Document:

Vector Senior Executive Annual Bonus Plan

 

Exhibit 10.7

VECTOR GROUP LTD.

SENIOR EXECUTIVE ANNUAL BONUS PLAN

Adopted January 27, 2006

1. Purpose

     This Senior Executive Annual Bonus Plan (the “Plan”) is applicable to those employees of
Vector Group Ltd. (the “Company”) and its subsidiaries who are considered to be executive officers
of the Company (“Covered Employees”), including members of the Board of Directors (the “Board”) who
are such employees. The Plan is designed to reward, through additional cash compensation, Covered
Employees who are selected to participate in the Plan (each, a “Participant”) for their significant
contribution toward improved profitability and growth of the Company.

2. Administration

     The Plan shall be administered by a committee (the “Committee”) comprised exclusively of
members of the Board who are “outside directors” within the meaning of Section 162(m)(4)(C) of the
Internal Revenue Code of 1986, as amended (the “Code”) and Treasury Regulation 1.162-27(e)(3). The
Committee shall be appointed from time to time by the Board and shall consist of not less than two
of the then members of the Board who are “outside directors”, as defined above. Unless otherwise
designated by the Board, the Compensation Committee of the Board shall serve as the Committee to
administer the Plan. The Committee shall have the authority, subject to the provisions herein, (a)
to select Covered Employees to participate in the Plan; (b) to establish and administer the
performance goals and the award opportunities applicable to each Participant and certify whether
the goals have been attained; (c) to construe and interpret the Plan and any agreement or
instrument entered into under or in connection with the Plan; (d) to establish, amend, and waive
rules and regulations for the Plan’s administration; and (e) to make all other determinations that
may be necessary or advisable for the administration of the Plan. The Committee’s determinations
under the Plan need not be uniform and may be made selectively among Participants, whether or not
such Participants are similarly situated. Any determination by the Committee pursuant to the Plan
shall be final, binding and conclusive on all employees and Participants and anyone claiming under
or through any of them.

3. Eligibility

     All Covered Employees shall be eligible to be selected to participate in the Plan. The
Committee shall select the Covered Employees who shall participate in the Plan in any year no later
than the applicable deadline (the “Determination Date”) for the establishment of performance goals
permitting the compensation payable to such Covered Employee for such year hereunder to qualify as
“qualified performance-based compensation” under Treasury Regulation 1.162-27(e).

 

 

4. Establishment of Performance Goals and Award Opportunities

     No later than the Determination Date for each year, the Committee shall establish, in writing,
the method for computing the amount of compensation that will be payable under the Plan to each
Participant in the Plan for such year if the performance goals established by the Committee for
such year are attained in whole or in part and if the Participant’s employment by the Company or a
subsidiary continues without interruption during that year. Such method shall be stated in terms
of an objective formula or standard that precludes discretion to increase the amount of the award
that would otherwise be due upon attainment of the goals and may be different for each Participant.
Notwithstanding anything to the contrary contained herein, the Committee may, however, exercise
negative discretion (within the meaning of Treasury Regulation 1.162-27(e)(2)(iii)(A)) with respect
to any award hereunder to reduce any amount that would otherwise be payable hereunder.

     No later than the Determination Date for each year, the Committee shall establish in writing
the performance goals for such year, which shall be based on any of the following performance
criteria, either alone or in any combination, on either a consolidated or business unit or
divisional level, and which shall include or exclude discontinued operations, acquisition expenses
and restructuring expenses, as the Committee may determine: net earnings (either before or after
interest, taxes, depreciation and amortization), economic value-added (as determined by the
Committee), sales or revenue, net income (either before or after taxes), operating earnings, cash
flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on
capital, return on net assets, return on stockholders’ equity, return on assets, return on capital,
stockholder returns, dividends and/or other distributions, return on sales, gross or net profit
margin, productivity, expense, margins, operating efficiency, customer satisfaction, working
capital, debt, debt reduction, earnings per share, price per share of stock, market share,
completion of acquisitions, business expansion, product diversification, new or expanded market
penetration and other non-financial operating and management performance objectives. The foregoing
criteria shall have any reasonable definitions that the Committee may specify, which may include or
exclude any or all of the following items, as the Committee may specify: extraordinary, unusual or
non-recurring items; effects of changes in tax law, accounting principles or other such laws or
provisions affecting reported results; effects of currency fluctuations; effects of financing
activities (e.g., effect on earnings per share of issuing convertible debt securities); expenses
for restructuring, productivity initiatives or new business initiatives; impairment of tangible or
intangible assets; litigation or claim judgments or settlements; non-operating items; acquisition
expenses; and effects of assets sales or divestitures. Any such performance criterion or
combination of such criteria may apply to the Participant’s award opportunity in its entirety or to
any designed portion or portions of the award opportunity, as the Committee may specify.

5. Maximum Award

     The maximum amount of compensation that may be paid under the Plan to any Participant for any
year is $5,000,000.

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6. Attainment of Performance Goals Required

     Awards shall be paid under this Plan for any year solely on account of the attainment of the
performance goals established by the Committee with respect to such year. Awards shall also be
contingent upon the Participant remaining employed by the Company or a subsidiary of the Company
during such year. In the event of termination of employment by reason of death, disability or
retirement (each as determined by the Committee) during the Plan year, an award shall be payable
under this Plan to the Participant or the Participant’s estate for such year, which shall be paid
at the same time as the award the Participant would have received for such year had no termination
of employment occurred, and which shall be equal to the amount of such award multiplied by a
fraction the numerator of which is the number of full or partial calendar months elapsed in such
year prior to termination of employment and the denominator of which is the number twelve. A
Participant whose employment terminates prior to the end of a Plan year for any reason other than
as described above shall not be entitled to any award under the Plan for that year.

7. Shareholder Approval and Committee Certification Contingencies; Payment of Awards

     Payment of any awards under the Plan shall be contingent upon the approval of the Plan by the
affirmative vote of at least a majority of the Company’s shareholders casting votes (including
abstentions) at the next annual meeting of the Company’s shareholders. Unless and until such
shareholder approval is obtained, no award shall be paid pursuant to the Plan. Payment of any
award under the Plan shall also be contingent upon the Committee’s certifying in writing that the
performance goals and any other material terms applicable to such award were in fact satisfied, in
accordance with applicable Treasury Regulations under Code Section 162(m). Unless and until the
Committee so certifies, such award shall not be paid. Unless the Committee provides otherwise, (a)
earned awards shall be paid no later than 2 1/2 months after the end of the year with respect to
which such award is earned, and (b) such payment shall be made in cash (subject to any payroll tax
withholding the Company may determine applies).

     To the extent necessary for purposes of Code Section 162(m), the Plan shall be resubmitted to
shareholders for their re-approval with respect to awards payable for the taxable years of the
Company commencing on and after 5th anniversary of initial shareholder approval.

8. Amendment, Termination and Term of Plan

     The Board of Directors may amend, modify or terminate the Plan at any time in whole or in
part, but no such action shall adversely affect any rights or obligations with respect to awards
theretofore made under the Plan. The Plan will remain in effect until terminated by the Board.

9. Interpretation and Construction

     Any provision of the Plan to the contrary notwithstanding, (a) awards under the Plan are
intended to qualify as “qualified performance-based compensation” under Treasury Regulation
1.162-27(e) and (b) any provision of the Plan that would prevent an award under the Plan from so
qualifying shall be administered, interpreted and construed to carry out such intention and any

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provision that cannot be so administered, interpreted and construed shall to that extent be
disregarded. No provision of the Plan, nor the selection of any Covered Employee to participate in
the Plan, shall constitute an employment agreement or affect the duration of any Participant’s
employment, which shall remain “employment at will” unless an employment agreement between the
Company and the Participant provides otherwise. Both the Participant and the Company shall remain
free to terminate the Participant’s employment at any time to the same extent as if the Plan has
not been adopted. The existence of the Plan and/or any award under the Plan shall not limit,
affect or restrict in any way the right or power of the Board or the shareholders to take or
authorize any action, or to refrain from taking or authorizing any action, with respect to the
stock, assets, obligations or business of the Company and/or any of its subsidiaries.

     Notwithstanding any provisions of the Plan to the contrary, if any benefit provided under the
Plan is subject to the provisions of Section 409A of the Code and the regulations issued
thereunder, the provisions of the Plan shall be administered, interpreted and construed in a manner
necessary to comply with Section 409A of the Code and the regulations and other guidance issued
thereunder (or disregarded to the extent such provision cannot be so administered, interpreted, or
construed) so that no Participant will be subject to any additional tax imposed under Section 409A
of the Code.

10. No Funding of Plan

     The Company shall not be required to establish any special or separate fund or to make any
other segregation of assets to assure the payment of any award under the Plan. All benefits under
the Plan shall be paid from the general assets of the Company.

11. Governing Law

     The terms of the Plan shall be governed by the laws of the State of Delaware, without
reference to the conflicts of laws principles thereof.

4Exhibit 4.2

 

EXHIBIT 4.2

FIRST SUPPLEMENTAL INDENTURE

          THIS FIRST SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of October
25, 2005, is made by and among Argo-Tech Corporation, a Delaware corporation (the
“Company”), Argo-Tech Corporation (Aftermarket), a Delaware corporation
(“Aftermarket”), Argo-Tech Corporation (HBP), a Delaware corporation (“HBP”),
Argo-Tech Corporation (OEM), a Delaware corporation (“OEM”), Argo-Tech Corporation Costa
Mesa, a California corporation (“Costa Mesa”) and Durodyne, Inc., an Arizona corporation
(“Durodyne,” and together with Aftermarket, HBP, OEM and Costa Mesa, the “Subsidiary
Guarantors”), and BNY Midwest Trust Company, an Illinois trust company organized under the laws
of the State of Illinois (the “Trustee”), as Trustee.

RECITALS:

     A. The Company, the Subsidiary Guarantors, and the Trustee are parties to an Indenture dated
as of June 23, 2004 (the “Indenture”).

     B. Pursuant to the Indenture, the Company issued and the Trustee authenticated and delivered
an aggregate principal amount of $250,000,000 of the Company’s 91/4% Senior Notes due 2011.

     C. Section 9.2 of the Indenture provides, among other things, that with the written consent of
the Holders of at least a majority in principal amount of the Securities then outstanding (the
“Requisite Consents”), the Company, the Subsidiary Guarantors and the Trustee may amend the
Indenture or the Securities, subject to certain exceptions specified in Section 9.2 of the
Indenture.

     D. On October 6, 2005, the Company mailed a Consent Solicitation Statement (as amended,
modified, or supplemented, the “Solicitation Statement”) to each Holder.

     E. The Company has obtained the Requisite Consents to amend the Indenture in certain respects
(the “Proposed Amendments”).

     F. This Supplemental Indenture has been duly authorized by all necessary corporate action on
the part of the Company and the Subsidiary Guarantors.

     G. The Company has delivered, or caused to be delivered, to the Trustee an Officers’
Certificate and an Opinion of Counsel meeting the requirements of Section 9.6 of the Indenture.

     NOW THEREFORE, each party agrees for the benefit of the other parties and for the equal and
ratable benefit of all Securityholders, as follows:

 

 

AGREEMENT:

     Section 1. Definitions. Capitalized terms used in this Supplemental Indenture and not
otherwise defined herein have the meanings given to them in the Indenture.

     Section 2. Amendments.

     2.1 Amendment of Certain Sections of the Indenture. Subject to Section 3.1 hereof, the
Indenture is hereby amended in the following respects:

	 	(a)	 	Section 3.3 of the Indenture is hereby amended to read in its
entirety as follows:

     SECTION 3.3. Limitation on Restricted Payments. The Company shall not, and shall not permit
any of its Restricted Subsidiaries, directly or indirectly, to:

	 	(1)	 	declare or pay any dividend or make any distribution (whether made in cash,
securities or other property) on or in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving the Company or any of
its Restricted Subsidiaries) except:

	 	(a)	 	dividends or distributions payable in Capital Stock of the
Company (other than Disqualified Stock) or in options, warrants or other rights
to purchase such Capital Stock of the Company; and
	 
	 	(b)	 	dividends or distributions payable to the Company or a
Restricted Subsidiary (and if such Restricted Subsidiary is not a Wholly-Owned
Subsidiary, to its other holders of common Capital Stock on a pro rata basis);

	 	(2)	 	purchase, redeem, retire or otherwise acquire for value any Capital Stock of
the Company or any direct or indirect parent of the Company held by Persons other than
the Company or a Restricted Subsidiary (other than in exchange for Capital Stock of the
Company (other than Disqualified Stock));
	 
	 	(3)	 	purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations or Guarantor Subordinated Obligations (other than the
purchase, repurchase, redemption, defeasance or other acquisition or retirement of
Subordinated Obligations or Guarantor Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or final
maturity, in each case due within one year of the date of purchase, repurchase,
redemption, defeasance or other acquisition or retirement); or
	 
	 	(4)	 	make any Restricted Investment in any Person;

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(any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Restricted Investment referred to in clauses (1) through (4) shall be referred to
herein as a “Restricted Payment”), if at the time the Company or such Restricted Subsidiary makes
such Restricted Payment:

	 	(a)	 	a Default shall have occurred and be continuing (or would
result therefrom); or
	 
	 	(b)	 	the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to the first paragraph under Section 3.2 after giving
effect, on a pro forma basis, to such Restricted Payment; or
	 
	 	(c)	 	the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made subsequent to the Issue Date (excluding
the Restricted Payments permitted by clauses (1), (2), (3), (4), (7), (8),
(9)(a), (9)(c), (9)(d), (9)(e), 9(g) and (11) of the following paragraph only)
would exceed the sum of:

	 	(i)	 	50% of Consolidated Net Income for the period
(treated as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of this Indenture to the end
of the most recent fiscal quarter ending prior to the date of such
Restricted Payment for which financial statements are in existence (or,
in case such Consolidated Net Income is a deficit minus 100% of such
deficit);
	 
	 	(ii)	 	100% of the aggregate Net Cash Proceeds
received by the Company from the issue or sale of its Capital Stock
(other than Disqualified Stock) or other capital contributions
subsequent to the Issue Date (other than Net Cash Proceeds received
from an issuance or sale of such Capital Stock to a Subsidiary of the
Company or an employee stock ownership plan, option plan or similar
trust to the extent such sale to an employee stock ownership plan or
similar trust is financed by loans from or Guaranteed by the Company or
any Restricted Subsidiary unless such loans have been repaid with cash
on or prior to the date of determination);
	 
	 	(iii)	 	the amount by which Indebtedness of the
Company or its Restricted Subsidiaries is reduced on the Company’s
balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any
Indebtedness of the Company or its Restricted Subsidiaries convertible
or exchangeable for Capital Stock (other than Disqualified Stock) of
the Company (less the amount of any cash, or the fair market value of
any other property, distributed by the Company upon such conversion or
exchange); and

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	 	(iv)	 	the amount equal to the net reduction in
Restricted Investments made by the Company or any of its Restricted
Subsidiaries in any Person resulting from:

	 	(A)	 	repurchases or redemptions of
such Restricted Investments by such Person, proceeds realized
upon the sale of such Restricted Investment to an unaffiliated
purchaser, repayments of loans or advances or other transfers of
assets (including by way of dividend or distribution) by such
Person to the Company or any Restricted Subsidiary; or
	 
	 	(B)	 	the redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of “Investment”) not to exceed, in
the case of any Unrestricted Subsidiary, the amount of
Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary,

which amount in each case under this clause (iv) was included in the
calculation of the amount of Restricted Payments; provided, however,
that no amount will be included under this clause (iv) to the extent
it is already included in Consolidated Net Income.

     The provisions of the preceding paragraph shall not prohibit:

	 	(1)	 	any purchase, repurchase, redemption, defeasance or other acquisition or
retirement of Capital Stock, Disqualified Stock, Subordinated Obligations of the
Company or Guarantor Subordinated Obligations of any Subsidiary Guarantor made by
exchange for, or out of the proceeds of the substantially concurrent sale of, Capital
Stock of the Company (other than Disqualified Stock and other than Capital Stock issued
or sold to a Subsidiary or an employee stock ownership plan or similar trust to the
extent such sale to an employee stock ownership plan or similar trust is financed by
loans from or Guaranteed by the Company or any Restricted Subsidiary unless such loans
have been repaid with cash on or prior to the date of determination); provided,
however, that the Net Cash Proceeds from such sale of Capital Stock will be excluded
from clause (c)(ii) of the preceding paragraph;
	 
	 	(2)	 	any purchase, repurchase, redemption, defeasance or other acquisition or
retirement of Subordinated Obligations of the Company or Guarantor Subordinated
Obligations of any Subsidiary Guarantor made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Subordinated Obligations of the Company or any
purchase, repurchase, redemption, defeasance or other acquisition or retirement of
Guarantor Subordinated Obligations made by exchange for or out of the proceeds of the
substantially concurrent sale of Guarantor Subordinated Obligations that, in each case,
is permitted to be Incurred

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	 	 	 	pursuant to Section 3.2 and that in each case constitutes Refinancing Indebtedness;
	 
	 	(3)	 	any purchase, repurchase, redemption, defeasance or other acquisition or
retirement of Disqualified Stock of the Company or a Restricted Subsidiary made by
exchange for or out of the proceeds of the substantially concurrent sale of
Disqualified Stock of the Company or such Restricted Subsidiary, as the case may be,
that, in each case, is permitted to be Incurred pursuant to Section 3.2 and that in
each case constitutes Refinancing Indebtedness;
	 
	 	(4)	 	so long as no Default or Event of Default has occurred and is continuing, any
purchase or redemption of Subordinated Obligations or Guarantor Subordinated
Obligations of a Subsidiary Guarantor from Net Available Cash to the extent permitted
under Section 3.5 below;
	 
	 	(5)	 	dividends paid within 60 days after the date of declaration if at such date of
declaration such dividend would have complied with this provision;
	 
	 	(6)	 	so long as no Default or Event of Default has occurred and is continuing,

	 	(a)	 	the purchase, redemption or other acquisition, cancellation or
retirement for value of Capital Stock, or options, warrants, equity
appreciation rights or other rights to purchase or acquire Capital Stock of the
Company or any Restricted Subsidiary or any parent of the Company held by any
existing or former directors, employees or officers of the Company or Holdings
or any Subsidiary of the Company or their assigns, estates or heirs, in each
case in connection with the repurchase provisions under employee stock option
or stock purchase agreements or other agreements to compensate employees;
provided that such redemptions or repurchases pursuant to this clause shall not
exceed $3.5 million in the aggregate during any calendar year (with amounts not
being used in any calendar year being carried forward to subsequent calendar
years; provided that the aggregate amount in any calendar year may not exceed
$10.0 million);
	 
	 	(b)	 	the purchase, redemption or other acquisition, cancellation or
retirement for value of Capital Stock of the Company, any Restricted Subsidiary
or Holdings held by any existing or former directors, employees or officers of
the Company or Holdings or any Subsidiary of the Company or their assigns,
estates or heirs, made by exchange for Subordinated Obligations of the Company
in connection with the repurchase provisions of the Company’s Employee Stock
Ownership Plan and Trust Agreement, as amended, as in effect on the Issue Date
and only to the extent of amounts mandatorily required to be purchased,
redeemed, acquired, cancelled or retired by such Employee Stock Ownership Plan
and Trust Agreement, as amended, as in effect on the Issue Date; and

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	 	(c)	 	loans or advances to employees or directors of the Company or
Holdings or any Subsidiary of the Company the proceeds of which are used to
purchase Capital Stock of the Company or Holdings, in an aggregate principal
amount not in excess of $1.0 million at any one time outstanding; provided,
however, that the Company and its Subsidiaries shall comply in all material
respects with all applicable provisions of the Sarbanes-Oxley Act and the rules
and regulations promulgated in connection therewith relating to such loans and
advances;

	 	(7)	 	so long as no Default or Event of Default has occurred and is continuing, the
declaration and payment of dividends to holders of any class or series of Disqualified
Stock of the Company issued in accordance with the terms of this Indenture to the
extent such dividends are included in the definition of “Consolidated Interest
Expense”;
	 
	 	(8)	 	repurchases of Capital Stock deemed to occur upon the exercise of stock
options, warrants or other convertible securities if such Capital Stock represents a
portion of the exercise price thereof;
	 
	 	(9)	 	cash dividends or loans to Holdings in amounts equal to:

	 	(a)	 	the amounts required for Holdings to pay any Federal, state or
local income taxes to the extent that such income taxes are directly
attributable to the income of the Company and its Restricted Subsidiaries;
	 
	 	(b)	 	to the extent of amounts actually received by the Company from
its Unrestricted Subsidiaries, the amounts required for Holdings to pay any
Federal, state or local income taxes to the extent that such income taxes are
directly attributable to the income of such Unrestricted Subsidiaries;
	 
	 	(c)	 	the amounts required for Holdings to pay franchise taxes and
other fees required to maintain its legal existence;
	 
	 	(d)	 	an amount not to exceed $0.5 million in any fiscal year to
permit Holdings to pay its corporate overhead expenses Incurred in the ordinary
course of business, and to pay salaries or other compensation of employees who
perform services for both Holdings and the Company;
	 
	 	(e)	 	an amount not to exceed $57.6 million to enable Holdings to
redeem all of the outstanding shares of Holdings’ Series A Cumulative
Exchangeable Redeemable Preferred Stock on the Issue Date;
	 
	 	(f)	 	the amounts required to enable Holdings to effect any
transaction permitted under clause (6) of this paragraph, to the extent
permitted by such clause, in lieu of the Company or any Restricted Subsidiary;
and
	 
	 	(g)	 	an amount not to exceed $5.0 million in connection with the
consummation of the Agreement and Plan of Merger, dated September 13,

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	 	 	 	2005, by and among Holdings, V.G.A.T. Investors, LLC, Vaughn Merger Sub,
Inc., the Company and GreatBanc Trust Company, as Trustee of the Argo-Tech
Corporation Employee Stock Ownership Plan and Trust.

	 	(10)	 	the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Obligation (i) at a purchase price not greater
than 101% of the principal amount of such Subordinated Obligation in the event of a
Change of Control in accordance with provisions similar to Section 3.10 or (ii) at a
purchase price not greater than 100% of the principal amount thereof in accordance with
provisions similar to Section 3.5; provided that, prior to or simultaneously with such
purchase, repurchase, redemption, defeasance or other acquisition or retirement, the
Company has made the Change of Control Offer or Asset Disposition Offer, as applicable,
as provided in such covenant with respect to the Securities and has completed the
repurchase or redemption of all Securities validly tendered for payment in connection
with such Change of Control Offer or Asset Disposition Offer; and
	 
	 	(11)	 	Restricted Payments in an amount not to exceed $5.0 million.

     The amount of all Restricted Payments (other than cash) shall be the fair market value on the
date of such Restricted Payment of the asset(s) or securities proposed to be paid, transferred or
issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to such
Restricted Payment. The fair market value of any cash Restricted Payment shall be its face amount
and any non-cash Restricted Payment shall be determined conclusively by the Board of Directors of
the Company acting in good faith whose resolution with respect thereto shall be delivered to the
Trustee, such determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market value is estimated in
good faith by the Board of Directors of the Company to exceed $20.0 million. Not later than the
date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers’
Certificate stating that such Restricted Payment is permitted and setting forth the basis upon
which the calculations required by this Section 3.3 were computed, together with a copy of any
fairness opinion or appraisal required by this Indenture.

	 	(b)	 	Section 3.11 of the Indenture is hereby amended to read in its
entirety as follows:

          SECTION 3.11. SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted by the
Exchange Act, the Company shall file with the SEC, and make available to the Trustee and the
registered Holders of the Securities, the annual reports and the information, documents and other
reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations
prescribe) that are specified in Sections 13 and 15(d) of the Exchange Act within the time periods
specified therein. In the event that the Company is not permitted to file such reports, documents
and information with the SEC pursuant to the Exchange Act, the Company shall nevertheless make
available such Exchange Act information to the Trustee and the Holders of the Securities as if the
Company were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
within the time periods specified therein.

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     In addition, if at any time Holdings (1) Guarantees the obligations and liabilities of the
Company hereunder (there being no obligation of Holdings to do so), (2) holds no material assets
other than cash, Cash Equivalents, the Capital Stock of Argo Tracker Corporation, a wholly owned
subsidiary of Holdings, and the Capital Stock of the Company or of any direct or indirect parent
entity of the Company that only engages in similar activities (and performs the related incidental
activities associated with such ownership) and (3) complies with the requirements of Rule 3-10 of
Regulation S-X promulgated by the SEC (or any successor provision), the reports, documents and
information required to be furnished to the Trustee and the registered Holders of the Securities
pursuant to this covenant may, at the option of the Company, be furnished by and be those of
Holdings rather than the Company.

     If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the
quarterly and annual financial information required by the preceding paragraphs shall include a
reasonably detailed presentation, either on the face of the financial statements or in the
footnotes to the financial statements and in Management’s Discussion and Analysis of Results of
Operations and Financial Condition, of the financial condition and results of operations of the
Company and its Restricted Subsidiaries.

     2.2 Amendment of Certain Provisions of the Securities. Subject to Section 3.1 hereof, the
Securities are hereby amended or are deemed to have been amended in the following respects: The
provisions in the Securities corresponding to the provisions in the Indenture that are amended by
virtue of Section 2.1 hereof are correspondingly amended in the Securities to the same extent as
the Indenture is amended by Section 2.1 hereof.

     Section 3. Miscellaneous.

     3.1 Effect of Supplemental Indenture. Upon the execution and delivery of this Supplemental
Indenture by the Company, the Subsidiary Guarantors, and the Trustee, the Indenture shall be
supplemented in accordance herewith, and this Supplemental Indenture shall form a part of the
Indenture for all purposes, and every Securityholder holding Securities that have been heretofore
or hereafter authenticated and delivered under the Indenture shall be bound thereby;
provided, however, that Sections 2.1 and 2.2 hereof will not become operative
unless and until the Sale, as such term is defined in the Solicitation Statement that was provided
to Securityholders in connection with the Company’s solicitation of consents (the
“Solicitation”) of such Securityholders to the Proposed Amendments, is consummated and the
other conditions to the Solicitation are satisfied or waived.

     3.2 Indenture Remains in Full Force and Effect. Except as supplemented hereby, all provisions
of the Indenture shall remain in full force and effect.

     3.3 Indenture and Supplemental Indenture Construed Together. This Supplemental Indenture is
an indenture supplemental to and in implementation of the Indenture, and the Indenture and this
Supplemental Indenture shall henceforth be read and construed together.

     3.4 Confirmation and Preservation of the Indenture. The Indenture as supplemented by this
Supplemental Indenture is in all respects confirmed and preserved.

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     3.5 Conflict with Trust Indenture Act. If any provision of this Supplemental Indenture
limits, qualifies, or conflicts with any provision of the Trust Indenture Act of 1939, as amended
(the “Act”), that is required under such Act to be part of and govern any provision of this
Supplemental Indenture, the provision of such Act shall control. If any provision of this
Supplemental Indenture modifies or excludes any provision of the Act that may be so modified or
excluded, the provisions of the Act shall be deemed to apply to the Indenture as so modified or to
be excluded by this Supplemental Indenture, as the case may be.

     3.6 Trustee Not Responsible for Recitals. The recitals contained herein shall be taken as the
statements of the Company and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representation as to the validity or adequacy of this Supplemental Indenture.

     3.7 Certain Duties and Responsibilities of the Trustee. In entering into this Supplemental
Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture
relating to the conduct or affecting the liability of or affording protection to the Trustee,
whether or not elsewhere herein so provided, including specifically the Trustee’s rights to
indemnification contained in Section 7.7 of the Indenture.

     3.8 Separability Clause. In case any provision of this Supplemental Indenture shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

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

     3.10 Benefits of Supplemental Indenture. Nothing in this Supplemental Indenture, the
Indenture, or the Securities, express or implied, shall give to any Person, other than the parties
hereto and thereto and their successors hereunder and thereunder, and the Securityholders, any
benefit of any legal or equitable right, remedy, or claim under the Indenture, this Supplemental
Indenture, or the Securities.

     3.11 Successors and Assigns. All covenants and agreements in this Supplemental Indenture by
the Company shall bind its successors and permitted assigns, whether so expressed or not.

     3.12 Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS SUPPLEMENTAL INDENTURE.

     3.13 Counterparts. This Supplemental Indenture may be executed in counterparts (including by
means of facsimile signature pages), each of which shall be an original, but all such counterparts
shall together constitute one and the same instrument.

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[Remainder of Page Blank – Signature Page Follows]

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

	 	 	 
	 

	 	ARGO-TECH CORPORATION
	 

	 	ARGO-TECH CORPORATION (HBP)
	 

	 	ARGO-TECH CORPORATION (OEM)
	 

	 	ARGO-TECH CORPORATION
	 

	 	(AFTERMARKET)
	 

	 	ARGO-TECH CORPORATION COSTA MESA
	 

	 	DURODYNE, INC.

	 	 	 	 	 	 	 
	 

	 	By:	 	/s/ Paul R. Keen 	 	 
	 

	 	 	 	 

Name: Paul R. Keen
	 	 
	 

	 	 	 	Title: Vice President	 	 

	 	 	 	 	 	 	 	 	 
	 	 	BNY MIDWEST TRUST COMPANY	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	/s/ J. Bartolini 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	J. Bartolini 	 	 
	 

	 	 	 	Title:
	 	Vice President

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