Document:

Ex-10.1

 

Exhibit 10.1

Kennametal Inc.

STOCK AND INCENTIVE PLAN OF 2002

(as amended on October 26, 2004)

     Section 1. Establishment. There is hereby established the Kennametal Inc.
Stock and Incentive Plan of 2002 (hereinafter called the “Plan”) pursuant to
which Eligible Individuals who are or will be mainly responsible for its
continued growth and development and future financial success may be granted
Awards in order to secure to the Company the advantage of the incentive and
sense of proprietorship inherent in stock ownership by such persons, to further
align such person’s interests with those of the shareowners, to reward such
persons for services previously performed and/or as an added inducement to
continue to provide service to the Company.

     Section 2. Certain Definitions. As used herein or, unless otherwise
specified, in any document with respect to an Award, the following definitions
shall apply:

          (a) “Affiliate” of a person means a person controlling, controlled by, or
under common control with such person where control means the power to direct
the policies and practices of such person.

          (b) “Award” means any Incentive Bonus Award, Option, Performance Share
Award, Performance Unit Award, Restricted Stock Award, Restricted Unit Award,
SAR, Share Award or Stock Unit Award granted under the Plan.

          (c) “Board” means the Board of Directors of the Company.

          (d) “Business Combination” shall mean a merger or consolidation of the
Company with another corporation or entity, other than a corporation or entity
which is an Affiliate.

          (e) “Capital Stock” means the Capital Stock, par value $1.25 per share, of
the Company as adjusted pursuant to Section 10 of this Plan.

          (f) “Change in Control” shall mean a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Exchange Act as in effect on the date
thereof or, if Item 6(e) is no longer in effect, any regulations issued which
serve similar purposes; provided that, without limitation, such a Change in
Control shall be deemed to have occurred if: (i) a Business Combination shall
have occurred, or (ii) the Company shall sell all or substantially all of its
operating properties and assets to another person, group of associated persons
or corporation, excluding any Affiliate of the Company, if any, or (iii) any
“person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes a beneficial owner, directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of the Company’s
then

 

 

outstanding securities coupled with or followed by the election as
directors of the Company of persons who were not directors at the time of such
acquisition if such person shall elect a majority of the Board.

          (g) “Code” means the Internal Revenue Code of 1986, as amended.

          (h) “Committee” means a committee of the Board.

          (i) “Company” means Kennametal Inc., a Pennsylvania corporation.

          (j) “Consultant” means any person, including an advisor, who is engaged by
the Company or any Parent or Subsidiary of the Company to render services and
is compensated for such services.

          (k) “Continuous Status as an Employee” means the absence of any
interruption or termination of the employment relationship by the Employee with
the Company or any Parent or Subsidiary of the Company. Continuous Status as
an Employee shall not be considered interrupted in the case of: (i) sick leave;
(ii) military leave; (iii) any other leave of absence approved by the Plan
Administrator; or (iv) transfers between locations of the Company or between
the Company, its Parents, its Subsidiaries or its successor.

          (l) “Disability” means disability as determined by the Company’s
disability policy as in effect from time to time or as determined by the Plan
Administrator consistent therewith.

          (m) “Eligible Individual” means any Employee or Consultant.

          (n) “Employee” means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company or any
prospective employee who shall have received an offer of employment from the
Company or any Parent or Subsidiary of the Company. The payment of a
director’s fee by the Company shall not be sufficient to constitute
“employment” by the Company.

          (o) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          (p) “Fair Market Value” means, as of any date, the value of the Capital
Stock determined as follows:

          (i) If the Capital Stock is listed on any established stock
exchange, system or market, its Fair Market Value shall be the mean
between the highest and lowest sales prices for the Capital Stock as
quoted on such exchange, system or market for the last trading day prior
to the time of determination as reported in the Wall Street Journal or
such other source as the Plan Administrator deems reliable and;

          (ii) In the absence of an established market for the Capital Stock,
the Fair Market Value thereof shall be determined in good faith by the
Plan Administrator.

          (q) “Grantee” means an Eligible Individual who has been granted an Award.

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          (r) “Incentive Bonus Award” means the opportunity to earn a future cash
payment tied to the level of achievement with respect to one or more Qualifying
Performance Criteria for a performance period as established by the Plan
Administrator.

          (s) “Incentive Stock Option” means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.

          (t) “Non-Employee Director” means a member of the Board who is not an
employee of the Company or any Parent or Subsidiary of the Company.

          (u) “Nonstatutory Stock Option” means an Option not intended to qualify as
an Incentive Stock Option.

          (v) “Option” means a right to purchase Shares granted pursuant to the
Plan.

          (w) “Optionee” means a Participant who holds an Option or SAR.

          (x) “Original Option Period” means the initial period or periods for which
an Option or SAR may be exercised as determined by the Plan Administrator at
the time of the Award or, if no such determination is made, a period of 10
years from the date of grant of the Award.

          (y) “Parent” means a “parent corporation,” whether now or hereafter
existing, as defined in Section 424(e) of the Code.

          (z) “Participant” means any person who has an Award under the Plan
including any person (including any estate) to whom an Award has been assigned
or transferred in accordance with the Plan.

          (aa) “Performance Share Award” means a grant of a right to receive Shares
or Stock Units contingent on the achievement of performance or other objectives
during a specified period.

          (bb) “Performance Unit Award” means a grant of a right to receive a
designated dollar value amount of Shares or Stock Units contingent on the
achievement of performance or other objectives during a specified period.

          (cc) “Plan” means this Stock and Incentive Plan of 2002.

          (dd) “Plan Administrator” means the Board and/or any Committee appointed
by the Board to administer the Plan; provided, however, that the Board, in its
sole discretion, may, notwithstanding the appointment of any Committee to
administer the Plan, exercise any authority under this Plan.

          (ee) “Prior Stock Plans” means the Kennametal Inc. Stock Option and
Incentive Plan of 1988, the Kennametal Inc. Stock Option and Incentive Plan of
1992, the Kennametal Inc. Stock Option and Incentive Plan of 1996, the
Kennametal Inc. 1999 Stock Plan, and the Kennametal Inc. Stock Option and
Incentive Plan of 1999.

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          (ff) “Qualifying Performance Criteria” means any one or more of the
following performance criteria, either individually, alternatively or in any
combination, applied to either the Company as a whole or to a business unit or
Subsidiary, either individually, alternatively or in any combination, and
measured over a period of time including any portion of a year, annually or
cumulatively over a period of years, on an absolute basis or relative to a
pre-established target, to previous years’ results or to a designated
comparison group, in each case as specified in the Award: (a) cash flow, (b)
earnings (including earnings before interest, taxes, depreciation, and
amortization or some variation thereof), (c) stock price, (d) return on equity,
(e) total stockholder return, (f) return on capital, (g) return on assets or
net assets, (h) revenue, (i) income or net income, (j) operating income or net
operating income, (k) operating profit or net operating profit, (l) operating
margin or profit margin, (m) return on operating revenue, and (n) market share.
To the extent consistent with Section 162(m) of the Code, the Plan
Administrator shall appropriately adjust any evaluation of performance under a
Qualifying Performance Criteria to exclude any of the following events that
occurs during a performance period: (i) asset write-downs, (ii) litigation or
claim judgments or settlements, (iii) the effect of changes in tax law,
accounting principles or other such laws or provisions affecting reported
results, (iv) accruals for reorganization and restructuring programs and (v)
any extraordinary non-recurring items as described in management’s discussion
and analysis of financial condition and results of operations or the financial
statements and notes thereto appearing in the Company’s annual report to
shareowners for the applicable year.

          (gg) “Restricted Stock Award” means a grant of Shares subject to a risk of
forfeiture or other restrictions that will lapse upon the achievement of one or
more goals relating to completion of service by the Grantee, or achievement of
performance or other objectives, as determined by the Plan Administrator.

          (hh) “Restricted Unit Award” means a grant of Stock Units subject to a
risk of forfeiture or other restrictions that will lapse upon the achievement
of one or more goals relating to completion of service by the Participant, or
achievement of performance or other objectives, as determined by the Plan
Administrator.

          (ii) “Retirement” means, in the case of an Employee, the termination of
employment with the Company or any Subsidiary or Parent of the Company at a
time when the Employee is eligible to receive immediately payable retirement
benefits under a then existing retirement plan and, in the case of a
Non-Employee Director, means retirement from service on the Board.

          (jj) “SAR” means a stock appreciation right, which is the right to receive
a payment in cash, Shares or Stock Units equal to the amount of appreciation,
if any, in the Fair Market Value of a Share from the date of the grant of the
right to the date of its payment.

          (kk) “Share” means a share of Capital Stock.

          (ll) “Share Award” means a grant of Shares without a risk of forfeiture
and without other restrictions.

          (mm) “Stock Unit” means the right to receive a Share at a future point in
time.

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          (nn) “Stock Unit Award” means the grant of a Stock Unit without a risk of
forfeiture and without other restrictions.

          (oo) “Subsidiary” means a “subsidiary corporation,” whether now or
hereafter existing, as defined in Section 424(f) of the Code.

     Section 3. Administration.

          (a) The Plan shall be administered by the Plan Administrator.

          (b) Subject to the provisions of this Plan and, in the case of a
Committee, the specific duties delegated to or limitations imposed upon such
Committee by the Board, the Plan Administrator shall have the authority, in its
discretion:

          (i) to establish, amend and rescind rules and regulations relating
to the Plan;

          (ii) to select the Eligible Individuals to whom Awards may from time
to time be granted hereunder;

          (iii) to determine the amount and type of Awards, including any
combination thereof, to be granted to any Eligible Individual;

          (iv) subject to Section 3(c) hereof, to grant Awards to Eligible
Individuals and, in connection therewith, to determine the terms and
conditions, not inconsistent with the terms of this Plan, of any such
Award including, but not limited to, the number of Shares or Stock Units
that may be issued or amount of cash that may be paid pursuant to the
Award, the exercise or purchase price of any Share or Stock Unit, the
circumstances under which Awards or any cash, Shares or Stock Units
relating thereto are issued, retained, become exercisable or vested, are
no longer subject to forfeiture or are terminated, forfeited or expire,
based in each case on such factors as the Plan Administrator shall
determine, in its sole discretion;

          (v) to determine the Fair Market Value of the Capital Stock, in
accordance with this Plan;

          (vi) to establish, verify the extent of satisfaction of, or adjust
any performance goals or other conditions applicable to the grant,
issuance, exercisability, vesting and/or ability to retain any Award;

          (vii) to approve forms of agreement for use under the Plan;

          (viii) to determine whether and under what circumstances an Award
may be settled in cash instead of Shares or Stock Units;

          (ix) to determine whether, to what extent and under what
circumstances Shares and other amounts payable with respect to an Award
under this Plan shall be deferred either automatically or at the election
of the participant (including providing for

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and determining the amount, if any, of any deemed earnings on any
deferred amount during any deferral period);

          (x) to determine whether and to what extent an adjustment is
required under Section 10 of this Plan;

          (xi) to interpret and construe this Plan, any rules and regulations
under this Plan and the terms and conditions of any Award granted
hereunder, and to make exceptions to any such provisions in good faith
and for the benefit of the Company; and

          (xii) to make all other determinations deemed necessary or advisable
for the administration of this Plan.

          (c) Notwithstanding anything contained in this Plan, the Plan
Administrator may not:

          (i) grant any Option or SAR in substitution for an outstanding
Option or SAR except as provided in Section 10(b);

          (ii) reduce the exercise price of an outstanding Option or SAR,
whether through amendment, cancellation or replacement of such Option or
SAR, unless such reduction is approved by the shareowners of the Company;

          (iii) grant a Restricted Stock Award or Restricted Unit Award with a
risk of forfeiture or restriction that lapses earlier than at the rate of
one-third of the Shares subject to the Award on each of the first, second
and third anniversary of the date of grant; provided, however, that the
Plan Administer may grant a Restricted Stock Award or Restricted Unit
Award with a risk of forfeiture or restriction that lapses upon the later
to occur of (x) the date of achievement of one or more performance
criteria and (y) the one year anniversary of the date of grant of the
Award;

          (iv) grant a Performance Share Award or Performance Unit Award that
vests earlier than the later to occur of (x) the date of achievement of
one or more performance criteria and (y) the one year anniversary of the
date of the Award;

          (v) lapse or waive restrictions applicable to any Restricted Stock
Award, Restricted Unit Award, Performance Share Award, or Performance
Unit Award; or

          (vi) grant any Share Award or Stock Unit Award to any officer or
director of the Company except in lieu of salary or cash bonus.

          (d) The limitations of Section 3(c) shall not apply to Awards for up to
ten percent of the Shares under the Plan granted by a Committee composed
entirely of “independent directors” (under all definitions of independence then
applicable to the Company).

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          (e) Except as specifically provided in this Plan, no action of the Plan
Administrator shall deprive any person without such person’s consent of any
rights theretofore granted pursuant hereto.

          (f) All decisions, determinations and interpretations of the Plan
Administrator shall be final and binding on all Participants.

     Section 4. Shares Subject to the Plan.

          (a) The aggregate number of Shares which may be issued pursuant to the
Plan shall be 3,750,000 plus Shares added to the Plan from the Prior Stock
Plans pursuant to Sections 4(d) and 4(e) hereof.

          (b) Upon shareowner approval of this Plan, no further grants or awards of
any kind shall be made by the Company under its Prior Stock Plans.

          (c) The number of Shares which may be issued under the Plan and covered by
outstanding Awards is subject to adjustment as provided in Section 10.

          (d) To the extent that Options granted under the Plan or under the Prior
Stock Plans shall expire or terminate without being exercised or Shares awarded
under the Plan or under the Prior Stock Plans shall be forfeited, such Shares
shall remain available or be added to and shall increase the number of Shares
available for purposes of the Plan.

          (e) Shares delivered in payment of the purchase price in connection with
the exercise of Options or Shares delivered or withheld to pay tax withholding
obligations or otherwise under the Plan or under the Prior Stock Plans shall be
added to and shall increase the number of Shares available for purposes of the
Plan.

          (f) The aggregate number of Shares that may be issued pursuant to
Incentive Stock Options shall be limited to 3,750,000. Notwithstanding
anything to the contrary in this Plan, the foregoing limitation shall be
subject to adjustment under Section 10, but only to the extent that such
adjustment will not affect the status of any Award intended to qualify as an
Incentive Stock Option. The foregoing limitation shall not apply to the extent
that it is no longer required in order for Options to qualify as Incentive
Stock Options.

          (g) The aggregate number of Shares issuable under all Awards granted under
this Plan during any fiscal year to any one Eligible Individual shall not
exceed 500,000. Notwithstanding anything to the contrary in this Plan, the
foregoing limitation shall be subject to adjustment under Section 10, but only
to the extent that such adjustment will not affect the status of any Award
intended to qualify as “performance-based compensation” under Section 162(m) of
the Code. The foregoing limitation shall not apply to the extent that it is no
longer required in order for compensation in connection with grants under this
Plan to be treated as “performance-based compensation” under Section 162(m) of
the Code.

          (h) Capital Stock to be issued under the Plan may be either authorized and
unissued Shares or Shares held in treasury by the Company.

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     Section 5. Terms of Options and SARs. Each Option and SAR granted under
the Plan shall be evidenced by a written document (including an electronic
version thereof) and shall be subject to the following terms and conditions:

          (a) Subject to adjustment as provided in Section 10 of this Plan, the
price at which a Share covered by an Option may be purchased shall not be less
than the Fair Market Value thereof at the time the Option is granted. If
required by the Code, if an Optionee owns (or is deemed to own under applicable
provisions of the Code and rules and regulations promulgated thereunder) more
than ten percent (10%) of the combined voting power of all classes of the stock
of the Company (or any Parent or Subsidiary of the Company) and an Option
granted to such Optionee is intended to qualify as an Incentive Stock Option,
the price at which a Share covered by an Option may be purchased shall be not
less than 110% of the Fair Market Value thereof at the time the Option is
granted.

          (b) The aggregate Fair Market Value of Shares with respect to which
Incentive Stock Options are first exercisable by the Optionee in any calendar
year (under all plans of the Company and its Subsidiaries and Parent) shall not
exceed the limitations, if any, imposed by the Code.

          (c) If any Option designated as an Incentive Stock Option, either alone or
in conjunction with any other Option or Options, exceeds the foregoing
limitation, or does not otherwise qualify for treatment as an Incentive Stock
Option, all or the portion of such Option in excess of such limitation shall
automatically be reclassified (in whole Share increments and without fractional
Share portions) as a Nonstatutory Stock Option, with later granted Options
being so reclassified first.

          (d) Except as otherwise provided by the Plan Administrator, during the
lifetime of the Optionee the Option or SAR may be exercised only by the
Optionee and the Option or SAR shall not be transferable by the Optionee other
than by will or by the laws of descent and distribution or pursuant to a
domestic relations order. After the death of the Optionee, the Option or SAR
may be transferred to the Company upon such terms and conditions, if any, as
the Plan Administrator and the personal representative or other person entitled
to the Option may agree within the period specified in this Section 5.

          (e) An Option or SAR may be exercised in whole at any time, or in part
from time to time, within the Original Option Period; provided, however, that,
unless otherwise provided by the Plan Administrator:

          (i) If the Optionee is an Employee who shall cease to be employed by
the Company or any Subsidiary or Parent of the Company by reason of
death, Disability or Retirement, the Option or SAR may be exercised only
within three years after termination of employment and within the
Original Option Period;

          (ii) If the Optionee is an Employee who shall cease to be employed
by the Company or any Subsidiary or Parent of the Company by reason of
termination of the Optionee for cause, the Option or SAR shall forthwith
terminate and the Optionee shall

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not be permitted to exercise the Option or SAR following the
Optionee’s termination of employment;

          (iii) If the Optionee is an Employee who shall cease to be employed
by the Company or any Subsidiary or Parent of the Company by reason of
the Optionee’s voluntary termination or a termination of the Optionee
other than for cause, the Option or SAR may be exercised only within the
three months after the termination of employment and within the Original
Option Period;

          (iv) If the Optionee is a Non-Employee Director who shall cease to
serve on the Board, the Option or SAR may be exercised only within three
months after the cessation of Board service and within the Original
Option Period or, if such cessation was due to death, Disability or
Retirement, within three years after cessation of Board service and
within the Original Option Period, unless such cessation of service as a
Non-Employee Director was the result of removal for cause, in which case
the Option or SAR shall forthwith terminate;

          (v) Notwithstanding anything to the contrary contained in this Plan,
each Option or SAR held by an Employee who is terminated by the Company
or any Subsidiary or Parent of the Company for any reason during the
two-year period following a Change in Control or a Non-Employee Director
who is removed from the Board for any reason during the two-year period
following a Change in Control shall immediately vest and may be exercised
at any time within the three-month period after the termination of
employment or cessation of Board service regardless of the Original
Option Period;

          (vi) If the Optionee shall die, the Option or SAR may be exercised
by the Optionee’s personal representative or persons entitled thereto
under the Optionee’s will or the laws of descent and distribution;

          (vii) Except as provided in Sections 5(e)(v), (ix) and (x), the
Option or SAR may not be exercised for more Shares (subject to adjustment
as provided in Section 10) after the termination of the Optionee’s
employment, cessation of service as a Non-Employee Director or the
Optionee’s death (as the case may be) than the Optionee was entitled to
purchase thereunder at the time of such Optionee’s termination of
employment, cessation of service as a Non-Employee Director or the
Optionee’s death;

          (viii) To the extent provided by the Code, if an Optionee owns (or
is deemed to own under applicable provisions of the Code and rules and
regulations promulgated thereunder) more than 10% of the combined voting
power of all classes of stock of the Company (or any Parent or Subsidiary
of the Company) at the time an Option is granted to such Optionee and
such Option is intended to qualify as an Incentive Stock Option, the
Option, if not exercised within five years from the date of grant or any
other period proscribed by the Code, will cease to be an Incentive Stock
Option;

          (ix) If the Optionee is an Employee who shall cease to be employed
by the Company or any Subsidiary or Parent of the Company or is a
Non-Employee Director who shall cease to serve on the Board by reason of
death or Disability, as the case may be,

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all Options and SARs held by the Optionee shall automatically vest
and become exercisable in full as of the date that the Optionee’s
employment with the Company or any Subsidiary or Parent of the Company or
service on the Board ceased; and

          (x) In the event that an Optionee ceases to be employed by the
Company or any Subsidiary or Parent of the Company or to serve on the
Board, as the case may be, as a result of such Optionee’s Retirement, all
Options and SARs held by the Optionee which are not vested on the date of
Retirement shall continue to vest and become exercisable in accordance
with their original vesting schedule during the two-year period following
such Optionee’s Retirement. Any Options or SARs which remain unvested on
the second anniversary of such Optionee’s Retirement shall forthwith
terminate on such date. In the event of the death or Disability of such
Optionee during the two-year period following Retirement, all Options or
SARs held by the Optionee shall automatically vest and become exercisable
in full.

          (f) Except as otherwise provided by the Plan Administrator, the purchase
price of each Share purchased pursuant to an Option shall be paid in full at
the time of each exercise (the “Payment Date”) of the Option (i) in cash; (ii)
by delivering to the Company a notice of exercise with an irrevocable direction
to a registered broker-dealer under the Securities Exchange Act of 1934, as
amended, to sell a sufficient portion of the Shares and deliver the sale
proceeds directly to the Company to pay the exercise price; (iii) through the
delivery to the Company (by attestation of Share ownership or as otherwise
provided by the Plan Administrator) of previously-owned Shares having an
aggregate fair market value equal to the price of the Shares being purchased
pursuant to the Option; provided, however, that Shares delivered in payment of
the Option price must have been purchased in the open market or held by the
Participant for at least six (6) months in order to be utilized to pay the
purchase price of the Option or must meet such other conditions as established
by the Plan Administrator; or (iv) through any combination of the payment
procedures set forth in subsections (i)-(iii) of this Section 5(f).

          (g) Exercise of an Option or SAR in any manner shall result in a decrease
in the number of Shares which thereafter may be available under the Option or
SAR by the number of Shares as to which the Option or SAR is exercised. In
addition, in the event of an Option granted in tandem with an SAR, the exercise
of the Option in any manner shall result in a decrease in the number of Shares
which thereafter may be available under the SAR by the number of Shares as to
which the Option is exercised, and the exercise of the SAR in any manner shall
result in a decrease in the number of Shares which thereafter may be available
under the Option by the number of Shares as to which the SAR is exercised.

          (h) The Plan Administrator, in its discretion, may authorize the issuance
of “stock retention Options” under this Plan which provide, upon the exercise
of an Option granted under this Plan or under any other stock plan (a “prior
Option”) and payment of the purchase price using previously-owned Shares, for
the automatic issuance of a new Option under this Plan for up to the number of
Shares equal to the number of previously-owned Shares delivered in payment of
the exercise price of the prior Option, with an exercise price equal to the
current Fair Market Value and for a term equal to the term of the prior Option.

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          (i) The Plan Administrator may include such other terms and conditions of
Options or SARs not inconsistent with the foregoing as the Plan Administrator
shall approve. Without limiting the generality of the foregoing sentence, the
Plan Administrator shall be authorized to determine that Options or SARs shall
be exercisable in one or more installments during the term of the Option or SAR
as determined by the Plan Administrator.

     Section 6. Performance Share Awards, Performance Unit Awards, Restricted
Stock Awards, Restricted Unit Awards, Share Awards and Stock Unit Awards.

          (a) Subject to the terms of this Plan, including Section 3(c) hereof,
Performance Share Awards, Performance Unit Awards, Restricted Stock Awards,
Restricted Unit Awards, Share Awards or Stock Unit Awards may be issued by the
Plan Administrator to Eligible Individuals, either alone, in addition to, or in
tandem with other Awards granted under the Plan and/or cash awards made outside
of this Plan. Such Awards shall be evidenced by a written document (including
an electronic version thereof) containing any provisions regarding (i) the
number of Shares or Stock Units subject to such Award or a formula for
determining such, (ii) the purchase price of the Shares or Stock Units, if any,
and the means of payment for the Shares or Stock Units, (iii) the performance
criteria, if any, and level of achievement versus these criteria that shall
determine the number of Shares or Stock Units granted, issued, retainable
and/or vested, (iv) such terms and conditions on the grant, issuance, vesting
and/or forfeiture of the Shares or Stock Units as may be determined from time
to time by the Plan Administrator, including continued employment or service,
(v) restrictions on the transferability of the Shares or Stock Units and (vi)
such further terms and conditions in each case not inconsistent with this Plan
as may be determined from time to time by the Plan Administrator.

          (b) The grant, issuance, retention and/or vesting of Shares or Stock Units
pursuant to any Performance Share Award, Performance Unit Award, Restricted
Stock Award or Restricted Unit Award shall occur at such time and in such
installments as determined by the Plan Administrator or under criteria
established by the Plan Administrator and consistent with this Plan, including
Section 3(c) hereof. The Plan Administrator shall have the right to make the
timing of the grant and/or the issuance, ability to retain and/or vesting of
Shares or Stock Units subject to continued employment, passage of time and/or
such performance criteria as deemed appropriate by the Plan Administrator and
consistent with this Plan, including Section 3(c) hereof. Notwithstanding
anything to the contrary herein, the performance criteria for any Award that is
intended to satisfy the requirements for “performance-based compensation” under
Section 162(m) of the Code shall be a measure based on one or more Qualifying
Performance Criteria selected by the Plan Administrator and specified at the
time the Award is granted.

          (c) Notwithstanding the foregoing, no single Share Award or Stock Unit
Award to any one Grantee in any fiscal year shall be for more than 200 Shares.

          (d) With respect to any Performance Share Award, Performance Unit Award,
Restricted Stock Award or Restricted Unit Award:

          (i) If, prior to a Change in Control, the designated goals have not
been achieved within the designated period or the Grantee ceases to be
employed by the Company or ceases to serve on the Board for any reason
other than death, Disability or

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Retirement prior to the lapse of any restrictions or vesting of the
Award, the Grantee shall forfeit such Award;

          (ii) In the event that a Grantee ceases to be an Employee or to
serve on the Board as a result of such Grantee’s death, Disability or
Retirement, all outstanding Awards held by such Grantee shall
automatically vest and all restrictions shall lapse as of the date of
such Grantee’s death, Disability or Retirement;

          (iii) Notwithstanding anything to the contrary contained in this
Plan, each Award held by an Employee who is terminated by the Company or
any Subsidiary or Parent of the Company for any reason during the
two-year period following a Change in Control or a Non-Employee Director
who is removed from the Board for any reason during the two-year period
following a Change in Control shall automatically vest and all
restrictions shall lapse as of the date of such Grantee’s termination of
employment or cessation of Board service; and

          (iv) During the lifetime of the Grantee, the Award shall not be
transferable otherwise than by will or by the laws of descent and
distribution or pursuant to a domestic relations order.

          (e) Except as otherwise provided by the Plan Administrator, a Grantee who
has received a Restricted Stock Award shall have all rights of a shareowner in
such Shares including, but not limited to, the right to vote and receive
dividends with respect thereto from and after the date of grant of such Award;
provided, however, that Shares awarded pursuant to the Plan which have not
vested or which contain restrictions or conditions may not be sold or otherwise
transferred by the Grantee and stock certificates representing such Shares may
bear a restrictive legend to that effect.

     Section 7. Incentive Bonus Awards.

          (a) Each Incentive Bonus Award will confer upon the Employee the
opportunity to earn a future payment tied to the level of achievement with
respect to one or more performance criteria established for a performance
period established by the Plan Administrator.

          (b) Each Incentive Bonus Award shall be evidenced by a document containing
provisions regarding (a) the target and maximum amount payable to the Employee,
(b) the performance criteria and level of achievement versus these criteria
that shall determine the amount of such payment, (c) the term of the
performance period as to which performance shall be measured for determining
the amount of any payment, (d) the timing of any payment earned by virtue of
performance, (e) restrictions on the alienation or transfer of the bonus prior
to actual payment, (f) forfeiture provisions and (g) such further terms and
conditions, in each case not inconsistent with this Plan as may be determined
from time to time by the Plan Administrator. The maximum amount payable as a
bonus may be a multiple of the target amount payable, but the maximum amount
payable pursuant to that portion of an Incentive Bonus Award granted under this
Plan for any fiscal year to any Employee that is intended to satisfy the
requirements for “performance-based compensation” under Section 162(m) of the
Code shall not exceed $2,000,000.

- 12 -

 

          (c) The Plan Administrator shall establish the performance criteria and
level of achievement versus these criteria that shall determine the target and
maximum amount payable under an Incentive Bonus Award, which criteria may be
based on financial performance and/or personal performance evaluations. The
Plan Administrator may specify the percentage of the target incentive bonus
that is intended to satisfy the requirements for “performance-based
compensation” under Section 162(m) of the Code. Notwithstanding anything to
the contrary herein, the performance criteria for any portion of an Incentive
Bonus Award that is intended by the Plan Administrator to satisfy the
requirements for “performance-based compensation” under Section 162(m) of the
Code shall be a measure based on one or more Qualifying Performance Criteria
selected by the Plan Administrator and specified at the time the Incentive
Bonus Award is granted. The Plan Administrator shall certify the extent to
which any Qualifying Performance Criteria has been satisfied, and the amount
payable as a result thereof, prior to payment of any incentive bonus that is
intended to satisfy the requirements for “performance-based compensation” under
Section 162(m) of the Code.

          (d) The Plan Administrator shall determine the timing of payment of any
incentive bonus. The Plan Administrator may provide for or, subject to such
terms and conditions as the Plan Administrator may specify, may permit an
election for the payment of any incentive bonus to be deferred to a specified
date or event. An Incentive Bonus Award may be payable in Shares, Stock Units
or in cash or other property, including any Award permitted under this Plan.

          (e) Notwithstanding satisfaction of any performance goals, the amount paid
under an Incentive Bonus Award on account of either financial performance or
personal performance evaluations may be reduced by the Plan Administrator on
the basis of such further considerations as the Plan Administrator shall
determine.

     Section 8. Non-Employee Director Awards.

          Notwithstanding anything to the contrary contained in this Plan, each
Non-Employee Director shall only be entitled to receive the following Awards
under this Plan, which Awards will be made on the day following the first
regular Board meeting of each fiscal year beginning in fiscal year 2004:

          (a) Each Non-Employee Director shall receive a Nonstatutory Stock Option
to purchase up to 5,000 shares, as determined by the Board, at Fair Market
Value, such Option to Vest as to exercisability in 3 equal, annual installments
and to have a term of ten (10) years.

          (b) Each Non-Employee Director shall receive a Restricted Stock Award for
Shares with a Fair Market Value of up to $10,000, as determined by the Board,
rounded to the nearest whole Share. Such Awards shall vest and the
restrictions on transfer shall lapse as to one-third of the Shares subject to
the Award on each anniversary of the date of grant provided that the
Non-Employee Director continues to serve on the Board.

          (c) Each new Non-Employee Director shall receive, as of the first date of
service on the Board, a Nonstatutory Stock Option to purchase twice the number
of Shares provided in the Nonstatutory Stock Option most recently granted to
the Non-Employee Directors

- 13 -

 

(other than the lead director) and a Restricted Stock Award based on the
number of Shares provided in the Restricted Stock Award most recently granted
to the Non-Employee Directors (other than the lead director) but pro rated for
the amount of the fiscal year remaining as of the first date of service.

     Section 9. Tax Withholding.

          (a) Whenever Shares are to be issued under the Plan, the Company shall
have the right to require the Grantee to remit to the Company an amount
sufficient to satisfy federal, state and local tax withholding requirements
prior to the delivery of any certificate for such Shares; provided, however,
that in the case of a Grantee who receives an Award of Shares under the Plan
which is not fully vested, the Grantee shall remit such amount on the first
business day following the Tax Date. The “Tax Date” for purposes of this
Section 9 shall be the date on which the amount of tax to be withheld is
determined. If an Optionee makes a disposition of Shares acquired upon the
exercise of an Incentive Stock Option within the applicable disqualifying
period, the Optionee shall promptly notify the Company and the Company shall
have the right to require the Optionee to pay to the Company an amount
sufficient to satisfy federal, state and local tax withholding requirements.

          (b) A Participant who is obligated to pay the Company an amount required
to be withheld under applicable tax withholding requirements may pay such
amount (i) in cash; (ii) in the discretion of the Plan Administrator, through
the withholding by the Company of Shares otherwise deliverable to the
Participant or through the delivery by the Participant to the Company of
previously-owned Shares in each case having an aggregate Fair Market Value on
the Tax Date equal to the tax obligation; or (iii) in the discretion of the
Plan Administrator, through a combination of the foregoing.

     Section 10. Adjustment of Number and Price of Shares.

          (a) In the event of a corporate transaction involving the Company
(including, without limitation, any stock dividend, stock split, reverse stock
split, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares), the Plan
Administrator may adjust Awards to preserve the benefits or potential benefits
of the Awards. Action by the Plan Administrator may include: (i) adjustment of
the number and kind of securities which may be delivered under the Plan; (ii)
adjustment of the number and kind of securities subject to outstanding Awards;
(iii) adjustment of the exercise price of outstanding Options and SARs; (iv)
adjustment of the share limitations contained in this Plan; and (v) any other
adjustments that the Plan Administrator determines to be equitable. Any such
adjustment shall be effective and binding for all purposes of the Plan and on
each outstanding Award.

          (b) Without limiting the foregoing, in the event that, by reason of a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board shall authorize the issuance or
assumption of an Option in a transaction to which Section 424(a) of the Code
applies, then, notwithstanding any other provision of the Plan, the Plan
Administrator may grant an Option upon such terms and conditions as it may deem
appropriate for the purpose of assumption of the old Option, or substitution of
a new Option for

- 14 -

 

the old Option, in conformity with the provisions of Code Section 424(a)
and the rules and regulations thereunder, as they may be amended from time to
time.

          (c) No adjustment or substitution provided for in this Section 10 shall
require the Company to issue or to sell a fractional share and the total
adjustment or substitution with respect to each Award agreement shall be
limited accordingly.

          (d) Without limiting the foregoing, and notwithstanding anything to the
contrary contained in the Plan or any document with respect to any Award, in
the event of a Business Combination under the terms of which the holders of
Capital Stock of the Company will receive upon consummation thereof cash for
each share of Capital Stock of the Company surrendered pursuant to such
Business Combination (the “Cash Purchase Price”), the Plan Administrator may
provide that all outstanding Awards representing the right to purchase or
receive Shares shall terminate upon consummation of the Business Combination
and each such Award, including each Option and SAR, shall receive, in exchange
therefor, a cash payment equal to the amount (if any) by which (i) the Cash
Purchase Price multiplied by the number of Shares subject to such Award held by
such Grantee exceeds (ii) the aggregate purchase or exercise price, if any,
thereof.

     Section 11. Change in Control. Unless the Board shall determine by
resolution prior to a Change in Control, in the event of a Change in Control,
the following provisions shall apply to Awards previously granted under the
Plan, notwithstanding any provision herein or in any agreement to the contrary:

          (a) All Options which provide for exercise in one or more installments
shall become immediately exercisable in full immediately prior to the Change in
Control; and

          (b) All Awards which have not previously vested shall become vested and
all restrictions on Awards shall lapse immediately prior to the Change in
Control.

     Section 12. Termination of Employment and Forfeiture. Notwithstanding any
other provision of the Plan (other than provisions regarding Change in Control,
which shall apply in all events), a Participant shall have no right to exercise
any Option or vest in any Shares awarded under the Plan if following the
Participant’s termination of employment with the Company or any Subsidiary or
Parent of the Company and within a period of two years thereafter, the
Participant engages in any business or enters into any employment which the
Board in its sole discretion determines to be either directly or indirectly
competitive with the business of the Company or substantially injurious to the
Company’s financial interest (the occurrence of an event described above shall
be referred to herein as “Injurious Conduct”). Furthermore, notwithstanding
any other provision of the Plan to the contrary, in the event that a
Participant receives or is entitled to the delivery or vesting of cash or
Shares pursuant to an Award made during the 12-month period prior to the
Participant’s termination of employment with the Company or any Subsidiary or
Parent of the Company or during the 24-month period following the Participant’s
termination of such employment, then the Board, in its sole discretion, may
require the Participant to return or forfeit to the Company the cash or Capital
Stock received with respect to such Award (or its economic value as of (i) the
date of the exercise of the Option

- 15 -

 

or (ii) the date of grant or payment with respect to any other Award, as
the case may be) in the event that the participant engages in Injurious
Conduct.

     Section 13. Amendment and Discontinuance. The Board may alter, amend,
suspend or discontinue the Plan, provided that no such action shall deprive any
person without such person’s consent of any rights theretofore granted pursuant
hereto and, provided further, that the Board may not materially amend this Plan
without shareowner approval.

     Section 14. Compliance with Governmental Regulations. Notwithstanding any
provision of the Plan or the terms of any agreement entered into pursuant to
the Plan, the Company shall not be required to issue any securities hereunder
prior to registration of the Shares subject to the Plan under the Securities
Act of 1933, as amended, or the Exchange Act, if such registration shall be
necessary, or before compliance by the Company or any Participant with any
other provisions of either of those acts or of regulations or rulings of the
Securities and Exchange Commission thereunder, or before compliance with other
federal and state laws and regulations and rulings thereunder, including the
rules of the New York Stock Exchange, Inc. and any other exchange or market on
which the Shares are listed or quoted. The Company shall use its reasonable
best efforts to effect such registrations and to comply with such laws,
regulations and rulings forthwith upon advice by its counsel that any such
registration or compliance is necessary.

     Section 15. Compliance with Section 16. With respect to persons subject
to Section 16 of the Exchange Act, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 (or its successor rule).
To the extent that any grant of an Award fails to so comply, it shall be deemed
null and void to the extent permitted by law and to the extent deemed advisable
by the Plan Administrator.

     Section 16. Participation by Foreign Nationals. The Plan Administrator
may, in order to fulfill the purposes of the Plan and without amending the
Plan, modify grants to foreign nationals or United States citizens employed
abroad in order to recognize differences in local law, tax policy or custom.

     Section 17. No Right to Employment. The Plan shall not confer upon any
Participant any right with respect to continuation of any employment or
consulting relationship with the Company or membership on the Board, nor shall
it interfere in any way with the right to terminate such Participant’s
employment or consulting relationship at any time, with or without cause.

     Section 18. Governing Law. The validity, constrictions and effect of this
Plan, agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Plan Administrator
relating to the Plan or such agreements, and the rights of any and all persons
having or claiming to have any interest therein or thereunder, shall be
determined exclusively in accordance with applicable federal laws and the laws
of the Commonwealth of Pennsylvania, without regard to its conflict of laws
principles.

     Section 19. Effective Date of Plan/Duration. The Plan shall become
effective upon approval of the Plan by the affirmative vote of holders of a
majority of the outstanding Shares

- 16 -

 

present and voting at a meeting of shareowners; provided that at least a
majority of the outstanding Shares votes for, against or abstains on the matter
and at least a majority of these Shares votes in favor of the Plan. No Award
may be granted under the Plan after July 23, 2012. Awards granted on or prior
to July 23, 2012 shall remain outstanding in accordance with this Plan and
their respective terms.

- 17 -<PAGE>
                                                                     EXHIBIT 4.1

--------------------------------------------------------------------------------

                            NABORS INDUSTRIES, INC.,

                                   as Issuer,

                                       and

                             NABORS INDUSTRIES LTD.,

                                  as Guarantor,

                             ZERO COUPON CONVERTIBLE

                           SENIOR DEBENTURES DUE 2021

                          SECOND SUPPLEMENTAL INDENTURE

                          DATED AS OF OCTOBER 25, 2004

                 J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION
                        (as successor to Bank One, N.A.),

                                   as Trustee

--------------------------------------------------------------------------------
<PAGE>
                 This SECOND SUPPLEMENTAL INDENTURE (this "Second Supplemental
Indenture"), dated as of October 25, 2004, is among Nabors Industries, Inc., a
Delaware corporation, as issuer (the "COMPANY"), Nabors Industries, Ltd., a
Bermuda exempted company, as guarantor (the "GUARANTOR"), and J.P. Morgan Trust
Company, National Association (as successor to Bank One, N.A.), a national
banking association, as trustee (the "TRUSTEE").

                             RECITALS OF THE COMPANY

                  WHEREAS, the Company and the Trustee entered into an
Indenture, dated as of February 5, 2001, as amended and supplemented by the
First Supplemental Indenture thereto, dated as of June 21, 2002, and this Second
Supplemental Indenture (as so amended and supplemented, the "Indenture"),
pursuant to which the Company issued $1,381,200,000 in aggregate principal
amount at maturity of Zero Coupon Convertible Senior Debentures due 2021 (each a
"Security", collectively the "Securities");

                  WHEREAS, the Company and the Guarantor desire to execute this
Second Supplemental Indenture to add additional covenants by the Company for the
benefit of the Holders and to amend Sections 3.07 and 3.10 of the Indenture in
certain respects;

                  WHEREAS, Section 9.01(4) of the Indenture provides that the
Company and the Guarantor may enter into one or more supplemental indentures
without the written consent of any Holders to make any change that does not
adversely affect the right of any Holder;

                  WHEREAS, the Board of Directors of each of the Company and of
the Guarantor (or a duly authorized committee thereof) has duly adopted
resolutions authorizing the Company and the Guarantor, respectively, to execute
and deliver this Second Supplemental Indenture; and

                  WHEREAS, all the conditions and requirements necessary to make
this Second Supplemental Indenture, when duly executed and delivered, a valid
and binding agreement in accordance with its terms for the purposes herein
expressed, have been performed and fulfilled.

                  NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE
WITNESSETH:

                  For and in consideration of the premises provided for herein
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:

<PAGE>
                                    ARTICLE 1

                              RELATION TO INDENTURE

         SECTION 1.1 RELATION TO INDENTURE.

                  This Second Supplemental Indenture constitutes an integral
part of the Indenture.

         SECTION 1.2 DEFINITIONS.

                  For all purposes of this Second Supplemental Indenture, except
as expressly provided for or unless the context otherwise requires:

                  (1) Capitalized terms used but not defined in this Second
Supplemental Indenture shall have the respective meanings assigned to them in
the Indenture; and

                  (2) All references in this Second Supplemental Indenture to
Articles and Sections, unless otherwise specified, refer to the corresponding
Articles and Sections of this Second Supplemental Indenture.

                                    ARTICLE 2

                           REDEMPTION AND REPURCHASES

         SECTION 2.1 EXCHANGE ARRANGEMENT ON CALL FOR REDEMPTION.

                  Section 3.07 of the Indenture is hereby amended by deleting it
in its entirety and substituting in place thereof the following:

                  Section 3.07. [INTENTIONALLY OMITTED].

         SECTION 2.2 EFFECT OF REPURCHASE NOTICE OR FUNDAMENTAL CHANGE
REPURCHASE NOTICE.

                  The last paragraph of Section 3.10 of the Indenture is hereby
amended by deleting it in its entirety and substituting in place thereof the
following:

                  There shall be no repurchase of any Securities pursuant to
         Section 3.08 hereof or repurchase pursuant to Section 3.09 hereof if
         there has occurred (prior to, on or after, as the case may be, the
         giving, by the Holders of such Securities, of the required Repurchase
         Notice or Option to Elect Repurchase Upon a Fundamental Change, as the

                                        2
<PAGE>
         case may be) and is continuing an Event of Default (other than a
         default in the payment of the Purchase Price or Fundamental Change
         Purchase Price, as the case may be, with respect to such Securities).

                                    ARTICLE 3

                              ADDITIONAL COVENANTS

         SECTION 3.1 PAYMENT OF PURCHASE PRICE IN CASH.

                  The following new Section 4.12 is hereby added to the
Indenture:

                  SECTION 4.12. PAYMENT OF PURCHASE PRICE IN CASH.

                  The Company and the Guarantor covenant and agree for the
         benefit of each Holder that in any Company Notice issued pursuant to
         Section 3.08 of the Indenture, the Company shall in all circumstances
         elect to pay the Purchase Price solely in cash.

         SECTION 3.2 CONVERSION PAYMENTS IN CASH.

                  The following new Section 4.13 is hereby added to the
Indenture:

                  SECTION 4.13. CONVERSION PAYMENTS IN CASH.

                  (a) The Company and the Guarantor covenant and agree for the
         benefit of each Holder that any written notice issued by the Company
         pursuant to Section 11.02 of the Indenture shall in all circumstances
         specify that the Company shall make payment solely in cash for all
         Securities submitted for conversion unless the Full Cash Price (as
         defined below) for a Security is greater than the Principal Amount
         thereof, in which case the Company shall (x) pay in cash the percentage
         of the Full Cash Price equal to the quotient obtained by dividing the
         Principal Amount of such Security by the Full Cash Price for such
         Security, and (y) pay the remaining portion of the payment for such
         Securities either, at the option of the Company, (i) by delivery of a
         number of shares of Common Stock equal to the quotient obtained by
         dividing (A) the excess of the Full Cash Price for such Security over
         the Principal Amount of such Security by (B) the Sale Price of the
         Common Stock for the Trading Day immediately prior to the related
         Conversion Date (and cash in lieu of fractional shares of Common Stock)
         or (ii) in cash. The "FULL CASH PRICE" shall be equal to the Sale Price
         of the Common Stock on the Trading Day immediately prior to the related
         Conversion Date, multiplied by the Conversion Rate in effect on such
         Trading Day.

                                        3
<PAGE>
                  (b) The calculation set forth in Section 4.13(a) shall be made
         by the Company and the Guarantor. The Trustee shall have no duty to
         make the calculation set forth in Section 4.13(a) and takes no
         responsibility for any calculation made by the Company or the Guarantor
         pursuant to Section 4.13(a). Each Exchange Agent (other than the
         Company or one of its Affiliates) shall have the same protection under
         this Section 4.13(b) as the Trustee.

                                    ARTICLE 4

                            MISCELLANEOUS PROVISIONS

         SECTION 4.1 RATIFICATION OF INDENTURE.

                  Except as expressly modified or amended hereby, the Indenture
continues in full force and effect and is in all respects confirmed and
preserved.

         SECTION 4.2 EFFECTIVENESS.

                  This Second Supplemental Indenture shall be effective as of
the date first written above.

         SECTION 4.3 CONFLICT WITH THE TRUST INDENTURE ACT.

                  If any provision of this Second Supplemental Indenture
modifies or excludes any provision of the Trust Indenture Act that is required
under such Act to be part of and govern this Second Supplemental Indenture, the
latter provision of the Trust Indenture Act shall control. If any provision
hereof modifies or excludes any provision of the Trust Indenture Act that may be
so modified or excluded, the latter provision of the Trust Indenture Act shall
be deemed to apply to this Second Supplemental Indenture, as so modified or
excluded, as the case may be.

         SECTION 4.4 SECURITIES DEEMED CONFORMED.

                  As of the date hereof, the provisions of each Security then
outstanding shall be deemed to be conformed, without the necessity for any
reissuance or exchange of such Security or any other action on the part of the
Holders, the Company, the Guarantor or the Trustee, so as to reflect this Second
Supplemental Indenture.

         SECTION 4.5 NO ADDITIONAL TRUSTEE OBLIGATIONS.

                  No duties, responsibilities or liabilities are assumed, or
shall be construed to be assumed, by the Trustee by reason of this Second
Supplemental Indenture. This Second

                                        4
<PAGE>
Supplemental Indenture is executed and accepted by the Trustee subject to all
the terms and conditions set forth in the Indenture with the same force and
effect as if those terms and conditions were repeated at length herein and made
applicable to the Trustee with respect hereto.

         SECTION 4.6 SUCCESSORS.

                  All agreements of the Company, the Guarantor and the Trustee
in this Second Supplemental Indenture and in the Indenture shall bind their
respective successors.

         SECTION 4.7 BENEFITS OF SECOND SUPPLEMENTAL INDENTURE.

                  Nothing in this Second Supplemental Indenture, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder and the Holders, any benefit or any legal or equitable
right, remedy or claim under this Second Supplemental Indenture.

         SECTION 4.8 GOVERNING LAW.

                  THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE AND ENFORCE THIS SECOND SUPPLEMENTAL INDENTURE.

         SECTION 4.9 COUNTERPARTS.

                  This Second Supplemental Indenture may be executed in any
number of counterparts, each of which shall be an original, but all such
counterparts shall together constitute but one and the same instrument.

         SECTION 4.10 TRUSTEE.

                  The Trustee is not responsible in any manner whatsoever for or
in respect of the validity or sufficiency of this Second Supplemental Indenture
or for or in respect of the recitals contained herein, which are made solely by
the Company and the Guarantor.

                            [SIGNATURE PAGE FOLLOWS]

                                        5
<PAGE>
                  IN WITNESS WHEREOF, the parties hereto have cause this Second
Supple mental Indenture to be duly executed as of the first day and year first
written above.

                                           ISSUER:

                                           NABORS INDUSTRIES, INC.

                                           By: /s/ BRUCE P. KOCH
                                              ----------------------------------
                                                  Bruce P. Koch
                                                  Vice President-Finance and
                                                    Chief Financial Officer

                                           GUARANTOR:

                                           NABORS INDUSTRIES LTD.

                                           By: /s/ DANIEL MCLACHLIN
                                              ----------------------------------
                                                Daniel McLachlin
                                                Vice President - Administration

                                           TRUSTEE:

                                           J.P. MORGAN TRUST COMPANY,
                                           NATIONAL ASSOCIATION (as successor
                                           to Bank One, N.A.), as Trustee

                                           By: /s/ MARY JANE HENSON
                                              ----------------------------------
                                              Name: Mary Jane Henson
                                              Title: Vice President

                                        6

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