. Right to Proceed................................................................37 ARTICLE 5 TRUSTEES SECTION 5.01. Number of Trustees; Appointment of Co-Trustee...................................38 SECTION 5.02. Delaware Trustee................................................................38 SECTION 5.03. Property Trustee; Eligibility...................................................39 SECTION 5.04. Certain Qualifications of Administrative Trustees and Delaware Trustee Generally....................................................40 SECTION 5.05. Administrative Trustees.........................................................40 SECTION 5.06. Delaware Trustee................................................................41 SECTION 5.07. Appointment, Removal and Resignation of Trustees................................41 SECTION 5.08. Vacancies among Trustees........................................................43 SECTION 5.09. Effect of Vacancies.............................................................43 SECTION 5.10. Meetings........................................................................43 SECTION 5.11. Delegation of Power.............................................................44 SECTION 5.12. Merger, Conversion, Consolidation or Succession to Business......................................................................44 SECTION 5.13. Compensation....................................................................44 ARTICLE 6 DISTRIBUTIONS; RESET RATE; REMARKETING; MANDATORY REDEMPTION SECTION 6.01. Distributions...................................................................45 SECTION 6.02. Determination of Reset Date; Remarketing Procedures.............................45 SECTION 6.03. Reset of Distribution Rate and Mandatory Redemption Date..........................................................................48 SECTION 6.04. Renewed Remarketing.............................................................48 SECTION 6.05. Failed Remarketing; Mandatory Redemption........................................48 SECTION 6.06. Early Remarketing...............................................................48 SECTION 6.07. Adjustments to Trigger Price....................................................49
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PAGE ARTICLE 7 ISSUANCE OF SECURITIES SECTION 7.01. General Provisions Regarding Securities.........................................50 SECTION 7.02. Execution and Authentication....................................................50 SECTION 7.03. Form and Dating.................................................................51 SECTION 7.04. Registrar and Paying Agent......................................................53 SECTION 7.05. Paying Agent to Hold Money in Trust.............................................53 SECTION 7.06. Replacement of Securities.......................................................54 SECTION 7.07. Outstanding Preferred Securities................................................54 SECTION 7.08. Preferred Securities in Treasury................................................55 SECTION 7.09. Temporary Securities............................................................55 SECTION 7.10. Cancellation....................................................................55 SECTION 7.11. CUSIP Numbers...................................................................55 ARTICLE 8 DISSOLUTION AND TERMINATION OF TRUST SECTION 8.01. Dissolution and Termination of Trust............................................56 ARTICLE 9 TRANSFER OF INTERESTS SECTION 9.01. Transfer of Securities..........................................................57 SECTION 9.02. Transfer Procedures and Restrictions............................................59 SECTION 9.03. Deemed Security Holders.........................................................62 SECTION 9.04. Book Entry Interests............................................................63 SECTION 9.05. Notices to Depository...........................................................63 SECTION 9.06. Appointment of Successor Depository.............................................64 ARTICLE 10 LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 10.01. Liability......................................................................64 SECTION 10.02. Exculpation....................................................................64 SECTION 10.03. Fiduciary Duty.................................................................65 SECTION 10.04. Indemnification................................................................66 SECTION 10.05. Outside Businesses.............................................................69
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PAGE ARTICLE 11 ACCOUNTING SECTION 11.01. Fiscal Year....................................................................70 SECTION 11.02. Certain Accounting Matters.....................................................70 SECTION 11.03. Banking........................................................................70 SECTION 11.04. Withholding....................................................................71 ARTICLE 12 AMENDMENTS AND MEETINGS SECTION 12.01. Amendments.....................................................................71 SECTION 12.02. Meetings of the Holders of Securities; Action by Written Consent......................................................................73 SECTION 12.03. Power of Attorney..............................................................75 ARTICLE 13 REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE SECTION 13.01. Representations and Warranties of Property Trustee.............................76 SECTION 13.02. Representations and Warranties of Delaware Trustee.............................76 ARTICLE 14 MISCELLANEOUS SECTION 14.01. Notices........................................................................77 SECTION 14.02. Governing Law..................................................................79 SECTION 14.03. Intention of the Parties.......................................................79 SECTION 14.04. Headings.......................................................................79 SECTION 14.05. Successors and Assigns.........................................................79 SECTION 14.06. Partial Enforceability.........................................................79 SECTION 14.07. Counterparts...................................................................79 Annex I Terms of Securities......................................................I-1 Exhibit A-1 Form of Preferred Security Certificate..................................A1-1 Exhibit A-2 Form of Common Security Certificate.....................................A2-1 Exhibit A-3 Form of Replacement Security Certificate................................A3-1 Exhibit B Specimen of Subordinated Note............................................B-1 Exhibit C Purchase Agreement.......................................................C-1 Exhibit D Remarketing Agreement....................................................D-1
iv 6 AMENDED AND RESTATED TRUST AGREEMENT OF HERCULES TRUST V DATED AS OF NOVEMBER 12, 1998 AMENDED AND RESTATED TRUST AGREEMENT (the "AGREEMENT") dated and effective as of November 12, 1998, by the Trustees (as defined herein), the Sponsor (as defined herein) and by the Holders (as defined herein), from time to time, of undivided beneficial interests in the assets of the Trust (as defined herein) to be issued pursuant to this Agreement; WHEREAS, the Trustees and the Sponsor established Hercules Trust V (the "TRUST"), a trust created under the Business Trust Act (as defined herein) pursuant to a Trust Agreement dated as of October 14, 1998 (the "ORIGINAL AGREEMENT"), and a Certificate of Trust filed with the Secretary of State of the State of Delaware on October 14, 1998, for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in certain Subordinated Notes of the Subordinated Note Issuer (each as defined herein) and engaging in only those activities necessary, advisable or incidental thereto; WHEREAS, the parties hereto desire to amend and restate each and every term and provision of the Original Agreement; and NOW, THEREFORE, it being the intention of the parties hereto that the Trust continue as a business trust under the Business Trust Act, that the Original Agreement be amended and restated in its entirety as provided herein and that this Agreement constitute the governing instrument of such business trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the benefit of the Holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Agreement and, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows: 1 7 ARTICLE 1 INTERPRETATION AND DEFINITIONS SECTION 1.01. Definitions. Unless the context otherwise requires: (a) capitalized terms used in this Agreement but not defined in the preamble above or elsewhere herein have the respective meanings assigned to them in this Section 1.01; (b) a term defined anywhere in this Agreement has the same meaning throughout; (c) all references to "THE AGREEMENT" or "THIS AGREEMENT" are to this Amended and Restated Trust Agreement, as amended from time to time, and each Annex and Exhibit hereto, as modified, supplemented or amended from time to time; (d) all references in this Agreement to Articles and Sections and Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to this Agreement unless otherwise specified; (e) a term defined in the Trust Indenture Act (as defined herein) has the same meaning when used in this Agreement unless otherwise defined in this Agreement or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "ADMINISTRATIVE TRUSTEE" has the meaning set forth in Section 5.01. "AFFILIATE" has the same meaning as given to that term in Rule 405 under the Securities Act or any successor rule thereunder. "AGENT" means any Paying Agent or Registrar. "ASSOCIATED PERSON" has the meaning set forth in Article 1(ee) of the ByLaws of the National Association of Securities Dealers, Inc. "AUTHORIZED OFFICER" of a Person means any other Person that is authorized to legally bind such former Person. 2 8 "BID" means an irrevocable offer to purchase the aggregate outstanding Liquidation Amount of Preferred Securities at the Remarketing Price with a Distribution Rate equal to the Bid Rate specified in such Bid and with a Mandatory Redemption Date on the Maturity Extension Date. "BID RATE" means the proposed Distribution Rate on the Preferred Securities specified in a Bid. "BOOK-ENTRY INTEREST" means a beneficial interest in a Global Preferred Security Certificate registered in the name of a Depository or its nominee, ownership and transfers of which shall be maintained and made through book entries by a Depository as described in Section 9.04. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which banking institutions in The City of New York or Wilmington, Delaware are authorized or required by law, regulation or executive order to close and, until the Remarketing Settlement Date, that is also a London Banking Day. "BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code Section 3801 et seq., as it may be amended from time to time, or any successor legislation. "CALCULATION AGENT" shall mean NationsBanc Montgomery Securities LLC. "CLOSING PRICE" of the Common Stock on any Trading Day shall mean the reported last sale price on such day of such Common Stock as of the end of the regularly scheduled trading day on the principal securities exchange on which it is listed, or, in case no such sale takes place on such day, the average of the reported last bid and asked prices on such day, in either case, as reported on the Consolidated Tape maintained by the Consolidated Tape Association or, if the Common Stock is not listed or admitted to trading on any securities exchange which participates in the Consolidated Tape Association, the average of the reported last bid and asked prices of Common Stock on the over-the-counter market on such day as reported by the National Association of Securities Dealers Automated Quotation System or a similar generally accepted reporting service or, if not so reported, the average of the closing bid and asked prices as furnished by any New York Stock Exchange, Inc. member firm selected from time to time by the Calculation Agent for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Calculation Agent. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. 3 9 "COMMENCEMENT DATE" means November 12, 1999, subject to acceleration pursuant to the provisions of Section 7 of the Forward Underwriting Agreement. "COMMISSION" means the United States Securities and Exchange Commission as from time to time constituted, or if at any time after the execution of this Agreement such Commission is not existing and performing the duties now assigned to it under applicable federal securities laws, then the body performing such duties at such time. "COMMON SECURITIES" has the meaning set forth in Section 7.01(a). "COMMON SECURITIES GUARANTEE" means the Common Securities Guarantee Agreement, dated as of November 12, 1998 of the Sponsor in respect of the Common Securities. "COMMON STOCK" means the common stock, no par value, of the Sponsor. "COMPANY INDEMNIFIED PERSON" means (a) any Administrative Trustee; (b) any Affiliate of any Administrative Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Administrative Trustee; or (d) any officer, employee or agent of the Trust or its Affiliates; provided that the term "COMPANY INDEMNIFIED PERSON" shall not include any Fiduciary Indemnified Person. "CORPORATE TRUST OFFICE" means the office of the Property Trustee for the conduct of corporate trust business at which the matters related to this Agreement shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at One Liberty Place, 52nd Floor, 1650 Market Street, Philadelphia, Pennsylvania 19103. "COVERED PERSON" means: (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates; and (b) any Holder of Securities. "CREDIT AGREEMENT" means the Credit Agreement dated as of October 15, 1998 among the Sponsor, certain subsidiaries of the Sponsor from time to time parties thereto, the several lenders from time to time parties thereto, NationsBank, N.A., as Administrative Agent, The Chase Manhattan Bank, Morgan Guaranty Trust Company of New York and Citibank, N.A., as Co-Syndication Agents, as amended, supplemented, modified or superseded from time to time. 4 10 "CROSS DEFAULT" means the occurrence or existence of a Event of Default (as defined in the Credit Agreement). "CURED DEFAULT TRIGGER EVENT" has the meaning set forth in Section 6.06(b). "DEFAULT" means an event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. "DEFAULT RATE" means the Distribution Rate that would be applicable under Section 2 of Annex I hereof if not for the applicability of the Default Rate plus 75 basis points. "DEFINITIVE PREFERRED SECURITIES" has the meaning set forth in Section 7.03(a). "DELAWARE TRUSTEE" has the meaning set forth in Section 5.01. "DEPOSITORY" means an organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act that, in the case of Preferred Securities held in global form, is acting as depositary for the Preferred Securities and in whose name or in the name of a nominee of that organization shall be registered a global certificate and which shall undertake to effect book-entry transfers and pledges of the Preferred Securities. At the time Replacement Securities are issued, the initial Depository shall be DTC. "DIRECT ACTION" has the meaning set forth in Section 3.08(e). "DISTRIBUTION" means amounts payable to Holders in respect of Securities as provided in Section 6.01. "DISTRIBUTION DATE" has the meaning set forth in Section 2(c) of Annex I hereto. "DISTRIBUTION RATE" has the meaning specified in Section 2(a) of Annex I hereto. "DTC" means The Depository Trust Company. "EVENT OF DEFAULT" means, with respect to the Securities, an Event of Default (as defined in the Indenture) that has occurred and is continuing in respect of the Subordinated Notes. 5 11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation. "EXPECTED RESET DATE" has the meaning set forth in Section 6.02(a). "FAILED REMARKETING" means any event specified as such, at the time so specified in Article 6. "FIDUCIARY INDEMNIFIED PERSON" has the meaning set forth in Section 10.04(b). "FINAL RESET DATE" means the third scheduled Trading Day prior to the Remarketing Termination Date. "FISCAL YEAR" has the meaning set forth in Section 11.01. "FORMER HOLDERS" has the meaning set forth in Section 6.02(i). "FORWARD UNDERWRITING AGREEMENT" means the Forward Underwriting Agreement dated November 12, 1998, between the Sponsor and NationsBanc Montgomery Securities LLC, as amended, supplemented, modified or superseded from time to time. "GLOBAL PREFERRED SECURITY" has the meaning set forth in Section 7.03(a). "HOLDER" means a Person in whose name a Security or Successor Security is registered, such Person being a beneficial owner within the meaning of the Business Trust Act. "INDEMNIFIED PERSON" means a Company Indemnified Person or a Fiduciary Indemnified Person. "INDENTURE" means the Junior Subordinated Debenture Indenture dated as of November 12, 1998, between the Subordinated Note Issuer and the Subordinated Note Trustee, as supplemented by the Supplemental Indenture and as further amended, supplemented, modified or superseded from time to time. "INVESTMENT COMPANY" means an investment company as defined in the Investment Company Act. "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as amended from time to time, or any successor legislation. 6 12 "INVESTMENT COMPANY EVENT" means the receipt by the Administrative Trustees and the Subordinated Note Issuer of a reasoned Opinion of Counsel of independent counsel experienced in such matters, to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws or regulations thereunder of the United States, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date hereof, there is more than an insubstantial risk that the Trust is or will be considered an "Investment Company" which is required to be registered under the Investment Company Act and such risk cannot be and could not have been avoided either (i) by dissolution of the Trust and distribution of the Subordinated Notes to Holders per Section 8.01(a)(iii) or (ii) by the Trust or the Sponsor taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure that has no adverse effect on the Trust, the Sponsor or the Holders. "LEGAL ACTION" has the meaning set forth in Section 3.06(h). "LIBOR" means the rate determined by the Calculation Agent as the rate for deposits for a period of three months in U.S. Dollars which appears on the Telerate Page 3750 as of 11:00 a.m., London time, on the date of determination. If such rate does not appear on the Telerate Page 3750, the rate on the date of determination will be determined as if the parties had specified the LIBOR-Reference Banks Rate as the applicable rate. "LIBOR-REFERENCE BANKS RATE" means that the rate will be determined on the basis of the rates which deposits in U.S. Dollars are offered by the Reference Banks at approximately 11:00 a.m., London time, on the date of determination to prime banks in the London interbank market for a period of three months commencing two London Banking Days following such date of determination and in the Representative Amount. The Calculation Agent will request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two such quotations are provided, the rate will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate will be the arithmetic mean of the rates quoted by major banks in New York City, selected by the Calculation Agent, at approximately 11:00 a.m., New York City time, on the date of determination for loans in U.S. Dollars to leading banks for a period of three months commencing two London Banking Days following such date of determination and in the Representative Amount. "LIKE AMOUNT" has the meaning set forth in Section 4 of Annex I hereto. 7 13 "LIQUIDATION AMOUNT" has the meaning set forth in Section 2(a) of Annex I hereto. "LIQUIDATION DISTRIBUTION" has the meaning set forth in Section 4 of Annex I hereto. "LIST OF HOLDERS" has the meaning set forth in Section 2.02(a). "LONDON BANKING DAY" means any day on which dealings in deposits in U.S. Dollars are transacted in the London interbank market. "MAJORITY IN LIQUIDATION AMOUNT" means, with respect to the Securities, except as provided in the terms of the Preferred Securities or by the Trust Indenture Act, Holders of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Preferred Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of more than 50% of the aggregate Liquidation Amount (including the amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "MANDATORY REDEMPTION DATE" means November 10, 1999; provided that on and after the settlement of the sale of the Preferred Securities in a successful Remarketing, the Mandatory Redemption Date shall be the Maturity Extension Date. "MANDATORY REDEMPTION PRICE" has the meaning set forth in Section 5(b) of Annex I hereto. "MANDATORY REDEMPTION PROCEEDS" has the meaning set forth in Section 6.05. "MATURITY EXTENSION DATE" means the first anniversary of the Remarketing Settlement Date on which Replacement Securities are issued. "90 DAY PERIOD" has the meaning set forth in Section 5(c) of Annex I hereto. "OFFERING MEMORANDUM" has the meaning set forth in Section 3.06(b)(i). "OFFICERS' CERTIFICATE" means, with respect to any Person, a certificate signed by a co-Chief Executive Officer, the Chief Financial Officer, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or 8 14 an Assistant Secretary. Any Officers' Certificate delivered by the Trust shall be signed by at least one Administrative Trustee. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Agreement shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officers' opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "ORIGINAL AGREEMENT" has the meaning set forth in the first recital hereof. "OPINION OF COUNSEL" means a written opinion of counsel who shall be reasonably acceptable to the Property Trustee. "PARTICIPANTS" has the meaning set forth in Section 7.03(c). "PAYING AGENT" has the meaning set forth in Section 7.04. "PAYMENT AMOUNT" has the meaning set forth in Section 6.01. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PORTAL MARKET" means the Private Offerings, Resales and Trading through Automated Linkages Market operated by the National Association of Securities Dealers, Inc. or any successor thereto. "POTENTIAL ADJUSTMENT EVENT" means any of the following: (i) a subdivision, consolidation or reclassification of the Common Stock (unless as a result of a merger or other similar event) or a 9 15 free distribution or dividend of any such Common Stock to existing holders by way of bonus, capitalization or similar issue; (ii) a distribution or dividend to existing holders of the Common Stock of (A) shares of such Common Stock, or (B) other share capital or securities granting the right to payment of dividends and/or the proceeds of liquidation of the Sponsor equally or proportionately with such payments to holders of such Common Stock, or (C) any other type of securities, rights or warrants or other assets, in any case for payment (cash or other) at less than the prevailing market price as determined by the Calculation Agent; (iii) any dividend paid by the Sponsor on the Common Stock other than ordinary cash dividends (which ordinary cash dividends include amounts, sometimes called "dividend equivalents," paid under the Sponsor's employee benefit and compensation plans on the Common Stock grants (whether options, restricted stock or other) under such plans, but only to the extent such amounts do not exceed the amounts of ordinary cash dividends that would be payable were such Common Stock grants treated as Common Stock); (iv) a call by the Sponsor in respect of shares of Common Stock that are not fully paid; (v) a repurchase by the Sponsor of shares of Common Stock whether out of profits or capital and whether the consideration for such repurchase is cash, securities or otherwise (excluding the repurchase of up to 8,192,125 shares of Common Stock remaining under the Sponsor's stock repurchase program authorized by the Board of Directors of the Sponsor prior to the date hereof); or (vi) any other similar event that may have a diluting or concentrative effect on the theoretical value of the Common Stock. "PREFERRED PURCHASE DATE" has the meaning set forth in the Purchase Agreement. "PREFERRED SECURITIES" has the meaning set forth in Section 7.01(a). "PREFERRED SECURITIES GUARANTEE" means the Preferred Securities Guarantee Agreement dated as of November 12, 1998, of the Sponsor in respect of the Preferred Securities as amended, supplemented, modified or superseded from time to time. 10 16 "PREFERRED SECURITY BENEFICIAL OWNER" means, with respect to a Book-Entry Interest, a Person who is the beneficial owner of such Book-Entry Interest, as reflected on the books of the Depository, or on the books of a Person maintaining an account with such Depository (directly as a Participant or as an indirect participant, in each case in accordance with the rules of such Depository). "PRE-REMARKETING DISTRIBUTION DATE" has the meaning set forth in Section 2(b) of Annex I hereto. "PROPERTY TRUSTEE" has the meaning set forth in Section 5.03(a). "PROPERTY TRUSTEE ACCOUNT" has the meaning set forth in Section 3.08(c). "PRO RATA" has the meaning set forth in Section 9 of Annex I hereto. "PURCHASE AGREEMENT" means the Purchase Agreement to be dated as of November 12, 1998 among NMS Services Inc., the Sponsor and the Trust and sale of Preferred Securities in the form of Exhibit C. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "QUORUM" means a majority of the Administrative Trustees or, if there are only two Administrative Trustees, both of them. "REDEMPTION/DISTRIBUTION NOTICE" has the meaning set forth in Section 5(f)(i) of Annex I hereto. "REFERENCE BANKS" means, for the purposes of any LIBOR rate, four major banks in the London interbank market. "REFERENCE CORPORATE DEALER" means a leading dealer that is a QIB, which shall not include NationsBanc Montgomery Securities LLC, its Affiliates or its Associated Persons, of publicly traded debt securities, including debt securities of the Sponsor, to be selected by the Sponsor. "REGISTRAR" has the meaning set forth in Section 7.04. "REMARKETING" means a remarketing of Preferred Securities pursuant to Article 6. "REMARKETING AGENT" means a nationally recognized investment banking firm chosen by the Sponsor to effect the Remarketing. It is currently anticipated that the Remarketing Agent will be NationsBanc Montgomery Securities LLC. 11 17 "REMARKETING AGREEMENT" means the Remarketing Agreement to be dated as of November 12, 1998 among the Sponsor, the Trust and the Remarketing Agent, in the form of Exhibit D. "REMARKETING FEE" means the fee specified in the Remarketing Agreement as the Remarketing Fee. "REMARKETING PRICE" means 100.5% of the aggregate stated Liquidation Amount of the Preferred Securities plus accrued and unpaid Distributions (if any). "REMARKETING SETTLEMENT DATE" means the third Business Day immediately following the Reset Date. "REMARKETING TERMINATION DATE" means November 10, 1999. "RENEWED REMARKETING" has the meaning set forth in Section 6.04. "REPLACEMENT SECURITIES" has the meaning set forth in Section 6.02(j). "REPRESENTATIVE AMOUNT" means, for the purposes of any LIBOR rate for which a Representative Amount is relevant, an amount that is equal to the aggregate Liquidation Amount of all of the Trust Securities. "RESET DATE" means any date established as a Reset Date pursuant to Section 6.02(a), 6.04 or 6.06. "RESPONSIBLE OFFICER" means, with respect to the Property Trustee, any officer within the Corporate Trust Office of the Property Trustee with direct responsibility for the administration of this Agreement, including any vice-president, any assistant vice-president, any assistant secretary, any assistant treasurer or other officer of the Corporate Trust Office of the Property 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 of the Property Trustee to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "RESTRICTED SECURITY" has the meaning set forth in Section 9.01(d). "RULE 144A" means Rule 144A as promulgated under the Securities Act, or any successor rule. "RULE 144(K)" means Rule 144(k) as promulgated under the Securities Act, or any successor rule. 12 18 "SECONDARY PURCHASE AGREEMENT" means an agreement to be dated as of the Reset Date (or such other date permitted by applicable law) among the Sponsor, the Trust, the Remarketing Agent and the Secondary Purchaser, substantially in the form of Exhibit A to the Remarketing Agreement, or as otherwise agreed among the Sponsor, the Trust, the Remarketing Agent and the Secondary Purchaser. "SECONDARY PURCHASER" has the meaning set forth in Section 6.02(c). "SECURITIES" or "TRUST SECURITIES" means the Common Securities and the Preferred Securities. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, or any successor legislation. "SECURITIES GUARANTEES" means the Common Securities Guarantee and the Preferred Securities Guarantee. "SPECIAL EVENT" means a Tax Event or an Investment Company Event. "SPONSOR" means Hercules Incorporated, a Delaware corporation, or any successor entity resulting from any merger, consolidation, amalgamation or other business combination, in its capacity as sponsor of the Trust. "STOCK PRICE TRIGGER EVENT" has the meaning set forth in Section 6.06(a). "SUBORDINATED NOTE ISSUER" means Hercules Incorporated, a Delaware corporation, or any successor entity resulting from any consolidation, amalgamation, merger or other business combination, in its capacity as issuer of the Subordinated Notes under the Indenture. "SUBORDINATED NOTE REPAYMENT PRICE" has the meaning set forth in the Supplemental Indenture. "SUBORDINATED NOTES" means the Auction Rate Reset Junior Subordinated Notes Series A of the Subordinated Note Issuer issued pursuant to the Indenture in the form of Exhibit B. "SUBORDINATED NOTE TRUSTEE" means The Chase Manhattan Bank, a New York banking corporation, as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee. 13 19 "SUCCESSOR DELAWARE TRUSTEE" has the meaning set forth in Section 5.07(b)(ii). "SUCCESSOR ENTITY" has the meaning set forth in Section 3.15(b)(i). "SUCCESSOR PROPERTY TRUSTEE" has the meaning set forth in Section 3.08(f)(ii). "SUCCESSOR SECURITIES" has the meaning set forth in Section 3.15(b)(i)(B). "SUPER MAJORITY" has the meaning set forth in Section 2.06(a)(ii). "SUPPLEMENTAL INDENTURE" means the First Supplemental Indenture dated as of November 12, 1998 between the Subordinated Note Issuer and the Subordinated Note Trustee pursuant to which the Subordinated Notes are to be issued, as amended, supplemented, modified or superseded from time to time. "TAX EVENT" means the receipt by the Administrative Trustees and the Subordinated Note Issuer of a reasoned Opinion of Counsel of independent counsel experienced in such matters, to the effect that, (x) as a result of any amendment to, or change (including any announced prospective change) in, the laws or any regulations thereunder of the United States or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date hereof, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days of the date of such opinion, subject to United States Federal income tax with respect to income received or accrued on the Subordinated Notes, (ii) the interest payable by the Subordinated Note Issuer on the Subordinated Notes is not, or within 90 days of the date of such opinion will not be, deductible by the Subordinated Note Issuer, in whole or in part, for United States Federal income tax purposes, or (iii) the Trust is, or will be within 90 days of the date of such opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges; and (y) such risk cannot be and could not have been avoided either (A) by dissolution of the Trust and distribution of the Subordinated Notes to Holders pursuant to Section 8.01(a)(iii) or (B) by the Trust or the Sponsor taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure that has no adverse effect on the Trust, the Sponsor or the Holders. "10% IN LIQUIDATION AMOUNT" means, with respect to the Securities, except as provided in the terms of the Preferred Securities or by the Trust Indenture Act, Holders of outstanding Securities voting together as a single class 14 20 or, as the context may require, Holders of outstanding Preferred Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of 10% or more of the aggregate Liquidation Amount (including the amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "TRADING DAY" shall mean any day, as reasonably determined by the Remarketing Agent, on which the Common Stock is not suspended from trading at any time during such day and is traded at least once on the New York Stock Exchange, Inc., or, if not then admitted for trading on the New York Stock Exchange, Inc., on the principal securities exchange or quotation system on which the Common Stock is then listed or admitted for trading. "TRANSFER RESTRICTION TERMINATION DATE" means the first date on which the Preferred Securities (other than Preferred Securities acquired by the Trust or any Affiliate thereof) may be sold pursuant to Rule 144(k). "TREASURY REGULATIONS" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "TRIGGER EVENT" has the meaning set forth in Section 6.06. "TRIGGER PRICE" has the meaning set forth in Section 6.07. "TRUSTEE" or "TRUSTEES" means each Person who has signed this Agreement as a trustee, so long as such Person shall continue as Trustee of the Trust in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. "UNDERWRITER" means NationsBanc Montgomery Securities LLC, as Underwriter under the Forward Underwriting Agreement. "UNDERWRITING TRIGGER EVENT" has the meaning set forth in Section 6.06(c)(ii). 15 21 "U.S. DOLLAR," "DOLLAR," "U.S.$," "$" and "USD" means the lawful currency of the United States of America. "WINNING BID RATE" has the meaning set forth in Section 6.02(b). ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. Trust Indenture Act; Application. (a) This Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Agreement in order for this Agreement to be qualified under the Trust Indenture Act and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act. (c) If and to the extent that any provision of this Agreement limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. (d) The application of the Trust Indenture Act to this Agreement shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. SECTION 2.02. Lists of Holders of Securities. (a) Each of the Sponsor and the Administrative Trustees on behalf of the Trust shall provide the Property Trustee, unless the Property Trustee is the Registrar for the Securities, (i) within 14 days after each record date for payment of Distributions, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Holders of the Securities ("LIST OF HOLDERS") as of such record date, provided that neither the Sponsor nor the Administrative Trustees on behalf of the Trust shall be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Property Trustee by the Sponsor and the Administrative Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Property Trustee. The Property Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it or which it receives in the capacity as Paying Agent (if acting in such capacity), 16 22 provided that the Property Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Property Trustee shall comply with the obligations set forth under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act. SECTION 2.03. Reports by the Property Trustee. Within 60 days after September 1 of each year, commencing September 1, 1999, the Property Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.04. Periodic Reports to Property Trustee. Each of the Sponsor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as are required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.05. Evidence of Compliance with Conditions. Each of the Sponsor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent provided for in this Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act may be given in the form of an Officers' Certificate. SECTION 2.06. Events of Default; Waiver. (a) The Holders of a Majority in Liquidation Amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default in respect of the Preferred Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, the Event of Default under the Agreement shall also not be waivable; or (ii) requires the consent or vote of greater than a majority in aggregate principal amount of the holders of the Subordinated Notes (a "SUPER MAJORITY") to be waived under the Indenture, the Event of Default under the Agreement may only be waived by the vote of the Holders of at least the proportion in aggregate Liquidation Amount of the Preferred 17 23 Securities that the relevant Super Majority represents of the aggregate principal amount of the Subordinated Notes outstanding. The foregoing provisions of this Section 2.06(a) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Agreement and the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Preferred Securities arising therefrom shall be deemed to have been cured, for every purpose of this Agreement, but no such waiver shall extend to any subsequent or other default or an Event of Default with respect to the Preferred Securities or impair any right consequent thereon. Any waiver by the Holders of the Preferred Securities of an Event of Default with respect to the Preferred Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Agreement without any further act, vote, or consent of the Holders of the Common Securities. (b) The Holders of a Majority in Liquidation Amount of the Common Securities may, by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture (except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Agreement as provided below in this Section 2.06(b)), the Event of Default under the Agreement shall also not be waivable; or (ii) requires the consent or vote of a Super Majority to be waived, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Agreement as provided below in this Section 2.06(b), the Event of Default under the Agreement may only be waived by the vote of the Holders of at least the proportion in aggregate Liquidation Amount of the Common Securities that the relevant Super Majority represents of the aggregate principal amount of the Subordinated Notes outstanding; provided further, each Holder of Common Securities will be deemed to have waived any such Event of Default and all Events of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated, and until such Events of Default have been so cured, waived or otherwise eliminated, 18 24 the Property Trustee will be deemed to be acting solely on behalf of the Holders of the Preferred Securities and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of the Securities. The foregoing provisions of this Section 2.06(b) shall be in lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly excluded from this Agreement and the Securities, as permitted by the Trust Indenture Act. Subject to the foregoing provisions of this Section 2.06(b), upon such waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Event of Default under the Indenture by the Property Trustee, at the direction of the Holders of the Preferred Securities, constitutes a waiver of the corresponding Event of Default under this Agreement. The foregoing provisions of this Section 2.06(c) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Agreement and the Securities, as permitted by the Trust Indenture Act. SECTION 2.07. Event of Default; Notice. (a) The Property Trustee shall, within 90 days after the occurrence of any default with respect to the Securities, transmit by mail, first class postage prepaid, to the Holders of the Securities and to the Sponsor, notices of all such defaults actually known to a Responsible Officer of the Property Trustee, unless such defaults have been cured before the giving of such notice (the term "DEFAULTS" for the purposes of this Section 2.07(a) being hereby defined to be a Default as defined in the Indenture, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein); provided that, except for a default in the payment of principal of (or premium, if any) or interest on any of the Subordinated Notes, the Property Trustee shall be protected in withholding such notice if and so long as a committee of Responsible Officers of the Property Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Securities. (b) The Property Trustee shall not be deemed to have actual knowledge of any default except: (i) a default under Sections 6.01(a) and 6.01(b) of the Indenture; or 19 25 (ii) any default as to which the Property Trustee shall have received written notice or of which a Responsible Officer of the Property Trustee charged with the administration of the Agreement shall have actual knowledge. (c) Within ten Business Days after the occurrence of any Event of Default actually known to a Responsible Officer of the Property Trustee, the Property Trustee shall transmit notice of such Event of Default to the Holders of the Preferred Securities, the Administrative Trustees and the Sponsor, unless such Event of Default shall have been cured, waived or otherwise eliminated. The Sponsor and the Administrative Trustees shall file annually with the Property Trustee a certification as to whether or not they are in compliance with all the conditions and covenants applicable to them under this Agreement. ARTICLE 3 ORGANIZATION SECTION 3.01. Name. The Trust is named "HERCULES TRUST V" as such name may be modified from time to time by the Administrative Trustees following written notice to the Delaware Trustee, the Property Trustee and the Holders of Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Administrative Trustees. SECTION 3.02. Office. The address of the principal office of the Trust is c/o Hercules Plaza, 1313 North Market Street, Wilmington, Delaware 19894- 0001. On ten Business Days' prior written notice to the Delaware Trustee, the Property Trustee and the Holders of Securities, the Administrative Trustees may designate another principal office. SECTION 3.03. Purpose. The exclusive purposes and functions of the Trust are (a) to issue and sell Securities, (b) use the proceeds from the sale of the Securities to acquire the Subordinated Notes in an aggregate principal amount equal to the aggregate Liquidation Amount of such Securities, and (c) except as otherwise limited herein, to engage in only those other activities necessary, advisable or incidental thereto, including without limitation, those activities specified in Sections 3.06, 3.08, 3.09, 3.10, 3.11 and/or 3.12. SECTION 3.04. Authority. Subject to the limitations provided in this Agreement and to the specific duties of the Property Trustee, the Administrative Trustees shall have exclusive and complete authority to carry out the purposes of 20 26 the Trust. An action taken by one or more of the Administrative Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee on behalf of the Trust in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Agreement. SECTION 3.05. Title to Property of the Trust. Except as provided in Section 3.08 with respect to the Subordinated Notes and the Property Trustee Account or as otherwise provided in this Agreement, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. SECTION 3.06. Powers and Duties of the Administrative Trustees. The Administrative Trustees shall have the exclusive power, duty and authority, and are hereby authorized and directed, to cause the Trust to engage in the following activities: (a) to execute, deliver, issue and sell the Preferred Securities and the Common Securities in accordance with this Agreement; provided, however, that (i) the Trust may issue no more than one series of Preferred Securities and no more than one series of Common Securities, (ii) there shall be no interests in the Trust other than the Securities, and (iii) the issuance of Securities shall be limited to a simultaneous issuance of both Preferred Securities and Common Securities on the Preferred Purchase Date and on the Remarketing Settlement Date; (b) in connection with any Remarketing of the Preferred Securities and, with respect to clause (vi), in connection with the issuance and sale of the Preferred Securities, at the direction of the Sponsor, to: (i) prepare and execute, if necessary, an offering memorandum (the "OFFERING MEMORANDUM") in preliminary and final form prepared by the Sponsor, in relation to the resale of Preferred Securities to a Secondary Purchaser, in a transaction exempt from the registration requirements of the Securities Act and to QIB in reliance on Rule 144A; (ii) execute and file an application, prepared by the Sponsor, to qualify the Preferred Securities for trading in the PORTAL Market; 21 27 (iii) execute and file any documents prepared by the Sponsor, or take any acts as determined by the Sponsor to be necessary in order to qualify or register all or part of the Preferred Securities in any State in which the Sponsor has determined to qualify or register such Preferred Securities for sale; (iv) execute and deliver letters, documents, or instruments with DTC and other Depositories relating to the Preferred Securities; (v) cause the Trust to enter into, and to execute and deliver and perform on behalf of the Trust, a Secondary Purchase Agreement providing for the resale of the Preferred Securities upon Remarketing; and (vi) execute and file any agreement, certificate or other document which such Administrative Trustee deems necessary or appropriate in connection with the issuance and sale or resale of the Preferred Securities; (c) to acquire the Subordinated Notes with the proceeds of the sale of the Preferred Securities and the Common Securities; provided, however, that the Administrative Trustees shall cause legal title to the Subordinated Notes to be held of record in the name of the Property Trustee for the benefit of the Holders of the Preferred Securities and the Holders of Common Securities; (d) to cause the Trust to enter into such agreements and arrangements as may be necessary or desirable in connection with the sale of Preferred Securities to the underwriters thereof and the consummation thereof, and to take all action, and exercise all discretion, as may be necessary or desirable in connection with the consummation thereof; (e) to give the Sponsor and the Property Trustee prompt written notice of the occurrence of a Special Event; (f) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including and with respect to, for the purposes of Section 316(c) of the Trust Indenture Act, Distributions, voting rights and redemptions, and to issue relevant notices to the Holders of Preferred Securities and Holders of Common Securities as to such actions and applicable record dates; (g) to take all actions and perform such duties as may be required of the Administrative Trustees pursuant to the terms of the Securities; 22 28 (h) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Trust ("LEGAL ACTION"), unless pursuant to Section 3.08(e), the Property Trustee has the exclusive power to bring such Legal Action; (i) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors, and consultants and pay reasonable compensation for such services; (j) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (k) to give the certificate required by Section 314(a)(4) of the Trust Indenture Act to the Property Trustee, which certificate may be executed by any Administrative Trustee; (l) to incur expenses that are necessary or incidental to carry out any of the purposes of the Trust; (m) to act as, or appoint another Person to act as, Registrar for the Securities or to appoint a Paying Agent for the Securities as provided in Section 7.04 except for such time as such power to appoint a Paying Agent is vested in the Property Trustee; (n) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Preferred Securities or to enable the Trust to effect the purposes for which the Trust was created; (o) to take any action (provided that such action does not materially adversely affect the interests of Holders), not inconsistent with this Agreement or with applicable law, that the Administrative Trustees determine in their discretion to be necessary or desirable in carrying out the activities of the Trust as set out in this Section 3.06, including, but not limited to: (i) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) causing the Trust to be classified for United States Federal income tax purposes as a grantor trust; and 23 29 (iii) cooperating with the Subordinated Note Issuer to ensure that the Subordinated Notes will be treated as indebtedness of the Subordinated Note Issuer for United States Federal income tax purposes; (p) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Administrative Trustees, on behalf of the Trust; and (q) to execute and deliver and record, file or register, as applicable, all documents, certificates, agreements or instruments, perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary, advisable or incidental to the foregoing. The Administrative Trustees must exercise the powers set forth in this Section 3.06 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.03, and the Administrative Trustees shall not take any action that is inconsistent with the purposes and functions of the Trust set forth in Section 3.03. Subject to this Section 3.06, the Administrative Trustees shall have none of the powers or the authority of the Property Trustee set forth in Section 3.08. Any expenses incurred by the Administrative Trustees pursuant to this Section 3.06 shall be reimbursed by the Subordinated Note Issuer. SECTION 3.07. Prohibition of Actions by the Trust and the Trustees. (a) The Trust and the Trustees (including the Property Trustee and the Delaware Trustee) shall not, and the Administrative Trustees shall not cause the Trust to, engage in any activity other than as required or authorized by this Agreement. In particular, the Trust shall not: (i) invest any proceeds received by the Trust from holding the Subordinated Notes, but shall distribute all such proceeds to Holders of Securities pursuant to the terms of this Agreement and of the Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust property for other than a Trust purpose or execute any mortgage in respect of, or pledge, any Trust property; (iv) make any loans or incur any indebtedness other than loans represented by the Subordinated Notes; 24 30 (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever; (vi) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; (vii) so long as any Subordinated Notes are held by the Property Trustee, the Trustees shall not (A) direct the time, method and place of conducting any proceeding with respect to any remedy available to the Subordinated Note Trustee, or exercise any trust or power conferred upon the Subordinated Note Trustee with respect to the Subordinated Notes, (B) waive any past default that is not waivable under the Indenture, (C) exercise any right to rescind or annul any declaration of acceleration of the maturity of the principal of the Subordinated Notes or (D) consent to any amendment, modification or termination of the Indenture or the Subordinated Notes where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of a Majority in Liquidation Amount of all outstanding Securities of the Trust; provided, however, that where a consent under the Indenture would require the consent of each holder of Subordinated Notes affected thereby, no such consent shall be given by the Property Trustee without (1) the prior approval of each Holder of Securities and (2) a reasoned Opinion of Counsel delivered to the Trust from tax counsel experienced in such matters to the effect that the Trust will not be classified as an association taxable as a corporation for United States federal income tax purposes on account of such action; (viii) shall not revoke any action previously authorized or approved by a vote of the Holders of Preferred Securities except by subsequent vote of such Holders; or (ix) shall not revoke any action previously authorized or approved by a vote of the Holders of Common Securities except by subsequent vote of such Holders. SECTION 3.08. Powers and Duties of the Property Trustee. (a) The legal title to the Subordinated Notes shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Trust and the Holders of the Securities. The right, title and interest of the Property Trustee to the Subordinated Notes shall vest automatically in each Person who may hereafter be appointed as Property Trustee in accordance with Section 5.07. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Subordinated Notes have been executed and delivered. 25 31 (b) The Property Trustee shall not transfer its right, title and interest in the Subordinated Notes to the Administrative Trustees or to the Delaware Trustee (if the Property Trustee does not also act as Delaware Trustee). (c) The Property Trustee shall: (i) establish and maintain a segregated non-interest bearing trust account (the "PROPERTY TRUSTEE ACCOUNT") in the name of and under the exclusive control of the Property Trustee on behalf of the Holders of the Securities and, upon the receipt of payments of funds made in respect of the Subordinated Notes held by the Property Trustee, deposit such funds into the Property Trustee Account and make payments or cause the Paying Agent to make payments to the Holders of the Preferred Securities and Holders of the Common Securities from the Property Trustee Account in accordance with Section 6.01. Funds in the Property Trustee Account shall be held uninvested until disbursed in accordance with this Agreement; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Preferred Securities and the Common Securities to the extent the Subordinated Notes are redeemed or mature; (iii) upon written notice of the occurrence of a Special Event distribution issued by the Administrative Trustees in accordance with the terms of the Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Subordinated Notes to Holders of Securities upon the occurrence of certain events (as may be defined in the terms of the Securities); and (iv) take such ministerial action as may be requested by the Administrative Trustees in connection with the winding up of the affairs of or liquidation of the Trust in accordance with this Agreement and the preparation, execution and filing of a certificate of cancellation or other appropriate certificates with the Secretary of State of the State of Delaware and other appropriate governmental authorities. (d) The Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of this Agreement and the Securities. (e) Subject to Section 3.09(a), the Property Trustee shall take any Legal Action which arises out of or in connection with an Event of Default of which a 26 32 Responsible Officer of the Property Trustee has actual knowledge or the Property Trustee's duties and obligations under this Agreement or the Trust Indenture Act and, if the Property Trustee shall have failed to take such Legal Action, the Holders of the Preferred Securities may, to the fullest extent permitted by law, take such Legal Action, to the same extent as if such Holders of Preferred Securities held an aggregate principal amount of Subordinated Notes equal to the aggregate Liquidation Amount of such Preferred Securities, without first proceeding against the Property Trustee or the Trust; provided however, that if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Subordinated Note Issuer to pay the principal of or premium, if any, or interest on the Subordinated Notes on the date such principal, premium, if any, or interest is otherwise payable (or, in the case of redemption, on the redemption date), then a Holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or premium, if any, or interest on the Subordinated Notes having a principal amount equal to the aggregate Liquidation Amount of the Preferred Securities of such Holder on or after the respective due date specified in the Indenture or in the Subordinated Notes (a "DIRECT ACTION"). In connection with such Direct Action, the Subordinated Note Issuer shall remain obligated to pay the principal of, premium, if any, or interest on such Subordinated Notes, and the Common Securities Holder shall be subrogated to the rights of such Holder of Preferred Securities to the extent of any payment made by the Subordinated Note Issuer to such Holder in such Direct Action. Except as provided in the preceding sentences, the Holders of Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Subordinated Notes. (f) The Property Trustee shall continue to serve as a Trustee until either: (i) the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of Securities pursuant to the terms of the Securities and this Agreement; or (ii) a successor Property Trustee has been appointed and has accepted that appointment in accordance with Section 5.07 (a "SUCCESSOR PROPERTY TRUSTEE"). (g) The Property Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Subordinated Notes under the Indenture and, if an Event of Default actually known to a Responsible Officer of the Property Trustee occurs and is continuing, the Property Trustee shall, for the benefit of Holders of the Securities, enforce its rights as holder of the Subordinated Notes subject to the rights of the Holders pursuant to the terms of the Securities and this Agreement. 27 33 (h) The Property Trustee shall be authorized to undertake any actions set forth in Section 317(a) of the Trust Indenture Act. (i) For such time as the Property Trustee is the Paying Agent, the Property Trustee may authorize one or more Persons to act as additional Paying Agents and to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect to all Securities and any such Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. Any such additional Paying Agent may be removed by the Property Trustee at any time the Property Trustee remains as Paying Agent and a successor Paying Agent or additional Paying Agents may be (but are not required to be) appointed at any time by the Property Trustee while the Property Trustee is acting as Paying Agent. (j) Subject to this Section 3.08, the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 3.06. Notwithstanding anything expressed or implied to the contrary in this Agreement or any Annex or Exhibit hereto, the Property Trustee must exercise the powers set forth in this Section 3.08 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.03. SECTION 3.09. Certain Duties and Responsibilities of the Property Trustee. (a) The Property Trustee, before the occurrence of any Event of Default and after the curing or waiving of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Agreement and in the Securities and no implied covenants or obligations shall be read into this Agreement against the Property Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06) of which a Responsible Officer of the Property Trustee has actual knowledge, the Property Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Agreement shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, its own bad faith or its own willful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: 28 34 (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Agreement and in the Securities and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement and in the Securities, and no implied covenants or obligations shall be read into this Agreement against the Property Trustee; and (B) in the absence of bad faith on the part of the Property Trustee, the Property Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Property Trustee and conforming to the requirements of this Agreement; provided, however, that in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Agreement (but shall not be required to confirm or investigate the accuracy of mathematical calculations or other facts stated therein); (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property 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 Liquidation Amount of the Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Agreement; (iv) no provision of this Agreement shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Agreement or indemnity reasonably satisfactory to the Property Trustee against such risk or liability is not reasonably assured to it; 29 35 (v) the Property Trustee's sole duty with respect to the custody, safekeeping and physical preservation of the Subordinated Notes and the Property Trustee Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Agreement and the Trust Indenture Act; (vi) the Property Trustee shall have no duty or liability for or with respect to the value, genuineness, existence or sufficiency of the Subordinated Notes or the payment of any taxes or assessments levied thereon or in connection therewith; (vii) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Sponsor. Money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Property Trustee Account maintained by the Property Trustee pursuant to Section 3.08(c)(i) and except to the extent otherwise required by law; and (viii) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Sponsor with their respective duties under this Agreement, nor shall the Property Trustee be liable for any default or misconduct of the Administrative Trustees or the Sponsor. SECTION 3.10. Certain Rights of Property Trustee. (a) Subject to the provisions of Section 3.09: (i) the Property Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) any direction or act of the Sponsor or the Administrative Trustees contemplated by this Agreement may be sufficiently evidenced by an Officers' Certificate; (iii) whenever in the administration of this Agreement, the Property Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) 30 36 may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Administrative Trustees; (iv) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any re-recording, refiling or registration thereof; (v) the Property Trustee may consult with counsel or other experts of its selection and the advice or opinion of such counsel and experts with respect to legal matters or advice within the scope of such experts' area of expertise 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 accordance with such advice or opinion, such counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees; and the Property Trustee shall have the right at any time to seek instructions concerning the administration of this Agreement from any court of competent jurisdiction; (vi) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement at the request or direction of any Holder, unless such Holder shall have provided to the Property Trustee security and indemnity, reasonably satisfactory to the Property Trustee, against the costs, expenses (including reasonable attorneys' fees and expenses and the expenses of the Property Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Property Trustee; (vii) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Property Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, custodians, nominees or attorneys and the Property 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; 31 37 (ix) any action taken by the Property Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Property Trustee to so act or as to its compliance with any of the terms and provisions of this Agreement, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action; (x) whenever in the administration of this Agreement the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Property Trustee (i) may request instructions from the Holders of the Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Securities as would be entitled to direct the Property Trustee under the terms of the Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on, or acting in accordance with, such instructions; (xi) except as otherwise expressly provided by this Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Agreement; and (xii) the Property Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith, without negligence, and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement. (b) No provision of this Agreement shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. (c) It is expressly understood and agreed by the parties hereto that in fulfilling its obligations as Property Trustee hereunder on behalf of the Trust, (i) any agreements or instruments executed or delivered by The Chase Manhattan Bank are executed and delivered not in its individual capacity but solely as Property Trustee under this Agreement in the exercise of the powers and authority 32 38 conformed and vested in it, (ii) each of the representations, undertakings and agreements herein made on the part of the Trust is made and intended not as representations, warranties, covenants, undertakings and agreements by The Chase Manhattan Bank in its individual capacity but is made and intended for the purpose of binding only the Trust, and (iii) under no circumstances (except with respect to funds delivered to it relating to payments in respect of the Securities) shall The Chase Manhattan Bank in its individual capacity be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty, or covenant made or undertaken by the Trust under this Agreement except if such breach or failure is due to any negligence, bad faith or wilful misconduct of the Property Trustee. SECTION 3.11. Delaware Trustee. (a) Notwithstanding any other provision of this Agreement other than Section 5.02, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Administrative Trustees or the Property Trustee described in this Agreement (except as required under the Business Trust Act). Except as set forth in Section 5.02, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Business Trust Act. (b) It is expressly understood and agreed by the parties hereto that in fulfilling its obligations as Delaware Trustee hereunder on behalf of the Trust (i) any agreements or instruments executed or delivered by Chase Manhattan Bank Delaware are executed and delivered not in its individual capacity but solely as Delaware Trustee under this Agreement in the exercise of the powers and authority conferred and vested in it, (ii) each of the representations, undertakings and agreements herein made on the part of the Trust is made and intended not as representations, warranties, covenants, undertakings and agreements by Chase Manhattan Bank Delaware in its individual capacity but is made and intended for the purpose of binding only the Trust, and (iii) under no circumstances shall Chase Manhattan Bank Delaware in its individual capacity be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty, or covenant made or undertaken by the Trust under this Agreement except if such breach or failure is due to any gross negligence or wilful misconduct of the Delaware Trustee. SECTION 3.12. Execution of Documents. Except as otherwise required by the Business Trust Act or applicable law, each Administrative Trustee, individually, is authorized to execute and deliver on behalf of the Trust any documents, agreements, instruments or certificates that the Administrative Trustees have the power and authority to execute and deliver pursuant to this Agreement. 33 39 SECTION 3.13. Not Responsible for Recitals or Issuance of Securities. The recitals contained in this Agreement and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Agreement or the Securities. SECTION 3.14. Duration of Trust. The Trust, unless dissolved pursuant to the provisions of Article 8 hereof, shall exist until November 12, 2010. SECTION 3.15. Mergers. (a) The Trust may not merge with or into, convert into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any Person, except as described in Section 3.15(b) and 3.15(c) and except with respect to the distribution of all Subordinated Notes to Holders of Securities pursuant to Section 8.01(a)(iii) or Section 4 of Annex I. (b) The Trust may, at the request of the Sponsor, with the consent of the Administrative Trustees or, if there are more than two, a majority of the Administrative Trustees and without the consent of the Holders of the Securities, the Delaware Trustee or the Property Trustee, merge with or into, convert into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, a trust organized as such under the laws of any State; provided that: (i) such successor entity (the "SUCCESSOR ENTITY") either: (A) expressly assumes all of the obligations of the Trust under the Securities; or (B) substitutes for the Securities other securities having substantially the same terms as the Securities (the "SUCCESSOR SECURITIES") so long as the Successor Securities rank the same as the Securities rank with respect to Distributions and payments upon liquidation, redemption and otherwise; (ii) the Sponsor expressly appoints a trustee of the Successor Entity that possesses the same powers and duties as the Property Trustee with respect to the Subordinated Notes; (iii) the Successor Securities (excluding any securities substituted for any Common Securities) are listed, quoted or included for trading, or 34 40 any Successor Securities will be listed, quoted or included for trading, upon notification of issuance, on any organization on which the Preferred Securities are then listed, quoted or included; (iv) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Preferred Securities (including any Successor Securities) or the Subordinated Notes to be downgraded or placed under surveillance or review by any nationally recognized statistical rating organization that publishes a rating on the Preferred Securities or the Subordinated Notes; (v) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including the Holders of any Successor Securities) in any material respect (other than with respect to any dilution of the interests of such Holders or Holder of Successor Securities, as the case may be, in the Successor Entity); (vi) the Successor Entity has a purpose substantially identical to that of the Trust; (vii) prior to such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Sponsor has received an opinion of a nationally recognized independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including the Holders of any Successor Securities) in any material respect (other than with respect to any dilution of the interests of such Holders or Holders of Successor Securities, as the case may be, in the Successor Entity); and (B) following such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor the Successor Entity, if any, will be required to register as an Investment Company; and (viii) the Sponsor or any permitted successor or assignee owns all of the common securities of the Successor Entity and guarantees the obligations of the Successor Entity under the Successor Securities at least 35 41 to the extent provided by the Preferred Securities Guarantee and the Common Securities Guarantee. (c) Notwithstanding Section 3.15(b), the Trust shall not, except with the consent of Holders of 100% in Liquidation Amount of the Securities, merge with or into, convert into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, any other Person or permit any other Person to merge with or into, consolidate, amalgamate, or replace it if such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease would cause the Trust or the Successor Entity, if any, not to be classified as a grantor trust for United States Federal income tax purposes. ARTICLE 4 SPONSOR SECTION 4.01. Sponsor's Purchase of Common Securities. At the Closing Time, the Sponsor will purchase all of the Common Securities then issued by the Trust, in an amount equal to at least 3% of the total capital of the Trust, at the same time as the Preferred Securities are issued and sold. The aggregate Liquidation Amount of Common Securities at any time shall not be less than 3% of the capital of the Trust. SECTION 4.02. Covenants of the Common Securities Holder. For so long as the Preferred Securities remain outstanding, the Holder of the Common Securities shall covenant (i) to maintain, directly or indirectly, 100% ownership of the Common Securities; provided, however, that any permitted successor of the Holder of the Common Securities under the Indenture may succeed to such Holder's interest in the Common Securities, (ii) to cause the Trust to remain a statutory business trust, except in connection with a distribution of Subordinated Notes to the Holders of Securities, the redemption of all of the Securities, or certain mergers, consolidations, conversions or amalgamations, each as permitted by this Agreement, and not to voluntarily dissolve, wind up, liquidate or be terminated, except as permitted by this Agreement, (iii) to use its commercially reasonable efforts to ensure that the Trust shall not be an investment company for purposes of the Investment Company Act, and (iv) to take no action which would be reasonably likely to cause the Trust to be classified as an association or a publicly traded partnership taxable as a corporation for United States federal income tax purposes. 36 42 SECTION 4.03. Responsibilities of the Sponsor. In connection with the initial issuance and sale and the Remarketing of the Preferred Securities, the Sponsor shall have the exclusive right and responsibility to engage in the following activities: (a) prepare and execute, if necessary, the Offering Memorandum in preliminary and final form, pertaining to the Remarketing of Preferred Securities to QIBs; (b) prepare for execution and filing by the Trust of an application, prepared by the Sponsor, to the PORTAL Market; (c) if the Preferred Securities are to be held in book-entry form, prepare for execution and filing by the Trust of documents, or instruments to be delivered to a Depository for the Preferred Securities; (d) determine the jurisdictions in which to take appropriate action to qualify or register for sale all or part of the Preferred Securities and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such jurisdictions; and (e) to negotiate the terms of, execute, enter into, sign on behalf of the Trust and deliver the Purchase Agreement, in the form of Exhibit C, providing for the sale of the Preferred Securities, the Remarketing Agreement in the form of Exhibit D, providing for the Remarketing of the Preferred Securities, or under certain circumstances, the Subordinated Notes, and the Secondary Purchase Agreement providing for the resale of the Preferred Securities. SECTION 4.04. Right to Proceed. The Sponsor acknowledges the rights of the Holders of Preferred Securities referred to in Section 3.08(e) and Annex I. ARTICLE 5 TRUSTEES SECTION 5.01. Number of Trustees; Appointment of Co-Trustee. The number of Trustees initially shall be five (5), and: 37 43 (a) at any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holders of a Majority in Liquidation Amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; provided, however, that, the number of Trustees shall in no event be less than two (2); provided, further, that (1) one Trustee shall be a Person meeting the requirements of Section 5.02 (the "DELAWARE TRUSTEE"); (2) there shall be at least one Trustee who is an employee or officer of, or is affiliated with the Sponsor (an "ADMINISTRATIVE TRUSTEE"); and (3) one Trustee shall be the Property Trustee, and such Trustee may also serve as Delaware Trustee if it meets the applicable requirements. Notwithstanding the above, unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust's property may at the time be located, the Holders of a Majority in Liquidation Amount of the Common Securities acting as a class at a meeting of the Holders of the Common Securities, and the Administrative Trustees shall have power to appoint one or more Persons either to act as a co-trustee, jointly with the Property Trustee, of all or any part of the Trust's property, or to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in such capacity any property, title, right or power deemed necessary or desirable, subject to the provisions of this Agreement. In case an Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make any such appointment of a co-trustee. SECTION 5.02. Delaware Trustee. For so long as required by the Business Trust Act, the Delaware Trustee shall be: (a) a natural person who is a resident of the State of Delaware; or (b) if not a natural person, an entity which has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law, provided, however, if the Property Trustee has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, then the Property Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application. 38 44 SECTION 5.03. Property Trustee; Eligibility. (a) There shall at all times be one Trustee (the "PROPERTY TRUSTEE") which shall act as Property Trustee and which shall: (i) not be an Affiliate of the Sponsor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an indenture trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.03(a)(ii), 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. (b) If at any time the Property Trustee shall cease to be eligible to so act under Section 5.03(a), the Property Trustee shall immediately resign in the manner and with the effect set forth in Section 5.07(c). (c) If the Property Trustee has or shall acquire any "CONFLICTING INTEREST" within the meaning of Section 310(b) of the Trust Indenture Act, the Property Trustee and the Holder of the Common Securities (as if it were the obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all respects comply with the proviso of Section 310(b) of the Trust Indenture Act. (d) The Preferred Securities Guarantee shall be deemed to be specifically described in this Agreement for purposes of clause (i) of the first provision contained in Section 310(b) of the Trust Indenture Act. (e) The initial Property Trustee shall be: The Chase Manhattan Bank One Liberty Place, 52nd Floor 1650 Market Street Philadelphia, Pennsylvania 19103 Attention: Corporate Trust Department Telephone: (215) 988-1329 Telecopier: (215) 988-8372 39 45 SECTION 5.04. Certain Qualifications of Administrative Trustees and Delaware Trustee Generally. Each Administrative Trustee and the Delaware Trustee (unless the Property Trustee also acts as Delaware Trustee) shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more Authorized Officers. SECTION 5.05. Administrative Trustees. The initial Administrative Trustees shall be: Israel J. Floyd Jan M. King Stuart C. Shears c/o Hercules Incorporated Hercules Plaza 1313 North Market Street Wilmington, Delaware 19894-0001 Telephone: (302) 594-5000 Telecopier: (302) 594-5210 (a) Except as expressly set forth in this Agreement and except if a meeting of the Administrative Trustees is called with respect to any matter over which the Administrative Trustees have power to act, any power of the Administrative Trustees may be exercised by, or with the consent of, any one such Administrative Trustee. (b) Unless otherwise determined by the Administrative Trustees, and except as otherwise required by the Business Trust Act or applicable law, any Administrative Trustee acting alone is authorized to execute on behalf of the Trust any documents which the Administrative Trustees have the power and authority to cause the Trust to execute pursuant to Section 3.06; and SECTION 5.06. Delaware Trustee. The initial Delaware Trustee shall be: Chase Manhattan Bank Delaware 1201 Market Street Wilmington, Delaware 19801 Attention: Corporate Trust Department Telecopier: (302) 984-4903 Telephone: (302) 428-3372 SECTION 5.07. Appointment, Removal and Resignation of Trustees. (a) Subject to Sections 5.07(b) and (c), Trustees may be appointed or removed at any time: 40 46 (i) without cause until the issuance of any Securities, by written instrument executed by the Sponsor; (ii) unless an Event of Default shall have occurred and be continuing after the issuance of any Securities, without cause by vote of the Holders of a Majority in Liquidation Amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; (iii) whether or not an Event of Default shall have occurred and be continuing after the issuance of Securities, for cause by vote of the Holders of a Majority in Liquidation Amount of the Preferred Securities voting as a class at a meeting of the Holders of the Preferred Securities (it being understood that in no event will the Holders of the Preferred Securities have the right to vote, appoint, remove or replace the Administrative Trustees, which voting rights are exclusively vested in the Holder of the Common Securities); and (iv) if an Event of Default shall have occurred and be continuing after the issuance of the Securities, with respect to the Property Trustee or the Delaware Trustee, by vote of Holders of a Majority in Liquidation Amount of the Preferred Securities voting as a class at a meeting of Holders of the Preferred Securities. (b) (i) The Trustee that acts as Property Trustee shall not be removed in accordance with Section 5.07(a) until a Successor Property Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Property Trustee and delivered to the Administrative Trustees and the Sponsor; and (ii) the Trustee that acts as Delaware Trustee shall not be removed in accordance with Section 5.07(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Sections 5.02 and 5.04 (a "SUCCESSOR DELAWARE TRUSTEE") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the removed Delaware Trustee, the Property Trustee (if the removed Delaware Trustee is not also the Property Trustee), the Administrative Trustees and the Sponsor. (c) A Trustee appointed to office shall hold office until his successor shall have been appointed or until his death, removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing signed by the Trustee and delivered to the other Trustees, 41 47 the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) No such resignation of the Trustee that acts as the Property Trustee shall be effective: (A) until a Successor Property Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Property Trustee and delivered to the Trust, the Sponsor, the Delaware Trustee (if the resigning Property Trustee is not also the Delaware Trustee) and the resigning Property Trustee; or (B) until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the Holders of the Securities; and (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Trust, the Property Trustee (if the resigning Delaware Trustee is not also the Property Trustee), the Sponsor and the resigning Delaware Trustee. (d) The Holders of the Common Securities or, if an Event of Default shall have occurred and be continuing after the issuance of the Securities, the Holders of the Preferred Securities shall use their best efforts to promptly appoint a Successor Delaware Trustee or Successor Property Trustee, as the case may be, if the Property Trustee or the Delaware Trustee delivers an instrument of resignation in accordance with this Section 5.07. (e) If no Successor Property Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.07 within 60 days after delivery of an instrument of resignation or removal, the Property Trustee or Delaware Trustee resigning or being removed, as applicable, may petition any court of competent jurisdiction for appointment of a Successor Property Trustee or Successor Delaware Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper and prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee, as the case may be. (f) No Property Trustee or Delaware Trustee shall be liable for the acts or omissions to act of any Successor Property Trustee or Successor Delaware Trustee, as the case may be. 42 48 SECTION 5.08. Vacancies among Trustees. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.01, or if the number of Trustees is increased pursuant to Section 5.01, a vacancy shall occur. A resolution certifying the existence of such vacancy by the Administrative Trustees or, if there are more than two, a majority of the Administrative Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with Section 5.07. SECTION 5.09. Effect of Vacancies. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to dissolve, terminate or annul the Trust or to terminate this Agreement. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 5.07, the Administrative Trustees in office, regardless of their number, shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Agreement. SECTION 5.10. Meetings. If there is more than one Administrative Trustee, meetings of the Administrative Trustees shall be held from time to time upon the call of any Administrative Trustee. Regular meetings of the Administrative Trustees may be held at a time and place fixed by resolution of the Administrative Trustees. Notice of any in-person meetings of the Administrative Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before such meeting. Notice of any telephonic meetings of the Administrative Trustees or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of an Administrative Trustee at a meeting shall constitute a waiver of notice of such meeting except where an Administrative Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Agreement, any action of the Administrative Trustees may be taken at a meeting by vote of a majority of the Administrative Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the majority written consent of the Administrative Trustees. In the event there is only one Administrative Trustee, any and all action of such Administrative Trustee shall be evidenced by a written consent of such Administrative Trustee. 43 49 SECTION 5.11. Delegation of Power. (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 3.06, including any registration statement or amendment thereto filed with the Commission; and (b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of this Agreement. SECTION 5.12. Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Property Trustee or the Delaware Trustee or any Administrative Trustee that is not a natural person, as the case may be, may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Property Trustee or the Delaware Trustee, as the case may be, shall be a party, or any Person succeeding to all or substantially all the corporate trust business of the Property Trustee or the Delaware Trustee, as the case may be, shall be the successor of the Property Trustee or the Delaware Trustee, as the case may be, hereunder, provided such Person 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; provided, however, such successor shall notify the Sponsor and the Trust promptly of its succession. SECTION 5.13. Compensation. The Sponsor agrees: (a) to pay to the Property Trustee and the Delaware Trustee from time to time such compensation as shall be agreed in writing between the Sponsor and the Property Trustee and the Delaware Trustee, respectively, for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); and (b) to reimburse the Property Trustee and the Delaware Trustee upon their request for reasonable expenses, disbursements and advances incurred or made by the Property Trustee or the Delaware Trustee, respectively, in accordance with any provision of this Agreement (including the reasonable compensation and the expenses and advances of its agents and counsel), except any such expense or advance as may be attributable to their negligence, willful misconduct or bad faith. 44 50 ARTICLE 6 DISTRIBUTIONS; RESET RATE; REMARKETING; MANDATORY REDEMPTION SECTION 6.01. Distributions. Holders shall receive Distributions in accordance with the applicable terms of the relevant Holder's Securities. Distributions shall be made on the Securities in accordance with the respective terms and preferences set forth below and in Annex I. If and to the extent that the Subordinated Note Issuer makes a payment of interest (including Additional Interest (as defined in the Indenture)), premium and/or principal on the Subordinated Notes held by the Property Trustee (the amount of any such payment being a "PAYMENT AMOUNT"), the Property Trustee shall and is directed, to the extent funds are available for that purpose, to make a distribution (a "DISTRIBUTION") of the Payment Amount to Holders. SECTION 6.02. Determination of Reset Date; Remarketing Procedures. (a) Subject to Sections 6.04 and 6.06, the Reset Date shall be September 28, 1999 (the "EXPECTED RESET DATE"); provided that (i) the Sponsor may, by notice to the Remarketing Agent, direct that the Reset Date be delayed if the Sponsor believes it will be unable to meet the conditions to Remarketing in the absence of such a delay; and (ii) the Remarketing Agent may, by notice to the Sponsor, direct that the Reset Date be delayed if the Remarketing Agent believes that a Remarketing will not be successful in the absence of such a delay; and, in either such event, the Sponsor and the Remarketing Agent will use their best efforts to establish a delayed Reset Date that is within five Business Days after the Expected Reset Date, but in no event later than the Final Reset Date; and provided further, that no Reset Date may be established if any Default (as defined in the Credit Agreement) has occurred, except in connection with a Remarketing following a Cured Default Trigger Event pursuant to Section 6.06. If the Sponsor and the Remarketing Agent have not agreed, on or prior to the sixth Business Day preceding the Final Reset Date, to a Reset Date that is not later than the Final Reset Date, no Remarketing shall occur and the Securities shall be redeemed at the Mandatory Redemption Price on the Mandatory Redemption Date. (b) The Sponsor shall, by notice to the Remarketing Agent no later than five Business Days prior to the Reset Date, select and specify at least three but no more than five Reference Corporate Dealers. By 3:00 p.m., New York City time, on the Reset Date, the Remarketing Agent shall request Bids from such Reference 45 51 Corporate Dealers. The Remarketing Agent shall determine the lowest Bid Rate (the "WINNING BID RATE") from among the Bids obtained on the Reset Date. By approximately 4:30 p.m., New York City time, on the Reset Date, the Remarketing Agent shall notify the Sponsor, the Underwriter, the Indenture Trustee and the Property Trustee of the Winning Bid Rate. If on a Reset Date, Bids are not submitted by at least two Reference Corporate Dealers, or if the lowest Bid submitted would result in a Winning Bid Rate in excess of the rate permitted by applicable law, such Remarketing shall be deemed to be a Failed Remarketing on the corresponding Remarketing Settlement Date. The Winning Bid Rate determined by the Remarketing Agent, absent manifest error, shall be binding and conclusive upon the Holders of the Trust Securities, the Sponsor and the Trust. (c) On the Reset Date, the Remarketing Agent shall designate as the Secondary Purchaser (the "SECONDARY PURCHASER") the Reference Corporate Dealer providing the Bid containing the Winning Bid Rate. If the Winning Bid Rate is specified in the Bids submitted by two or more Reference Corporate Dealers, the Remarketing Agent shall, in its sole discretion, designate one of such Reference Corporate Dealers as the Secondary Purchaser. (d) On the Reset Date, the Secondary Purchaser shall enter into a Secondary Purchase Agreement for the purchase by such Secondary Purchaser at the Remarketing Price of the aggregate Liquidation Amount of Preferred Securities, with a Distribution Rate equal to the Winning Bid Rate and with a Mandatory Redemption Date on the Maturity Extension Date. (e) If a Remarketing has occurred pursuant to this Section 6.02 but settlement of the purchase and sale of the Preferred Securities does not occur on the corresponding Remarketing Settlement Date, then, unless the provisions of Section 6.04 with respect to a Renewed Remarketing shall apply, a Failed Remarketing shall be deemed to occur on such Remarketing Settlement Date. (f) At the time and in the manner specified in the Secondary Purchase Agreement, the Secondary Purchaser shall pay to the Remarketing Agent on behalf of the Holders of the Preferred Securities on the Remarketing Settlement Date, an amount of cash equal to the Remarketing Price. (g) Unless otherwise agreed among the Remarketing Agent, the Paying Agent and any Former Holder, the Remarketing Agent shall pay the Remarketing Price, less the Remarketing Fee, to the Paying Agent, acting solely as agent for the Former Holders, and the Paying Agent shall promptly pay such amounts to the Former Holders on the Remarketing Settlement Date in the same manner as is specified in Section 5(g) of Annex I hereto for payments with respect to 46 52 Redemptions of the Preferred Securities. Any amounts held by the Paying Agent for payment to the Former Holders shall not be property of the Trust. (h) The obligation of the Remarketing Agent to make payment to the Former Holders in connection with the Remarketing shall be limited to the extent that the Secondary Purchaser has delivered the Remarketing Price therefor to the Remarketing Agent. (i) Any outstanding Preferred Securities purchased on the Remarketing Settlement Date shall be deemed to be transferred to the Secondary Purchaser and shall be replaced in the manner provided in Section 6.02(j). On and after the Remarketing Settlement Date (except in the event of a Failed Remarketing), the Trust shall make no further payments to, and the Trust shall have no further obligations under this Agreement in respect of, the Holders of such replaced Preferred Securities (the "FORMER HOLDERS"), the Trust shall only be obligated to make payments to the Holders of Replacement Securities, and the Preferred Securities of the Former Holders shall no longer represent an obligation of or interest in the Trust but shall only represent a right to receive the proceeds of the Remarketing from the Paying Agent. (j) The Sponsor shall cause replacement certificates evidencing the remarketed Preferred Securities to be executed by an Administrative Trustee on behalf of the Trust and authenticated by the Property Trustee in accordance with the provisions of Section 7.03 (the "REPLACEMENT SECURITIES"). The Replacement Securities shall be delivered to the purchaser or purchasers of the remarketed Preferred Securities in accordance with the terms of the Secondary Purchase Agreement. SECTION 6.03. Reset of Distribution Rate and Mandatory Redemption Date. Unless a Failed Remarketing shall have occurred, from and including the Reset Settlement Date, the Distribution Rate on the Securities shall be the Winning Bid Rate and the Mandatory Redemption Date shall be the Maturity Extension Date. SECTION 6.04. Renewed Remarketing. If a Remarketing has occurred pursuant to Section 6.02 that would be a Failed Remarketing solely pursuant to Section 6.02(e), because the purchase and sale of the Preferred Securities does not take place on the corresponding Remarketing Settlement Date, and the reason for such failure shall, in the good faith determination of the Remarketing Agent (made after consultation with the Sponsor), result from facts or circumstances that are not due to the action or inaction of the Sponsor, then the provisions of Sections 6.02 and 6.06 shall apply to a second remarketing (a "RENEWED REMARKETING") of the Preferred Securities, except that the Expected Reset Date 47 53 shall be the sixth Business Day following such corresponding Remarketing Settlement Date; provided that the provisions of this Section 6.04 shall be applied only once. SECTION 6.05. Failed Remarketing; Mandatory Redemption. The Remarketing Agent shall give notice of any Failed Remarketing on the date such Failed Remarketing occurs or is deemed to occur, by 4:00 p.m., New York City time, on the date of such Failed Remarketing, to the Subordinated Note Issuer, the Property Trustee, the Indenture Trustee, the Underwriter and the Paying Agent under the Indenture. In the case of any Failed Remarketing, the Subordinated Notes shall be redeemed by the Subordinated Note Issuer, pursuant to Section 3.04 of the Supplemental Indenture, on the third Business Day following the date such Failed Remarketing occurs or is deemed to occur, and the proceeds of such redemption shall be simultaneously applied by the Property Trustee to redeem a Like Amount of the Securities at the Mandatory Redemption Price on a Pro Rata basis in the manner provided in Section 5 of Annex I. SECTION 6.06. Early Remarketing. If any of the following events (each, a "TRIGGER EVENT") shall have occurred: (a) the Closing Price of the Common Stock on any Trading Day, as determined by the Remarketing Agent, is less than the Trigger Price (a "STOCK PRICE TRIGGER EVENT"); (b) a Cross Default shall have occurred but such Cross Default shall have ceased to be continuing (a "CURED DEFAULT TRIGGER EVENT"); or (c) the Sponsor (i) shall have made a written request to the Underwriter to enter into a firm commitment underwriting of the Common Stock, and the Sponsor and the Underwriter shall have substantially agreed to the terms of such underwriting in the manner described in Section 12 of the Forward Underwriting Agreement or (ii) shall have given notice to accelerate the Commencement Date in the manner described in Section 7 of the Forward Underwriting Agreement (an "UNDERWRITING TRIGGER EVENT"); then a Remarketing shall occur pursuant to Section 6.02 and, if applicable, Section 6.04, except that: (A) the Expected Reset Date shall be the sixth Business Day following the date such Trigger Event first occurs; (B) in the case of a Stock Price Trigger Event or a Cured Default Trigger Event, the Final Reset Date shall be the 15th day following the date such Trigger 48 54 Event occurs, or the 20th day in the case of a Renewed Remarketing to which the provisions of Section 6.04 apply, but in no event later than the third scheduled Trading Day prior to November 10, 1999; (C) in the case of an Underwriting Trigger Event, the Final Reset Date shall be the 45th day following the date such Trigger Event occurs, but in no event later than the third scheduled Trading Day prior to November 10, 1999; and (D) notwithstanding the provisions of clauses (A), (B) and (C) above, if a Reset Date has already been established or a Remarketing has already taken place at the time such Trigger Event occurs, the Remarketing shall occur on such established Reset Date or settled on the corresponding Remarketing Settlement Date. SECTION 6.07. Adjustments to Trigger Price. The "TRIGGER PRICE" shall initially be $22 11/16 (twenty-two and eleven-sixteenths). Following the determination by the Calculation Agent in its reasonable discretion that a Potential Adjustment Event has occurred, the Calculation Agent shall determine (after consultation with the Sponsor) whether such Potential Adjustment Event has a diluting or concentrative effect on the theoretical value of the Common Stock and, if so, shall make the corresponding adjustment(s), if any, to the Trigger Price. The Sponsor shall promptly notify the Calculation Agent of any Potential Adjustment Event. The Calculation Agent may, but need not, determine the appropriate adjustment(s) by reference to the adjustment(s) in respect of such Potential Adjustment Event made by an options exchange to options on the Common Stock traded on that options exchange. In the event of any merger, consolidation or reorganization of the Sponsor, the Calculation Agent shall determine the appropriate Trigger Price as a result of such event. ARTICLE 7 ISSUANCE OF SECURITIES SECTION 7.01. General Provisions Regarding Securities. (a) The Administrative Trustees shall on behalf of the Trust issue one class of preferred securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I (the "PREFERRED SECURITIES") and one class of common securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I (the "COMMON SECURITIES"). The Trust shall issue no securities or other interests in the assets of the Trust other than the Preferred Securities and the Common Securities. 49 55 (b) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (c) Upon issuance of the Securities as provided in this Agreement, the Securities so issued shall be validly issued, fully paid and non-assessable. (d) Every Person, by virtue of having become a Holder or a Preferred Security Beneficial Owner in accordance with the terms of this Agreement, shall (i) be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Agreement, including the terms of Annex I, Exhibits A-1, A-2, A-3 and D and (ii) be deemed to have expressly appointed the Remarketing Agent as its attorney-in-fact with respect to the transactions contemplated by the Secondary Purchase Agreement. SECTION 7.02. Execution and Authentication. (a) The Securities shall be signed on behalf of the Trust by an Administrative Trustee. In case any Administrative Trustee of the Trust who shall have signed any of the Securities shall cease to be such Administrative Trustee before the Securities so signed shall be delivered by the Trust, such Securities nevertheless may be delivered as though the Person who signed such Securities had not ceased to be such Administrative Trustee; and any Securities may be signed on behalf of the Trust by such persons who, at the actual date of execution of such Security, shall be the Administrative Trustees of the Trust, although at the date of the execution and delivery of this Agreement any such person was not an Administrative Trustee. (b) One Administrative Trustee shall sign the Preferred Securities for the Trust by manual or facsimile signature. A Preferred Security shall not be valid until authenticated by the manual signature of an authorized signatory of the Property Trustee. The signature shall be conclusive evidence that the Preferred Security has been authenticated under this Agreement. A Common Security shall be valid upon execution by an Administrative Trustee without any act of the Property Trustee. Upon a written order of the Trust signed by one Administrative Trustee, the Property Trustee shall authenticate the Preferred Securities for original issue. The aggregate number of Preferred Securities outstanding at any time shall not exceed the number set forth in the terms in Annex I hereto except as provided in Section 7.06. 50 56 The Property Trustee may appoint an authenticating agent acceptable to the Trust to authenticate Preferred Securities. An authenticating agent may authenticate Preferred Securities whenever the Property Trustee may do so. Each reference in this Agreement to authentication by the Property Trustee includes authentication by such agent. An authenticating agent has the same rights as the Property Trustee hereunder with respect to the Sponsor or an Affiliate. SECTION 7.03. Form and Dating. The Preferred Securities and the Property Trustee's certificate of authentication shall be substantially in the form of Exhibit A-1, the Replacement Securities shall be substantially in the form of Exhibit A-3 and the Common Securities shall be substantially in the form of Exhibit A-2, each of which is hereby incorporated in and expressly made a part of this Agreement. The Preferred Securities shall be issued only in minimum denominations of $100,000 Liquidation Amount and integral multiples of $1,000 in excess thereof. The Securities may be in definitive or global form, and may be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to an Administrative Trustee, as evidenced by the execution thereof. The Securities may have letters, CUSIP or other numbers, notations or other marks of identification or designation and such legends or endorsements required by law, stock exchange or quotation system rule, agreements to which the Trust is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Trust). An Administrative Trustee, at the direction of the Sponsor, shall furnish any such legend not contained in Exhibits A-1, A-2 or A-3 to the Property Trustee in writing. Each Preferred Security shall be dated the date of its authentication. The terms and provisions of the Securities set forth in Annex I and the forms of Securities set forth in Exhibits A-1, A-2 and A-3 are part of the terms of this Agreement and to the extent applicable, the Property Trustee and the Sponsor, by their execution and delivery of this Agreement, expressly agree to such terms and provisions and to be bound thereby. (a) The Preferred Securities shall initially be issued in definitive form ("DEFINITIVE PREFERRED SECURITIES"). Upon Remarketing, the Preferred Securities shall be issued as Replacement Securities in the form of one or more permanent global Securities in definitive, fully registered form with the appropriate global legends set forth in Exhibit A-3 hereto (a "GLOBAL PREFERRED SECURITY"), which shall be deposited on behalf of the purchasers of the Preferred Securities represented thereby with the Property Trustee, as custodian for the Depository, and registered in the name of the Depository or a nominee of the Depository, duly executed by an Administrative Trustee on behalf of the Trust and authenticated by the Property Trustee as hereinafter provided. The number of Preferred Securities represented by the Global Preferred Security may from time to time be increased or decreased by adjustments made on the records of the Property Trustee and the 51 57 Depository or its nominee as hereinafter provided. The Holder of a Global Preferred Security may grant proxies and otherwise authorize any Person, including Participants, and Persons that may hold interests through Participants, to take any action which such Holder is entitled to take under this Agreement or the Securities. (b) An Administrative Trustee shall execute and the Property Trustee shall, in accordance with this Section 7.03, authenticate and make available for delivery initially one or more Definitive Preferred Securities registered in the name of the initial Holders or their designees. Upon Remarketing, an Administrative Trustee shall execute and the Property Trustee shall, in accordance with this Section 7.03, authenticate and make available for delivery one or more Global Preferred Securities that (i) shall be registered in the name of Cede & Co. or other nominee of such Depository and (ii) shall be delivered by the Property Trustee to such Depository or pursuant to such Depository's written instructions or held by the Property Trustee as custodian for the Depository. (c) Members of, or participants in, the Depository ("PARTICIPANTS") shall have no rights under this Agreement with respect to any Global Preferred Security held on their behalf by the Depository or by the Property Trustee as the custodian of the Depository or under such Global Preferred Security, and the Depository or its nominee may be treated by the Trust, the Property Trustee and any agent of the Trust or the Property Trustee as the absolute owner of such Global Preferred Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Trust, the Property Trustee or any agent of the Trust or the Property Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Participants, the operation of customary practices of such Depository governing the exercise of the rights of an owner of a beneficial interest in any Global Preferred Security. (d) Except in connection with the initial issuance of the Preferred Securities and as further provided in Section 9.02, owners of beneficial interests in a Global Preferred Security will not be entitled to receive physical delivery of Definitive Preferred Securities. SECTION 7.04. Registrar and Paying Agent. The Trust shall maintain in the Borough of Manhattan, The City of New York, (i) an office or agency where Preferred Securities may be presented for registration of transfer ("REGISTRAR") and (ii) an office or agency where Preferred Securities may be presented for payment ("PAYING AGENT"). The Registrar shall keep a register of the Preferred Securities and of their transfer. The Trust may appoint the Registrar and the Paying Agent and may appoint one or more co-registrars and one or more 52 58 additional paying agents in such other locations as it shall determine. The term "REGISTRAR" includes any additional registrar and the term "PAYING AGENT" includes any additional paying agent. The Trust may change any Registrar or Paying Agent without prior notice to any Holder. The Administrative Trustees shall notify the Property Trustee of the name and address of any Agent not a party to this Agreement. If the Trust fails to appoint or maintain another entity as Registrar or Paying Agent, the Property Trustee shall act as such, and as Paying Agent the Property Trustee shall have the rights set forth in Section 3.08(i). The Property Trustee or any of its Affiliates may act as Registrar or Paying Agent. The Trust shall act as Registrar and Paying Agent for the Common Securities. Any Paying Agent shall be permitted to resign as Paying Agent upon 30 days' prior written notice to the Property Trustee, the Administrative Trustees and the Sponsor. In the event that the Property Trustee shall no longer be the Paying Agent, the Trust shall appoint a successor Paying Agent (which shall be a bank or trust company acceptable to the Sponsor) to act as Paying Agent. Any such resignation shall become effective upon the appointment of a successor paying agent by the Trust to perform the services that would otherwise be performed hereunder by the Paying Agent and the agreement of any such successor so to serve. The Trust initially appoints the Property Trustee as Registrar and Paying Agent for the Preferred Securities. SECTION 7.05. Paying Agent to Hold Money in Trust. The Trust shall require each Paying Agent other than the Property Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Property Trustee all money held by the Paying Agent for the payment of Liquidation Amounts or Distributions on the Securities and will notify the Property Trustee if there are insufficient funds for such purpose. While any such insufficiency continues, the Property Trustee may require a Paying Agent to pay all money held by it to the Property Trustee. The Trust at any time may require a Paying Agent to pay all money held by it to the Property Trustee and to account for any money disbursed by it. Upon payment over to the Property Trustee, the Paying Agent (if other than the Trust or an Affiliate of the Trust) shall have no further liability for the money. If the Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. SECTION 7.06. Replacement of Securities. If a Holder of a Security claims that a Security owned by it has been lost, destroyed or wrongfully taken or if such Security is mutilated and is surrendered to the Trust or, in the case of the Preferred Securities, to the Property Trustee, an Administrative Trustee shall execute and 53 59 the Property Trustee shall authenticate and make available for delivery a replacement of such Security if the Property Trustee's and the Trust's requirements, as the case may be, are met. An indemnity bond must be provided by the Holder which, in the judgment of the Property Trustee, is sufficient to protect the Trustees, the Sponsor or any authenticating agent from any loss which any of them may suffer if a Security is replaced. The Trust may charge such Holder for its expenses in replacing a Security. SECTION 7.07. Outstanding Preferred Securities. The Preferred Securities outstanding at any time are all the Preferred Securities authenticated by the Property Trustee except for those canceled by it, those delivered to it for cancellation, and those described in this Section as not outstanding. If a Preferred Security is replaced, paid or purchased pursuant to Section 7.06 hereof, it ceases to be outstanding unless the Property Trustee receives proof satisfactory to it that the replaced, paid or purchased Preferred Security is held by a bona fide purchaser. If Preferred Securities are considered paid in accordance with the terms of this Agreement, including any Preferred Securities replaced by Replacement Securities in accordance with the provisions of Article 6, they cease to be outstanding and Distributions thereon shall cease to accumulate. Except to the extent set forth in the last paragraph of Section 6 of Annex I and Section 7.08, a Preferred Security does not cease to be outstanding because the Trust, the Sponsor or an Affiliate of the Sponsor holds such Preferred Security. SECTION 7.08. Preferred Securities in Treasury. In determining whether the Holders of the required amount of Preferred Securities have concurred in any direction, waiver or consent, Preferred Securities owned by the Trust, the Sponsor or an Affiliate of the Sponsor, as the case may be, shall be disregarded and deemed not to be outstanding, except that for the purposes of determining whether the Property Trustee shall be fully protected in relying on any such direction, waiver or consent, only Preferred Securities which a Responsible Officer of the Property Trustee actually knows are so owned shall be so disregarded. SECTION 7.09. Temporary Securities. Until Definitive Securities are ready for delivery, the Administrative Trustees may prepare and, in the case of the Preferred Securities, the Property Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of Definitive Securities but may have variations that the Trust considers appropriate for temporary Securities. Without unreasonable delay, the Administrative Trustees shall prepare 54 60 and, in the case of the Preferred Securities, the Property Trustee shall authenticate Definitive Securities in exchange for temporary Securities. SECTION 7.10. Cancellation. The Trust at any time may deliver Preferred Securities to the Property Trustee for cancellation. The Registrar and Paying Agent shall forward to the Property Trustee any Preferred Securities surrendered to them for registration of transfer, redemption, exchange or payment. The Property Trustee shall promptly cancel all Preferred Securities surrendered for registration of transfer, redemption, exchange, payment, replacement or cancellation and shall dispose of canceled Preferred Securities as the Trust directs, provided that the Property Trustee shall not be obligated to destroy Preferred Securities. The Trust may not issue new Preferred Securities to replace Preferred Securities that it has paid or redeemed or that have been delivered to the Property Trustee for cancellation or that any Holder has exchanged. SECTION 7.11. CUSIP Numbers. The Trust, in issuing the Preferred Securities, may use "CUSIP" numbers (if then generally in use), and, if so, the Property Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders of Preferred Securities; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Preferred Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Preferred Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Sponsor will promptly notify the Property Trustee of any change in the CUSIP numbers. ARTICLE 8 DISSOLUTION AND TERMINATION OF TRUST SECTION 8.01. Dissolution and Termination of Trust. (a) The Trust shall automatically dissolve upon the first to occur of the following events: (i) the bankruptcy of the Sponsor; (ii) (A) the filing of a certificate of dissolution or liquidation or its equivalent with respect to the Sponsor or (B) the revocation of the Sponsor's charter and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iii) the distribution of a Like Amount of the Subordinated Notes to the Holders of the Securities, provided that the Property Trustee has 55 61 received written notice from the Sponsor directing the Property Trustee to dissolve the Trust (which direction is optional and, except as otherwise expressly provided herein, within the discretion of the Sponsor), and provided, further, that such dissolution is conditioned on the receipt by the Administrative Trustees' receipt of an opinion of an independent tax counsel experienced in such matters to the effect that the Holders of the Securities will not recognize any gain or loss for United States Federal income tax purposes as a result of the dissolution of the Trust and the distribution of the Subordinated Notes; (iv) the entry of a decree of judicial dissolution of the Trust by a court of competent jurisdiction; (v) the redemption of all of the Securities and the payment to the Holders of any and all amounts necessary therefor, all in accordance with the terms of the Securities; or (vi) the expiration of the term of the Trust provided in Section 3.14. (b) As soon as is practicable upon completion of winding up of the Trust following the occurrence of an event referred to in Section 8.01(a), the Administrative Trustees shall terminate the Trust by filing a certificate of cancellation with the Secretary of State of the State of Delaware in accordance with the Business Trust Act. (c) The provisions of Section 3.09 and Article 10 shall survive the termination of the Trust. ARTICLE 9 TRANSFER OF INTERESTS SECTION 9.01. Transfer of Securities. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Agreement and in the terms of the Securities. To the fullest extent permitted by law, any transfer or purported transfer, sale or other disposition of any Security not made in accordance with this Agreement shall be null and void. (b) Subject to this Article 9, Preferred Securities shall be freely transferable. 56 62 (c) To the fullest extent permitted by law, the Sponsor may not transfer the Common Securities except for any transfer (whether voluntarily or by operation of law) permitted under Article 5 of the Indenture. (d) Each Security that bears or is required to bear the legend set forth in this Section 9.01(d) (a "RESTRICTED SECURITY") shall be subject to the restrictions on transfer provided in the legend set forth in this Section 9.01(d), unless such restrictions on transfer shall be waived by the written consent of the Administrative Trustees, and the Holder of each Restricted Security, by such Holder's acceptance thereof, agrees to be bound by such restrictions on transfer. As used in this Section 9.01(d) and in Section 9.01(f), the terms "transfer" encompasses any sale, pledge, transfer or other disposition of any Restricted Security. Prior to the Transfer Restriction Termination Date, any certificate evidencing a Security shall bear a legend in substantially the following form, unless otherwise agreed by the Administrative Trustees (with written notice thereof to the Indenture Trustee): THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE SECURITIES EVIDENCED HEREBY EXCEPT (A) TO HERCULES INCORPORATED OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT OR (C) TO A SECONDARY PURCHASER (AS DEFINED IN THE AMENDED AND RESTATED TRUST AGREEMENT OF HERCULES TRUST V DATED AS OF NOVEMBER 12, 1998 (AS AMENDED FROM TIME TO TIME, THE "TRUST AGREEMENT")) THAT HAS ENTERED INTO A SECONDARY PURCHASE AGREEMENT (AS DEFINED IN THE TRUST AGREEMENT) WITH THE TRUST, (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITIES EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND AND (4) AGREES, WITH RESPECT TO ANY TRANSFER OCCURRING PRIOR TO THE REMARKETING DATE ON 57 63 WHICH REPLACEMENT SECURITIES ARE ISSUED, TO PROVIDE TO THE PROPERTY TRUSTEE A DULY EXECUTED CERTIFICATE SUBSTANTIALLY TO THE EFFECT OF CLAUSES (1), (2) AND (3), ABOVE. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO THE SALES OF THE SECURITIES EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT. Following the Transfer Restriction Termination Date, any Security or Securities issued in exchange or substitution therefor (other than Securities acquired by the Sponsor or any Affiliate), may upon surrender of such Security or Securities for exchange to the Trustee in accordance with the provisions of this Section 9.01(d), be exchanged for a new Security or Securities, as the case may be, in a like aggregate Liquidation Amount that shall not bear the restrictive legend required by this Section. (e) Any Security that, prior to the Transfer Restriction Termination Date, is purchased or owned by the Sponsor or any Affiliate thereof may not be resold by the Sponsor or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements thereof that results in such Security no longer being a "restricted security" as defined under Rule 144 under the Securities Act. (f) The Preferred Securities may be transferred or exchanged only in minimum denominations of $100,000 Liquidation Amount and integral multiples of $1,000 in excess thereof, and any attempted transfer, sale or other disposition of Preferred Securities in a denomination of less than $100,000 Liquidation Amount shall be deemed to be void and of no legal effect whatsoever. (g) The Administrative Trustees shall provide for the registration of Securities and of the transfer of Securities, which will be effected without charge but only upon payment (with such indemnity as the Administrative Trustees may require) in respect of any tax or other governmental charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Securities, the Administrative Trustees shall cause one or more new Securities to be issued in the name of the designated transferee or transferees. Every Security surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Administrative Trustees duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Security surrendered for registration of transfer shall be canceled by the Administrative Trustees. A transferee of a Security shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Security. By acceptance of a Security, each transferee shall be deemed to have agreed to be bound by this Agreement. 58 64 SECTION 9.02. Transfer Procedures and Restrictions. (a) When Definitive Preferred Securities are presented to the Registrar: (x) to register the transfer of such Definitive Preferred Securities; or (y) to exchange such Definitive Preferred Securities which became mutilated, destroyed, defaced, stolen or lost, for an equal Liquidation Amount of Definitive Preferred Securities, the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Definitive Preferred Securities surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Property Trustee and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing and comply with Section 9.01(d) herein. (b) Transfer of a Definitive Preferred Security for a Beneficial Interest in a Global Preferred Security. Upon receipt by the Property Trustee of a Definitive Preferred Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Property Trustee, and in compliance with restrictions under Section 9.01(d), together with written instructions directing the Property Trustee to make, or to direct the Depository to make, an adjustment on its books and records with respect to the Global Preferred Security to reflect an increase in the Liquidation Amount of the Preferred Securities represented by such Global Preferred Security, then the Property Trustee shall cancel such Definitive Preferred Security and cause, or direct the Depository to cause, the aggregate Liquidation Amount of Preferred Securities represented by the appropriate Global Preferred Security to be increased accordingly. If no Global Preferred Securities are then outstanding, an Administrative Trustee shall execute on behalf of the Trust shall issue and the Property Trustee shall authenticate, upon written order of any Administrative Trustee, a Global Preferred Security representing an appropriate Liquidation Amount of Preferred Securities. (c) Transfer and Exchange of Global Preferred Securities. Subject to Section 9.01(d) and Section 9.02(d), the transfer and exchange of Global Preferred Securities or beneficial interests therein shall be effected through the Depository, in accordance with this Agreement and the procedures of the Depository therefor. (d) Transfer of a Beneficial Interest in a Global Preferred Security for a Definitive Preferred Security. 59 65 (i) A Global Preferred Security deposited with the Depository or with the Property Trustee as custodian for the Depository pursuant to Section 7.03 shall be transferred to the beneficial owners thereof in the form of Definitive Preferred Securities only if such transfer complies with Sections 9.01(d), 9.02(c) and 9.02(e) and (A) the Depository notifies the Trust that it is unwilling or unable to continue as Depository for such Global Preferred Security or if at any time such Depository ceases to be a "clearing agency" registered under the Exchange Act and, in each case, a depository is not appointed by the Sponsor within 90 days of receipt of such notice or of becoming aware of such condition, (B) a Default or an Event of Default has occurred and is continuing or (C) the Administrative Trustees, on behalf of the Trust, at its sole discretion elects to cause the issuance of Definitive Preferred Securities. (ii) Any Global Preferred Security that is transferable to the beneficial owners thereof in the form of Definitive Preferred Securities pursuant to this Section 9.02(d) shall be surrendered by the Depository to the Property Trustee to be so transferred, in whole or from time to time in part, without charge, and the Property Trustee shall authenticate and make available for delivery, upon such transfer of each portion of such Global Preferred Security, an equal aggregate Liquidation Amount of Securities of authorized denominations in the form of Definitive Preferred Securities. Any portion of a Global Preferred Security transferred pursuant to this Section shall be registered in such names as the Depository shall direct. (iii) In the event of the occurrence of any of the events specified in Section 9.02(d)(i) above, the Administrative Trustees will promptly make available to the Property Trustee a reasonable supply of Definitive Preferred Securities in fully registered form without Distribution coupons. (e) Restrictions on Transfer and Exchange of Global Preferred Securities. Notwithstanding any other provisions of this Agreement (other than the provisions set forth in Section 9.01(d) and 9.02(d)), a Global Preferred Security may not be transferred as a whole except by the Depository to a nominee of the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (f) Cancellation or Adjustment of Global Preferred Security. At such time as all beneficial interests in a Global Preferred Security have either been exchanged for Definitive Preferred Securities to the extent permitted by this Agreement or redeemed, repurchased or canceled in accordance with the terms of this Agreement, such Global Preferred Security shall be returned to the Depository for cancellation 60 66 or retained and canceled by the Property Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Preferred Security is exchanged for Definitive Preferred Securities, Preferred Securities represented by such Global Preferred Security shall be reduced and an adjustment shall be made on the books and records of the Property Trustee (if it is then the custodian for such Global Preferred Security) with respect to such Global Preferred Security, by the Property Trustee or the Securities Custodian, to reflect such reduction. (g) Obligations with Respect to Transfers and Exchanges of Preferred Securities. (i) To permit registrations of transfers and exchanges, an Administrative Trustee shall execute and the Property Trustee shall authenticate Definitive Preferred Securities and Global Preferred Securities at the Registrar's request in accordance with the terms of this Agreement. (ii) Registrations of transfers or exchanges will be effected without charge, but only upon payment (with such indemnity as the Trust or the Sponsor may require) in respect of any tax or other governmental charge that may be imposed in relation to it. (iii) The Registrar shall not be required to register the transfer of or exchange of (A) Preferred Securities during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption or any notice of selection of Preferred Securities for redemption and ending at the close of business on the day of such mailing; or (B) any Preferred Security so selected for redemption in whole or in part, except the unredeemed portion of any Preferred Security being redeemed in part. (iv) All Preferred Securities issued upon any registration of transfer or exchange pursuant to the terms of this Agreement shall evidence the same security and shall be entitled to the same benefits under this Agreement as the Preferred Securities surrendered upon such registration of transfer or exchange. (h) No Obligation of the Property Trustee. (i) The Property Trustee shall have no responsibility or obligation to any beneficial owner of a Global Preferred Security, a Participant in the Depository or other Person with respect to the accuracy of the records of the Depository or its nominee or of any Participant thereof, with respect to any ownership interest in the Preferred Securities or with respect to the delivery to any Participant, beneficial owner or other Person (other than the 61 67 Depository) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Preferred Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Preferred Securities shall be given or made only to or upon the order of the Holders (which shall be the Depository or its nominee in the case of a Global Preferred Security). The rights of beneficial owners in any Global Preferred Security shall be exercised only through the Depository subject to the applicable rules and procedures of the Depository. The Property Trustee may conclusively rely and shall be fully protected in relying upon information furnished by the Depository or any agent thereof with respect to its Participants and any beneficial owners. (ii) The Property Trustee and Registrar shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Agreement or under applicable law with respect to any transfer of any interest in any Preferred Security (including any transfers between or among Participants or beneficial owners in any Global Preferred Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Agreement, and to examine the same to determine substantial compliance as to form with the express requirements hereof. SECTION 9.03. Deemed Security Holders. The Trust, the Trustees, the Registrar and the Paying Agent may treat the Person in whose name any Security shall be registered on the books and records of the Trust as the sole owner and Holder of such Security for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Security on the part of any Person other than such Holder, regardless of any notice to the contrary. SECTION 9.04. Book Entry Interests. (a) Unless and until Definitive Preferred Securities have been issued to the Preferred Security Beneficial Owners pursuant to Section 9.02: (i) the provisions of this Section 9.04 shall be in full force and effect; (ii) the Trust and the Trustees shall be entitled to deal with the Depository for all purposes of this Agreement (including the payment of Distributions on the Global Preferred Securities and receiving approvals, votes or consents hereunder) as the Holder of the Preferred Securities and the 62 68 sole Holder of the Global Preferred Securities and shall have no obligation to the Preferred Security Beneficial Owners; (iii) to the extent that the provisions of this Section 9.04 conflict with any other provisions of this Agreement, the provisions of this Section 9.04 shall control; and (iv) the rights of the Preferred Security Beneficial Owners shall be exercised only through the Depository and shall be limited to those established by law and agreements between such Preferred Security Beneficial Owners and the Depository and/or the Participants, including receiving and transmitting payments of Distributions on the Global Certificates to such Participants. The Depository will make book entry transfers among the Participants. (b) Any Global Preferred Security may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Agreement as may be required by the Depository, by any exchange or by the National Association of Securities Dealers, Inc. in order for the Preferred Securities to be tradeable on the PORTAL Market or as may be required for the Preferred Securities to be tradeable on any other market developed for trading of securities pursuant to Rule 144A or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange upon which the Preferred Securities may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Preferred Securities are subject. SECTION 9.05. Notices to Depository. Whenever a notice or other communication to the Holders of Preferred Securities is required to be given by a Trustee under this Agreement, such Trustee shall give all such notices and communications specified herein to be given to the Holders of Global Preferred Securities to the Depository and shall have no notice obligations to the Preferred Security Beneficial Owners. SECTION 9.06. Appointment of Successor Depository. If any Depository elects to discontinue its services as securities depositary with respect to the Preferred Securities, the Administrative Trustees may, in their sole discretion, appoint a successor Depository with respect to the Preferred Securities. 63 69 ARTICLE 10 LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 10.01. Liability. (a) Except as expressly set forth in this Agreement, the Securities Guarantees and the terms of the Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Securities which shall be made solely from assets of the Trust; and (ii) required to pay to the Trust or to any Holder of Securities any deficit upon dissolution of the Trust or otherwise. (b) The Sponsor shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trust's assets. (c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders of the Preferred Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 10.02. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Agreement or by law, except that this provision will not be deemed to modify Section 3.09. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. 64 70 SECTION 10.03. Fiduciary Duty. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Agreement shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Property Trustee under the Trust Indenture Act), are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person. (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between any Covered Person and any Indemnified Person; or (ii) whenever this Agreement or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by the Indemnified Person shall not constitute a breach of this Agreement or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. (c) Whenever in this Agreement an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be 65 71 subject to any other or different standard imposed by this Agreement or by applicable law. SECTION 10.04. Indemnification. (a) (i) The Sponsor shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) by reason of the fact that he is or was a Company Indemnified Person against expenses (including attorneys' fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Company Indemnified Person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (ii) The Sponsor shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor by reason of the fact that he is or was a Company Indemnified Person against expenses (including attorneys' fees and expenses) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such Company Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such Company Indemnified Person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (iii) To the extent that a Company Indemnified Person shall be successful on the merits or otherwise (including dismissal of an action without prejudice or the settlement of an action without admission of 66 72 liability) in defense of any action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.04(a), or in defense of any claim, issue or matter therein, he shall be indemnified, to the full extent permitted by law, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (iv) Any indemnification under paragraphs (i) and (ii) of this Section 10.04(a) (unless ordered by a court) shall be made by the Sponsor only as authorized in the specific case upon a determination that indemnification of the Company Indemnified Person is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (i) and (ii). Such determination shall be made (1) by the Administrative Trustees by a majority vote of a Quorum consisting of such Administrative Trustees who were not parties to such action, suit or proceeding, (2) if such a Quorum is not obtainable, or, even if obtainable, if a Quorum of disinterested Administrative Trustees so directs, by independent legal counsel in a written opinion, or (3) by the Common Security Holder of the Trust. (v) Expenses (including attorneys' fees and expenses) incurred by a Company Indemnified Person in defending a civil, criminal, administrative or investigative action, suit or proceeding referred to in Sections 10.04(a)(i) and 10.04(a)(ii) shall be paid by the Sponsor in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Company Indemnified Person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Sponsor as authorized in this Section 10.04(a). Notwithstanding the foregoing, no advance shall be made by the Sponsor if a determination is reasonably and promptly made (A) by the Administrative Trustees by a majority vote of a Quorum of disinterested Administrative Trustees, (B) if such a Quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Administrative Trustees so directs, by independent legal counsel in a written opinion or (C) by the Common Security Holder of the Trust, that, based upon the facts known to the Administrative Trustees, counsel or the Common Security Holder at the time such determination is made, such Company Indemnified Person acted in bad faith or in a manner that such Person did not believe to be in or not opposed to the best interests of the Trust, or, with respect to any criminal proceeding, that such Company Indemnified Person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Administrative Trustees, independent legal counsel or Common Security Holder reasonably determine that such person deliberately breached his duty to the Trust or its Common or Preferred Security Holders. 67 73 (vi) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 10.04(a) shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Sponsor or Preferred Security Holders of the Trust or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 10.04(a) shall be deemed to be provided by a contract between the Sponsor and each Company Indemnified Person who serves in such capacity at any time while this Section 10.04(a) is in effect. Any repeal or modification of this Section 10.04(a) shall not affect any rights or obligations then existing. (vii) The Sponsor or the Trust may purchase and maintain insurance on behalf of any Person who is or was a Company Indemnified Person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Sponsor would have the power to indemnify him against such liability under the provisions of this Section 10.04(a). (viii) For purposes of this Section 10.04(a), references to "THE TRUST" shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Section 10.04(a) with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued. (ix) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 10.04(a) shall, unless otherwise provided when authorized or ratified, continue as to a Person who has ceased to be a Company Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a person. (b) The Sponsor agrees to indemnify the (i) Property Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee and the Delaware Trustee, and (iv) any officers, directors, shareholders, members, partners, employees, representatives, custodians, nominees or agents of the Property Trustee and the Delaware Trustee (each of the Persons in (i) through (iv) being referred to as a "FIDUCIARY INDEMNIFIED PERSON") for, and to hold each Fiduciary Indemnified 68 74 Person harmless against, any and all loss, liability, damage, claim or expense including taxes (other than taxes based on the income of such Fiduciary Indemnified Person) incurred without gross negligence, bad faith or willful misconduct on its part (or such other standard otherwise provided, in the case of the Property Trustee, in the Trust Indenture Act), arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against or investigating any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder with respect to the Property Trustee, this provision shall not be deemed to modify Section 3.09(b) or the Trust Indenture Act. The obligation to indemnify as set forth in this Section 10.04(b) shall survive the resignation or removal of the Property Trustee or the Delaware Trustee and the satisfaction and discharge of this Agreement. SECTION 10.05. Outside Businesses. Any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee subject to Section 5.03 may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee, or the Property Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. ARTICLE 11 ACCOUNTING SECTION 11.01. Fiscal Year. The fiscal year ("FISCAL YEAR") of the Trust shall be the calendar year, or such other year as is required by the Code. 69 75 SECTION 11.02. Certain Accounting Matters. (a) At all times during the existence of the Trust, the Administrative Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail, each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States Federal income tax purposes. The books of account and the records of the Trust shall be examined by and reported upon as of the end of each Fiscal Year of the Trust by a firm of independent certified public accountants selected by the Administrative Trustees. (b) The Administrative Trustees shall cause to be prepared and delivered to each of the Holders of Securities, within 90 days after the end of each Fiscal Year of the Trust, annual financial statements of the Trust, including a balance sheet of the Trust as of the end of such Fiscal Year, and the related statements of income or loss. (c) The Administrative Trustees shall cause to be duly prepared and delivered to each of the Holders of Securities, any annual United States Federal income tax information statement, required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Administrative Trustees shall endeavor to deliver all such information statements within 60 days after the end of each Fiscal Year of the Trust. (d) The Administrative Trustees shall cause to be duly prepared and filed with the appropriate taxing authority, an annual United States Federal income tax return, as a grantor trust, on a Form 1041 or such other form required by United States Federal income tax law, and any other annual income tax returns required to be filed by the Administrative Trustees on behalf of the Trust with any state or local taxing authority. SECTION 11.03. Banking. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Subordinated Notes held by the Property Trustee shall be made directly to the Property Trustee Account and no other funds of the Trust shall be deposited in the Property Trustee Account. The sole signatories for such accounts shall be designated by the Administrative Trustees; provided, however, that the Property Trustee shall designate the signatories for the Property Trustee Account. SECTION 11.04. Withholding. The Trust and the Administrative Trustees shall comply with all withholding requirements under United States Federal, state 70 76 and local law. The Administrative Trustees, on behalf of the Trust, shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Administrative Trustees to assist them in determining the extent of, and in fulfilling, the Trust's withholding obligations. The Administrative Trustees shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to Distributions or allocations to any Holder, the amount withheld shall be deemed to be a Distribution in the amount of the withholding to the Holder. In the event of any claim of excess withholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made, the Trust may reduce subsequent Distributions by the amount of such withholding. ARTICLE 12 AMENDMENTS AND MEETINGS SECTION 12.01. Amendments. (a) Except as otherwise provided in this Agreement or by any applicable terms of the Securities, this Agreement may only be amended by a written instrument approved and executed by: (i) the Sponsor and the Administrative Trustees (or, if there are more than two Administrative Trustees, a majority of the Administrative Trustees); (ii) if the amendment affects the rights, powers, duties, obligations or immunities of the Property Trustee, the Property Trustee; and (iii) if the amendment affects the rights, powers, duties, obligations or immunities of the Delaware Trustee, the Delaware Trustee. (b) No amendment shall be made, and any such purported amendment shall be void and ineffective: (i) unless, in the case of any proposed amendment, the Property Trustee shall have first received an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Agreement (including the terms of the Securities); 71 77 (ii) unless, in the case of any proposed amendment which affects the rights, powers, duties, obligations or immunities of the Property Trustee, the Property Trustee shall have first received: (A) an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Agreement (including the terms of the Securities); and (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Agreement (including the terms of the Securities) and that all conditions precedent to the execution and delivery of such amendment have been satisfied; and (iii) to the extent the result of such amendment would: (A) cause the Trust to fail to be classified for purposes of United States Federal income taxation as a grantor trust; (B) reduce or otherwise adversely affect the powers of the Property Trustee in contravention of the Trust Indenture Act; or (C) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act. (c) At such time after the Trust has issued any Securities that remain outstanding, any amendment that would adversely affect the rights, privileges or preferences of any Holder of the Securities may be effected only with such additional requirements as may be set forth in the terms of such Securities; provided, however, that, without the consent of each Holder of the Securities, this Agreement may not be amended to (i) change the Distribution Rate (or manner of calculation of the Distribution Rate), amount, timing or currency or otherwise adversely affect the method of any required payment, (ii) change the purposes of the Trust, (iii) authorize the issuance of any additional beneficial interests in the Trust, (iv) change the redemption provisions, (v) change the conditions precedent for the Sponsor to elect to dissolve the Trust and distribute the Subordinated Notes to the Holders of the Securities, (vi) change the Liquidation Distribution or other provisions relating to the distribution of amounts payable upon the dissolution and liquidation of the Trust, (vii) affect the limited liability of any Holder of the Securities or (viii) restrict the right of a Holder of the Securities to institute suit for the enforcement of any required payment on or after the due date therefor (or, in the case of a redemption, on the redemption date). 72 78 (d) Article 6, Section 9.01(c) and this Section 12.01 shall not be amended without the consent of all of the Holders of the Securities. (e) Article 4 shall not be amended without the consent of the Holders of a Majority in Liquidation Amount of the Common Securities. (f) The rights of the Holders of the Common Securities under Article 5 to increase or decrease the number of, and to appoint and remove, Trustees shall not be amended without the consent of the Holders of a Majority in Liquidation Amount of the Common Securities. (g) Notwithstanding Section 12.01(c), this Agreement may be amended by the Sponsor and the Trustees without the consent of the Holders of the Securities to: (i) cure any ambiguity, correct or supplement any provision in this Agreement that may be inconsistent with any other provision of this Agreement or to make any other provisions with respect to matters or questions arising under this Agreement not inconsistent with any other provisions of this Agreement; and (ii) modify, eliminate or add to any provisions of this Agreement to such extent as shall be necessary to ensure that the Trust will be classified for United States Federal income tax purposes as a grantor trust at all times that any Securities are outstanding or to ensure that the Trust will not be required to register as an Investment Company under the Investment Company Act; provided, however, that, in each case, such action shall not adversely affect in any material respect the interests of the Holders of the Securities, and any such amendments of this Agreement shall become effective when notice thereof is given to the Holders of the Securities. SECTION 12.02. Meetings of the Holders of Securities; Action by Written Consent. (a) Meetings of the Holders of any class of Securities may be called at any time by the Administrative Trustees (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Agreement, the terms of the Securities or the rules of any stock exchange or quotation system or market on which the Preferred Securities are listed or admitted for trading. The Administrative Trustees shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in Liquidation Amount of the Securities of such class. Such direction shall be given by delivering to the Administrative Trustees one or more notices in a writing stating that the signing Holders of Securities wish to call a meeting and indicating the 73 79 general or specific purpose for which the meeting is to be called. Any Holders of Securities calling a meeting shall specify in writing the certificates held by the Holders of Securities exercising the right to call a meeting and only those Securities specified shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Whenever a vote, consent or approval of the Holders of Securities is permitted or required under this Agreement or the rules of any stock exchange or quotation system or market on which the Preferred Securities are listed or admitted for trading, such vote, consent or approval may be given at a meeting of the Holders of Securities. Any action that may be taken at a meeting of the Holders of Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of Securities owning not less than the minimum amount of Securities in Liquidation Amount that would be necessary to authorize or take such action at a meeting at which all Holders of Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Securities entitled to vote who have not consented in writing. (c) Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders of Securities: (i) notice of any such meeting shall be given to all the Holders of Securities having a right to vote thereat at least seven days and not more than 60 days before the date of such meeting. The Administrative Trustees may specify that any written ballot submitted to the Security Holders for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Administrative Trustees; (ii) each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of eleven months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of Securities executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation; 74 80 (iii) each meeting of the Holders of the Securities shall be conducted by the Administrative Trustees or by such other Person that the Administrative Trustees may designate; and (iv) unless the Business Trust Act, this Agreement, the terms of the Securities, the Trust Indenture Act or the listing rules of any stock exchange or quotation system or market on which the Preferred Securities are then listed or trading, otherwise provides, the Administrative Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. SECTION 12.03. Power of Attorney. Each Holder by acceptance of the Preferred Securities hereby irrevocably constitutes and appoints the Remarketing Agent and each of its officers as such person's true and lawful representative and attorney-in-fact, with full power and authority in such person's name, place and stead to make, execute, acknowledge, deliver, swear to, record and file with respect to the Preferred Securities any and all instruments, documents and certificates which, from time to time, may be required in connection with the Remarketing and to take any other action which the Remarketing Agent may deem necessary or appropriate, in its discretion, in connection with Remarketing the Preferred Securities. This power of attorney is coupled with an interest and shall continue in full force and effect and shall not be affected by the subsequent death, disability, insolvency, bankruptcy, termination or incapacity of a Holder and may be exercised by an officer of the Remarketing Agent signing individually for any Holder or for all Holders executing any particular instrument. ARTICLE 13 REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE SECTION 13.01. Representations and Warranties of Property Trustee. The Trustee that acts as initial Property Trustee represents and warrants to the Trust and to the Sponsor at the date of this Agreement, and each Successor Property Trustee represents and warrants, as applicable, to the Trust and the Sponsor at the time of the Successor Property Trustee's acceptance of its appointment as Property Trustee that: 75 81 (a) the Property Trustee is a banking corporation, a national banking association or a bank or trust company, duly organized, validly existing and in good standing under the laws of the United States or a State of the United States, as the case may be, with corporate power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Agreement; (b) the execution, delivery and performance by the Property Trustee of the Agreement have been duly authorized by all necessary corporate action on the part of the Property Trustee. The Agreement has been duly executed and delivered by the Property Trustee under New York law and constitutes a legal, valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (c) the execution, delivery and performance of this Agreement by the Property Trustee do not conflict with or constitute a breach of the charter or by-laws of the Property Trustee; and (d) no consent, approval or authorization of, or registration with or notice to, any federal or New York State banking authority is required for the execution, delivery or performance by the Property Trustee of this Agreement. SECTION 13.02. Representations and Warranties of Delaware Trustee. The Trustee that acts as initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Agreement, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as Delaware Trustee that: (a) the Delaware Trustee is a banking corporation, a national banking association or a bank or trust company, duly organized, validly existing and in good standing under the laws of the United States or the State of Delaware, as the case may be, with corporate power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Agreement; (b) the execution, delivery and performance by the Delaware Trustee of this Agreement have been duly authorized by all necessary corporate action on the part of the Delaware Trustee. This Agreement has been duly executed and delivered by the Delaware Trustee under Delaware law and constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of 76 82 equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (c) the execution, delivery and performance of this Agreement by the Delaware Trustee do not conflict with or constitute a breach of the charter or by-laws of the Delaware Trustee; (d) no consent, approval or authorization of, or registration with or notice to, any Federal or Delaware banking authority governing the trust powers of the Delaware Trustee is required for the execution, delivery or performance by the Delaware Trustee of this Agreement; and (e) the Delaware Trustee is a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware, and is a Person that satisfies for the Trust Section 3807(a) of the Business Trust Act. ARTICLE 14 MISCELLANEOUS SECTION 14.01. Notices. All notices provided for in this Agreement shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) if given to the Trust, in care of the Administrative Trustees at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Securities): Hercules Trust V c/o Hercules Incorporated Hercules Plaza 1313 North Market Street Wilmington, Delaware 19894-0001 Attention: Vice President and Treasurer of Sponsor Telephone: (302) 594-5000 Telecopier: (302) 594-5210 77 83 Hercules Trust V c/o Hercules Incorporated Hercules Plaza 1313 North Market Street Wilmington, Delaware 19894-0001 Attention: Corporate Secretary of Sponsor Telephone: (302) 594-5000 Telecopier: (302) 594-7251 (b) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as Delaware Trustee may give notice of to the Holders of the Securities): Chase Manhattan Bank Delaware 1201 Market Street Wilmington, Delaware 19801 Attention: Corporate Trust Department Telecopier: (302) 984-4903 Telephone: (302) 428-3372 (c) if given to the Property Trustee, at the Property Trustee's mailing address set forth below (or such other address as the Property Trustee may give notice of to the Holders of the Securities): The Chase Manhattan Bank One Liberty Place, 52nd Floor 1650 Market Street Philadelphia, Pennsylvania 19103 Attention: Corporate Trust Department Telecopier: (215) 988-8372 Telephone: (215) 988-1329 (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice to the Trust): Hercules Incorporated Hercules Plaza 1313 North Market Street Wilmington, Delaware 19894-0001 Attention: Vice President and Treasurer of Sponsor Telephone: (302) 594-5000 Telecopier: (302) 594-5210 Hercules Incorporated 78 84 Hercules Plaza 1313 North Market Street Wilmington, Delaware 19894-0001 Attention: Corporate Secretary of Hercules Telephone: (302) 594-5000 Telecopier: (302) 594-7251 (e) if given to any other Holder, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 14.02. Governing Law. This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. SECTION 14.03. Intention of the Parties. It is the intention of the parties hereto that the Trust be classified for United States Federal income tax purposes as a grantor trust. The provisions of this Agreement shall be interpreted to further this intention of the parties. SECTION 14.04. Headings. The Table of Contents and headings contained in this Agreement are inserted for convenience of reference only and do not affect the interpretation of this Agreement or any provision hereof. SECTION 14.05. Successors and Assigns. Whenever in this Agreement any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Agreement by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. SECTION 14.06. Partial Enforceability. If any provision of this Agreement, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 14.07. Counterparts. This Agreement may contain more than one counterpart of the signature page and this Agreement may be executed by the affixing 79 85 of the signature of each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. 80 86 IN WITNESS WHEREOF, the undersigned have caused this Amended and Restated Trust Agreement to be executed as of the day and year first above written. Israel J. Floyd, not in his individual capacity but solely as Administrative Trustee of the Trust /s/ Israel J. Floyd Jan M. King, not in her individual capacity but solely as Administrative Trustee of the Trust /s/ Jan M. King Stuart C. Shears, not in his individual capacity but solely as Administrative Trustee of the Trust /s/ Stuart C. Shears CHASE MANHATTAN BANK DELAWARE, not in its individual capacity but solely as Delaware Trustee of the Trust By: /s/ Denis Kelly Name: Denis Kelly Title: Trust Officer 81 87 THE CHASE MANHATTAN BANK, not in its individual capacity but solely as Property Trustee of the Trust By: /s/ J D Heaney Name: James D Heaney Title: Vice President HERCULES INCORPORATED, as Sponsor By: /s/ R. K Elliott Name: R. Keith Elliott Title: Chairman and Co-Chief Executive Officer 82 88 ANNEX I TERMS OF AUCTION RATE RESET PREFERRED SECURITIES AUCTION RATE RESET COMMON SECURITIES Pursuant to Section 7.01 of the Amended and Restated Trust Agreement, dated as of November 12, 1998 (as amended from time to time, the "AGREEMENT"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities and the Common Securities (collectively, the "SECURITIES") are set out below (each capitalized term used but not defined herein has the meaning set forth in the Agreement or, if not defined in such Agreement, as defined in the Indenture): 1. Designation and Number. (a) Preferred Securities. 200,000 Auction Rate Reset Preferred Securities of the Trust, with an aggregate Liquidation Amount with respect to the assets of the Trust of Two Hundred Million dollars ($200,000,000), and with a Liquidation Amount with respect to the assets of the Trust of $1,000 per security, are hereby designated for the purposes of identification only as "PREFERRED SECURITIES" (the "PREFERRED SECURITIES"). The Preferred Securities shall be issued only in minimum denominations of $100,000 Liquidation Amount and in integral multiples of $1,000 in excess thereof. The certificates evidencing the Preferred Securities shall initially be substantially in the form of Exhibit A-1 to the Agreement and upon transfer pursuant to a successful Remarketing, shall be substantially in the form of Exhibit A-3 to the Agreement, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange or quotation system on which the Preferred Securities are listed or quoted. (b) Common Securities. 6,200 Auction Rate Reset Common Securities of the Trust with an aggregate Liquidation Amount with respect to the assets of the Trust of Six Million Two Hundred Thousand dollars ($6,200,000), and with a Liquidation Amount with respect to the assets of the Trust of $1,000 per security, are hereby designated for the purposes of identification only as "COMMON SECURITIES" (the "COMMON SECURITIES"). The certificates evidencing the Common Securities shall be substantially in the form of Exhibit A-2 to the Agreement, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. I-1 89 2. Distributions. (a) Distributions with respect to the Liquidation Amount of $1,000 per Security (the "LIQUIDATION AMOUNT") of each Security will accrue and be payable at a rate (the "DISTRIBUTION RATE") (such rate being the rate of interest payable on the Subordinated Notes to be held by the Property Trustee) per annum equal to (i) from and including the date of issuance to but excluding the date such Securities are redeemed, LIBOR plus 175 basis points, compounded quarterly; (ii) from and including the Remarketing Settlement Date on which Replacement Securities are issued to but excluding the date such Securities are redeemed, the Winning Bid Rate, compounded quarterly; and (iii) notwithstanding clauses (i) and (ii) above, if the Securities are not redeemed because the Company fails to pay the principal amount of the Subordinated Notes on the date such amount becomes due, then from and including such due date to but excluding the date the Securities are redeemed, the Default Rate, compounded quarterly, but only to the extent permitted by applicable law. Distributions that are not paid when due will bear additional distributions thereon compounded quarterly at the applicable periodic Distribution Rate specified above (to the extent permitted by applicable law). Distributions are payable if and to the extent the Subordinated Note Issuer makes a payment of Additional Interest (as defined in the Indenture) upon the occurrence of certain events specified in the Indenture. The term "DISTRIBUTIONS", as used herein, includes any such additional distributions unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Subordinated Notes held by the Property Trustee and to the extent the Property Trustee has funds on hand legally available therefor. (b) Until the Remarketing Settlement Date on which Replacement Securities are issued, Distributions on the Securities will be cumulative, will be payable quarterly in arrears on February 12, May 12, August 12 and November 12 of each year, commencing February 12, 1999, and on such Remarketing Settlement Date (each, a "PRE-REMARKETING DISTRIBUTION DATE"), will accumulate from and including the most recent date to which Distributions have been paid or, if no Distributions have been paid, from November 12, 1998, to but excluding the related Pre-Remarketing Distribution Date, except as otherwise described below. The Distribution Rate in effect for the period from and including November 12, 1998 to but excluding February 12, 1999 shall be the rate determined by the Calculation Agent two London Banking Days prior to November 12, 1998 and shall equal LIBOR plus 175 basis points. The Distribution Rate in effect thereafter, for I-2 90 each quarterly period from and including the immediately preceding Pre-Remarketing Distribution Date to but excluding the applicable Pre-Remarketing Distribution Date, shall be determined by the Calculation Agent two London Banking Days prior to such immediately preceding Pre-Remarketing Distribution Date and shall equal LIBOR plus 175 basis points. The amount of Distributions payable for any quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the last sentence of this paragraph, the amount of Distributions payable for any period shorter than a full quarterly period for which Distributions are computed will be computed on the basis of the actual number of days elapsed per 30-day month. If a Pre-Remarketing Distribution Date is not a Business Day, then such Pre-Remarketing Distribution Date will be the next succeeding Business Day, except if such Business Day is in the next succeeding calendar month, such Pre-Remarketing Distribution Date will be the immediately preceding Business Day. As used herein, "LONDON BANKING DAY" means any day on which dealings in deposits in U.S. Dollars are transacted in the London interbank market. (c) From and including the Remarketing Settlement Date on which Replacement Securities are issued, Distributions on the Replacement Securities and on the Common Securities will be cumulative, will be payable quarterly in arrears on February 12, May 12, August 12 and November 12 of each year, commencing on the Remarketing Settlement Date, and on the Mandatory Redemption Date (each, a "DISTRIBUTION DATE"), will accumulate from the most recent date to which Distributions have been paid or, if no Distributions have been paid, from and including the Remarketing Settlement Date, to but excluding the related Distribution Date, except as otherwise described below. The amount of Distributions payable for any quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the last sentence of this paragraph, the amount of Distributions payable for any period shorter than a full quarterly period for which Distributions are computed will be computed on the basis of the actual number of days elapsed per 30-day month. If a Distribution Date is not a Business Day, then such Distribution Date will be the next succeeding Business Day, except if such Business Day is in the next succeeding calendar month, such Distribution Date will be the immediately preceding Business Day. (d) Distributions on the Securities will be payable to the Holders thereof as they appear on the books and records of the Trust on the fifteenth day prior to each Pre-Remarketing Distribution Date or Distribution Date, as the case may be. Subject to any applicable laws and regulations and the provisions of the Agreement, each such payment in respect of the Preferred Securities will be made in respect of any global certificate representing Securities, to the Depository (or other applicable Depository), which shall credit the relevant accounts at the Depository (or such other Depository) on the applicable payment dates, or in respect of Securities in certified form, by check mailed to the address of the Holder entitled thereto as such address I-3 91 shall appear on the register; provided, however, that at the written request of any Holder of at least $10,000,000 aggregate Liquidation Amount of Preferred Securities received by the Property Trustee not later than the fifteenth day prior to the applicable Pre-Remarketing Distribution Date or Distribution Date, Distributions accrued on such Preferred Securities will be payable by wire transfer within the continental United States in immediately available funds to the bank account number of such holder specified in such request. The relevant record dates for the Common Securities shall be the same as the record dates for the Preferred Securities. Distributions payable on any Securities that are not punctually paid on any Distribution Date, as a result of the Subordinated Note Issuer having failed to make a payment under the Subordinated Notes, will cease to be payable to the Holder on the relevant record date, and such defaulted Distributions will instead be payable to the Person in whose name such Securities are registered on the special record date or other specified date determined in accordance with the Indenture. (e) The Distribution Rate on the Trust Securities (as well as the interest rate on the Subordinated Notes) shall be reset in the manner provided in Section 6.03 of the Agreement and in the Indenture. (f) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata (as defined herein) among the Holders of the Securities. 3. Remarketing. The Preferred Securities shall be remarketed in accordance with the provisions of Article 6 of the Agreement. FROM AND AFTER THE REMARKETING SETTLEMENT DATE ON WHICH REPLACEMENT SECURITIES ARE ISSUED, THIS CERTIFICATE SHALL REPRESENT ONLY THE RIGHT TO RECEIVE THE REMARKETING PRICE, AS PROVIDED IN THE TRUST AGREEMENT, AND SHALL NO LONGER REPRESENT AN OBLIGATION OF OR INTEREST IN THE TRUST. 4. Liquidation Distribution Upon Dissolution. In the event of any dissolution of the Trust, the Trust shall be liquidated by the Administrative Trustees as expeditiously as the Administrative Trustees determine to be possible by distributing pursuant to Section 5, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to the Holders of the Securities a Like Amount (as defined below) of the Subordinated Notes, unless such distribution is determined by the Property Trustee not to be practicable, in which event such Holders will be entitled to receive out of the assets of the Trust legally available for distribution to Holders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the aggregate of the I-4 92 Liquidation Amount of $1,000 per Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "LIQUIDATION DISTRIBUTION"). "LIKE AMOUNT" means (i) with respect to a redemption of the Securities, Securities having a Liquidation Amount equal to the principal amount of Subordinated Notes to be paid in accordance with their terms and (ii) with respect to a distribution of Subordinated Notes upon the dissolution of the Trust, Subordinated Notes having a principal amount equal to the Liquidation Amount of the Securities of the Holder to whom such Subordinated Notes are distributed. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets on hand legally available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Securities shall be paid on a Pro Rata basis. 5. Redemption and Distribution. (a) Upon the repayment of the Subordinated Notes in whole or in part, at maturity or upon acceleration or redemption, the proceeds from such repayment shall be simultaneously applied by the Property Trustee to redeem a Like Amount of the Securities at the Mandatory Redemption Price (as defined below). In the case of an early redemption pursuant to a Special Event, Holders will be given not less than 30 nor more than 60 days notice of such redemption. Any redemption of Securities shall be made, and the Mandatory Redemption Price shall be payable, on the applicable redemption date, and only to the extent that the Trust has funds legally available for the payment thereof. (b) The "MANDATORY REDEMPTION PRICE" shall mean a price equal to 100% of the Liquidation Amount of the Securities to be redeemed plus accumulated and unpaid Distributions thereon, if any, to the date of redemption. (c) If at any time a Tax Event or Investment Company Event (each as defined in the Trust Agreement) (a "SPECIAL EVENT") occurs, the Subordinated Note Issuer shall have the right (subject to the conditions set forth in the Indenture) at any time, upon not less than 30 nor more than 60 days notice, to redeem the Subordinated Notes in whole, but not in part, within the 90 days following the occurrence of such Special Event (the "90 DAY PERIOD"), and, simultaneous with such redemption, to cause a Like Amount of the Securities to be redeemed by the Trust at the Mandatory Redemption Price on a Pro Rata basis. (d) On and from the date fixed by the Administrative Trustees for any distribution of Subordinated Notes and liquidation of the Trust: (i) the Securities will no longer be deemed to be outstanding and (ii) the Depository or its nominee (or any successor Depository or its nominee), as the Holder of the Preferred Securities, will I-5 93 receive a registered global certificate or certificates representing the Subordinated Notes to be delivered upon such distribution and any certificates representing Securities not held by the Depository or its nominee (or any successor Depository or its nominee) will be deemed to represent beneficial interests in a Like Amount of Subordinated Notes until such certificates are presented to the Subordinated Note Issuer or its agent for transfer or reissue. The Subordinated Notes shall be distributed to the Holders pursuant to Section 2.04 of the Supplemental Indenture. (e) The Trust may not redeem fewer than all the outstanding Securities. (f) The notice procedure with respect to redemptions pursuant to a Special Event or distributions of Subordinated Notes shall be as follows: (i) Notice of any such redemption of, or notice of distribution of Subordinated Notes in exchange for, the Securities (a "REDEMPTION/DISTRIBUTION NOTICE") will be given by an Administrative Trustee on behalf of the Trust by mail to each Holder of Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Subordinated Notes. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this Section 5(f)(i), a Redemption/ Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) Redemption/Distribution Notices shall be sent by the Property Trustee on behalf of the Trust to (A) in respect of the Preferred Securities, the Depository or its nominee (or any successor Depository or its nominee) if the Global Preferred Securities have been issued or, if Definitive Preferred Securities have been issued, to the Holders thereof, and (B) in respect of the Common Securities, to the Holder thereof. (g) The payment procedure with respect to all redemptions shall be as follows: (i) If Securities are to be redeemed, whether or not the Trust gives a Redemption/Distribution Notice (which notice will be irrevocable), then (A) with respect to Preferred Securities issued in book-entry form, by 12:00 noon, New York City time, on the redemption date, provided that the I-6 94 Subordinated Note Issuer has paid the Property Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Subordinated Notes by 10:00 a.m., New York City time, on the maturity date or the date of redemption, as the case requires, the Property Trustee will deposit irrevocably with the Depository or its nominee (or successor Depository or its nominee) immediately available funds sufficient to pay the Mandatory Redemption Price with respect to such Preferred Securities and will give the Depository irrevocable instructions and authority to pay the Mandatory Redemption Price to the relevant Participants, and (B) with respect to Preferred Securities issued in certificated form and Common Securities, provided that the Subordinated Note Issuer has paid the Property Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Subordinated Notes, the Property Trustee will pay the Mandatory Redemption Price to the Holders of such Securities by check mailed to the address of the relevant Holder appearing on the books and records of the Trust on the redemption date; provided, however, that at the written request of any Holder of at least $10,000,000 aggregate Liquidation Amount of Preferred Securities received by the Property Trustee not later than 9:00 a.m. on the redemption date, the Mandatory Redemption Price payable to such Holder will be payable by wire transfer within the continental United States in immediately available funds to the bank account number of such Holder specified in such request. If a Redemption/Distribution Notice, if necessary, shall have been given and funds deposited as required, if applicable, then immediately prior to the close of business on the date of such deposit, or on the redemption date, as applicable, Distributions will cease to accumulate on the Securities so called for redemption and all rights of Holders of such Securities so called for redemption will cease, except the right of the Holders of such Securities to receive the Redemption Price, but without interest on such Redemption Price, and such Securities shall cease to be outstanding. (ii) Payment of accumulated and unpaid Distributions on the Redemption Date of the Securities will be subject to the rights of Holders of Securities on the close of business on a regular record date in respect of a Distribution Date occurring on or prior to such redemption date. (iii) If any date fixed for redemption of Securities is not a Business Day, then payment of the Mandatory Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on such date fixed for redemption. If payment of the Mandatory Redemption Price in respect of any Securities is improperly withheld or refused and not paid either by the Property Trustee or by the Sponsor as guarantor pursuant to the relevant Securities Guarantee, Distributions on such Securities will continue to accumulate from the original I-7 95 redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Mandatory Redemption Price. (h) Neither the Administrative Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Securities beginning on the opening of business 15 days before the day of mailing of a notice of redemption. (i) Subject to the foregoing, the provisions of the Remarketing Agreement and applicable law (including, without limitation, United States Federal securities laws), the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. 6. Voting Rights - Preferred Securities. (a) Except as provided under Sections 6(b) and 8 and as otherwise required by law or the Agreement, the Holders of the Preferred Securities will have no voting rights. (b) So long as any Subordinated Notes are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding with respect to any remedy available to the Subordinated Note Trustee, or exercise any trust or power conferred upon the Subordinated Note Trustee with respect to the Subordinated Notes, (ii) waive any past default that is waivable under Section 6.04 of the Indenture, (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Subordinated Notes or (iv) consent to any amendment, modification or termination of the Indenture or the Subordinated Notes, where such consent shall be required, without, in each case, obtaining (1) the prior approval of the Holders of a Majority in Liquidation Amount of all outstanding Preferred Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Subordinated Notes affected thereby, no such consent shall be given by the Property Trustee without the prior approval of each Holder of the Preferred Securities and (2) an Opinion of Counsel delivered to the Trust from independent tax counsel experienced in such matters to the effect that the Trust will not be classified as an association taxable as a corporation for United States Federal income tax purposes on account of such action. If an Event of Default under the Agreement has occurred and is continuing and such event is attributable to the failure of the Subordinated Note Issuer to pay principal of or premium, if any, or interest on the Subordinated Notes on the date such principal, premium, if any, or interest is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Preferred Securities may directly institute a proceeding against the Subordinated Note Issuer for enforcement of payment to such Holder of the principal of or premium, if any, or interest on a I-8 96 Like Amount of Subordinated Notes on or after the respective due date specified herein or in the Subordinated Notes (a "DIRECT ACTION"). In connection with such Direct Action, the Common Securities Holder will be subrogated to the rights of such Holder of Preferred Securities to the extent of any payment made by the Subordinated Note Issuer to such Holder of Preferred Securities in such Direct Action. Except as provided in the second preceding sentence, the Holders of Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Subordinated Notes. Any approval or direction of Holders of Preferred Securities may be given at a separate meeting of Holders of Preferred Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Property Trustees will cause a notice of any meeting at which Holders of Preferred Securities are entitled to vote, to be mailed to each Holder of record of Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote and (iii) instructions for the delivery of proxies. No vote or consent of the Holders of the Preferred Securities will be required for the Trust to redeem and cancel Preferred Securities or to distribute the Subordinated Notes in accordance with the Agreement and the terms of the Securities. Notwithstanding that Holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. 7. Voting Rights - Common Securities. (a) Except as provided under Sections 7(b) and 8 as otherwise required by law or the Agreement, the Holders of the Common Securities will have no voting rights. (b) So long as any Subordinated Notes are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding with respect to any remedy available to the Subordinated Note Trustee, or exercise any trust or power conferred upon the Subordinated Note Trustee with respect to the Subordinated Notes, (ii) waive any past default that is waivable under Section 6.04 of the Indenture, (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Subordinated Notes or (iv) consent to any amendment, modification or termination of the Indenture or the Subordinated Notes, where such consent shall be required, without, in each case, obtaining (A) the I-9 97 prior approval of the Holders of a Majority in Liquidation Amount of all outstanding Common Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Subordinated Notes affected thereby, no such consent shall be given by the Property Trustee without the prior approval of each Holder of the Common Securities and (B) an Opinion of Counsel delivered to the Trust from independent tax counsel experienced in such matters to the effect that the Trust will not be classified as an association taxable as a corporation for United States Federal income tax purposes on account of such action. If an Event of Default under the Agreement has occurred and is continuing and such event is attributable to the failure of the Subordinated Note Issuer to pay principal of or premium, if any, or interest on the Subordinated Notes on the date such principal, premium, if any, or interest is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Common Securities may institute a Direct Action against the Subordinated Note Issuer for enforcement of payment to such Holder of the principal of or premium, if any, or interest on a Like Amount of Subordinated Notes on or after the respective due date specified in the Subordinated Notes. Except as provided in the immediately preceding sentence, the Holders of Common Securities will not be able to immediately exercise directly any other remedy available to the holders of the Subordinated Notes. Any approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Administrative Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote to be mailed to each Holder of record of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote and (iii) instructions for the delivery of proxies. No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Subordinated Notes in accordance with the Agreement and these terms of the Securities. 8. Amendments to Agreement. In addition to the requirements set out in Section 12.01 of the Agreement, the Agreement may be amended from time to time by the Sponsor, the Property Trustee and the Administrative Trustees, with (i) the consent of Holders representing a Majority in Liquidation Amount of all outstanding Securities, and (ii) receipt by the Trustees of a reasoned Opinion of Counsel of independent tax counsel experienced in such matters to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect the I-10 98 Trust's status as a grantor trust for United States Federal income tax purposes or the Trust's exemption from status as an Investment Company under the Investment Company Act, provided that, without the consent of each Holder of Trust Securities, the Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date or (ii) restrict the right of a Holder of Securities to institute suit for the enforcement of any such payment on or after such date. 9. Pro Rata. A reference in these terms of the Securities to any payment, distribution or treatment as being "PRO RATA" shall mean pro rata to each Holder of Securities according to the aggregate Liquidation Amount of the Securities held by the relevant Holder in relation to the aggregate Liquidation Amount of all Securities outstanding unless, in relation to a payment, an Event of Default under the Agreement has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Preferred Securities pro rata according to the aggregate Liquidation Amount of Preferred Securities held by the relevant Holder relative to the aggregate Liquidation Amount of all Preferred Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Preferred Securities, to each Holder of Common Securities pro rata according to the aggregate Liquidation Amount of Common Securities held by the relevant Holder relative to the aggregate Liquidation Amount of all Common Securities outstanding. 10. Ranking. The Preferred Securities rank pari passu with the Common Securities and payment thereon shall be made Pro Rata with the Common Securities, except that, if an Event of Default under the Agreement occurs and is continuing, no payments in respect of Distributions on, or payments upon liquidation, redemption or otherwise with respect to, the Common Securities shall be made until the Holders of the Preferred Securities shall be paid in full the Distributions, Mandatory Redemption Price, Liquidation Distribution and other payments to which they are entitled at such time. 11. Acceptance of Securities Guarantees and Indenture. Each Holder of Preferred Securities and Common Securities, by the acceptance thereof, agrees to the provisions of the Preferred Securities Guarantee, the Common Securities Guarantee and the Indenture including the subordination provisions therein. I-11 99 12. No Preemptive Rights. The Holders of the Securities shall have no preemptive or similar rights to subscribe for any additional securities. 13. Miscellaneous. These terms constitute a part of the Agreement. The Sponsor will provide a copy of the Agreement, the Preferred Securities Guarantee or the Common Securities Guarantee (as may be appropriate) and the Indenture (including any supplemental indenture) to a Holder without charge on written request to the Sponsor at its principal place of business. I-12 100 EXHIBIT A-1 [FORM OF PREFERRED SECURITY CERTIFICATE] (prior to Remarketing Settlement Date) THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITIES EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE SECURITIES EVIDENCED HEREBY EXCEPT (A) TO HERCULES INCORPORATED OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT OR (C) TO A SECONDARY PURCHASER (AS DEFINED IN THE AMENDED AND RESTATED TRUST AGREEMENT OF HERCULES TRUST V DATED AS OF NOVEMBER 12, 1998 (AS AMENDED FROM TIME TO TIME, THE "TRUST AGREEMENT")) THAT HAS ENTERED INTO A SECONDARY PURCHASE AGREEMENT (AS DEFINED IN THE TRUST AGREEMENT) WITH THE TRUST, (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITIES EVIDENCED HEREBY ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND AND (4) AGREES, WITH RESPECT TO ANY TRANSFER OCCURRING PRIOR TO THE REMARKETING DATE ON WHICH REPLACEMENT SECURITIES ARE ISSUED, TO PROVIDE TO THE PROPERTY TRUSTEE A DULY EXECUTED CERTIFICATE SUBSTANTIALLY TO THE EFFECT OF CLAUSES (1), (2) AND (3), ABOVE. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO THE SALES OF THE SECURITIES EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT. FROM AND AFTER THE REMARKETING SETTLEMENT DATE ON WHICH REPLACEMENT SECURITIES ARE ISSUED, THIS CERTIFICATE SHALL REPRESENT ONLY THE RIGHT TO RECEIVE THE REMARKETING PRICE, AS PROVIDED IN THE TRUST AGREEMENT, AND SHALL NO LONGER REPRESENT AN OBLIGATION OF OR INTEREST IN THE TRUST. A1-1 101 Certificate Number Number of Preferred Securities CUSIP NO. __________ Certificate Evidencing Preferred Securities of HERCULES TRUST V Auction Rate Reset Preferred Securities (Liquidation Amount $1,000 per Preferred Security) HERCULES TRUST V, a statutory business trust created under the laws of the State of Delaware (the "TRUST"), hereby certifies that ______________ (the "HOLDER") is the registered owner of __________ securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the Auction Reset Rate Preferred Securities (Liquidation Amount $1,000 per Preferred Security) (the "PREFERRED SECURITIES"). This Preferred Security is transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Trust Agreement of the Trust dated as of November 12, 1998, as the same may be amended from time to time, including the designation of the terms of the Preferred Securities as set forth in Annex I to the Agreement (the "AGREEMENT"). Capitalized terms used but not defined herein shall have the meaning given them in the Agreement. The Sponsor will provide a copy of the Agreement, the Preferred Securities Guarantee and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Agreement and is entitled to the benefits thereunder and to the benefits of the Preferred Securities Guarantee to the extent provided therein. By acceptance, the Holder agrees to treat, for United States Federal income tax purposes, the Subordinated Notes as indebtedness and the Preferred Securities as evidence of indirect beneficial ownership in the Subordinated Notes. A1-2 102 IN WITNESS WHEREOF, the Trust has executed this certificate this ___ day of ___________, ____. HERCULES TRUST V By: __________________________ Name: Title: Administrative Trustee PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Preferred Securities referred to in the within-mentioned Agreement. Dated: __________, ____ THE CHASE MANHATTAN BANK, as Property Trustee By: ________________________ Authorized Signatory A1-3 103 [FORM OF REVERSE OF SECURITY] (a) Distributions with respect to the Liquidation Amount of $1,000 per Preferred Security (the "LIQUIDATION AMOUNT") will accrue and be payable at a rate (the "DISTRIBUTION RATE") (such rate being the rate of interest payable on the Subordinated Notes to be held by the Property Trustee) per annum equal to (i) from and including the date of issuance to but excluding the date such Securities are redeemed, LIBOR plus 175 basis points, compounded quarterly; (ii) from and including the Remarketing Settlement Date on which Replacement Securities are issued to but excluding the date such Securities are redeemed, the Winning Bid Rate, compounded quarterly; and (iii) notwithstanding clauses (i) and (ii) above, if the Securities are not redeemed because the Sponsor fails to pay the principal amount of the Subordinated Notes on the date such amount becomes due, then, from and including such due date to but excluding the date the Securities are redeemed, the Default Rate, compounded quarterly, but only to the extent permitted by applicable law. Distributions in arrears for more than one quarterly period will bear additional distributions thereon compounded quarterly at the applicable periodic Distribution Rate specified above (to the extent permitted by applicable law). Distributions are payable if and to the extent the Subordinated Note Issuer makes a payment of Additional Interest (as defined in the Indenture) upon the occurrence of certain events specified in the Indenture. The term "DISTRIBUTIONS", as used herein, includes any such additional distributions unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Subordinated Notes held by the Property Trustee and to the extent the Property Trustee has funds on hand legally available therefor. (b) Until the Remarketing Settlement Date on which Replacement Securities are issued, Distributions on this Preferred Security will be cumulative, will be payable quarterly in arrears on February 12, May 12, August 12 and November 12 of each year, commencing February 12, 1999, and on such Remarketing Settlement Date (each, a "PRE-REMARKETING DISTRIBUTION DATE"), will accumulate from and including the most recent date to which Distributions have been paid or, if no Distributions have been paid, from November 12, 1998, to but excluding the related Pre-Remarketing Distribution Date, except as otherwise described below. A1-4 104 The Distribution Rate in effect for the period from and including November 12, 1998 to but excluding February 12, 1999 shall be the rate determined by the Calculation Agent two London Banking Days prior to November 12, 1998 and shall equal LIBOR plus 175 basis points. The Distribution Rate in effect thereafter, for each quarterly period from and including the immediately preceding Pre-Remarketing Distribution Date to but excluding the applicable Pre-Remarketing Distribution Date, shall be determined by the Calculation Agent two London Banking Days prior to such immediately preceding Pre-Remarketing Distribution Date and shall equal LIBOR plus 175 basis points. The amount of Distributions payable for any quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the last sentence of this paragraph, the amount of Distributions payable for any period shorter than a full quarterly period for which Distributions are computed will be computed on the basis of the actual number of days elapsed per 30-day month. If a Pre-Remarketing Distribution Date is not a Business Day, then such Pre-Remarketing Distribution Date will be the next succeeding Business Day, except if such Business Day is in the next succeeding calendar month, such Pre-Remarketing Distribution Date will be the immediately preceding Business Day. As used herein, "LONDON BANKING DAY" means any day on which dealings in deposits in U.S. Dollars are transacted in the London interbank market. (c) From and including the Remarketing Settlement Date on which Replacement Securities are issued, Distributions on the Replacement Securities will be cumulative, will be payable quarterly in arrears on February 12, May 12, August 12 and November 12 of each year, commencing on the Remarketing Settlement Date, and on the Mandatory Redemption Date (each, a "DISTRIBUTION DATE"), will accumulate from the most recent date to which Distributions have been paid or, if no Distributions have been paid, from and including the Remarketing Settlement Date, to but excluding the related Distribution Date, except as otherwise described below. The amount of Distributions payable for any quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the last sentence of this paragraph, the amount of Distributions payable for any period shorter than a full quarterly period for which Distributions are computed will be computed on the basis of the actual number of days elapsed per 30-day month. If a Distribution Date is not a Business Day, then such Distribution Date will be the next succeeding Business Day, except if such Business Day is in the next succeeding calendar month, such Distribution Date will be the immediately preceding Business Day. Subject to other conditions set forth in the Agreement and the Indenture, the Property Trustee may, at the direction of the Sponsor, at any time dissolve the Trust and cause the Subordinated Notes to be distributed to the Holders of the A1-5 105 Securities in liquidation of the Trust or, simultaneously with any redemption of the Subordinated Notes, cause a Like Amount of the Securities to be redeemed by the Trust. This Preferred Security shall be redeemable as provided in the Agreement. A1-6 106 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security Certificate to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: _______________________ Signature: __________________ (Sign exactly as your name appears on the other side of this Preferred Security Certificate) Signature Guarantee(1):___________________________________ - -------------- (1) Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. A1-7 107 EXHIBIT A-2 [FORM OF COMMON SECURITY CERTIFICATE] THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT IN COMPLIANCE WITH APPLICABLE LAW AND THE PROVISIONS OF THE AMENDED AND RESTATED TRUST AGREEMENT OF HERCULES TRUST V DATED AS OF NOVEMBER 12, 1998, AS AMENDED FROM TIME TO TIME. A2-1 108 Certificate Number Number of Common Securities _______________ 6,200 Certificate Evidencing Common Securities of HERCULES TRUST V Auction Rate Reset Common Securities (Liquidation Amount $1,000 per Common Security) HERCULES TRUST V, a statutory business trust created under the laws of the State of Delaware (the "TRUST"), hereby certifies that Hercules Incorporated (the "HOLDER") is the registered owner of __________ securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the Auction Rate Reset Common Securities (Liquidation Amount $1,000 per Common Security) (the "COMMON SECURITIES"). Except as set forth in the Agreement (as defined herein), the Common Securities are not transferable. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Trust Agreement of the Trust dated as of November 12, 1998, as the same may be amended from time to time, including the designation of the terms of the Common Securities as set forth in Annex I to the Agreement (the "AGREEMENT"). Capitalized terms used but not defined herein shall have the meaning given them in the Agreement. The Sponsor will provide a copy of the Agreement, the Common Securities Guarantee and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Agreement and is entitled to the benefits thereunder and to the benefits of the Common Securities Guarantee to the extent provided therein. By acceptance, the Holder agrees to treat, for United States Federal income tax purposes, the Subordinated Notes as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Subordinated Notes. A2-2 109 IN WITNESS WHEREOF, the Trust has executed this certificate this ___ day of ___________, 1998. HERCULES TRUST V By: __________________________ Name: Title: Administrative Trustee A2-3 110 [FORM OF REVERSE OF COMMON SECURITY] (a) Distributions with respect to the Liquidation Amount of $1,000 per Common Security (the "LIQUIDATION AMOUNT") will accrue and be payable at a rate (the "DISTRIBUTION RATE") (such rate being the rate of interest payable on the Subordinated Notes to be held by the Property Trustee) per annum equal to (i) from and including the date of issuance to but excluding the date such Securities are redeemed, LIBOR plus 175 basis points, compounded quarterly; (ii) from and including the Remarketing Settlement Date on which Replacement Securities are issued, to but excluding the date such Securities are redeemed, the Winning Bid Rate, compounded quarterly; and (iii) notwithstanding clauses (i) and (ii), if the Securities are not redeemed because the Sponsor fails to pay the principal amount of the Subordinated Notes on the date such amount becomes due, then from and including such due date to but excluding the date the Securities are redeemed, the Default Rate, compounded quarterly but only to the extent permitted by applicable law. Distributions that are not paid when due will bear additional distributions thereon compounded quarterly at the applicable periodic Distribution Rate specified above (to the extent permitted by applicable law). Distributions are payable if and to the extent the Subordinated Note Issuer makes a payment of Additional Interest (as defined in the Indenture) upon the occurrence of certain events specified in the Indenture. The term "DISTRIBUTIONS", as used herein, includes any such additional distributions unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Subordinated Notes held by the Property Trustee and to the extent the Property Trustee has funds on hand legally available therefor. (b) Until the Remarketing Settlement Date on which Replacement Securities are issued, Distributions on this Common Security will be cumulative, will be payable quarterly in arrears on February 12, May 12, August 12 and November 12 of each year, commencing February 12, 1999, and on such Remarketing Settlement Date (each, a "PRE-REMARKETING DISTRIBUTION DATE"), will accumulate from and including the most recent date to which Distributions have been paid or, if no Distributions have been paid, from November 12, 1998, to but excluding the related Pre-Remarketing Distribution Date, except as otherwise described below. A2-4 111 The Distribution Rate in effect for the period from and including November 12, 1998 to but excluding February 12, 1999 shall be the rate determined by the Calculation Agent two London Banking Days prior to November 12, 1998 and shall equal LIBOR plus 175 basis points. The Distribution Rate in effect thereafter, for each quarterly period from and including the immediately preceding Pre-Remarketing Distribution Date to but excluding the applicable Pre-Remarketing Distribution Date, shall be determined by the Calculation Agent two London Banking Days prior to such immediately preceding Pre-Remarketing Distribution Date and shall equal LIBOR plus 175 basis points. The amount of Distributions payable for any quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the last sentence of this paragraph, the amount of Distributions payable for any period shorter than a full quarterly period for which Distributions are computed will be computed on the basis of the actual number of days elapsed per 30-day month. If a Pre-Remarketing Distribution Date is not a Business Day, then such Pre-Remarketing Distribution Date will be the next succeeding Business Day, except if such Business Day is in the next succeeding calendar month, such Pre-Remarketing Distribution Date will be the immediately preceding Business Day. As used herein, "LONDON BANKING DAY" means any day on which dealings in deposits in U.S. Dollars are transacted in the London interbank market. (c) From and including the Remarketing Settlement Date on which Replacement Securities are issued, Distributions on the Replacement Securities and on this Common Security will be cumulative, will be payable quarterly in arrears on February 12, May 12, August 12 and November 12 of each year, commencing on the Remarketing Settlement Date, and on the Mandatory Redemption Date (each, a "DISTRIBUTION DATE"), will accumulate from the most recent date to which Distributions have been paid or, if no Distributions have been paid, from and including the Remarketing Settlement Date, to but excluding the related Distribution Date, except as otherwise described below. The amount of Distributions payable for any quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the last sentence of this paragraph, the amount of Distributions payable for any period shorter than a full quarterly period for which Distributions are computed will be computed on the basis of the actual number of days elapsed per 30-day month. If a Distribution Date is not a Business Day, then such Distribution Date will be the next succeeding Business Day, except if such Business Day is in the next succeeding calendar month, such Distribution Date will be the immediately preceding Business Day. Subject to other conditions set forth in the Agreement and the Indenture, the Property Trustee may, at the direction of the Sponsor, at any time dissolve the A2-5 112 Trust and cause the Subordinated Notes to be distributed to the Holders to the Securities in liquidation of the Trust or, simultaneously with any redemption of the Subordinated Notes, cause a Like Amount of the Securities to be redeemed by the Trust. This Common Security shall be redeemable as provided in the Agreement. A2-6 113 EXHIBIT A-3 [FORM OF REPLACEMENT PREFERRED SECURITY CERTIFICATE] THESE SECURITIES ARE GLOBAL SECURITIES WITHIN THE MEANING OF THE AGREEMENT HEREINAFTER REFERRED TO AND ARE REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") OR A NOMINEE OF THE DEPOSITORY. THESE SECURITIES ARE 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 TRUST AGREEMENT AND NO TRANSFER OF THESE SECURITIES (OTHER THAN A TRANSFER OF THESE SECURITIES 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) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THESE SECURITIES ARE PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITIES ISSUED ARE REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITIES EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE SECURITIES EVIDENCED HEREBY EXCEPT (A) TO HERCULES INCORPORATED OR ANY SUBSIDIARY THEREOF OR (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (3) AGREES THAT IT WILL A3-1 114 DELIVER TO EACH PERSON TO WHOM THE SECURITIES EVIDENCED HEREBY ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND AND (4) AGREES, WITH RESPECT TO ANY TRANSFER OCCURRING PRIOR TO THE REMARKETING DATE ON WHICH REPLACEMENT SECURITIES ARE ISSUED, TO PROVIDE TO THE PROPERTY TRUSTEE A DULY EXECUTED CERTIFICATE SUBSTANTIALLY TO THE EFFECT OF CLAUSES (1), (2) AND (3), ABOVE. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO THE SALES OF THE SECURITIES EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT. A3-2 115 Certificate Number Number of Preferred Securities ___________________ ______________________________ CUSIP NO. __________ Certificate Evidencing Replacement Preferred Securities of HERCULES TRUST V Replacement Auction Rate Reset Preferred Securities (Liquidation Amount $1,000 per Preferred Security) HERCULES TRUST V, a statutory business trust formed under the laws of the State of Delaware (the "TRUST"), hereby certifies that ______________ (the "HOLDER") is the registered owner of __________ securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the Auction Preferred Securities (Liquidation Amount $1,000 per Preferred Security) (the "PREFERRED SECURITIES"). Subject to the terms of the Agreement (as defined below), this Preferred Security is transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Trust Agreement of the Trust dated as of November 12, 1998, as the same may be amended from time to time, including the designation of the terms of the Preferred Securities as set forth in Annex I to the Agreement (the "AGREEMENT"). Capitalized terms used but not defined herein shall have the meaning given them in the Agreement. The Sponsor will provide a copy of the Agreement, the Preferred Securities Guarantee and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Agreement and is entitled to the benefits thereunder and to the benefits of the Preferred Securities Guarantee to the extent provided therein. By acceptance, the Holder agrees to treat, for United States Federal income tax purposes, the Subordinated Notes as indebtedness and the Preferred Securities as evidence of indirect beneficial ownership in the Subordinated Notes. A3-3 116 IN WITNESS WHEREOF, the Trust has executed this certificate this ___ day of _________, ____. HERCULES TRUST V By: __________________________ Name: Title: Administrative Trustee PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Preferred Securities referred to in the within-mentioned Agreement. Dated: THE CHASE MANHATTAN BANK, as Property Trustee By: __________________________ Authorized Signatory A3-4 117 [FORM OF REVERSE OF SECURITY] Distributions with respect to the Liquidation Amount of $1,000 per Security (the "LIQUIDATION AMOUNT") will accrue and be payable at a rate (the "DISTRIBUTION RATE", such rate being the rate of interest payable on the Subordinated Notes to be held by the Property Trustee) per annum equal to (i) from and including the date of issuance to but excluding the date such Securities are redeemed, the Winning Bid Rate, compounded quarterly; and (ii) notwithstanding clause (i) above, if the Securities are not redeemed because the Sponsor fails to pay the principal amount of the Subordinated Notes on the date such amount becomes due, then from and including such due date to but excluding the date the Securities are redeemed, the Default Rate, compounded quarterly but only to the extent permitted by applicable law. Distributions in arrears for more than one quarterly period will bear additional distributions thereon compounded quarterly at the applicable periodic Distribution Rate specified above (to the extent permitted by applicable law). Distributors are payable if and to the extent the Subordinated Note Issuer makes a payment of Additional Interest (as defined in the Indenture) upon the occurrence of certain events specified in the Indenture. The term "DISTRIBUTIONS", as used herein, includes any such additional distributions unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Subordinated Notes held by the Property Trustee and to the extent the Property Trustee has funds on hand legally available therefor. From and including the date of issuance, Distributions on the Replacement Securities will be cumulative, will be payable quarterly in arrears on February 12, May 12, August 12 and November 12 of each year, commencing on the Remarketing Settlement Date, and on the Mandatory Redemption Date (each, a "DISTRIBUTION DATE"), will accumulate from the most recent date to which Distributions have been paid or, if no Distributions have been paid, from and including the date of issuance, to but excluding the related Distribution Date, except as otherwise described below. The amount of Distributions payable for any quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the last sentence of this paragraph, the amount of Distributions payable for any period shorter than a full quarterly period for which Distributions are computed will be computed on the basis of the actual number of days elapsed per 30-day month. If a Distribution Date is not a Business Day, then such Distribution Date will be the next succeeding Business Day, except if such Business Day is in the next succeeding calendar month, such Distribution Date will be the immediately preceding Business Day. A3-5 118 Subject to certain conditions set forth in the Agreement and the Indenture, the Property Trustee may, at the direction of the Sponsor, at any time dissolve the Trust and cause the Subordinated Notes to be distributed to the Holders of the Securities in liquidation of the Trust or, simultaneously with any redemption of the Subordinated Notes, cause a Like Amount of the Securities to be redeemed by the Trust. This Preferred Security shall be redeemable as provided in the Agreement. A3-6 119 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security Certificate to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: _______________________ Signature: __________________ (Sign exactly as your name appears on the other side of this Preferred Security Certificate) Signature Guarantee(2):___________________________________ - ---------------------- (2) Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. A3-7 120 INTERSTATE SOLUTIONS LLC -----------, 1999 State of California Franchise Tax Board Corporation Audit Section P.O. Box 1468 Sacramento, CA 95812 Attn: Tax Clearance Unit Re: Interstate Solutions LLC California Corporation No.: 101998002169 Dear Sir or Madam: The above-referenced corporation is requesting a tax clearance based upon taxes paid. The corporation's final franchise tax return covering the period up to date of cessation of business (was filed on ) (is enclosed herewith). INTERSTATE SOLUTIONS LLC By: ------------------------ Authorized Officer EX-4.G 6 REMARKETING AGREEMENT, DATED NOVEMBER 12, 1998 1 Exhibit 4-G EXECUTION COPY REMARKETING AGREEMENT among HERCULES INCORPORATED, HERCULES TRUST V and NATIONSBANC MONTGOMERY SECURITIES LLC Dated as of November 12, 1998 2 TABLE OF CONTENTS
PAGE SECTION 1. Definitions...............................................................1 SECTION 2. Representations and Warranties............................................6 SECTION 3. Covenants.................................................................8 SECTION 4. Appointment and Obligations of Remarketing Agent and Calculation Agent; Secondary Purchaser.................................11 SECTION 5. Determination of Reset Date; Remarketing Procedures......................11 SECTION 6. Reset of Distribution Rate, Mandatory Redemption Date, Interest Rate and Maturity Date........................................14 SECTION 7. Renewed Remarketing......................................................14 SECTION 8. Remarketing Fee..........................................................14 SECTION 9. Failed Remarketing; Mandatory Redemption.................................15 SECTION 10. Early Remarketing......................................................15 SECTION 11. Adjustments to Trigger Price.............................................16 SECTION 12. Replacement and Resignation of Remarketing Agent.........................16 SECTION 13. Dealing in the Securities................................................17 SECTION 14. Offering Memorandum......................................................17 SECTION 15. Conditions to the Remarketing Agent's Obligations........................17 SECTION 16. Indemnification..........................................................18 SECTION 17. Termination of Remarketing Agreement.....................................18 SECTION 18. Remarketing Agent's Performance: Duty of Care; Power of Attorney...............................................................18 SECTION 19. Expenses.................................................................18 SECTION 20. Governing Law............................................................18 SECTION 21. Term of Agreement........................................................19 SECTION 22. Successors and Assigns...................................................19 SECTION 23. Headings.................................................................19 SECTION 24. Severability.............................................................19 SECTION 25. Counterparts.............................................................19 SECTION 26. Amendments...............................................................19 SECTION 27. Notices..................................................................19
Exhibit A - Form of Secondary Purchase Agreement 3 REMARKETING AGREEMENT REMARKETING AGREEMENT, dated as of November 12, 1998 (the "AGREEMENT") by and among Hercules Incorporated, a Delaware corporation (the "COMPANY"), Hercules Trust V, a Delaware statutory business trust (the "TRUST"), and NationsBanc Montgomery Securities LLC, as remarketing agent (the "REMARKETING AGENT"). WITNESSETH: WHEREAS, the Trust shall issue 200,000 Auction Rate Reset Preferred Securities (the "PREFERRED SECURITIES") in an aggregate stated liquidation amount of $200,000,000 and 6,200 Auction Rate Reset Common Securities (the "COMMON SECURITIES", and, collectively with the Preferred Securities, the "TRUST SECURITIES") in an aggregate stated liquidation amount of $6,200,000 under the Amended and Restated Trust Agreement, dated as of November 12, 1998, by and among the Company, the Administrative Trustees, the Delaware Trustee and the Property Trustee (the "TRUST AGREEMENT"); WHEREAS, the sole assets of the Trust, consisting of $206,200,000 aggregate principal amount of Auction Rate Reset Junior Subordinated Notes Series A (the "SUBORDINATED NOTES") of the Company, shall be purchased by the Trust from the Company with the proceeds of the sale of the Trust Securities; WHEREAS, the Preferred Securities or, following any distribution of Subordinated Notes to holders of Preferred Securities upon the termination of the Trust, such Subordinated Notes, as the case may be, shall be remarketed in accordance with the terms hereof by the Remarketing Agent on the Reset Date (as defined herein); WHEREAS, the Company and the Trust have requested that NationsBanc Montgomery Securities LLC ("NMS") act as the Remarketing Agent and, as such, to perform the services described herein; and WHEREAS, NMS is willing to act as Remarketing Agent and as such to perform such duties on the terms and conditions expressly set forth herein; NOW, THEREFORE, in consideration of the covenants herein made, and subject to the conditions herein set forth, the parties hereto agree as follows: SECTION 1. Definitions. Capitalized terms used and not defined in this Agreement shall have the meanings assigned to them in the Trust Agreement. In 4 addition, as used in this Agreement, the following terms shall have the following definitions: "1934 ACT REPORTS" has the meaning set forth in Section 2(b)(iv). "AGREEMENT" has the meaning set forth in the initial paragraph hereto. "ASSOCIATED PERSON" has the meaning set forth in Article 1(ee) of the ByLaws of the National Association of Securities Dealers, Inc. "BID" means an irrevocable offer to purchase the aggregate outstanding Liquidation Amount of Preferred Securities at the Remarketing Price or, following any distribution of Subordinated Notes to holders of Preferred Securities, the aggregate outstanding principal amount of such Subordinated Notes, as the case may be, with a Distribution Rate or interest rate, as applicable, equal to the Bid Rate specified in such Bid and with a redemption date or maturity date, as the case may be, on the Maturity Extension Date. "BID RATE" means the proposed Distribution Rate on the Preferred Securities or interest rate on Subordinated Notes specified in a Bid. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which banking institutions in the City of New York are authorized or required by law, regulation or executive order to close. "CLOSING PRICE" has the meaning set forth in the Forward Underwriting Agreement. "COMMENCEMENT DATE" has the meaning set forth in the Forward Underwriting Agreement. "COMMISSION" means the Securities and Exchange Commission. "COMMON STOCK" has the meaning set forth in the Forward Underwriting Agreement. "COMPANY" has the meaning set forth in the initial paragraph hereto. "CREDIT AGREEMENT" means the Credit Agreement dated as of October 15, 1998 among the Company, certain subsidiaries of the Company from time to time parties thereto, the several lenders from time to time parties thereto, NationsBank, N.A., as Administrative Agent, The Chase Manhattan Bank, Morgan Guaranty Trust Company of New York and Citibank, N.A., as Co-Syndication Agents, as 2 5 the same may be amended, supplemented, modified or superseded from time to time. "CROSS DEFAULT" means an Event of Default as defined in the Credit Agreement. "CURED DEFAULT TRIGGER EVENT" has the meaning set forth in Section 10(b). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE ACT REGULATIONS" means the rules and regulations promulgated under the Exchange Act. "EXPECTED RESET DATE" has the meaning set forth in Section 5. "FINAL RESET DATE" means the third scheduled Trading Day prior to the Remarketing Termination Date. "FORMER HOLDERS" has the meaning set forth in Section 5(i). "FORWARD UNDERWRITING AGREEMENT" means the Forward Underwriting Agreement dated November 12, 1998 between the Company and NMS, as amended, supplemented, modified or superceded from time to time. "GUARANTEE AGREEMENT" means the Preferred Securities Guarantee Agreement, dated November 12, 1998, of the Company in respect to the Preferred Securities, as may be amended, supplemented, modified or superseded from time to time. "INDENTURE" means the Junior Subordinated Debenture Indenture dated as of November 12, 1998 by and between the Company and The Chase Manhattan Bank, as Indenture Trustee, as supplemented by the First Supplemental Indenture dated as of November 12, 1998 and as further amended, supplemented, modified or superceded from time to time. "INDENTURE TRUSTEE" means the Trustee pursuant to the Indenture. "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as amended. 3 6 "LIQUIDATION AMOUNT" has the meaning set forth in Section 8. "MANDATORY REDEMPTION PROCEEDS" has the meaning set forth in Section 9. "MATERIAL ADVERSE CHANGE" has the meaning set forth in the Forward Underwriting Agreement. "MATURITY EXTENSION DATE" means the first anniversary of the Remarketing Settlement Date on which Replacement Securities are issued. "NMS" has the meaning set forth in the fourth recital hereto. "OFFERING MEMORANDUM" has the meaning set forth in Section 14. "POTENTIAL ADJUSTMENT EVENT" has the meaning set forth in the Forward Underwriting Agreement. "PREFERRED SECURITIES" has the meaning set forth in the first recital hereto. "REFERENCE CORPORATE DEALER" means a leading dealer that is a Qualified Institutional Buyer (as defined in Rule 144A under the Securities Act), which shall not include NMS, its Affiliates (as such term is defined in Rule 405 under the Securities Act) or its Associated Person, of publicly traded debt securities, including debt securities of the Company, to be selected by the Company. "REMARKETING" means a remarketing of Preferred Securities or Subordinated Notes pursuant to Section 5. "REMARKETING FEE" has the meaning set forth in Section 8. "REMARKETING PRICE" means a price equal to 100.5% of the aggregate stated Liquidation Amount of the Preferred Securities plus accrued and unpaid Distributions (if any) or, in the case of Subordinated Notes, a price equal to 100.5% of the aggregate principal amount of such Subordinated Notes, plus accrued and unpaid interest (if any). "REMARKETING SETTLEMENT DATE" means the third Business Day immediately following the Reset Date. "REMARKETING TERMINATION DATE" means November 10, 1999. "RENEWED REMARKETING" has the meaning set forth in Section 7. 4 7 "REPAYMENT DATE" has the meaning set forth in Section 9. "REPLACEMENT SECURITIES" has the meaning set forth in Section 5(j). "REPRESENTATION DATE" has the meaning set forth in Section 2(a). "RESET DATE" means any date established as a Reset Date pursuant to Section 5 or 10. "SECONDARY PURCHASE AGREEMENT" means an agreement to be dated as of the Reset Date (or such other date permitted by applicable law) among the Company, the Trust, the Remarketing Agent and the Secondary Purchaser (selected in the manner provided in Section 5(c)) providing for the purchase of the Preferred Securities, or the Subordinated Notes, as the case may be, by the Secondary Purchaser, substantially in the form of Exhibit A hereto, or as otherwise agreed among the Company, the Trust, the Remarketing Agent and the Secondary Purchaser. "SECONDARY PURCHASER" has the meaning set forth in Section 5(c). "SECURITIES ACT" means the Securities Act of 1933, as amended. "STOCK PRICE TRIGGER EVENT" has the meaning set forth in Section 10(i). "SUBORDINATED NOTES" has the meaning set forth in the second recital hereto. "TRADING DAY" has the meaning set forth in the Forward Underwriting Agreement. "TRANSACTION AGREEMENTS" means this Agreement, the Purchase Agreement, the Trust Agreement, the Guarantee Agreement and the Indenture. "TRANSACTION DOCUMENTS" means the Transaction Agreements, together with the Common Securities, Preferred Securities and Subordinated Notes. "TRIGGER EVENT" has the meaning set forth in Section 10. "TRIGGER PRICE" has the meaning set forth in Section 11. "TRUST" has the meaning set forth in the initial paragraph hereto. 5 8 "TRUST AGREEMENT" has the meaning set forth in the initial paragraph hereto. "TRUST SECURITIES" has the meaning set forth in the first recital hereto. "UNDERWRITER" means NationsBanc Montgomery Securities LLC, as Underwriter under the Forward Underwriting Agreement. "UNDERWRITING TRIGGER EVENT" has the meaning set forth in Section 10(c). "WINNING BID RATE" has the meaning set forth in Section 5(b). SECTION 2. Representations and Warranties. (a) Basic Warranties. Each party represents and warrants to the other party as of the date hereof, the Reset Date and the Remarketing Settlement Date (each of the foregoing dates being hereinafter referred to as a "REPRESENTATION DATE") that: (i) Status. It is a duly and validly existing entity under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing. (ii) Powers. It has the power and authority to execute, enter into and perform its obligations under, or contemplated under, this Agreement and consummate the transactions contemplated hereby. (iii) No Violation or Conflict. The execution, delivery and performance by such party of this Agreement, the consummation of the transactions herein contemplated and compliance by such party with its obligations hereunder (A) do not violate or conflict with (1) any provision of its constitutional documents, (2) any law applicable to it, any order or judgment of any court or other agency of government applicable to it or any of its assets that affects the legality, validity or enforceability of this Agreement and (B) do not and will not conflict with or constitute a breach of any contractual restriction binding on or affecting it or any of its assets. (iv) Consents. All governmental and other consents that are required to have been obtained by it with respect to the performance by each party of its obligations under this Agreement have been obtained and are in full force and effect and all conditions of any such consents have been complied with. 6 9 (v) Obligations Binding. Its obligations under this Agreement constitute its legal, valid and binding obligations, enforceable against it in accordance with the terms of this Agreement, except as of the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights or by general equitable principles. (vi) Absence of Litigation. There is not pending or, to the best of its knowledge, threatened against or affecting it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that could reasonably be expected to materially affect the legality, validity or enforceability against it of this Agreement or its ability to perform its obligations under this Agreement. (vii) Non-Reliance. It is acting for its own account, and it has made its own independent decision to enter into this Agreement and as to whether this Agreement is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of any other party as investment advice or as a recommendation to enter into this Agreement; it being understood that information and explanations related to the terms and conditions of this Agreement shall not be considered investment advice or a recommendation to enter into this Agreement. No communication (written or oral) received from any other party shall be deemed to be an assurance or guarantee as to the expected results of this Agreement. Each other party is not acting as a fiduciary for or an adviser to it in respect of this Agreement. (viii) Assessment and Understanding. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of this Agreement. It is also capable of assuming, and assumes, the risks of this Agreement. (b) Representations and Warranties of the Company and the Trust. Each of the Company and the Trust further represents and warrants to the Remarketing Agent as of each Representation Date, as applicable to each such entity, that: (i) Securities Validly Issued. The Preferred Securities and Subordinated Notes have been validly authorized and executed by the Trust and the Company, as the case may be, and authenticated, issued and 7 10 delivered in the manner provided for in the Trust Agreement and the Indenture, respectively, and delivered against payment of the purchase price therefor as provided in the Purchase Agreement, and constitute legally binding obligations of the Trust or the Company, as the case may be, entitled to the benefits of the Trust Agreement and Indenture. (ii) No Event of Default. No Event of Default under the Trust Agreement and no Event of Default under the Indenture or Cross Default has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement. (iii) Compliance with Exchange Act Requirements. The Company has made all the filings with the Commission that it is required to make under the Exchange Act and the Exchange Act Regulations, each such filing complies in all material respects with the requirements of the Exchange Act and Exchange Act Regulations. (iv) No Material Misstatements. The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, its Quarterly Reports on Form 10-Q for the periods ended March 31, 1998 and June 30, 1998 and its Current Reports on Form 8-K dated July 24, 1998, July 30, 1998 and October 15, 1998 (collectively, the "1934 ACT REPORTS"), as supplemented by material press releases, at the time they were filed did not, and, giving effect as of the date hereof to the transactions contemplated by the Transaction Documents do not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (v) No Material Adverse Change. Since the respective dates as of which information is given in, except as otherwise stated therein, there has been no Material Adverse Change. (vi) Not an Investment Company. Neither the Company nor the Trust is an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act. SECTION 3. Covenants. (a) The Company hereby covenants with the Remarketing Agent as follows: 8 11 (i) Maintain Authorizations. The Company shall use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement and shall use all reasonable efforts to obtain any that may become necessary in the future. (ii) Comply with Laws. The Company shall comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement. (iii) Furnish Documentation. The Company will furnish to the Remarketing Agent: (i) unless available to the Remarketing Agent on EDGAR or the Company's website, each Exchange Act Document filed after the date hereof and (ii) in connection with the remarketing of the Preferred Securities or Subordinated Notes, as the case may be, such other information as the Remarketing Agent may reasonably request from time to time. Notwithstanding the foregoing sentence, the Company agrees to provide the Remarketing Agent with as many copies of the foregoing written materials and other Company-approved information as the Remarketing Agent may reasonably request for use in connection with the remarketing of the Preferred Securities or Subordinated Notes, as the case may be, and consents to the use thereof for such purpose. (iv) Notification. If, at any time prior to the Remarketing Settlement Date, any event or condition known to the Company relating to or affecting the Company, any Material Subsidiary thereof or the Preferred Securities or Subordinated Notes shall occur which could reasonably be expected to cause any of the reports, documents, materials or information referred to in Section 3(a)(iii) or any document incorporated therein by reference to contain an untrue statement of a material fact or omit to state a material fact, the Company shall promptly notify the Remarketing Agent in writing of the then-known circumstances and details of such event or condition. (v) File Exchange Act Documents. At all times prior to the Remarketing Settlement Date, the Company will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and the Exchange Act Regulations. (vi) Comply with Securities Laws. The Company will comply with the Securities Act and the rules and regulations of the Commission 9 12 thereunder, the Exchange Act and the Exchange Act Regulations so as to permit the completion of the remarketing of the Preferred Securities or Subordinated Notes, as the case may be, as contemplated in this Agreement. (vii) No Purchase of Securities. The Company agrees that neither it nor any of its subsidiaries or Affiliates shall purchase or otherwise acquire, or enter into any agreement to purchase or otherwise acquire, any of the Preferred Securities or Subordinated Notes prior to the remarketing thereof by the Remarketing Agent, other than pursuant to the Trust Agreement or the Indenture. (viii) Notification of Rating Agency Action. The Company will provide prompt notice by telephone, confirmed in writing (which may include facsimile or other electronic transmission), to the Remarketing Agent of any notification or announcement by a "nationally recognized statistical rating organization" (as defined by the Commission for purposes of Rule 436(g)(2) under the Securities Act) with regard to a downgrade to below investment grade or withdrawal of the rating of any security of the Company or the placement on what is currently called a "watch list"or a "credit watch" with negative implications of any security of the Company. (ix) Restriction on Debt Issuance. During the three Business Day period ending on the Remarketing Settlement Date, the Company will not, without the consent of the Remarketing Agent, offer, sell or contract to sell, or otherwise dispose of, directly or indirectly, or announce the offering of, any debt securities with a maturity of more than one year. (x) Best Efforts. The Company shall use its best efforts to assist the Remarketing Agent in remarketing the Preferred Securities or the Subordinated Notes, as the case may be, in the manner contemplated in this Agreement. (b) The Remarketing Agent hereby covenants with the Company as follows: (i) Maintain Authorizations. The Remarketing Agent will use all of its reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement and shall use all reasonable efforts to obtain any that may become necessary in the future. 10 13 (ii) Comply with Laws. The Remarketing Agent shall comply in all material respects with all applicable laws and orders which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement. SECTION 4. Appointment and Obligations of Remarketing Agent and Calculation Agent; Secondary Purchaser. (a) The Company and the Trust hereby appoint NMS as Remarketing Agent and as Calculation Agent under the Trust Agreement and the Indenture and NMS hereby accepts such appointments (i) to determine, pursuant to the process described in Section 5(b), the Reset Rate that, when applied to the Preferred Securities (and, thus, the Subordinated Notes), shall result in the resale of all outstanding Preferred Securities (or, following any distribution of Subordinated Notes, all such Subordinated Notes), at a sales price equal to 100.5% of the aggregate stated liquidation amount of such Preferred Securities, or 100.5% of the aggregate principal amount of such Subordinated Notes (provided that the Reset Rate shall in no event exceed the rate permitted by applicable law), (ii) as the Remarketing Agent to conduct a private auction of all outstanding Preferred Securities, or, following the distribution of Subordinated Notes to holders of the Preferred Securities upon termination of the Trust, all such Subordinated Notes, as the case may be and (iii) to enter into a Secondary Purchase Agreement. (b) Pursuant to the Secondary Purchase Agreement, the Secondary Purchaser, either as the sole purchaser or as the representative of a syndicate of purchasers designated by the Remarketing Agent, shall agree, subject to the terms and conditions set forth therein, that the Secondary Purchaser and any such other purchasers shall purchase such Preferred Securities or Subordinated Notes, as the case may be, from the holders thereof at a price equal to the Remarketing Price. SECTION 5. Determination of Reset Date; Remarketing Procedures. (a) Subject to Sections 7 and 10, the Reset Date shall be September 28, 1999 (the "EXPECTED RESET DATE"); provided that (i) the Company may, by notice to the Remarketing Agent, direct that the Reset Date be delayed if the Company believes it will be unable to meet the conditions to Remarketing in the absence of such a delay; and (ii) the Remarketing Agent may, by notice to the Company, direct that the Reset Date be delayed if the Remarketing Agent believes that a Remarketing will not be successful in the absence of such a delay; 11 14 and, in either such event, the Company and the Remarketing Agent will use their best efforts to establish a delayed Reset Date that is within five Business Days after the Expected Reset Date, but in no event later than the Final Reset Date; and provided, further, that no Reset Date may be established if any Cross Default (as defined in the Credit Agreement) has occurred, except in connection with a Remarketing following a Cured Default Trigger Event pursuant to Section 10(ii). If the Company and the Remarketing Agent have not agreed, on or prior to the sixth Business Day preceding the Final Reset Date, to a Reset Date that is not later than the Final Reset Date, no Remarketing shall occur, the Preferred Securities (if then outstanding) shall be redeemed at the Mandatory Redemption Price and the Company shall repay the Subordinated Notes in accordance with their terms on the Mandatory Redemption Date. (b) The Company shall, by notice to the Remarketing Agent no later than five Business Days prior to the Reset Date, select and specify at least three but not more than five Reference Corporate Dealers. By 3:00 p.m., New York City time, on the Reset Date, the Remarketing Agent shall request Bids from such Reference Corporate Dealers. The Remarketing Agent shall determine the lowest Bid Rate (the "WINNING BID RATE") from among the Bids obtained on the Reset Date. By approximately 4:30 p.m., New York City time, on the Reset Date, the Remarketing Agent shall notify the Company, the Underwriter, the Indenture Trustee and the Property Trustee of the Winning Bid Rate. If on a Reset Date, Bids are not submitted by at least two Reference Corporate Dealers, or if the lowest Bid submitted would result in a Winning Bid Rate in excess of the rate permitted by applicable law, such Remarketing shall be deemed to be a Failed Remarketing on the corresponding Remarketing Settlement Date. The Winning Bid Rate determined by the Remarketing Agent, absent manifest error, shall be binding and conclusive upon the Holders of the Trust Securities, the holders of the Subordinated Notes, the Company and the Trust. (c) On the Reset Date, the Remarketing Agent shall designate as the Secondary Purchaser (the "SECONDARY PURCHASER") the Reference Corporate Dealer providing the Bid containing the Winning Bid Rate. If the Winning Bid Rate is specified in the Bids submitted by two or more Reference Corporate Dealers, the Remarketing Agent shall, in its sole discretion, designate one of such Reference Corporate Dealers as the Secondary Purchaser. (d) On the Reset Date, the Secondary Purchaser shall enter into a Secondary Purchase Agreement for the purchase by such Secondary Purchaser at the Remarketing Price of the aggregate Liquidation Amount of Preferred Securities, with a Distribution Rate equal to the Winning Bid Rate (or, if Subordinated Notes shall have been distributed to Holders of the Trust Securities, the aggregate principal amount of Subordinated Notes with an interest rate equal 12 15 to the Winning Bid Rate) and with a Mandatory Redemption Date (or, in the case of Subordinated Notes, a maturity date) on the Maturity Extension Date. (e) If a Remarketing shall have occurred pursuant to this Section 5 but settlement of the purchase and sale of the Preferred Securities or Subordinated Notes, as the case may be, does not occur on the corresponding Remarketing Settlement Date, then, unless the provisions of Section 7 with respect to a Renewed Remarketing shall apply, a Failed Remarketing shall be deemed to occur on such Remarketing Settlement Date. (f) At the time and in the manner specified in the Secondary Purchase Agreement, the Secondary Purchaser shall pay to the Remarketing Agent on behalf of the holders of the Preferred Securities or Subordinated Notes, as the case may be, on the Remarketing Settlement Date, an amount of cash equal to the Remarketing Price. (g) Unless otherwise agreed among the Remarketing Agent, the paying agent (under the Trust Agreement or Indenture as applicable) and any Former Holder, the Remarketing Agent shall promptly pay the Remarketing Price, less the Remarketing Fee, to the paying agent, acting solely as agent for the Former Holders, and the paying agent shall pay such amount to the Former Holders on the Remarketing Settlement Date in the manner specified in the Trust Agreement or the Indenture, as the case may be. Any amounts held by the Paying Agent for payment to the Former Holders shall not be property of the Trust. (h) The obligation of the Remarketing Agent to make payment to the Former Holders in connection with the Remarketing shall be limited to the extent that the Secondary Purchaser has delivered the Remarketing Price therefor to the Remarketing Agent. (i) Any outstanding Preferred Securities (or, if Subordinated Notes shall have been distributed to holders of the Trust Securities, Subordinated Notes) purchased on the Remarketing Settlement Date shall be deemed to be transferred to the Secondary Purchaser and shall be replaced in the manner provided in Section 5(j). On and after the Remarketing Settlement Date (except in the event of a Failed Remarketing), the Trust (or the Company, in the case of the Subordinated Notes) shall make no further payments to, and the Trust (or the Company, in the case of the Subordinated Notes) shall have no further obligations under the Trust Agreement (or the Indenture in the case of the Subordinated Notes) in respect of, the Holders of such replaced securities (the "FORMER HOLDERS"), the Trust (or the Company, in the case of the Subordinated Notes) shall only be obligated to make payments to the Holders of Replacement Securities, and the Preferred Securities (or Subordinated Notes) of the Former 13 16 Holders shall no longer represent an obligation of, or interest in, the Trust (or the Company, in the case of the Subordinated Notes) but shall only represent a right to receive the proceeds of the Remarketing from the Paying Agent under the Trust Agreement or the Indenture, as the case may be. (j) The Company shall cause replacement certificates evidencing the remarketed Preferred Securities (or Subordinated Notes) to be executed by an Administrative Trustee (or, in the case of Subordinated Notes, an authorized signatory) on behalf of the Trust (or, in the case of Subordinated Notes, on behalf of the Company) and authenticated by the Property Trustee or the Indenture Trustee in accordance with the provisions of Section 5 (the "REPLACEMENT SECURITIES"). The Replacement Securities shall be delivered to the purchaser or purchasers of the remarketed Preferred Securities (or Subordinated Notes) in accordance with the terms of the Secondary Purchase Agreement. SECTION 6. Reset of Distribution Rate, Mandatory Redemption Date, Interest Rate and Maturity Date. Unless a Failed Remarketing or Renewed Remarketing shall have occurred, from and including the Reset Settlement Date, the Distribution Rate on the Trust Securities and the interest rate on the Subordinated Notes shall be the Winning Bid Rate and the mandatory redemption date of the Trust Securities and the maturity date of the Subordinated Notes shall be the Maturity Extension Date. SECTION 7. Renewed Remarketing. If a Remarketing has occurred pursuant to Section 5 that would be a Failed Remarketing pursuant to Section 5(e), because the purchase and sale of the Preferred Securities (or, if Subordinated Notes shall have been distributed to Holders of the Trust Securities, Subordinated Notes) does not take place on the corresponding Remarketing Settlement Date, and the reason for such failure shall, in the good faith determination of the Remarketing Agent (made after consultation with the Company), result from facts or circumstances that are not due to the action or inaction of the Company, then the provisions of Section 5 and this Section 7 shall apply to any remarketing (each, a "RENEWED REMARKETING") of the Preferred Securities (or, if Subordinated Notes shall have been distributed to Holders of the Trust Securities, Subordinated Notes), except that the Expected Reset Date shall be the sixth Business Day following such corresponding Remarketing Settlement Date. The provisions of this Section 7 shall apply successively to each Renewed Remarketing, provided that no Renewed Remarketing shall occur after the Final Reset Date. SECTION 8. Remarketing Fee. With respect to the Remarketing, the Remarketing Agent shall retain as a remarketing fee (the "REMARKETING FEE") an amount equal to 25 basis points (.25%) of the aggregate stated liquidation amount 14 17 (the "LIQUIDATION AMOUNT") of the remarketed Preferred Securities or 25 basis points (.25%) of the aggregate principal amount of the Subordinated Notes, as the case may be, from the purchase price received in connection with such Remarketing. SECTION 9. Failed Remarketing; Mandatory Redemption. The Remarketing Agent shall give notice of any Failed Remarketing on the date such Failed Remarketing occurs, or is deemed to occur, by 4:00 p.m., New York City time, on the date of such Failed Remarketing, to the Subordinated Note Issuer, the Property Trustee, the Indenture Trustee, the Underwriter and the Paying Agent under the Indenture. In the case of any Failed Remarketing, the Company shall redeem the Subordinated Notes in whole, but not in part, on the third Business Day following the date such Failed Remarketing occurs or is deemed to occur, and the proceeds from such repayment shall be simultaneously applied by the Property Trustee to redeem a like amount of any outstanding Trust Securities at the Mandatory Redemption Price on a pro rata basis in the manner provided in Section 5 of Annex I to the Trust Agreement. SECTION 10. Early Remarketing. If any of the following events (each, a "TRIGGER EVENT") shall have occurred: (a) the Closing Price of the Common Stock on any Trading Day, as determined by the Remarketing Agent, is less than the Trigger Price (a "STOCK PRICE TRIGGER EVENT"); (b) a Cross Default shall have occurred but such Cross Default shall have ceased to be continuing (a "CURED DEFAULT TRIGGER EVENT"); or (c) the Company shall have made a written request to the Underwriter to enter into a firm commitment underwriting of the Common Stock, and the Company and the Underwriter shall have substantially agreed to the terms of such underwriting in the manner described in Section 2 of the Forward Underwriting Agreement or shall have given notice to accelerate the Commencement Date in the manner described in Section 7(c) of the Forward Underwriting Agreement (an "UNDERWRITING TRIGGER EVENT"); then a Remarketing shall occur pursuant to Section 5 and, if applicable, Section 7, except that: (i) the Expected Reset Date shall be the sixth Business Day following the date such Trigger Event first occurs; 15 18 (ii) in the case of a Stock Price Trigger Event or a Cured Default Trigger Event, the Final Reset Date shall be the 15th day following the date such Trigger Event occurs, or the 20th day in the case of a Renewed Remarketing to which the provisions of Section 7 apply, but in no event later than the third scheduled Trading Day prior to November 10, 1999; (iii) in the case of an Underwriting Trigger Event, the Final Reset Date shall be the 45th day following the date such Trigger Event occurs, but in no event later than the third scheduled Trading Day prior to November 10, 1999; and (iv) notwithstanding the provisions of clauses (A), (B) and (C) above, if a Reset Date has already been established or a Remarketing has already taken place at the time such Trigger Event occurs, the Remarketing shall occur on such established Reset Date or settled on the corresponding Remarketing Settlement Date. SECTION 11. Adjustments to Trigger Price. The "TRIGGER PRICE" shall initially be $22 11/16 (twenty-two and eleven-sixteenths). Following the determination by the Remarketing Agent in its reasonable discretion that a Potential Adjustment Event has occurred, the Remarketing Agent shall determine (after consultation with the Company) whether such Potential Adjustment Event has a diluting or concentrative effect on the theoretical value of the Common Stock and, if so, shall make the corresponding adjustment(s), if any, to the Trigger Price. The Company shall promptly notify the Remarketing Agent of any Potential Adjustment Event. The Remarketing Agent may, but need not, determine the appropriate adjustment(s) by reference to the adjustment(s) in respect of such Potential Adjustment Event made by an options exchange to options on the Common Stock traded on that options exchange. In the event of any merger, consolidation or reorganization of the Company, the Remarketing Agent shall determine the appropriate Trigger Price as a result of such event. SECTION 12. Replacement and Resignation of Remarketing Agent. (a) The Company shall not have the right to replace NMS as the Remarketing Agent, except in the case of bad faith, gross negligence or willful misconduct by NMS. (b) NMS may resign at any time for good reason (after consultation with the Company) and, subject to the following sentence, shall be discharged from its duties and obligations hereunder or as Calculation Agent under the Trust Agreement and the Indenture by giving no less than 10 days notice. Any such resignation shall become effective upon the Company's appointment of a successor to perform the services that would otherwise be performed hereunder by the Remarketing Agent or the Calculation Agent under the Trust Agreement and 16 19 the Indenture, as the case may be, and the agreement of any such successor so to serve. Upon receiving notice from the Remarketing Agent that it wishes to resign hereunder or as Calculation Agent under the Trust Agreement and the Indenture stating the reasons for such resignation, the Company shall appoint such a successor and enter into a new remarketing agreement with it as soon as reasonably practicable. SECTION 13. Dealing in the Securities. NMS, when acting as Remarketing Agent hereunder or under the Secondary Purchase Agreement or when acting in its individual or any other capacity, may, to the extent permitted by law, buy, sell, hold or deal in any of the Preferred Securities or Subordinated Notes, as the case may be. With respect to any Preferred Securities or Subordinated Notes, as the case may be, owned by it, the Remarketing Agent may exercise any vote or join in any action with like effect as if it did not act in any capacity hereunder. NMS, in its individual capacity, either as principal or agent, may also engage in or have an interest in any financial or other transaction with the Company as freely as if it did not act in any capacity hereunder. SECTION 14. Offering Memorandum. Promptly following the date hereof, the Company shall furnish an offering memorandum (the "OFFERING MEMORANDUM") to the Remarketing Agent, in form and substance reasonably satisfactory to the Remarketing Agent, to be used in the remarketing by the Secondary Purchaser or purchasers under the Secondary Purchase Agreement, and shall pay all expenses relating thereto. SECTION 15. Conditions to the Remarketing Agent's Obligations. (a) The obligations of the Remarketing Agent, the Secondary Purchaser and any other purchasers to perform their respective obligations hereunder and under the Secondary Purchase Agreement shall be subject to the terms and conditions of the Secondary Purchase Agreement. (b) If at any time during the term of this Agreement, any Event of Default under the Indenture or any Event of Default under the Trust Agreement, or event that with the passage of time or the giving of notice or both would become an Event of Default under the Indenture or an Event of Default under the Trust Agreement, has occurred and is continuing under the Indenture or the Trust Agreement, then the obligations and duties of the Remarketing Agent under this Agreement shall be suspended until such default or event has been cured. The Company shall cause the Indenture Trustee and the Property Trustee to give the Remarketing Agent notice of all such defaults and events of which the Indenture Trustee or the Property Trustee is aware. 17 20 SECTION 16. Indemnification. The Company shall indemnify and hold harmless the Remarketing Agent and its officers and employees from and against all actions, claims, damages, liabilities and losses, and costs and expenses related thereto (including reasonable legal fees and costs) relating to or arising out of actions or omissions in any capacity hereunder and in any capacity as Calculation Agent under the Trust Agreement and the Indenture, except actions, claims, damages, liabilities, losses, costs and expenses to the extent caused by (a) the bad faith, gross negligence or wilful misconduct of such indemnified party or (b) the breach by the Remarketing Agent of its representations, warranties and covenants hereunder. This Section 16 shall survive the termination of the Agreement, the Trust Agreement, the Indenture and the payment in full of all obligations under the Preferred Securities or the Subordinated Notes, as the case may be, and this Agreement, whether by purchase, repurchase, redemption or otherwise. SECTION 17. Termination of Remarketing Agreement. This Agreement shall terminate as to any Remarketing Agent that is replaced on the effective date of its replacement pursuant to Section 12(b). Notwithstanding any such termination, the obligations of the Company set forth in Section 8 shall survive and remain in full force and effect until all amounts payable under said Section 8 shall have been paid in full. In addition, this Agreement shall terminate upon the earlier of (a) the expiration of the term specified in Section 21 and (b) three Business Days following the date of any Failed Remarketing. SECTION 18. Remarketing Agent's Performance: Duty of Care; Power of Attorney. The duties and obligations of the Remarketing Agent hereunder shall be determined solely by the express provisions of this Agreement and the Secondary Purchase Agreement. The Remarketing Agent hereby accepts the obligation set forth in the Trust Agreement and the Indenture to act as attorney-in-fact for the holders of the Preferred Securities or Subordinated Notes, as the case may be. SECTION 19. Expenses. The Company shall pay the reasonable fees and disbursements of the Remarketing Agent's counsel incurred in connection with any remarketing, including any Renewed Remarketing and any Failed Remarketing and the Company shall pay the reasonable fees, expenses and disbursements of the Remarketing Agent and its counsel in connection with the execution and delivery of the Secondary Purchase Agreement. SECTION 20. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to the choice of law rules thereof. 18 21 SECTION 21. Term of Agreement. Unless otherwise terminated in accordance with the provisions hereof and except as otherwise provided herein, this Agreement shall remain in full force and effect from the date hereof until thirty days following the Reset Date. SECTION 22. Successors and Assigns. The rights and obligations of the Company hereunder may not be assigned or delegated to any other person without the prior written consent of the Remarketing Agent. Subject to the provisions of Section 12, the rights and obligations of the Remarketing Agent hereunder may not be assigned or delegated to any other person without the prior written consent of the Company. This Agreement shall inure to the benefit of and be binding upon the Company and the Remarketing Agent and their respective successors and assigns. The terms "successors" and "assigns" shall not include any purchaser of Preferred Securities or Subordinated Notes merely because of such purchase. SECTION 23. Headings. Section headings have been inserted in this Agreement as a matter of convenience of reference only, and it is agreed that such section headings are not a part of this Agreement and shall not be used in the interpretation of any provision of this Agreement. SECTION 24. Severability. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any or all jurisdictions because it conflicts with any provisions of any constitution, statute, rule or public policy or for any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case, circumstances or jurisdiction, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatsoever. SECTION 25. Counterparts. This Agreement may be executed in counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same document. SECTION 26. Amendments. This Agreement may be amended by any instrument in writing signed by the parties hereto; provided that any amendment to Section 8 shall require, in addition, the consent of all of the holders of the Preferred Securities or Subordinated Notes to be remarketed, as the case may be. SECTION 27. Notices. Unless otherwise specified, any notices, requests, consents or other communications given or made hereunder or pursuant hereto shall be made in writing or transmitted by any standard form of telecommunication, including telephone, telegraph or telecopy, and confirmed in writing. All written notices and confirmations of notices by telecommunication 19 22 shall be deemed to have been validly given or made when delivered or mailed, registered or certified mail, return receipt requested and postage prepaid. All such notices, requests, consents or other communications shall be addressed as follows: if to the Company, to Hercules Incorporated, Hercules Plaza, 1313 North Market Street, Wilmington, Delaware 19894-0001, Attention: Vice President and Treasurer, with a copy to Hercules Incorporated, Hercules Plaza, 1313 North Market Street, Wilmington, Delaware 19894-0001, attention: Corporate Secretary and a copy to Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, Attention: Justin P. Klein, Esq.; if to the Trust, to c/o Hercules Incorporated, Hercules Plaza, 1313 North Market Street, Wilmington, Delaware 19894-0001, Attention: Israel J. Floyd, Esq., Administrative Trustee; and if to the Remarketing Agent, to NationsBanc Montgomery Securities LLC, 100 North Tryon Street, Charlotte, North Carolina 28255, Attention: Syndicate or to such other address as any of the above shall specify to the other in writing. 20 23 IN WITNESS WHEREOF, each of the Company, the Trust and the Remarketing Agent has caused this Remarketing Agreement to be executed in its name and on its behalf by one of its duly authorized officers as of the date first above written. HERCULES INCORPORATED By: /s/ R. K Elliott Name: R. Keith Elliott Title: Chairman and Co-Chief Executive Officer HERCULES TRUST V By: /s/ Jan M. King Name: Jan M. King Title: Administrative Trustee CONFIRMED AND ACCEPTED: NATIONSBANC MONTGOMERY SECURITIES LLC, not individually, but solely as Remarketing Agent By: /s/ Russell F. Hackman Name: Russell F. Hackman Title: Principal 21 24 Exhibit A to Remarketing Agreement SECONDARY PURCHASE AGREEMENT (the "AGREEMENT") dated _________, 199_ among HERCULES INCORPORATED, a Delaware corporation (the "COMPANY"), HERCULES TRUST V, a Delaware statutory business trust (the "TRUST")(1), NATIONSBANC MONTGOMERY SECURITIES, LLC, a ___________ limited liability company, as Remarketing Agent (the "REMARKETING AGENT") and attorney-in-fact for the holders from time to time of the Preferred Securities, and _________________, a __________ corporation (the "SECONDARY PURCHASER"). SECTION 1. Definitions. Capitalized terms used and not defined in this Agreement shall have the meanings assigned to them in the Remarketing Agreement, the Trust Agreement and the Junior Subordinated Debenture Indenture (as supplemented by the First Supplemental Indenture, the "INDENTURE") and the Guarantee Agreement, each as identified in Schedule I hereto. In addition, as used in this Agreement, the following terms shall have the following meanings: "AFFILIATE" has the meaning set forth in Section 3(v). "AGREEMENT" has the meaning set forth in the initial paragraph hereto. "BUSINESSES" has the meaning set forth in Section 3(t)(i)(A). "COMMON STOCK" means the common stock, no par value, of the company. "COMMISSION" means the Securities and Exchange Commission. "COMPANY" has the meaning set forth in the initial paragraph hereto. - ----------------------- (1) Delete Trust as a party, delete references to Trust Agreement and Guarantee Agreement and replace references to "Preferred Securities" with "Subordinated Notes" where appropriate if the Subordinated Notes are being purchased. A-1 25 "CREDIT AGREEMENT" means the Credit Agreement dated as of October 15, 1998 among the Company, certain subsidiaries of the Company from time to time parties thereto, the several lenders from time to time parties thereto, NationsBank, N.A., as Administrative Agent, The Chase Manhattan Bank, Morgan Guaranty Trust Company of New York and Citibank, N.A., as Co-Syndication Agents, as the same may be amended, supplemented, modified or superseded from time to time. "DEBT REPAYMENT TRIGGER EVENT" means any event or condition that gives, or with the giving of notice or lapse of time would give, the holder of any note, debenture or other evidence of indebtedness for borrowed money in excess of $25,000,000 (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its Material Subsidiaries or the Trust. "DEFAULT" has the meaning set forth in Section 3(f). "DEPOSITORY" has the meaning set forth in the Trust Agreement. "ENVIRONMENTAL LAWS" means any and all lawful and applicable Federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE ACT REGULATIONS" means the rules and regulations promulgated under the Exchange Act. "EXISTING INSTRUMENT" has the meaning set forth in Section 3(f). "GAAP" has the meaning set forth in Section 3(k). "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GOVERNMENTAL LICENSES" has the meaning set forth in Section 3(q). A-2 26 "GUARANTEE TRUSTEE" shall mean the Preferred Securities Guarantee Trustee as defined in the Guarantee Agreement. "HAZARDOUS MATERIALS" means any substance, material or waste defined or regulated in or under any Environmental Laws. "INCORPORATED DOCUMENTS" has the meaning set forth in Section 3(j). "INDENTURE" has the meaning set forth in the initial paragraph of Section 1. "INTELLECTUAL PROPERTY" has the meaning set forth in Section 3(p). "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as amended. "MATERIAL ADVERSE CHANGE" has the meaning set forth in Section 3(m). "MATERIAL SUBSIDIARY" has the meaning set forth in Section 3(b). "OFFERING MEMORANDUM" has the meaning set forth in Section 2. "PREFERRED SECURITIES" means the 200,000 Auction Rate Reset Preferred Securities in an aggregate amount of $200,000,000, issued under the Trust Agreement. "QIB" has the meaning set forth in Section 8. "REAL PROPERTIES" has the meaning set forth in Section 3(t)(i)(A). "RELEVANT EXCHANGE" means the principal national securities exchange or automated quotation system on which the Common Stock is listed or quoted. "REMARKETING AGREEMENT" means the Remarketing Agreement identified in Schedule I hereto. "REMARKETING AGENT" has the meaning set forth in the initial paragraph hereto. "REMARKETING FEE" has the meaning set forth in the Remarketing Agreement. A-3 27 "REMARKETING PRICE" has the meaning set forth in the Remarketing Agreement. "REMARKETING SETTLEMENT DATE" has the meaning set forth in the Remarketing Agreement. "RENEWED REMARKETING" has the meaning set forth in the Remarketing Agreement. "REPLACEMENT SECURITIES" has the meaning set forth in the Trust Agreement.(2) "SECONDARY PURCHASER" has the meaning set forth in the initial paragraph hereto. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITIES ACT REGULATIONS" means the rules and regulations promulgated under the Securities Act. "SUBORDINATED NOTES" means the $206,200,000 aggregate principal amount of Auction Rate Reset Junior Subordinated Notes Series A of the Company. "TRANSACTION AGREEMENTS" means, collectively, this Agreement, the Remarketing Agreement, the Trust Agreement, the Guarantee Agreement and the Indenture. "TRUST" has the meaning set forth in the initial paragraph hereto. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended from time to time, or any successor Legislation. "TRUSTEES" means any of the Trustees pursuant to the Trust Agreement, the Guarantee Agreement and the Indenture, as appropriate. "TRUST AGREEMENT" has the meaning specified in Schedule I hereto. - -------- (2) Replace with the following definition of Replacement Notes if Subordinated Notes are being purchased: "Replacement Notes" has the meaning set forth in the Indenture. A-4 28 SECTION 2. Offering Memorandum. The Company and the Trust have furnished an offering memorandum, in form and substance reasonably satisfactory to each of the Remarketing Agent and the Secondary Purchaser, (an "OFFERING MEMORANDUM") relating to the Securities and the purchase and resale thereof. SECTION 3. Representations and Warranties. The Company represents, warrants and agrees that: (a) Good Standing of Company. The Company is a duly and validly existing corporation in good standing under the laws of the State of Delaware. The Company is duly qualified as a foreign corporation and is in good standing under the laws of each other jurisdiction where its ownership, lease, licensing or operation of property or the conduct of its business requires such qualification, other than in such jurisdiction or jurisdictions where the failure to be so qualified and in good standing could not reasonably be expected to result in a Material Adverse Change. (b) Good Standing of Material Subsidiaries. Each subsidiary of the Company that (i) is listed on Schedule II hereto , (ii) together with its subsidiaries on a consolidated basis during the 12 months preceding the date hereof accounts for (or to which may be attributed) 5% or more of the net income or assets (determined on a consolidated basis) of the Company and its subsidiaries or (iii) is otherwise necessary for the ongoing business operations of the Company and its subsidiaries taken as a whole (each, a "MATERIAL SUBSIDIARY"), is a duly and validly existing entity and is in good standing under the laws of the jurisdiction of its incorporation or organization, has all corporate power and authority to own, lease, license and operate its properties and conduct its business as currently conducted and is duly qualified as a foreign entity in good standing in each other jurisdiction where its ownership, lease, license or operation of property or the conduct of its business requires such qualification, other than in such jurisdiction or jurisdictions where the failure to be so qualified or be in good standing could not reasonably be expected to result in a Material Adverse Change. All of the issued and outstanding capital stock of each Material Subsidiary have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien (other than the liens created by or contemplated in the Credit Agreement as in effect on the date hereof), encumbrance or claim. None of the outstanding shares of capital stock of any Material Subsidiary were issued in violation of preemptive or other similar rights of any securityholder of such Material Subsidiary. (c) Power and Authority. The Company has all corporate power and authority and the legal right to (i) own, lease, license and operate its properties, A-5 29 (ii) conduct the business in which it is currently engaged and (A) enter into and perform its obligations under, or as contemplated under, this Agreement and consummate the transactions contemplated hereby. (d) Valid and Binding Agreements. Each of the Transaction Agreements has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company (assuming, in the case of the Indenture, due execution and delivery by the Indenture Trustee; in the case of the Trust Agreement, due execution and delivery by the Property Trustee and the Delaware Trustee; in the case of the Guarantee Agreement, due execution and delivery by the Guarantee Trustee (the "GUARANTEE TRUSTEE"); and, in the case of the Remarketing Agreement, due execution and delivery by the Remarketing Agent), enforceable in accordance with its terms, except as rights to indemnification hereunder and thereunder may be limited by applicable law and except as the enforcement hereof and thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights or by general equitable principles. (e) Valid and Binding Obligations. The Subordinated Notes have been duly authorized, executed, authenticated and issued and delivered as provided in the Indenture against payment of the purchase price therefor as provided in the Indenture, and are validly issued and outstanding, and constitute valid and legally binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights or by general equitable principles. (f) Non-Contravention of Existing Instruments. Neither the Company nor any of its Material Subsidiaries is in default or, with the giving of notice or lapse of time, would be in default ("DEFAULT") under any indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which the Company or any of its Material Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its Material Subsidiaries is subject (each, an "EXISTING INSTRUMENT"), except for such Defaults as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. The execution, delivery and performance by the Company of this Agreement and the Remarketing Agreement, the consummation of the transactions herein and therein contemplated and the compliance by the Company with its obligations hereunder and thereunder (i) do not and will not result in any violation of the provisions of the Certificate of Incorporation or By-Laws or other constitutive documents of the Company or any Material Subsidiary, (ii) do not and will not conflict with or A-6 30 constitute a breach of, Default or a Debt Repayment Trigger Event under, or result in the creation or imposition of any lien, charge or encumbrance upon any assets, properties or operations of the Company or any of its Material Subsidiaries pursuant to, or require the consent of any other party to, any Existing Instrument, except for such conflicts, breaches, Defaults, liens (other than liens created by or contemplated in the Credit Agreement as in effect on November 12, 1998), charges, encumbrances or failure to obtain consents as would not, individually or in the aggregate, result in a Material Adverse Change and (iii) will not result in any violation of any applicable law or statute or any order, rule, regulation or judgment of any court or governmental agency or body having jurisdiction over the Company or any of its Material Subsidiaries or any of their respective assets, properties or operations the result which could be a Material Adverse Change. (g) No Further Consents or Approvals Required. No consent, approval, authorization, order of, registration qualification, or filing of or with any court or governmental agency or body having jurisdiction over the Company, any of its Material Subsidiaries or any of their respective properties is required for the due authorization, execution and delivery by the Company of, and the compliance by the Company with all the terms of, this Agreement and the consummation by the Company of the transactions contemplated hereby, except such as have been obtained or made by the Company, as may be required by the securities or blue sky laws of the various States in connection with the purchase of the Preferred Securities by the Secondary Purchaser or where the failure to obtain such consent, approval, authorization, order, registration, qualification, or make such filing will not adversely affect such authorization, execution or delivery of this Agreement, the compliance with the terms hereof or the consummation by the Company of the transactions contemplated hereby. (h) Compliance with Exchange Act Requirements. The Company has made all the filings with the Commission that it is required to make under the Exchange Act and the Exchange Act Regulations and each such filing complies in all material respects with the requirements of the Exchange Act and Exchange Act Regulations. (i) Offering Memorandum Furnished to Secondary Purchaser. The Company has furnished to the Secondary Purchaser an Offering Memorandum. The Offering Memorandum did not at the time of delivery to the Secondary Purchaser and, as of the Remarketing Settlement Date will not, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. A-7 31 (j) Incorporated Documents. The documents incorporated or deemed to be incorporated by reference in the Offering Memorandum, at the time they were or hereafter are filed with the Commission (collectively, the "INCORPORATED DOCUMENTS"), except to the extent amended or modified on a subsequent date prior to the date of the Offering Memorandum, complied and will comply in all material respects with the requirements of the Exchange Act and Exchange Act Regulations, at the date of the Offering Memorandum and at the Remarketing Settlement Date. (k) Financial Statements. The financial statements of the Company, as well as those financial statements, schedules and notes of any other entity included therein, included or incorporated by reference in the Offering Memorandum together with the related notes and schedules, present fairly the financial position of the Company and its consolidated subsidiaries, or such other entity, as the case may be, as of and at the dates indicated and the statement of operations, stockholders' equity and cash flows of the Company and its consolidated subsidiaries or such other entity, as the case may be, for the period specified. Such financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. Any pro forma financial statements included in the Offering Memorandum have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein but the pro forma financial statements may differ from actual results. (l) Independent Accountants. Each of the accountants who certified the financial statements and any supporting schedules thereto included or incorporated in the Offering Memorandum, are independent public or certified public accountants as required by the Exchange Act and the Exchange Act Regulations. (m) No Material Adverse Change in Business. Since the respective dates as of which information is given in the Offering Memorandum, except as otherwise stated therein, (i) there has been no material adverse change, or development that could reasonably be expected to result in a material adverse change in the condition, financial or otherwise, in or affecting the earnings, business, operations, financial position or prospects, whether or not arising from transactions in the ordinary course of business, of the Company and its subsidiaries, considered as one entity (a "MATERIAL ADVERSE CHANGE"), (ii) there have been no transactions entered into by the Company or any of its Material A-8 32 Subsidiaries other than those arising in the ordinary course of business which are, individually or in the aggregate, material with respect to the Company and its subsidiaries, considered as one enterprise and (iii) except for regular dividends on the Company's Common Stock or preferred stock (which dividends include amounts, sometimes called "dividend equivalents," paid under the Company's employee benefit and compensation plans on the Common Stock grants (whether options, restricted stock or other) under such plans, but only to the extent such amounts do not exceed the amounts of ordinary cash dividends that would be payable were such Common Stock grants treated as Common Stock), in amounts per share that are consistent with past practice, or the applicable charter document or supplement thereto, respectively, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (n) Capitalization. The authorized, issued and outstanding capital stock of the Company is as set forth or incorporated by reference in the Offering Memorandum under the caption ["CAPITALIZATION"] (other than for subsequent issuances, if any, pursuant to employee benefit and compensation plans described in the Offering Memorandum or any Incorporated Document or upon exercise of outstanding options or warrants described in the Offering Memorandum or any Incorporated Document). Such shares of capital stock have been duly authorized and validly issued by the Company and are fully paid and non-assessable and have been issued in compliance with federal and state securities laws. The capital stock conforms in all material respects to the description thereof contained in the Offering Memorandum. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any of its subsidiaries other than those accurately described or incorporated by reference in the Offering Memorandum. (o) No Material Actions or Proceedings. There are no actions, suits, proceedings, inquiries or investigations before or brought by any legal or governmental agency or body now pending or, to the knowledge of the Company, threatened, against or affecting the Company or any of its Material Subsidiaries that are not disclosed in the Offering Memorandum or in any Incorporated Document. The aggregate of all pending legal or governmental proceedings to which the Company or any of its Material Subsidiaries is a party or of which any of their respective assets, properties or operations is the subject that are not described in the Offering Memorandum or any Incorporated Documents, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Change. (p) Intellectual Property Rights. Except as otherwise disclosed or incorporated by reference in the Offering Memorandum, the Company and each A-9 33 Material Subsidiary owns, leases, licenses or otherwise possesses adequate trademarks, service marks, trade names, patents, patent rights, copyrights, licenses, inventions, approvals, and other intellectual property rights (collectively, "INTELLECTUAL PROPERTY") necessary to conduct its business as now conducted. Neither the Company nor any of its Material Subsidiaries has received any written notice of any infringement of or conflict with, asserted rights of others with respect to any Intellectual Property which infringement or conflict, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Change. (q) Possession of Licenses and Permits. Each of the Company and its Material Subsidiaries possesses such permits, licenses, approvals, consents and other authorizations (collectively, "GOVERNMENTAL LICENSES") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by it. The Company and its Material Subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure to so comply could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. All of the Governmental Licenses are valid and in full force and effect, except where the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect could not individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. Neither the Company nor any of its Material Subsidiaries has received any written notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, individually or in the aggregate (if the subject of an unfavorable decision, ruling or finding), would result in a Material Adverse Change. (r) Company Not "Investment Company". The Company is not an "investment company" within the meaning of the Investment Company Act and the rules and regulations of the Commission thereunder. (s) Related Party Transactions. There are no business relationships or related party transactions involving the Company or any subsidiary or any other person required to be described in the Offering Memorandum or in any Incorporated Document that have not been described as required. (t) Environmental Laws. (i) Except as would not have or be reasonably expected to result in a Material Adverse Change or as is otherwise described in the Exchange Act Reports: A-10 34 (A) Each of the real properties owned by the Company or any of its Material Subsidiaries (the "REAL PROPERTIES") and all operations at the Real Properties are in compliance with all applicable Environmental Laws, and there is no violation of any Environmental Law with respect to the Real Properties or the businesses operated by the Company or any of its Material Subsidiaries (the "BUSINESSES"), and there are no conditions relating to the Businesses or Real Properties that would be reasonably expected to give rise to liability under any applicable Environmental Laws. (B) Neither the Company nor any of its Material Subsidiaries has received any written notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding Hazardous Materials (as defined herein) or compliance with Environmental Laws (as defined herein) with regard to any of the Real Properties or the Businesses, nor does the Company or any of its Material Subsidiaries have knowledge or reason to believe that any such notice is being threatened. (C) Hazardous Materials have not been transported or disposed of from the Real Properties, or generated, treated, stored or disposed of at, on or under any of the Real Properties or any other location, in each case by, or on behalf or with the permission of, the Company or any of its Material Subsidiaries. (D) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Company, threatened, under any Environmental Law to which the Company or any of its Material Subsidiaries is or, to the best knowledge of the Company, will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Company or any of its Material Subsidiaries, the Real Properties or the Businesses. (E) There has been no release or, to the best knowledge of the Company, threat of release of Hazardous Materials at or from the Real Properties, or arising from or related to the operations (including, without limitation, disposal) of the Company or any of its Material Subsidiaries in connection with the Real Properties or A-11 35 otherwise in connection with the Businesses, in violation of, or in amounts or in a manner that could give rise to liability under, Environmental Laws. (F) None of the Real Properties contains, or has previously contained, any Hazardous Materials at, on or under the Real Properties in amounts or concentrations that, if released, constitute or constituted a violation of, or would give rise to liability under, Environmental Laws. (G) Neither the Company, nor any of its Material Subsidiaries, has assumed any liability of any person (other than the Company or one of its Material Subsidiaries) under any Environmental Law. (ii) The Company has adopted procedures that are designed to (A) ensure that for the Company and each of its Material Subsidiaries, each of their respective operations and each of the properties owned or leased by the Company and each of its Material Subsidiaries remains in compliance with applicable Environmental Laws, to the extent that the failure to comply with such Environmental Laws would result in or would be reasonably expected to result in a Material Adverse Change, and (B) manage, to the same extent as and in accordance with the practices of companies engaged in the same or a similar business, any liabilities or potential liabilities that the Company and each of its Material Subsidiaries, any of its respective operations and each of the properties owned or leased by the Company and each of its Material Subsidiaries may have under applicable Environmental Laws. (u) Securities Laws; Trust Indenture Act. Assuming the accuracy of the Secondary Purchaser's representations, warranties and agreements set forth in Section 7 hereof, registration of the Preferred Securities, the Subordinated Notes or the Guarantee Agreement under the Securities Act is not required in connection with the offer, sale and delivery of the Preferred Securities to the Secondary Purchaser and qualification of the Trust Agreement, the Guarantee Agreement or the Indenture under the Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT"), is not required. (v) No Integration. Neither the Company nor any of its Affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act) has directly, or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or A-12 36 will be integrated with the sale of the Preferred Securities in a manner that would require the registration under the Securities Act of the Preferred Securities. (w) No Solicitation. No form of general solicitation or general advertising was used by the Company, the Trust or, to the best of its knowledge, any other person acting on behalf of the Company or the Trust in respect of the Preferred Securities or in connection with the remarketing and sale of the Preferred Securities (as those terms are used in Regulation D under the Securities Act), or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. Neither the Company, the Trust nor any person acting on behalf of the Company or the Trust has, either directly or indirectly, sold or offered for sale to any person any of the Preferred Securities or any other similar security of the Company or the Trust except for the Secondary Purchaser, so as thereby to bring the issuance or sale of any of the Securities within the provisions of Section 5 of the Securities Act or any Blue Sky law of any state or the provincial securities laws of Canada. SECTION 4. Representations and Warranties and Agreements of the Company and the Trust. The Company and the Trust, jointly and severally, represent, warrant and agree that: (a) The Trust has been duly created and is validly existing in good standing as a statutory business trust organized under the Business Trust Act of the State of Delaware (chapter 38, Title 12, of the Delaware Code, 12 Del. C. Sec. 3801 et seq.) (the "BUSINESS TRUST ACT"), is a "grantor trust" or pass-through entity and not an association or publicly traded partnership subject to taxation as a corporation for Federal income tax purposes under existing law, has the business trust power and authority to own property, conduct its business and enter into and perform the obligations under the Transaction Agreements and is not required to be authorized to do business in any other jurisdiction. All filings required under the laws of the State of Delaware with respect to the creation and valid existence of the Trust as a business trust have been made. (b) The Trust has conducted and will conduct no business other than the transactions contemplated by this Agreement, the Remarketing Agreement and the Trust Agreement; the Trust is not a party to or bound by any agreement or instrument other than this Agreement, the Remarketing Agreement and the Trust Agreement; the Trust has no liabilities or obligations other than those arising out of the transactions contemplated by this Agreement, the Remarketing Agreement, the Subscription Agreement, the Subordinated Note Purchase Agreement and such Trust Agreement; and the Trust is not a party to or subject to any action, suit or proceeding of any nature. A-13 37 (c) The Trust Agreement has been duly authorized, executed and delivered by the Company, as Sponsor, and the Trustees, and assuming due authorization, execution and delivery of the Trust Agreement by the Delaware Trustee (as defined in the Trust Agreement), constitutes a valid and binding obligation of the Trust, enforceable against the Trust in accordance with its terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and other laws of general application relating to or affecting the enforcement of creditors' rights or by general equitable principles. (d) The Preferred Securities have been duly authorized by, and executed and delivered in accordance with the Trust Agreement and represent validly issued, fully paid and non-assessable undivided beneficial interests in the assets of the Trust. Holders of the Preferred Securities are entitled to the same limitation of liability extended to stockholders of private corporations for profit under the General Corporation Law of the State of Delaware. The Common Securities have been duly authorized by, and executed and delivered in accordance with, the Trust Agreement and represent validly issued undivided beneficial interests in the assets of the Trust. The remarketing of Preferred Securities(3) will not be subject to any preemptive or similar rights. (e) Each of this Agreement and the Remarketing Agreement has been duly authorized, executed and delivered by, and is a valid and binding obligation of, the Trust, enforceable against the Trust in accordance with its terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and other laws of general application relating to or affecting the enforcement of creditors' rights or by general equitable principles. (f) The execution and delivery by the Trust and the performance by the Trust of its obligations under, this Agreement, the Remarketing Agreement and the Trust Agreement will not result in a violation of any existing statute or order, rule or regulation of any court or governmental agency or body having jurisdiction over the Trust or any of its assets, the Trust Agreement or any agreement or other instrument binding upon the Trust; and except for such consents, approvals, authorizations, registrations or qualifications as may be required under applicable state securities laws in connection with the purchase of the Preferred Securities by the Secondary Purchaser, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the performance by the Trust under this Agreement, the Remarketing Agreement and the Trust Agreement. - -------- (3) Replace with Subordinated Notes if Subordinated Notes are being purchased. A-14 38 (g) The Trust is not, will not be an "investment company" within the meaning of such term under the Investment Company Act and the rules and regulations of the Commission thereunder. SECTION 5. Purchase and Sale. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Secondary Purchaser agrees to purchase from the registered holder or holders of the Preferred Securities in the manner specified in Section 6 hereof, such Preferred Securities at a purchase price equal to the Remarketing Price plus any accrued and unpaid distributions(4) on the Preferred Securities. SECTION 6. Delivery and Payment; Remarketing Fee. Delivery of certificates for the Preferred Securities purchased by the Secondary Purchaser and payment therefor shall be made on the Remarketing Settlement Date at the location and time specified in Schedule I hereto, which date and time may be postponed by agreement among the Secondary Purchaser, the Company, the Trust and the Remarketing Agent on behalf of the registered holder or holders thereof. Payment for the Preferred Securities shall be made by wire transfer of immediately available funds by 1:00 p.m., New York City time, on the Remarketing Settlement Date, to the order of the Remarketing Agent. The Remarketing Agent shall be entitled to retain from such funds the Remarketing Fee. On the Remarketing Settlement Date, the Remarketing Agent shall deliver a proportional amount of the Remarketing Price (net of the Remarketing Fee) to the holders of the Preferred Securities. Delivery of the remarketed Preferred Securities shall be made to the Secondary Purchaser as follows: certificates for the Replacement Securities(5) shall be registered in such names and denominations as the Secondary Purchaser may request not less than two full Business Days in advance of the Remarketing Settlement Date, and the Company and the Trust agree to have such certificates available for inspection, packaging and checking by the Secondary Purchaser in New York, New York not later than 1:00 p.m., New York City time, on the Business Day prior to the Remarketing Settlement Date. - -------- (4) Replace with "accrued and unpaid interest" if Subordinated Notes are being remarketed. (5) Replace with "Replacement Notes" if Subordinated Notes are being remarketed. A-15 39 SECTION 7. Additional Covenants of the Company and the Remarketing Agent. (a) None of the Company, the Remarketing Agent or any Affiliate of the Company will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) which could be integrated with the sale of the Securities to the Secondary Purchaser in a manner that would require the registration under the Securities Act of the Securities. (b) None of the Company, the Remarketing Agent or any Affiliate of the Company shall solicit any offer to buy or offer to sell the Securities by means of any form of general solicitation or general advertising (as those terms are defined in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (c) So long as either the Preferred Securities or the Subordinated Notes are outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to furnish to holders of the Preferred Securities and prospective purchasers of Preferred Securities designated by such holders, upon request of such holders or such prospective purchasers, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, if applicable. (d) The Company shall include in any Offering Memorandum information substantially in the form set forth in Exhibit I. (e) The Company shall advise the Secondary Purchaser promptly and, if requested by the Secondary Purchaser, to confirm such advice in writing, of (i) the issuance by any state securities commission of any stop order suspending the qualification or exemption from qualification of any Preferred Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for such purpose by the Commission or any state securities commission or other regulatory authority, and (ii) the happening of any event that makes any statement of a material fact made in the Offering Memorandum or incorporated by reference therein untrue or that requires the making of any additions to or changes in the Offering Memorandum or any Incorporated Document in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company shall use every reasonable effort to prevent the issuance of any stop order or order suspending the qualification or exemption of the Preferred Securities under any state securities or blue sky laws and, if at any time any state securities commission shall issue any stop order suspending the qualification or exemption of the Securities under any state securities or blue sky laws, the Company shall use every reasonable effort to obtain the withdrawal or lifting of such order at the earliest possible time. A-16 40 (f) So long as either the Preferred Securities or the Subordinated Notes are outstanding, the Company shall furnish to the Secondary Purchaser copies of all materials furnished by the Company to its stockholders and, to the extent not otherwise available to the Secondary Purchaser on the Electronic Data Gathering, Analysis and Retrieval Service or the Company's website, all public reports and all reports and financial statements furnished by the Company to the principal national securities exchange or automatic quotation system upon which its common stock may be listed or quoted pursuant to requirements of or agreements with such exchange or system or to the Commission pursuant to the Exchange Act or any Exchange Act Regulation. (g) Until the expiration of two years after the last date of issuance of the Preferred Securities, the Company shall not, and shall cause its Affiliates not to, resell any Preferred Securities that were acquired beneficially or of record by the Company or such affiliate if such Preferred Securities were "restricted securities" (as such term is defined under Rule 144(a)(3) under the Securities Act) when so acquired unless such resale is registered pursuant to the Securities Act. (h) The Company shall take such steps as shall be necessary to ensure that neither the Company, any Material Subsidiary of the Company nor the Trust shall become an "investment company" within the meaning of such term under the Investment Company Act and the rules and regulations of the Commission thereunder. SECTION 8. Offering of Securities; Restrictions on Transfer, Representations and Warranties of the Secondary Purchaser. The Secondary Purchaser represents and warrants that it is a qualified institutional buyer as defined in Rule 144A under the Securities Act (a "QIB"). The Secondary Purchaser agrees with the Company that (a) it will not solicit offers for, or offer or sell, the Preferred Securities by any form of general solicitation or general advertising (as those terms are defined in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act and (b) it will solicit offers for the Preferred Securities only from, and will offer and resell the Preferred Securities only to, persons that it reasonably believes to be QIBs. The Secondary Purchaser further represents and warrants as follows: (a) The Secondary Purchaser is acting for its own account, and it has made its own independent decision to enter into this Agreement and as to whether this Agreement is appropriate or proper for it based upon its own judgment and upon advice from counsel and other such advisers as it has deemed necessary; and A-17 41 (b) The Secondary Purchaser is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of this Agreement, and of assuming, and assumes, the risks of this Agreement. SECTION 9. Payment of Expenses. The Company shall pay all costs, fees and expenses incurred in connection with the performance of its obligations under this Agreement and the transactions contemplated hereby, including without limitation (a) the costs of reproducing and distributing this Agreement, and such other documents as may be required in connection with the remarketing, purchase, sale, issuance or delivery of Preferred Securities, (b) the delivery of any certificates for the Preferred Securities, to the Secondary Purchaser, including any transfer taxes and any stamp or other duties payable upon the sale or delivery of the Preferred Securities to the Secondary Purchaser, (c) the fees and disbursements of the Company's and the Trust's counsel, independent public or certified public accountants and other advisors or agents (including transfer agents and registrars), as well as the fees and expenses of the Trustees, any Depository and their respective counsel and (d) the printing and delivery to the Secondary Purchaser of copies of each preliminary and final Offering Memorandum. The Company shall pay the reasonable fees, expenses and disbursements of the Remarketing Agent and its counsel in connection with the execution and delivery of this Agreement. These amounts shall be in addition to any expenses to be paid by the Company in connection with Section 19 of the Remarketing Agreement. SECTION 10. Conditions of Secondary Purchaser's Obligations. The obligations of the Secondary Purchaser to pay for the Preferred Securities are subject to the accuracy of the representations and warranties of the Company and the Trust contained in Sections 3 and 4 hereof or in certificates of any officer of the Company or the Trust delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) All corporate proceedings and other legal matters incident to the authorization, form and validity of each Transaction Document and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all material respects to the Secondary Purchaser, and the Company and the Trust shall have furnished to the Secondary Purchaser all documents and information that it may reasonably request. (b) Ballard Spahr Andrews & Ingersoll, LLP, shall have furnished to the Secondary Purchaser its written opinion, as special counsel to the Company, addressed to the Secondary Purchaser and dated the Remarketing A-18 42 Settlement Date, in form and substance reasonably satisfactory to the Secondary Purchaser, to the effect that: (i) The statements in the Company's Exchange Act Reports under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operation" and "[ ]" insofar as such statements constitute matters of law, summaries of legal matters, the Company's Certificate of Incorporation or By-Law, documents or legal proceedings, or legal conclusions, has been reviewed by such counsel and fairly present and summarize, in all material respects, the matters referred to therein; (ii) Each Transaction Agreement has been duly authorized, executed and delivered by the Company and is a valid and binding obligation of the Company and each of this Agreement and the Remarketing Agreement is a valid and binding obligation of the Company (assuming, in the case of the Remarketing Agreement, due execution and delivery by NationsBanc Montgomery Securities LLC, and in the case of this Agreement, due execution and delivery by the Remarketing Agent and the Secondary Purchaser), enforceable in accordance with its terms, except as the enforcement hereof and thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws of general application relating to or affecting the enforcement of creditors' rights or by general equitable principles; (iii) The Subordinated Notes have been duly authorized and established in conformity with the provisions of the Indenture and are validly issued and outstanding; (iv) No consent, approval, authorization, order of, registration, qualification, or filing of or registration with, any court or Governmental Authority or agency is required for the Company's execution, delivery and performance of this Agreement, the Company's performance of the Remarketing Agreement, the Guarantee Agreement, the Indenture and the Subordinated Notes and consummation of the transactions contemplated hereby and thereby; (v) (A) The Company is not an "INVESTMENT COMPANY" within the meaning of the Investment Company Act and the rules and regulations of the Commission thereunder; and (B) the Trust is not an "investment company" within the meaning of the Investment Company Act and the rules and regulations of the Commission thereunder; A-19 43 (vi) Assuming the accuracy of the Secondary Purchaser's representations, warranties and agreements set forth in Section 8 hereof, registration of the Preferred Securities, the Subordinated Notes or the Guarantee Agreement under the Securities Act is not required in connection with the offer, sale and delivery of the Preferred Securities to the Secondary Purchaser and qualification of the Trust Agreement, the Guarantee Agreement or the Indenture under the Trust Indenture Act is not required; (vii) To the best of such counsel's knowledge after due inquiry, neither the Company nor any of its Affiliates has directly, or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Preferred Securities in a manner that would require the registration under the Securities Act of the Preferred Securities. (viii) The Trust is classified as a grantor trust or other pass-through entity for United States federal income tax purposes and not as an association or publicly traded partnership taxable as a corporation; and (ix) The Subordinated Notes are classified as indebtedness for United States federal income tax purposes; In rendering the opinions set forth above, counsel may state that its opinion is limited to matters governed by the federal laws of the United States of America, the laws of the State of New York and the General Corporation Law of the State of Delaware and that such counsel is not admitted in the state of Delaware. (c) Opinion of Company Counsel. Company Counsel or Assistant Company Counsel shall have furnished to the Secondary Purchaser his written opinion, as counsel to the Company, addressed to the Secondary Purchaser and dated the Remarketing Settlement Date, in form and substance reasonably satisfactory to the Secondary Purchaser, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware; (ii) The Company has all corporate power and authority and the legal right to (A) own, lease, license and operate its properties, (B) to conduct the business in which it is currently engaged and (C) to enter into and perform its obligations under this Agreement and the A-20 44 Remarketing Agreement and to consummate the transactions contemplated thereby; (iii) No stockholder of the Company or any other person has any preemptive right, right of first refusal or other similar right to subscribe for or purchase securities of the Company arising (AQ) by operation of the charter or By-Laws of the Company or the General Corporation Law of the State of Delaware or (B) to the best knowledge of such counsel, otherwise; (iv) The Company is duly qualified as a foreign corporation and is in good standing under the laws of each other jurisdiction where its ownership, lease, license or operation of property or its conduct of business requires such qualification, other than in such jurisdiction or jurisdictions where the failure to be so qualified and in good standing could not reasonably be expected to result in a Material Adverse Change; (v) Each Material Subsidiary of the Company has been duly incorporated or formed and is validly existing in good standing under the laws of the jurisdiction of its incorporation or organization, has all corporate power and authority to own, lease, license and operate its properties and conduct its business as currently conducted. Each Material Subsidiary is duly qualified as a foreign entity, to transact business and is in good standing in each other jurisdiction or jurisdictions in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or be in good standing could not reasonably be expected to result in a Material Adverse Change. All of the issued and outstanding capital stock of each Material Subsidiary has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien (other than those created by or contemplated in the Credit Agreement as of November 12, 1998), encumbrance or, to the best of such counsel's knowledge, any pending or threatened claim; (vi) Neither the Company nor any of its Material Subsidiaries is in violation of its charter or by-laws or is in Default under any Existing Instrument, except for such Defaults as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. The execution, delivery and performance by the Company of its obligations under the Transaction Documents, the A-21 45 purchase of the Common Securities by the Company from the Trust and the consummation by the Company of the transactions contemplated in the Transaction Documents (A) do not and will not result in any violation of the provisions of the Certificate of Incorporation or ByLaws or other constitutive documents of the Company or any Subsidiary, (B) do not and will not conflict with or constitute a breach of, Default or a Debt Repayment Trigger Event under, or result in the creation or imposition of any lien, charge or encumbrance upon any assets, properties or operations of the Company or any of its Material Subsidiaries pursuant to, or require the consent of any other party to, any Existing Instrument, except for such conflicts, breaches Defaults, liens (other than liens created by or contemplated in the Credit Agreement as in effect on November 12, 1998), charges or encumbrances as would not, individually or in the aggregate, result in a Material Adverse Change and (C) will not result in any violation of any applicable law or statute or any order, rule, regulation or judgment of any court or governmental agency or body having jurisdiction over the Company or any of its Material Subsidiaries or any of their respective assets, properties or operations the result of which could be a Material Adverse Change; (vii) Other than as set forth in the Exchange Act Reports, there are no legal or governmental actions, suits or proceedings pending or, to the best of such counsel's knowledge, threatened (A) against or affecting the Company or any of its subsidiaries, or (B) that have as the subject thereof any officer or director of, or property owned or leased by, the Company or any of its subsidiaries, where in any such case (I) there is a reasonable possibility that such action, suit or proceeding might be determined adversely to the Company or such subsidiary and (II) any such action, suit or proceeding, if so determined adversely, could reasonably be expected to result in a Material Adverse Change or adversely affect the consummation of the transactions contemplated by this Agreement; (viii) Except as permitted by the Securities Act and requested by the Purchaser, the Company has not distributed and, prior to the Remarketing Settlement Date, will not distribute any offering material in connection with the offering and sale of the Preferred Securities; and (ix) To the best of such counsel's knowledge, the Exchange Act Reports, as supplemented by material press releases, at the time they were filed did not, and giving effect on the date hereof to the transactions contemplated by the Transaction Documents do not, contain A-22 46 any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinions, such counsel may state that his opinion is limited to matters governed by Delaware law and that such counsel is not admitted in the State of New York. (d) Opinion of Delaware Counsel. Richards, Layton & Finger, P.A., Delaware counsel for the Company and the Trust, shall have furnished to the Purchaser their written opinion addressed to the Secondary Purchaser and dated the Remarketing Settlement Date, in form and substance reasonably satisfactory to the Secondary Purchaser, to the effect that: (i) The Trust has been duly created and is validly existing in good standing as a business trust under the Business Trust Act and under the Business Trust Act, and the Trust Agreement has the trust power and authority to own property and to conduct its business, all as described in the Trust Agreement, and to enter into and perform its obligations under the Agreement and to perform its obligations under each of the Remarketing Agreement, the Preferred Securities and the Common Securities; (ii) The Common Securities have been duly authorized by the Trust Agreement and are validly issued undivided beneficial ownership interests in the assets of the Trust; (iii) The Preferred Securities have been duly authorized by the Trust Agreement and, the Preferred Securities are validly issued and (subject to qualifications set forth in this paragraph) fully paid and non-assessable undivided beneficial interests in the assets of the Trust. The holders of the Preferred Securities are, and will be entitled to the benefits of the Trust Agreement and, as beneficial owners of the Trust, are, and will be entitled to the same limitation of personal liability as extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. We note that the holders of the Preferred Securities may be obligated, pursuant to the Trust Agreement, to (i) provide indemnity and/or security in connection with and pay taxes or governmental charges arising from transfers or exchanges of Preferred Securities certificates and the issuance of replacement Preferred Securities certificates, and (ii) provide A-23 47 security or indemnity in connection with requests of or directions to the Property Trustee to exercise its rights and powers under the Trust Agreement; (iv) Under the Trust Agreement and the Business Trust Act, all necessary trust action has been taken to duly authorize the execution and delivery by the Trust of this Agreement and the Remarketing Agreement; (v) The Trust Agreement constitutes a valid and binding obligation of the Company and the Administrative Trustees, and is enforceable against the Company and the Administrative Trustees in accordance with its terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, moratorium, receivership, reorganization, liquidation, fraudulent conveyance or transfer and other similar laws relating to or affecting the rights and remedies of creditors generally, (ii) principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law), and (iii) the effect of applicable public policy on the enforceability of provisions relating to indemnification or contribution. (vi) The Subordinated Notes are validly issued and outstanding and will constitute valid and legally binding obligations of the Company and the Administrative Trustees in accordance with their terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, moratorium, receivership, reorganization, liquidation, fraudulent conveyance or transfer and other similar laws relating to or affecting the rights and remedies of creditors generally, (ii) principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law), and (iii) the effect of applicable public policy on the enforceability of provisions relating to indemnification or contribution. (vii) Each of the Guarantee Agreement, the Indenture, the Supplemental Indenture (assuming in the case of the Indenture, due execution and delivery by the Company and Indenture Trustee, in the case of the Guarantee Agreement, due execution and delivery by the Company and the Guarantee Trustee and assuming in the case of the First Supplemental Indenture, due execution and delivery by the Company and the Indenture Trustee) constitutes a valid and binding obligation of the Company and the Administrative Trustees, and is enforceable against the Company and the Trustees in accordance with its A-24 48 terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, moratorium, receivership, reorganization, liquidation, fraudulent conveyance or transfer and other similar laws relating to or affecting the rights and remedies of creditors generally, (ii) principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law), and (iii) the effect of applicable public policy on the enforceability of provisions relating to indemnification or contribution. (viii) The Remarketing of the Preferred Securities, the purchase by the Trust of the Subordinated Notes, the execution, delivery and performance by the Trust of this Agreement and the performance by the Trust of the Remarketing Agreement, the consummation by the Trust of the transactions contemplated by this Agreement and compliance by the Trust with its obligations hereunder and thereunder (A) did and do not violate (I) any of the provisions of the Certificate of Trust or the Trust Agreement or (II) any applicable Delaware law or administrative regulation; and (B) do not require any filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any Delaware court or Delaware governmental authority or agency. In rendering such opinion, such counsel may state that its opinion is limited to matters governed by the laws of the State of Delaware. (e) Opinion of Counsel for the Secondary Purchaser. On the Remarketing Settlement Date, the Secondary Purchaser shall have received the written opinion, dated as of the Remarketing Settlement Date, of counsel selected by the Secondary Purchaser (and reasonably acceptable to the Company), with respect to the matters set forth. Such counsel may state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and the Trust and certificates of public officials. (f) Officer's Certificate. The Company shall have furnished to the Secondary Purchaser a certificate, dated the Remarketing Settlement Date, of any of its Co-Chief Executive Officers, its President or any Senior Vice President stating that (i) the representations, warranties and agreements of the Company and the Trust in Sections 3 and 4 are true and correct as of such Remarketing Settlement Date; (ii) the Company has complied with all its agreements contained herein; and (iii) there has been no Material Adverse Change. (g) Accountants' Comfort Letters. On the Remarketing Settlement Date, the Secondary Purchaser shall have received from the independent public A-25 49 accountants for the Company and any other accountants as appropriate, letters, dated such date, in form and substance satisfactory to the Secondary Purchaser, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained or incorporated by reference in the Offering Memorandum. (h) No Adverse Rating Agency Action. Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have occurred in the rating accorded the Company's debt securities or preferred stock by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) of the Securities Act Regulations and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities. (i) No Market Disruption Event. Subsequent to the execution and delivery of this Agreement and prior to the Remarketing Settlement Date there shall not have occurred any of the following: (i) trading or quotation in any of the Company's securities shall have been, or continue to be, suspended or limited by the Commission or by the Relevant Exchange, or trading in securities generally on the New York Stock Exchange, Inc. shall have been, or continue to be, suspended or limited, or minimum or maximum prices shall have been generally established on the New York Stock Exchange Inc. by the Commission; (ii) a general banking moratorium shall have been declared by federal, New York, Delaware or London authorities and continue to be in effect; (iii) there shall have occurred, or continue to be, any outbreak or escalation of national or international hostilities or any crisis or calamity, or any change in the United States or international financial markets, or any substantial change or development involving a prospective substantial change in the United States' or international political, financial or economic conditions affecting the securities markets generally, as in the reasonable judgment of the Secondary Purchaser is material and adverse and makes it impracticable to sell Preferred Securities(6) in the manner and on the terms provided herein or to enforce contracts for the sale of securities; (iv) since the most recent dates as of which information is given in the Offering Memorandum, in the reasonable judgment of the Secondary Purchaser, there shall have occurred any Material Adverse Change; or (v) the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as in the reasonable judgment of the Secondary Purchaser may interfere materially with - -------- (6) Insert "Subordinated Notes" if Subordinated Notes are being sold. A-26 50 the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured. (j) Additional Documents. On the Remarketing Settlement Date, counsel for the Secondary Purchaser shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the Remarketing and sale of the Preferred Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the sale of the Preferred Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Secondary Purchaser. (k) Form of Documents. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance satisfactory to the Secondary Purchaser. SECTION 11. Purchase Default. If, on the Remarketing Settlement Date, the Secondary Purchaser fails to purchase the liquidation amount of Preferred Securities or principal amount of Subordinated Notes, as the case may be, such failure shall constitute either a Renewed Remarketing or a Failed Remarketing, as determined in accordance with Section 7 of the Remarketing Agreement. SECTION 12. Indemnification. (a) Indemnification of the Secondary Purchaser and Remarketing Agent. The Company agrees to indemnify and hold harmless each of the Secondary Purchaser and Remarketing Agent, its officers and employees, and each person, if any, who controls the Secondary Purchaser and Remarketing Agent within the meaning of the Securities Act and the Exchange Act against any loss, claim, damage, liability or expense, as incurred, to which the Secondary Purchaser and Remarketing Agent or such controlling person may become subject, under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based (i) upon any untrue statement or alleged untrue statement of a material fact contained in any preliminary Offering Memorandum or the final Offering Memorandum (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (ii) in whole or in part upon any inaccuracy in the representations and warranties of the Company contained herein; or (iii) in whole A-27 51 or in part upon any failure of the Company to perform its obligations hereunder or under law; or (iv) any act or failure to act or any alleged act or failure to act by the Secondary Purchaser and Remarketing Agent in connection with, or relating in any manner to, the Securities or the remarketing contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon any matter covered by clause (i) above, provided that the Company shall not be liable under this clause (iv) to the extent that a court of competent jurisdiction shall have determined by a final judgment that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by the Secondary Purchaser or the Remarketing Agent, as the case may be, through its bad faith, gross negligence or willful misconduct; and to reimburse each of the Secondary Purchaser and Remarketing Agent, as the case may be, and each such controlling person for any and all expenses (including the fees and disbursements of counsel chosen by the Secondary Purchaser or the Remarketing Agent and reasonably acceptable to the Company) as such expenses are reasonably incurred by the Secondary Purchaser or the Remarketing Agent, as the case may be, or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the foregoing indemnity agreement shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Secondary Purchaser or the Remarketing Agent, as the case may be, expressly for use in any preliminary Offering Memorandum or final Offering Memorandum (or any amendment or supplement thereto); and provided, further, that with respect to any preliminary Offering Memorandum, the foregoing indemnity agreement shall not inure to the benefit of the Secondary Purchaser and Remarketing Agent from whom the person asserting any loss, claim, damage, liability or expense purchased Securities, or any person controlling the Secondary Purchaser or the Remarketing Agent, as the case may be, if copies of the final Offering Memorandum were timely delivered to the Secondary Purchaser or the Remarketing Agent, as the case may be, pursuant to Section 2 and a copy of the final Offering Memorandum (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of the Secondary Purchaser or the Remarketing Agent, as the case may be, to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Securities to such person, and if the final Offering Memorandum (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or expense. The indemnity agreement set forth in this Section 12 shall be in addition to any liabilities that the Company may A-28 52 otherwise have and shall be in addition to the Company's indemnification obligations pursuant to the Remarketing Agreement. (b) Indemnification of the Company, its Directors and Officers. Each of the Secondary Purchaser and Remarketing Agent agrees, severally and not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, against any loss, claim, damage, liability or expense, as incurred, to which the Company, or any such director, officer or controlling person may become subject, under the Securities Act, the Exchange Act, or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Secondary Purchaser and Remarketing Agent), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon any untrue or alleged untrue statement of a material fact contained in any preliminary Offering Memorandum or the final Offering Memorandum (or any amendment or supplement thereto), or arises out of or is based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any preliminary Offering Memorandum, the final Offering Memorandum (or any amendment or supplement thereto), in reliance upon and in conformity with written information furnished to the Company by the Secondary Purchaser and the Remarketing Agent expressly for use therein; and to reimburse the Company, or any such director, officer or controlling person for any and all expenses (including the fees and disbursements of counsel chosen by any such Person) as such expenses are reasonably incurred by the Company, or any such director, officer or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. The indemnity agreement set forth in this Section 12 shall be in addition to any liabilities that the Secondary Purchaser and Remarketing Agent may otherwise have. (c) Notifications and Other Indemnification Procedures. Promptly after receipt by an indemnified party under this Section 12 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 12, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 12 or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is A-29 53 brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party's election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 12 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the indemnifying party), or (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party. (d) Settlements. The indemnifying party under this Section 12 shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 12(c) hereof, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such A-30 54 settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. SECTION 13. Contribution. If the indemnification provided for in Section 12 is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount paid or payable by such indemnified party, as incurred, as a result of any losses, claims, damages, liabilities or expenses referred to therein (i) in such proportion as is appropriate to reflect the relative benefits received by each of the Company, the Secondary Purchaser and Remarketing Agent, from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of each of the Company, the Secondary Purchaser and the Remarketing Agent in connection with the statements or omissions or inaccuracies in the representations and warranties herein which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by each of the Company, the Secondary Purchaser and the Remarketing Agent in connection with the remarketing of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the remarketing of the Securities pursuant to this Agreement (before deducting expenses) received by the Company, and the total underwriting discount received by the Secondary Purchaser, the Remarketing Fee received by the Remarketing Agent, bear to the Remarketing Price. The relative fault of each of the Company, the Secondary Purchaser and the Remarketing Agent shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact or any such inaccurate or alleged inaccurate representation or warranty relates to information supplied by the Company or the Secondary Purchaser or the Remarketing Agent, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 12(c), any legal or other fees or A-31 55 expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in Section 12(c) with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this Section 13; provided, however, that no additional notice shall be required with respect to any action for which notice has been given under Section 12(c) for purposes of indemnification. Each of the Company, the Secondary Purchaser and the Remarketing Agent agree that it would not be just and equitable if contribution pursuant to this Section 13 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 13. Notwithstanding the provisions of this Section 13, the Secondary Purchaser shall not be required to contribute any amount in excess of the underwriting commissions received by it in connection with the Securities underwritten by it and distributed to the public and the Remarketing Agent shall not be required to contribute any amount in excess of the Remarketing Fee received by it in connection with the Securities remarketed by it. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 13, each officer and employee of the Secondary Purchaser or the Remarketing Agent, as the case may be, and each person, if any, who controls the Secondary Purchaser or the Remarketing Agent, as the case may be, within the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as the Secondary Purchaser or the Remarketing Agent, as the case may be and each director of the Company and each person, if any, who controls the Company with the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as the Company. SECTION 14. Termination. The obligations of the Secondary Purchaser hereunder may be terminated by it by notice given to and received by the Company prior to delivery of and payment for the Preferred Securities if, prior to that time, any of the events described in Sections 10(h) and 10(i) shall have occurred or if the Secondary Purchaser shall decline to purchase the Preferred Securities for any reason permitted under this Agreement. SECTION 15. Survival. The respective indemnities, representations, warranties and agreements of the Company, the Trust, the Secondary Purchaser and the Remarketing Agent contained in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Securities and shall remain in full force and effect, regardless A-32 56 of any investigation made by or on behalf of any of them or any person controlling any of them. SECTION 16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW RULES THEREOF. SECTION 17. Counterparts. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument. SECTION 18. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. SECTION 19. Notices. Unless otherwise specified, any notices, requests, consents or other communications given or made hereunder or pursuant hereto shall be made in writing or transmitted by any standard form of telecommunication, including telephone, telegraph or telecopy, and confirmed in writing. All written notices and confirmations of notices by telecommunication shall be deemed to have been validly given or made when delivered or mailed, registered or certified mail, return receipt requested and postage prepaid. All such notices, requests, consents or other communications shall be addressed as follows: if to the Company, to Hercules Incorporated, Hercules Plaza, 1313 North Market Street, Wilmington, Delaware 19894-0001, Attention: Vice President and Treasurer with a copy to the Corporate Secretary, and to Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, Attention: Justin P. Klein, Esq.; if to the Remarketing Agent (if NMS is the Remarketing Agent), to c/o NationsBanc Montgomery Securities LLC, 100 North Tryon Street, Charlotte, North Carolina 28255, Attention: Syndicate, or to such other address as any of the above shall specify to the other in writing. A-33 57 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Company, the Trust, the Remarketing Agent and the Secondary Purchaser. Very truly yours, HERCULES INCORPORATED By: -------------------------------- Name: Title: HERCULES TRUST V By: -------------------------------- Name: Title: Administrative Trustee CONFIRMED AND ACCEPTED: - ------------------------, as Secondary Purchaser By: -------------------------------- Name: Title: NATIONSBANC MONTGOMERY SECURITIES LLC not individually, but solely as Remarketing Agent and as attorney-in-fact for the holders of the Preferred Securities By: -------------------------------- Name: Title: A-34 58 EXHIBIT I Each preliminary and final Offering Memorandum shall contain language to the following effect: Each purchaser of the Preferred Securities will be deemed to: (1) represent that it is purchasing the Preferred Securities for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB; (2) acknowledge that the Preferred Securities have not been registered under the Securities Act and may not be offered or sold except as set forth below; and (3) agree that if it should resell or transfer the Preferred Securities prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), it will do so only (a) to the Company or any subsidiary thereof, (b) to a QIB in compliance with Rule 144A or (c) a Secondary Purchaser. Each purchaser of the Preferred Securities will be required to furnish to the Secondary Purchaser such certifications, legal opinions or other information as the Secondary Purchaser may reasonably require to confirm that the proposed sale is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Until sold in a transaction that is registered under the Securities Act or that is exempt from such registration requirements pursuant to Rule 144 under the Securities Act, each certificate representing a Preferred Security will bear the following legend: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITIES EVIDENCED I-1 59 HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE SECURITIES EVIDENCED HEREBY EXCEPT (A) TO HERCULES INCORPORATED OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT OR (C) TO A SECONDARY PURCHASER (AS DEFINED IN THE AMENDED AND RESTATED TRUST AGREEMENT OF HERCULES TRUST V DATED AS OF NOVEMBER 12, 1998 (THE "TRUST AGREEMENT") THAT HAS ENTERED INTO A SECONDARY PURCHASE AGREEMENT (AS DEFINED IN THE TRUST AGREEMENT) WITH THE TRUST, (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND AND (4) AGREES, WITH RESPECT TO ANY TRANSFER OCCURRING PRIOR TO THE REMARKETING DATE ON WHICH REPLACEMENT SECURITIES ARE ISSUED, TO PROVIDE TO THE PROPERTY TRUSTEE A DULY EXECUTED CERTIFICATE SUBSTANTIALLY TO THE EFFECT OF CLAUSES (1), (2) AND (3), ABOVE. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO THE SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT. FROM AND AFTER THE REMARKETING SETTLEMENT DATE ON WHICH REPLACEMENT SECURITIES ARE ISSUED, THIS CERTIFICATE SHALL REPRESENT ONLY THE RIGHT TO RECEIVE THE REMARKETING PRICE, AS PROVIDED IN THE TRUST AGREEMENT, AND SHALL NO LONGER REPRESENT AN OBLIGATION OF OR INTEREST IN THE TRUST. Each preliminary and final Offering Memorandum shall also contain language to the following effect: "Each person receiving this Offering Memorandum acknowledges that (i) such person has been afforded an opportunity to request from the Company and to review all additional information considered by it to be necessary to verify the accuracy of or to supplement the information herein, (ii) it has not relied on the Secondary Purchaser or any person affiliated with the Secondary Purchaser in connection with its investigation of the accuracy of such information or its investment decision and (iii) no person has been authorized to give any information or to make any representation concerning the Company or the Preferred Securities offered hereby other than as contained herein and information given by duly authorized officers and employees of the Company in I-2 60 connection with investors' examination of the Company and the terms of the offering, and, if given or made, such other information or representations should not be relied upon as having been authorized by the Company or the Secondary Purchaser." I-3 EX-10.R 7 FORWARD UNDERWRITING AGREEMENT,DATED 11/12/1998 1 Exhibit 10-R EXECUTION COPY FORWARD UNDERWRITING AGREEMENT dated November 12, 1998 between NATIONSBANC MONTGOMERY SECURITIES LLC and HERCULES INCORPORATED 2 November 12, 1998 NATIONSBANC MONTGOMERY SECURITIES LLC 600 Montgomery Street San Francisco, California 94111 Ladies and Gentlemen: INTRODUCTORY. Hercules Incorporated (the "COMPANY"), a Delaware corporation, proposes to issue and sell to NationsBanc Montgomery Securities LLC, as underwriter (the "UNDERWRITER"), an aggregate number of shares (the "PURCHASE SHARES") of its common stock, no par value (the "COMMON STOCK"), with an aggregate Public Offering Price (as defined herein) equal to $200,000,000 (the "AGGREGATE PUBLIC OFFERING PRICE"). The Company has filed with the Securities and Exchange Commission (the "COMMISSION") a registration statement on Form S-3 (No. 333-63423) and Pre-effective Amendment No. 1 thereto for the registration of, among other securities, the Purchase Shares under the Securities Act of 1933, as amended (the "1933 ACT"), and the offering thereof from time to time in accordance with Rule 415 of the rules and regulations of the Commission under the 1933 Act (the "1933 ACT REGULATIONS"). Such registration statement has been declared effective by the Commission, and the Company has filed and will file such post-effective amendments and supplements thereto as may be required prior to the sale of Purchase Shares pursuant thereto, and each such post-effective amendment has been or will be declared effective by the Commission. Such registration statement (as so amended or supplemented, if applicable), including the information, if any, deemed to be a part thereof pursuant to Rule 430A(b) of the 1933 Act Regulations (the "RULE 430A INFORMATION") or Rule 434(d) of the 1933 Act Regulations (the "RULE 434 INFORMATION"), is referred to herein as the "REGISTRATION STATEMENT"; and the final prospectus and the final prospectus supplement relating to the offering of the Purchase Shares, in the form furnished to the Underwriter by the Company for use in connection with each offering of the Purchase Shares, are collectively referred to herein as the "PROSPECTUS"; provided, however, that all 3 references to the "REGISTRATION STATEMENT" and the "PROSPECTUS" shall also be deemed to include all documents incorporated therein by reference pursuant to the Securities Exchange Act of 1934, as amended (the "1934 ACT"), prior to the time the applicable final prospectus and the final prospectus supplement with respect to the offering of Purchase Shares on each Pricing Date are furnished to the Underwriter by the Company; provided, further, that if the Company files a registration statement with the Commission pursuant to Rule 462(b) of the 1933 Act Regulations (the "RULE 462(B) REGISTRATION STATEMENT"), then, after such filing, all references to "REGISTRATION STATEMENT" shall also be deemed to include the Rule 462(b) Registration Statement; and provided, further, that if the Company elects to rely upon Rule 434 of the 1933 Act Regulations, then all references to "PROSPECTUS" shall also be deemed to include the final or preliminary prospectus and the applicable term sheet or abbreviated term sheet (the "TERM SHEET"), as the case may be, in the forms first furnished to the Underwriter by the Company for use in connection with each offering of the Purchase Shares in reliance upon Rule 434 of the 1933 Act Regulations, and all references in this Forward Underwriting Agreement to the date of the Prospectus shall mean the date of the Term Sheet. A "PRELIMINARY PROSPECTUS" shall be deemed to refer to any prospectus used before the Registration Statement became effective and any prospectus that omitted, as applicable, the Rule 430A Information, the Rule 434 Information or other information to be included upon pricing in a form of prospectus filed with the Commission pursuant to Rule 424(b) of the 1933 Act Regulations that was used after such effectiveness but prior to the delivery of the applicable final prospectus and the final prospectus supplement in the forms first furnished to the Underwriter by the Company. For purposes of this Forward Underwriting Agreement, all references to the Registration Statement, Prospectus, Term Sheet or preliminary prospectus or to any amendment or supplement to any of the foregoing shall be deemed to include any copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). All references in this Forward Underwriting Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" (or other references of like import) in the Registration Statement, Prospectus or preliminary prospectus shall be deemed to mean and include all such financial statements and schedules and other information which are incorporated by reference in the Registration Statement, Prospectus or preliminary prospectus, as the case may be, prior to the delivery of the applicable final prospectus and the final prospectus supplement in the forms furnished to the Underwriter by the Company with respect to any sales hereunder; and all references in this Forward Underwriting Agreement to amendments or supplements to the Registration Statement, Prospectus or preliminary prospectus shall be deemed to mean and include the filing of any document under the 1934 2 4 Act which is incorporated by reference in the Registration Statement, Prospectus or preliminary prospectus, as the case may be, after the delivery of the applicable final prospectus and the final prospectus supplement in the forms first furnished to the Underwriter by the Company with respect to each sale of Purchase Shares hereunder. The Company hereby confirms its agreement with the Underwriter as follows: SECTION 1. Certain Definitions. As used in this Forward Underwriting Agreement, the following terms shall have the following meanings: "ADJUSTED EXTRAPOLATED AMOUNT" as of any Trading Day shall mean the amount expressed in dollars obtained by dividing (x) the Settlement Balance as of the Close of Business on the immediately preceding day by (y) the number of scheduled Trading Days from and including such Trading Day to and including the Completion Target Date. "AGGREGATE NET SALE PRICE" shall mean, with respect to any Pricing Date, the sum of the Net Sale Prices of all shares of Common Stock sold pursuant to Section 2(b) on such Pricing Date. "AGGREGATE PUBLIC OFFERING PRICE" shall mean $200,000,000. "BLACKOUT DAY" shall have the meaning specified in Section 2(b)(i). "BONUS DAY" means any Trading Day on which the difference obtained by subtracting (x) the Extrapolated Amount from (y) $3,000,000 is greater than zero. "BRING-DOWN DATE" shall mean, collectively, each date during the Dribble-out Period on which any amendment to the Registration Statement or the Prospectus is declared effective by the Commission or any supplement to the Registration Statement or the Prospectus is filed with the Commission and each date on which the Company shall have filed with the Commission any report required or permitted to be filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act. "BUSINESS DAY" means any day that is not a Saturday, a Sunday or a day on which banking institutions or trust companies in The City of New York are authorized or obligated by law or executive order to close. 3 5 "CLOSE OF BUSINESS" on any day shall mean the later of (x) 5:00 P.M., New York City time, on such day and (y) if such day is a scheduled Trading Day, the time of closing of regular trading on the Relevant Exchange on such day. "CLOSING PRICE" of the Common Stock on any Trading Day shall mean the reported last sale price on such day of such Common Stock as of the end of the regular session on the NYSE or such other principal securities exchange on which it is listed, or, in case no such sale takes place on such day, the average of the reported last bid and asked prices on such day as of such time, in either case, as reported on the Consolidated Tape maintained by the Consolidated Tape Association or, if the Common Stock is not listed or admitted to trading on any securities exchange which participates in the Consolidated Tape Association, the average of the reported last bid and asked prices of Common Stock on the over-the-counter market on such day as reported by the National Association of Securities Dealers Automated Quotation System or a similar generally accepted reporting service or, if not so reported, the average of the closing bid and asked prices as furnished by any New York Stock Exchange member firm selected from time to time by the Underwriter for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Underwriter. "COMFORT BRING-DOWN DATE" shall mean, collectively, each date during the Dribble-out Period on which any amendment to the Registration Statement or the Prospectus is declared effective by the Commission or any supplement to the Registration Statement or the Prospectus is filed with the Commission (which amendment or supplement includes additional financial information) and each date on which the Company shall have filed with the Commission any report required or permitted to be filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act (which report includes additional financial information). "COMMENCEMENT DATE" shall mean November 12, 1999, subject to acceleration pursuant to the provisions of Section 7. "COMMISSION" shall mean the Securities and Exchange Commission. "COMMON STOCK" shall have the meaning set forth in the First Introductory paragraph of this Agreement. "COMPANY" shall have the meaning specified in the First Introductory paragraph of this Agreement. "COMPANY ACCELERATION" shall have the meaning set forth in Section 7(b). 4 6 "COMPLETION TARGET DATE" shall mean the 67th consecutive scheduled Trading Day from and including the Commencement Date. "CREDIT AGREEMENT" shall mean the Credit Agreement dated as of October 15, 1998 among the Company, the subsidiaries of the Company from time to time parties thereto, the several lenders from time to time parties thereto, NationsBank, N.A., as Administrative Agent, and The Chase Manhattan Bank, Morgan Guaranty Trust Company of New York, and Citibank, N.A., as Co-Syndication Agents, as amended, supplemented, modified or superseded from time to time. "DAILY NUMBER" shall have the meaning specified in Section 2(b). "DAILY QUOTA" shall mean, for any Trading Day, the greater of $3,000,000 and the Extrapolated Amount as of such Trading Day, provided that if the Adjusted Extrapolated Amount as of such Trading Day is less than $3,000,000, then the Daily Quota for such day shall be such Adjusted Extrapolated Amount, or any greater amount up to $3,000,000 as the Company may advise the Underwriter by 9:15 A.M., New York City time, on such day, provided, however, that, notwithstanding any of the foregoing, if any such Trading Day is an Illiquidity Day, then the Daily Quota for such day may be reduced by such amount as the Underwriter in its reasonable discretion may determine. "DEBT REPAYMENT TRIGGER EVENT" means any event or condition that gives, or with the giving of notice or lapse of time would give, the holder of any note, debenture or other evidence of indebtedness for borrowed money in excess of $25,000,000 (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its Material Subsidiaries. "DEFAULT" shall have the meaning specified in Section 3(a)(iv). "DRIBBLE-OUT PERIOD" shall mean the period consisting of 140 consecutive days, commencing on the Commencement Date. "EDGAR" shall have the meaning set forth in the Second Introductory paragraph of this Agreement. "EFFECTIVENESS PERIOD" shall have the meaning specified in Section 5(a). "ENVIRONMENTAL LAWS" shall mean any and all lawful and applicable Federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, 5 7 agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "EXTRAPOLATED AMOUNT" as of any Trading Day shall mean the amount expressed in dollars obtained by dividing (x) the Settlement Balance as of the Close of Business on the immediately preceding day by (y) the number of scheduled Trading Days from and including such Trading Day to and including the last day of the Dribble-Out Period. "EXISTING INSTRUMENT" shall have the meaning specified in Section 3(a)(iv). "GAAP" shall have the meaning specified in Section 3(d). "GOVERNMENTAL LICENSES" shall have the meaning set forth in Section 3(m). "HAZARDOUS MATERIALS" shall mean any substance, material or waste defined or regulated in or under any Environmental Laws. "ILLIQUIDITY DAY" shall mean any Trading Day with respect to which the Underwriter, in its sole discretion, determines that there has been a material decline in the liquidity of the Common Stock from the liquidity of the Common Stock on the date hereof; provided that, without limiting the generality of the foregoing, if at any time during the Dribble-out Period the Underwriter shall have designated an aggregate of fifteen Trading Days to be Illiquidity Days, the Underwriter shall consult with the Company prior to designating any additional Trading Day to be an Illiquidity Day. "INDENTURE" shall mean the Junior Subordinated Debenture Indenture dated as of November 12, 1998 by and between the Company and The Chase Manhattan Bank, as trustee, as supplemented by the First Supplemental Indenture dated as of November 12, 1998, in each case as amended, supplemented, modified or superseded from time to time. "INITIAL PRICING DATE" shall mean the first Pricing Date to occur hereunder. 6 8 "INVESTMENT COMPANY ACT" shall have the meaning specified in Section 3(n). "INTELLECTUAL PROPERTY" shall have the meaning specified in Section 3(l). "MARKET-OUT DAY" shall mean any scheduled Trading Day during the Dribble-out Period on which one or more of the following events occurs or is continuing: (i) trading or quotation in any of the Company's securities shall have been, or continue to be, suspended or limited by the Commission or by the Relevant Exchange, or trading in securities generally on the New York Stock Exchange, Inc. shall have been, or continue to be, suspended or limited, or minimum or maximum prices shall have been generally established on the New York Stock Exchange, Inc. by the Commission; (ii) a general banking moratorium shall have been declared by federal, New York or Delaware authorities and continue to be in effect; (iii) there shall have occurred, or continue to be, any outbreak or escalation of national or international hostilities or any crisis or calamity, or any change in the United States or international financial markets, or any substantial change or development involving a prospective substantial change in the United States' or international political, financial or economic conditions affecting the securities markets generally, as in the reasonable judgment of the Underwriter is material and adverse and makes it impracticable to sell Purchase Shares in the manner and on the terms provided herein or to enforce contracts for the sale of securities; (iv) since the most recent dates as of which information is given in the Registration Statement and the Prospectus, in the reasonable judgment of the Underwriter, there shall have occurred any Material Adverse Change; or (v) the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as in the reasonable judgment of the Underwriter may interfere materially with the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured. "MARKET SALE" of Purchase Shares shall mean a sale of such Purchase Shares made on the Relevant Exchange or in such other manner as may be agreed by the Company and the Underwriter. "MATERIAL ADVERSE CHANGE" shall have the meaning specified in Section 3(h). "MATERIAL SUBSIDIARY" shall mean every subsidiary of the Company that (i) is listed on Schedule I hereto, (ii) together with its subsidiaries on a consolidated basis during the 12 months preceding the date hereof accounts for (or to which may be attributed) 5% or more of the net income or assets (determined 7 9 on a consolidated basis) of the Company and its subsidiaries or (iii) is otherwise necessary for the ongoing business operations of the Company or its subsidiaries. "NASD" shall mean the National Association of Securities Dealers, Inc. "NATIONSBANK GROUP" shall mean the Underwriter and its Affiliates (as such term is defined in Rule 405 under the 1933 Act). "NET SALE PRICE" shall mean, with respect to each share of Common Stock sold pursuant to Section 2 hereof, the sale price of such share, net of any discounts or commissions payable to any persons outside the NationsBank Group incurred in connection with such sale. "NYSE" shall mean the New York Stock Exchange, Inc. "POTENTIAL ADJUSTMENT EVENT" means any of the following: (i) a subdivision, consolidation or reclassification of the Common Stock (unless as a result of a merger or other similar event) or a free distribution or dividend of any such Common Stock to existing holders by way of bonus, capitalization or similar issue; (ii) a distribution or dividend to existing holders of the Common Stock of (A) shares of such Common Stock, (B) other share capital or securities granting the right to payment of dividends and/or the proceeds of liquidation of the Company equally or proportionately with such payments to holders of such Common Stock or (C) any other type of securities, rights or warrants or other assets, in any case for payment (cash or other) at less than the prevailing market price as determined by the Underwriter; (iii) any dividend paid by the Company on the Common Stock other than ordinary cash dividends (which ordinary cash dividends include amounts, sometimes called "dividend equivalents", paid under the Company's employee benefit and compensation plans on the Common Stock grants (whether options, restricted stock or other) under such plans, but only to the extent such amounts do not exceed the amounts of ordinary cash dividends that would be payable were such Common Stock grants treated as Common Stock); (iv) a call by the Company in respect of shares of Common Stock that are not fully paid; 8 10 (v) a repurchase by the Company of shares of Common Stock whether out of profits or capital and whether the consideration for such repurchase is cash, securities or otherwise (excluding the repurchase of up to 8,192,125 shares of Common Stock remaining under the Company's stock repurchase program authorized by the Board of Directors of the Company prior to the date hereof). (vi) any other similar event that may have a diluting or concentrative effect on the theoretical value of the Common Stock. "PRELIMINARY PROSPECTUS" shall have the meaning set forth in the Second Introductory paragraph of Agreement. "PRICING DATE" shall have the meaning specified in Section 2(b)(i). "PROSPECTUS" shall have the meaning set forth in the Second Introductory paragraph of Agreement. "PUBLIC OFFERING PRICE" shall have the meaning specified in Section 2(b)(ii). "PURCHASE DATE" shall have the meaning specified in Section 2(c). "PURCHASE PRICE" shall have the meaning specified in Section 2(a). "PURCHASE SHARES" shall have the meaning specified in the First Introductory paragraph of this Agreement. "REGISTRATION STATEMENT" shall have the meaning set forth in the Secondary Introductory paragraph of this Agreement. "RELEVANT DATE" shall have the meaning specified in Section 3(r). "RELEVANT EXCHANGE" shall have the meaning specified in Section 3(k). "REMARKETING AGREEMENT" shall mean the Remarketing Agreement dated as of November 12, 1998 among the Company, Hercules Trust V and NationsBanc Montgomery Securities LLC. "RESERVE NUMBER" shall have the meaning specified in Section 6(f). "RULE 424(b) REGISTRATION STATEMENT" shall have the meaning set forth in the Second Introductory paragraph of this Agreement. 9 11 "RULE 430A INFORMATION" shall have the meaning set forth in the Second Introductory paragraph of this Agreement. "RULE 434 INFORMATION" shall have the meaning set forth in the Second Introductory paragraph of this Agreement. "SENIOR BANK DEBT ACCELERATION" shall mean an acceleration under the Credit Agreement resulting in the obligations of the Company under the Credit Agreement becoming or having been declared due and payable under Section 6 of the Credit Agreement before such obligations would otherwise have been due and payable. "SETTLEMENT BALANCE" shall mean, initially, the Aggregate Public Offering Price and shall be (x) reduced at the Close of Business on each Pricing Date by an amount equal to the Aggregate Net Sale Price on such Pricing Date and (y) increased at the Close of Business on each Purchase Date by the amount of the purchase price of Purchase Shares (if any) that were to have been delivered by the Company and paid for by the Underwriter on such Purchase Date but that have not been so delivered or paid for, for any reason whatsoever. "STOCK PRICE ACCELERATION EVENT" shall have the meaning specified in Section 7(a). "SUBORDINATED NOTES" shall mean the Auction Rate Reset Junior Subordinated Notes Series A issued by the Company to Hercules Trust V. "TERM SHEET" shall have the meaning specified in the Second Introductory paragraph of this Agreement. "TRADING DAY" shall mean any day, as reasonably determined by the Underwriter, on which the Common Stock is not suspended from trading at any time during such day and is traded at least once on the NYSE or, if not then admitted for trading on the NYSE, on the principal securities exchange or quotation system on which the Common Stock is then listed or admitted for trading. "TRIGGER PRICE" shall mean, initially, $22 11/16 per share of Common Stock, as adjusted from time to time pursuant to the provisions of Section 8. "TRUST AGREEMENT" shall mean the Amended and Restated Trust Agreement of Hercules Trust V dated and effective as of November 12, 1998 among the Company, as sponsor, the trustees of Hercules Trust V and the holders, from time to time, of undivided beneficial interest in the assets of the Trust. 10 12 "TRUST PREFERRED SECURITIES" shall mean the Auction Rate Reset Preferred Securities issued by Hercules Trust V. "UNDERWRITER" shall have the meaning specified in the First Introductory paragraph of this Agreement. "UNDERWRITING COMMISSION" shall have the meaning specified in Section 2(a). "1933 ACT" shall have the meaning specified in the Second Introductory paragraph of this Agreement. "1933 ACT REGULATIONS" shall have the meaning specified in the Second Introductory paragraph of this Agreement. "1934 ACT" shall have the meaning specified in the Second Introductory paragraph of this Agreement. SECTION 2. Purchase of Shares. (a) Purchase and Sale. The Company agrees, upon the terms herein set forth, to issue and sell to the Underwriter on each Pricing Date the Daily Number of Purchase Shares. On the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Underwriter agrees to purchase from the Company on each Pricing Date such Daily Number of Purchase Shares. The purchase price per Purchase Share to be paid by the Underwriter to the Company shall be the Public Offering Price of such Purchase Share, as determined in the manner set forth in Section 2(b)(ii), minus an amount (the "UNDERWRITING COMMISSION") equal to 0.75% of such Public Offering Price per Purchase Share. (b) Daily Number of Purchase Shares; Public Offering Prices. (i) Subject to the provisions of Sections 4 and 12, on each Trading Day during the Dribble-out Period, the Underwriter shall sell in Market Sales, and the Company shall sell to the Underwriter, a number (which may be increased or decreased by up to 10% of such number by the Underwriter in its sole discretion) (the "DAILY NUMBER") of Purchase Shares with an Aggregate Net Sale Price equal to the Daily Quota (or such greater amount as the parties may agree) for such Trading Day; provided that the Company may, by telephonic notice given no later than 9:15 A.M., New York City time, on such Trading Day to the Underwriter, confirmed in writing, designate any such Trading Day to be a "BLACKOUT 11 13 DAY" or, if the applicable requirements therefor are met, a Bonus Day, provided that the total number of days designated as Blackout Days may not exceed 18. On any Blackout Day, Market-Out Day, or Bonus Day, the Underwriter shall not sell or purchase, and the Company shall not be obligated to sell, Purchase Shares. Each Trading Day on which sales of Purchase Shares have been made pursuant to the second immediately preceding sentence shall be a "PRICING DATE." (ii) The "PUBLIC OFFERING PRICE" with respect to Purchase Shares sold on any Pricing Date shall be the amount obtained by dividing the Aggregate Net Sale Price of Common Stock on such Pricing Date by the Daily Number of Purchase Shares on such Pricing Date, each as reported by the Underwriter in accordance with Section 2(b)(iii). (iii) At the Close of Business on each Pricing Date, the Underwriter shall deliver to the Company, by telecopy (with telephonic confirmation), a certificate (in the form of Exhibit C), setting forth the Aggregate Net Sale Price and the Daily Number of Purchase Shares for such Pricing Date. (c) Purchase Date; Payment and Delivery. By 9:00 A.M., New York City time, on the third Trading Day immediately succeeding each Pricing Date, or such later time and date as the Underwriter shall designate by notice to the Company (the time and date of each such closing, together, a "PURCHASE DATE"), the Company shall deliver, or cause to be delivered, through the Depository Trust Company to the Underwriter, certificates for the Purchase Shares sold by the Company to the Underwriter on such Pricing Date (or security entitlements in respect thereof) against the irrevocable release of a wire transfer of immediately available funds to the order of the Company for the amount of the purchase price therefor. SECTION 3. Representations, Warranties and Agreements. The Company represents and warrants to and agrees with the Underwriter as follows: (a) Basic Representations. (i) The Company is a duly and validly existing corporation in good standing under the laws of the State of Delaware. The Company is duly qualified as a foreign entity and is in good standing under the laws of each other jurisdiction where its ownership, lease, licensing or operation of property or the conduct of its business requires such qualification, other than in such jurisdiction or 12 14 jurisdictions where the failure to be so qualified and in good standing could not reasonably be expected to result in a Material Adverse Change. (ii) The Company has all corporate power and authority and the legal right to (A) own, lease, license and operate its properties, (B) conduct the business in which it is currently engaged and (C) enter into, and perform its obligations under, or as contemplated under, this Forward Underwriting Agreement and consummate the transactions contemplated hereby. (iii) This Forward Underwriting Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights or by general equitable principles. (iv) Neither the Company nor any of its Material Subsidiaries is in default or, with the giving of notice or lapse of time, would be in default ("DEFAULT") under any indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which the Company or any of its Material Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its Material Subsidiaries is subject (each, an "EXISTING INSTRUMENT"), except for such Defaults as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. The execution, delivery and performance by the Company of this Forward Underwriting Agreement, the consummation of the transactions herein contemplated and the compliance by the Company with its obligations hereunder (A) do not and will not result in any violation of the provisions of the Certificate of Incorporation or By-laws or other constitutive documents of the Company or any Material Subsidiary, (B) do not and will not conflict with or constitute a breach of, Default or a Debt Repayment Trigger Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any assets, properties or operations of the Company or any of its Material Subsidiaries pursuant to, or require the consent of any other party to, any Existing Instrument, except for such conflicts, breaches, Defaults, liens (other than liens created by or contemplated in the Credit Agreement as in effect on the date hereof), charges or encumbrances or failure to obtain consent as would not, individually or in the aggregate, result in a Material Adverse 13 15 Change and (C) will not result in any violation of any applicable law or statute or any order, rule, regulation or judgment of any court or governmental agency or governmental body having jurisdiction over the Company or any of its Material Subsidiaries or any of their respective assets, properties or operations the result of which could be a Material Adverse Change. (v) No consent, approval, authorization, order, registration, qualification or filing of or with any court or governmental agency or body having jurisdiction over the Company or any of its Material Subsidiaries or any of their respective properties is required for the due authorization, execution and delivery by the Company of, and the compliance by the Company with all the terms of, this Forward Underwriting Agreement or the consummation by the Company of the transactions contemplated hereby except such as have been obtained or made by the Company, as may be required by the securities or Blue Sky laws of the various States in connection with the offer and sale of the Purchase Shares or where the failure to obtain such consent, approval, authorization, order, registration, qualification or make such filing will not adversely affect such authorization, execution or delivery of this Forward Underwriting Agreement, the compliance with the terms hereof or the consummation by the Company of the transactions contemplated hereby. (b) Compliance with Registration Requirements. (i) The Company meets the requirements for use of Form S-3 under the 1933 Act. The Registration Statement has been declared effective by the Commission under the 1933 Act. The Company has complied to the Commission's satisfaction with all requests of the Commission for additional or supplemental information. No stop order suspending the effectiveness of the Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the best knowledge of the Company, are contemplated or threatened by the Commission. (ii) Each preliminary prospectus and each Prospectus when filed complied in all material respects with the 1933 Act, and each preliminary prospectus and each Prospectus delivered to the Underwriter for use in connection with the offering of the Purchase Shares pursuant to this Forward Underwriting Agreement will, at the time of such delivery, be identical to any electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except such variation as may be permitted or required by Regulation S-T under the 1933 Act. The Registration Statement and any post-effective amendment thereto, at the time it became effective and at all subsequent times, complied and will comply in all material respects with the 1933 Act and the 1933 Act 14 16 Regulations and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, as amended or supplemented, as of its date and at all subsequent times, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If the Company elects to rely upon Rule 434 of the 1933 Act Regulations, the Company will comply with the requirements of Rule 434. Notwithstanding the foregoing, the representations and warranties set forth in this subsection do not apply to statements in or omissions from any Registration Statement or any post-effective amendment thereto or any Prospectus or any amendments or supplements thereto made in reliance upon and in conformity with information furnished to the Company in writing by the Underwriter expressly for use therein. (iii) The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder (the "1934 ACT REGULATIONS"). (iv) There are no actions, suits, proceedings, inquiries or investigations before or brought by any legal or governmental agency or body, now pending, or to the knowledge of the Company threatened, against or affecting the Company or any of its Material Subsidiaries that are required to be disclosed in the Registration Statement and the Prospectus (other than as stated therein), or which could reasonably be expected to result in a Material Adverse Change, or adversely affect the consummation of the transactions contemplated under this Forward Underwriting Agreement. The aggregate of all pending legal or governmental proceedings to which the Company or any of its Material Subsidiaries is a party or of which any of their respective assets, properties or operations is the subject, which are not described in the Registration Statement and the Prospectus, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Change. (c) Offering Materials Furnished to Underwriters. The Company has delivered to the Underwriter one complete manually signed copy of the Registration Statement and of each consent and certificate of experts filed as a part thereof, and conformed copies of such Registration Statement (without 15 17 exhibits) and preliminary prospectuses and the related Prospectus, as amended or supplemented, in such quantities and at such places as the Underwriter has reasonably requested. (d) Financial Statements. The financial statements of the Company included in the Registration Statement and the Prospectus, together with the related schedules and notes, as well as those financial statements, schedules and notes of any other entity included therein, present fairly the financial position of the Company and its consolidated subsidiaries, or such other entity as the case may be as of and at the dates indicated and the statement of operations, stockholders' equity and cash flows of the Company and its consolidated subsidiaries, or such other entity, as the case may be, for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The supporting schedules, if any, included in the Registration Statement and the Prospectus present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement and the Prospectus. In addition, any pro forma financial statements of the Company and its consolidated subsidiaries and the related notes thereto included in the Registration Statement and the Prospectus have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein but the pro forma financial statements may differ from actual results. The financial data, if any, set forth in the Prospectus under the captions "Prospectus Summary--Summary Selected Financial Data," "Selected Financial Data" and "Capitalization" (or similar captions) fairly present the information set forth therein on a basis consistent with that of the audited financial statements contained in the related Registration Statement. (e) Authorization of the Common Stock. Any shares of Common Stock to be delivered by the Company under this Forward Underwriting Agreement have been or, prior to such delivery, will be duly authorized for issuance and delivery pursuant to this Forward Underwriting Agreement and, when issued and delivered by the Company pursuant to this Forward Underwriting Agreement, will be validly issued, fully paid and non-assessable. (f) No Applicable Registration or Other Similar Rights. There are no persons with registration or other similar rights to have any equity or debt 16 18 securities registered for sale under the Registration Statement, except for such rights as have been duly waived. (g) Independent Accountants. Each of the accountants who certified financial statements and any supporting schedules thereto filed as part of the Registration Statement and included in the Prospectus are independent public or certified public accountants as required by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations. (h) No Material Adverse Change in Business. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change, any development that could reasonably be expected to result in a material adverse change in the condition, financial or otherwise, in or affecting the earnings, business, operations, financial position or prospects, whether or not arising from transactions in the ordinary course of business, of the Company and its subsidiaries, considered as one entity (a "MATERIAL ADVERSE CHANGE"), (B) there have been no transactions entered into by the Company or any of its Material Subsidiaries, other than those arising in the ordinary course of business, which are, individually or in the aggregate, material with respect to the Company and its subsidiaries, considered as one enterprise and (C) except for regular dividends on the Company's Common Stock or preferred stock (which dividends include amounts, sometimes called "dividend equivalents," paid under the Company's employee benefit and compensation plans on the Common Stock grants (whether options, restricted stocks or other) under such plans on the Common Stock, but only to the extent such amounts do not exceed the amounts of ordinary cash dividends that would be payable were such Common Stock grants treated as Common Stock) in amounts per share that are consistent with past practice or the applicable charter document or supplement thereto, respectively, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (i) Good Standing of Material Subsidiaries. Each Material Subsidiary is a duly and validly existing corporation or entity and is in good standing under the laws of the jurisdiction of its incorporation or organization, has all corporate power and authority to own, lease, license and operate its properties and to conduct its business as currently conducted and is duly qualified as a foreign entity in good standing in each other jurisdiction where its ownership, lease, license or operation of property or the conduct of its business requires such qualification, other than in such jurisdiction or jurisdictions where the failure to be so qualified and in good standing could not reasonably be expected to result in a Material Adverse Change. All of the issued and outstanding capital stock of each Material Subsidiary have been duly authorized and validly issued, is fully paid 17 19 and non-assessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien (other than those created by or contemplated in the Credit Agreement as in effect on the date hereof), encumbrance or claim. None of the outstanding shares of capital stock of any Material Subsidiary were issued in violation of preemptive or other similar rights of any securityholder of such Material Subsidiary. (j) Capitalization. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under the caption, "Capitalization" (or any other similar caption) (other than for subsequent issuances, if any, pursuant to employee benefit plans described in the Prospectus or upon exercise of outstanding options or warrants described in the Prospectus). Such shares of capital stock have been duly authorized and validly issued by the Company and are fully paid and non-assessable and have been issued in compliance with federal and state securities laws. The Common Stock (including the Purchase Shares) conforms in all material respects to the description thereof contained in the Prospectus. None of the outstanding shares of Common Stock was issued in violation of preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any of its subsidiaries other than those accurately described in the Registration Statement and the Prospectus. (k) Stock Exchange Listing. All shares of Common Stock to be issued hereunder have been or, prior to such issuance, will be approved for inclusion or listing on the principal national securities exchange or automated quotation system on which the Common Stock is listed or quoted (the "RELEVANT EXCHANGE"), subject only to official notice of issuance. (l) Intellectual Property Rights. Except as otherwise disclosed in the Prospectus, the Company and each Material Subsidiary owns, leases, licenses or otherwise possesses adequate trademarks, service marks, trade names, patents, patent rights, copyrights, licenses, inventions, approvals and other intellectual property (collectively, "INTELLECTUAL PROPERTY") necessary to conduct its business as now conducted. Neither the Company nor any of its Material Subsidiaries has received any written notice of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property which infringement or conflict, individually or in the aggregate, could be reasonably expected to result in a Material Adverse Change. 18 20 (m) Possession of Licenses and Permits. Each of the Company and its Material Subsidiaries possesses such permits, licenses, approvals, consents and other authorizations (collectively, "GOVERNMENTAL LICENSES") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies as are necessary to conduct the business now operated by it except as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. The Company and its Material Subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. All of the Governmental Licenses are valid and in full force and effect, except where the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. Neither the Company nor any of its Material Subsidiaries has received any written notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to result in a Material Adverse Change. (n) Company Not an "Investment Company." The Company is not, and upon the issuance and sale of the Purchase Shares as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT") and the rules and regulations of the Commission thereunder. (o) Price Stabilization or Manipulation. The Company has not taken and will not take, directly or indirectly, any action designed to or that could be reasonably expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of any shares of Common Stock delivered hereunder. Notwithstanding the foregoing, the repurchase by the Company from time to time pursuant to a share repurchase program authorized by the Board of Directors of the Company, if conducted in accordance with applicable law (including without limitation Regulation M under the 1934 Act), shall not be deemed or considered to be such stabilization or manipulation. (p) Related Party Transactions. There are no business relationships or related party transactions involving the Company or any subsidiary or any other person required to be described in the Prospectus that have not been described as required. 19 21 (q) Environmental Laws. (i) Except as would not have or could not be reasonably expected to result in a Material Adverse Change, or as is not otherwise disclosed in the Prospectus: (A) Each of the real properties owned by the Company or any of its Material Subsidiaries (the "REAL PROPERTIES") and all operations at the Real Properties are in compliance with all applicable Environmental Laws, and there is no violation of any Environmental Law with respect to the Real Properties or the businesses operated by the Company or any of its Material Subsidiaries (the "BUSINESSES"), and there are no conditions relating to the Businesses or Real Properties that could be reasonably expected to give rise to liability under any applicable Environmental Laws. (B) Neither the Company nor any of its Material Subsidiaries has received any written notice of, or inquiry from any governmental authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding Hazardous Materials or compliance with Environmental Laws with regard to any of the Real Properties or the Businesses, nor does the Company or any of its Material Subsidiaries have knowledge or reason to believe that any such notice is being threatened. (C) Hazardous Materials have not been transported or disposed of from the Real Properties, or generated, treated, stored or disposed of at, on or under any of the Real Properties or any other location, in each case by, or on behalf or with the permission of, the Company or any of its Material Subsidiaries. (D) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Company, threatened, under any Environmental Law to which the Company or any Material Subsidiary, is or, to the best knowledge of the Company, will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Company or any of its Material Subsidiaries, the Real Properties or the Businesses. (E) There has been no release or, to the best knowledge of the Company or any Material Subsidiary, threat of release of Hazardous Materials at or from the Real Properties, or arising from or related to the 20 22 operations (including, without limitation, disposal) of the Company or any of its Material Subsidiaries in connection with the Real Properties or otherwise in connection with the Businesses, in violation of, or in amounts or in a manner that could give rise to liability under, Environmental Laws. (F) None of the Real Properties contains, or has previously contained, any Hazardous Materials at, on or under the Real Properties in amounts or concentrations that, if released, constitute or constituted a violation of, or would give rise to liability under, Environmental Laws. (G) Neither the Company nor any of its Material Subsidiaries, has assumed any liability of any Person (other than the Company or one of its Material Subsidiaries) under any Environmental Law. (ii) The Company has adopted procedures that are designed to (A) ensure that for the Company and each of the its Material Subsidiaries, each of their respective operations and each of the properties owned or leased by each such entity remains in compliance with applicable Environmental Laws, to the extent that the failure to comply with such Environmental Laws would result in or could be reasonably expected to result in a Material Adverse Change and (B) manage, to the same extent as and in accordance with the practices of companies engaged in the same or a similar business, any liabilities or potential liabilities that each such entity, any of its respective operations and each of the properties owned or leased by such entity may have under applicable Environmental Laws. (r) Bring-Down of Representations. The Company shall reaffirm the representations and warranties set forth in this Section 3 as of each Pricing Date and Purchase Date (each such day, a "RELEVANT DATE"). SECTION 4. Conditions to Pricing and Purchase. The obligations of the Underwriter to purchase and pay for Purchase Shares as provided herein on any Pricing Date or Purchase Date, respectively, shall be subject to the accuracy of the representations and warranties on such date on the part of the Company referred to in Section 3(r), to the timely performance by the Company of its covenants and other obligations hereunder, and to each of the following additional conditions: (a) Opinion of Company Counsel. The Company shall have caused to be delivered to the Underwriter by the General Counsel of the Company or the Assistant Counsel of the Company and Ballard Spahr Andrews & Ingersoll, LLP, Special Counsel for the Company (or such other counsel for the Company as shall be designated by the Company and shall be reasonably acceptable to the 21 23 Underwriter), on the date hereof, the Initial Pricing Date and each Bring-down Date, the opinions of such counsel for the Company, dated as of the date hereof, and the Initial Pricing Date and each Bring-down Date, respectively, to the effect set forth in Exhibits A and B, respectively, provided that, in his opinion to be delivered on the date hereof, Israel J. Floyd need express no opinion with respect to the matters referred to in paragraph (vii) of Exhibit A, and in its opinion to be delivered on the date, hereof Ballard Spahr Andrews & Ingersoll, LLP (x) need express no opinion with respect to the matters referred to in paragraph (vi) of Exhibit B and (y) with respect to the opinion called for in paragraph (v) of Exhibit B, need express no opinion with respect to the captions, "Risk Factors," "Description of Capital Stock," "Shares Eligible for Future Sale," "Certain United States Income Tax Considerations," or "Underwriting.". (b) Opinion of Underwriter's Counsel. The Underwriter shall have received the opinion or opinions of counsel for the Underwriter (x) on the date hereof, dated as of the date hereof, covering the matters set forth in paragraph (i) of Exhibit A and paragraph (i) of Exhibit B and (ii) on the Initial Pricing Date and each Bring-down Date, dated as of such date, covering the matters set forth in paragraphs (i) (vi) (with respect to subparagraph (E)(i) only) and (vii) of Exhibit A and paragraphs (ii) and (v) (with respect to the captions "Description of Capital Stock" and "Underwriting" under subparagraph (A) only) and the penultimate paragraph of Exhibit B. (c) Officer's Certificate. As of the date hereof, the Initial Pricing Date and each Bring-down Date, the Underwriter shall have received a certificate of any Co-Chief Executive Officer, President or Senior Vice President of the Company, dated on or prior to such date, to the effect that (i) since the respective dates as of which information is given in the Prospectus, (A) there has been no Material Adverse Change and (B) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted, are pending or, to the best of such officer's knowledge, are threatened by the Commission; (ii) the representations and warranties of the Company set forth in this Forward Underwriting Agreement are true and correct as of such date; and (iii) the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such date. 22 24 (d) Effectiveness of Registration Statement. As of each Relevant Date, the Registration Statement shall be effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act and no proceedings for that purpose shall have been instituted or be pending or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of the Underwriter. The Prospectus shall contain information relating to the description of the Common Stock, the specific method of distribution and similar matters and shall be filed with the Commission in accordance with Rule 424(b)(1), (2), (3), (4) or (5), as applicable (or any required post-effective amendment providing such information shall have been filed and declared effective), or, if the Company has elected to rely upon Rule 434 of the 1933 Act Regulations, a Term Sheet including the Rule 434 Information shall have been filed with the Commission in accordance with Rule 424(b)(7). (e) Opportunity for Due Diligence. As of each Relevant Date, the Underwriter shall have been afforded a reasonable opportunity to conduct a due diligence investigation with respect to the Company customary in scope for underwritten offerings of equity securities and the results of such investigation shall be satisfactory to the Underwriter, in its sole discretion. (f) No Senior Bank Debt Default. As of each Relevant Date, no Event of Default (as defined in the Credit Agreement) shall have occurred and be continuing. (g) The Company shall cause to be delivered to the Underwriter on the Initial Pricing Date and each Comfort Bring-down Date letters from the independent public accountants for the Company and any independent public accountants who reported or performed other procedures (in any relevant prior period) on the financial statements of the Company or any company acquired by the Company for which financial statements are required under the applicable 1933 Act or 1934 Act Regulations, each dated such date, in form and substance satisfactory to the Underwriter, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters, delivered according to Statement of Auditing Standards No. 72 (or any successor bulletin), with respect to the financial statements and certain financial information (including without limitation any pro forma financial information) contained in the Registration Statement and the Prospectus and with a "cut-off date" referred to therein, a date not more than three Business Days prior to such date. (h) Successful Remarketing or Redemption of Trust Preferred Securities. On or prior to the Initial Pricing Date, the Trust Preferred Securities (or, if Subordinated Notes shall have been distributed with respect to the Trust Preferred 23 25 Securities, such Subordinated Notes) shall have been either (i) remarketed pursuant to the terms of the Remarketing Agreement or (ii) mandatorily redeemed or matured in accordance with their terms pursuant to the applicable provisions of the Trust Agreement and Indenture and, in each case, the holders of the Trust Preferred Securities or Subordinated Notes, as the case may be, shall have received the proceeds of such remarketing or mandatory redemption (or maturity), as the case may be. (i) Effect of Failure of Conditions. If any condition specified in this Section 4 is not satisfied with respect to the purchase and settlement of Purchase Shares on any Pricing Date or Purchase Date when and as required to be satisfied, the Underwriter shall be released from its obligations hereunder with respect thereto. (j) Ratification. The Board of Directors of the Company shall have ratified this Agreement and actions to be taken by the Company in connection herewith. SECTION 5. Registration Agreements. The Company covenants and agrees with the Underwriter as follows: (a) Without limiting the generality of the provisions of Sections 4(d) and 5(c), during the period beginning on the date hereof and ending on the date all Purchase Shares have been sold pursuant to the Registration Statement (the "EFFECTIVENESS PERIOD"), prior to amending or supplementing the Registration Statement or the Prospectus, the Company shall furnish to the Underwriter for review a copy of each such proposed amendment or supplement that could reasonably relate to the offer and sale of Purchase Shares, and the Company shall not file any such proposed amendment or supplement to which the Underwriter reasonably objects within 5 days of receipt thereof. (b) During the Effectiveness Period, the Company shall promptly advise the Underwriter in writing (A) of the receipt of any comments of, or requests for additional or supplemental information from, the Commission regarding the Registration Statement, (B) of the time and date of any filing of any post-effective amendment to the Registration Statement or any amendment or supplement to any related preliminary prospectus or the Prospectus, (C) of the time and date that any post-effective amendment to the Registration Statement becomes effective, (D) of the occurrence of any event or the existence of any condition as a result of which it is necessary to amend or supplement the Prospectus so that such Prospectus does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the 24 26 circumstances when the Prospectus is delivered to a purchaser of Common Stock, not misleading, and (E) of the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement or any post-effective amendment thereto or of any order preventing or suspending the use of any related preliminary prospectus or the Prospectus, or of any proceedings to remove, suspend or terminate from listing or quotation the Common Stock from the Relevant Exchange, or, to the best knowledge of the Company, of the threatening or initiation of any proceedings for any of such purposes. If the Commission shall enter any such stop order at any time, the Company shall use its best efforts to obtain the lifting of such order at the earliest possible moment. Additionally, the Company agrees that it shall comply with the provisions of Rules 424(b), 430A and 434, as applicable, under the 1933 Act and will use its reasonable efforts to confirm that any filings made by the Company under such Rule 424(b) were received in a timely manner by the Commission. (c) If, during the Effectiveness Period for any Registration Statement, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the related Prospectus so that such Prospectus does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser of Common Stock, not misleading, or if in the opinion of the Underwriter it is otherwise necessary to amend or supplement such Prospectus to comply with law, the Company agrees to prepare promptly, file (subject to Section 5(a)) with the Commission and furnish at its own expense to the Underwriter, amendments or supplements to such Prospectus so that the Prospectus as so amended or supplemented will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser of Common Stock, not misleading or so that such Prospectus, as so amended or supplemented, will comply with law. (d) The Company agrees to furnish the Underwriter, without charge, during the Effectiveness Period, as many copies of the Prospectus and any amendments and supplements thereto as the Underwriter may reasonably request. (e) The Company shall cooperate with the Underwriter to qualify or register the Purchase Shares registered pursuant to the Registration Statement for sale under (or obtain exemptions from the application of) the state securities or blue sky laws of those jurisdictions designated by the Underwriter, shall comply with such laws and shall continue such qualifications, registrations and exemptions in effect so long as required for the distribution of the Purchase Shares. The Company shall not be required to qualify as a foreign corporation or to take any action that would subject it to general service of process in any such 25 27 jurisdiction where it is not presently qualified or where it would as a result of such action be subject to taxation as a foreign corporation. The Company will advise the Underwriter promptly of the suspension of the qualification or registration of (or any exemption therefrom with respect to) such Purchase Shares for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any order suspending such qualification, registration or exemption, the Company shall use its best efforts to obtain the withdrawal thereof at the earliest possible moment. SECTION 6. Additional Covenants of the Company. The Company further covenants and agrees with the Underwriter as follows: (a) During the Effectiveness Period, the Company shall continue to engage and maintain, at its expense, a registrar and transfer agent for the Common Stock. (b) During the Effectiveness Period, the Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (c) During the Effectiveness Period, the Company shall file, on a timely basis, with the Commission and the Relevant Exchange all reports and documents required to be filed under the 1934 Act or the rules of the Relevant Exchange. (d) During the Effectiveness Period, the Company shall furnish to the Underwriter (A) at the time delivered to stockholders, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholders' equity and cash flows for the year then ended and the opinion thereon of the Company's independent public or certified public accountants; (B) as soon as practicable after the filing thereof, unless available to the Underwriter on EDGAR or the Company's website, copies of each proxy statement, Annual Report on Form 10- K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report filed by the Company with the Commission or any securities exchange or automated quotation system; and (C) as soon as available, copies of any report or communication of the Company mailed generally to holders of its capital stock. (e) At all times during the Effectiveness Period, if requested by the Underwriter, the Company shall cause to be delivered to the Underwriter such 26 28 information, documents and opinions as they may reasonably require for the purposes of enabling it to pass upon the issuance and delivery of the Purchase Shares as contemplated herein or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements herein contained. (f) The Company will reserve and keep available at all times, free of preemptive or other similar rights, a sufficient number (the "RESERVE NUMBER") of shares (which, in any event, shall not be less than 20,000,000 (as may be adjusted from time to time pursuant to Section 8)) of Common Stock and capacity on the Registration Statement for the purpose of enabling the Company to satisfy its obligations to issue and deliver the Purchase Shares hereunder. (g) During the period from the date hereof until the earlier of the final day of the Dribble-out Period or any earlier termination of this Forward Underwriting Agreement, the Company will not, without the prior written consent of the Underwriter (which consent may be withheld at the reasonable discretion of the Underwriter) sell or offer or announce the offering of, or file any registration statement under the 1933 Act in respect of, or enter into any agreement or arrangement providing for the offer or sale of, any shares of Common Stock, except in the case of a merger of the Company; provided, however, that the Company may issue shares of its Common Stock pursuant to any stock option, stock bonus or other stock plan or arrangement described in the Prospectus and may issue securities convertible into Common Stock and the Common Stock underlying such securities. SECTION 7. Acceleration of Commencement Date. (a) Subject to Section 4(h), if the Closing Price of the Common Stock, as determined by the Underwriter, on any day prior to the Commencement Date is less than the Trigger Price (a "STOCK PRICE ACCELERATION EVENT"), then Commencement Date shall be accelerated to the date that is the earliest to occur of (x) the nineteenth day immediately succeeding the date on which such Stock Price Acceleration Event shall have occurred, (y) the Trading Day immediately following the Remarketing Settlement Date, (as defined in the Remarketing Agreement) on which the Remarketing Agent (as defined in the Remarketing Agreement) shall have received the proceeds of the related Remarketing (as defined in the Remarketing Agreement), but in no event later than the third Scheduled Trading Day prior to November 10, 1999. (b) If the Company shall redeem the Subordinated Notes as a result of a Failed Remarketing (as defined in the Remarketing Agreement) prior to the Commencement Date, then the Commencement Date shall be accelerated to the 27 29 Trading Day immediately following the date of such redemption (a "COMPANY ACCELERATION"). (c) The Company may, upon three Business Days' written notice to the Underwriter, elect to accelerate the Commencement Date to any scheduled Trading Day after the conditions set forth in Section 4(h) have been satisfied. This Section 7 shall be subject in all respects to the provisions of Section 12. SECTION 8. Adjustments to Trigger Price and Reserve Number. Following the declaration of any Potential Adjustment Event, the Underwriter shall determine (after consultation with the Company) whether such Potential Adjustment Event has a diluting or concentrative effect on the theoretical value of the Common Stock and, if so, shall make the corresponding adjustment(s), if any, to the Trigger Price and the Reserve Number. The Underwriter may, but need not, determine the appropriate adjustment(s) by reference to the adjustment(s) in respect of such Potential Adjustment Event made by an options exchange to options on the Common Stock traded on that options exchange. In the event of any merger, consolidation or reorganization of the Company, the Underwriter shall determine the appropriate Trigger Price and Reserve Number as a result of such event. SECTION 9. Expenses. The Company agrees to pay all costs, fees and expenses incurred in connection with the performance of its obligations hereunder and in connection with the transactions contemplated hereby, including without limitation (a) all costs and expenses incident to the authorization, issuance, sale and delivery of the Purchase Shares (including all printing and engraving costs), (b) all fees and expenses of the registrar and transfer agent of the Common Stock, (c) all necessary issue, transfer and other stamp taxes in connection with the issuance and delivery of the Purchase Shares to the Underwriter, (d) all fees and expenses of the Company's counsel, independent public or certified public accountants and other advisors, (e) all costs and expenses incurred in connection with the preparation, printing, filing, shipping and distribution of any Registration Statement (including financial statements, exhibits, schedules, consents and certificates of experts), each related preliminary prospectus and the related Prospectus, and all amendments and supplements thereto, and this Forward Underwriting Agreement, (f) all filing fees and other expenses incurred by the Company or the Underwriter in connection with qualifying or registering (or obtaining exemptions from the qualification or registration of) any Common Stock delivered hereunder for offer and sale under the state securities or blue sky 28 30 laws and, if requested by the Underwriter, preparing and printing a "BLUE SKY SURVEY" or memorandum, and any supplements thereto, advising the Underwriter of such qualifications, registrations and exemptions, (g) the fees and expenses associated with listing or including any shares of Common Stock delivered hereunder on the Relevant Exchange, (h) the fees and expenses of counsel for the Underwriter and its Affiliates incurred in connection with the transactions contemplated by this Forward Underwriting Agreement and (i) all other fees, costs and expenses referred to in Item 13 or Item 14, as the case may be, of Part II of the Registration Statement. SECTION 10. Indemnification. (a) Indemnification of the Underwriter. The Company agrees to indemnify and hold harmless the Underwriter, its officers and employees, and each person, if any, who controls the Underwriter within the meaning of the 1933 Act and the 1934 Act against any loss, claim, damage, liability or expense, as incurred, to which the Underwriter or such controlling person may become subject, under the 1933 Act, the 1934 Act or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based (i) upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or any amendment thereto, including any information deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the 1933 Act, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading; or (ii) upon any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (iii) in whole or in part upon any inaccuracy in the representations and warranties of the Company contained herein; or (iv) in whole or in part upon any failure of the Company to perform its obligations hereunder or under law; or (v) any act or failure to act or any alleged act or failure to act by the Underwriter in connection with, or relating in any manner to, the Common Stock or the offerings contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon any matter covered by clause (i) or (ii) above, provided that the Company shall not be liable under this clause (v) to the extent that a court of competent jurisdiction shall have determined by a final judgment that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by the Underwriter 29 31 through its bad faith, gross negligence or willful misconduct; and to reimburse the Underwriter and each such controlling person for any and all expenses (including the fees and disbursements of counsel chosen by the Underwriter) as such expenses are reasonably incurred by the Underwriter or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the foregoing indemnity agreement shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Underwriter expressly for use in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and provided, further, that with respect to any preliminary prospectus, the foregoing indemnity agreement shall not inure to the benefit of the Underwriter from whom the person asserting any loss, claim, damage, liability or expense purchased Purchase Shares, or any person controlling the Underwriter, if copies of the Prospectus were timely delivered to the Underwriter pursuant to Section 5(d) and a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of the Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Purchase Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or expense. The indemnity agreement set forth in this Section 10 shall be in addition to any liabilities that the Company may otherwise have. (b) Indemnification of the Company, its Directors and Officers. The Underwriter agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act, against any loss, claim, damage, liability or expense, as incurred, to which the Company, or any such director, officer or controlling person may become subject, under the 1933 Act, the 1934 Act, or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Underwriter), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or arises out of or is based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the 30 32 extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), in reliance upon and in conformity with written information furnished to the Company by the Underwriter expressly for use therein; and to reimburse the Company, or any such director, officer or controlling person for any and all expenses (including the fees and disbursements of counsel chosen by any such person) as such expenses are reasonably incurred by the Company, or any such director, officer or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. The indemnity agreement set forth in this Section 10 shall be in addition to any liabilities that the Underwriter may otherwise have. (c) Notifications and Other Indemnification Procedures. Promptly after receipt by an indemnified party under this Section 10 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 10, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 10 or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel reasonably acceptable to the indemnifying party to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party's election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 10 for any legal or other expenses subsequently incurred by such indemnified party in connection with the 31 33 defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the indemnifying party, or (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party. (d) Settlements. The indemnifying party under this Section 10 shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 10(c) hereof, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. SECTION 11. Contribution. If the indemnification provided for in Section 10 is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount paid or payable by such indemnified party, as incurred, as a result of any losses, claims, damages, liabilities or expenses referred to therein (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriter, on the other hand, from the offering of the Purchase Shares pursuant to this Agreement or (ii) if the allocation provided by 32 34 clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriter, on the other hand, in connection with the statements or omissions or inaccuracies in the representations and warranties herein which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriter, on the other hand, in connection with the offering of the Common Stock pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Purchase Shares pursuant to this Agreement (before deducting expenses) received by the Company, and the total Underwriting Commission received by the Underwriter, bear to the Aggregate Public Offering Price. The relative fault of the Company, on the one hand, and the Underwriter, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact or any such inaccurate or alleged inaccurate representation or warranty relates to information supplied by the Company, on the one hand, or the Underwriter, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 10, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in Section 10 with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this Section 11; provided, however, that no additional notice shall be required with respect to any action for which notice has been given under Section 10 for purposes of indemnification. The Company and the Underwriter agree that it would not be just and equitable if contribution pursuant to this Section 11 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 11. Notwithstanding the provisions of this Section 11, the Underwriter shall not be required to contribute any amount in excess of the Underwriting Commissions received by the Underwriter in connection with the Purchase Shares underwritten by it and distributed to the public. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 11, each officer and employee of 33 35 the Underwriter and each person, if any, who controls the Underwriter within the meaning of the 1933 Act and the Exchange Act shall have the same rights to contribution as the Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company with the meaning of the 1933 Act and the 1934 Act shall have the same rights to contribution as the Company. SECTION 12. Termination of this Forward Underwriting Agreement. (a) Execution of Terms Agreement. If at any time the parties enter into a firm commitment underwriting agreement, with respect to Purchase Shares (whether evidenced by a written agreement substantially in the form of a Terms Agreement (as defined in the Underwriting Agreement between the Company and NationsBanc Montgomery Securities, LLC attached as an exhibit to, or incorporated by reference in, the Registration Statement) or any other form of underwriting agreement) at an aggregate public offering price equal to the Settlement Balance as of the date of such underwriting agreement, then this Forward Underwriting Agreement shall terminate without any liability (except as provided in Section 12(f)) on the part of either party, except that all obligations of the parties with respect to any Purchase Shares purchased and sold on any Pricing Date prior to the date of such termination shall remain in effect. (b) Cross Acceleration Termination Event. Notwithstanding anything herein to the contrary, if at any time a Senior Bank Debt Acceleration has occurred, then this Forward Underwriting Agreement shall terminate and the parties shall have no liability hereunder (except as provided in Section 12(f)) including any obligation of the Underwriter or the Company to pay for and deliver, as the case may be, Purchase Shares sold on any Pricing Date prior to the date of such Senior Bank Debt Acceleration. (c) Failure of Company to Sell and Deliver Purchase Shares. If the Company shall fail to deliver to the Underwriter the Purchase Shares to be delivered by the Company on any Purchase Date pursuant to this Forward Underwriting Agreement (except as permitted hereby), then the Underwriter may at its option, by written notice to the Company, terminate this Forward Underwriting Agreement without any liability on the part of the Underwriter, except that all obligations of the parties with respect to any Purchase Shares purchased and sold prior to the date of such failure shall remain in effect. (d) The obligations of the Underwriter to purchase and pay for Purchase Shares on any Purchase Date may be terminated by the Underwriter by notice given to the Company if at any time since the corresponding Pricing Date (i) trading or quotation in any of the Company's securities shall have been, or 34 36 continue to be suspended or limited by the Commission or by the Relevant Exchange, or trading in securities generally on the New York Stock Exchange, Inc. shall have been, or continue to be, suspended or limited, or minimum or maximum prices shall have been generally established on the New York Stock Exchange, Inc. by the Commission; (ii) a general banking moratorium shall have been declared by federal, New York or, Delaware authorities and continues to be in effect; (iii) there shall have occurred, or continue to be, any outbreak or escalation of national or international hostilities or any crisis or calamity, or any change in the United States or international financial markets, or any substantial change or development involving a prospective substantial change in United States' or international political, financial or economic conditions affecting the securities markets generally, as in the reasonable judgment of the Underwriter is material and adverse and makes it impracticable to sell the Purchase Shares in the manner and on the terms described in the Prospectus or to enforce contracts for the sale of securities; (iv) in the reasonable judgment of the Underwriter there shall have occurred any Material Adverse Change; or (v) the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as in the reasonable judgment of the Underwriter may interfere materially with the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured. (e) Unless otherwise terminated pursuant to the terms hereof, this Forward Underwriting Agreement will terminate on the third Business Day immediately following the final day of the Dribble-out Period. (f) Liability on Termination. Any termination pursuant to this Section 12 shall be without liability, other than as expressly provided herein, on the part of (i) the Company to the Underwriter, except that the Company shall be obligated to reimburse the expenses of the Underwriter pursuant to Section 13, (ii) the Underwriter to the Company, or (iii) of any party hereto to any other party except that the provisions of Section 10 and Section 11 shall at all times be effective and shall survive such termination. SECTION 13. Reimbursement of Underwriter's Expense. If this Forward Underwriting Agreement is terminated by the Underwriter pursuant to paragraphs (b), (c) or (d) (except for (d)(i) with respect to minimum or maximum prices or (d)(v) of Section 12), the Company agrees to reimburse the Underwriter, upon demand for all out-of-pocket expenses that shall have been reasonably incurred by the Underwriter in connection with the proposed purchase and the offering and sale of the Purchase Shares, including but not limited to travel expenses, postage, facsimile and telephone charges. 35 37 SECTION 14. Representations and Indemnities to Survive Delivery. The respective indemnities, agreements, representations, warranties and other statements of the Company and of its officers and of the Underwriter set forth in or made pursuant to this Forward Underwriting Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Underwriter or the Company or any of its partners, officers or directors or any controlling person, as the case may be, and will survive delivery of and payment for the Purchase Shares and any termination of this Forward Underwriting Agreement. SECTION 15. Governing Law. THIS PURCHASE AGREEMENT SHALL BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW RULES THEREOF. SECTION 16. Assignment and Transfer. The rights and duties under this Forward Underwriting Agreement may not be assigned or transferred by either party hereto without the prior written consent of the other party hereto; provided that the Underwriter may assign any of its rights or duties hereunder to any of its Affiliates without the prior written consent of the Company but with prompt notice of the identity, addresses and contact person of the assignee to the Company. SECTION 17. Confidentiality. Except as required by law (including the public announcement of this transaction following its consummation) or judicial or administrative process, or as requested by a regulatory authority or self-regulatory organization, each party hereto agrees to keep this Forward Underwriting Agreement and the transactions contemplated hereby and thereby confidential. The Underwriter acknowledges that the Company intends to publish a press release describing the principal terms of the transactions described in this Agreement, the Remarketing Agreement and a Purchase Agreement dated the date hereof among the Company, Hercules Trust V and NMS Services, Inc. (the "PURCHASE AGREEMENT"). Such press release may be filed with the Commission in the sole discretion of the Company. In addition, the Underwriter acknowledges that the Company intends to file this Agreement, the Remarketing Agreement, the Purchase Agreement, the Trust Agreement, the Indenture, as supplemented, as well as any other agreements related thereto as exhibits to its next annual report on Form 10-K. The Underwriter hereby agrees that the foregoing do not constitute violations of this Section 17. 36 38 In the event disclosure is permitted pursuant to the immediately preceding sentence, the disclosing party shall (i) provide prior notice of such disclosure to the other party, (ii) use its best efforts to minimize the extent of such disclosure and (iii) comply with all reasonable requests of the other party to minimize the extent of such disclosure. This Section 17 shall not prevent either party from disclosing information as necessary to third-party advisors in connection with the transactions contemplated hereby; provided that such advisors agree in writing (unless obligated by its professional responsibilities to do so) to be bound by this Section 17 as if a party hereto. SECTION 18. Notices. Unless otherwise specified, notices under this Forward Underwriting Agreement may be made by telephone, to be confirmed in writing to the address below. Changes to the information below must be made in writing. (a) If to the Company: Hercules Incorporated Hercules Plaza 1313 North Market Street Wilmington, DE 19894-0001 Attn: Vice President and Treasurer Telephone: (302) 594-5000 Facsimile: (302) 594-5210 with copy to each of the following: Hercules Incorporated Hercules Plaza 1313 North Market Street Wilmington, DE 19894-0001 Attn: Corporate Secretary Telephone: (302) 594-5000 Facsimile: (302) 594-7252 Ballard Spahr Andrews & Ingersoll, LLP 1735 Market Street, 51st Floor Philadelphia, PA Attn: Justin P. Klein, Partner Telephone: (215) 665-8500 Facsimile: (215) 864-8999 37 39 (b) If to the Underwriter: NationsBanc Montgomery Securities LLC 9 West 57th Street New York, NY 10019 Attn: Russell Hackmann Telephone: (212) 583-8173 Facsimile: (212) 583-8457 SECTION 19. Change in Law. The parties agree that if there shall occur any amendment to, or change in, the federal securities laws, or any regulations thereunder, relating to the content, filing or delivery of the Registration Statement or the Prospectus, including any change in the 1933 Act, the 1933 Act Regulations, the 1934 Act or the 1934 Act Regulations, that has an effect on the obligations of the parties hereunder, then the parties shall negotiate in good faith to modify the terms of this Forward Underwriting Agreement to preserve the ability of the Company to issue and sell to the Underwriter, and the Underwriter to sell in Market Sales, the Purchase Shares in the manner contemplated hereby. 38 40 Please confirm your agreement to the foregoing by signing and returning to us the enclosed duplicate of this Forward Underwriting Agreement. Very truly yours, NATIONSBANC MONTGOMERY SECURITIES LLC By: /s/ Russell F. Hackman -------------------------- Name: Russell F. Hackman Title: Principal Acknowledged and agreed to as of the date first above written, HERCULES INCORPORATED By: /s/ R. K Elliott --------------------- Name: R. Keith Elliott Title: Chairman and Co-Chief Executive Officer 39 41 EXHIBIT A FORM OF OPINION OF COMPANY COUNSEL Opinion of Company Counsel to be delivered pursuant to Section 4(a) of the Forward Underwriting Agreement shall be to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) The Company is duly qualified as a foreign corporation and is in good standing under the laws of each other jurisdiction where its ownership, lease, licensing or operation of property or the conduct of business requires such qualification, other than in such jurisdiction or jurisdictions where the failure to be so qualified and be in good standing could not reasonably be expected to result in a Material Adverse Change. (iii) The Company has all corporate power and authority and the legal right to (x) own, lease and operate its properties, (y) conduct the business in which it is currently engaged and (z) enter into, and perform its obligations under, or as contemplated under, the Forward Underwriting Agreement and consummate the transactions contemplated thereby. (iv) Neither the Company nor any of its Material Subsidiaries is in violation of its charter or by-laws or is in default or, with the giving of notice or lapse of time, would be in default ("DEFAULT") under any indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which the Company or any of its Material Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its Material Subsidiaries is subject (each, an "EXISTING INSTRUMENT"), except for such Defaults as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. The execution, delivery and performance by the Company of this Forward Underwriting Agreement, the consummation of the transactions herein contemplated and the compliance by the Company with its obligations hereunder do not and will not result in any violation of the provisions of the Certificate of Incorporation or By-Laws or other constitutive documents of the Company or any Material Subsidiary, do not and will not conflict with or constitute a breach of, Default or a Debt Repayment Trigger Event under, or result in the creation or imposition of any lien, charge or encumbrance upon any A-1 42 assets, properties or operations of the Company or any of its Material Subsidiaries pursuant to, or require the consent of any other party to, any Existing Instrument, except for such conflicts, breaches, Defaults, liens (other than liens created by or contemplated in the Credit Agreement as in effect of the date hereof), charges or encumbrances or failure to obtain consent as would not, individually or in the aggregate, result in a Material Adverse Change and will not result in any violation of any applicable law or statute or any order, rule, regulation or judgment of any court or governmental agency or governmental body having jurisdiction over the Company or any of its Material Subsidiaries or any of their respective assets, properties or operations the result of which could be a Material Adverse Change. (v) Each Material Subsidiary of the Company is a duly and validly existing entity and is in good standing under the laws of the jurisdiction of its incorporation, has all corporate power and authority to own, lease, license and operate its properties and conduct its business as currently conducted and is duly qualified as a foreign entity in good standing in each other jurisdiction, where its ownership, lease, license or operation of property or the conduct of its business requires such qualification, other than in such jurisdiction or jurisdictions where the failure to be so qualified and or be in good standing could not reasonably be expected to result in Material Adverse Change. All of the issued and outstanding capital stock of each Material Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien (other than those created by or contemplated in the Credit Agreement as on November 12, 1998), encumbrance or claim, to the best of such counsel's knowledge. None of the outstanding shares of capital stock of any Material Subsidiary was issued in violation of preemptive or other similar rights of any securityholder of such Material Subsidiary. (vi) (A) The authorized, issued and outstanding capital stock of the Company is set forth in the Prospectus under the caption "Capitalization" (other than for subsequent issuances, if any, pursuant to employee benefit plans described in the Prospectus or upon exercise of outstanding options or warrants described in the Prospectus). (B) Such shares of capital stock have been duly authorized and validly issued by the Company and are fully paid and non-assessable and, to the best of such counsel's knowledge, have been issued in compliance with federal and state securities laws. (C) The Common Stock (including the Purchase Shares) conforms in all material respects to the description thereof A-2 43 contained in the Prospectus. (D) None of the outstanding shares of Common Stock was issued in violation of preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. (E) No stockholder of the Company or any other person has any preemptive right, right of first refusal or other rights to subscribe for or purchase, securities of the Company (except for any such rights granted pursuant to the Credit Agreement as in effect on November 12, 1998) arising (i) by operation of the Certificate of Incorporation or By-Laws of the Company or the General Corporation Law of the State of Delaware or (ii) to the best of such counsel's knowledge, otherwise. (vii) No holder of the Common Stock is or will be subject to personal liability by reason of being such a holder. The form of certificate used to evidence the Purchase Shares is in due and proper form and complies with all applicable requirements of the charter and By-Laws of the Company and the General Corporation Law of the State of Delaware. (viii) The Company meets the requirements for use of Form S-3 under the 1933 Act. The Registration Statement (including any Rule 462(b) Registration Statement, if any) has been declared effective by the Commission under the 1933 Act. To the best knowledge of such counsel, the Company has complied to the Commission's satisfaction with all requests of the Commission for additional or supplemental information. No stop order suspending the effectiveness of the Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the best of such counsel's knowledge are contemplated or threatened by the Commission. Based on the advice of the Division of Corporation Finance of the Commission, any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the 1933 Act has been made in the manner and within the time period required by such Rule 424(b). (ix) The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, at the time they were filed with the Commission, complied in all material respects with the requirements of the 1934 Act and the 1934 Act Regulations. (x) To the best knowledge of such counsel, there are no actions, suits, proceedings, inquiries or investigations before or brought by any legal or governmental agency or body now pending or, to the best of such counsel's knowledge, threatened against or affecting the Company or any of its Material Subsidiaries which are required to be disclosed in the A-3 44 Registration Statement and the Prospectus, other than those disclosed therein. (xi) To the best knowledge of such counsel, there are no Existing Instruments required to be described or referred to in the Registration Statement or the Prospectus or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto; and the descriptions thereof and references thereto are correct in all material respects. (xii) No consent, approval, authorization, order registration qualification, of or with filing any court or governmental agency or body having jurisdiction over the Company or any of its Material Subsidiaries or any of their respective properties is required for the due authorization, execution and delivery by the Company of, and the compliance by the Company with, all the terms of this Forward Underwriting Agreement and the consummation by the Company of the transactions contemplated thereby except such as have been obtained or made by the Company, as may be required by the securities or Blue Sky laws of the various States in connection with the offer and sale of the Purchase Shares or where the failure to obtain such consent, approval, authorization, order, registration, qualification, or make such filing will not adversely affect such authorization, execution or delivery of the Forward Underwriting Agreement, the compliance with the terms thereof or the consummation by the Company of the transactions contemplated hereby. (xiii) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change, or development that could reasonably be expected to result in a material adverse change in the condition, financial or otherwise, in or affecting the earnings, business, operations, financial position or prospects, whether or not arising from transactions in the ordinary course of business, of the Company and its subsidiaries, considered as one entity, (B) there have been no transactions entered into by the Company or any of its Material Subsidiaries, other than those arising in the ordinary course of business, which are, individually or in the aggregate, material with respect to the Company and its subsidiaries, considered as one enterprise and (C) except for regular dividends on the Company's Common Stock or preferred stock (which dividends include amounts, sometimes called "dividend equivalents," paid under the Company's employment benefit compensation plans on the Common Stock grants (whether options, restricted stock or other) under such plans, but only to the extent such amounts do not exceed the amounts of ordinary A-4 45 cash dividends that would be payable were such Common Stock grants treated as Common Stock) or the applicable charter document or supplement thereto, respectively, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (xiv) There are no persons with registration or other similar rights to have any equity or debt securities registered for sale under the Registration Statement, except for such rights as have been duly waived. (xv) The statements (A) in the Prospectus under the caption (or analagous caption) "Business-Litigation", insofar as such statements constitute matters of law, summaries of legal matters, the Company's charter or By-Law provisions, documents or legal proceedings, or legal conclusions, has been reviewed by such counsel and fairly present and summarize, in all material respects, the matters referred to therein. In addition, such counsel shall state that he has participated in conferences with officers and other representatives of the Company, representatives of the independent public or certified public accountants for the Company and with representatives of the Underwriter at which the contents of the Registration Statement and the Prospectus, and any supplements or amendments thereto, and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus (other than as specified above), and any supplements or amendments thereto, on the basis of the foregoing, nothing has come to his attention which would lead him to believe that either the Registration Statement or any amendments thereto, at the time the Registration Statement or such amendments became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, as of its date or as of the date of such opinion contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief as to the financial statements or schedules or other financial or statistical data derived therefrom, included or incorporated by reference in the Registration Statement or the Prospectus or any amendments or supplements thereto). In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the State of Delaware, or the federal law of the United States, to the extent he deems proper A-5 46 and specified in such opinion, upon the opinion (which shall be dated the date of such opinion, shall be satisfactory in form and substance to the Underwriter, shall expressly state that the Underwriter may rely on such opinion as if it were addressed to the Underwriter and shall be furnished to the Underwriter) of other counsel of good standing whom he believes to be reliable and who are satisfactory to the Underwriter; provided, however, that such counsel shall further state that he believes that he and the Underwriter are justified in relying upon such opinion of other counsel, and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. A-6 47 EXHIBIT B FORM OF OPINION OF SPECIAL COUNSEL TO THE COMPANY Opinion of Special Counsel to the Company to be delivered pursuant to Section 4(a) of the Forward Underwriting Agreement shall be to the effect that: (i) The Forward Underwriting Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company, enforceable in accordance with its terms, except as rights to indemnification thereunder may be limited by applicable law and except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights or by general equitable principles (except that the opinion to be delivered on the date hereof may state that they are subject to ratification of this Agreement and of actions to be taken by the Company in connection therewith by the Board of Directors of the Company). (ii) The Purchase Shares to be purchased by the Underwriter from the Company have been duly authorized for issuance and sale pursuant to the Forward Underwriting Agreement (except that the opinion to be delivered on the date hereof may state that they are subject to ratification of this Agreement and of actions to be taken by the Company in connection therewith by the Board of Directors of the Company) and, when issued and delivered by the Company pursuant to the Forward Underwriting Agreement against payment of the consideration set forth therein, will be validly issued, fully paid and non-assessable. (iii) The Company meets the requirements for use of Form S-3 under the 1933 Act. The Registration Statement (including any Rule 462(b) Registration Statement, if any) has been declared effective by the Commission under the 1933 Act. To the best knowledge of such counsel, the Company has complied to the Commission's satisfaction with all requests of the Commission for additional or supplemental information. No stop order suspending the effectiveness of the Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the best of such counsel's knowledge are contemplated or threatened by the Commission. To the extent related to the offer and sale of Purchase Shares, each required filing, if any, of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the 1933 Act has been B-1 48 made in the manner and within the time period required by such Rule 424(b). (iv) Based on advice from the Division of Corporate Finance of the Commission, the Registration Statement, the Prospectus therein and each amendment or supplement to the Registration Statement and the Prospectus as of its effective or issue date, as applicable, (other than the financial statements and supporting schedules included or incorporated by reference therein or in exhibits to or excluded from the Registration Statement, as to which no opinion need be expressed) comply as to form in all material respects with the applicable requirements of the 1933 Act and the 1933 Act Regulations. (v) The statements (A) in the Prospectus under the captions "Risk Factors--[___]," "Description of Capital Stock," "Management's Discussion and Analysis and Results of Operations--Liquidity," "Certain Relationships and Related Transactions," "Shares Eligible for Future Sale," "Certain United States Income Tax Considerations" and "Underwriting" or analogous captions and (B) in Item 14 and Item 15] of the Registration Statement, insofar as such statements constitute matters of law, summaries of legal matters, the Company's charter or By-Law provisions, documents or legal proceedings, or legal conclusions, has been reviewed by such counsel and fairly present and summarize, in all material respects, the matters referred to therein. (vi) The Company is not, and upon the issuance and sale of the Purchase Shares as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. In addition, such counsel shall state that they have participated in conferences with officers and other representatives of the Company, representatives of the independent public or certified public accountants for the Company and with representatives of the Underwriter at which the contents of the Registration Statement and the Prospectus, and any supplements or amendments thereto, and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus (other than as specified above), and any supplements or amendments thereto, on the basis of the foregoing, nothing has come to their attention which would lead them to believe that either the Registration Statement B-2 49 or any amendments thereto, at the time the Registration Statement or such amendments became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, as of its date or as of the date of such opinion contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief as to the financial statements or schedules or other financial or statistical data derived therefrom, included or incorporated by reference in the Registration Statement or the Prospectus or any amendments or supplements thereto). In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the General Corporation Law of the State of Delaware, the State of New York or the federal law of the United States, to the extent they deem proper and specified in such opinion, upon the opinion (which shall be dated the date of such opinion, shall be satisfactory in form and substance to the Underwriter, shall expressly state that the Underwriter may rely on such opinion as if it were addressed to the Underwriter and shall be furnished to the Underwriter) of other counsel of good standing whom they believe to be reliable and who are satisfactory to the Underwriter; provided, however, that such counsel shall further state that they believe that they and the Underwriter are justified in relying upon such opinion of other counsel, and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. B-3 50 EXHIBIT C [FORM OF] PRICING CERTIFICATE Date of Certificate ----------------------------------------------- Settlement Balance as of Close of Business on day immediately preceding the date hereof ----------------------- Aggregate Net Sale Price* ------------------------------------------ Daily Number of Purchase Shares ------------------------------------ Settlement Balance as of the Close of Business on the date hereof ------------------------------------------------- *Net of Commissions paid to persons outside the NationsBank Group Capitalized terms used herein have the meaning set forth in the Forward Underwriting Agreement, dated as of November 12, 1998, between Hercules Incorporated and NationsBanc Montgomery Securities LLC. -------------------------------------- Authorized Signatory of NationsBanc Montgomery Securities LLC C-1 EX-10.T 8 EMPLOYMENT AGREEMENT EFFECTIVE AUGUST 1,1998 1 EXHIBIT 10-T AGREEMENT VINCENT J. CORBO Purpose and Term of Agreement: In anticipation of the consummation of the BetzDearborn transaction, this is to confirm Vincent J. Corbo's (VJC) agreement to remain as an employee of Hercules Incorporated as President and Chief Operating Officer, or any other position which may be mutually agreed upon, from July 29, 1998 through January 1, 2001. During this term, the following conditions will apply. Position/Title: President and Chief Operating Officer of Hercules Incorporated and a member of Hercules Incorporated Board of Directors. Base Salary: Effective August 1, 1998, his annualized base salary will be increased by $100,000 to $550,000. At closing, his base salary will be set at no less than 75% of the highest annualized rate then in effect for the Chief Executive Officer or co-Chief Executive Officer(s). Until this agreement expires his annualized base salary will be increased as required to ensure that his rate is no less than 75% of the highest annualized rate in effect for the Chief Executive Officer or co-Chief Executive Officer(s). Incentive Payments: If VJC remains as an active employee of Hercules Incorporated as described above through January 1, 2001, the following incentive payments will be provided: A. Restricted Stock A grant of Restricted Stock Units with a value of $2,000,000 on the grant date and at the grant price hereinafter defined. The grant price used to determine the actual number of units will be the closing price of one share of Hercules Common Stock on August 4, 1998, as reported on the Composite Tape for New York Stock Exchange Listed Companies and published in the Eastern Edition of The Wall Street Journal. Such units will accrue dividend equivalents and interest, payable at vesting. These units will vest to you on January 1, 2001, and be payable, at your option, in shares of Hercules Incorporated Common Stock or cash, net of applicable taxes. 2 B. Cash If still employed on January 1, 2001 as stipulated above, a cash award of $1,000,000 will be earned and will be paid, net of applicable taxes. Change of Control: In the event of a solicited or unsolicited change of control of Hercules Incorporated as defined in your Employment Contract dated June 29, 1995, the provisions for payment of the following elements of this Agreement will be applicable: - Restricted Stock Incentive - Cash Incentive Where provisions may be made to provide for payment of Employment Contracts for certain HPC individuals as a result of the Bluenose transaction, this opportunity will not apply to you. Pension Adjustments: If still employed on January 1, 2001 as stipulated above, you will earn the right to the following enhancements of pension benefit credits when you elect to retire: 1. You shall be given credit for three additional years of service for purposes of calculating pension benefits. 2. You shall be given credit for the number of additional years of age for purposes of calculating pension benefits to the extent needed to provide that you had attained age 60. No additional credit for years of age shall be accounted for beyond the actual attainment of age 60 if you remain an active employee of Hercules Incorporated, but you will be eligible to earn additional years of service for purposes of calculating pension benefits. However, under no circumstances will service credit be applied beyond your attainment of age 65. Mega Grant Stock Option Agreements: 1. For the PASO awards made under the LTICP on October 29, 1996, it will be determined that all minimum vesting date(s) requirements will be satisfied if you are still employed on January 1, 2001. 2. For the PASO awards made under the LTICP on February 7, 1997, it will be determined that all minimum vesting date(s) requirements will be satisfied if you are still employed on January 1, 2001. The provisions for Accelerated Vesting as provided for in the Award Commitment notices will remain applicable. 2 3 At the times when William R. Cook receives Performance Accelerated Stock Options (PASO's), otherwise known as Mega Grants, per the terms of his Employment Agreement, then VJC will receive PASO's, otherwise known as Mega Grants, such that the total PASO's, including those awarded on October 29, 1996 (300,000 shares), and February 7, 1997 (150,000 shares), are 75% of the total number of shares granted to Mr. Cook. Terms and conditions for vesting will be the same as applied for Mr. Cook under the conditions of the LTICP. Provision for acceleration of vesting under special circumstances as described in this agreement will not apply to these extra awards. Matching Grant: For the record, under the terms of the Matching Grant included in your confirmation letter of February 28, 1997, the Restricted Stock Units and Restricted Stock, with accrued dividend equivalents and interest, will vest to you on May 1, 2000, and all other terms of the letter will apply. At the time when William R. Cook has the opportunity to participate in the Hercules Matching Grant Program, VJC will have the opportunity to extend his participation in the Program such that the multiplier for determining the matching Restricted Stock is 75% of the multiplier in effect for Mr. Cook. Terms and conditions for vesting of Restricted Stock will be the same as applied to Mr. Cook under the conditions of the LTICP. Provisions for acceleration of vesting under special circumstances as described in this agreement will not apply to this extra grant feature. Special Circumstances: If because of extraordinary events VJC decides that it is in his best interests and the best interests of HPC to resign with at least 60 days advance notice prior to January 1, 2001, and with the agreement of the Compensation Committee of the Board of Directors, then certain considerations will be provided: 1. At the time of the effective date of resignation you will be paid in cash an amount equal to two (2) times the base annual salary in effect at that time, less applicable taxes. 2. At the time of the effective date of resignation you will earn the right to the enhancements of pension benefit credits when you elect to retire as set forth in the Pension Adjustments section above. Accelerated vesting for the Mega Grants and vesting of Restricted Stock under the Matching Grants will be determined by the terms of the Long Term Incentive Plan, or any special action which may be authorized by the Compensation Committee of the Board of Directors 3 4 Perquisites: In determining the perquisites which will be provided through January 1, 2001, you will have the option to elect whatever benefits you choose, as would be reasonably made available to a senior HPC executive, up to a dollar value that is 75% of the amount provided for perquisites for the Chief Executive Officer or co-Chief Executive Officer(s). These perquisites may include such items as automobile, country club memberships, eating club memberships, etc. but specifically excludes the use of company-owned or leased aircraft for business or personal travel. Any tax liabilities for perquisite payments will be grossed-up. Director's Charitable Award Program: If VJC remains an active employee of Hercules Incorporated as described above through January 1, 2001, and remains as a Director of Hercules Incorporated for the same period, then he will become fully vested in the Program. Company-owned Leased Aircraft: VJC will have the authority to utilize company-owned or leased aircraft for business travel only within the continental U.S. during a calendar year (or pro-rata portion thereof) up to a value of $200,000. Rates for aircraft utilization will be actual charges for leased equipment and for the calculated effective operating rate for company-owned aircraft. Death: If, prior to the expiration of this agreement, VJC dies or becomes permanently and totally disabled as determined under the provisions of the Long Term Disability Plan, then his designated beneficiaries will receive the greater of the base salary and pension considerations contained in the Special Circumstances section, or the pro-rated value of the Incentive Payments and Pension Adjustments set forth above. For Hercules Incorporated Reviewed and agreed: Reviewed and agreed: /S/ R. Keith Elliott /S/ Vincent J. Corbo - ---------------------------------- --------------------------- R. Keith Elliott Vincent J. Corbo Chairman and Chief Executive Officer August 12, 1998 August 12, 1998 - ------------------------------------ --------------------------- Date Date 4 EX-10.U 9 EMPLOYMENT AGREEMENT DATED OCTOBER 15, 1998 1 EXHIBIT 10-U EMPLOYMENT AGREEMENT THIS Employment Agreement ("Agreement") is entered into as of October 15, 1998, by and BETWEEN HERCULES INCORPORATED (the "Company"), a Delaware corporation, and WILLIAM R. COOK ("EXECUTIVE"). RECITALS WHEREAS, pursuant to the Agreement and Plan of Merger among Hercules Incorporated, Water Acquisition Co. and BetzDearborn Inc. dated as of July 30, 1998 (the "Merger Agreement"), the Company has agreed to purchase all the issued and outstanding stock of BetzDearborn Inc., a Pennsylvania Corporation; WHEREAS, Executive is currently employed by BetzDearborn Inc. subject to an employment agreement dated March 20, 1998, and as amended effective as of March 6, 1998 (the "BetzDearborn Employment Agreement"); WHEREAS, the Company and Executive intend that Executive's transition from employment by BetzDearborn Inc. to employment by the Company not constitute a termination of his employment by BetzDearborn Inc. under his BetzDearborn Employment Agreement; WHEREAS, the Company and Executive desire that this Agreement constitute an assumption, cancellation of, and replacement for, his BetzDearborn Employment Agreement in its entirety; WHEREAS, the Company and Executive desire that Executive provide, following the Acquisition, employment services to the Company upon the terms and conditions set forth below; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties agree as follows. 2 1. EFFECTIVE DATE OF AGREEMENT. This Agreement constitutes an assumption, cancellation, and replacement of the BetzDearborn Employment Agreement in its entirety and will be effective, and Executive's employment by the Company pursuant hereto will commence, at the Effective Time (as defined in the Merger Agreement) on the date which includes the Effective Time (the "Effective Date"). 2. TERM OF EMPLOYMENT. This Agreement, and Executive's employment by the Company pursuant hereto, will be for the period commencing on the Effective Date and continuing for the three (3) year period commencing on such date (the "Term"), unless sooner terminated pursuant to the terms hereof. Executive agrees that his transition from employment by BetzDearborn Inc. to employment by the Company under this Agreement shall not constitute, and shall not be treated as, a termination of his employment under his BetzDearborn Employment Agreement. 3. DUTIES OF EXECUTIVE. During the Term, Executive will be employed as the Company's Co-Chief Executive Officer and shall (pursuant to and subject to the Merger Agreement) serve as the Vice-Chairman of the Company's Board of Directors (the "Board of Directors"). Executive will have and fulfil1 (i) all of the duties and responsibilities ordinarily associated with such status as Co-Chief Executive Officer at an organization comparable to the Company and (ii) any duties and responsibilities established for the Company's Co-Chief Executive Officer in the Company's charter or bylaws or other organizational documents or by the Board of Directors that are consistent with his position and status as Co-Chief Executive Officer. The Board of Directors will have the right to assign to Executive such other or additional duties and responsibilities, or reduce Executive's duties and responsibilities (provided such reductions do not materially diminish his position, authority or responsibilities at the 3 Company) as the Board of Directors deems in the Company's best interest, and Executive will fulfill such duties and responsibilities as directed by the Board of Directors. Executive will devote substantially all of his working time, attention, and energy to the Company's business and will not during the term of this Agreement engage in any substantial outside business or other activity unrelated to serving the Company's interest, unless he receives prior approval for such activities from the Board of Directors; provided, however, that Executive may continue to occupy, without Board approval, a seat on the Board of Directors of Teleflex Corporation. Executive will fulfill his duties and responsibilities as described in this Paragraph 3 in a reasonable and appropriate manner in light of the Company's policies and practices as established by the Board of Directors and the laws and regulations and policies which apply to the Company's operation and administration. Executive agrees (and, under Section 6(c)(4) of the BetzDearborn Employment Agreement consents to) perform his duties and responsibilities under this Agreement primarily at the Company's headquarters in Wilmington, Delaware and to commute to such headquarters to perform his duties and responsibilities at such headquarters. 4. BASE SALARY. Subject to the provisions of Paragraph 6, the Company will pay Executive a base salary ("Base Salary"), which will be paid in accordance with the Company's standard payroll practices and policies as in effect from time to time for salaried employees, as follows: (a) Beginning on the Effective Date, Executive's Base Salary will be $700,000 per year, less applicable withholding; (b) Beginning on the nine month anniversary of the Effective Date, Executive's Base Salary will be increased to $750,000 per year, less applicable withholding; and 4 (c) Beginning on the eighteen month anniversary of the Effective Date, Executive will be paid a Base Salary, less applicable withholding, that the Board of Directors determines is consistent with the competitive market value of the duties performed by Executive under Paragraph 3 of this Agreement; provided, however, that Executive's Base Salary shall in no event be less than $750,000 per year, less applicable withholding. In reaching its determination, the Board of Directors will take into account comparative data concerning the salaries of individuals with similar duties and responsibilities in the industry in which the Company operates. Such comparative data will be obtained from one, or more than one, nationally recognized compensation consulting firms selected by the Board of Directors. 5. BENEFITS. (a) MICP. Executive shall be eligible to participate in the Company's Management Incentive Compensation Plan ("MICP") in 1998, 1999, 2000 and 2001 subject to all the terms and conditions in such plan except that (i) his target for each such year shall be set under this Agreement and (ii) if Executive's employment terminates for any reason other than by the Company for Good Cause (as defined in Paragraph 6(a)(3)) after 1998, he shall be treated under Section 14.1 of the MICP as if he had retired. A copy of the MICP as in effect as of the Effective Date is attached to this Agreement as Exhibit A. Executive's target under the MICP for 1998 shall be (i) $490,000, pro rated for the period from the Effective Date through December 31, 1998 but reduced for the portion of any bonus payable under any BetzDearborn Inc. bonus program which is attributable to such proration period; (ii) $490,000 for 1999; (iii) $600,000 for 2000; and (iv) 90% of his Base Salary in effect on January 1, 2001 for 2001; provided, however, 5 that if Executive terminates employment on or after the expiration of the Term but prior to December 31, 2001, payments made to him under MICP for 2001 shall be pro rated. (b) Restricted Stock. (1) Sign Up Restricted Stock Grant. Executive shall receive a restricted stock grant under the Company's Long Term Incentive Compensation Plan ("LTICP") equal to the number of whole shares of the Company's common stock determined by dividing (i) $2,967,000 by (ii) the average closing price for a share of the Company's common stock as reported in the Eastern Edition of The Wall Street Journal for the five (5) consecutive trading days before the Effective Date (the "Sign Up Restricted Stock Grant"). The Company shall pay to Executive cash in lieu of a fractional share of common stock based on such average closing price. (2) Vesting. One third of the number of shares subject to the Sign Up Restricted Stock Grant shall have a Restricted Period (as defined under the LTICP) ending on the eight month anniversary of the Effective Date, one third of the number of such shares shall have a Restricted Period ending on the sixteen month anniversary of the Effective Date, and the remaining one third shall have a Restricted Period ending on the twenty four month anniversary of the Effective Date. Executive in addition will vest 100% in the Sign Up Restricted Stock Grant (without regard to the Restricted Period) upon (i) the date of his termination of employment (A) by the Company other than for Good Cause or (B) by Executive for Good Reason; (ii) the date the Compensation Committee of the Board of Directors approves Executive's request to retire at any time following the eight month anniversary of the Effective Date on account of an unforeseen financial emergency or other family circumstances which Executive believes will render him no longer able to perform the essential 6 functions of his job, which approval shall not be withheld if the Compensation Committee determines that such belief on the part of Executive is reasonable; (iii) the death of Executive; or (iv) the date that the Board of Directors reasonably determines that because of a mental or physical impairment Executive has been unable for a period of at least six (6) consecutive months to perform the essential functions of his job with or without reasonable accommodation (a "Disability"). A retirement which is approved under Paragraph 5(b)(2)(ii) shall be treated under this Agreement as a termination by Executive without Good Reason under Paragraph 6(b)(2) except as provided in this Paragraph 5(b)(2). (3) Supplemental Grants. The Company shall make a grant of nonforfeitable, nonrestricted stock to Executive as of the date, or on each date, that Executive's interest in all or a part of the Sign Up Restricted Stock Grant vests (the "Vest Date") under Paragraph 5(b)(2) (a "Supplemental Grant") if (i) the total Vested Date Value of the number of shares of the Company's common stock subject to the Sign Up Restricted Stock Grant in which Executive's interest vests on the Vest Date is less than (ii) the total value attributable to such shares as determined under Paragraph 5(b)(I)(ii) on the date of the grant of the Sign Up Restricted Stock Grant (as adjusted by the Company to account for any stock splits, stock dividends or other changes in the Company's capital structure). Such Supplemental Grant, or each such Supplemental Grant, shall equal the number of whole shares of the Company's common stock determined by dividing the difference between the value under this Paragraph 5(b)(3)(i) and 5(b)(3)(ii) by the Vest Date Value of a share of the Company's common stock on the Vest Date. The term Vest Date Value under this Paragraph 5(b)(3) shall mean the average closing price for a share of the Company's common stock as 7 reported in the Eastern Edition of The Wall Street Journal for the five (5) consecutive trading days ending on the Vest Date. The Company shall pay to Executive cash in lieu of a fractional share of common stock based on the Vest Date Value. (4) LTICP Terms. Except as provided in this Paragraph 5(b), the Sign Up Restricted Stock Grant shall be made subject to the same terms and conditions as standard restricted stock grants made under the LTICP. (c) Unrestricted Stock. Executive (as soon as practicable after Executive receives the cash from the Acquisition attributable to his BetzDearborn Inc. restricted stock grants and stock options) shall purchase a number of shares of common stock of the Company equal to (i) $1,700,000 divided by (ii) the average closing price of a share of the Company's common stock as reported in the Eastern Edition of The Wall Street Journal for the three trading days immediately following the Effective Date. Such purchase may be made from the Company or in the open market, as agreed upon between the Company and Executive. (c) Stock Ownership Guidelines. Executive shall purchase such common stock of the Company as required to satisfy the Company's Stock Ownership Guidelines in full within the three year period starting on the Effective Date in accordance with the terms of such guidelines. The stock awarded under Paragraphs 5(b) and 5(c) shall be counted towards the satisfaction of such guidelines together with his other Company stock holdings, direct or indirect, which are of a kind taken into account for other executives under such guidelines. (d) Matching Grant Program. Executive shall have a one-time right to elect to participate in the Company's Matching Grant Program pursuant to the terms of such program. Such election shall be made in writing no later than 3 business days following the first date after the Effective Date that the 8 Company makes a public announcement of its quarterly earnings and shall be delivered to the Company's Vice President, Human Resources and, if Executive makes such election by such deadline, the Company match in restricted stock under the program will vest at the end of the Term if Executive remains employed under this Agreement through the end of the Term. The program as currently in effect requires the purchase of Hercules restricted stock units outright or through salary and/or annual bonus deferral up to 65% of the present value of four years salary in effect at the time of election. The Company will match any purchase of Hercules restricted stock units with a grant of restricted stock equal to two times the number of restricted stock units purchased. The Company match of restricted stock normally is restricted for three years, but in the case of Executive shall be restricted until the third anniversary of the Effective Date and, in the event of voluntary resignation within that period for any reason, including retirement, will be forfeited. The Company shall provide such additional information to Executive regarding the program as he shall reasonably request from the Company. (f) Stock Options. Executive shall be granted a "performance accelerated stock option" under the LTICP (i) as of the Effective Date, for 500,000 shares of common stock, (ii) as of September 30, 1999, for 250,000 shares of common stock, and (iii) as of June 30, 2000, for 250,000 shares of common stock, each as adjusted by the Company to account for stock splits, stock dividends and other changes in the Company's capital structure. Each such grant shall be made only if Executive is employed by the Company on the date as of which such grant is called for under this Agreement. Each such option shall be granted at fair market value option price on the date of grant (as determined under the LTICP) and shall be evidenced by an agreement in substantially the same form as the form agreement for each grant which is attached to this Agreement as Exhibit B-I through B-3. The Compensation Committee of the Board of Directors may, at its discretion, grant additional stock options to Executive during the Term. 9 (g) Other Benefits. (I) Supplemental Pension Benefit (A) Formula. A benefit shall be payable to, or on behalf of, Executive under this Paragraph 5(g)(l) upon his termination of employment for any reason. The amount of such benefit shall (subject to the other provisions of this Paragraph 5(g)(1)) be determined under the benefit formula in effect under the BetzDearborn Inc. Employees Retirement Plan as in effect on the Effective Date (the "BD Plan") without regard to (i) any reduction otherwise required under the BD Plan as a result of the application of the Section 415 Limitation (as defined in the BD Plan) and (ii) any reduction otherwise required under the BD Plan by reason of the compensation exclusion called for under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code"). (B) Special Benefit Calculation Rules. Executive's benefit under Paragraph 5(g)(l)(A) shall be calculated subject to the following special rules: (i) Age. If Executive is less than 65 years old at the time his employment terminates, he shall be treated as if he was 65 years old. (ii) Compensation. (1) Any Base Salary and MICP bonus actually paid to Executive by the Company or any successor to the Company shall be taken into account on the same basis that such compensation would have been taken into account if paid by BetzDearborn Inc. (2) If Executive's employment with the Company terminates before the end of the Term, the Base Salary and MICP target bonus which would have been payable to Executive through the remainder of the Term but for such termination of employment shall be 10 taken into account as if Executive's employment had continued for the remainder of the Term on the same basis that such compensation would have been taken into account if actually paid by BetzDearborn Inc. over the remainder of the Term. If Executive's employment terminates before his actual Base Salary is set under Paragraph 4(c), his Base Salary under Paragraph 4(c) shall be treated as equal to $750,000 and his MICP target bonuses under Paragraph 5(a)(iv) shall be treated as equal to $675,000. (iii) Service. All service actually completed by Executive with the Company or any successor to the Company shall be treated as service completed with BetzDearborn Inc. and, further, Executive's actual number of years of service shall be increased by three full years. (C) Payment Form. Executive's benefit under this Paragraph 5(g)(l) shall be paid in accordance with the benefit payment form and timing and joint annuitant and/or beneficiary designation rules set forth in Article V of the BetzDearborn Inc. Pension Restoration Plan as in effect on the Effective Date (the "BD Restoration Plan") based on the benefit payment form and timing and joint annuitant and/or beneficiary designations made by Executive with respect to the payment of his benefits under the BD Plan or, if the BD Plan is merged into another plan (a "'Successor Plan"), with respect to the payment of his benefit under such Successor Plan which is attributable to his benefit accrued under the BD Plan. (D) Offset. The benefit described in Paragraph 5(g)(1)(A) shall be offset (i) by the benefit actually payable to, or on behalf of, Executive under the BD Plan or any successor to such plan, the BD Restoration Plan or any successor to such plan and any defined benefit plan (as defined in Section 414(j) of the Code) maintained by the Company or any successor to the Company or (ii) by the actuarial equivalent of the benefit payable under any such plan described in 11 Paragraph 5(g)(l)(D)(i) if the benefit paid under such plan is paid in a form or at a time or to a person or persons different from the form or time or person or persons described in Paragraph 5(g)(C). Any actuarial equivalent calculations required under this Paragraph 5(g)( l )(D) shall be made in accordance with the actuarial equivalent factors, tables and interest rate and other assumptions in the BD Plan. (E) No Assignment. Neither Executive nor any other person shall have any right whatsoever to transfer, alienate, or assign his or her right to the benefit described in this Paragraph 5(g)(l) and attempt to do so shall be null and void. (F) General Creditor Status. Neither Executive nor any other person shall have a claim to the benefit described in this Paragraph 5(g)(l) which is superior to the right of a claim of a general and unsecured creditor of the Company or any successor to the Company, and neither Executive nor any other person shall have the right to look to any assets except the general assets of the Company or any successor to the Company for the payment of such benefit. (G) Rabbi Trust. The Company has established a trust under the Hercules Incorporated Compensation Benefits Grantor Trust Agreement for Management Employees (the "Rabbi Trust") to provide a mechanism through which the Company can (subject to the terms of the Rabbi Trust and the conditions set forth in the Rabbi Trust related to the funding of the Rabbi Trust) satisfy the Company's obligation to pay certain benefits to the Company's executives, including benefits under Hercules Incorporated Nonqualified Supplemental Retirement Plan, and the Company as of the Effective Date shall add the Company's obligation to pay the benefit described in this Paragraph 5(g)(l) to the list of the Company's obligations furnished to the Trustee for the Rabbi Trust which shall (subject to 12 the terms of the Rabbi Trust and the conditions set forth in the Rabbi Trust related to the funding of the Rabbi Trust) be satisfied through the Rabbi Trust or any successor to such Trust. (2) Company Automobile. Executive shall have his choice while employed by the Company of the use of (i) an automobile comparable to that provided to the Company's other Co-Chief Executive Officer (which currently is a Mercedes Benz S420) or (ii) an appropriate car (such as a Lincoln Town Car) and driver only for business use. Executive shall maintain appropriate records of his business and personal use of an automobile and shall make such records available to the Company to account for such use in accordance with the income tax laws (3) Other Executive Benefits. The Company shall make available to Executive the same plans, programs and benefits as the Company generally makes available to the members of the Hercules Management Committee, as long as such committee includes the Company's Chief Executive Officer or Co-Chief Executive Officer or, if it does not, to the other most senior executives of the Company, except to the extent like-kind plans, programs or benefits are otherwise expressly called for elsewhere in this Paragraph 5. (4) Chief Executive Officer Perks. Executive while employed by the Company shall have his choice of appropriate executive officer perquisites, such as social and dining club memberships, routine physical examinations, financial counseling, a special entertainment allowance, and a home security system; provided, the aggregate annual value of such perquisites shall not exceed S17,600 a calendar year (which figure shall be pro-rated for any part of a calendar year) or such other 13 figure as provided to the Company's other Co-Chief Executive Officer for such calendar year as determined by the Company for financial reporting purposes. (5) Tax Protection. If the Company or the Company's accountants determine that the payments and other benefits called for under this Agreement or any other payments or benefits to or for the benefit of Executive either pursuant to the Merger Agreement or from the Company after the Effective Date will result in Executive being subject to an excise tax under Section 4999 of the Code and/or if such an excise tax is assessed against Executive as a result of such payments or other benefits, the Company shall make a Gross Up Payment (as defined in this Paragraph 5(g)(5)) to or on behalf of Executive as and when such determination(s) and assessment(s), as appropriate, are made, provided Executive takes such action as the Company reasonably requests under the circumstances to mitigate or challenge, or to mitigate and challenge, such tax and the Company complies with its obligations under this Paragraph 5(g)(5). A "Gross Up Payment" means a payment to or on behalf of Executive which shall be sufficient to pay (i) any such excise tax in full, (ii) any federal, state and local income tax and social security or other employment tax on the payment made to pay Executive's excise tax as well as any additional excise tax on such payment and (iii) any interest or penalties assessed by the Internal Revenue Service on Executive if such interest or penalties are attributable to the Company's failure to comply with its obligations under this Paragraph 5(g)(5) or applicable law. Any determination under this Paragraph 5(g)(5) by the Company or the Company's accountants shall be made in accordance with Section 280G of the Code and any applicable related regulations (whether proposed, temporary or final) and any related Internal Revenue Service rulings and any related case law and, if the Company reasonably requests that 14 Executive take action to mitigate or challenge, or to mitigate and challenge, any such tax or assessment and Executive complies with such request, the Company shall provide Executive with such information and such expert advice and assistance from the Company's accountants, lawyers and other advisors as he may reasonably request and shall pay for all expenses incurred in effecting such compliance and any related fines, penalties, interest and other assessments. 6. TERMINATION. This Agreement, and Executive's employment by the Company hereunder, may be terminated early as follows: (a) By the Company. (1) For Good Cause. If the Company terminates Executive's employment for Good Cause (as defined in Paragraph 6(a)(3)) at any time during the Term of this Agreement, the payment of Executive's Base Salary under Paragraph 4 will stop and the accrual of additional benefits and rights under Paragraph 5 will Stop as of the date his employment so terminates. Thereafter, Executive will be eligible to receive only (i) any Base Salary which he had earned but which was unpaid on the date his employment terminated, (ii) any benefits which are payable as of such date or thereafter under the terms of the benefit plans, programs and other agreements described in Paragraph 5 based exclusively on the terms and conditions set forth in such plans, programs and other agreements except to the extent such terms and conditions are expressly modified by the terms of Paragraph 5 and (iii) any payments called for under Paragraph 5(g)(5). (2) Without Good Cause. (A) If the Company terminates Executive's employment without Good Cause (as defined in Paragraph 6(a)(3)) at any time before the first anniversary of the Effective Date, during the three consecutive year period starting on the date of such termination, the Company will in 15 each year in such period pay Executive the sum of (i) the Base Salary in effect under Paragraph 4 as of the date of such termination, less applicable withholding, and (ii) the MICP target in effect under Paragraph 5(a) as of the date of such termination, less applicable withholding. (B) If the Company terminates Executive's employment without Good Cause (as defined in Paragraph 6(a)(3)) at any time on or after the first anniversary of the Effective Date and before the second anniversary of the Effective Date, during the two consecutive year period starting on the date of such termination, the Company will in each year in such period pay Executive the sum of (i) the Base Salary in effect under Paragraph 4 as of the date of such termination, less applicable withholding, and (ii) the MICP target in effect under Paragraph 5(a) as of the date of such termination, less applicable withholding. (C) If the Company terminates Executive's employment without Good Cause (as defined in Paragraph 6(a)(3)) at any time on or after the second anniversary of the Effective Date and before the third anniversary of the Effective Date, during the one year period starting on the date of such termination, the Company will pay Executive the sum of (i) the Base Salary in effect under Paragraph 4 as of the date of such termination, less applicable withholding, and (ii) the MICP target in effect under Paragraph 5(a) as of the date of such termination, less applicable withholding. (D) The Base Salary and MICP target payments under Paragraphs 6(a)(2)(A), 6(a)(2)(B) or 6(a)(2)(C) shall be made in accordance with the Company's standard payroll practices and policies in effect from time to time for salaried employees, but in no event less than monthly. 16 (E) Other than any payments to Executive under Paragraphs 6(a)(2)(A), 6(a)(2)(B) or 6(a)(2)(C), following the termination of his employment, Executive will be eligible to receive only (i) any benefits Which are payable as of the date of such termination or thereafter under the terms of the benefit plans, programs and other agreements described in Paragraph 5 based exclusively on the terms and conditions set forth in such plans, programs and other agreements except to the extent such terms and conditions are expressly modified by the terms of Paragraph 5 and (ii) any payments called for under Paragraph 5(g)(5). (3) Good Cause. The term "Good Cause" for purposes of this Agreement will mean: (A) Executive commits any felony or any misdemeanor involving moral turpitude, as determined by the Board of Directors in good faith; (B) Executive engages in a fraudulent or dishonest act that damages or prejudices the Company or any affiliate of the Company or engages in conduct or activities damaging to the property, business or reputation of the Company or any affiliate of the Company, all as determined by the Board of Directors in good faith; (C) Any material act or omission by Executive involving gross malfeasance or gross negligence in the performance of his duties and responsibilities as set forth in this Agreement to the detriment of the Company or an affiliate of the Company, as determined by the Board of Directors in good faith, which has not been corrected by Executive (as determined by the Board of Directors in good faith) within thirty (30) days after written notice from the Board of Directors of any such act or omission; (D) A failure by Executive to comply in any material respect with the terms of this Agreement or any written policies or directives of the Company, which failure has a material and 17 adverse effect on the business or reputation of the Company, all as determined by the Board of Directors in good faith, which has not been corrected by Executive (as determined by the Board of Directors in good faith) within thirty (30) days after written notice from the Board of Directors of such failure; (E) Executive's habitual insobriety or substance abuse, as determined by the Board of Directors in good faith; (F) Any diversion by Executive of any business opportunity from the Company (other than with the prior written consent of the Board of Directors); or (G) Any breach by Executive of Paragraphs 7, 8, 9, or 10 of this Agreement, as determined by the Board of Directors in good faith. (b) By Executive. (1) For Good Reason. If Executive terminates his employment with the Company at any time during the Term of this Agreement for Good Reason (as defined in Paragraph 6(b)3)), Executive will be treated as if the Company had terminated Executive's employment without Good Cause under Paragraph 6(a)(2) of this Agreement. (2) Without Good Reason. If Executive terminates his employment with the Company at any time during the Term of this Agreement without Good Reason (as defined in Paragraph 6(b)(3)), the Company will have the right to treat Executive as if his employment had been terminated for Good Cause by the Company under Paragraph 6(a)(1) of this Agreement. (3) Good Reason. The term "Good Reason" for purposes of this Agreement will mean Executive's resignation as an employee of the Company (A) within the 180-day period immediately following the appointment by the Board of Directors of an individual (other than the individual who is his 18 Co-Chief Executive Officer on the Effective Date) as his Co-Chief Executive Officer or (B) after the Company Commits any of the following acts or failures to act and fails to correct such act or failure to act within thirty (30) days after written notice thereof by Executive to the Board of Directors: (i) The Company changes Executive's title, position, authority, or responsibilities in a manner that violates Paragraph 3; (ii) The Company at any time reduces Executive's Base Salary below the amount required at that time by Paragraph 4, other than upon the termination of his employment; (iii) The Company after the Effective Date transfers Executive, without his express written consent, to a location that is more than thirty (30) miles from (a) the city limits of Wilmington, Delaware, or (b) the city limits of such other city in which Executive maintains his principal place of business for the Company because he has previously provided his written consent to the Company to transfer to such other city; or (iv) The Company otherwise fails to comply in any material respect with the terms of this Agreement. (c) Death or Disability. If Executive's employment terminates as a result of (l) his death or (2) a Disability, the Company will have the right to treat Executive as if his employment had been terminated for Good Cause by the Company under Paragraph 6(a)(1) of this Agreement. (d) Change in Control. Executive and the Company will execute the change in control agreement that is attached to this Agreement as Exhibit C and, if the Company in the future revises the form of such change in control agreement for other members of the Hercules Management Committee, Executive shall have the same opportunity as the other members of such Committee to execute such revised agreement. If a "Change in Control" (as that term is 19 defined in the change in control agreement in Exhibit C) occurs and the change in control agreement in Exhibit C remains in effect for Executive, (i) Executive's position and duties shall continue to be governed by Paragraph 3, (ii) Executive's right to receive his Base Salary under Paragraph 4 and his various rights and benefits under Paragraph 5 shall be determined exclusively under the terms of such change in control agreement or under this Agreement, as elected by the Executive in writing delivered to the Company's Vice President, Human Resources, on or after such a change in control and (iii) any violation by the Company or its successors in the change in control transaction of any provision of this Agreement that continues to be applicable pursuant to this Paragraph 6(d) shall be treated as a breach of such change in control agreement by the Company and such successor. 7. CONFIDENTIALITY. Executive acknowledges that during the course of his employment with the Company he has received or will receive and has had or will have access to Confidential Information and Trade Secrets of the Company, including but not limited to confidential and secret business and marketing plans, strategies, and studies, detailed customer and/or client lists and information relating to the operations and business requirements of those customers and/or clients, and accordingly, he is willing to enter into the covenants contained in this Agreement in order to provide the Company with what he considers to be reasonable protection for its interests. (a) Trade Secrets. Executive agrees and covenants that, both during the term of this Agreement and after the termination of this Agreement, Executive will hold in a fiduciary capacity for the benefit of the Company, and will not directly or indirectly use or disclose, except as authorized by the Company in connection with the performance of Executive's duties, any Trade secret, as defined 20 hereinafter, that Executive may have or acquire during the term of this Agreement for so long as the such information remains a Trade Secret. (1) The term "Trade Secret" as used in this Agreement will mean information including, but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, product, system or process, design, prototype, procedure, code or financial data, or a list of actual or potential customers or suppliers, including without limitation, information received by the Company or Executive from any client or potential client of the Company, that: (A) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by the public or any other person who can obtain economic value from its disclosure or use; and (B) is the subject of reasonable efforts by the Company or the client from which the information was received to maintain its secrecy or confidentiality. These rights of the Company are in addition to those rights the Company has under the common law or applicable statute for protection of trade secrets. (b) Confidential Information. In addition to the foregoing and not in limitation thereof, Executive agrees that, during the Term of this Agreement and for a term of three (3) years after termination of his employment, Executive will hold in a fiduciary capacity for the benefit of the Company and will not directly or indirectly use or disclose, except 21 as authorized by the Company in connection with the performance of Executive's duties, any confidential or proprietary information; as defined hereinafter, that Executive may have or acquire (whether or not developed or compiled by Executive and whether or not Executive has been authorized to have access to such confidential or proprietary information) during the term of this Agreement. The term "Confidential Information" as used in this Agreement means any secret, confidential or proprietary information of the Company, including information received by the Company or Executive from any customer or client or potential customer or client of the Company, not otherwise included in the definition of "Trade Secret" in Paragraph 7(a)(l). The term "Confidential Information" does not include information that has become generally available to the public other than by Executive in violation of this Agreement or his violating any right of the customer or client to which such information pertains. 8. NON-COMPETITION. The Company and Executive agree that the Company's customer and/or client contacts and relations are established and maintained at great expense and that Executive will, by virtue of his employment with the Company, have unique and extensive exposure to and personal contact with the Company's customers and/or clients and that he will be able to establish a unique relationship with those customers and/or clients. Moreover, the Company and Executive agree that during the course of his employment with the Company he has received or will receive and has had or will have access to Confidential Information and Trade Secrets of the Company, which Executive agrees would be inevitably used or disclosed if Executive leaves the Company for employment with a competitor of the Company. Accordingly, in order to protect the Company from unfair competition, Executive covenants and agrees that he 22 will not, while employed by the Company (including employment continuing beyond the expiration of the Term) and continuing thereafter for the longer of (a) any period during which Executive receives any payments under Paragraph 6(a)(2) of this Agreement or (b) one year from the date of termination of Executive's employment, collectively the "Non-competition Period," directly or indirectly, (whether as owner, partner, stockholder, investor, officer, director, agent, independent contractor, associate, employee, consultant or licensor (other than of the Company) carry on, or be engaged, concerned or take part in the executive management of any corporation, partnership, venture or other business entity which competes with the Company in the manufacture and sale of (a) chemical additives for the pulp and paper industry, b) rosin, hydrocarbon or terpene resins, (c) water soluble polymers, (d) food gums, (e) polypropylene fibers for the nonwoven or fabricated textile industry, or (f) water treatment chemicals ("Company Business") anywhere in the United States, Europe, Latin America, South America, or Asia ("Territory"), which is the geographic area in which the Company engages in this business and, as such, where Executive will be performing his responsibilities under this Agreement. Executive further covenants that during the Non-competition Period he will not own or share in the earnings of or invest in the capital stock of any corporation, partnership, venture or other business entity which competes with the Company in the Territory in the Company Business ("Competitor"). Provided, however, that Executive may passively invest in stocks, bonds or other securities of any Competitor if: (a) such stock, bonds or other securities are listed on a national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, and (b) Executive's investment in any class of securities does not exceed 5% of the aggregate amount of such class outstanding, as the case may be. 23 9. NON-SOLICITATION OF EMPLOYEES. Executive agrees and covenants that during the Non-competition Period he will not, for any reason, either individually, or as an owner, partner, employee, agent, consultant, advisor, contractor, salesman, stockholder, investor, officer, director, or other member of any corporation, partnership, venture or other business entity, solicit any employee of the Company with whom Executive had material Contact during Executive's employment with the Company to leave his or her employment with the Company. 10. NON-SOLICITATION OF CUSTOMERS AND/OR CLIENTS. Executive agrees and covenants that during the Non-competition Period he will not, for any reason, either individually, or as an owner, partner, employee, agent, consultant, advisor, contractor, salesman, stockholder, investor, officer, director, or other member of any corporation, partnership, venture, or other business entity, solicit any customer and/or client, or any actively sought prospective customer and/or client, of the Company with whom Executive had material business contact during Executive's employment with the Company for the purpose of competing with the Company in the Company Business. 11. REASONABLENESS. Executive acknowledges and agrees that the restrictions, prohibitions and covenants in Paragraphs 7, 8, 9 and 10 are reasonable, fair and equitable in scope, terms and duration, are necessary to protect the legitimate business interests of the Company. 12. REFORMATION. If any of the covenants in Paragraphs 7, 8, 9 and 10 of this Agreement are determined by any court of law or equity, with jurisdiction over this matter, to be unreasonable or unenforceable, in whole or in part, as written, Executive hereby consents to and affirmatively requests that said court reform the covenant or promise so as to be reasonable and enforceable and that said court enforce the covenant or promise as reformed. 24 13. LEGAL AND EQUITABLE REMEDIES. Executive agrees that for any breach or threatened breach of any of Paragraphs 7 through 10 of this Agreement, a restraining order and/or an injunction may issue against Executive or the Company to prevent or restrain any such breach, in addition to any other rights the Company may have. 14. RIGHTS TO MATERIALS. All records, files, memoranda, reports, price lists, customer lists, drawings, plans, sketches, documents, and the like (together with all copies thereof) relating to the Company Business, which Executive shall use or prepare or come in contact with in the course of, or as a result of, his employment shall, as between the parties hereto, remain the sole property of the Company. Upon the termination of his employment or upon the prior demand of the Company, he shall immediately return all such materials and thereafter shall not remove or cause to be removed such materials from the premises of the Company. 15. MISCELLANEOUS. (a) Assignment. This Agreement is for the personal services of Executive, and the rights and obligations of Executive under this Agreement are not assignable or delegable in whole or in part by Executive without the prior written consent of the Company. This Agreement is assignable in whole or in part to any parent, subsidiaries, or affiliates of the Company, but only if (i) such person or entity is financially capable of fulfilling the obligations of the Company and (ii) all the other members of the Hercules Management Committee are also assigned to work for such person or entity. b) Governing Law. This Agreement will be governed by and construed under the laws of the State of Delaware (without reference to the choice of law principles thereof). Executive consents to jurisdiction and venue in the state and federal courts of the State of 25 Delaware for any action arising from a dispute under this Agreement, and for any such action brought in such a court, expressly waives any defense he might otherwise have based on lack of personal jurisdiction or improper venue, or that the action has been brought in an inconvenient forum. (c) Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. (d) Headings, References. The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to Paragraphs will, unless otherwise provided, refer to Paragraphs hereof. (e) Attorneys Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, each party will bear his or its own attorneys' fees. (f) Amendments and Waivers. Except as otherwise specified herein, this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Executive. (g) Severability. Any provision of this Agreement held to be unenforceable under applicable law will be enforced to the maximum extent possible, and the balance of this Agreement will remain in full force and effect. 26 (h) No Third-Party Beneficiaries. Nothing herein, expressed or implied, is intended or will be construed to confer upon or give to any person, firm, corporation or legal entity, other than the parties hereto and the parent of the Company and its subsidiaries or affiliates any rights, remedies or other benefits under or by reason of this Agreement. (i) Entire Agreement. This Agreement constitutes the entire understanding and agreement of the parties with respect to the transactions contemplated herein, and supersedes all prior understandings and agreements between the parties hereto with respect to such transactions. (j) Notices. Any notice required hereunder to be given by either party will be in writing and will be deemed effectively given upon personal delivery to the party to be notified or five (5) days after deposit with the United States Post office by registered or certified mail, postage prepaid, to the other party at the address set forth below or to such other address as either party may from time to time designate by ten (10) days advance written notice pursuant to this Paragraph 15(j) All such written communication will be directed as follows: If to the Company; Hercules Incorporated c/o Vice President, Human Resources Hercules Plaza 1313 North Market Street Wilmington, DE 19894-0001 If to Executive: William R. Cook 937 Macclesfield Road Furlong, PA 18925 27 (k) Binding Effect This Agreement shall be for the benefit of, and shall be binding upon, the Company and Executive and their respective heirs, personal representatives, legal representatives, successors and assigns, subject, however, to the provisions in Paragraph 15(a). IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. HERCULES INCORPORATED BY: /S/ R. KEITH ELLIOTT -------------------- R. KEITH ELLIOTT CHIEF EXECUTIVE OFFICER EXECUTIVE /S/ WILLIAM R. COOK --------------------- WILLIAM R. COOK EX-23.A 10 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23-A. CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Hercules Incorporated on Form S-8 [Registration No. 33-37279 (which includes Registration No. 33-21668), No. 33-14912, No. 33-15052, No. 33-21667, No. 33-47664, No. 33-51178, No. 33-52621, No. 33-66136, No. 33-62314, No. 33-65352, No. 333-38795, and No. 333-38797] and on Form S-3 (Registration No.333-63423) of our report, which includes an explanatory paragraph regarding a change, in 1997, in the company's method of accounting for costs incurred in connection with an enterprise software installation, dated February 19, 1999, on our audits of the consolidated financial statements and financial statement schedule of Hercules Incorporated and subsidiary companies as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998, which report is included in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP Philadelphia, Pennsylvania March 30, 1999 EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HERCULES INCORPORATED'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 DEC-31-1998 68,000 0 676,000 13,000 416,000 1,240,000 3,037,000 1,599,000 5,833,000 1,317,000 0 0 0 81,000 478,000 5,833,000 2,145,000 2,145,000 1,287,000 1,953,000 0 0 103,000 77,000 68,000 9,000 0 0 0 9,000 .10 .10
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