Document:

exv10w1

Exhibit 10.1

NORTHROP GRUMMAN CORPORATION

JANUARY 2010 SPECIAL AGREEMENT

          THIS AGREEMENT is made and entered into by and between Northrop Grumman Corporation, a
Delaware corporation (hereinafter referred to as the “Company”) and                                         
(hereinafter referred to as the “Executive”).

RECITALS

          The Board of Directors of the Company has approved the Company entering into a severance
agreement with the Executive.

          The Executive is a key executive of the Company.

          Should the possibility of a Change in Control of the Company arise, the Board believes it
imperative that the Company and the Board should be able to rely upon the Executive to continue in
his or her position, and that the Company should be able to receive and rely upon the Executive’s
advice, if requested, as to the best interests of the Company and its stockholders without concern
that the Executive might be distracted by the personal uncertainties and risks created by the
possibility of a Change in Control.

          Should the possibility of a Change in Control arise, in addition to his or her regular duties,
the Executive may be called upon to assist in the assessment of such possible Change in Control,
advise management and the Board as to whether such Change in Control would be in the best interests
of the Company and its stockholders, and to take such other actions as the Board might determine to
be appropriate.

          NOW THEREFORE, to assure the Company that it will have the continued dedication of the
Executive and the availability of his or her advice and counsel notwithstanding the possibility,
threat, or occurrence of a Change in Control of the Company, and to induce the Executive to remain
in the employ of the Company in the face of these circumstances and for other good and valuable
consideration, the Company and the Executive agree as follows:

Article 1.     Term

          This Agreement shall be effective as of January 1, 2010 (the “Effective Date”). This Agreement
will continue in effect through December 31, 2010. However, at the end of such initial term and, if
extended, at the end of each additional year thereafter, the term of this Agreement shall be
extended automatically for one (1) additional year, unless the Committee delivers written notice at
least six (6) months prior to the end of such term, or extended term, to the Executive that this
Agreement will not be extended (a “Non-Renewal Notice”), and if such notice is timely given this
Agreement will terminate at the end of the term then in progress; provided, however, that (i) this
provision for automatic extension shall have no application following a Change in Control of the
Company and (ii) a Non-Renewal Notice shall not be effective if delivered during the Protected
Period corresponding to a Change in Control of the

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Company. Delivery of a Non-Renewal Notice shall not constitute a repudiation or breach of this
Agreement and shall not trigger the Executive’s right to benefits hereunder.

           However, in the event a Change in Control occurs during the initial or any extended term,
this Agreement will remain in effect for the longer of: (i) twenty-four (24) months beyond the
month in which such Change in Control occurred; or (ii) until all obligations of the Company
hereunder have been fulfilled, and until all benefits required hereunder have been paid to the
Executive. Any subsequent Change in Control (“Subsequent Change in Control”) that occurs during the
original or any extended term shall also continue the term of this Agreement until the later of:
(i) twenty-four (24) months beyond the month in which such Subsequent Change in Control occurred;
or (ii) until all obligations of the Company hereunder have been fulfilled, and until all benefits
required hereunder have been paid to the Executive; provided, however, that if a Subsequent Change
in Control occurs, it shall only be considered a Change in Control under this Agreement if it
occurs no later than twenty-four (24) months after the immediately preceding Change in Control or
Subsequent Change in Control.

          This Agreement supersedes any prior Special Agreement between the Company and the Executive in
its entirety.

Article 2.     ERISA

          This Agreement is intended as part of a severance program of the Company that constitutes (i)
a pension plan within the meaning of Section 3(2) of ERISA, and (ii) an unfunded pension plan
maintained by the Company for a select group of management or highly compensated employees within
the meaning of Department of Labor Regulation 2520.104-23 promulgated under ERISA, and Sections
201, 301, and 401 of ERISA.

Article 3.     Definitions

          Whenever used in this Agreement, the following terms shall have the meanings set forth below
and, when the meaning is intended, the initial letter of the word is capitalized:

	 	(a)	 	“Agreement” means this January 2010 Special Agreement.
	 
	 	(b)	 	“Base Salary” means the salary of record paid to the Executive by the Company
as annual salary (whether or not deferred), but excludes amounts received under
incentive or other bonus plans.
	 
	 	(c)	 	“Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3
of the General Rules and Regulations under the Exchange Act.
	 
	 	(d)	 	“Beneficiary” in the event of the Executive’s death means the Executive’s
devisee, legatee, or other designee, or if there is no such designee, the Executive’s
estate.
	 
	 	(e)	 	“Board” means the Board of Directors of the Company.
	 
	 	(f)	 	“Cause” shall mean the occurrence of either or both of the following:

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	 	(i)	 	The Executive’s conviction for committing an act of fraud,
embezzlement, theft, or other act constituting a felony (other than traffic
related offenses or as a result of vicarious liability); or
	 
	 	(ii)	 	The willful engaging by the Executive in misconduct that is
significantly injurious to the Company. However, no act, or failure to act, on
the Executive’s part shall be considered “willful” unless done, or omitted to
be done, by the Executive not in good faith and without reasonable belief that
his or her action or omission was in the best interest of the Company.

	 	(g)	 	“Change in Control” of the Company shall be deemed to have occurred as of the
first day that any one or more of the following conditions shall have been satisfied:

	 	(i)	 	Any Person (other than those Persons in control of the Company
as of the Effective Date, or other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any affiliate of
the Company or a successor) becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing twenty-five percent (25%)
or more of either (1) the then-outstanding shares of common stock of the
Company (the “Outstanding Company Common Stock”) or (2) the combined voting
power of the then-outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Outstanding Company Voting
Securities”); provided, however, that for purposes of this clause (i): (A)
“Person” or “group” shall not include underwriters acquiring newly-issued
voting securities (or securities convertible into voting securities) directly
from the Company with a view towards distribution, (B) creditors of the Company
who become stockholders of the Company in connection with any bankruptcy of the
Company under the laws of the United States shall not, by virtue of such
bankruptcy, be deemed a “group” or a single Person for the purposes of this
clause (i) (provided that any one of such creditors may trigger a Change in
Control pursuant to this clause (i) if such creditor’s ownership of Company
securities equals or exceeds the foregoing threshold), and (C) an acquisition
shall not constitute a Change in Control if made by an entity pursuant to a
transaction that is covered by and does not otherwise constitute a Change in
Control under clause (iii) below;
	 
	 	(ii)	 	On any day after the Effective Date (the “Measurement Date”)
Continuing Directors cease for any reason to constitute either: (1) if the
Company does not have a Parent, a majority of the Board; or (2) if the Company
has a Parent, a majority of the Board of Directors of the Controlling Parent. A
director is a “Continuing Director” if he or she either:

	 	(1)	 	was a member of the Board on the applicable
Initial Date (an “Initial Director”); or

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	 	(2)	 	was elected to the Board (or the Board of
Directors of the Controlling Parent, as applicable), or was nominated
for election by the Company’s or the Controlling Parent’s stockholders,
by a vote of at least two-thirds (2/3) of the Initial Directors then in
office.

	 	 	 	A member of the Board (or Board of Directors of the Controlling Parent, as
applicable) who was not a director on the applicable Initial Date shall be
deemed to be an Initial Director for purposes of clause (2) above if his or
her election, or nomination for election by the Company’s or the Controlling
Parent’s stockholders, was approved by a vote of at least two-thirds (2/3)
of the Initial Directors (including directors elected after the applicable
Initial Date who are deemed to be Initial Directors by application of this
provision) then in office.
	 
	 	 	 	“Initial Date” means the later of (1) the Effective Date or (2) the date
that is two (2) years before the Measurement Date.
	 
	 	(iii)	 	 Consummation of a reorganization, merger, statutory share
exchange or consolidation or similar corporate transaction involving the
Company or any of its subsidiaries, a sale or other disposition of all or
substantially all of the assets of the Company, or the acquisition of assets or
stock of another entity by the Company or any of its subsidiaries (each, a
“Business Combination”), in each case unless, following such Business
Combination, (1) all or substantially all of the individuals and entities that
were the Beneficial Owners of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such Business
Combination Beneficially Own, directly or indirectly, more than sixty percent
(60%) of the then-outstanding shares of common stock and the combined voting
power of the then-outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the entity resulting from
such Business Combination (including, without limitation, an entity that, as a
result of such transaction, is a Parent of the Company or the successor of the
Company) in substantially the same proportions as their ownership immediately
prior to such Business Combination of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities, as the case may be, (2) no Person
(excluding any entity resulting from such Business Combination or a Parent of
the Company or any successor of the Company or any employee benefit plan (or
related trust) of the Company or such entity resulting from such Business
Combination or a Parent of the Company or the successor entity) Beneficially
Owns, directly or indirectly, twenty-five percent (25%) or more of,
respectively, the then-outstanding shares of common stock of the entity
resulting from such Business Combination or the combined voting power of the
then-outstanding voting securities of such entity, except to the extent that
the ownership in excess of twenty-five percent (25%) existed prior to the
Business Combination, and (3) a

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	 	 	 	Change in Control is not triggered pursuant to clause (ii) above with
respect to the Company (including any successor entity) or any Parent of the
Company (or the successor entity).
	 
	 	(iv)	 	 A complete liquidation or dissolution of the Company other
than in the context of a transaction that does not constitute a Change in
Control of the Company under clause (iii) above.

	 	 	 	Notwithstanding the foregoing, in no event shall a transaction or other event that
occurred prior to the Effective Date constitute a Change in Control. Notwithstanding
anything in clause (iii) above to the contrary, a change in ownership of the Company
resulting from creditors of the Company becoming stockholders of the Company in
connection with any bankruptcy of the Company under the laws of the United States
shall not trigger a Change in Control pursuant to clause (iii) above.
	 
	 	(h)	 	“Code” means the United States Internal Revenue Code of 1986, as amended.
	 
	 	(i)	 	“Committee” means the Compensation Committee of the Board, or any other
committee appointed by the Board to perform the functions of the Compensation
Committee.
	 
	 	(j)	 	“Company” means Northrop Grumman Corporation, a Delaware corporation
(including, for purposes of determining whether the Executive is employed by the
Company, any and all subsidiaries specified by the Committee), or any successor thereto
as provided in Article 10. Notwithstanding any other provision of this Agreement to the
contrary, the term “Company” shall mean, for the following purposes, the Company and
any entity with respect to which the Company, directly or indirectly, has majority
voting control (the “NGC Group”): (i) for purposes of determining an Executive’s total
Base Salary, bonus and other compensation; (ii) the Executive shall not have a
termination of employment, including a Qualifying Termination, unless he or she is no
longer employed by any member of the NGC Group (any transfer of an Executive from one
member of the NGC Group to another member of the NGC Group shall not cause the
Executive to cease being covered by this Agreement); and (iii) with respect to any
reference to a benefit or compensation plan or program maintained by the Company.
	 
	 	(k)	 	 “Controlling Parent” means the Company’s Parent so long as a majority of the
voting stock or voting power of that Parent is not Beneficially Owned, directly or
indirectly through one or more subsidiaries, by any other Person. In the event that the
Company has more than one “Parent,” then “Controlling Parent” shall mean the Parent of
the Company the majority of the voting stock or voting power of which is not
Beneficially Owned, directly or indirectly through one or more subsidiaries, by any
other Person.

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	 	(l)	 	“Disability” means disability as defined in the Company’s long-term disability
plan in which the Executive participates at the relevant time or, if the Executive does
not participate in a Company long-term disability plan at the relevant time, as such
term is defined in the Company’s principal long-term disability plan that generally
covers the Company’s senior-level executives at that time.
	 
	 	(m)	 	“Effective Date” means January 1, 2010.
	 
	 	(n)	 	“Effective Date of Termination” means the date on which a Qualifying
Termination occurs.
	 
	 	(o)	 	“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
	 
	 	(p)	 	“Exchange Act” means the United States Securities Exchange Act of 1934, as
amended.
	 
	 	(q)	 	“Executive” means the individual identified in the first sentence, and on the
signature page, of this Agreement.
	 
	 	(r)	 	“Good Reason” means, without the Executive’s express written consent, the
occurrence of any one or more of the following:

	 	(i)	 	A material reduction in the nature or status of the Executive’s
authorities, duties, and/or responsibilities (when such authorities, duties,
and/or responsibilities are viewed in the aggregate) from their level in effect
on the day immediately prior to the start of the Protected Period, other than
an insubstantial and inadvertent act that is remedied by the Company promptly
after receipt of notice thereof given by the Executive; provided that if the
Executive is a vice president, for purposes of the preceding phrase the
Executive’s loss of vice president status (other than a promotion to a higher
level officer) will constitute Good Reason. In addition, Good Reason will be
deemed to exist if the Executive’s reporting relationship is diminished from
the Executive’s reporting relationship in effect on the day immediately prior
to the start of the Protected Period (for example, if the Executive reports
directly to the Company’s Chief Executive Officer on the day immediately prior
to the start of the Protected Period, Good Reason will be deemed to exist if
the Executive’s reporting relationship is changed such that the Executive no
longer reports directly to the Chief Executive Officer of the Company or any
Parent or directly to the Board of Directors of the Company or any Parent).
	 
	 	(ii)	 	A reduction by the Company in the Executive’s Base Salary as in
effect on the Effective Date or as the same shall be increased from time to
time.
	 
	 	(iii)	 	 A significant reduction by the Company of the Executive’s
aggregate incentive opportunities under the Company’s short and/or long-term
incentive programs, as such opportunities exist on the Effective Date, or as

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	 	 	 	such opportunities may be increased after the Effective Date. For this
purpose, a significant reduction in the Executive’s incentive opportunities
shall be deemed to have occurred in the event his or her targeted annualized
award opportunities and/or the degree of probability of attainment of such
annualized award opportunities are diminished by the Company from the levels
and probability of attainment that existed as of the Effective Date.
	 
	 	(iv)	 	The failure of the Company to maintain (x) the Executive’s
relative level of coverage and accruals under the Company’s employee benefit
and/or retirement plans, policies, practices, or arrangements in which the
Executive participates as of the Effective Date, both in terms of the amount of
benefits provided, and amounts accrued and (y) the relative level of the
Executive’s participation in such plans, policies, practices, or arrangements
on a basis at least as beneficial as, or substantially equivalent to, that on
which the Executive participated in such plans immediately prior to the
Effective Date. For this purpose, the Company may eliminate and/or modify
existing programs and coverage levels; provided, however, that the Executive’s
level of coverage under all such programs must be at least as great as is
provided to executives who have the same or lesser levels of reporting
responsibilities within the Company’s organization.
	 
	 	(v)	 	The failure of the Company to obtain a satisfactory agreement
from any successor to the Company to assume and agree to perform this
Agreement, as required by Article 10.
	 
	 	(vi)	 	Any purported termination by the Company of the Executive’s
employment that is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 4.8 and for purposes of this Agreement, no such
purported termination shall be effective.
	 
	 	(vii)	 	The Executive is informed by the Company that his or her
principal place of employment for the Company will be relocated to a location
that is greater than fifty (50) miles away from the Executive’s principal place
of employment for the Company at the start of the corresponding Protected
Period; provided that, if the Company communicates an intended effective date
for such relocation, in no event shall Good Reason exist pursuant to this
clause (vii) more than ninety (90) days before such intended effective date.
	 
	 	(viii)	 	The Company or any successor company repudiates or breaches any of the
provisions of this Agreement.

The Executive’s right to terminate employment for Good Reason shall not be affected
by the Executive’s incapacity due to physical or mental illness. The

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	 	 	 	Executive’s continued employment shall not constitute a consent to, or a waiver of
rights with respect to, any circumstances constituting Good Reason herein.
	 
	 	(s)	 	“Key Employee” means an employee treated as a “specified employee” as of his or
her Separation from Service under Code section 409A(a)(2)(B)(i) of the Company or its
affiliates (i.e., a key employee (as defined in Code section 416(i) without regard to
paragraph (5) thereof)) if the Company’s stock is publicly traded on an established
securities market or otherwise. The Company shall determine in accordance with a
uniform Company policy which individuals are Key Employees as of each December 31 in
accordance with IRS regulations or other guidance under Code section 409A, provided
that in determining the compensation of individuals for this purpose, the definition of
compensation in Treas. Reg. § 1.415(c)-2(d)(3) shall be used. Such determination shall
be effective for the twelve (12) month period commencing on April 1 of the following
year.
	 
	 	(t)	 	“Parent” means an entity that Beneficially Owns a majority of the voting stock
or voting power of the Company, or all or substantially all of the Company’s assets,
directly or indirectly through one or more subsidiaries.
	 
	 	(u)	 	 “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of
the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as
defined in Section 13(d) thereof.
	 
	 	(v)	 	“Qualifying Termination” has the meaning given to such term in Section 4.3(a).
	 
	 	(w)	 	“Separation from Service” or “Separate from Service” means a “separation from
service” within the meaning of Section 409A of the Code.
	 
	 	(x)	 	“Severance Benefits” means the payments and/or benefits provided in Section
4.4.

Article 4.     Severance Benefits

          4.1.     Right to Severance Benefits. The Executive shall be entitled to receive from the Company
Severance Benefits, as described in Section 4.4, if the Executive has incurred a Qualifying
Termination.

          The Executive shall not be entitled to receive Severance Benefits if his or her employment
terminates (regardless of the reason) before the Protected Period (as such term is defined in
Section 4.3(b)) corresponding to a Change in Control of the Company or more than twenty-four
(24) months after the date of a Change in Control of the Company.

          4.2.     Services During Certain Events. In the event a Person begins a tender or exchange offer,
circulates a proxy to stockholders of the Company, or takes other steps seeking to effect a Change
in Control, the Executive agrees that he or she will not voluntarily leave the employ of the
Company and will continue to render services until the later of (i) the date such Person has
abandoned or terminated his or her or its efforts to effect a Change in Control, and (ii) the date
that is six (6) months after a Change in Control has occurred. Notwithstanding the foregoing, the
Company may terminate the Executive’s employment for Cause at any time, and

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the Executive may terminate his or her employment at any time after the Change in Control for
Good Reason.

	 	4.3.	 	Qualifying Termination.
	 
	 	(a)	 	Subject to Sections 4.3(c), 4.3(d), 4.5, 4.6 and 4.7, the occurrence of any one
or more of the following events within the Protected Period corresponding to a Change
in Control of the Company, or within twenty-four (24) calendar months following the
date of a Change in Control of the Company shall constitute a “Qualifying Termination”:

	 	(i)	 	An involuntary termination of the Executive’s employment by the
Company for reasons other than Cause; or
	 
	 	(ii)	 	A voluntary termination of employment by the Executive for Good
Reason.

	 	(b)	 	The “Protected Period” corresponding to a Change in Control of the Company
shall be a period of time determined in accordance with the following:

	 	(i)	 	If the Change in Control is triggered by a tender offer for
shares of the Company’s stock or by the offeror’s acquisition of shares
pursuant to such a tender offer, the Protected Period shall commence on the
date of the initial tender offer and shall continue through and including the
date of the Change in Control; provided that in no case will the Protected
Period commence earlier than the date that is six (6) months prior to the
Change in Control.
	 
	 	(ii)	 	If the Change in Control is triggered by a merger,
consolidation, or reorganization of the Company with or involving any other
corporation, the Protected Period shall commence on the date that serious and
substantial discussions first take place to effect the merger, consolidation,
or reorganization and shall continue through and including the date of the
Change in Control; provided that in no case will the Protected Period commence
earlier than the date that is six (6) months prior to the Change in Control.
	 
	 	(iii)	 	In the case of any Change in Control not described in clause
(i) or (ii) above, the Protected Period shall commence on the date that is six
(6) months prior to the Change in Control and shall continue through and
including the date of the Change in Control.

	 	(c)	 	Notwithstanding anything else contained herein to the contrary, the Executive’s
termination of employment on account of reaching mandatory retirement age, as such age
may be defined from time to time in policies adopted by the Company prior to the
commencement of the Protected Period, and consistent with applicable law, shall not be
a Qualifying Termination.

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	 	(d)	 	Notwithstanding anything else contained herein to the contrary, the termination
of the Executive’s employment (or other events giving rise to Good Reason) shall not
constitute a Qualifying Termination if there is objective evidence that, as of the
commencement of the Protected Period, the Executive had specifically been identified by
the Company as an employee whose employment would be terminated as part of a corporate
restructuring or downsizing program that commenced prior to the Protected Period and
such termination of employment was expected at that time to occur within six (6)
months.
	 
	 	(e)	 	          Notwithstanding anything else contained herein to the contrary (other than
those provisions that contain an express exception to this Section 4.3(e)), the
Executive’s Severance Benefits under this Agreement shall be reduced by the severance
benefits (including, without limitation, any other change in control severance benefits
and any other severance benefits generally) that the Executive may be entitled to under
any other plan, program, agreement or other arrangement with the Company (including,
without limitation, any such benefits provided for by an employment agreement, a prior
Northrop Grumman Corporation Special Agreement, or under the current or any prior
Northrop Grumman Corporation Change In Control Severance Plan or Severance Plan for
Elected and Appointed Officers of Northrop Grumman Corporation); provided that if the
Executive is otherwise entitled to receive Severance Benefits under this Agreement and
severance benefits under the Northrop Grumman Corporation Change In Control Severance
Plan (version January 2010 or later) and/or the Severance Plan for Elected and
Appointed Officers of Northrop Grumman Corporation (version October 2009 or later),
benefits shall be paid under this Agreement rather than under such plans. For purposes
of the foregoing, any cash severance benefits payable to the Executive under any other
plan, program, agreement or other arrangement with the Company shall offset the cash
severance benefits otherwise payable to the Executive under this Agreement on a
dollar-for-dollar basis. For purposes of the foregoing, non-cash severance benefits to
be provided to the Executive under any other plan, program, agreement or other
arrangement with the Company shall offset any corresponding benefits otherwise to be
provided to the Executive under this Agreement or, if there are no corresponding
benefits otherwise to be provided to the Executive under this Agreement, the value of
such benefits shall offset the cash severance benefits otherwise payable to the
Executive under this Agreement on a dollar-for-dollar basis. If the amount of other
benefits to be offset against the cash severance benefits otherwise payable to the
Executive under this Agreement in accordance with the preceding two sentences exceeds
the amount of cash severance benefits otherwise payable to the Executive under this
Agreement, then the excess may be used to offset other non-cash severance benefits
otherwise to be provided to the Executive under this Agreement on a dollar-for-dollar
basis. For purposes of this paragraph, the Company shall reasonably determine the value
of any non-cash benefits.

           4.4.    Description of Severance Benefits. In the event that the Executive becomes entitled to
receive Severance Benefits, as provided in Sections 4.1 and 4.3, the Company shall pay to the
Executive and provide him or her with the following:

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	 	(a)	 	An amount equal to three (3) times the highest rate of the Executive’s
annualized Base Salary in effect at any time during the two (2) year period ending on
the Effective Date of Termination.
	 
	 	(b)	 	An amount equal to three (3) times the Executive’s target annual bonus
established under the Company’s Annual Incentive Plan (or any successor bonus program)
for the fiscal year in which the Change in Control of the Company occurs (the “Bonus
Amount”). Special bonuses or bonus enhancements that would otherwise be included for
purposes of the calculation pursuant to the first sentence of this Section 4.4(b), but
that are related to a merger, acquisition, consolidation, reorganization, spin-off or
similar event and that are not part of the Company’s customary on-going program of
Annual Incentive Plan (or any successor bonus program) bonuses shall be excluded for
purposes of such calculation.
	 
	 	(c)	 	An amount in settlement of the Executive’s bonus opportunity under the
Company’s Annual Incentive Plan (or a successor bonus program) for the fiscal year in
which the Effective Date of Termination occurs, such amount determined as follows:

	 	(i)	 	Subject to clause (iii) below, if the Effective Date of
Termination occurs in the fiscal year in which the Change in Control of the
Company occurs, then such amount shall equal the sum of:

	 	(A)	 	the greater of (X) or (Y) multiplied by a
fraction, the numerator of which is the number of days completed in the
fiscal year through the date of the Change in Control of the Company
and the denominator of which is three hundred sixty-five (365), where
(X) is the Executive’s target annual bonus established under the
Company’s Annual Incentive Plan (or any successor bonus program) for
that fiscal year and (Y) is the amount of bonus that the Executive
would be entitled to under the Company’s Annual Incentive Plan (or any
successor bonus program) for that fiscal year assuming that the
Executive’s employment had not terminated and based on performance
through the date of the Change in Control of the Company relative to
the pre-approved performance goals for that year; plus
	 
	 	(B)	 	the Executive’s Bonus Amount multiplied by a
fraction, the numerator of which is the number of days completed in the
fiscal year following the date of the Change in Control of the Company
through the Effective Date of Termination and the denominator of which
is three hundred sixty-five (365).

	 	(ii)	 	Subject to clause (iii) below, if the Effective Date of
Termination occurs in a fiscal year following the fiscal year in which the
Change in Control of the Company occurs, then such amount shall equal the
Executive’s Bonus

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	 	 	 	Amount multiplied by a fraction, the numerator of which is the number of
days completed in the fiscal year in which the Effective Date of Termination
occurs through the Effective Date of Termination and the denominator of
which is three hundred sixty-five (365).
	 
	 	(iii)	 	If the Executive’s bonus opportunity for the fiscal year in
which the Effective Date of Termination occurs is covered by the Company’s
Incentive Compensation Plan (or similar successor bonus program designed to
comply with the performance-based compensation exception under Section 162(m)
of the Code), then the Executive’s amount determined pursuant to clause (i) or
(ii) above, as applicable, shall not exceed the maximum bonus the Executive
would have been entitled to receive under the Company’s Incentive Compensation
Plan for that fiscal year, assuming the Executive had been employed through the
date bonuses are paid under such plan for that year, and otherwise calculated
under the terms of such plan based on actual performance for that fiscal year
(but without giving effect to any discretion of the plan administrator to
reduce the bonus amount from the maximum otherwise determined in accordance
with such plan).

	 	(d)	 	A continuation of the Executive’s medical coverage, dental coverage, and group
term life insurance (the “Welfare Benefits”) for the Executive, his or her spouse, and
his or her eligible dependents for the three (3) years following the Executive’s
Effective Date of Termination; provided that such continuation of coverage shall run
concurrently with COBRA continuation or similar state law continuation periods; and
provided further that the continuation of such coverage shall be discontinued prior to
the end of the three (3) year period in the event the Executive has available
substantially similar benefits from a subsequent employer, as reasonably determined by
the Committee. Except as provided in the next sentence, such benefits shall be provided
to the Executive at the same premium cost, and at the same coverage level, as in effect
as of the Executive’s Effective Date of Termination. However, in the event the premium
cost and/or level of coverage shall change for all employees of the Company, the cost
and/or coverage level, likewise, shall change for the Executive in a corresponding
manner. The continuation of coverage for the period contemplated by this Section 4.4(d)
shall be coordinated with and paid secondary to any benefits that the Executive, his or
her spouse, or his or her dependent receives from another employer or from Medicare
(following the Executive’s, his or her spouse’s, and/or his or her dependent’s
entitlement to Medicare benefits) to the maximum extent permissible under relevant law.
Notwithstanding the foregoing provisions of this Section 4.4(d), if the Executive is
eligible to commence benefits under the Company’s Special Officer Retiree Medical Plan
(“SORMP”) as of the Effective Date of Termination, then the Executive shall receive
medical and dental continuation coverage pursuant to the SORMP instead of the
continuation coverage contemplated by the foregoing provisions of this Section 4.4(d).
Any other continuation of medical, dental, or group term life insurance that the
Executive may otherwise be entitled to upon or following his or her Effective

12

 

	 	 	 	Date of Termination in accordance with the express terms of a Company welfare
benefit plan shall not give rise to an offset pursuant to Section 4.3(e) and shall
not be deemed to duplicate the benefits of the continuation coverage contemplated by
this Section 4.4(d).
	 
	 	 	 	The Welfare Benefits provided pursuant to this Section 4.4(d) shall, to the maximum
extent possible, be provided in such a manner that results in such Welfare Benefits
(and any costs and premiums thereof) being excluded from the Executive’s income for
federal and state income tax purposes.
	 
	 	 	 	However, to the extent the Welfare Benefits provided pursuant to this Section 4.4(d)
are, or ever become, taxable to the Executive and to the extent the Welfare Benefits
continue beyond the period in which the Executive would be entitled (or would, but
for this Agreement, be entitled) to COBRA continuation coverage if the Executive
elected such coverage and paid the applicable premiums, the Company shall administer
such provision of Welfare Benefits consistent with the following additional
requirements as set forth in Treas. Reg. § 1.409A-3(i)(1)(iv): (A) the Executive’s
eligibility for Welfare Benefits in one year will not affect the Executive’s
eligibility for Welfare Benefits in any other year, (B) any reimbursement of
eligible expenses will be made on or before the last day of the year following the
year in which the expense was incurred, and (C) the Executive’s right to Welfare
Benefits is not subject to liquidation or exchange for another benefit.

	 	(e)	 	 A lump-sum cash amount equal to (i) minus (ii), with (i) and (ii) determined
as follows:

	 	(i)	 	 equals the actuarial present value equivalent of the aggregate
benefits accrued by the Executive as of his or her Effective Date of
Termination under the qualified defined benefit pension plan or plans in which
the Executive participates (the “qualified plan”), and under any and all
supplemental defined benefit retirement plans in which the Executive
participates, calculated as if the Executive’s employment continued for three
(3) full years following the Executive’s Effective Date of Termination (i.e.,
the Executive receives three (3) additional years of vesting and benefit
accruals, including, if the Executive is a participant in a cash balance plan,
three years of projected post-termination interest credits based on the
interest rate in effect at termination, and his or her age is also increased
three (3) years from his or her age as of his or her Effective Date of
Termination); provided, however, that for purposes of determining “Final
Average Pay” under such plans, the Executive’s actual pay history as of the
Effective Date of Termination shall be used; and
	 
	 	(ii)	 	 equals the actuarial present value equivalent of the aggregate
benefits payable to the Executive as of his or her Effective Date of
Termination under the qualified plan and under any and all supplemental defined
benefit retirement plans in which the Executive participates, calculated

13

 

	 	 	 	assuming that the Executive retired and went into pay status under the terms
of such plans on or as soon as possible after his or her Effective Date of
Termination.

	 	 	 	The intent of this Section 4.4(e) is that the qualified plan and any supplemental
defined benefit retirement plan benefits will be paid in the normal course under the
terms of those plans, with the additional benefits payable as a result of the
imputation of age and service under this provision being paid from this Agreement.
The Executive shall also be entitled to an additional three (3) years of age and
service to count towards eligibility under one or more of the Company retiree
medical programs for which the Executive would have been eligible absent any such
termination.
	 
	 	(f)	 	Reimbursement by the Company for the costs of all reasonable outplacement
services obtained by the Executive within the one (1) year period after the Effective
Date of Termination; provided, however, that the total reimbursement shall be limited
to an amount equal to fifteen percent (15%) of the Executive’s Base Salary as of the
Effective Date of Termination. All such expenses shall be reimbursed as soon as
practicable, but in no event later than the end of the year following the year the
Executive Separates from Service.

          4.5.    Termination for Total and Permanent Disability. Termination of the Executive’s employment
due to Disability is not a Qualifying Termination. However, if immediately prior to the condition
or event leading to, or the commencement of, the Disability of the Executive, the Executive would
have experienced a Qualifying Termination if he or she had terminated at that time, then upon
termination of his or her employment for Disability he or she shall be entitled to the benefits
provided by this Agreement for a Qualifying Termination.

          4.6.    Termination for Retirement or Death. Termination of the Executive’s employment due to
death or retirement is not a Qualifying Termination. However, if immediately prior to the
Executive’s retirement (but not death), the Executive would have experienced a Qualifying
Termination if he or she had terminated at that time, then upon his or her retirement he or she
shall (subject to Section 4.3(c)) be entitled to the benefits provided by this Agreement for a
Qualifying Termination.

          4.7.    Termination for Cause or by the Executive Other Than for Good Reason Termination of the
Executive’s employment by the Company for Cause or by the Executive other than for Good Reason does
not constitute a Qualifying Termination.

          4.8.    Notice of Termination. Any termination by the Company for Cause or by the Executive for
Good Reason shall be communicated by a Notice of Termination. For purposes of this Agreement, a
“Notice of Termination” shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive’s employment under the
provision so indicated.

14

 

Article 5.      Form and Timing of Severance Benefits; Tax Withholding; Funding of Rabbi Trust

          5.1.      Form and Timing of Severance Benefits. The Severance Benefits described in Section
4.4(a), 4.4(b), and 4.4(e) shall be paid in cash to the Executive in a single lump sum as soon as
practicable following the Executive’s Separation from Service, but in no event beyond thirty (30)
days from such date. Notwithstanding the foregoing, if the Executive is a Key Employee, the lump
sum payment shall be made on or within thirty (30) days after the first day of the seventh month
following the Executive’s Separation from Service (or, if earlier, the first day of the month after
the Executive’s death). The Severance Benefit described in Section 4.4(c) shall be paid in a single
lump sum in the year following the year in which the Executive’s Separation from Service occurs;
provided that if the Executive is a Key Employee, such payment shall be made no earlier than six
months after the Executive’s Separation from Service (or, if earlier, the date of the Executive’s
death).

          5.2.      Withholding of Taxes. The Company shall be entitled to withhold from any amounts payable
under or pursuant to this Agreement all taxes as legally shall be required (including, without
limitation, any United States Federal taxes, and any other state, city, or local taxes).

          5.3.      Funding of Rabbi Trust. To the extent the Company is obligated to make a contribution to
any rabbi trust, pursuant to the express terms of such trust, upon or with respect to a Protected
Period or the occurrence of a Change in Control, the Company shall make such required contribution
in accordance with the terms of such trust.

Article 6.     
Excise Tax Limitation

          Notwithstanding anything contained in this Agreement to the contrary, if upon or following a
Change in Control, the tax imposed by Section 4999 of the Code or any similar or successor tax (the
“Excise Tax”) applies, solely because of the Change in Control, to any payments, benefits and/or
amounts received by the Executive as Severance Benefits or otherwise, including, without
limitation, any fees, costs and expenses paid under Article 9 of this Agreement and/or any amounts
received or deemed received, within the meaning of any provision of the Code, by the Executive as a
result of (and not by way of limitation) any automatic vesting, lapse of restrictions and/or
accelerated target or performance achievement provisions, or otherwise, applicable to outstanding
grants or awards to the Executive under any of the Company’s incentive plans, including without
limitation, the 2001 Long-Term Incentive Stock Plan and the 1993 Long Term Incentive Stock Plan
(collectively, the “Total Payments”), then the Total Payments shall be reduced (but not below zero)
so that the maximum amount of the Total Payments (after reduction) shall be one dollar ($1.00) less
than the amount which would cause the Total Payments to be subject to the Excise Tax; provided that
such reduction to the Total Payments shall be made only if the total after-tax benefit to the
Executive is greater after giving effect to such reduction than if no such reduction had been made.
If such a reduction is required, the Company shall reduce or eliminate the Total Payments by first
reducing or eliminating any cash severance benefits, then by reducing or eliminating any
accelerated vesting of stock options, then by reducing or eliminating any accelerated vesting of
other equity awards, then by reducing or eliminating any other remaining Total Payments, in each
case in reverse

15

 

order beginning with the payments which are to be paid the farthest in time from the Change in
Control. The preceding provisions of this Article 6 shall take precedence over the provisions of
any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any
benefits or compensation.

Article 7.     The Company’s Payment Obligation

          7.1.      Payment of Obligations Absolute. Except as provided in Sections 4.3(e) and 5.2 and in
Article 6, the Company’s obligation to make the payments and the arrangements provided for herein
shall be absolute and unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company
may have against the Executive or anyone else. All amounts payable by the Company hereunder shall
be paid without notice or demand. Each and every payment made hereunder by the Company shall be
final, and the Company shall not seek to recover all or any part of such payment from the Executive
or from whomsoever may be entitled thereto, for any reasons whatsoever, except as otherwise
provided in Article 6 or Article 9; provided that this Section does not preclude the Company from
pursuing causes of action that it otherwise might have against the Executive.

           The Executive shall not be obligated to seek other employment in mitigation of the amounts
payable or arrangements made under any provision of this Agreement, and the obtaining of any such
other employment shall in no event effect any reduction of the Company’s obligations to make the
payments and arrangements required to be made under this Agreement, except to the extent provided
in Section 4.4(d).

          7.2.      Contractual Right to Benefits. This Agreement establishes and vests in the Executive a
contractual right to the benefits to which he or she is entitled hereunder. The Company expressly
waives any ability, if possible, to deny liability for any breach of its contractual commitment
hereunder upon the grounds of lack of consideration, accord and satisfaction or any other defense.
In any dispute arising after a Change in Control as to whether the Executive is entitled to
benefits under this Agreement, there shall be a presumption that the Executive is entitled to such
benefits and the burden of proving otherwise shall be on the Company. However, nothing herein
contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company
to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to
provide for any payments to be made or required hereunder.

          7.3.      Pension Plans; Duplicate Benefits. All payments, benefits and amounts provided under this
Agreement shall be in addition to and not in substitution for any pension rights under the
Company’s tax-qualified pension plan, supplemental retirement plans, nonqualified deferred
compensation plans, and any disability, workers’ compensation or other Company benefit plan
distribution that the Executive is entitled to at his or her Effective Date of Termination.
Notwithstanding the foregoing, this Agreement shall not create an inference that any duplicate
payments shall be required. No payments made pursuant to this Agreement shall be considered
compensation for purposes of any such benefit plan; provided that any amount paid pursuant to
Section 4.4(c) shall not be subject to such limitation. Payment of the Executive’s accrued and
unpaid Base Salary and accrued vacation pay through the Executive’s Effective Date of Termination
shall be deemed to not duplicate any benefit contemplated by this Agreement and

16

 

shall not result in an offset pursuant to Section 4.3(e). Any acceleration of vesting, lapse
of restrictions and/or payout occasioned by a Change in Control pursuant to the provisions of any
long-term incentive plan and/or individual award agreement under such a long-term incentive plan
shall be deemed to not duplicate any benefit contemplated by this Agreement and shall not result in
an offset pursuant to Section 4.3(e).

Article 8.    Trade Secrets; Non-Solicitation and Non-Disparagement

          By executing this Agreement and again by receiving any benefits provided for by this
Agreement, the Executive agrees as follows:

	 	(a)	 	In the course of performing his or her duties for the Company, the Executive
will receive, and acknowledges that he or she has received, confidential information,
including without limitation, information not available to competitors relating to the
Company’s existing and contemplated financial plans, products, business plans,
operating plans, research and development information, and customer information, all of
which is hereinafter referred to as “Trade Secrets.” The Executive agrees that he or
she will not, either during his or her employment or subsequent to the termination of
his or her employment with the Company, directly or indirectly disclose, publish or
otherwise divulge any Trade Secret of the Company or any of its affiliates to anyone
outside the Company, or use such information in any manner which would adversely affect
the business or business prospects of the Company, without prior written authorization
from the Company to do so. The Executive further agrees that if, at the time of the
termination of his or her employment with the Company, he or she is in possession of
any documents or other written or electronic materials constituting, containing or
reflecting Trade Secrets, the Executive will return and surrender all such documents
and materials to the Company upon leaving its employ. The restrictions and protection
provided for in this Section 8(a) shall be in addition to any protection afforded to
Trade Secrets by law or equity and in addition to any protection afforded to Trade
Secrets by any other agreement between the Executive and the Company.
	 
	 	(b)	 	For a period of one year following the termination of the Executive’s
employment with the Company, the Executive shall not, directly or indirectly through
aid, assistance or counsel, on the Executive’s own behalf or on behalf of another
person or entity (i) contact, solicit or offer to hire any person who was, within a
period of six months prior to the termination of the Executive’s employment with the
Company, employed by the Company or one of its subsidiaries, or (ii) by any means issue
or communicate any private or public statement that may be critical or disparaging of
the Company or any of its affiliates, or any of their respective products, services,
officers, directors or employees.

Article 9.     Claims Procedure

          9.1.       Committee Review. The Executive or, in the event of the Executive’s death, the
Executive’s Beneficiary (as applicable, the “Claimant”) may deliver to the Committee a written

17

 

claim for a determination with respect to the amounts distributable to such Claimant from this
Agreement. Such claim shall be delivered to the Committee in care of the Company in accordance with
the notice provisions of Section 11.5. If such a claim relates to the contents of a notice received
by the Claimant, the claim must be made within sixty (60) days after such notice was received by
the Claimant. All other claims must be made within two hundred and seventy (270) days of the date
on which the event that caused the claim to arise occurred. The claim must state with particularity
the determination desired by the Claimant.

          9.2.       Notification of Decision. The Committee shall consider a Claimant’s claim pursuant to
Section 9.1 within a reasonable time, but no later than ninety (90) days after receiving the claim.
If the Committee determines that special circumstances require an extension of time for processing
the claim, written notice of the extension shall be furnished to the Claimant prior to the
termination of the initial ninety (90) day period. In no event shall such extension exceed a period
of ninety (90) days from the end of the initial period. The extension notice shall indicate the
special circumstances requiring an extension of time and the date by which the Committee expects to
render the benefit determination. The Committee shall notify the Claimant in writing:

	 	(a)	 	that the Claimant’s requested determination has been made, and that the claim
has been allowed in full; or
	 
	 	(b)	 	that the Committee has reached a conclusion contrary, in whole or in part, to
the Claimant’s requested determination, and such notice must set forth in a manner
calculated to be understood by the Claimant:

	 	(i)	 	the specific reason(s) for the denial of the claim, or any
part of it;
	 
	 	(ii)	 	specific reference(s) to pertinent provisions of this Agreement
upon which such denial was based;
	 
	 	(iii)	 	a description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why such
material or information is necessary;
	 
	 	(iv)	 	a statement that the Claimant is entitled to receive, upon
request and free of charge, reasonable access to and copies of, all documents,
records and other information relevant (as defined in applicable ERISA
regulations) to the Claimant’s claim for benefits; and
	 
	 	(v)	 	a statement of the Claimant’s right to seek arbitration
pursuant to Section 9.4.

          9.3.      Pre and Post-Change in Control Procedures. With respect to claims made prior to the
occurrence of a Change in Control, a Claimant’s compliance with the foregoing provisions of this
Article 9 is a mandatory prerequisite to a Claimant’s right to commence arbitration pursuant to
Section 9.4 with respect to any claim for benefits under this Agreement. With respect to claims
made upon and after the occurrence of a Change in Control, the Claimant

18

 

may proceed directly to arbitration in accordance with Section 9.4 and need not first satisfy
the foregoing provisions of this Article 9.

          9.4.      Arbitration of Claims. All claims or controversies arising out of or in connection with
this Agreement, that the Company may have against any Claimant, or that any Claimant may have
against the Company or against its officers, directors, employees or agents acting in their
capacity as such, shall, subject to the initial review provided for in the foregoing provisions of
this Article 9 that are effective with respect to claims brought prior to the occurrence of a
Change in Control, be resolved through arbitration as provided in this Section 9.4. The decision of
an arbitrator on any issue, dispute, claim or controversy submitted for arbitration, shall be final
and binding upon the Company and the Claimant and that judgment may be entered on the award of the
arbitrator in any court having proper jurisdiction. The arbitrator shall review de novo any claim
previously considered by the Committee pursuant to Section 9.1.

          All expenses of such arbitration, including the fees and expenses of the counsel for the
Executive, shall be advanced and borne by the Company; provided, however, that if it is finally
determined that the Claimant did not commence the arbitration in good faith and had no reasonable
basis therefore, the Claimant shall repay all advanced fees and expenses and shall reimburse the
Company for its reasonable legal fees and expenses in connection therewith.

          Except as otherwise provided in this procedure or by mutual agreement of the parties, any
arbitration shall be administered: (1) in accordance with the then-current Model Employment
Arbitration Procedures of the American Arbitration Association (“AAA”) before an arbitrator who is
licensed to practice law in the state in which the arbitration is convened; or (2) if locally
available, the Judicial Arbitration & Mediation Services, Inc. (“JAMS”), in accordance with the
JAMS procedures then in effect. The party who did not initiate the claim can designate between JAMS
or AAA (the “Tribunal”). The arbitration shall be held in the city in which the Claimant is or was
last employed by the Company in the nearest Tribunal office or at a mutually agreeable location.
Pre-hearing and post-hearing procedures may be held by telephone or in person as the arbitrator
deems necessary.

          The arbitrator shall be selected as follows: if the parties cannot agree on an arbitrator, the
Tribunal (JAMS or AAA) shall then provide the names of nine (9) available arbitrators experienced
in business employment matters along with their resumes and fee schedules. Each party may strike
all names on the list it deems unacceptable. If more than one common name remains on the list of
all parties, the parties shall strike names alternately until only one remains. The party who did
not initiate the claim shall strike first. If no common name remains on the lists of the parties,
the Tribunal shall furnish an additional list or lists until an arbitrator is selected.

          The arbitrator shall interpret this Agreement, any applicable Company policy or rules and
regulations, any applicable substantive law (and the law of remedies, if applicable) of the state
in which the claim arose, or applicable federal law. In reaching his or her decision, the
arbitrator shall have no authority to change or modify any lawful Company policy, rule or
regulation, or this Agreement. The arbitrator, and not any federal, state or local court or agency,
shall have exclusive and broad authority to resolve any dispute relating to the interpretation,
applicability, enforceability or formation of this Agreement, including but not limited to, any
claim that all or any part of this Agreement is voidable.

19

 

          The arbitrator shall have authority to entertain a motion to dismiss and/or motion for summary
judgment by any party and shall apply the standards governing such motions under the Federal Rules
of Civil Procedure.

          Each party shall have the right to take the deposition of one individual and any expert
witness(es) designated by another party. Each party shall also have the opportunity to obtain
documents from another party through one request for production of documents. Additional discovery
may be had only when the arbitrator so orders upon a showing of substantial need. Any disputes
regarding depositions, requests for production of documents or other discovery shall be submitted
to the arbitrator for determination.

          Each party shall have the right to subpoena witnesses and documents for the arbitration
hearing by requesting a subpoena from the arbitrator. Any such request shall be served on all other
parties, who shall advise the arbitrator in writing of any objections that the party may have to
issuance of the subpoena within ten (10) calendar days of receipt of the request.

          At least thirty (30) calendar days before the arbitration, the parties must exchange lists of
witnesses, including any expert(s), and copies of all exhibits intended to be used at the
arbitration.

Article 10.     Successors and Assignment

          10.1.    Successors to the Company. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the
business and/or assets of the Company or of any division or subsidiary thereof (the business and/or
assets of which constitute at least fifty percent (50%) of the total business and/or assets of the
Company) to expressly assume and agree to perform the Company’s obligations under this Agreement in
the same manner and to the same extent that the Company would be required to perform them if such
succession had not taken place.

          10.2.    Assignment by the Executive. This Agreement shall inure to the benefit of and be
enforceable by the Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amount
would still be payable to him or her hereunder had he or she continued to live, all such amounts,
unless otherwise provided herein, shall be paid to the Executive’s Beneficiary in accordance with
the terms of this Agreement.

Article 11.    Miscellaneous

          11.1.    Employment Status. Except as may be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by the Company is “at will,” and,
prior to the effective date of a Change in Control, may be terminated by either the Executive or
the Company at any time, subject to applicable law.

          11.2.    Gender and Number. Except where otherwise indicated by the context, any masculine term
used herein also shall include the feminine, the plural shall include the singular, and the
singular shall include the plural.

20

 

          11.3.    Severability. In the event that any provision of this Agreement shall be held illegal or
invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this
Agreement, and this Agreement shall be construed and enforced as if the illegal or invalid
provision had not been included. Further, the captions of this Agreement are not part of the
provisions hereof and shall have no force and effect.

          11.4.    Modification. No provision of this Agreement may be modified, waived, or discharged
unless as to the Executive such modification, waiver, or discharge is agreed to in writing and
signed by each affected Executive and by an authorized member of the Committee or its designee, or
by the respective parties’ legal representatives and successors.

          11.5.    Notice. For purposes of this Agreement, notices, including a Notice of Termination, and
all other communications provided for in this Agreement shall be in writing and shall be deemed to
have been duly given when delivered or on the date stamped as received by the U.S. Postal Service
for delivery by certified or registered mail, postage prepaid and addressed: (i) if to the
Executive, to his or her latest address as reflected on the records of the Company, and (ii) if to
the Company: Northrop Grumman Corporation, 1840 Century Park East, Los Angeles, California 90067,
Attn: Chief Human Resources Officer, or to such other address as the Company may furnish to the
Executive in writing with specific reference to this Agreement and the importance of the notice,
except that notice of change of address shall be effective only upon receipt.

          11.6.    Applicable Law. To the extent not preempted by the laws of the United States, the laws
of the State of California shall be the controlling law in all matters relating to this Agreement.
Any statutory reference in this Agreement shall also be deemed to refer to all applicable final
rules and final regulations promulgated under or with respect to the referenced statutory
provision.

          IN WITNESS WHEREOF, the parties have executed this Agreement on this         day
of                                         , 2009.

	 	 	 	 	 	 	 	 	 	 	 
	NORTHROP GRUMMAN CORPORATION:	 	 	 	 	EXECUTIVE:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 

	 	 	 	 	 	 

	 	 

21exv4w2

Exhibit 4.2

 

 

SEVENTH SUPPLEMENTAL INDENTURE

between

DIAMOND OFFSHORE DRILLING, INC.

and

THE BANK OF NEW YORK MELLON,

as Trustee

Dated as of

OCTOBER 8, 2009

 

 

 

 

TABLE OF CONTENTS

 

	 	 	 	 	 	 	 
	 	 	 	 	Page

	ARTICLE 1

	The 2039 Notes

	 	 	 
	 	 	 	 
	Section 1.01.
	 	Designation of 2039 Notes; Establishment of Form

	 	 	3	 
	Section 1.02.
	 	Amount

	 	 	7	 
	Section 1.03.
	 	Regular Interest

	 	 	7	 
	Section 1.04.
	 	Denominations

	 	 	8	 
	Section 1.05.
	 	Place of Payment

	 	 	8	 
	Section 1.06.
	 	Redemption

	 	 	8	 
	Section 1.07.
	 	Stated Maturity

	 	 	8	 
	Section 1.08.
	 	Discharge of Liability on 2039 Notes

	 	 	8	 
	Section 1.09.
	 	Other Terms of 2039 Notes

	 	 	8	 
	 	 	 
	 	 	 	 
	ARTICLE 2

	Amendments to the Indenture

	 	 	 
	 	 	 	 
	Section 2.01.
	 	Amendments Applicable Only to 2039 Notes

	 	 	9	 
	Section 2.02.
	 	Definitions

	 	 	9	 
	Section 2.03.
	 	Registration, Registration of Transfer and Exchange

	 	 	12	 
	Section 2.04.
	 	Mutilated, Destroyed, Lost and Stolen Securities

	 	 	12	 
	Section 2.05.
	 	Amendment of Article Four of the Indenture

	 	 	13	 
	Section 2.06.
	 	Amendment to Section 501 of the Indenture

	 	 	13	 
	Section 2.07.
	 	Amendment to Section 801 of the Indenture

	 	 	15	 
	Section 2.08.
	 	Amendment to Article Ten of the Indenture

	 	 	16	 
	 	 	 
	 	 	 	 
	ARTICLE 3

	Miscellaneous Provisions

	 	 	 
	 	 	 	 
	Section 3.01.
	 	Integral Part

	 	 	20	 
	Section 3.02.
	 	General Definitions

	 	 	20	 
	Section 3.03.
	 	Adoption, Ratification and Confirmation

	 	 	20	 
	Section 3.04.
	 	Counterparts

	 	 	20	 
	Section 3.05.
	 	Governing Law

	 	 	20	 
	Section 3.06.
	 	Conflict of Any Provision of Indenture with Trust
Indenture Act of 1939

	 	 	20	 
	Section 3.07.
	 	Effect of Headings

	 	 	20	 
	Section 3.08.
	 	Severability of Provisions

	 	 	20	 
	Section 3.09.
	 	Successors and Assigns

	 	 	21	 
	Section 3.10.
	 	Benefit of Seventh Supplemental Indenture

	 	 	21	 
	Section 3.11.
	 	Acceptance by Trustee

	 	 	21	 
	ANNEX A — Form of Security	 	 	 	 

i

 

DIAMOND OFFSHORE DRILLING, INC.

SEVENTH SUPPLEMENTAL INDENTURE

     THIS SEVENTH SUPPLEMENTAL INDENTURE, dated as of October 8, 2009, between Diamond Offshore
Drilling, Inc., a Delaware corporation (the “Company”), and The Bank of New York Mellon (formerly
known as The Bank of New York) (as successor under the Indenture to The Chase Manhattan Bank), a
banking corporation organized and existing under the laws of the State of New York (the “Trustee”).

WITNESSETH

     WHEREAS, the Company has heretofore executed and delivered to the Trustee an Indenture, dated
as of February 4, 1997 (the “Indenture”), providing for the issuance from time to time of its
debentures, notes, bonds or other evidences of indebtedness in one or more fully registered series;

     WHEREAS, Section 901(5) of the Indenture provides that the Company and the Trustee may from
time to time enter into one or more indentures supplemental thereto to establish the form or terms
of Securities of a new series;

     WHEREAS, Sections 901(2) and 901(7) of the Indenture permit the execution of supplemental
indentures without the consent of any Holders to add to the covenants of the Company for the
benefit of, and to add any additional Events of Default with respect to, all or any series of
Securities;

     WHEREAS, Section 301 of the Indenture provides that the Company may enter into supplemental
indentures to establish the terms and provisions of a series of Securities issued pursuant to the
Indenture;

     WHEREAS, the Company desires to issue 5.70% Senior Notes due October 15, 2039 (the “2039
Notes”), a new series of Security, the issuance of which was authorized by resolution of the Board
of Directors of the Company, adopted by unanimous written consent dated October 2, 2009, and by a
unanimous written consent of the Securities Committee of the Board of Directors of the Company,
dated October 5, 2009;

     WHEREAS, the Company, pursuant to the foregoing authority, proposes in and by this Seventh
Supplemental Indenture to supplement and amend in certain respects the Indenture insofar as it will
apply only to the 2039 Notes (and not to any other series); and

     WHEREAS, all things necessary have been done to make the 2039 Notes, when executed by the
Company and authenticated and delivered hereunder and

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duly issued by the Company, the valid and
legally binding obligations of the Company, and to make this Seventh Supplemental Indenture a valid
and legally binding agreement of the Company, in accordance with their and its terms.

     NOW THEREFORE:

     In consideration of the premises provided for herein, the Company and the Trustee mutually
covenant and agree for the equal and proportionate benefit of all Holders of the 2039 Notes as
follows:

ARTICLE 1

The 2039 Notes

     Section 1.01. Designation of 2039 Notes; Establishment of Form. There shall be a series of
Securities designated “5.70% Senior Notes due October 15, 2039” of the Company, and the form
thereof shall be substantially as set forth in Annex A hereto, which is incorporated into
and shall be deemed a part of this Seventh Supplemental Indenture, with such appropriate
insertions, omissions, substitutions and other variations as are required or permitted by the
Indenture, and may have such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any securities exchange
or as may, consistently herewith, be determined by the officers of the Company executing such 2039
Notes, as evidenced by their execution of the 2039 Notes.

     (a) Global Securities. All of the 2039 Notes shall be issued initially in the form of one or
more notes in registered, global form without interest coupons, (collectively, the “Global
Securities”). The Global Securities shall be deposited on behalf of the purchasers of the 2039
Notes represented thereby with the Trustee, at its Corporate Trust Office, as Securities Custodian
for the depositary, The Depository Trust Company (the “DTC”) (such depositary, or any successor
thereto, being hereinafter referred to as the “Depositary”), and registered in the name of its
nominee, Cede & Co., in each case for credit to an account of a direct or indirect participant in
the DTC (including, if applicable, Euroclear System or Clearstream Banking Luxembourg), duly
executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of a Global Security may from time to time be increased or decreased by
adjustments made on the records of the Securities Custodian as hereinafter provided, subject in
each case to compliance with the Applicable Procedures.

     Each Global Security shall represent such of the Outstanding 2039 Notes as shall be specified
therein and each shall provide that it shall represent the aggregate principal amount of
Outstanding 2039 Notes from time to time endorsed thereon and that the aggregate principal amount
of Outstanding 2039

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Notes represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges or redemptions of such 2039 Notes. Any endorsement of a Global
Security to reflect the amount of any increase or decrease in the principal amount of Outstanding
2039 Notes represented thereby shall be made by the Securities Custodian in accordance with the
standing
instructions and procedures existing between the Depositary and the Securities Custodian.

     Neither any members of, or participants in, the Depositary (“Agent Members”) nor any other
Persons on whose behalf Agent Members may act shall have rights under this Seventh Supplemental
Indenture with respect to any Global Security held in the name of the Depositary or any nominee
thereof, or under the Global Security, and the Depositary (including, for this purpose, its
nominee) may be treated by the Company, the Trustee and any agent of the Company or the Trustee as
the absolute owner and Holder of such Global Security for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall (A) 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 Depositary or (B) impair, as between the Depositary, its Agent
Members and any other Person on whose behalf an Agent Member may act, the operation of customary
practices governing the exercise of the rights of a Holder of any 2039 Notes.

     (b) Certified Securities. Certificated Securities shall be issued only under the limited
circumstances provided in Section 1.02(a) hereof.

     (c) Paying Agent. The Company shall maintain an office or agency where 2039 Notes may be
presented for payment (“Paying Agent”). The Company shall enter into an appropriate agency
agreement with a Paying Agent. The agreement shall implement the provisions of this Seventh
Supplemental Indenture that relate to such agent. The Company shall notify the Trustee of the name
and address of any such agent. If the Company fails to maintain a Paying Agent, the Trustee shall
act as such and shall be entitled to appropriate compensation therefor pursuant to Section 607 of
the Indenture. The Company or any Subsidiary or an Affiliate of either of them may act as Paying
Agent. The Company initially appoints the Trustee as Paying Agent in connection with the 2039
Notes.

     (d) Similar Debt Securities. Any additional Securities having similar terms to the 2039
Notes, together with the 2039 Notes will constitute a single series of Securities under the
Indenture if such additional Securities are fungible with the 2039 Notes for United States federal
income tax purposes.

4

 

Section 1.02 Transfer and Exchange.

     (a) Transfer and Exchange of Global Securities.

          (1) Certificated Securities. Certificated Securities shall be issued in exchange for
interests in the Global Securities only if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as depositary for the Global Securities or if it at any time ceases
to be a “clearing agency” registered under the Exchange Act if so required by applicable law or
regulation and a successor depositary is not appointed by the Company within 90 days, (ii) the
Company at any time and in its sole discretion determines not to have the 2039 Notes represented by
a Global Security, or (iii) an Event of Default has occurred and is continuing. In each case, the
Company shall execute, and the Trustee shall, upon receipt of a Company Order (which the Company
agrees to deliver promptly), authenticate and deliver Certificated Securities in an aggregate
principal amount equal to the principal amount of such Global Securities in exchange therefor.
Certificated Securities issued in exchange for beneficial interests in Global Securities shall be
registered in such names and shall be in such authorized denominations as the Depositary, pursuant
to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee.
The Trustee shall deliver or cause to be delivered such Certificated Securities to the persons in
whose names such Securities are so registered. Such exchange shall be effected in accordance with
the Applicable Procedures. Nothing herein shall require the Trustee to communicate directly with
beneficial owners, and the Trustee shall in connection with any transfers hereunder be entitled to
rely on instructions received through the registered Holder.

          In the event that Certificated Securities are issued in exchange for beneficial interests in
Global Securities in accordance with the foregoing paragraph and, thereafter, the events or
conditions specified in this Section 1.02(a)(1) which required such exchange shall have ceased to
exist, the Company shall mail notice to the Trustee and to the Holders stating that Holders may
exchange Certificated Securities for interests in Global Securities by complying with the
procedures set forth in this Indenture and briefly describing such procedures and the events or
circumstances requiring that such notice be given.

          (2) Notwithstanding any other provisions of this Indenture, a Global Security may not be
transferred, except as a whole by the Depositary to a nominee of the Depositary or by a nominee of
the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor Depositary. Nothing in this
Section 1.02(a)(2) shall prohibit or render ineffective any transfer of a beneficial interest in a
Global Security effected in accordance with the other provisions of this Section 1.02.

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     (b) Restrictions on Transfer of a Beneficial Interest in a Global Security for a Certificated
Security. A beneficial interest in a Global Security may not be exchanged for a Certified Security
except under the limited circumstances provided in Section 1.02(a) hereof and upon satisfaction of
the requirements set forth below. Upon receipt by the Trustee of a request in the form
satisfactory to the Trustee from the Depositary or its nominee on behalf of a person having a
beneficial interest in a Global Security to register the transfer of all or a portion of such
beneficial interest in accordance with Applicable Procedures for a Certificated Security, together
with:

          (1) written instructions to the Trustee to make, or direct the Security Registrar to make, an
adjustment on its books and records with respect to such Global Security to reflect a decrease in
the aggregate principal amount of the 2039 Notes represented by the Global Security, such
instructions to contain information regarding the Depositary account to be credited with such
decrease; and

          (2) if the Company or the Trustee so requests, a customary opinion of counsel, certificates
and other information reasonably acceptable to them,

then the Trustee shall cause, or direct the Security Registrar to cause, in accordance with the
standing instructions and procedures existing between the Depository and the Security Registrar,
the aggregate principal amount of 2039 Notes represented by the Global Security to be decreased by
the aggregate principal amount of the Certificated Security to be issued, shall authenticate and
deliver such Certificated Security and shall debit or cause to be debited to the account of the
Person specified in such instructions a beneficial interest in the Global Security equal to the
principal amount of the Certificated Security so issued.

     (c) Transfer and Exchange of Certificated Securities. When Certificated Securities are
presented by a Holder to a Security Registrar with a request:

          (1) to register the transfer of the Certificated Securities to a person who will take delivery
thereof in the form of Certificated Securities only; or

          (2) to exchange such Certificated Securities for an equal principal amount of Certificated
Securities of other authorized denominations;

such Security Registrar shall register the transfer or make the exchange as requested; provided,
however, that the Certificated Securities presented or surrendered for register of transfer or
exchange shall be duly endorsed or

6

 

accompanied by a written instrument of transfer in accordance
with the fifth paragraph of Section 305 of the Indenture.

     (d) Transfers of Certificated Securities for Beneficial Interest in Global Securities. If
Certificated Securities are presented by a Holder to a Security Registrar with a request:

          (1) to register the transfer of such Certificated Securities to a person who will take
delivery thereof in the form of a beneficial interest in a Global Security; or

          (2) to exchange such Certificated Securities for an equal principal amount of beneficial
interests in a Global Security, which beneficial interests will be owned by the Holder transferring
such Certificated Securities;

the Security Registrar shall register the transfer or make the exchange as requested by canceling
such Certificated Security and causing, or directing the Securities Custodian to cause, the
aggregate principal amount of the applicable Global Security to be increased accordingly and, if no
such Global Security is then outstanding, the Company shall issue and the Trustee shall
authenticate and deliver a new Global Security; provided, however, that the Certificated Securities
presented or surrendered for registration of transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer in accordance with the fifth paragraph of Section
305 of the Indenture.

     (e) Transfers to the Company. Nothing in this Indenture or in the Securities shall prohibit
the sale or other transfer of any Securities (including beneficial interests in Global Securities)
to the Company or any of its Subsidiaries. Any Securities purchased by the Company shall thereupon
be canceled in accordance with Section 309 of the Indenture.

Section 103 Amount.

     Section 1.02. Amount. The Trustee shall authenticate and deliver 2039 Notes for original
issue in an aggregate principal amount of up to $500,000,000 upon a Company Order for the
authentication and delivery of 2039 Notes, without any further action by the Company. The
aggregate principal amount of 2039 Notes that may be authenticated and delivered under the
Indenture may not exceed the amount set forth in the foregoing sentence, except for 2039 Notes
authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of,
other 2039 Notes pursuant to Section 1.02 of this Seventh Supplemental Indenture or Section 204,
304, 305, 306, 906 or 1107 of the Indenture.

     Section 1.03. Regular Interest. The principal of the 2039 Notes shall bear interest at the
rate of 5.70% per annum from October 8, 2009 or from the most

7

 

recent Interest Payment Date to which
interest has been paid or duly provided for, payable semiannually in arrears on April 15 and
October 15 of each year, commencing April 15, 2010, to the Persons in whose names the 2039 Notes
are registered at the close of business on the April 1 or October 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.
Interest on the 2039 Notes will be computed on the basis of a 360-day year comprised of twelve
30-day months.

     Section 1.04. Denominations. The 2039 Notes shall be in fully registered form without
coupons in denominations of $2,000 of principal amount or any integral multiple of $1,000 in excess
thereof.

     Section 1.05. Place of Payment. The Place of Payment for the 2039 Notes and the place or
places where the 2039 Notes may be surrendered for registration of transfer, exchange or redemption
and where notices may be given to the Company in respect of the 2039 Notes is at the office of the
Trustee in New York, New York and at the agency of the Trustee maintained for that purpose at the
office of the Trustee; provided, however, that payment of interest may be made at the option of the
Company by check mailed to the address of the Person entitled thereto as such address shall appear
in the Security Register (as defined in the Indenture).

     Section 1.06. Redemption. (a) There shall be no sinking fund for the retirement of the 2039
Notes.

     (b) The Company, at its option, may redeem the 2039 Notes in accordance with the provisions
and at the Redemption Price set forth under the captions “Optional Redemption” and “Notice of
Redemption” in the 2039 Notes and in accordance with the provisions of the Indenture, including,
without limitation, Article Eleven.

     Section 1.07. Stated Maturity. The date on which the principal of the 2039 Notes is due and
payable, unless accelerated, redeemed or required to be repurchased pursuant to the Indenture,
shall be October 15, 2039.

     Section 1.08. Discharge of Liability on 2039 Notes. The 2039 Notes may be discharged by the
Company in accordance with the provisions of Article Four of the Indenture, as amended by Section
2.05 hereof.

     Section 1.09. Other Terms of 2039 Notes. Without limiting the foregoing provisions of this
Article 1, the terms of the 2039 Notes shall be as set forth in the form of the 2039 Notes set
forth in Annex A hereto and as provided in the Indenture.

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ARTICLE 2

Amendments to the Indenture

     Section 2.01. Amendments Applicable Only to 2039 Notes. The amendments contained herein
shall apply to the 2039 Notes only and not to any other series of Security issued under the
Indenture, and any covenants provided herein are expressly being included solely for the benefit of
the 2039 Notes and
not for the benefit of any other series of Security issued under the Indenture. These
amendments shall be effective for so long as there remain any 2039 Notes Outstanding.

     Section 2.02. Definitions. Section 101 of the Indenture is hereby amended, subject to
Section 2.01 hereof and with respect to the 2039 Notes only, by inserting or restating, as the case
may be, in their appropriate alphabetical position, the following definitions:

     “Adjusted Treasury Rate” means, with respect to any Redemption Date, the rate per annum equal
to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price
for the Comparable Treasury Issue (expressed as a percentage of the principal amount) equal to the
Comparable Treasury Price for that redemption date. The Adjusted Treasury Rate will be calculated
on the third business day preceding the Redemption Date.

     “Agent Members” has the meaning specified in Section 1.01(a).

     “Applicable Procedures” means, with respect to any transfer or exchange of beneficial
ownership interests in a Global Security, the rules and procedures that are applicable to such
transfer or exchange of the Depositary and its direct or indirect participants, including, if
applicable, those of Euroclear Bank S.A./N.V. (as operator of the Euroclear system) and Clearstream
Banking Luxembourg, which may change from time to time.

     “Capital Stock” or “capital stock” of any Person means any and all shares, interests,
partnership interests, participations, rights or other equivalents (however designated) of equity
interests (however designated) issued by that Person.

     “Certificated Security” means a Security that is in substantially the form attached hereto as
Annex A and that does not include the information or the schedule called for by footnotes
1, 2 and 3 thereof.

     “Comparable Treasury Issue” means the U.S. Treasury security selected by the applicable
Quotation Agent as having a maturity comparable to the remaining term of the 2039 Notes to be
redeemed that would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing

9

 

new issues of corporate debt securities of comparable maturity to
the remaining term of those 2039 Notes.

     “Comparable Treasury Price” means, with respect to any Redemption Date, (A) the average of
four Reference Treasury Dealer Quotations for that redemption date, after excluding the highest and
lowest of those Reference Treasury Dealer Quotations, or (B) if the Company obtains fewer than four
such Reference Treasury Dealer Quotations, the average of all of those quotations.

     “Consolidated Net Tangible Assets” means the total amount of assets (less applicable reserves
and other properly deductible items) after deducting (1) all current liabilities (excluding the
amount of those which are by their terms extendable or renewable at the option of the obligor to a
date more than 12 months after the date as of which the amount is being determined) and (2) all
goodwill, tradenames, trademarks, patents, unamortized debt discount and expense and other like
intangible assets, all as set forth on the most recent balance sheet of the Company and its
consolidated subsidiaries and determined in accordance with generally accepted accounting
principles.

     “Consolidated Net Worth” means, at any time, the Net Worth of the Company and its Subsidiaries
on a consolidated basis determined in accordance with GAAP.

     “Corporate Trust Office” means the principal office of the Trustee in New York, New York, at
which at any particular time its corporate trust business shall be principally administered, which
office at the date hereof is located at 101 Barclay Street, Floor 8W, New York, New York, 10286,

     “Depositary” has the meaning specified in Section 1.01(a).

     “DTC” has the meaning specified in Section 1.01(a).

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor
statute.

     “Funded Debt” means indebtedness of the Company or a Subsidiary owning Restricted Property
maturing by its terms more than one year after its creation and indebtedness classified as long
term debt under generally accepted accounting principles, and in each case ranking at least pari
passu with the Securities.

     “GAAP” means generally accepted accounting principles as in effect on the date of
determination in the United States.

     “Global Security” means a permanent Global Security that is in substantially the form attached
hereto as Annex A and that includes the

10

 

information and schedule called for by footnotes 1,
2 and 3 thereof and which is deposited with the Depositary or the Securities Custodian and
registered in the name of the Depositary or its nominee.

     “Indenture” has the meaning specified in the recitals.

     “Issue Date” of any 2039 Notes means the date on which the 2039 Notes were originally issued
or deemed issued as set forth on the face of the 2039 Notes.

     “Lien” means any mortgage, pledge, lien, encumbrance, charge or security interest.

     “Net Worth” means, at any time with respect to the Company or a Subsidiary thereof, the net
worth of the Company or such Subsidiary, as the case may be, determined in accordance with GAAP.

     “Quotation Agent” means the Reference Treasury Dealer appointed by the Company for the 2039
Notes.

     “Reference Treasury Dealer” means: (A) Goldman, Sachs & Co. and J.P. Morgan Securities Inc.
and their successors; provided that, if any ceases to be a primary U.S. Government securities
dealer (“Primary Treasury Dealer”), the Company will substitute another Primary Treasury Dealer;
and (B) any other Primary Treasury Dealers selected by the Company.

     “Reference Treasury Dealer Quotation” means, with respect to each Reference Treasury Dealer
and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for
the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. (New York City
time) on the third Business Day preceding that Redemption Date.

     “Restricted Property” means (1) any drilling rig or drillship which is leased by the Company
or any Subsidiary as a lessee, or greater than a 50% interest in which is owned by the Company or
any Subsidiary, and which is used for drilling offshore oil and gas wells, which, in the opinion of
the Board of Directors, is of material importance to the business of the Company and its
Subsidiaries taken as a whole, but no such drilling rig or drillship, or portion thereof, shall be
deemed of material importance if its net book value is less than 2% of Consolidated Net Tangible
Assets, or (2) any shares of capital stock or indebtedness of any Subsidiary owning any such
drilling rig or drillship.

     “Sale and Leaseback Transaction” means any arrangement with any Person pursuant to which the
Company or any Subsidiary leases any Restricted Property that has been or is to be sold or
transferred by the Company or the

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Subsidiary to such Person, other than (1) leases for a term,
including renewals at the option of the lessee, of not more than five years, (2) leases between the
Company and a Subsidiary or between Subsidiaries, (3) leases of a Restricted Property executed by
the time of, or within 12 months after the latest of, the acquisition, the completion of
construction or improvement, or the commencement of commercial operation of the Restricted
Property, and (4) arrangements pursuant to any provision of law with an effect similar to the
former Section 168(f)(8) of the Internal Revenue Code of 1954.

     “Securities” means any securities authenticated and delivered under the Indenture, as the same
may be amended or supplemented, including 2039 Notes.

     “Securities Custodian” means the Trustee, as custodian with respect to the Securities in
global form, or any successor thereto.

     “Significant Subsidiary” means any Subsidiary, the Net Worth of which represents more than 10%
of the Consolidated Net Worth of the Company and its Subsidiaries.

     “2039 Notes” has the meaning specified in the recitals.

     “Value” means, with respect to a Sale and Leaseback Transaction, an amount equal to the
present value of the lease payments with respect to the term of the lease remaining on the date as
of which the amount is being determined, without regard to any renewal or extension options
contained in the lease (including the effective interest rate on any original issue discount
Securities), which are outstanding on the effective date of such Sale and Leaseback Transaction and
which have the benefit of Section 1010.

     Section 2.03. Registration, Registration of Transfer and Exchange. The Indenture is hereby
amended, subject to Section 2.01 hereof and with respect to the 2039 Notes only, by replacing the
seventh paragraph of Section 305 with the following paragraph:

     The Company shall not be required (i) to issue, register the transfer of or exchange
the Securities of any series during a period beginning at the opening of business 15 days
before the day of the mailing of a notice of redemption of Securities of that series
selected for redemption and ending at the close of business on the day of such mailing or
(ii) to register the transfer of or exchange any 2039 Notes so selected for redemption in
whole or in part, except the unredeemed portion of any 2039 Notes being redeemed in part.

     Section 2.04. Mutilated, Destroyed, Lost and Stolen Securities. The Indenture is hereby
amended, subject to Section 2.01 hereof and with respect to

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the 2039 Notes only, by replacing the
second paragraph of Section 306 with the following paragraph:

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

     Section 2.05. Amendment of Article Four of the Indenture. Article Four of the Indenture is
hereby amended, subject to Section 2.01 hereof and with respect to the 2039 Notes only, by deleting
Sections 401, 402 and 403 and replacing those sections with the following:

     Section 401 Discharge of Liability on Securities.

     When (i) the Company delivers to the Trustee or any Paying Agent all Outstanding 2039
Notes (other than 2039 Notes replaced pursuant to Section 306) for cancellation or (ii)
all Outstanding 2039 Notes have become due and payable and the Company deposits with the
Trustee or any Paying Agent cash sufficient to pay all amounts due and owing on all
Outstanding 2039 Notes (other than 2039 Notes replaced pursuant to Section 306), and if
the Company pays all other sums payable hereunder by the Company, then this Indenture
shall, subject to Section 607, cease to be of further effect, except for the
indemnification of the Trustee, which shall survive. The Trustee shall join in the
execution of a document prepared by the Company acknowledging satisfaction and discharge
of this Indenture on demand of the Company accompanied by an Officers’ Certificate and
Opinion of Counsel and at the cost and expense of the Company.

     Section 402 Repayment to the Company.

     The Trustee and the Paying Agent shall return to the Company upon written request any
money or securities held by them for the payment of any amount with respect to the 2039
Notes that remains unclaimed for two years, subject to applicable unclaimed property law.
After return to the Company, Holders entitled to the money or securities must look to the
Company for payment as general creditors unless an applicable abandoned property law
designates another person and the Trustee and the Paying Agent shall have no further
liability to the Holders of 2039 Notes with respect to such money or securities for that
period commencing after the return thereof.

     Section 2.06. Amendment to Section 501 of the Indenture. Section 501 of the Indenture is
hereby amended, subject to Section 2.01 hereof and with respect

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to the 2039 Notes only, by deleting
subsections (1), (2), (3), (4), (5) and (6) thereof, and inserting the following as new subsections
(1), (2), (3), (4), (5) and (6) thereof:

     (1) default in the payment of any interest upon any 2039 Notes when it becomes due
and payable, and continuance of such default for a period of 30 days; or

     (2) default in the payment of the principal amount at its Maturity on the 2039 Notes
or the Redemption Price by the Company; or

     (3) a default under any bonds, debentures, notes or other evidences of indebtedness
for money borrowed by the Company or a Subsidiary or under any mortgages, indentures or
instruments under which there may be issued or by which there may be secured or evidenced
any indebtedness for money borrowed by the Company or a Subsidiary, whether such
indebtedness now exists or shall hereafter be created, which
indebtedness, individually or in the aggregate, is in excess of $25.0 million
principal amount (excluding any such indebtedness of any Subsidiary other than a
Significant Subsidiary, all the indebtedness of which Subsidiary is nonrecourse to the
Company or any other Subsidiary), which default shall constitute a failure to pay any
portion of the principal of such indebtedness when due and payable after the expiration of
any applicable grace or cure period with respect thereto or shall have resulted in such
indebtedness becoming or being declared due and payable prior to the date on which it
would otherwise have become due and payable, without such indebtedness having been
discharged, or such acceleration having been rescinded or annulled, within a period of 10
days after there shall have been given, by registered or certified mail, to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding 2039 Notes a written notice specifying such default and
requiring the Company to cause such indebtedness to be discharged or cause such
acceleration to be rescinded or annulled and stating that such notice is a “Notice of
Default” hereunder; or

     (4) default by the Company in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a default in whose
performance or whose breach is elsewhere in this Section 501 specifically dealt with), and
continuance of such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in principal amount of the Outstanding 2039 Notes a
written notice specifying such

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default or breach and requiring it to be remedied and
stating that such notice is a “Notice of Default” hereunder; or

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

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

     Section 2.07. Amendment to Section 801 of the Indenture. Section 801 of the Indenture is
hereby amended, subject to Section 2.01 hereof and with respect

15

 

to the 2039 Notes only, by deleting
subsection (1) thereof, and inserting the following as new subsection (1) thereof:

     (1) the Person formed by such consolidation or into which the Company is merged or
the Person which acquires by conveyance or transfer the properties and assets of the
Company substantially as an entirety shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the
due and punctual payment of the principal of (and premium, if any) and interest on all the
Securities on all the Securities and the performance of every covenant of this Indenture
on the part of the Company to be performed or observed;

     Section 2.08. Amendment to Article Ten of the Indenture. Article Ten of the Indenture is
hereby amended, subject to Section 2.01 hereof and with respect to the 2039 Notes only, by adding
the following sections thereto:

     Section 1006 Maintenance of Properties.

     The Company will cause all properties used or useful in the conduct of its business
or the business of any Subsidiary to be maintained and kept in good condition, repair and
working order, normal wear and tear excepted, and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section 1006 shall prevent the
Company from discontinuing the operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposition is, in the judgment of the
Company, desirable in the conduct of its business or the business of any Subsidiary.

     Section 1007 Payment of Taxes and Other Claims.

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

16

 

applicability or validity is being contested in good faith by appropriate
proceedings.

     Section 1008 Waiver of Certain Covenants.

     The Company may omit in any particular instance to comply with any covenant or
condition set forth in Sections 1005 to 1010, inclusive, if before the time for such
compliance the Holders of at least a majority in principal amount of the Outstanding 2039
Notes shall, by Act of such Holders, either waive such compliance in such instance or
generally waive compliance with such covenant or condition, but no such waiver shall
extend to or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such covenant or condition shall remain in full
force and effect.

     Section 1009 Limitation on Liens.

     The Company shall not create, assume or suffer to exist any Lien on any Restricted
Property to secure any debt of the Company, any
Subsidiary or any other Person, or permit any Subsidiary so to do, without making
effective provision whereby the 2039 Notes then outstanding and having the benefit of this
Section shall be secured by a Lien equally and ratably with such debt for so long as such
debt shall be so secured, except that the foregoing shall not prevent the Company or any
Subsidiary from creating, assuming or suffering to exist Liens of the following character:

     (1) any Lien existing on the Issue Date of the 2039 Notes;

     (2) any Lien existing on Restricted Property owned or leased by a corporation at the
time it becomes a Subsidiary;

     (3) any Lien existing on Restricted Property at the time of the acquisition thereof
by the Company or a Subsidiary;

     (4) any Lien to secure any debt incurred prior to, at the time of, or within 12
months after the acquisition of Restricted Property for the purpose of financing all or
any part of the purchase price thereof and any Lien to the extent that it secures debt
which is in excess of such purchase price and for the payment of which recourse may be had
only against such Restricted Property;

     (5) any Lien to secure any debt incurred prior to, at the time of, or within 12
months after the completion of the construction and commencement of commercial operation,
alteration, repair or

17

 

improvement of Restricted Property for the purpose of financing all
or any part of the cost thereof and any Lien to the extent that it secures debt which is
in excess of such cost and for the payment of which recourse may be had only against such
Restricted Property;

     (6) any Lien securing debt of a Subsidiary owing to the Company or to another
Subsidiary;

     (7) any Lien in favor of the United States of America or any State thereof or any
other country, or any agency, instrumentality of political subdivision try of any of the
foregoing, to secure partial, progress, advance or other payments or performance pursuant
to the provisions of any contract or statute, or any Liens securing industrial
development, pollution control, or similar revenue bonds;

     (8) Liens imposed by law, such as mechanics’, workmen’s, repairmen’s, materialmen’s,
carriers’, warehousemen’s, vendors’ or other similar Liens arising in the ordinary course
of business, or governmental (federal, state or municipal) Liens arising out of contracts
for the sale of products or services by the Company or any Subsidiary, or deposits or
pledges to obtain the release of any of the foregoing;

     (9) pledges or deposits under workmen’s compensation laws or similar legislation and
Liens of judgments thereunder which are not currently dischargeable, or good faith
deposits in connection with bids, tenders, contracts (other than for the payment of money)
or leases to which the Company or any Subsidiary is a party, or deposits to secure public
or statutory obligations of the Company or any Subsidiary, or deposits in connection with
obtaining or maintaining self insurance or to obtain the benefits of any law, regulation
or arrangement pertaining to unemployment insurance, old age pensions, social security or
similar matters, or deposits of cash or obligations of the United States of America to
secure surety, appeal or customs bonds to which the Company or any Subsidiary is a party,
or deposits in litigation or other proceedings such as, but not limited to, interpleader
proceedings;

     (10) Liens created by or resulting from any litigation or other proceeding which is
being contested in good faith by appropriate proceedings, including Liens arising out of
judgments or awards against the Company or any Subsidiary with respect to which the
Company or such Subsidiary is in good faith prosecuting an appeal or proceedings for
review; or Liens incurred by the Company or any Subsidiary for the purpose of obtaining a
stay or discharge in the course of any litigation or other proceeding to which the Company
or such Subsidiary is a party;

18

 

     (11) Liens for taxes or assessments or governmental charges or levies not yet due or
delinquent, or which can thereafter be paid without penalty, or which are being contested
in good faith by appropriate proceedings;

     (12) any extension, renewal or replacement (or successive extensions, renewals or
replacements) in whole or in part of any Lien referred to in clauses (1) through (11)
above, so long as the principal amount of the debt secured thereby does not exceed the
principal amount of debt so secured at the time of the extension, renewal or replacement
(except that, where an additional principal amount of debt is incurred to provide funds
for the completion of a specific project, the additional principal amount, and any related
financing costs, may be secured by the Lien as well) and the Lien is limited to the same
property subject to the Lien so extended, renewed or replaced (plus improvements on the
property); and

     (13) any Lien not permitted by clauses (1) through (12) above securing debt that,
together with the aggregate outstanding principal amount of all other debt of the Company
and its Subsidiaries secured by Liens which would otherwise be prohibited by the foregoing
restrictions and the aggregate Value of existing Sale and Leaseback Transactions which
would be subject to the restrictions of Section 1010 but for this
clause (13), does not at any time exceed 10% of Consolidated Net Tangible Assets.

     Section 1010 Limitation on Sale And Leasebacks.

     The Company shall not enter into any Sale and Leaseback Transaction covering any
Restricted Property, nor permit any Subsidiary so to do, unless either:

     (1) the Company or such Subsidiary would be entitled to incur debt, in a principal
amount at least equal to the Value of such Sale and Leaseback Transaction, which is
secured by Liens on the property to be leased (without equally and ratably securing the
Outstanding 2039 Notes) because such Liens would be of such character that no violation of
the provisions of Section 1009 would result, or

     (2) the Company during the six months immediately following the effective date of
such Sale and Leaseback Transaction causes to be applied to (A) the acquisition of
Restricted Property or (B) the voluntary retirement of Funded Debt (whether by redemption,
defeasance, repurchase, or otherwise) an amount equal to the Value of such Sale and
Leaseback Transaction.

19

 

ARTICLE 3

Miscellaneous Provisions

     Section 3.01. Integral Part. This Seventh Supplemental Indenture constitutes an integral
part of the Indenture with respect to the 2039 Notes only.

     Section 3.02. General Definitions. For all purposes of this Seventh Supplemental Indenture:

     (a) capitalized terms used herein without definition shall have the meanings specified in the
Indenture; and

     (b) the terms “herein”, “hereof’, “hereunder” and other words of similar import refer to this
Seventh Supplemental Indenture.

     Section 3.03. Adoption, Ratification and Confirmation. The Indenture, as supplemented and
amended by this Seventh Supplemental Indenture, is in all respects hereby adopted, ratified and
confirmed, and this Seventh Supplemental Indenture shall be deemed part of the Indenture in the
manner and to the extent herein and therein provided. The provisions of this Seventh Supplemental
Indenture shall, subject to the terms hereof, supersede the provisions of the Indenture to the
extent the Indenture is inconsistent herewith.

     Section 3.04. Counterparts. This Seventh Supplemental Indenture may be executed in any
number of counterparts, each of which when so executed shall be deemed an original; and all such
counterparts shall together constitute but one and the same instrument.

     Section 3.05. Governing Law. THIS SEVENTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF
LAW RULES OF SAID STATE.

     Section 3.06. Conflict of Any Provision of Indenture with Trust Indenture Act of 1939. If
and to the extent that any provision of this Seventh Supplemental Indenture limits, qualifies or
conflicts with a provision required under the terms of the Trust Indenture Act of 1939, as amended,
such Trust Indenture Act provision shall control.

     Section 3.07. Effect of Headings. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.

     Section 3.08. Severability of Provisions. In case any provision in this Seventh Supplemental
Indenture or in the 2039 Notes shall be invalid, illegal or

20

 

unenforceable, the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.

     Section 3.09. Successors and Assigns. All covenants and agreements in this Seventh
Supplemental Indenture by the parties hereto shall bind their respective successors and assigns and
inure to the benefit of their respective successors and assigns, whether so expressed or not.

     Section 3.10. Benefit of Seventh Supplemental Indenture. Nothing in this Seventh
Supplemental Indenture, express or implied, shall give to any Person, other than the parties
hereto, any Security Registrar, any Paying Agent, and their successors hereunder, and the Holders
of the 2039 Notes, any benefit or any legal or equitable right, remedy or claim under this Seventh
Supplemental Indenture.

     Section 3.11. Acceptance by Trustee. The Trustee accepts the amendments to the Indenture
effected by this Seventh Supplemental Indenture and agrees to execute the trusts created by the
Indenture as hereby amended, but only upon the terms and conditions set forth in this Seventh
Supplemental Indenture and the Indenture. Without limiting the generality of the foregoing, the
Trustee assumes no responsibility for the correctness of the recitals contained herein, which shall
be taken as the statements of the Company and except as provided in the Indenture the Trustee shall
not be responsible or accountable in any way whatsoever for or with respect to the validity or
execution or sufficiency of this Seventh Supplemental Indenture and the Trustee makes no
representation with respect thereto. In no event shall the Trustee be responsible or liable for
special, indirect, or consequential loss or damage of any kind whatsoever (including, but not
limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood
of such loss or damage and regardless of the form of action. The Trustee shall not be deemed to
have notice of any Default or Event of Default unless a responsible officer of the Trustee has
actual knowledge thereof or unless written notice of any event which is in fact such a default is
received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references
the Securities and this Indenture. The rights, privileges, protections, immunities and benefits
given to the Trustee, including, without limitation, its right to be indemnified, are extended to,
and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent,
custodian and other Person employed to act hereunder. When the Trustee incurs expenses or renders
services in connection with an Event of Default specified herein, the expenses (including the
reasonable charges and expenses of its counsel) and the compensation for the services are intended
to constitute expenses of administration under any applicable Federal or state bankruptcy,
insolvency or other similar law.

     Section 3.12. Waiver of Jury Trial. EACH OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT

21

 

PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS INDENTURE, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     Section 3.13. Force Majeure. In no event shall the Trustee be responsible or liable for any
failure or delay in the performance of its obligations hereunder arising out of or caused by,
directly or indirectly, forces beyond its control, including, without limitation, strikes, work
stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural
catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications
or computer (software and hardware) services; it being understood that the Trustee shall use
reasonable efforts which are consistent with accepted practices in the banking industry to resume
performance as soon as practicable under the circumstances.

[Signature page follows]

22

 

     IN WITNESS WHEREOF, the parties hereto have caused this Seventh Supplemental Indenture to be
duly executed as of the day and year first written above.

	 	 	 	 	 
	 	DIAMOND OFFSHORE DRILLING, INC.

 	 
	 	By:  	/s/ William C. Long
 	 
	 	 	Name:  	William C. Long 	 
	 	 	Title:  	Senior Vice President,
General Counsel and Secretary 	 
	 

	 	 	 	 	 
	 	THE BANK OF NEW YORK MELLON, as Trustee

 	 
	 	By:  	/s/ Cheryl L. Clarke
 	 
	 	 	Name:  	Cheryl L. Clarke 	 
	 	 	Title:  	Vice President 	 
	 

[Signature Page to Seventh Supplemental Indenture]

 

 

ANNEX A

GLOBAL SECURITY

[FORM OF FACE OF SECURITY]

     [THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED
TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY IS
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS
NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND, UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF
THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.

     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

     TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF THE DEPOSITORY TRUST COMPANY, OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN ARTICLE ONE OF THE INDENTURE REFERRED TO ON THE REVERSE
HEREOF.]1

 

			
	1	 	These paragraphs should be included only if the
Security is a Global Security.

 

 

[FORM OF FACE OF SECURITY]

DIAMOND OFFSHORE DRILLING, INC.

5.70% Senior Notes due 2039

	 	 	 
	 
	 	 
	Issue Date: October 8, 2009

	 	Principal Amount: $                    
	 
	 	 
	 

	 	CUSIP: 25271CAL6
	 
	 	 
	Registered: No.                     

	 	ISIN: US25271CAL63

     Diamond Offshore Drilling, Inc., a Delaware corporation (herein called the “Company”, which
term includes any successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of
                                                             DOLLARS
($                   
 ) on October 15, 2039, [or such greater or
lesser amount as is indicated in the Schedule of Exchanges of Securities on the other side of this
2039 Note]2 and to pay interest thereon from October 8, 2009 or from the most recent
date to which interest has been paid or duly provided for, semiannually on April 15 and October 15
in each year (each, an “Interest Payment Date”), commencing April 15, 2010, at the rate of 5.70%
per annum, until the principal hereof is paid or duly made available for payment. Interest on
these 2039 Notes shall be calculated on the basis of a 360-day year consisting of twelve 30-day
months. The interest so payable and punctually paid or duly provided for on any Interest Payment
Date will, as provided in such Indenture, be paid to the Person in whose name this 2039 Note (or
one or more Predecessor Securities) is registered at the close of business on the Regular Record
Date for such interest, which shall be the April 1 or October 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date. Any interest which is payable, but is
not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the registered Holder hereof on the relevant Regular Record Date by virtue of having
been such Holder, and may be paid to the Person in whose name this 2039 Note (or one or more
Predecessor Securities) is registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest to be fixed by the Company, notice whereof shall be given to the
Holders of 2039 Notes not less than 10 days prior to such Special Record Date, or may be paid at
any time in any other lawful manner not inconsistent with the requirements of any securities

 

			
	2	 	To be included only if the Security is a Global Security.

A-2 

 

exchange on which the 2039 Notes may be listed, and upon such notice as may be required by
such exchange, all as more fully provided in such Indenture.

     Payment of the principal of and interest, if any, on this 2039 Note will be made at the office
or agency of the Company maintained for that purpose in The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that at the option of the Company, payment of
interest, if any, may be made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.

     Reference is hereby made to the further provisions of this 2039 Note set forth on the reverse
hereof, which further provisions shall for all purposes have the same effect as if set forth at
this place.

     Unless the certificate of authentication hereon has been executed by the Trustee referred to
on the reverse hereof by manual signature, this 2039 Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.

A-3 

 

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

Dated:                                                             

	 	 	 	 	 
	 	DIAMOND OFFSHORE DRILLING, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

________________________________

Corporate Secretary

A-4 

 

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

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

	 	 	 	 	 
	 	THE BANK OF NEW YORK MELLON,

   as Trustee

 	 
	 	
 	 
	 	Authorized Signature 	 
	 	 	 
	 

Date of Authentication:                                         

A-5 

 

[FORM OF REVERSE SIDE OF SECURITY]

DIAMOND OFFSHORE DRILLING, INC.

5.70% SENIOR NOTES DUE 2039

     This Security is one of a duly authorized issue of senior securities of the Company (herein
called the “Securities”), issued and to be issued in one or more series under an Indenture, dated
as of February 4, 1997, as amended by the Seventh Supplemental Indenture thereto, dated as of
October 8, 2009 (as so amended, herein called the “Indenture”), between the Company and The Bank of
New York Mellon (formerly known as The Bank of New York) (as successor under the Indenture to The
Chase Manhattan Bank), as Trustee (herein called the “Trustee”, which term includes any successor
trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the
terms upon which the Securities are, and are to be, authenticated and delivered. This Security is
one of the series designated on the face hereof (herein called the “2039 Notes”), limited in
aggregate principal amount to $500,000,000 created pursuant to the Seventh Supplemental Indenture.
Capitalized terms used and not otherwise defined in this 2039 Note are used as defined in the
Indenture.

     The 2039 Notes are general unsecured and unsubordinated obligations of the Company. The
Indenture does not limit other indebtedness of the Company, secured or unsecured.

Interest on Overdue Amounts

     If the principal amount hereof or any portion of such principal amount is not paid when due
(whether upon acceleration pursuant to Section 502 of the Indenture, upon the date set for payment
of the Redemption Price as described under “Optional Redemption” or upon the Stated Maturity of
this 2039 Note) or if interest due hereon, if any (or any portion of such interest), is not paid
when due, then in each such case the overdue amount shall, to the extent permitted by law, bear
interest at the rate of 5.70% per annum, compounded semiannually, which interest shall accrue from
the date such overdue amount was originally due to the date payment of such amount, including
interest thereon, has been made or duly provided for. All such interest shall be payable as set
forth in the Indenture.

Method of Payment

     Payments in respect of principal of and interest, if any, on the 2039 Notes shall be made by
the Company in immediately available funds.

A-6 

 

Paying Agent and Security Registrar

     Initially, the Trustee will act as Paying Agent and Security Registrar. The Company may
appoint and change any Paying Agent, Security Registrar or co-registrar without notice, other than
notice to the Trustee, except that the Company will maintain at least one Paying Agent in the State
of New York, City of New York, Borough of Manhattan, which shall initially be an office or agency
of the Trustee. The Company or any of its Subsidiaries or any of their Affiliates may act as
Paying Agent, Security Registrar or co-registrar.

Optional Redemption

     No sinking fund is provided for the 2039 Notes. The 2039 Notes are redeemable, in whole or in
part, at the Company’s option at any time. The redemption price for the 2039 Notes to be redeemed
on any date fixed for redemption by or pursuant to the Indenture (the “Redemption Date”), will be
equal to the greater of (i) 100% of the principal amount of the 2039 Notes to be redeemed, or (ii)
as determined by the Quotation Agent, the sum of the present values of the remaining scheduled
payments of principal and interest on such 2039 Notes (not including any portion of any payments of
interest accrued as of the Redemption Date) discounted to the Redemption Date on a semi-annual
basis at the Adjusted Treasury Rate plus 30 basis points; plus, in each case, accrued and unpaid
interest to the Redemption Date, assuming a 360-day year consisting of twelve 30-day months.

     On and after the Redemption Date for the 2039 Notes, interest will cease to accrue on the 2039
Notes or any portion thereof called for redemption, unless the Company defaults in the payment of
the redemption price. On or before the Redemption Date for the 2039 Notes, the Company will
deposit with the Paying Agent or the Trustee (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003 of the Indenture), funds sufficient to pay
the redemption price of the 2039 Notes to be redeemed on such Redemption Date. If less than all of
the 2039 Notes are to be redeemed, the 2039 Notes to be redeemed will be selected by the Trustee
(i) by lot; (ii) pro rata; or (iii) by another method the Trustee considers fair and appropriate;
provided however that no 2039 Notes of a principal amount of $2,000 or less shall be redeemed in
part.

Notice of Redemption

     Notice of any redemption will be mailed at least 15 days but not more than 60 days before the
Redemption Date to each holder of the 2039 Notes to be redeemed; provided however that if the
Trustee is asked to give such notice it shall be notified in writing of such request at least 15
days prior to the date of the giving of such notice. Once notice of redemption is mailed, the 2039
Notes called

A-7 

 

for redemption will become due and payable on the Redemption Date and at the applicable
redemption price, plus accrued and unpaid interest to the Redemption Date.

Transfer

     As provided in the Indenture and subject to certain limitations therein set forth, the
transfer of this 2039 Note is registrable in the Security Register, upon surrender of this 2039
Note for registration or transfer at the office or agency in a Place of Payment for the 2039 Notes,
duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new 2039 Notes, of any authorized denominations
and for the same aggregate principal amount, executed by the Company and authenticated and
delivered by the Trustee, will be issued to the designated transferee or transferees.

     The Securities are issuable only in registered form without coupons in denominations of $2,000
and integral multiples of $1,000 in excess thereof. As provided in the Indenture and subject to
certain limitations set forth therein and on the face of this 2039 Note, 2039 Notes are
exchangeable for a like aggregate principal amount of 2039 Notes of a different authorized
denomination as requested by the Holder surrendering the same.

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

     Prior to due presentment of this 2039 Note for registration of transfer, the Company, the
Trustee or any agent of the Company or the Trustee may treat the Person in whose name this 2039
Note is registered as the owner hereof for all purposes, whether or not this 2039 Note be overdue,
and neither the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.

Amendment, Supplement and Waiver

     The Indenture permits, with certain exceptions as therein provided, the amendment thereof and
the modification of the rights and obligations of the Company and the rights of the Holders of the
Securities of each series to be affected under the Indenture at any time by the Company and the
Trustee with the consent of the Holders of a majority in principal amount of the Securities at the
time Outstanding of each series to be affected. The Indenture also contains provisions permitting
the Holders of specified percentages in principal amount of the Securities of each series at the
time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain

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past defaults under the Indenture and their consequences. Any such consent or waiver by the
Holder of this 2039 Note shall be conclusive and binding upon such Holder and upon all future
Holders of this 2039 Note and of any 2039 Notes issued upon the registration of transfer hereof or
in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made
upon this 2039 Note.

Successor Corporation

     When a successor corporation assumes all the obligations of its predecessor under the 2039
Notes and the Indenture in accordance with the terms and conditions of the Indenture, the
predecessor corporation will (except in certain circumstances specified in the Indenture) be
released from those obligations.

Defaults and Remedies

     Under the Indenture, Events of Default include (i) default in the payment of interest when it
becomes due and payable which default continues for a period of 30 days; (ii) default in payment of
the principal amount or Redemption Price, as the case may be, in respect of the Securities when the
same becomes due and payable; (iii) failure by the Company to comply with other agreements in the
Indenture or the Securities, subject to notice and lapse of time; (iv) default under any bond,
debenture, note or other evidence of indebtedness for money borrowed of the Company or any
Subsidiary having an aggregate outstanding principal amount of in excess of $25,000,000 (excluding
such indebtedness of any Subsidiary other than a Significant Subsidiary, all the indebtedness of
which is nonrecourse to the Company or any other Subsidiary), which default shall be with respect
to payment or shall have resulted in such indebtedness being accelerated, without such indebtedness
being discharged or such acceleration having been rescinded or annulled, subject to notice and
passage of time; and (v) certain events of bankruptcy, insolvency or reorganization of the Company
or any Significant Subsidiary. If an Event of Default with respect to Securities of this series
shall occur and be continuing, the principal amount through the acceleration date of and accrued
and unpaid interest on the Securities of this series may be declared due and payable in the manner
and with the effect provided in the Indenture. If an Event of Default occurs as a result of
certain events of bankruptcy, insolvency or reorganization of the Company, the principal amount of
and accrued and unpaid interest on the Securities Outstanding shall become due and payable
immediately without any declaration or other act on the part of the Trustee or any Holder, all as
and to the extent provided in the Indenture.

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No Recourse Against Others

     No recourse shall be had for the payment of the principal of or the interest, if any, on this
2039 Note, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of
the Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer
or director, as such, past, present or future, of the Company or of any successor corporation,
whether by virtue of any constitution, statute or rule of law or by the enforcement of any
assessment of penalty or otherwise, all such liability being, by acceptance hereof and as part of
the consideration for the issue hereof, expressly waived and released.

Authentication

     This 2039 Note shall not be valid until the Trustee or an authenticating agent manually signs
the certificate of authentication on the other side of this 2039 Note.

Indenture to Control; Governing Law

     In the case of any conflict between the provisions of this 2039 Note and the Indenture, the
provisions of the Indenture shall control.

     THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW RULES OF SAID STATE.

Abbreviations and Definitions

     Customary abbreviations may be used in the name of the Holder or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common),

CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).

     All terms defined in the Indenture and used in this 2039 Note but not specifically defined
herein are defined in the Indenture and are used herein as so defined.

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SCHEDULE OF EXCHANGES OF SECURITIES3

     The following exchanges or redemptions of a part of this Global Security have been made:

	 	 	 	 	 
	 	 	Amount of Decrease in	 	Amount of Increase in
	 	 	Principal Amount of	 	Principal Amount of
	Date of Transaction	 	this Global Security	 	the Global Security
	 	 	 	 	 

 

			
	3	 	This schedule should be included only if the Security is a Global Security.

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