Document:

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                                                                    EXHIBIT 10.7
                                                CONFIDENTIAL TREATMENT REQUESTED

* Portions of this document denoted with an asterisk have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a request for
confidential treatment.

                               BUSINESS AGREEMENT

                                    PREAMBLE

This Business Agreement ("Agreement"), effective October 6, 2003 ("Effective
Date") is made by and between Maxtor Corporation, a Delaware corporation, having
principal places of business at 500 McCarthy Boulevard, Milpitas, California
95035; ("Maxtor"), and Komag, Inc., a Delaware corporation, having its principal
place of business at 1710 Automation Parkway, San Jose, California 95131
("Komag") and its wholly owned subsidiary Komag USA (Malaysia) Sdn., a Malaysia
unlimited liability company, having its principal place of business at Bayan
Lepas Free Industrial Zone, Phase 3, 11900 Penang Malaysia. ("Komag Malaysia")
(references to Komag shall be deemed to include references to Komag Malaysia).

                                    RECITALS

WHEREAS, "Maxtor" shall include without limit Maxtor Peripherals (S) Pte Ltd
("MSP"), and Maxtor Technologies (Suzhou) Ltd ("MTS"); and all other
subsidiaries and locations of Maxtor worldwide;

WHEREAS, "Komag" shall include without limit Komag U.S.A. (Malaysia) SDN
("KMS"), and all other subsidiaries and locations of Komag worldwide;

WHEREAS, Komag is in the business of designing, manufacturing and selling thin
film disk media, including without limit, all commercially viable form factors,
materials and technologies of media and substrates ("Product") for hard disk
drives which are competitive in price, quality and technology and wishes to sell
such Product to manufacturers of disk drives such as Maxtor;

WHEREAS, the parties recognize that the disk drive market is very demanding of
quality, timeliness, and price, and that the essence of the relationship between
Maxtor and Komag is flexibility; timely delivery of necessary quantities of
qualified, high-yield Products and low costs;

WHEREAS, Maxtor appoints Komag as Maxtor's preferred strategic external media
partner and Komag appoints Maxtor as Komag's most favored customer with the
expectation that this relationship will provide an excellent opportunity for
synergy between the two companies and capitalize on the mutual benefits of
sharing of information and technical resources;

WHEREAS, Maxtor wishes to secure a supply of Product and to purchase quantities
of such Product from Komag meeting Maxtor's specifications set forth on Exhibit
A and for use in Maxtor's hard disk drives ("HDD"), and, subject to the terms
and conditions hereof, Maxtor shall purchase from Komag a proportion of Maxtor's
total needs for Product ("Requirement");

WHEREAS, Komag shall manufacture and deliver to Maxtor, its agents, and/or its
subsidiaries, Product as set forth in this Agreement, including its Terms and
Conditions;

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                                                CONFIDENTIAL TREATMENT REQUESTED

WHEREAS, as of the date of execution of this document, Komag has committed to
Maxtor a calendar [*] output estimated at [*] disks, based on the then current
mix of form factors and test requirements, to be produced from [*] existing
Intevac [*] sputter tools ("Tools" or "Intevac Tools") which Komag currently
owns and operates in KMS exclusively for Maxtor;

WHEREAS, Komag shall acquire [*] additional Intevac Tools and, with the
installation of these [*] additive Tools ("Additive Tools"), increase Komag's
Intevac Tool capacity, dedicated exclusively to Maxtor, by approximately [*]
disks per quarter. Komag shall own and operate the Additive Tools in KMS
exclusively for Maxtor,

WHEREAS, [*];

WHEREAS, Komag agrees that the target volume for a combined [*] Tools shall be
no less than [*] disks per quarter, subject to adjustment as mutually agreed by
both parties, based upon the mix of form factors and test requirements and a
baseline assumption that each Tool, running a single form factor continuously,
should produce approximately [*] disks per quarter;

WHEREAS, Komag shall fund the entire cost of this Intevac Tool capacity
expansion, including all costs of facilitization and ancillary equipment;

WHEREAS, [*];

WHEREAS, Komag shall, at Maxtor's request, install up to [*] incremental Tools
("Incremental Tools") beyond the [*] Additive Tools, and under substantially
similar terms and conditions, provided that the timing of any secondary
expansion by Komag shall be mutually agreed between the Parties;

WHEREAS, the Parties agree that such request by Maxtor for installation of
Incremental Tools shall require a lead-time of [*];

WHEREAS, the Parties agree to discuss the potential for a separate Maxtor -
Komag agreement that would increase Komag's substrate capacity in a manner that
would enable Komag to supply MMC Technology ("MMC") with up to [*] substrates
per quarter for use in MMC's own thin film media manufacturing;

WHEREAS, if problems should be encountered with respect to any aspect of this
Agreement or if the parties should encounter any problems not covered by this
Agreement, Maxtor and Komag shall discuss them in a cooperative and sincere
spirit and attempt to arrive at a mutually acceptable solution; and

WHEREAS, this Agreement commences on the Effective Date and terminates on
October 6, 2008 ("Termination Date") unless terminated earlier or extended as
set forth in this Agreement;

NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND ADEQUACY OF
WHICH IS HEREBY ACKNOWLEDGED, AND IN CONSIDERATION OF THE ABOVE PREMISES AND THE
MUTUAL PROMISES CONTAINED IN THIS AGREEMENT, THE PARTIES AGREE AS FOLLOWS:

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                                                CONFIDENTIAL TREATMENT REQUESTED

                                TABLE OF CONTENTS

<TABLE>
<S>                                                    <C>
ARTICLE I -- PRODUCTS................................   4
  1.1  PRODUCT.......................................   4
     Purchase and Supply.............................   4
     Specification...................................   4
     Participation In Programs.......................   4
     Freedom of Action...............................   4
     Second Sources..................................   4
  1.2  WARRANTY......................................   4
     Authority Warranty..............................   4
     Product Warranty................................   4
     Scope of Warranty...............................   5
     Warranty Disclaimer.............................   5
  1.3  REMEDIES......................................   5
     Product Remedies................................   5
  1.4  PRICES........................................   5
     Product Price...................................   5
     Terms of Sale...................................   6
ARTICLE II -- PROCEDURES.............................   6
  2.1  QUALIFICATION.................................   6
     Qualification...................................   6
     Changes.........................................   6
  2.2  TOOLING.......................................   6
  2.3  COMMITMENT, FORECASTS, AND ORDERS.............   7
     Volume Commitment...............................   7
     Forecasts.......................................   8
     Maxtor's Forecast Allocation....................   8
     Shortages.......................................   8
  2.4  ORDERS........................................   8
     Orders..........................................   8
     Precedences.....................................   9
     End of Life.....................................   9
  2.5  INSPECTION....................................   9
     Inspection by Maxtor............................   9
     Inspection by Komag.............................   9
     In Case Of Failure of Inspection................   9
     Stop Ship Order.................................   9
  2.6  SHIPPING......................................   9
     Carrier.........................................   9
     Timeliness......................................  10
     Shipping Documents..............................  10
     Packing.........................................  10
  2.7  JUST IN TIME (JIT) DELIVERY...................  10
  2.8  ACCEPTANCE....................................  10
  2.9  RETURNS.......................................  10
  2.10 EPIDEMICS.....................................  10
  2.11 INVOICING.....................................  11
  2.12 PAYMENT.......................................  11
     Terms...........................................  11
     Currency........................................  11
     Disputes........................................  11
  2.13 ORDER CHANGES.................................  11
     Changes.........................................  11
     Cancellation....................................  11
  2.14 ENGINEERING CHANGES...........................  12
     Definition......................................  12
     Komag Change(s).................................  12
     Maxtor Change(s)................................  12
  2.15 WORKING RELATIONSHIP..........................  12
ARTICLE III -- INTELLECTUAL PROPERTY.................  12
  3.1  CONFIDENTIALITY...............................  12
     Confidential Information........................  12
     Items Declared Confidential.....................  12
  3.2  PUBLICITY.....................................  13
  3.3  LICENSES......................................  13
     License for Ordinary Use........................  13
     No Other Licenses...............................  13
  3.4  ASSIGNMENT OF RIGHTS..........................  13
     Inventions......................................  13
     Ownership.......................................  13
     Joint Invention.................................  13
ARTICLE IV -- LIABILITIES............................  13
  4.1  GENERAL INDEMNITY.............................  13
  4.2  INFRINGEMENT INDEMNITY........................  13
  4.3  STRICT LIABILITY..............................  13
  4.4  LIMITATION OF LIABILITY.......................  14
ARTICLE V -- DISPUTE RESOLUTION......................  14
  5.1  ESCALATION....................................  14
  5.2  ARBITRATION...................................  14
     Binding Arbitration.............................  14
     Injunctive Relief...............................  14
     Governing Language..............................  14
  5.3  CHOICE OF LAW.................................  14
     Choice of Law...................................  14
     Foreign Corrupt Practices Act...................  14
     Export Controls.................................  14
  5.4  LIMIT OF TIME TO BRING ACTION.................  14
ARTICLE IVI -- GENERAL...............................  15
  6.1  TERM AND TERMINATION..........................  15
     Term............................................  15
     Renewal.........................................  15
     Termination.....................................  15
     Duties Upon Termination.........................  15
     Survival........................................  15
  6.2  GENERAL.......................................  15
     Assignment......................................  15
     Audit...........................................  16
     Consents........................................  16
     Counterparts....................................  16
     Cumulation of Remedies..........................  16
     Independent Parties.............................  16
     Force Majeure...................................  16
     Governing Language..............................  16
     Headings........................................  16
     Joint Work Product..............................  16
     Notices.........................................  17
     Severance.......................................  17
     Time............................................  17
     Waiver..........................................  17
  6.3  ENTIRE AGREEMENT..............................  17
</TABLE>

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                                                CONFIDENTIAL TREATMENT REQUESTED

                              TERMS AND CONDITIONS

                             ARTICLE I --- PRODUCTS

1.1 PRODUCT.

1.1.1 Purchase and Supply. Maxtor wishes to secure a supply of Product and to
purchase quantities of such Product from Komag meeting Maxtor's specifications
set forth in Exhibit A and for use in Maxtor's HDD's. Komag shall provide to
Maxtor, exclusively, all of the capacity and output from the Intevac Tools,
Additive Tools, and Incremental Tools required to support this Agreement. Komag
wishes to supply such Product to Maxtor under the terms and conditions of this
Agreement and at the prices set forth on Exhibit B, as more completely detailed
elsewhere in this Agreement, including, but not limited to Section 1.4.1
Pricing. Therefore, subject to the terms and conditions of this Agreement,
Maxtor will purchase and Komag will supply Product for the term of this
Agreement. Maxtor's obligation to purchase Product from Komag is contingent
upon:

         (i)    Komag's Product meeting Maxtor's requirements, including but not
limited to time to market , time to volume, Product specifications, performance,
quality and functional requirements (including, without limit, media-chargeable
HDD yields), Maxtor customer requirements, and the other terms and conditions of
this Agreement.

         (ii)   Komag's commitment to Maxtor, on a best efforts basis, that the
installation of the Additive Tools shall be at least partially completed by the
end of [*], to a degree sufficient to ensure that Komag can deliver to Maxtor
the full quarterly capacity of at least [*]. Komag's commitment to capacity and
production output on these [*] machines shall take into account Maxtor's normal
qualification requirements for Products, tools, and facilities.

         (iii)  Komag' commitment to provide the substrate input required for
[*] Maxtor disk output per quarter, taking into consideration the yields that
are likely for the mix of programs and form factors required from Maxtor. Komag
shall meet its substrate commitments, either by adjusting the allocation of its
current internal and external substrate supply, or by adding qualified capacity
in its own or a third party facility.

1.1.2 Specifications. As of the Effective Date, Exhibit A may not be attached.
The parties will from time to time agree in writing upon specifications for the
Product or amendments to agreed-upon specifications and such agreed-upon
specifications or amendments shall become parts of Exhibit A and shall be
incorporated into this Agreement when each such written agreement is made.

1.1.3 Participation in Programs. Maxtor will use reasonable commercial efforts
to qualify and utilize Komag's Product in all Maxtor programs as they are
defined in Maxtor's product roadmap. Komag will use its best efforts to
participate in all Maxtor programs as they are defined in Maxtor's product
roadmap.

1.1.4 Freedom of Action. Nothing in this Agreement shall prevent either party
from engaging in similar business with other persons, including, without limit,
competitors of the other party, provided that the confidentiality and terms of
this Agreement are not breached.

1.1.5 Second Sources. Komag understands that Maxtor qualifies additional sources
for Products or the same or substantially similar goods or materials from time
to time and places its orders among qualified internal and external suppliers as
it sees fit. Nothing in this Agreement will prevent Maxtor from procuring
Products or the same or substantially similar goods or materials from other
sources than Komag or from providing the same itself, provided that the
confidentiality and intellectual property rights terms of this Agreement are not
breached.

1.2 WARRANTY. Each of Komag's warranties made hereunder is materially relied
upon by Maxtor in entering into this Agreement or any Order.

1.2.1 Authority Warranty. Each party represents and warrants that all corporate
action necessary for the authorization, execution and delivery of this Agreement
by such party and the performance of its obligations under this Agreement has
been taken. Further, each party represents and warrants that neither the
execution of this Agreement nor any performance of this Agreement shall conflict
with or be prohibited by any interest, agreement, obligation, contract, order,
law, regulation, or duty, oral or written, to which it is a party or by which it
is bound.

1.2.2 Product Warranty. Komag warrants the Product, upon delivery and for
fifteen (15) months thereafter, to:

         (i)    have a clear title, free of all security interests,
encumbrances, or liens;

         (ii)   not infringe any patent, trademark, copyright, trade secret, or
other intellectual property right of any third person;

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                                                CONFIDENTIAL TREATMENT REQUESTED

         (iii)  be newly manufactured and not used or reworked (except as
provided in Maxtor-approved procedures);

         (iv)   be free from defects in workmanship and materials except as
defined in and allowed by the Product Specification;

         (v)    conform to applicable specifications, drawings, or other
descriptions given, including those set forth in this Agreement and Komag's
sales literature;

         (vi)   possess the qualities of goods which Komag has held out to
Maxtor as a sample or model;

         (vii)  initially meet and continue to meet Maxtor's qualification
criteria and standards (this specific warranty shall not apply to any Order
which is declared a "Risk Buy" in writing by Maxtor); and

         (viii) be contained or packaged according to Maxtor's specifications as
agreed and in effect at the time this Agreement is executed, or as may be
mutually agreed thereafter.

The above is the Product Warranty ("Product Warranty"). A unit of Product which
meets all of the standards of the Product Warranty shall be a Conforming Product
("Conforming Product"). Replaced Product shall be subject to the provisions of
this warranty to the same extent as the original Product except that the
warranty period shall run from its delivery date.

1.2.4 Scope of Warranty. The above warranties shall be construed as conditions
as well as warranties and shall be cumulative.

1.2.5 Warranty Disclaimer. EXCEPT FOR THE WARRANTIES SET FORTH ABOVE, KOMAG
GRANTS NO WARRANTIES, EITHER EXPRESS OR IMPLIED, FOR THE PRODUCT, AND DISCLAIMS
ALL IMPLIED WARRANTIES INCLUDING WITHOUT LIMIT ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

1.3 REMEDIES.

1.3.1 Product Remedies. In the event that Maxtor determines that a Product is
not a Conforming Product, and Komag has had forty eight (48) hours notice or if
Komag must receive parts from Maxtor, ninety-six (96) hours notice of such
determination, during which time Komag may take such actions as it desires to
confirm for itself Maxtor's determination, then Maxtor may elect to have the
Product replaced or to receive a full refund for the Product as follows:

         (i)   Komag agrees to replace any Product not Conforming to the
requirements of this Agreement when requested by Maxtor. If Komag, upon such
notice of defect, fails to replace the Product, Maxtor may do so without further
notice and Komag shall reimburse Maxtor for actual direct manufacturing costs
incurred to replace the Media in such actions. No inspection, test or approval
of any kind, including approval of designs, shall affect Komag's obligation
under this Agreement.

         (ii)  Komag agrees to refund the purchase price (if payment has been
made by Maxtor) or to credit Maxtor's account for such purchase price (if
payment has not been made by Maxtor) of any Product not Conforming to the
requirements of this Agreement when requested by Maxtor.

         (iii) Product which has been used or rejected shall not thereafter be
tendered for acceptance unless the former use or rejection is identified by
Komag in writing and Maxtor accepts such tender in writing.

1.4 PRICES.

1.4.1 Product Price.

         (A) The purchase price for Product paid to Komag by Maxtor for the
balance of 2003 and for all of 2004 shall be as detailed in Exhibit B "Komag
Expansion Pricing Matrix". This pricing shall be on a not-to-exceed basis, and
it is anticipated that yield improvements and/or decreases in material costs
will provide lower prices from Komag to Maxtor on a Product by Product basis.
The prices in Exhibit B shall be reviewed at least monthly by Komag and Maxtor,
with the specific intent of finding ways to reduce said pricing.

         (B) Komag agrees to diligently pursue and to work cooperatively with
Maxtor in pursuing cost reductions, which shall be reflected in prompt
reductions to the prices in Exhibit B when such cost reductions are implemented.
Such price reductions shall not apply to inventory declared by Komag, except as
mutually agreed.

         (C) [*].

         (D) It is understood and agreed that any cancelled or rejected portion
of an Order which is cancelled or rejected because of Komag's fault, including
without limit warranty, inspection, deliveries, shortages, or epidemic, shall
nevertheless be counted as purchased for purposes of determining Maxtor's right
to any discounts or other considerations based on quantity purchased.

         (E) [*].

         (F) Komag agrees that prices for new technologies, such as
perpendicular magnetic recording ("PMR") and synthetic anti-ferromagnetic
coating ("SAF" or "AFC") will be based upon the assumption that Komag's costs
shall be comparable to MMC's costs, and that such MMC costs shall be predicated
on MMC using labor costs equivalent to the lesser of MMC's actual labor costs or
the labor costs actually incurred by KMS. Maxtor will help facilitate
communication between MMC

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                                                CONFIDENTIAL TREATMENT REQUESTED

and Komag should there be wide discrepancies in costs for new technologies.

         (G) Maxtor agrees that the prices detailed in Exhibit B include process
improvement plans Komag has made known to Maxtor at the time of execution of
this Agreement, as detailed in Exhibit C.

1.4.2 Terms of Sale. The terms of sale are as follows:

         (i)    For sales to Maxtor's research, engineering, qualification,
development, or NPI facilities, or in any case which is not Just in Time (JIT):
Title and risk of loss or damage to the Products passes from Komag to Maxtor, at
Maxtor's receiving dock. Maxtor selects the common carrier and pays for freight,
but Komag is responsible for all other shipment and pre-delivery costs including
without limit insurance and packing according to the terms of this Agreement. If
the sale involves international shipment from Komag to Maxtor, then the terms of
sale are D.D.P. Maxtor's designated delivery location; and Komag is responsible
for importation and all customs, taxes, imposts, or duties.

         (ii)   For sales to Maxtor's factory facilities under Just In Time
("JIT") terms:

Title and risk of loss or damage passes from Komag to Maxtor at Maxtor's
receiving dock. Maxtor pays for all freight from Komag's origin to the JIT
warehouse, but Komag is responsible for all other shipment and pre-delivery
costs including without limit inventory, stocking, all warehouse expense,
insurance, packing, and shipment from warehouse to Maxtor according to the terms
of this Agreement. Maxtor selects the common carrier. Excess transportation
costs resulting from Komag's failure to comply with the provisions of this
Agreement will be paid by Komag. Terms of sale are D.D.U. Maxtor's designated
delivery location.

                            ARTICLE II -- PROCEDURES

2.1 QUALIFICATION.

2.1.1 Qualification. The respective obligations of the parties pursuant to this
Agreement shall be subject to the successful qualification of Komag's Product
and its manufacturing process in Maxtor's HDD and with Maxtor's customers, as
Maxtor deems necessary. Maxtor and Komag shall cooperate to set up the necessary
processes and procedures to accomplish and facilitate such qualification.
Successful qualification means successful qualification with each specified
head. After Maxtor's approval or acceptance of the initial qualification
prototypes of the Products, Komag shall not make any changes in the Product
design or material according to the Specification, any processes documented in
the mutually agreed Process Management Plan; or in plant location.

2.1.2 Changes. Komag shall use its best efforts to promptly notify Maxtor in
writing of any change in Product design or material according to the
Specification; production process documented in the mutually agreed Process
Management Plan; or in plant location in order to allow it to re-qualify the
Product, before any Product is manufactured by the new design, material, process
or in the new location and sold to Maxtor. Failing such written notice and
re-qualification, Komag will be responsible for Maxtor's damages up to the cost
of the affected Product and any direct expense incurred for the rework of
Maxtor's HDD. Any Product delivered to Maxtor after such change and without
re-qualification may be rejected by Maxtor for a full refund.

2.2 TOOLING. Unless otherwise specified in this Agreement, all tooling and/or
all other articles required for Komag's performance under this Agreement shall
be furnished by Komag, maintained in good condition and replaced when necessary
at Komag's expense. If Maxtor agrees to pay Komag for special tooling or other
items either separately or as a stated part of the unit price of Products, title
to same shall be and remain in Maxtor upon payment, and the tooling shall be
treated as property of Maxtor, furnished by Maxtor to Komag.

         (A) Maxtor agrees to pay for the prototype tooling required to
establish the development of new form factors in KUS. This includes tools and
cassettes required to transport substrates to Komag, media within Komag's
process, and finished media to Maxtor. Notwithstanding anything to the contrary
in this paragraph, such prototype tooling shall not exceed $250K for any one
form factor for any one program, and Maxtor agrees to pay fifty percent (50%) of
such tooling cost upon placement of purchase order, and the balance of fifty
percent (50%) of such tooling cost upon shipment of first samples of material to
Maxtor. Komag agrees that if, for any reason, it should not qualify on a program
for which Maxtor has authorized and made payments for tooling, Komag shall
reimburse Maxtor for said tooling costs. Maxtor's payments for said tooling
shall be made in accordance with the payment terms and conditions in effect
between the two companies at the time each payment is due.

         (B) Komag will pay for all volume tooling, including any special
tooling for form factors new to the Maxtor dedicated Tools at Komag, and make
ready said tooling as required in KMS three (3) months prior to the start of
DVT.

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2.3 COMMITMENT, FORECASTS, AND ORDERS.

2.3.1 Volume Commitment.

         (A)    Komag agrees to exclusively sell Maxtor the output from the
Intevac Tools, Additive Tools, and Incremental Tools and the output from any
other Intevac tools that Komag adds to its production capacity under the terms
of this Agreement.

         (B)    Komag understands and agrees that Maxtor's intention is to fully
utilize MMC Capacity as a first priority, followed by fully utilizing Komag's
Maxtor-dedicated capacity as a 2nd priority. Should market conditions force a
drastic downturn in demand, Maxtor may not be able to fully consume 100% of
Komag's installed capacity.

         (C)    Komag's failure to deliver Product for any reason, including but
not limited to production problems, material shortages, quality issues and
qualification issues shall relieve Maxtor of any commitment to purchase Komag
Product for so long as such failure continues, plus reasonable times thereafter
for reallocation of commitments, at no penalty to Maxtor. Komag shall have a
cure period of thirty (30) days in which to cure any default in its volume
commitment to Maxtor. Notwithstanding the above, in the event of Komag's failure
to deliver Product for any reason, Maxtor shall specifically have the right to
re-allocate material demand to other internal or external suppliers subject to
reasonable commitments required by said suppliers that may prevent Maxtor from
meeting its Product purchase commitments to Komag over a period ranging from the
balance of the quarter in which Komag fails to meet its supply commitment plus
the two quarters following that quarter, at no penalty to Maxtor. Maxtor shall
make every reasonable effort to minimize any such impact to Komag.

         (D)    Maxtor's volume forecasts and commitments are not fixed
quantities, but may vary with Maxtor's level of business, tracking to Maxtor's
increasing or decreasing HDD volumes and business projections, and such
increases or decreases shall be without penalty to Maxtor.

         (E)    Any cancelled or rejected portion of an Order which is cancelled
or rejected because of Komag's fault, including without limit warranty,
inspection, deliveries, shortages, or epidemic, shall be counted as purchased
for the purpose of determining Maxtor's compliance with the foregoing volume
purchase commitment.

         (F)    Maxtor's commitment to purchase Product from Komag is strictly
predicated on:

         (i)    Komag's ability to qualify as required on multiple Maxtor drive
programs across all disk form factors offered by Maxtor, with disks capable of
supporting required drive performance using one Komag disk matched with all head
suppliers, or with one Komag disk matched to individual head suppliers, as
solely determined by Maxtor. Maxtor shall assign reasonable Engineering, SQE,
Factory and other resources to support Komag's efforts to get qualified on
Maxtor products.

         (ii)   Komag's agreement that Maxtor's volume commitments are
contingent upon Komag providing disks in a qualification time-frame that is
equal to or superior to Maxtor's other supplier(s). Determination of the
performance and reliability aspects of the media provided by Komag shall be
based on VCAP yields, RTP yields, FGA results, SGT testing, HTS testing, the
DPPM levels of Maxtor drives, and any other tests and/or metrics which Maxtor
may from time to time implement or require. Any decision by Maxtor to purchase
from an alternative supplier, based on better performance in Maxtor's drives,
may, at Maxtor's sole option, be deducted from Maxtor's percentage commitment to
Komag without penalty to Maxtor, based on at least one (1) month's worth of
data. Notwithstanding the above, Komag's performance will be assessed using at
least one (1) month's work of drive data involving no less than 200,000 Komag
disks. Differences must be statistically significant.

         (iii)  Komag's agreement that if, after reasonable commercial efforts
by both parties, Komag fails to qualify on any Head-Disk combinations, then
Maxtor has no duty to purchase Product from Komag for such Head-Disk
combinations and Maxtor's purchase requirements are reduced accordingly without
penalty to Maxtor.

         (iv)   Komag agreement to provide disks to Maxtor with no degradation
in its ability to meet Maxtor's glide and certification test specifications, as
defined for programs currently qualified and in production, or currently being
developed and/or tested and/or qualified by Maxtor. Any plans by Komag to change
any test parameters shall be submitted to and approved by Maxtor in Maxtor's
sole discretion, prior to implementation by Komag. Should Komag be unable to
provide disks up to and including the anticipated volume of [*] disks per
quarter as the result of tester throughput issues and/or test parameters that do
not meet Maxtor's specifications for quality or performance, Maxtor's purchase
requirements are reduced accordingly without penalty to Maxtor.

         (v)    Komag's agreement that, in the event Komag fails to qualify with
each head for a particular Maxtor program on a timely basis, Maxtor may:

         (a)    reduce Komag's allocation for that program if Maxtor produces
HDD for the program with the head that Komag failed to qualify (and use
reasonable commercial efforts to award Komag compensating volumes in other
Programs) without penalty to Maxtor; and

         (b)    determine that the foregoing volume commitments shall thereafter
be measured without

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                                                CONFIDENTIAL TREATMENT REQUESTED

reference to such reduced program if Maxtor produces HDD for the program with
the head that Komag failed to qualify without penalty to Maxtor.

         (G)    In the event that Komag fails to qualify for any two (2) Maxtor
programs in a row or for any three (3) Maxtor programs in any twelve (12) month
period, then Maxtor, in its sole discretion, may terminate this Agreement
without any penalty or payment whatsoever, and such termination shall not be a
breach of this Agreement.

2.3.2 Forecasts. During the term of this Agreement, Maxtor shall provide Komag,
on a monthly basis, with a four (4) quarter rolling forecast setting forth its
estimated Product needs and shall provide Orders for the first thirteen (13)
weeks of the forecast. Orders will be placed sixty (60) days in advance of the
date as of which the Products are to be delivered. Maxtor may request a shorter
lead time and Komag shall use its reasonable commercial efforts to meet such
date. Maxtor's forecast is provided solely for Komag's convenience and for its
planning purposes; no forecast shall be construed as an authorization by Maxtor
to order any materials for, or to allocate any labor or equipment for the
manufacture of the Product nor impose on Komag any obligation to supply
additional Product. Maxtor will not be responsible for any of Komag's cost or
expense for materials, Product, labor, or other commitments or expenses, other
than as authorized in Orders.

2.3.3 Komag's Capacity. Komag covenants to provide Maxtor with the right of
first refusal to fifty percent (50%) of any new, uncommitted capacity in order
to meet Maxtor's Product needs.

2.3.4 Maxtor's Forecast Allocation. Allocation of the forecast among Maxtor's
programs is solely at Maxtor's discretion and it is understood that Maxtor shall
have no duty under this Agreement to take or refrain from taking any action
which might, in Maxtor's judgment, substantially and adversely impact Maxtor's
relationships with or commitments to internal or external media vendors or
customers.

         (i)    If Komag fails to meet the requirements for any Maxtor program
at any time, the Product quantities allocated for that Maxtor program within the
forecast may be reduced or eliminated by Maxtor. Maxtor will use reasonable
commercial efforts to award to Komag compensating increases in other Maxtor
programs.

         (ii)   If Maxtor forecasts increased Product needs for any particular
Maxtor program, Maxtor will use reasonable commercial efforts to provide Komag
with the opportunity to supply increased quantities for such program, provided
that Komag is qualified to the configurations and customers driving the
increased forecast and is meeting Maxtor's specifications and functional
requirements, including production ramp and yield. In such case, Maxtor will
notify Komag of any such resultant forecasted increased allocation and Komag
will promptly notify Maxtor of Komag's available capacity and commitment to
supply such increase.

         (iii)  If Maxtor forecasts decreased Product needs for any particular
Maxtor program, Maxtor will use reasonable commercial efforts to award to Komag
compensating increases in other Maxtor programs, subject to the terms of Section
2.3.1 (A).

         (iv)   Should Maxtor not utilize  Komag's  reserved  capacity for a
period greater than ninety (90) days, and should Maxtor have no forecast to use
said capacity for an additional and successive ninety (90) days, then Komag may,
with Maxtor's prior written agreement, utilize said capacity for a third (3rd)
party, subject to the terms and conditions following: (a) Komag may offer to and
utilize the capacity for any third (3rd) party only if such party agrees with
Komag in writing in advance to give up such capacity with thirty (30) days of
written notice by Komag; and (b) Komag can and will start production for Maxtor
for an existing qualified Maxtor product within forty-eight (48) hours of the
end of said thirty (30) day notice period, or such shorter period if the demand
requirements from the third (3rd) party should end in less than thirty (30)
days.

2.3.5 Shortages. With the exception of substrates, as set forth in Section 1.1.1
(iii), Komag agrees that in the event of a shortage of capacity or material that
will affect the supply of the Product, Maxtor's Order(s), subject to normal
lead-time requirements, shall be filled according to an allocation plan at least
as favorable as those provided to all other Komag customers with similar or
lesser quantity forecasts and Orders. Komag shall provide Maxtor with as much
notice as possible if it anticipates or has reason to believe that Komag's
output of the Product will not be sufficient to meet all of Maxtor's Product
needs for any period.

2.4 ORDERS.

2.4.1 Orders. All purchases and sales shall be initiated by Maxtor's issuance of
written purchase orders sent via airmail, E-mail, web-based, facsimile, or
courier ("Order"). Such Orders shall reference this Agreement and state the unit
quantities, unit descriptions, price, requested delivery dates and shipment
instructions. The acceptance by Komag of an Order shall be indicated by written
or E-signature acknowledgment within three (3) work days. Maxtor will have the
right to deem its order as accepted by Komag if Komag's acknowledgment does not
reach Maxtor within ten (10) days from the date of the Order. By shipping the
Products, or by confirming or accepting an Order, or by performing the work
described

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                                                CONFIDENTIAL TREATMENT REQUESTED

in an Order, or by allowing an Order to be deemed accepted, Komag agrees to the
Order and to the terms and conditions of this Agreement. All Orders meeting the
terms and conditions of this Agreement shall be accepted by Komag.

2.4.2 Precedence's. Any terms and conditions added or referenced by either party
in any purchase order, confirmation, acceptance or any similar document
purporting to modify the terms and conditions contained in this Agreement, shall
be disregarded unless expressly agreed upon in writing signed by the parties,
which expressly amends this Agreement. The preprinted terms and conditions of
purchase orders, acceptances, confirmations and similar business documents shall
have no effect as amendments of, objections to, or modifications of this
Agreement.

2.4.3 End of Life. Komag commits to supply Product to Maxtor for the duration of
the Maxtor HDD program for which the Product is qualified and until one (1)
calendar quarter after Maxtor's last production build for the program. The last
purchase order date and the last shipment date for the Product for each program
shall be agreed to by the parties.

2.5 INSPECTION. Maxtor and Komag shall cooperate to inspect Products, and
nothing in this section shall limit Maxtor's other rights and remedies.

2.5.1 Inspection by Maxtor. Maxtor may test each lot or Order of Product to
ensure that the Products meet Maxtor's specifications and acceptance criteria,
and Komag shall not ship any Products that do not Conform. Product may be
inspected and tested by Maxtor or Maxtor's agent at all reasonable times and
places after manufacture and before or after shipment. . If any inspection or
test is made on the Komag's premises, Komag shall, without additional charge,
provide reasonable facilities and assistance for the safety and convenience of
inspectors in such manner as not unduly to delay the work. Inspection of
Products at Komag's facility shall be without prejudice to Maxtor's right to
inspect and reject such Products upon delivery to Maxtor's facility. Where
applicable, Maxtor may, at its option, inspect all Products or inspect a
statistical sample selected from each lot, and Product, lots or Orders may be
inspected more than once. Product delivered to and inspected by Maxtor and
deemed acceptable by Maxtor will be transferred to Maxtor's ownership and
invoiced according to terms set forth in this agreement.

2.5.2 Inspection by Komag. Komag will ensure that all Products are tested in
accordance with Maxtor's specifications and requirements, as may be amended from
time to time. Komag will provide only those Products conforming to Maxtor's
specifications and requirements, unless Komag has obtained prior written
approval from Maxtor for any deviation from such specifications. Komag further
agrees to maintain adequate authenticated inspection test documents that relate
to work performed under this Agreement. Such records shall be retained by Komag
for a period of two (2) years after Product shipment and made available to
Maxtor upon request. Komag agrees to supply Maxtor with inspection and test
reports, affidavits, certifications or any other documents as may be reasonably
requested. Komag agrees to collect and send to Maxtor, data on failure rates and
causes on a monthly basis in a mutually agreed format.

2.5.3 In Case of Failure of Inspection. If the above inspection or testing
detects Products which do not conform to the specifications or the requirements
of this Agreement, Maxtor and Komag will closely cooperate to identify and find
a way to correct the causes of the problem(s). Maxtor may refuse to accept
Product which does not conform. Maxtor may reject entire lots if lot acceptance
criteria established in the specifications are not fulfilled. The rejected
Product may, at Maxtor's discretion, be returned to Komag and Komag may verify
the nonconformance. Maxtor will use its reasonable commercial efforts to assist
Komag in identifying and rectifying the cause(s) for rejection.

2.5.4 Stop Ship Order. Maxtor may stop future shipments of Product until the
cause(s) for non-conformity, as mutually determined by parties, have been
corrected. A stop ship order may be issued by Maxtor, without limiting its other
rights and remedies, when one half of one percent (.5%) or the threshold amount
stated in the Specification, whichever is less, of the Product shall be
non-conforming over a period of seven (7) days or more or over ten percent (10%)
of an Order or more, whichever occurs sooner. In the event Maxtor issues a stop
ship order, Komag must immediately cease shipment of the Products, and all
Orders which have been or would have been filled by the nonconforming Product
are terminated without liability to Maxtor until such stop ship order is lifted
and Maxtor retains all of its rights and remedies under this Agreement. Maxtor
will use commercially reasonable efforts to work with Komag to determine the
cause of the nonconformance problem and to develop solutions

2.6 SHIPPING. The following terms apply to all shipments, whether Just In Time
(JIT) or otherwise.

2.6.1 Carrier. Komag and Maxtor shall agree upon the common carrier.

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2.6.2 Timeliness. Komag shall use its best efforts to meet one hundred percent
(100%) on-time delivery commitments to Maxtor's JIT HUBs, unless relieved of
such JIT HUB obligation in writing in advance by Maxtor. Notwithstanding the
above, Komag shall in all cases use its best efforts to ensure zero shortages to
any Maxtor production line. If Komag's performance falls below one hundred
percent (100%) on-time deliveries, then Komag shall implement a corrective
action plan acceptable to Maxtor which brings the deliveries back to one hundred
percent (100%) on-time. If Komag is unable to deliver any Product on schedule,
Komag shall promptly notify Maxtor giving a new delivery date, and Maxtor may:

         (i)    accept the new delivery date; or

         (ii)   reschedule the delivery by means of a Change Order; or

         (iii)  cancel the delayed portion of the Order without liability,  if
(i) and (ii) above are not commercially reasonable for Maxtor.

At Maxtor's request, Komag will provide Maxtor with daily notification of
shipping delays or of the progress of delayed Products in transit. Such
notification will include action plans to for recovery or expediting of the
affected Product.

2.6.3 Shipping Documents. Either invoice or delivery orders may be used when
making deliveries. Each set must contain three (3) copies. Each copy must
identify this Agreement, item number and description of Products, purchase order
number, and quantity of Products shipped. A complete packing list specifying
Maxtor's applicable purchase order number, quantity of Products shipped, and
part number shall be enclosed with all shipments under this Agreement. All
documents accompanying the Products shall reference the purchase order number.

2.6.4 Packing. Unless otherwise specified in writing, all Products are to be
packed and marked in accordance with Maxtor's specifications.

2.7 JUST IN TIME (JIT) DELIVERY. Komag shall maintain a buffer stock of Products
in a quantity and location to be agreed upon from time to time in writing in
order to provide Just-In-Time (JIT) delivery to Maxtor. All expenses of
maintaining the buffer stock shall be borne and covered by Komag, including
without limit the expense of establishing EDI and/or E-mail links as required by
Maxtor, unless otherwise expressly provided by this Agreement. Maxtor recognizes
that Singapore law requires the payment of a tax on inventory that is held in a
JIT Hub more than thirty (30) days, and shall make reasonable efforts to pull
all such inventory within thirty (30) days, subject to drive build schedules. A
minimum of fourteen (14) days of buffer stock shall be maintained at the
warehouse; fourteen (14) days of buffer stock shall be determined as one half
(1/2) of the next four (4) weeks of Product on Order, unless the parties shall
agree to another level of buffer stock in writing. Such JIT buffer stock shall
be required at both Maxtor's Singapore plants and Maxtor's China plant. All
Products in the buffer stock shall have passed source inspection by Komag,
Maxtor, or both, before shipment to the warehouse. Maxtor will, from time to
time, typically daily, request deliveries from the buffer stock in quantities
that are even multiples of pallet loads by means of a pull signal. .

2.8 ACCEPTANCE. If, after thirty (30) days from the date of receipt by Maxtor,
Maxtor has not rejected the Product, it will be deemed to have been accepted by
Maxtor. The act of inspection or payment by Maxtor for the Product will not be
construed as Maxtor's acceptance of any Product. Acceptance of any Product shall
not affect the warranty or any remedy provided hereunder.

2.9 RETURNS. Returns of product to Komag are at Komag's expense for shipping for
all returns which are caused by Komag's fault and for reasonable and customary
packing in the event of significant returns which are caused by Komag's fault,
including without limit warranty, inspection, and epidemics and are F.O.B.
Maxtor, and title and risk of loss pass to Komag upon delivery to the common
carrier at Maxtor's dock. Komag shall pay all expenses for shipment of
replacement Product, which is caused by Komag's fault, including without limit
warranty, inspection, and epidemics. Return shipments are F.O.B. Maxtor, and
title and risk of loss pass to Komag upon delivery to Maxtor's dock. If Komag
requests, Maxtor will apply Komag's Return Materials Authorization (RMA) or
similar number to the returned Products and/or related documentation, provided,
however, that Komag must supply such RMA number to Maxtor on a timely basis.

2.10 EPIDEMICS. Epidemic or sweeping failures of Product may be detected
directly or by virtue of failures of Maxtor's HDD's, and the procedures and
remedies for epidemics are in addition to all other of Maxtor's rights and
remedies available under this Agreement. An epidemic failure shall occur when
one percent (1%) of Maxtor's HDD delivered to one or more customers shall fail
within six (6) months of delivery for reasons Maxtor determines to be related to
Product and which the parties have discussed. In the event that Maxtor's HDD's
should develop any epidemic failure related to Komag's Product, the parties will
meet in order to work out technical methods to diagnose and remedy the

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                                                CONFIDENTIAL TREATMENT REQUESTED

problem. In such event, shipment of undelivered Products related to the epidemic
may be postponed, at Maxtor's request, until the cause of the epidemic has been
corrected. In case upon the expiration of 30 (thirty) days from the date of
Maxtor's notice regarding the epidemic, Komag has not yet remedied the same,
then Maxtor shall be entitled to cancel pending Orders without any liability for
such cancellation and without prejudice to Maxtor's rights for damages or any
other remedy. In the event that a remedy has been found, all Product units
subsequently delivered to Maxtor shall incorporate the modification remedying
the defect, if necessary, and Komag shall be obliged to accept return of all
Product units previously delivered to Maxtor, affected by such epidemic,
provided the epidemic is related to Product or Komag process non-conformance.
Maxtor agrees to re-accept delivery of such returned epidemic material if it is
mutually agreed that such epidemic failure has been remedied. In the event
Maxtor can show that the epidemic is due to the failure of the Product to meet
the Product Specification, Komag will refund the cost of the Product and Maxtor
and Komag will negotiate in good faith any direct expense incurred for the
rework of Maxtor's HDD.

2.11 INVOICING. Komag will issue the invoices for the Products and will date
them with a date equal or subsequent to date of delivery to Maxtor's dock.
Invoices shall reference this Agreement, purchase order number, item number and
description of Products, unit price of Products, and total amounts due.

2.12 PAYMENT.

2.12.1 Terms Invoices shall be due and payable:

         (i)    [*];

         (ii)   [*]; and

         (iii)  [*].

[*].

2.12.2 Currency. Unless expressly provided to the contrary, all amounts stated
in this Agreement and all sums payable under this Agreement shall be denominated
in United States Dollars and all payments made under this Agreement shall be
made by wire transfer, cashier's check, or other ready funds in United States
Dollars to payee's designated account and bank.

2.12.3 Disputes. Maxtor shall have forty five (45) days after the invoice date
to contest in good faith the amounts and items charged. If the dispute is
resolved prior to fifteen (15) days before the original due date, payment shall
be due on the original due date. If the dispute is resolved thereafter, payment
is due fifteen (15) days after the resolution of the dispute.

2.13 ORDER CHANGES. No Order shall be deemed or construed to be modified,
amended, rescinded, canceled, or waived in whole or in part, except by a written
Change Order signed by a representative of each party.

2.13.1 Changes. Komag grants to Maxtor, subject to Komag's plant constraints,
the right to make changes to the Product mix or schedule one or more times
without penalty, provided that the overall volume of the Order is not changed.
Komag must respond within two (2) working days. If any such change causes an
increase or decrease in the cost of, or the time required for performance of,
any part of the work on an Order or affects any other provisions, an equitable
adjustment shall be made in the price or delivery schedule, or both, and in such
other provisions as may be affected. It is understood that market conditions or
requirements by Maxtor's customers may require changes in the Product mix one or
more times and it is anticipated that such changes may occur frequently. Any
claim by Komag for adjustment under this clause must be asserted in writing
within thirty (30) days of Komag's receipt of the Change Order. Where the cost
of any property made obsolete or surplus as a result of a change is included in
Komag's claim for such adjustment, Maxtor shall have the right to prescribe the
manner of disposition of such property once the claim payment has been made. If
Maxtor's Change Order is an acceleration or increase, Komag will use its
reasonable commercial efforts to meet the requested quantities and/or delivery
dates.

2.13.2 Cancellation. Maxtor may cancel Order(s) by notifying Komag in writing.
Komag will cease work on the affected Order in accordance with such notice.
Maxtor will

         (i)    purchase and pay for any units of Product that have been
completed as of the effective date of the cancellation;

         (ii)   will pay Komag the actual overhead, labor and materials costs
incurred by Komag in connection with the Production of any Products that are
partially completed as of the effective date of cancellation up to the total
purchase price under the canceled order(s);

         (iii)  pay the costs of components and other materials procured by
Komag specifically on account of the canceled order(s), and receive title to
such items;

         (iv)   pay the costs of components and other materials, including
without limit tools, dies, jigs, fixtures, plans, drawings, information and
manufacturing materials specifically produced or acquired for performance of
this Agreement and receive title to such items; and

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                                                CONFIDENTIAL TREATMENT REQUESTED

         (v)    pay any cancellation or restocking charges imposed by vendors on
account of any canceled orders pursuant to clauses (iii) and (iv) above.
Provided, however, that the aggregate of such payments shall not exceed the
amounts originally due under the Order. Komag will use its reasonable commercial
efforts to return components and other materials to its vendors and/or use them
in other activities at Komag. Komag will in any event use its reasonable
commercial efforts to mitigate the cancellation charges under this Agreement.
All Products which are purchased or paid for under the above terms shall count
as purchased for the purpose of determining total volumes of Product purchased
by Maxtor.

2.14 ENGINEERING CHANGES. Komag shall not make any changes to the Product or any
process by which they are produced except as set forth in this section.

2.14.1 Definition. Engineering change(s) are those changes in Product design or
material according to the Specification or production process documented in the
mutually agreed Process Management Plan. Any Product which is subject to an
engineering change must be re-qualified unless otherwise provided by Maxtor in
writing.

2.14.2 Komag Change(s). Komag will notify Maxtor of any engineering change
proposed to be made by Komag to the Products or any process by which they are
produced, and will supply a written description of the expected effect of the
engineering change on the Products, including its effect on the form, fit,
function, schedule, price, performance, and reliability of the Products. Maxtor
may elect to evaluate the prototype, parts and/or designs specified as part of
the proposed change and Komag shall provide the prototype, parts and/or design
to Maxtor at applicable volume pricing for such evaluation. Maxtor agrees to
make every effort to approve or disapprove Komag's proposed changes within five
(5) working days after receipt of Komag request for non-critical changes, and
within twenty-four (24) hours for critical changes. Komag will not change or
modify the Products or any process by which they are produced by implementation
of such engineering change without Maxtor's prior written approval.

2.14.3 Maxtor Change(s). Maxtor may request, in writing and in a manner similar
to Komag's request, that Komag incorporate any non-critical engineering change
into the Products, and Komag will provide to Maxtor its written response within
five (5) working days after receipt of Maxtor's request. Maxtor will give Komag
as much notice as possible of any expected request. For critical engineering
changes, as determined by Maxtor, Komag will respond within twenty-four (24)
hours of Maxtor's written request. Komag's response will state the cost savings
or increase, if any, expected to be created by the engineering change, and the
effect on the schedule and price of the Products. If Maxtor requests Komag to
incorporate an engineering change into the Products, the applicable
Specifications will be amended as required. Komag will not unreasonably refuse
to incorporate Maxtor's engineering changes into the Products. In the event any
Maxtor required engineering change directly causes a negative financial impact
to Komag due to incorporation of such change into a Product, the parties agree
to promptly meet to discuss fair compensation for such financial impact. Komag
agrees to use its best efforts to notify Maxtor of such financial impact prior
to incorporation of such engineering change, and in any event, notify Maxtor as
soon as Komag becomes aware of such impact. Maxtor will determine whether the
Product must be re-qualified in whole or in part as a result of any engineering
change.

2.15 WORKING RELATIONSHIP.

         (A)    Designated Maxtor and Komag teams or team members will meet
monthly or as the parties may agree to review current and future plans and
activities. Agendas will include product and technology road-mapping,
development and qualification schedules, capacity planning, yield performance,
cost targets, volumes, plans, quality and delivery performance, and other topics
related to Maxtor and the Products.

         (B)    Komag agrees to work collaboratively with Maxtor Advanced
Development teams on issues related to Komag's new Product development and
Maxtor's hard disk drive development.

         (C)    The lead engineers of each party shall agree upon time tables,
contents, and procedures for Product and technology disclosures, at least
quarterly.

         (D)    Komag shall sample all new Product or other examples of
development, including without limit all new technologies, techniques, or
processes, to Maxtor on a most favored basis.

                      ARTICLE III -- INTELLECTUAL PROPERTY

3.1 CONFIDENTIALITY.

3.1.1 Confidential Information. The parties have previously executed that
certain "Mutual Nondisclosure Agreement" dated October 1, 1997, which agreement
is hereby integrated herein and made a part hereof. Current Maxtor proprietary
technologies that are protected by this agreement include without limit Flying
Height Adjust.

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                                                CONFIDENTIAL TREATMENT REQUESTED

3.1.2 Items Declared Confidential. This Agreement, its terms and conditions,
Maxtor's specifications, and all Orders are Confidential Information as the term
is defined under the "Mutual Nondisclosure Agreement" dated October 1, 1997.

3.2 PUBLICITY. Neither party shall publicly announce or disclose the existence
of this Agreement or its terms and conditions, or advertise or release any
publicity or press release regarding this Agreement, without the prior written
consent of the other party. Nothing in this Agreement shall limit a party from
making such disclosures as are required by law or court order, provided notice
of such disclosures is given to the other party.

3.3 LICENSES.

3.3.1 Intellectual Property License. Komag and Maxtor will in good faith discuss
entering into negotiations for an intellectual property license agreement within
ninety (90) days of the execution of this Agreement.

3.3.2 No Other Licenses. Except as expressly set forth in this Agreement,
nothing contained in this Agreement shall be deemed to grant, either directly or
by implication, estoppel or otherwise, any license on the patents, patent
applications, copyrights or proprietary information arising out of any other
inventions of either party.

3.4 ASSIGNMENT OF RIGHTS.

3.4.1 Inventions. As used in this Agreement, "Invention" shall mean any idea,
design, concept, technique, discovery, enhancement, modification, or
improvement, whether or not patentable, conceived, or reduced to practice during
the term of this Agreement by one or more employees of Komag or Maxtor
independently of the other ("Inventing Party"), or jointly by one or more
employees of Maxtor and Komag, or their subcontractors, ("Joint Invention") in
conjunction with or as a result of work done under this Agreement.

3.4.2 Ownership. In the event that a patentable invention is conceived or
reduced to practice as a result of either company's direct efforts to fulfill
its obligations under this Supply Agreement, Komag and Maxtor shall disclose the
invention to each other. The party whose employees are inventors of patentable
technology shall have the right to file or cause to have filed a patent
application covering such invention. In the event Komag or Maxtor chooses not to
file a patent application made by its employees in any country or countries, it
will notify the other party of the fact in sufficient time to enable the other
party to file an application in such country or countries and the other party
will be given the opportunity to pursue patent protection on that invention at
its own expense. In this case, rights necessary to enable that party to apply
for the patent will be assigned to the party that pursues the patent, the
inventing party shall fully cooperate and provide any assistance reasonably
requested by the applying party in the preparation and prosecution of such
patent application(s), and the inventing party shall be granted a royalty-free,
non-exclusive license to practice the patented invention. Each party shall bear
the expenses incurred in the filing, prosecution, or maintenance of patent
applications or patents which are owned by or assigned to them, in accordance
with the foregoing.

3.4.3 Joint Invention. In the event that during the term of the Supply
Agreement, a patentable invention is made jointly by one or more employees of
Komag and one or more employees of Maxtor, as determined by the U.S. laws of
inventorship, title to any patent application covering such invention and any
patent or patents maturing therefrom shall be jointly owned by Komag and Maxtor.

                            ARTICLE IV -- LIABILITIES

4.1 GENERAL INDEMNITY. Each party shall, in the performance of this Agreement,
fully comply with all applicable national, state, and local laws, rules,
regulations, and ordinances and shall indemnify and hold harmless the other
party from and against any loss, claim, damage, liability, expense, or cost
(including without limitation attorney's fees and court costs) resulting from
failure of such compliance, or out of any other negligence.

4.2 INFRINGEMENT INDEMNITY. Komag will indemnify Maxtor for any claim, action or
proceeding brought by any third party alleging infringement by Komag's Product
of patent, trademark, copyright or other proprietary rights. With respect to any
other claim, action or proceeding brought by any third party which may be
instituted against Komag or Maxtor or both of them, each party will (1) maintain
its own defense, and (2) assume all costs and attorneys fees associated with its
defense.

4.3 STRICT LIABILITY. Each party will indemnify the other against and hold it
harmless from any loss, cost, liability or expense (including court costs and
reasonable fees of attorneys and other professionals) to the extent it

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                                                CONFIDENTIAL TREATMENT REQUESTED

arises out of or in connection with, in whole or in part, any negligence or
willful act or omission of it or its employees or agents including but not
limited to any such act or omission that contributes to:

         (i)    any bodily injury, sickness, disease or death; or

         (ii)   any injury or destruction to tangible or intangible property of
the other or any related loss of use.

4.4 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
SPECIAL, CONSEQUENTIAL, PUNITIVE, INDIRECT, OR INCIDENTAL DAMAGES, HOWEVER
CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING IN ANY WAY OUT OF THIS
AGREEMENT OR ANY AGREEMENT, UNDERTAKING, OR PERFORMANCE THAT MAY BE PROMISED,
PERFORMED, OR EXECUTED TO IMPLEMENT THIS AGREEMENT, PROVIDED, HOWEVER, THAT THIS
LIMITATION SHALL NOT APPLY TO EITHER THE INDEMNITY OBLIGATIONS OF THIS ARTICLE
OR TO A BREACH OF THE CONFIDENTIALITY OBLIGATIONS OF THIS AGREEMENT.

                         ARTICLE V -- DISPUTE RESOLUTION

5.1 ESCALATION. The parties agree that any material dispute between the parties
relating to this Agreement will be submitted to a panel of two senior executives
of each of Maxtor and Komag. Either party may initiate this proceeding by
notifying the other party pursuant to the notice provisions of this Agreement.
Within five (5) days from the date of receipt of the notice, the parties'
executives shall confer (via telephone or in person) in an effort to resolve
such dispute. The decision of the executives will be final and binding on the
parties. In the event the executives are unable to resolve such dispute within
twenty (20) days after submission to them, such dispute shall be settled by
means of arbitration as provided below. Each party's executives shall be
identified by notice to the other party, and may be changed at any time by
notice.

5.2 ARBITRATION.

5.2.1 Binding Arbitration. Any controversy, claim, or action, whether in law or
at equity, whether in tort, contract, warranty, or otherwise, arising out of,
relating to, or involving this Agreement and any agreement, undertaking, or
performance that may be promised, performed, or executed to implement this
Agreement will be settled by arbitration. Any arbitration proceeding shall be
conducted under the laws of the state of California and the Federal Arbitration
Act, and pursuant to the Commercial Arbitration Rules of the American
Arbitration Association insofar as such Commercial Arbitration Rules do not
conflict with the provisions of this Section. The site for any arbitration
proceeding shall be San Jose, California.

5.2.2 Injunctive Relief. Notwithstanding the above, the parties may apply to any
court of competent jurisdiction for injunctive relief without breach of this
arbitration provision.

5.2.3 Governing Language. The arbitration proceedings and all pleadings and
written evidence shall be in the English language. Any written evidence
originally in a language other than English shall be submitted in English
translation accompanied by the original or a true copy.

5.3 CHOICE OF LAW.

5.3.1 Choice of Law. This Agreement and any agreement, undertaking, or
performance that may be promised, performed, or executed to implement this
Agreement shall be governed by and construed under the laws of the State of
California, as they apply to agreements made between residents of California for
performance solely within California. The parties expressly agree that this
Agreement and any agreement, undertaking, or performance that may be promised,
performed, or executed to implement this Agreement shall not be subject to and
shall not be interpreted by the United Nations Convention on Contracts for the
International Sale of Goods.

5.3.2 Foreign Corrupt Practices Act. Maxtor and Komag each acknowledge that they
are subject to the laws and regulations of the United States including the
Foreign Corrupt Practices Act ("FCPA").

5.3.4 Export Controls. Each party agrees that it will not knowingly export or
re-export, directly or indirectly, any technical data or product derived from
the other party to any destination to which such export or re-export is
restricted or prohibited by U.S. law, without obtaining prior authorization from
the U.S. Department of Commerce.

5.4 LIMIT OF TIME TO BRING ACTION. No actions or arbitrations, regardless of
form, arising out of this Agreement, may be brought by either party more than
one (1) year after such actions or arbitrations arose, or in the case of
nonpayment, more than one (1) year from the date the last payment was due.

MAXTOR CONFIDENTIAL                    14

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                                                CONFIDENTIAL TREATMENT REQUESTED

                              ARTICLE VI -- GENERAL

6.1 TERM AND TERMINATION.

6.1.1 Term. This Agreement shall become effective on the Effective Date and
shall remain in force until the Termination Date, and on and effective the
Termination Date this Agreement shall terminate.

6.1.2 Termination by Maxtor. On or at any time after the second anniversary of
the Effective Date, Maxtor may terminate this Agreement upon six (6) months
written notice to Komag. On or at any time after the third anniversary of the
Effective Date, Komag may terminate this Agreement upon twelve (12) months
written notice to Maxtor.

6.1.3 Termination for Cause. This Agreement shall be terminated for cause:

         (i)    If either party materially  defaults in the performance of any
provision of this Agreement, then the non-defaulting party may give written
notice to the defaulting party that if the default is not cured within thirty
(30) calendar days, the Agreement will be terminated at the end of that period
and such termination shall not prejudice or limit either party's remedies; or

         (ii)   If either party violates any intellectual property,
confidentiality, or license provision of this Agreement, then the non-defaulting
party may give written notice to the defaulting party of such violation and of
immediate termination and the Agreement will be terminated when such notice is
given and such termination shall not prejudice or limit either party's remedies;
or

         (iii)  Upon:

                (a) the institution by or against either party of insolvency,
         receivership or bankruptcy proceedings or any other proceedings for the
         settlement of its debts; or

                (b) either party's making an assignment for the benefit of
         creditors; or

                (c) either party's dissolution, this Agreement shall terminate
         immediately without notice and shall be deemed to have been terminated
         by the party not so affected and such termination shall not prejudice
         or limit either party's remedies.

6.1.4 Duties Upon Termination. Upon any termination or expiration of this
Agreement:

         (i)    all licenses made to Komag and Maxtor under this Agreement shall
be terminated according to their terms effective the date of the termination or
expiration;

         (ii)   all trademarks, patents, designs, drawings, formulas or other
data, photographs, samples, literature, and sales aids of every kind received
from or belonging to Maxtor and Komag shall remain the respective property of
Maxtor and Komag, and both parties shall prepare all such items in its
possession with reasonable promptness for shipment to the other at the others
expense;

         (iii)  neither party shall be liable to the other because of such
termination for compensation, reimbursement or damages on account of the loss of
prospective profits or anticipated sales or on account of expenditures,
investments, leases or commitments in connection with the business or good will
of Maxtor or Komag, or for any other reason growing out of such termination; and

         (iv)   any Orders placed before such expiration or termination shall be
completed according to the terms of this Agreement.

6.1.5 Survival. The terms of this Agreement which by their nature may survive
the termination or expiration of this Agreement shall survive the termination or
expiration of this Agreement.

6.2 GENERAL.

6.2.1 Assignment. Komag shall not transfer or assign this Agreement or any of
its rights or obligations under this Agreement directly or indirectly including
without limit in the cases of merger, acquisition of greater then fifty percent
(50%) ownership or control interest in Komag by any party, or sale of Komag's
assets, without the prior written consent of Maxtor, which consent shall be
granted, so long as Maxtor is satisfied that any such assignment, merger,
acquisition, or change of ownership or control shall result in a commitment and
capacity to continue Komag's management, technology, operations, and financing,
and meet Komag's commitments to Maxtor.

         Further, in the event Komag or its assets are acquired by or become
controlled by an HDD supplier, Maxtor has the right to terminate this Agreement
without penalty or payment of any sort or to seek such assurances or contractual
terms and conditions as it may deem necessary to protect its interests. However,
notwithstanding the foregoing, any Order shall not be cancelled or reduced by
Komag.

         Further, in the event Komag or its assets are acquired by another
Maxtor media supplier, Maxtor has the right to limit its total purchases from
the combined entity, notwithstanding any forecasts, orders, or commitments to
either party. However, notwithstanding the foregoing, any Order shall not be
cancelled or reduced by Komag.

         Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties, their

MAXTOR CONFIDENTIAL                    15

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                                                CONFIDENTIAL TREATMENT REQUESTED

successors and assigns. Any purported assignment of this Agreement by Komag
without the prior written consent of Maxtor shall be void.

         Komag shall give Maxtor at least ninety (90) days prior written notice
of any known or planned change in ownership or majority control of Komag, or any
of Komag's subsidiaries, including but not limited to changes in shareholder
ownership of sufficient magnitude to require SEC filings of any type, except in
cases of Form 4 sales involving less than five percent (5%) of the seller's
holdings in Komag.

6.2.2 Audit. Maxtor shall have the right, by itself or by a mutually acceptable
third person auditor, to examine and audit Komag's records related to its
performances hereunder at any time during normal business hours upon three (3)
days notice to Komag to ensure compliance with this Agreement. Komag shall
maintain its records relating to this Agreement for seven (7) years.

         Komag shall provide Maxtor financial information in the form of all SEC
documents required to be filed by Komag each quarter. If Komag becomes a private
company, and/or is de-listed from its stock exchange for any reason, Komag shall
provide to Maxtor equivalent documentation.

6.2.3 Consents. No consent required to be given under this Agreement shall be
unreasonably withheld or delayed.

6.2.4 Counterparts. This Agreement shall be prepared in two identical and
original counterparts and both of which together shall be one and the same
instrument and either of which may be used for purposes of proof.

6.2.5 Cumulation of Remedies. All remedies available to either party under this
Agreement are cumulative and may be exercised concurrently or separately, and
the exercise of any one remedy shall not be deemed an election of such remedy to
the exclusion of other remedies.

6.2.6 Independent Parties. Persons furnished by each party for performances
under or related to this Agreement shall be solely the employees or agent of
such party and shall be under the sole and exclusive direction and control of
the furnishing party. They shall not be considered employees of the other party
for any purpose. Each party shall also be solely responsible for payment of
taxes, including federal, state and municipal taxes, chargeable or assessed with
respect to its employees, such as social security, unemployment, worker's
compensation, liability insurance and federal and state withholding. Each party
shall indemnify the other for any loss, damage, liability, claim, demand or
penalty including costs, expenses, and reasonable attorneys' fees assessed
against one party that may be sustained by reasons of the other party's failure
to comply with the provisions of this Section.

         Neither Party, nor its employees, officers, directors, or agents, shall
hold itself out as the agent, employee, partner, or joint venture of the other
party, and shall make no commitment or engagement on the account of or on behalf
of the other party. Each party shall remain an independent contractor and shall
be responsible for compliance with all laws, rules and regulations involving,
but not limited to, employment of labor, hours of labor, health and safety,
working conditions and payment of wages.

6.2.7 Force Majeure. Nonperformance of either party shall be excused to the
extent that performance is rendered impossible by strike, fire, flood,
governmental acts, orders or restrictions, or any other reason where failure to
perform is beyond the control and not caused by the negligence of the
nonperforming party. In the event of any delay caused by such contingency, the
delayed party may defer any performance or delivery prevented by the force
majeure condition for a period equal to the time lost by reason of such delay,
provided, however, that the delayed party promptly commences and reasonably and
diligently pursues actions to cure or circumvent such cause.

         Whenever any cause delays or threatens to delay the timely performance
of this Agreement, Komag shall immediately notify Maxtor of all relevant
information with respect to such cause.

         If either Party is delayed in any performance under the terms of this
Agreement by more than thirty (30) days, the other Party may terminate the
delayed performance or this Agreement and such termination shall not be a breach
of this Agreement and shall be without penalty.

6.2.8 Governing Language. English shall be the language of this Agreement and
the English language shall govern all disputes, performance and interpretations.

6.2.9 Headings. The descriptive headings of the several Articles and Sections of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement and shall not affect the interpretation of this Agreement.

6.2.10. Joint Work Product. The parties further acknowledge that they have
thoroughly reviewed this Agreement and bargained over its terms and that for
convenience, Maxtor has written down the terms of this Agreement. Accordingly,
this Agreement shall be construed without regard to the party or parties

MAXTOR CONFIDENTIAL                    16

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                                                CONFIDENTIAL TREATMENT REQUESTED

responsible for its preparation and shall be deemed to have been prepared
jointly by the parties.

6.2.11 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to be sufficiently given if
delivered by hand or if sent by courier with a receipt requested or by
registered air mail, postage prepaid, addressed to Maxtor or to Komag, as the
case may be, at the addresses first set forth above or to such other address as
may be furnished for such purpose by notice duly given under this Agreement.
Such notice shall be deemed to have been given when delivered by hand or when
delivered by the courier or by mail. Any party may change its address for such
communications by giving such notice to the other party in conformance with this
section.

6.2.12 Severance. If any provision of this Agreement is held to be invalid by a
court of competent jurisdiction, then the remaining provisions shall
nevertheless remain in full force and effect. The parties agree to renegotiate
any term held invalid and to be bound by the mutually agreed substitute
provisions.

6.2.13 Time. Time is of the essence in all performances hereunder. The words
day, month, year, and the like shall mean calendar day, month, year and the like
unless expressly provided to the contrary. References to quarter shall refer to
Maxtor's fiscal quarter unless expressly stated otherwise.

6.2.14 Waiver. The failure of any party to this Agreement at any time or times
to require performance of any provision of this Agreement shall in no manner
affect such party's available remedies or right at a later time to enforce the
same. No waiver by any party of any condition, or of the breach of any term,
covenant, representation or warranty contained in this Agreement, whether by
conduct or otherwise (in any one or more instances) shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
of any remedy or as a waiver of any other condition or as a breach of any other
term, covenant, representation or warranty of this Agreement.

6.3 ENTIRE AGREEMENT. The terms and conditions of this Agreement are the entire
agreement between the parties and supersede all previous agreements, proposals,
and understandings, whether oral or written, between the parties with respect to
the subject matter of this Agreement and no agreement or understanding varying
or extending the same shall be binding upon either party unless in a written
document signed by both parties. This Agreement shall supersede all inconsistent
or additional terms contained in any purchase orders, sale acknowledgments,
invoices, or other similar documents delivered by the parties.

THIS AGREEMENT REQUIRES THAT DISPUTES BE SETTLED BY BINDING ARBITRATION.

MAXTOR CONFIDENTIAL                    17

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                                                CONFIDENTIAL TREATMENT REQUESTED

In witness whereof, the Parties have executed this Agreement as of the Effective
Date:

MAXTOR CORPORATION                                   KOMAG, INC.

By: /s/ DAVID BEAVER                             By: /s/ MIKE RUSSAK
   --------------------------------                 ----------------------------
           (signature)                                       (signature)

         David Beaver                                      Mike Russak
-----------------------------------              -------------------------------
          (print name)                                    (print name)

     Senior Vice President                                 President and
       Worldwide Materials                           Chief Technical Officer
   & Chief Procurement Officer                   -------------------------------
-----------------------------------                          (title)
             (title)

The terms and conditions of this Agreement and its Exhibits which apply to Komag
Malaysia are acknowledged and agreed to by

KOMAG USA (MALAYSIA), Sdn

By: /S/ ALI DABIER
   --------------------------------
           (signature)

            Ali Dabier
-----------------------------------
           (print name)

          Vice President
       & Managing Director
       Malaysian Operations
-----------------------------------
               (title)

MAXTOR CONFIDENTIAL                    18

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                                                CONFIDENTIAL TREATMENT REQUESTED

                                    EXHIBIT A
                              Maxtor Specifications
                                       [*]

MAXTOR CONFIDENTIAL                    19

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                                                CONFIDENTIAL TREATMENT REQUESTED

                                    EXHIBIT B
                         Komag Expansion Pricing Matrix

                                      [*]

MAXTOR CONFIDENTIAL                    20

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                                                CONFIDENTIAL TREATMENT REQUESTED

                                    EXHIBIT C
         Komag Process Improvement Plans Reflected in Exhibit B Prices
                                      [*]

MAXTOR CONFIDENTIAL                    21FOURTH SUPPLEMENTAL
INDENTURE 

FROM 

WISCONSIN PUBLIC
SERVICE CORPORATION 

TO 

U.S. BANK NATIONAL
ASSOCIATION
(SUCCESSOR TO FIRSTAR BANK, NATIONAL ASSOCIATION AND
FIRSTAR BANK,
MILWAUKEE, N.A., NATIONAL ASSOCIATION) 

TRUSTEE 

     _________________ 

Dated as of December 1,
2003 

SUPPLEMENTAL TO
INDENTURE
Dated as of December
1, 1998 

Senior Debt Securities 

        This
FOURTH SUPPLEMENTAL INDENTURE is made as of the 1st day of December, 2003, by
and between WISCONSIN PUBLIC SERVICE CORPORATION, a corporation duly organized and
existing under the laws of the State of Wisconsin (the “Company”), and U.S. BANK
NATIONAL ASSOCIATION (successor to Firstar Bank, National Association and Firstar Bank
Milwaukee, N.A., National Association), a national banking association duly organized and
existing under the laws of the United States, as trustee (the “Trustee”). 

RECITALS OF THE
COMPANY: 

        WITNESSETH:
that 

        The
Company has heretofore executed and delivered its Indenture (hereinafter referred to as
the “Indenture”), made as of December 1, 1998; and 

        Section
3.1 of the Indenture provides that Securities may be issued from time to time in series
pursuant to a supplemental indenture specifying the terms of each series of Securities;
and 

        The
Company desires to establish a series of Securities to be designated “Senior Notes,
4.80% Series Due December 1, 2013 (the “Securities of the Series due 2013”); and 

        Section
10.1 of the Indenture provides that the Company and the Trustee may enter into indentures
supplemental thereto for the purposes, among others, of establishing the form or terms of
Securities of any series and adding to the covenants of the Company; and 

        The
execution and delivery of this Fourth Supplemental Indenture (herein, this
“Supplemental Indenture”) has been duly authorized by a Board Resolution; 

        NOW,
THEREFORE, this Supplemental Indenture 

        WITNESSETH,
that, in order to set forth the terms and conditions upon which Securities of the Series
due 2013 are, and are to be, authenticated, issued and delivered, and in consideration of
the sum of one dollar duly paid to it by the Trustee at the execution of this Supplemental
Indenture, the receipt whereof is hereby acknowledged, the Company covenants and agrees
with the Trustee for the equal and proportionate benefit of the respective Holders from
time to time of such Securities as follows: 

1 

ARTICLE I  
RELATION TO INDENTURE;
DEFINITIONS

SECTION 1.1  

        This
Supplemental Indenture constitutes an integral part of the Indenture. 

SECTION 1.2 

        For
all purposes of this Supplemental Indenture: 

        (a)              Capitalized
terms used but not otherwise defined herein shall have the           respective meanings
assigned to such terms in the Indenture;  

        (b)              All
references herein to Articles and Sections, unless otherwise specified,           refer
to the corresponding Articles and Sections of this Supplemental Indenture;           and  

        (c)              The
terms “hereof,” “herein,” “hereby,”          “hereto,” “hereunder,” and
“herewith” refer to           this Supplemental Indenture.  

ARTICLE II 
THE
SECURITIES  

        There
is hereby established a series of Securities pursuant to Section 3.01 of the Indenture as
follows: 

        (a)              The
title of the Securities of the series hereby established is “Senior           Notes,
4.80% Series Due December 1, 2013.” 

        (b)              The
aggregate principal amount of the Securities of the Series due 2013 which           may
be authenticated and delivered under the Indenture (except for Securities
          authenticated and delivered upon registration of transfer of, or in exchange
          for, or in lieu of other Securities of such series pursuant to Sections 2.05,
          3.04, 3.05, 3.06, 10.06 or 12.07) shall be limited to One Hundred and
          Twenty-Five Million Dollars ($125,000,000), subject to the right of the Company
          to reopen the Securities of the Series due 2013 for issuances of up to
          $25,000,000 in aggregate principal amount of additional Securities of the
Series           due 2013.  

        (c)              The
Company shall have the right to reopen the Securities of the Series due 2013
          for issuances of up to $25,000,000 in aggregate principal amount of additional
          Securities (“Additional Securities of the Series due 2013”). The
          aggregate principal amount of all Additional Securities of the Series due 2013
          shall not exceed $25,000,000. The issuance of any Additional Securities of the
          Series due 2013 shall constitute a further issuance of, and will be
consolidated           with, the Securities of the Series due 2013, so as to form a
single series.  The Additional Securities of the Series due 2013 shall be substantially
in the form hereinafter recited, but may contain such changes as may be appropriate to
reflect their date or dates of issuance. Where appropriate references to the Securities
of the Series due 2013 in this Supplemental Indenture shall be deemed to include the
Additional Securities of the Series due 2013.  

2 

        (d)              The
Securities of the Series due 2013 are to be issued in permanent global form
          without coupons. The beneficial owners of interests in such permanent Global
          Security or Securities may not exchange such interests for Securities of such
          series other than in the manner provided in Section 2.05 of the Indenture. The
          Depositary for the Securities of the Series due 2013 shall be The Depositary
          Trust Company.  

        (e)              The
Stated Maturity of the Securities of the Series due 2013 is December           1, 2013.  

        (f)              The
Securities of the Series due 2013 shall bear interest at the rate of 4.80%           per
annum and such interest shall accrue from December 1, 2003 (or from the most
          recent Interest Payment Date to which interest on the Securities of the Series
          due 2013 has been paid or provided for). The Interest Payment Dates for the
          Securities of the Series due 2013 shall be June 1 and December 1 in each year
          commencing June 1, 2004, and the Regular Record Date for the interest payable
on           any Interest Payment Date shall be the fifteenth day (whether or not a
Business           Day) preceding such Interest Payment Date.  

        (g)              Principal
of and interest on the Securities of the Series due 2013 shall be           payable in
U.S. Dollars at the Corporate Trust Office of the Trustee.  

        (h)              The
Securities of the Series due 2013 are subject to redemption in whole at any
          time or in part from time to time at the option of the Company at a Redemption
          Price equal to the greater of (i) 100% of the principal amount of the
Securities           of the Series due 2013 to be redeemed or (ii) the sum of the present
values of           the remaining scheduled payments of principal and interest thereon
discounted to           the Redemption Date on a semi-annual basis (assuming a 360 day
year of twelve           30-day months) at the treasury yield as hereinafter defined,
plus one-tenth of           one percent (0.10%) plus in each case accrued and unpaid
interest to the           Redemption Date. Such Redemption Date shall be set forth in an
Officers’          Certificate delivered to the Trustee on or before the Redemption
Date and upon           which the Trustee may conclusively rely.  

        For
purposes of this paragraph (h): 

        “Treasury
Yield” means, with respect to any Redemption Date, the rate per annum equal to the
semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price
for the Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such Redemption Date. 

        “Comparable
Treasury Issue” means the United States Treasury security selected by an Independent
Investment Banker as having a maturity comparable to the remaining term of the Notes that
would be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the Notes. “Independent Investment Banker” means one of the
Reference Treasury Dealers appointed by the Trustee after consultation with the Company. 

3 

        “Comparable
Treasury Price” means, with respect to any Redemption Date, (i) the average of the
bid and asked prices for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) on the third business day preceding such Redemption
Date, as set forth in the daily statistical release (or any successor release) published
by the Federal Reserve Bank of New York and designated “Composite 3:30 p.m.
Quotations for U.S. Government Securities” or (ii) if such release (or any successor
release) is not published or does not contain such prices on such business day, (A) the
average of the Reference Treasury Dealer Quotations for such Redemption Date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations for such
Redemption Date, or (B) if the Trustee obtains fewer than four such Reference Treasury
Dealer Quotations, the average of all such Quotations. “Reference Treasury Dealer
Quotations” means, with respect to each Reference Treasury Dealer and any Redemption
Date, the average, as determined by the Company, 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 Company by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such Redemption Date. 

        “Reference
Treasury Dealer” means any primary U.S. Government securities dealer in the United
States (a “Primary Treasury Dealer”) selected by the Company. 

        (i)              The
Securities of the Series due 2013 shall not be subject to any sinking fund           and
shall not be redeemable at the option of the Holders thereof.  

        (j)              The
Securities of the Series due 2013 shall initially be issued in whole in the
          form of one or more Global Securities. If individual securities of the Series
          due 2013 are issued under the conditions specified in Section 2.05 of the
          Indenture, individual certificates will be issued in denominations of $1,000 or
          any integral multiple thereof.  

        (k)              The
Related Series of Collateral Bonds being delivered to the Trustee in           connection
with the issuance of the Securities of the Series due 2013 is the           Company’s
First Mortgage Bonds, Collateral Series D.  

        Such
Securities of the Series due 2013 and Additional Securities of the Series due 2013, if
any, shall be initially authenticated and delivered from time to time upon delivery to the
Trustee of the documents required by Section 3.1 of the Indenture and the form of
Securities for the Securities of the Series due 2013 and Additional Securities of the
Series due 2013, if any, substantially in the form of Security attached hereto as
Appendix I, which is incorporated herein by reference. 

ARTICLE III 
TRANSFER
OF COLLATERAL BONDS  

        The
Company hereby issues, delivers and transfers to the Trustee in connection with the
issuance of the Securities of the Series due 2013 One Hundred and Twenty-Five Million
Dollars ($125,000,000) aggregate principal amount of a related issue of Collateral Bonds
of the Company designated “First Mortgage Bonds, Collateral Series D”
(each, a “Related Issue,” as to the series of Securities it secures, and, the
“Collateral Bonds”), which has been fully registered in the name of the Trustee
in such capacity, to be held in trust for the benefit of the Holders from time to time of
the Related Issue of Securities and, if such transfer does not constitute a sale of the
Collateral Bonds to the Trustee, the Company hereby grants a perfected security interest
in the Collateral Bonds for the benefit of such Holders, in each case as security for any
and all obligations of the Company under the Indenture, this Supplemental Indenture and
the Related Issue of Securities, including but not limited to (1) the full and prompt
payment of the interest on, principal of, and premium, if any, on such Related Issue of
Securities when and as the same shall become due and payable in accordance with the terms
and provisions of the Indenture and this Supplemental Indenture and such Related Issue of
Securities, either at the Stated Maturity thereof, upon acceleration of the maturity
thereof or upon redemption, and (2) the full and prompt payment of any interest on such
Related Issue of Securities when and as the same shall become due and payable in
accordance with the terms and provisions of the Indenture and this Supplemental Indenture
and such Related Issue of Securities. The Trustee shall enforce all of its rights under
the First Mortgage Indenture as a holder of each Related Issue of Collateral Bonds
transferred to it as provided in this Article III for the benefit of the Holders of
the respective Related Issue of Securities and the proceeds of the enforcement of such
rights shall be applied by the Trustee to satisfy the Company’s obligations under the
Indenture, this Supplemental Indenture, and such Related Issue of Securities. 

4 

        The
Company shall make payments of the principal of, and premium or interest on each of the
Collateral Bonds to the Trustee, which payments shall be applied by the Trustee to
satisfaction of all obligations then due on the respective Related Issue of Securities. 

        The
Collateral Bonds shall not be sold or transferred by the Trustee until the earlier of the
Release Date or the prior retirement of the Related Issue of Securities through
redemption, repurchase or otherwise. Without limiting the generality of the foregoing, in
no event shall the Collateral Bonds be sold or become the absolute property of any person
in violation of the applicable provisions of Section 201.04(2) of the Wisconsin Statutes
or any successor statutory provision. The “Release Date” shall be the date that
all First Mortgage Bonds of the Company issued and outstanding under the First Mortgage
Indenture, other than the Collateral Bonds, have been retired (at, before or after the
maturity thereof) through payment, redemption or otherwise, provided that no Default or
Event of Default has occurred and, at such time, is continuing under the Indenture. 

        A
copy of the form of Collateral Bond is attached hereto as Appendix II and its terms
are hereby incorporated by reference herein. 

ARTICLE IV

MISCELLANEOUS  

SECTION 4.1 

        The
Trustee has accepted the amendment of the Indenture effected by this Supplemental
Indenture and agrees to execute the trust created by the Indenture as hereby amended, but
only upon the terms and conditions set forth in the Indenture, including the terms and
provisions defining and limiting the liabilities and responsibilities of the Trustee, and
without limiting the generality of the foregoing, the Trustee shall not be responsible in
any manner whatsoever for or with respect of any of the recitals or statements contained
herein, all of which recitals or statements are made solely by the Company, or for or with
respect to (a) the validity or sufficiency of this Supplemental Indenture or any of the
terms or provisions hereof, (b) the proper authorization hereof by the Company by
corporate action or otherwise, and (c) the due execution hereof by the Company. 

5 

SECTION 4.2 

        This
Supplemental Indenture shall be construed in connection with and as a part of the
Indenture. 

SECTION 4.3 

        (a)              If
any provision of this Supplemental Indenture conflicts with another provision
          of the Indenture required to be included in indentures qualified under the
Trust           Indenture Act of 1939, as amended (as enacted prior to the date of this
          Supplemental Indenture), by any of the provisions of Sections 310 to 317,
          inclusive, of said act, such required provision shall control.  

        (b)              In
case any one or more of the provisions contained in this Supplemental           Indenture
or in the Securities issued hereunder should be invalid, illegal, or
          unenforceable in any respect, the validity, legality and enforceability of the
          remaining provisions contained herein and therein shall not in any way be
          affected, impaired, prejudiced or disturbed thereby.  

SECTION 4.4 

        Whenever
in this Supplemental Indenture either of the parties hereto is named or referred to, such
name or reference shall be deemed to include the successors or assigns of such party, and
all the covenants and agreements contained in this Supplemental Indenture by or on behalf
of the Company or by or on behalf of the Trustee shall bind and inure to the benefit of
the respective successors and assigns of such parties, whether so expressed or not. 

SECTION 4.5 

        (a)              This
Supplemental Indenture may be simultaneously executed in several           counterparts,
and all such counterparts executed and delivered, each as an           original, shall
constitute but one and the same instrument.  

        (b)              The
descriptive headings of the several Articles of this Supplemental Indenture
          were formulated, used and inserted in this Supplemental Indenture for
          convenience only and shall not be deemed to affect the meaning or construction
          of any of the provisions hereof.  

6 

        IN
WITNESS WHEREOF, WISCONSIN PUBLIC SERVICE CORPORATION has caused this Supplemental
Indenture to be executed by its Chairman, Chief Executive Officer, President, Vice
Chairman or a Vice President, or any other officer selected by the Board of Directors, and
its corporate seal to be hereunto affixed, duly attested by its Secretary or an Assistant
Secretary, and U.S. BANK NATIONAL ASSOCIATION, as Trustee as aforesaid, has caused this
Supplemental Indenture to be executed by one of its authorized signatories, as of December
1, 2003. 

		WISCONSIN PUBLIC SERVICE

    CORPORATION
	
[SEAL]	 
	
	By: /s/ Joseph P. O'Leary
		       Joseph P. O'Leary
		       Senior Vice President and Chief Financial Officer

ATTEST: 

/s/ Barth J. Wolf  
    Barth J. Wolf
    Secretary

		U.S. BANK NATIONAL ASSOCIATION
	
 	 
	
	By: /s/ Peter M. Brennan
		       Peter M. Brennan
		       Assistant Vice President

7 

APPENDIX I 

$___________

CUSIP: No. 976843 BD 3 

        THIS
SECURITY IS A GLOBAL SECURITY REGISTERED IN THE NAME OF THE DEPOSITARY (REFERRED TO
HEREIN) OR A NOMINEE THEREOF AND UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS 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.* 

        UNLESS
THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TRUST
COMPANY, A NEW YORK CORPORATION (55 WATER STREET, NEW YORK, NEW YORK), TO THE TRUSTEE 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 DEPOSITARY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO.,
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.* 

	 	
*To
be included so long as Security is a Global Security. 

8 

WISCONSIN PUBLIC
SERVICE CORPORATION
Senior Note, 4.80%
Series Due December 1, 2013 

        WISCONSIN
PUBLIC SERVICE CORPORATION, a corporation duly organized and existing under the laws of
Wisconsin (herein called the “Company,” which term includes any successor
corporation under the Indenture hereinafter referred to), for value received, hereby
promises to pay to ____________________, or registered assigns, the principal sum of
____________________ on December 1, 2013 and to pay interest thereon from December 1, 2003
or from the most recent Interest Payment Date to which interest has been paid or duly
provided for, semi-annually on June 1 and December 1 in each year, commencing June 1,
2004, at the rate of 4.80% per annum, until the principal hereof is paid or made available
for payment and (to the extent that the payment of such interest shall be legally
enforceable) at the rate of 4.80% per annum on any overdue principal and premium and on
any overdue installment of interest. 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 Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest, which
shall be the close of business on the fifteenth calendar day next preceding such Interest
Payment Date (whether or not such day is a Business Day). Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee,
notice whereof shall be given to Holders of Securities of this series not less than 10
days prior to such Special Record Date, or be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the Securities
of this series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture. 

        Payment
of the principal of (and premium, if any) and any such interest on this Security will be
made at the office or agency of the Trustee maintained for that purpose, in Saint Paul,
Minnesota, in Dollars, provided, however, that at the option of the Company payment of
interest may be made by wire transfer of immediately available funds into the account
specified by the Depositary so long as this note is in the form of Global Security and
otherwise by check mailed to the address of the Person entitled thereto as such address
shall appear in the Security Register. 

        Prior
to the Release Date (as hereinafter defined), the Securities will be secured by First
Mortgage Bonds, Collateral Series D (the “Collateral Bonds”), issued and
delivered by the Company to the Trustee for the benefit of the Holders of the Securities
(as defined herein), issued under the First Mortgage and Deed of Trust dated January 1,
1941, from the Company to First Wisconsin Trust Company (subsequently succeeded by U.S.
Bank National Association), Saint Paul, Minnesota, as supplemented and amended by the
supplemental indentures thereto (the “First Mortgage Indenture”). Reference is
made to the First Mortgage Indenture and the Indenture for a description of the rights of
the Trustee as holder of the Collateral Bonds, the property mortgaged and pledged under
the First Mortgage Indenture, the rights of the Company and of the Mortgage Trustee in
respect thereof, the duties and immunities of the applicable Mortgage Trustee, the terms
and conditions upon which the Collateral Bonds are held by the Trustee for the benefit of
the Holders of Securities, and the circumstances under which additional First Mortgage
Bonds may be issued. 

9 

        From
and after such time as all First Mortgage Bonds (other than Collateral Bonds) issued under
the First Mortgage Indenture have been retired through payment, redemption or otherwise
(including those First Mortgage Bonds the payment for which has been provided for in
accordance with the First Mortgage Indenture) at, before or after the maturity thereof and
provided that no default or event of default under the Indenture has occurred and is
continuing (the “Release Date”), the Collateral Bonds shall cease to secure the
Securities in any manner, and, at the option of the Company, the Securities either (a)
will become unsecured general obligations of the Company or (b) will be secured by First
Mortgage Bonds issued under an Indenture other than the First Mortgage Indenture. In
certain circumstances prior to the Release Date as provided in the Indenture, the Company
is permitted to reduce the aggregate principal amount of an issue of Collateral Bonds held
by the Trustee, but in no event prior to the Release Date to an amount less than the
aggregate principal amount outstanding of the related issue of Securities initially issued
contemporaneously with such Collateral Bonds. 

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

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

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

		WISCONSIN PUBLIC SERVICE

    CORPORATION
	
 	 
	
	By:

	
ATTEST:
	        [SEAL]

10 

Form of Trustee’s
Certificate of Authentication. 

Dated: _______________ 

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

	 	

		As Trustee
	
By	

		Authorized Signatory

Form of Reverse of
Security. 

        This Security
is one of a duly authorized issue of securities of the Company (herein called the
“Securities”), issued and to be issued in one or more series under an Indenture,
dated as of December 1, 1998 (herein called the “Indenture”), between the
Company and a predecessor of U.S. Bank National Association, 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, limited in aggregate principal amount
to One Hundred and Twenty-Five Million Dollars ($125,000,000), subject to the right of the
Company to reopen this series for issuances of up to $25,000,000 in aggregate principal
amount of additional Securities of this series. 

        The
Securities of this series are subject to redemption upon not less than 30 nor more than 45
days’ notice by first class mail, in whole at any time or in part from time to time
at the option of the Company at a Redemption Price equal to the greater of (i) 100% of the
principal amount of the Securities of this series to be redeemed or (ii) the sum of the
present values of the remaining scheduled payments of principal and interest thereon
discounted to the Redemption Date on a semiannual basis (assuming a 360 day year
consisting of twelve 30-day months) at the Treasury Yield (as defined in the First
Supplemental Indenture to the Indenture) plus one-tenth of one percent (0.10%), plus in
each case accrued and unpaid interest to the Redemption Date. 

        In
the event of redemption of this Security in part only, a new Security or Securities of
this series for the unredeemed portion hereof will be issued in the name of the Holder
hereof upon the cancellation hereof. 

        If
any Event of Default with respect to Securities of this series shall occur and be
continuing, the principal of the Securities of this series may be declared due and payable
in the manner and with the effect provided in the Indenture. Upon payment (i) of the
amount of principal so declared due and payable and (ii) of interest on any overdue
principal and overdue interest (in each case to the extent that the payment of such
interest shall be legally enforceable), all of the Company’s obligations in respect
of the payment of the principal of and interest, if any, on the Securities of this series
shall terminate. 

11 

        This
Security is subject to Defeasance as described in the Indenture. 

        The
Indenture may be modified by the Company and the Trustee without consent of any Holder
with respect to certain matters as described in the Indenture. In addition, 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 a majority 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 certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security shall bind such
Holder and all future Holders of this Security and of any Security 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 Security. 

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

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

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

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

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

12 

        The
Indenture imposes certain limitations on the ability of the Company to, among other
things, merge or consolidate with any other Person or sell, assign, transfer or lease all
or substantially all of its properties or assets. All such covenants and limitations are
subject to a number of important qualifications and exceptions. The Company must report
periodically to the Trustee on compliance with the covenants in the Indenture. 

        A
director, officer, employee or shareholder, as such, of the Company shall not have any
liability for any obligations of the Company under this Security or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their creation.
Each Holder, by accepting a Security, waives and releases all such liability. The waiver
and release are part of the consideration for the issuance of this Security. 

        Pursuant
to a recommendation promulgated by the Committee on Uniform Security Identification
Procedures (“CUSIP”), the Company has caused CUSIP numbers to be printed on the
Securities of this series as a convenience to the Holders of the Securities of this
series. No representation is made as to the correctness or accuracy of such numbers as
printed on the Securities of this series and reliance may be placed only on the other
identification numbers printed hereon. 

        All
capitalized terms used in this Security without definition which are defined in the
Indenture shall have the meanings assigned to them in the Indenture. 

13 

ASSIGNMENT FORM 

        To
assign this Security, fill in the form below:  (I) or (we) assign and transfer this
Security to  

     

(Insert assignee’s
social security or tax I.D. number)  

     

     

     

     

(Print or type assignee’s
name, address and zip code)  

and irrevocably appoint
__________________________________________________________ agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him. 

	Dated:_______________________	Your Signature:__________________________________________________
		(Sign exactly as your
		name appears on the other
		side of this Security)

	Signature Guaranty:	

 

		[Signatures must be guaranteed by an "eligible guarantor institution" meeting the
		requirements of the Transfer Agent, which requirements will include membership or
		participation in STAMP or such other signature guarantee program as may be determined
		by the Transfer Agent in addition to, or in substitution for, STAMP, all in accordance
		with the Exchange Act.]

Social Security Number or
Taxpayer Identification
Number:_______________________________________ 

14 

APPENDIX II 

		
	No.R-	$_____________

(Form of Bond of
Collateral Series D) 

WISCONSIN PUBLIC
SERVICE CORPORATION 

(Incorporated under the
laws of the State of Wisconsin)
First Mortgage Bond, Collateral Series D 

THE FIRST MORTGAGE BONDS, COLLATERAL
SERIES D (HEREINAFTER, “COLLATERAL BONDS”), REPRESENTED BY THIS CERTIFICATE
ARE BEING ISSUED AND DELIVERED BY THE COMPANY TO U. S. BANK, NATIONAL ASSOCIATION AS
TRUSTEE (IN SUCH CAPACITY, THE “SENIOR TRUSTEE”) UNDER AN INDENTURE, DATED AS OF
DECEMBER 1, 1998, BETWEEN THE COMPANY AND A PREDECESSOR OF THE SENIOR TRUSTEE, AS
PREVIOUSLY SUPPLEMENTED AND AS SUPPLEMENTED BY THE FOURTH SUPPLEMENTAL INDENTURE THERETO
DATED AS OF DECEMBER 1, 2003 (AS SO SUPPLEMENTED, THE “SENIOR INDENTURE”). THE
COLLATERAL BONDS ARE TO BE HELD IN TRUST AS COLLATERAL FOR THE BENEFIT OF THE HOLDERS OF
THE SENIOR NOTES, 4.80% SERIES DUE DECEMBER 1, 2013 (THE “RELATED SECURITIES”)
ISSUED PURSUANT TO THE SENIOR INDENTURE. 

THE COLLATERAL BONDS MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED (EXCEPT TO A SUCCESSOR SENIOR TRUSTEE) UNTIL THE EARLIER OF THE
RELEASE DATE (AS DEFINED BELOW) OR THE PRIOR RETIREMENT OF THE RELATED SECURITIES THROUGH
REDEMPTION, REPURCHASE OR OTHERWISE. 

THE COMPANY SHALL MAKE PAYMENTS OF
THE PRINCIPAL OF, AND PREMIUM, IF ANY, AND INTEREST ON, THE COLLATERAL BONDS, TO THE
SENIOR TRUSTEE, WHICH PAYMENTS SHALL BE APPLIED BY THE SENIOR TRUSTEE TO THE SATISFACTION
OF OBLIGATIONS ON THE RELATED SECURITIES. 

THE MATURITY DATE SPECIFIED ABOVE IS
ALSO THE MATURITY DATE OF THE RELATED SECURITIES. 

        WISCONSIN
PUBLIC SERVICE CORPORATION, a corporation organized and existing under the laws of the
State of Wisconsin (hereinafter called the Company), for value received, hereby promises
to pay to U.S. BANK NATIONAL ASSOCIATION, as trustee for the benefit of the holders of the
Related Securities, or registered assigns (in such capacity, the “Senior
Trustee”), at the Corporate Trust Services Office of U.S. Bank, National Association,
in Saint Paul, Minnesota, on the 1ST day of December, 2013, the sum of
___________________________ ($____________) in lawful money of the United States of
America, and to pay interest thereon from the date hereof at the rate of four and
eight-tenths of one percent (4.80%) per annum, in like money, until the principal hereof
becomes due and payable, said interest being payable on the 1st day of June and
on the 1st day of December in each year commencing June 1, 2004. The principal
and interest so payable on any June 1 or December 1 will be paid to the person
or entity in whose name this bond is registered, at the address thereof as it appears on
the Company’s books for registration and registration of transfer. 

15 

        The
provisions of this bond are continued on the reverse hereof or attached pages and such
continued provisions shall for all purposes have the same effect as though fully set forth
at this place. 

        This
bond shall not be valid or become obligatory for any purpose unless and until U.S. Bank
National Association (successor to First Wisconsin Trust Company), as Trustee under the
Indenture, or its successors thereunder, shall have signed the certificate of
authentication endorsed hereon. 

        IN
WITNESS WHEREOF, WISCONSIN PUBLIC SERVICE CORPORATION has caused this bond to be signed in
its name by the manual or facsimile signature of its President or a Vice President and its
corporate seal or a facsimile thereof to be hereto affixed and attested by the manual or
facsimile signature of its Secretary or an Assistant Secretary. 

Dated as of: December 1,
2003 

		WISCONSIN PUBLIC SERVICE CORPORATION
	

 	By: _________________________________
		 ____________________________President

ATTEST: 

_______________________________________ 
________________Secretary

16 

(Form of
Trustee’s Certificate) 

        This
bond is one of the bonds of the series designated therein, described in the within
mentioned Indenture and Supplemental Indenture. 

		U.S. BANK NATIONAL ASSOCIATION
      As Trustee
	
 	 
	
	By: _________________________________
		       Authorized Signature

(Text appearing on
reverse side of bond or attached pages) 

        This
bond is one of a duly authorized issue of bonds of the Company, known as its First
Mortgage Bonds, of the Series and designation indicated on the face hereof, which
issue of bonds consists, or may consist, of several series of varying denominations, dates
and tenors, all issued and to be issued under and equally secured (except in so far as a
sinking fund, or similar fund, established in accordance with the provisions of the
Indenture, may afford additional security for the bonds of any specific series) by a First
Mortgage and Deed of Trust (herein called the “Indenture”) dated as of
January 1, 1941, executed by the Company to First Wisconsin Trust Company
(subsequently succeeded by U.S. Bank National Association, herein called the Trustee), as
Trustee, to which Indenture and all instruments supplemental thereto reference is hereby
made for a description of the property mortgaged and pledged, the nature and extent of the
security, the rights of the holders of the bonds as to such security, and the terms and
conditions upon which the bonds may be issued under the Indenture and any instruments
supplemental thereto and are secured. The principal hereof may be declared or may become
due on the conditions, in the manner and at the time set forth in the Indenture, upon the
happening of a completed default as in the Indenture provided. This bond is one of a
series created by a Supplemental Indenture (herein called the “Supplemental
Indenture”) dated as of December 1, 2003, between the Company and the Trustee, which
is supplemental to the Indenture. 

        The
Senior Trustee has agreed pursuant to the Senior Indenture to hold the Bonds of this
Series as collateral for the benefit of the holders of the Related Securities under all
circumstances and not to transfer (except to a successor trustee) such Bonds until the
earlier of the Release Date or the prior retirement of the Related Securities through
redemption, repurchase or otherwise. “Release Date” means the date on which all
First Mortgage Bonds of the Company issued and outstanding under the Indenture, other than
the Bonds of this Series and other Bonds pledged as security for Securities issued under
the Senior Indenture (collectively “Collateral Bonds”), have been retired (at,
before or after the maturity thereof) through payment, redemption or otherwise provided
that no default or event of default has occurred and is continuing under the Senior
Indenture. On the Release Date, the Senior Trustee shall deliver to the Company for
cancellation all Collateral Bonds, and the Company shall cause the Senior Trustee to
provide notice to all holders of Related Securities of the occurrence of the Release Date.
As a result, on the Release Date, the Bonds of this Series shall cease to secure the
Related Securities. Following the Release Date, the Company shall cause the Indenture to
be discharged, and the Company shall not issue any additional Collateral Bonds thereunder,
and from and after the Release Date, the Company’s obligations in respect of the
Collateral Bonds shall be satisfied and discharged. 

17 

        With
the consent of the Company and to the extent permitted by and as provided in the Indenture
and/or any instruments supplemental thereto, the rights and obligations of the Company
and/or of the holders of the bonds, and/or terms and provisions of the Indenture and/or of
any instruments supplemental thereto may be modified or altered by consent of the holders
of at least seventy percent (70%) in principal amount of the bonds then outstanding under
the Indenture and any instruments supplemental thereto (excluding bonds challenged and
disqualified from voting by reason of the interest of the Company or of certain related
persons therein as provided in the Indenture); provided that no such modification or
alteration shall permit the extension of the maturity of the principal of this bond or the
reduction in the rate of interest hereon or any other modification in the terms of payment
of such principal or interest or the taking of certain other action as more fully set
forth in the Indenture without the consent of the holder hereof. 

        The
Company and the Trustee may deem and treat the person in whose name this bond is
registered as the absolute owner hereof for the purpose of receiving payment of or on
account of the principal hereof and interest hereon and for all other purposes, and shall
not be affected by any notice to the contrary. 

        The
bonds of this Series are subject to redemption, prior to maturity, at the option of the
Company in whole at any time or in part from time to time, upon payment of a redemption
price equal to the greater of (i) 100% of the principal amount of the bonds to be redeemed
or (ii) the sum of the present values of the remaining scheduled payments of principal and
interest thereon discounted to the redemption date on a semiannual basis (assuming a 360
day year consisting of twelve 30-day months) at the Treasury Yield (as defined in the
Supplemental Indenture) plus one-tenth of one percent (0.10%), plus in each case accrued
and unpaid interest thereon to the redemption date, all subject to the conditions and as
more fully set forth in the Indenture and the Supplemental Indenture. 

        Notice
of any such redemption shall be hand delivered or mailed not less than thirty (30) days
prior to the redemption date to the registered owner of the bonds so to be redeemed, at
its address as the same shall appear on the Company’s books for registration and
registration of transfer, all subject to the conditions and as more fully set forth in the
Indenture and in the Supplemental Indenture, except that no newspaper publication shall be
required. 

        In
the event that an event of default under Section 6.01 of the Senior Indenture has occurred
and is continuing, and the Senior Trustee has declared the principal of all of the Related
Securities then outstanding immediately due and payable (or such principal has become ipso
facto immediately due and payable) under Section 6.02 of the Senior Indenture, then the
Company shall call for redemption and redeem all of the bonds of this series then
outstanding at a price equal to 100% of the principal amount thereof, together with
accrued and unpaid interest thereon to the redemption date. The redemption date shall be
the accelerated maturity date of the Related Securities, and no prior notice of such
redemption to the Trustee or the Senior Trustee shall be required. 

18 

        This
bond is nontransferable except to the Senior Trustee and successor trustees thereto. To
the extent that it is transferable, it is transferable by the registered owner hereof in
person or by attorney duly authorized in writing, on books of the Company to be kept for
that purpose at the corporate trust services office of the Trustee at Saint Paul,
Minnesota, upon surrender hereof for cancellation at said office and upon presentation of
a written instrument of transfer duly executed. Thereupon the Company shall issue in the
name of the transferee, and the Trustee shall authenticate and deliver, a new registered
bond or bonds without coupons of the same maturity and interest rate and of equal
aggregate principal amount. Any such transfer shall be subject to the terms and conditions
specified in the Indenture and the Supplemental Indenture. 

        No
recourse shall be had for the payment of principal of, premium, if any, or interest on
this bond, or any part thereof, or of any claim based hereon or in respect hereof or of
the Indenture or any instrument supplemental thereto, against any incorporator, or any
past, present or future stockholder, officer or director of the Company or of any
predecessor or successor corporation, either directly or through the Company, or through
any such predecessor or successor corporation, or through any receiver or a trustee in
bankruptcy, whether by virtue of any constitution, statute or rule of law or by the
enforcement of any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as a part of the consideration for the issue hereof, expressly
waived and released, as more fully provided in the Indenture. 

(End of text of bond) 

(Form of Prepayment
Record) 

PREPAYMENT RECORD 

PRINCIPAL AMOUNT OF BOND
$__________________ 

DATE OF MATURITY:
DECEMBER 1, 2013 

	Prepayments on Principal
		
	Amount
	Date
	Balance
Outstanding
	Signature of Authorized
Officer and Title

19

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