SMITH INTERNATIONAL INC, S-3, 1997-08-22

SMITH INTERNATIONAL INC
S-3, 1997-08-22
MISCELLANEOUS CHEMICAL PRODUCTS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1997

REGISTRATION NO. 333-
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
SMITH INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<C> <C>
DELAWARE 95-3822631
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>

16740 HARDY STREET
P.O. BOX 60068
HOUSTON, TEXAS 77205
(281) 443-3370
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
NEAL S. SUTTON
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
SMITH INTERNATIONAL, INC.
16740 HARDY STREET
P.O. BOX 60068
HOUSTON, TEXAS 77205
(281) 233-5060
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:

<TABLE>
<C> <C>
ERIC A. BLUMROSEN THOMAS P. MASON
GARDERE WYNNE SEWELL & RIGGS, L.L.P. ANDREWS & KURTH L.L.P.
333 CLAY AVENUE, SUITE 800 600 TRAVIS, SUITE 4200
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 308-5533 (713) 220-4368
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If the only securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER UNIT(1) OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Notes Due 2007 $150,000,000 100% $150,000,000 $45,455
========================================================================================================================
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.

PRELIMINARY PROSPECTUS (Subject to Completion)
Issued August 22, 1997

$150,000,000

Smith International Logo
% SENIOR NOTES DUE 2007
------------------------
Interest payable and
------------------------
The Notes will mature on , 2007. The Notes will be senior unsecured
obligations of the Company and will rank pari passu in right of payment with the
Company's obligations under all existing and future senior unsecured
indebtedness of the Company (including the bank credit facilities, as defined
herein) and senior in right of payment to all existing and future indebtedness
of the Company that is by its terms expressly subordinated to the Notes. The
Notes are not redeemable at any time prior to maturity. The Notes will be
represented by one or more Global Securities registered in the name of The
Depository Trust Company (the "Depositary") or its nominee. Beneficial interests
in the Notes will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary (with respect to participants'
interests) and its participants. Except as described herein, Notes in definitive
form will not be issued. See "Description of Notes -- Book-Entry, Delivery and
Form."
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

PRICE % AND ACCRUED INTEREST
------------------------

<TABLE>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
---------------------- ---------------------- ----------------------
Per Note................................ % % %
Total................................... $ $ $
</TABLE>

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

(1) Plus accrued interest from , 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(3) Before deducting expenses payable by the Company estimated at $525,000.
------------------------

The Notes are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Andrews &
Kurth L.L.P., counsel for the Underwriters. It is expected that delivery of the
Notes will be made on or about , 1997, through the book-entry
facilities of the Depositary against payment therefor in immediately available
funds.
------------------------

MORGAN STANLEY DEAN WITTER
ABN AMRO CHICAGO CORPORATION
CHASE SECURITIES INC.

September , 1997
<PAGE> 3

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SPECIFICALLY,
THE UNDERWRITERS MAY OVER-ALLOT THE NOTES IN CONNECTION WITH THE OFFERING, AND
MAY BID FOR AND PURCHASE THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITERS".

No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or by the Underwriters. This Prospectus does not constitute an
offer to sell or the solicitation of an offer to buy any securities other than
the securities described in this Prospectus or an offer to sell or the
solicitation of an offer to buy such securities in any jurisdiction to any
persons to whom it is unlawful to make such offer in such jurisdiction. The
delivery of this Prospectus or any sale made hereunder does not imply that there
has been no change in the affairs of the Company since the date hereto or that
the information contained herein or therein is correct as of any time subsequent
to the date on which such information is given.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 3
Prospectus Summary.......................................... 4
Risk Factors................................................ 7
Use of Proceeds............................................. 8
Capitalization.............................................. 9
Selected Consolidated Financial Data........................ 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 11
Business.................................................... 18
Description of Notes........................................ 21
Underwriters................................................ 28
Legal Matters............................................... 29
Experts..................................................... 29
</TABLE>

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

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Seven World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials can be obtained by mail from the Public
Reference Section of the Commission, at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission.

This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company with the Commission under the Securities Act of
1933, as amended (the "Securities Act"). This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration

2
<PAGE> 4

Statement for further information with respect to the Company and the securities
offered hereby. Any statements contained herein concerning the provisions of any
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission are not necessarily complete, and in each instance reference
is made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, filed with the Commission by the Company pursuant
to the Exchange Act, are incorporated herein by reference and made a part of
this Prospectus:

(i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996; and

(ii) the Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997 and June 30, 1997.

Each document filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such document. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or suspended, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the request of any such person, a copy of any
or all of the foregoing documents incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Written or telephone requests for such copies
should be directed to Investor Relations, Smith International, Inc., 16740 Hardy
Street, P.O. Box 60068, Houston, Texas 77205; telephone: (281) 443-3370.

3
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including the consolidated financial statements and notes thereto,
appearing elsewhere in this Prospectus or incorporated by reference herein. As
used herein, unless the context otherwise requires, the "Company" or "Smith"
refers to Smith International, Inc., together with its subsidiaries. In this
Prospectus, references to "dollars" and "$" are to United States dollars.

THE COMPANY

The Company is a leading worldwide supplier of premium products and
services to the oil and gas exploration and production industry. The Company
provides a comprehensive line of technologically-advanced products and
engineering services, including drilling and completion fluid systems, solids
control equipment, waste management services, three-cone drill bits, diamond
drill bits, fishing services, drilling tools, underreamers, sidetracking systems
and liner hangers. Demand for the Company's products and services is generally
determined by the level of exploration and production activity in major energy
producing areas and the depth and drilling conditions of these projects. From
1993 to 1996, the Company's revenues and operating income increased from $220.7
million to $1,156.7 million and from $18.6 million to $132.5 million,
respectively, representing compounded annual growth rates of 74 percent and 92
percent, respectively. From the first six months of 1996 to the first six months
of 1997, revenues increased 46 percent to $740.6 million and operating income
increased 75 percent to $97.1 million. The Company was incorporated in the State
of California in January 1937 and reincorporated under Delaware law in May 1983.
The Company's executive offices are headquartered at 16740 Hardy Street,
Houston, Texas 77032 (telephone number 281/443-3370).

The Company operates through five business units which provide products and
services throughout the world. The Company's business units include (i) M-I
Fluids which provides drilling and completion fluid systems and services; (ii)
M-I SWACO which provides solids control, pressure control and rig
instrumentation equipment and waste management services; (iii) Smith Tool which
manufactures and sells three-cone drill bits for use in the oil and gas industry
and in mining operations; (iv) Smith Drilling & Completions which manufactures
and markets products and services used in drilling, workover, well completion,
fishing and well re-entry operations; and (v) Smith Diamond Technology which
manufactures and markets shear drill bits featuring cutters made of
polycrystalline diamond or natural diamond.
4
<PAGE> 6

THE OFFERING

Securities Offered......... $150,000,000 aggregate principal amount of %
Senior Notes due 2007 (the "Notes").

Maturity Date.............. September , 2007.

Interest................... % per annum.

Interest Payment Dates..... and of each year, commencing
, 1998.

Ranking.................... The Notes will be senior unsecured obligations of
the Company and will rank pari passu in right of
payment with the Company's obligations under all
existing and future senior unsecured indebtedness
of the Company (including the bank credit
facilities) and senior in right of payment to all
existing and future indebtedness of the Company
that is expressly subordinated to the Notes.

Redemption................. The Notes are not redeemable prior to maturity.

Certain Covenants.......... The indenture governing the Notes will contain
certain covenants that, among other things, will
limit the ability of the Company and its
subsidiaries to create liens, enter into sale and
lease-back transactions, and, with respect to the
Company, engage in mergers and consolidations or
transfer substantially all of the Company's assets.
See "Description of Notes -- Certain Covenants of
the Company."

Use of Proceeds............ The net proceeds from the issuance of the Notes
will be used to repay borrowings outstanding under
the bank credit facilities. See "Use of Proceeds".
5
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL DATA

The following table sets forth certain financial information of the Company
and should be read in conjunction with the consolidated financial statements and
notes thereto.

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ---------- -------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $210,669 $220,712 $653,901 $874,544 $1,156,658 $509,092 $ 740,647
Gross profit............................... 71,535 79,963 221,274 292,540 392,062 171,232 254,459
Operating income........................... 10,260 18,575 60,104 86,248 132,520 55,384 97,095
Net income (loss).......................... (1,811) 68,328 35,879 45,592 64,444 27,929 45,042
Earnings (loss) per share.................. (0.10) 1.79 0.92 1.16 1.62 0.70 1.12
OTHER DATA:
EBITDA excluding minority interests(1)..... $ 32,997 $ 30,175 $ 67,312 $ 87,619 $ 128,747 $ 54,766 $ 93,307
Depreciation and amortization.............. $ 22,737 $ 11,600 $ 21,802 $ 25,540 $ 31,601 $ 14,058 $ 21,632
Ratio of earnings to fixed charges(2)...... 1.01 n/a(3) 5.39 5.64 6.70 6.72 7.27
Capital expenditures, net(4)............... $ 14,912 $ 8,100 $ 13,705 $ 25,084 $ 61,247 $ 24,451 $ 30,927
BALANCE SHEET DATA:
Current assets............................. $296,224 $255,847 $421,596 $485,291 $ 665,277 $603,355 $ 757,943
Total assets............................... 370,482 348,386 619,780 702,844 1,074,582 933,281 1,225,216
Current liabilities........................ 167,752 79,970 164,247 185,289 300,501 234,937 318,938
Total debt................................. 149,343 46,702 130,852 142,385 303,426 248,813 372,748
Shareholders' equity....................... 149,785 214,466 253,121 300,886 368,536 329,389 413,355
</TABLE>

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

(1) "EBITDA excluding minority interests" represents the amount of earnings
before interest, taxes, depreciation and amortization earned by the Company
after reduction for the portion of the respective amounts allocable to the
minority interest ownership partner. "EBITDA excluding minority interests"
is not a measurement recognized under generally accepted accounting
principles and should not be considered as an alternative to net income as
an indicator of the Company's operating performance or to cash flows as a
measure of liquidity.

(2) For purposes of computing the ratios: "Earnings" consist of "Operating
income (loss) from continuing operations", which includes earnings allocable
to the minority interest ownership partner, minus (i) interest expense, net
plus (ii) fixed charges. "Fixed charges" consist of interest, whether
expensed or capitalized, the portion of rental expense estimated to
represent a reasonable approximation of the interest component and preferred
stock dividend requirements.

(3) As a result of a $19.9 million litigation settlement charge in 1993, the
Company's earnings were not sufficient to fully cover the amount of fixed
charges by $3.5 million. Excluding the effect of the litigation settlement
charge, the Company's ratio of earnings to fixed charges for 1993 was 2.96.

(4) Capital expenditures are presented net of any proceeds arising from
lost-in-hole sales and sales of fixed asset equipment replaced.
6
<PAGE> 8

RISK FACTORS

This Prospectus does not describe all of the risks of an investment in the
Notes. Prospective investors should carefully consider, among other factors, the
matters described below.

DEPENDENCE ON OIL AND GAS INDUSTRY

The Company's business and operations are dependent upon conditions in the
oil and gas industry and, specifically, the level of drilling activity in the
exploration and production of hydrocarbons. The demand for drilling and related
services is directly influenced by oil and gas prices, expectations about future
prices, the cost of producing and delivering oil and gas, government
regulations, local and international political and economic conditions,
including the ability of the Organization of Petroleum Exporting Countries
("OPEC") to set and maintain production levels and prices, the level of
production by non-OPEC countries and the policies of the various governments
regarding exploration and development of their oil and gas reserves. There can
be no assurance that current levels of oil and gas exploration expenditures will
be maintained or that demand for the Company's services will reflect the level
of such expenditures.

HOLDING COMPANY STRUCTURE AND SUBORDINATION OF NOTES

The Company conducts a substantial portion of its operations through
subsidiaries. Accordingly, the Company relies on dividends and cash advances
from its subsidiaries to provide funds necessary to meet its obligations,
including the payment of principal and interest on the Notes. The ability of any
such subsidiary to pay dividends or make cash advances is subject to applicable
laws and the financial condition and operating requirements of such subsidiary.

The Notes are unsecured obligations of the Company and will rank pari passu
in right of payment with the Company's obligations under all existing and future
senior unsecured indebtedness of the Company (including the bank credit
facilities) and senior in right of payment to all existing and future
indebtedness of the Company that is, by its terms, expressly subordinated to the
Notes. The Notes are effectively subordinated in right of payment to the
liabilities of the subsidiaries of the Company (including claims of trade
creditors and tort claimants). In addition, the Notes will be effectively
subordinated to all secured debt of the Company and its subsidiaries. As of June
30, 1997, on a pro forma basis giving effect to the Offering (as defined herein)
and the application of the net proceeds therefrom, (i) the Company would not
have had any outstanding senior secured indebtedness, (ii) the aggregate
principal amount of indebtedness outstanding of the subsidiaries of the Company
would have been $26,590,000 and (iii) such subsidiaries would have had
$96,653,000 of additional borrowing availability under an existing bank credit
facility. In the event of bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay obligations on the
Notes only after all secured indebtedness has been paid in full, and there may
not be sufficient assets remaining to pay amounts due on any or all of the Notes
outstanding. See "Description of the Notes -- Ranking."

ABSENCE OF A TRADING MARKET FOR THE NOTES

The Notes are a new issue of securities that have no established trading
market and may not be widely distributed. There can be no assurance that an
active trading market will develop for the Notes or of the price at which the
holders would be able to sell the Notes. The Notes could trade at prices that
may be higher or lower than the initial offering price thereof depending upon
many factors, including prevailing interest rates, the Company's operating
results and the market for similar securities.

7
<PAGE> 9

USE OF PROCEEDS

The Company expects to use the net proceeds from the sale of the Notes
offered hereby (estimated to be $148,500,000) to repay outstanding bank debt
under its revolving credit agreements. The Company currently has a $120,000,000
credit facility and guarantees a portion of the $80,000,000 credit facility
utilized by the Company's majority-owned subsidiary, M-I L.L.C. ("M-I") (the
"bank credit facilities"). The bank credit facilities are unsecured and expire
in March 2002. At June 30, 1997, borrowings outstanding under the bank credit
facilities equaled $175,200,000 and had a weighted average interest rate of 6.44
percent for the six months ended June 30, 1997. The outstanding debt expected to
be repaid from the net proceeds of the offering of the Notes (the "Offering")
has been used to finance acquisitions and working capital requirements.

8
<PAGE> 10

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997 (i) on a historical basis and (ii) as adjusted to
reflect the Offering and the anticipated application of the estimated net
proceeds thereof of $148,500,000. See "Use of Proceeds". This table should be
read in conjunction with the Company's consolidated financial statements and
notes thereto incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS, EXCEPT
PAR VALUE DATA)
<S> <C> <C>
Cash and cash equivalents................................... $ 24,265 $ 24,265
======== ========
Long-term debt:
Notes payable to insurance companies........................ $ 85,778 $ 85,778
Bank revolvers payable...................................... 175,200 3,750(1)
Term loans and other........................................ 30,918 30,918
Senior notes offered hereby................................. -- 150,000
-------- --------
Total long-term debt.............................. 291,896 270,446
-------- --------
Minority interests.......................................... 174,002 196,952(1)
Shareholders' equity:
Preferred stock, $1 par value. Authorized 5,000 shares, no
shares issued and outstanding............................. -- --
Common stock, $1 par value. Authorized 60,000 shares, issued
and outstanding 40,281 shares............................. 40,281 40,281
Additional paid-in capital.................................. 281,677 281,677
Less treasury securities, 656 common shares................. (7,702) (7,702)
Retained earnings........................................... 107,524 107,524
-------- --------
Total............................................. 421,780 421,780
-------- --------
Total capitalization.............................. $887,678 $889,178
======== ========
</TABLE>

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

(1) The Company's majority-owned subsidiary, M-I, is owned 64 percent by Smith
and 36 percent by Halliburton Company. The "as adjusted" amounts reflect the
contribution by the minority interest partner of amounts required to retire
its portion of the aggregate principal amount of indebtedness outstanding
under the M-I bank credit facility anticipated to be repaid with the
proceeds of the Offering.

9
<PAGE> 11

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data of the Company for each of the
five years in the period ended December 31, 1996 have been derived from the
audited consolidated financial statements of the Company. The selected
consolidated financial data for the six months ended June 30, 1996 and 1997 have
been derived from the unaudited consolidated financial statements of the
Company, which, in the opinion of management, reflect all adjustments,
consisting of normal recurring adjustments, considered necessary for a fair
presentation of the interim periods. The following data should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ ---------------------
1992 1993 1994(1) 1995 1996 1996 1997
-------- -------- -------- -------- ---------- -------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues........................ $210,669 $220,712 $653,901 $874,544 $1,156,658 $509,092 $ 740,647
Cost of revenues................ 139,134 140,749 432,627 582,004 764,596 337,860 486,188
-------- -------- -------- -------- ---------- -------- ----------
Gross profit.................... 71,535 79,963 221,274 292,540 392,062 171,232 254,459
Operating expenses.............. 61,275 61,388 161,170 206,292 259,542 115,848 157,364
Litigation settlement(2)........ -- 19,900 -- -- -- -- --
-------- -------- -------- -------- ---------- -------- ----------
Operating income (loss) from
continuing operations......... 10,260 (1,325) 60,104 86,248 132,520 55,384 97,095
Interest expense, net........... 10,103 2,202 8,572 12,238 16,445 6,803 11,247
Income tax provision
(benefit)..................... (1,007) 468 6,815 12,609 26,798 10,794 22,069
Minority interests.............. -- -- 8,838 15,809 24,833 9,858 18,737
-------- -------- -------- -------- ---------- -------- ----------
Net income (loss) from
continuing operations......... 1,164 (3,995) 35,879 45,592 64,444 27,929 45,042
Non-operating (income)
expense(3).................... 2,975 (72,323) -- -- -- -- --
Preferred stock dividends....... 1,740 868 -- -- -- -- --
-------- -------- -------- -------- ---------- -------- ----------
Net income (loss) applicable to
common stock.................. $ (3,551) $ 67,460 $ 35,879 $ 45,592 $ 64,444 $ 27,929 $ 45,042
======== ======== ======== ======== ========== ======== ==========
Earnings (loss) per share:
From continuing operations.... $ (0.02) $ (0.13) $ 0.92 $ 1.16 $ 1.62 $ 0.70 $ 1.12
Net income.................... $ (0.10) $ 1.79 $ 0.92 $ 1.16 $ 1.62 $ 0.70 $ 1.12
BALANCE SHEET DATA
Current assets.................. $296,224 $255,847 $421,596 $485,291 $ 665,277 $603,355 $ 757,943
Total assets.................... 370,482 348,386 619,780 702,844 1,074,582 933,281 1,225,216
Current liabilities............. 167,752 79,970 164,247 185,289 300,501 234,937 318,938
Long-term debt.................. 46,000 46,000 115,000 117,238 228,443 216,348 291,896
Total debt...................... 149,343 46,702 130,852 142,385 303,426 248,813 372,748
Shareholders' equity............ 149,785 214,466 253,121 300,886 368,536 329,389 413,355
OTHER DATA
Depreciation and amortization... $ 22,737 $ 11,600 $ 21,802 $ 25,540 $ 31,601 $ 14,058 $ 21,632
Capital expenditures, net(4).... 14,912 8,100 13,705 25,084 61,247 24,451 30,927
</TABLE>

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

(1) On February 28, 1994, the Company acquired a 64 percent interest in M-I from
Dresser Industries, Inc. in exchange for consideration of $160.0 million.

(2) In September 1993, the Company agreed to settle a class action civil lawsuit
which alleged violations of Section 1 of the Sherman Act. The amount
recorded by the Company related to the cost of settlement, related legal
fees and other costs and expenses.

(3) Non-operating (income) expense for 1993 includes a $1.3 million charge
related to the effect of a change in accounting principle and a $73.6
million gain associated with the sale of discontinued operations. The 1992
amount relates to losses from discontinued operations.

(4) Capital expenditures are presented net of any proceeds arising from
lost-in-hole sales and sales of fixed asset equipment replaced.

10
<PAGE> 12

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The following "Management's Discussion and Analysis of Financial Condition
and Results of Operations" is provided to assist readers in understanding the
Company's financial performance during the periods presented and significant
trends which may impact the future performance of the Company. It should be read
in conjunction with the consolidated financial statements of the Company and the
related notes incorporated by reference herein.

The Company's primary business is the manufacture and sale of premium
products and services to the oil and gas industry's exploration and production
sectors. The Company's worldwide operations are largely driven by the level of
exploration and production activity in major energy producing areas and the
depth and drilling conditions of these projects. The level of worldwide drilling
activity is influenced by the prices of oil and natural gas but may also be
affected by political actions and uncertainties, environmental concerns, capital
expenditure plans of exploration and production companies and the overall level
of global economic growth and activity.

Management anticipates that total worldwide drilling activity will continue
to increase from historical activity levels, with the 1997 rate of growth
comparable to the 1996 growth rate. The average worldwide rig count increased
approximately 7 percent from 1995 to 1996 due to strong North American growth
which was driven by higher U.S. land rig activity and record Canadian activity
levels. The 1997 worldwide rig count is expected to increase from 1996 levels
due to higher North American rig count activity. Management believes that the
Company's operations are well positioned to benefit from the expected increase
in North American oil and gas drilling activity.

Management also believes, with the increase in offshore rig dayrates and
other fixed costs, operators are shifting exploration and production spending
toward value-added, technology-based products which reduce the cost of their
overall drilling programs. Additionally, the significant level of extended-reach
drilling programs, which often involve more difficult drilling conditions,
increases the need for efficient products and services which reduce both
drilling time and formation damage. The Company continues to focus on investing
in the development of technology-based products that considerably improve the
drilling process through increased efficiency and rates of penetration.
Management believes the overall savings realized by the use of the Company's
premium products, such as polycrystalline diamond drill bits, diamond enhanced
three-cone drill bits and synthetic drilling fluids, compensate for the higher
costs of these products over their non-premium counterparts.

11
<PAGE> 13

RESULTS OF OPERATIONS

Revenues

The Company operates through five business units which market the Company's
products and services throughout the world. The following table presents revenue
and average rig count information for the periods shown:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------- -----------------------------------
1996 1997 1996 1997
---------------- ---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
--------- ---- --------- ---- --------- ---- --------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues by Business Unit:
M-I Fluids...................... $157,235 58 $214,714 56 $290,934 57 $420,815 57
M-I SWACO....................... 18,989 7 31,872 8 36,013 7 59,410 8
Smith Tool...................... 46,494 17 59,799 16 91,721 18 118,041 16
Smith Drilling & Completions.... 33,799 13 57,156 15 64,574 13 104,894 14
Smith Diamond Technology........ 13,755 5 19,622 5 25,850 5 37,487 5
-------- --- -------- --- -------- --- -------- ---
Total................... $270,272 100 $383,163 100 $509,092 100 $740,647 100
======== === ======== === ======== === ======== ===
Revenues by Area:
U.S............................. $116,760 43 $152,754 40 $212,142 42 $288,459 39
Export.......................... 17,451 7 24,948 6 30,572 6 45,208 6
Non-U.S......................... 136,061 50 205,461 54 266,378 52 406,980 55
-------- --- -------- --- -------- --- -------- ---
Total................... $270,272 100 $383,163 100 $509,092 100 $740,647 100
======== === ======== === ======== === ======== ===
Average Annual Active Rig Count:
U.S............................. 760 934 734 895
Canada.......................... 150 255 243 325
Non-North America............... 794 812 787 808
-------- -------- -------- --------
Total................... 1,704 2,001 1,764 2,028
======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996
-------------- -------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
-------- --- -------- --- ---------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues by Business Unit:
M-I Fluids................................... $344,027 53 $495,135 57 $ 669,585 58
M-I SWACO.................................... 38,570 6 61,259 7 82,741 7
Smith Tool................................... 154,912 23 167,116 19 196,691 17
Smith Drilling & Completions................. 92,095 14 115,245 13 148,722 13
Smith Diamond Technology..................... 24,297 4 35,789 4 58,919 5
-------- --- -------- --- ---------- ---
Total................................ $653,901 100 $874,544 100 $1,156,658 100
======== === ======== === ========== ===
Revenues by Area:
U.S.......................................... $280,435 43 $358,392 41 $ 451,147 39
Export....................................... 56,421 9 50,454 6 71,470 6
Non-U.S...................................... 317,045 48 465,698 53 634,041 55
-------- --- -------- --- ---------- ---
Total................................ $653,901 100 $874,544 100 $1,156,658 100
======== === ======== === ========== ===
Average Annual Active Rig Count:
U.S.......................................... 775 724 779
Canada....................................... 260 231 270
Non-North America............................ 734 758 793
-------- -------- ----------
Total................................ 1,769 1,713 1,842
======== ======== ==========
</TABLE>

12
<PAGE> 14

For the Three and Six Months Ended June 30, 1996 and 1997

M-I Fluids

M-I Fluids, a division of M-I, provides drilling fluid and completion fluid
systems, engineering and technical services to the oil and gas industry. M-I
Fluids revenues increased $57.5 million, or 37 percent, over the second quarter
of 1996 and $129.9 million, or 45 percent, from the first six months of 1996.
The majority of the revenue growth over the prior year relates to the
incremental revenues associated with the Anchor Drilling Fluids A.S. ("Anchor")
operations, which were acquired in June 1996, and the increased level of
deep-water drilling activity in the U.S. Gulf Coast area.

M-I SWACO

M-I SWACO, a division of M-I, manufactures and markets equipment and
services for solids control, pressure control, rig instrumentation and waste
management. M-I SWACO revenues increased $12.9 million and $23.4 million from
the second quarter and first six months of 1996, respectively. Increased market
share in Latin America coupled with higher drilling activity in the U.S., Canada
and Latin America contributed the majority of the revenue variance.

Smith Tool

Smith Tool manufactures and sells three-cone bits for use in the oil and
gas industry and in mining applications. Smith Tool revenues increased $13.3
million from the second quarter of 1996 and $26.3 million from the first six
months of 1996. Increased unit sales and a favorable shift in the sales mix
toward premium bits accounted for the revenue growth over the prior year
periods. On a geographic basis, revenue growth in the U.S. and Canada, related
to higher rig activity, accounted for the majority of the increase from the
second quarter of 1996. Increased North America revenues, attributable to higher
activity levels, and higher Europe/ Africa revenues, related to the introduction
of the new Magnum(TM) Bit line in the North Sea area, accounted for the majority
of the growth over the first half of 1996.

Smith Drilling & Completions

Smith Drilling & Completions manufactures and markets products and services
used in the oil and gas industry for drilling, workover, well completion and
well re-entry. Smith Drilling & Completions' revenues increased $23.4 million,
or 69 percent, over the second quarter of 1996 and $40.3 million, or 62 percent,
from the first six months of 1996. The increase is attributable to the
incremental revenues associated with The Red Baron (Oil Tools Rental) Ltd.'s
("Red Baron") and the Tri-Tech Fishing Services, L.L.C.'s operations, which were
acquired in October 1996 and April 1997, respectively. Higher levels of re-entry
drilling activity in the U.S. Gulf Coast area also contributed to the growth
over the prior year.

Smith Diamond Technology

Smith Diamond Technology manufactures and markets shear bits featuring
cutters made of polycrystalline diamond or natural diamond at its GeoDiamond
division. Smith Diamond Technology also manufactures polycrystalline diamond and
cubic boron nitride at its MegaDiamond and Supradiamant subsidiaries. These
ultrahard materials are used in the Company's three-cone and diamond drill bits
and in other specialized cutting tools. Smith Diamond Technology revenues
increased $5.9 million, or 43 percent, over the second quarter of 1996 and $11.6
million, or 45 percent, from the first six months of 1996. Higher unit sales in
Latin America, Europe/Africa and the Far East, related to increased market
penetration, higher activity levels and continued expansion into new markets,
account for the year-over-year revenue growth.

For the Fiscal Years Ended December 31, 1994, 1995 and 1996

M-I Fluids

M-I Fluids, a division of the M-I business acquired in February 1994,
contributed 65 percent of the Company's revenues in 1996. M-I's 1996 revenues
increased $195.9 million, or 35 percent, from 1995, and

13
<PAGE> 15

1995 revenues increased $173.8 million, or 45 percent, from 1994. The increase
over 1995 relates primarily to the incremental revenues associated with the
Anchor operations, which were acquired in June 1996, and an increased level of
deep-water drilling activity in the U.S. Gulf Coast area. The revenue increase
over 1994 was primarily attributable to the inclusion in 1995 of a full year's
revenues for acquired operations and higher sales volumes.

M-I SWACO

M-I SWACO's 1996 revenues increased $21.5 million, or 35 percent, from
1995, and 1995 revenues increased $22.7 million, or 59 percent, from 1994. The
increase over 1995 relates to increased market penetration in Latin America
combined with higher drilling activity in Latin America and the U.S. The revenue
increase over 1994 was attributable to increased market penetration and drilling
activity levels in Latin America.

Smith Tool

Smith Tool's 1996 revenues increased $29.6 million, or 18 percent, from
1995, and 1995 revenues increased $12.2 million, or 8 percent, from 1994. The
increase over 1995 relates to improved pricing, increased unit sales and a
favorable shift in the sales mix toward premium bits. The majority of the
increase from 1995 was generated in the United States; however, the introduction
of the Magnum line of premium bits in the North Sea contributed to a significant
increase in Europe/Africa revenues. Again, higher unit sales, improved pricing
in the U.S. and higher non-North American drilling activity levels account for
the majority of the revenue increase over 1994.

Smith Drilling & Completions

Smith Drilling & Completions' 1996 revenues increased $33.5 million over
1995, and 1995 revenues increased $23.2 million over 1994. The increase in
revenues over 1995 relates primarily to the increased level of re-entry activity
in the U.S. Gulf Coast area and the addition of the Red Baron operations, which
were acquired in October 1996. The variance over 1994 primarily relates to the
increased sales volumes associated with higher non-North American drilling
activity.

Smith Diamond Technology

Smith Diamond's revenues increased $23.1 million, or 65 percent, over 1995,
and 1995 revenues increased $11.5 million, or 47 percent, over 1994. Higher unit
sales, primarily in the United States and Latin America, driven by increased
market growth, new product introductions and continued expansion into markets
outside the U.S. account for the increase over 1995. The 47 percent increase
over 1994 relates to higher sales volumes in Latin America, Europe/Africa and
the Middle East and the inclusion of a full year's revenues for operations
acquired during 1994.

14
<PAGE> 16

For the periods indicated, the following table summarizes the results of
the Company and presents these results as a percentage of total revenues:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- --------------------------------
1996 1997 1996 1997
-------------- -------------- -------------- ---------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------- --- -------- --- -------- --- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. $270,272 100 $383,163 100 $509,092 100 $740,647 100
-------- --- -------- --- -------- --- -------- ----
Gross profit.............. 90,323 33 133,194 35 171,232 34 254,459 34
Operating expenses........ 59,989 22 81,124 21 115,848 23 157,364 21
-------- --- -------- --- -------- --- -------- ----
Income before interest and
taxes................... 30,334 11 52,070 14 55,384 11 97,095 13
Interest expense, net..... 3,764 1 6,013 2 6,803 2 11,247 2
-------- --- -------- --- -------- --- -------- ----
Income before income taxes
and minority
interests............... 26,570 10 46,057 12 48,581 9 85,848 11
-------- --- -------- --- -------- --- -------- ----
Income tax provision...... 5,779 2 12,102 3 10,794 2 22,069 3
-------- --- -------- --- -------- --- -------- ----
Income before minority
interests............... 20,791 8 33,955 9 37,787 7 63,779 8
Minority interests........ 5,810 2 10,026 3 9,858 2 18,737 2
-------- --- -------- --- -------- --- -------- ----
Net income...... $ 14,981 6 $ 23,929 6 $ 27,929 5 $ 45,042 6
======== === ======== === ======== === ======== ====
</TABLE>

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996
-------------- -------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
-------- --- -------- --- ---------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.................................. $653,901 100 $874,544 100 $1,156,658 100
-------- --- -------- --- ---------- ---
Gross profit.............................. 221,274 34 292,540 33 392,062 34
Operating expenses........................ 161,170 25 206,292 23 259,542 22
-------- --- -------- --- ---------- ---
Income before interest and taxes.......... 60,104 9 86,248 10 132,520 12
Interest expense, net..................... 8,572 1 12,238 1 16,445 2
-------- --- -------- --- ---------- ---
Income before income taxes and minority
interests............................... 51,532 8 74,010 9 116,075 10
Income tax provision...................... 6,815 1 12,609 2 26,798 2
-------- --- -------- --- ---------- ---
Income before minority interests.......... 44,717 7 61,401 7 89,277 8
Minority interests........................ 8,838 1 15,809 2 24,833 2
-------- --- -------- --- ---------- ---
Net Income...................... $ 35,879 6 $ 45,592 5 $ 64,444 6
======== === ======== === ========== ===
</TABLE>

Three and Six Months Ended 1997 Versus Three and Six Months Ended 1996

Total revenues increased $112.9 million, or 42 percent, from the prior year
quarter and $231.6 million, or 45 percent, over the first six months of 1996 as
the Company experienced growth across all business units and geographic areas.
Increased drilling activity levels, particularly deepwater and re-entry activity
in the Gulf Coast area, and the addition of acquired operations contributed the
majority of the variance. The impact of the acquisitions of Anchor and Red
Baron, which each had significant operations in the Eastern Hemisphere, resulted
in the Company's revenues outside the U.S. increasing from 58 percent of total
revenues for the first six months of 1996 to 61 percent of total revenues for
the first six months of 1997.

Gross profit increased $42.9 million and $83.2 million from the second
quarter and first six months of 1996, respectively. The increase in gross profit
over the second quarter of 1996 resulted in a 2 percentage point improvement in
the Company's gross profit margin over the same period. The variance over the
prior year

15
<PAGE> 17

quarter is attributable to the favorable impact of acquired operations and
certain price increases enacted during the year.

Operating expenses, consisting of selling expenses and general and
administrative expenses, increased $21.1 million over the second quarter of 1996
and $41.5 million from the first half of 1996; however, as a percentage of
revenues, operating expenses for the six month period experienced, a 2
percentage point improvement over the first half of 1996. The increase in
absolute dollars relates to increased variable costs associated with the higher
level of revenues and incremental costs associated with the acquired operations
for which immaterial amounts were included in the first half of 1996.

Net interest expense, which represents interest expense less interest
income, increased $2.2 million and $4.4 million from the second quarter and
first half of 1996, respectively. The increase relates to the higher level of
borrowings to fund business acquisitions and finance general working capital
needs, which increased as a result of the revenue growth experienced by the
Company.

The Company's effective tax rate for the second quarter and first six
months of 1997 approximated 26 percent, which is higher than the rate for the
comparable periods in the prior year and lower than the U.S. statutory rate. The
effective rate increase over the prior year relates primarily to increased
profitability in tax jurisdictions with higher statutory rates. The effective
rate was lower than the statutory rate, due primarily to the utilization of U.S.
net operating loss carryforwards and alternative minimum tax credits.

Minority interests represent the share of M-I's profits associated with the
36 percent minority partner's interest in those operations and, to a lesser
extent, minority interests in investments in other joint ventures held by M-I.
Minority interests increased $4.2 million and $8.9 million from the second
quarter and first half of 1996 due to the increased profitability of the M-I
operations.

1996 Versus 1995

Total revenues for 1996 increased $282.1 million, or 32 percent, from the
prior year with the Company experiencing growth across all business units and
geographic areas. The variance over the prior year is attributable to the
increased level of deep-water and re-entry drilling activity in the U.S. Gulf
Coast area and the incremental revenues associated with operations acquired
during 1996. The impact of the current year acquisitions, which had significant
operations in the Eastern Hemisphere, resulted in a shift in the Company's
non-U.S. revenues from 59 percent of total revenues in 1995 to 61 percent of
total revenues in 1996.

Gross profit increased $99.5 million, or 34 percent, from the prior year.
The higher gross profit resulted in an increase in the Company's gross profit
margin from 33 percent in 1995 to 34 percent in 1996. The improvement in margins
primarily resulted from the revenue growth and related cost efficiencies
generated by the Smith Diamond operations, which were formed in 1995.

Operating expenses, consisting of selling expenses and general and
administrative expenses, increased $53.3 million or 26 percent from the prior
year; however, as a percentage of revenues, operating expenses decreased from 23
percent in 1995 to 22 percent in 1996. The increase in absolute dollars is due
to increased variable costs associated with the higher level of revenues and
incremental costs associated with the acquired business operations for which no
amounts were included in the prior year.

Net interest expense, which represents interest expense less interest
income, increased $4.2 million over the prior year. The increase in net interest
expense relates to the higher level of borrowings to fund the business
acquisitions. To a lesser extent, borrowings required to finance general working
capital needs, which increased as a result of the revenue growth experienced by
the Company, also contributed to the higher net interest expense amounts.

The effective tax rate for the year approximated 23 percent which is higher
than the prior year's effective rate and lower than the U.S. statutory rate. The
effective tax rate was higher than the prior year's rate and lower than the
statutory rate due primarily to the impact of U.S. net operating loss
carryforwards utilized.

16
<PAGE> 18

by M-I. Minority interests increased $9.0 million from the prior year due to the
increased profitability of the M-I operations.

1995 Versus 1994

Total revenues for 1995 increased $220.6 million, or 34 percent, from 1994.
The increase primarily related to the inclusion of a full year's revenues for
operations acquired in 1994. Higher non-U.S. drilling activity, primarily in
Latin America, which experienced double digit growth, increased unit sales and
improved pricing, also contributed to the increase over 1994.

Gross profit increased $71.2 million, or 32 percent, from 1994. The
increase was due primarily to the impact of acquired operations. In addition,
the increase in gross profit reflected higher non-U.S. volumes, due to the
higher level of drilling activity, and higher sales in the U.S.

Operating expenses, consisting of selling expenses and general and
administrative expenses, increased $45.1 million or 28 percent from the prior
year; however, as a percentage of revenues, operating expenses decreased from
1994. The increase in absolute expenses is due primarily to increased variable
costs related to the higher level of revenues and incremental expenses
associated with the operations acquired. In addition, the increase in operating
expenses reflects the establishment of the Smith Diamond Technology business
unit, which was formed in 1995, and the expansion of M-I operations in Latin
America.

Net interest expense, which represents interest expense less interest
income, increased $3.6 million from $8.6 million in 1994 to $12.2 million in
1995. The increase in net interest expense was due to higher debt levels
necessary to fund working capital requirements and business acquisitions.

The effective tax rate for the year approximated 17 percent, which is lower
than the statutory rate and higher than the prior year's effective rate of 13
percent. The effective tax rate for the year was lower than the statutory rate
and higher than the prior year's rate due primarily to the impact of U.S. net
operating loss carryforwards utilized.

Minority interests represent the share of M-I's profits associated with the
36 percent minority partner's interest in those operations and, to a lesser
extent, minority interests in investments in other joint ventures held by M-I.
Minority interests increased $7.0 million from $8.8 million in 1994 to $15.8
million in 1995. The increase in minority interests was due to the higher level
of M-I's earnings.

LIQUIDITY AND CAPITAL RESOURCES

The Company's financial condition remained strong at June 30, 1997. Working
capital at June 30, 1997 increased $74.2 million, or 20 percent, from December
31, 1996.

The Company's primary internal source of liquidity is cash flow generated
from operations. External sources of liquidity include debt and, if needed,
equity financing. The Company has U.S. and non-U.S. borrowing facilities for
operating and financing needs. During 1997, the Company and M-I amended their
revolving line of credit agreements increasing available borrowing capacity to
$200 million. At June 30, 1997, the Company had approximately $25 million of
funds available under its $200 million and other long-term revolving line of
credit facilities. Additionally, the Company had approximately $37 million of
non-U.S. short-term borrowing facilities with various banks, which had available
borrowing capacity of $20 million. The Company believes funds generated from
operations, cash on hand and amounts available under existing credit facilities
will be sufficient to finance capital expenditures and other working capital
needs for the foreseeable future.

The Company completed several acquisitions during the first six months of
1997, and management intends to continue evaluating opportunities to acquire
products or businesses complementary to the Company's operations. These
acquisitions, if they arise, may involve the use of cash or, depending on the
size and terms of the acquisition, may require debt or equity financing.

17
<PAGE> 19

BUSINESS

M-I FLUIDS

Through a division of its majority-owned subsidiary, the Company is the
leading worldwide provider of drilling fluids systems, products and technical
services to end users engaged in drilling oil, natural gas and geothermal wells.
Drilling fluid products and systems are used to cool and lubricate the bit
during drilling operations, contain formation pressures, suspend and remove rock
cuttings from the hole and maintain the stability of the wellbore. Technical
services are provided to ensure that the products and systems are applied
effectively to optimize drilling operations. These services include recommending
products and services during the well planning phase; testing drilling fluid
properties and recommending adjustments during the drilling phase; and analyzing
well results after the project is complete to improve the performance of wells
to be drilled in the future.

M-I Fluids offers water-base, oil-base and synthetic-base drilling fluid
systems. Water-base drilling fluids are the most widely utilized system around
the world, having application in both land and offshore environments. They are
typically comprised of an engineered blend of weighting materials, which are
used to contain formation pressures, as well as a broad range of chemical
additives, which yield specific drilling performance features required for a
given drilling environment. Oil-base drilling fluids are used to drill water-
sensitive shales, to reduce torque and drag and to drill in areas where stuck
pipe is likely to occur. These systems are low viscosity systems that sharply
increase rates of penetration in certain drilling areas of the world.
Synthetic-base drilling fluids are used in similar drilling environments and
often exceed the superior performance characteristics of oil-base drilling
fluids.

In June 1996, M-I completed the acquisition of Anchor, one of the largest
suppliers of products and services in the global drilling fluids industry. The
acquisition strengthened M-I's market position in the Eastern Hemisphere
drilling fluids market, most notably in the North Sea and West African markets,
expanded M-I's offering in synthetic and advanced water-base fluid designs and
provided an additional laboratory and technical support facility to complement
its facility in Houston, Texas.

During 1996, M-I also completed the construction of completion fluid mixing
and storage facilities at several of its major U.S. supply bases to serve the
Gulf Coast completion fluid market. Completion fluids, also known as clear brine
fluids, are solids-free, clear salt solutions that have high specific gravities.
Combined with a range of specialty chemicals, these fluids are used by operators
in the oil and gas industry to control bottom-hole pressures and to meet a
well's specific corrosion, inhibition, viscosity and fluid loss requirements
during the completion and workover phases. These systems are specially designed
to maximize well production by minimizing formation damage that can be caused by
solids-laden systems. M-I provides a complete line of completion fluid products
and services, including a full range of low- and high-density brines, specialty
chemicals, filtration and chemical treatment services used in the reclamation of
these specialized fluids and technical engineering and laboratory support
services.

18
<PAGE> 20

M-I SWACO

Through M-I's SWACO division, a complete line of solids control, pressure
control, rig instrumentation and waste management services are offered to the
worldwide drilling market on both a sale and rental basis. Key products in the
pressure control line include the D-Gasser and Super Choke, which hold dominant
market positions, as well as the Super Mud Gas Separator, which protects against
the large pressure surges encountered in underbalanced drilling operations used
in horizontal wells. The solids control product line of shakers, hydroclones and
centrifuges has been designed to offer operators the option to drill "dry
locations", where drilling fluid waste is minimized and handled in an
environmentally safe manner. Swaco's rig instrumentation line features the
SMART(TM) and GEO-SMART Data Acquisition Systems, advanced monitoring systems
that measure, monitor and display the drilling status of a well with high speed
accuracy.

SMITH TOOL

The Smith Tool business unit is a worldwide leader in the design,
manufacture and marketing of drill bits used in drilling oil and gas wells and
in mining applications under the Smith Tool(TM) and Smith Mining(TM) product
lines. Most bits manufactured by Smith Tool are three-cone drill bits for the
petroleum industry, which range in size from 3 1/2 to 28 inches in diameter.
These three-cone bits are comprised of two major components -- the body and the
cones, which contain different types of pointed structures referred to as
"cutting structures" or "teeth". The cutting structures are either an integral
part of the steel cone with a hardmetal applied surface (referred to as "milled
tooth") or made of an inserted material (referred to as "insert") which is
usually tungsten carbide. In the last few years, there has been a significant
increase in demand for drill bits in which the tungsten carbide insert is coated
with polycrystalline diamond ("PDC"). Products with diamond enhanced inserts
last longer and increase penetration rates, which decreases overall drilling
costs in certain formations. Smith Tool is the leading provider of drill bits
utilizing diamond enhanced insert technology.

SMITH DRILLING & COMPLETIONS

The Smith Drilling & Completions business unit manufactures and markets
product lines used in the oil and gas industry under the following names:
Drilco/Grant, A-Z/Servco, Smith Red Baron, Smith Tri-Tech, TIPSA and Lindsey
Completions Systems. In general, all product lines are manufactured, marketed,
serviced, sold and maintained by the same management, operations and sales
personnel operating on a worldwide basis. Houston, Texas is the sales,
management, engineering and manufacturing headquarters for the business unit.

The Drilco/Grant and TIPSA product groups include rotating drilling heads,
automatic connection torque monitoring and control systems, downhole drilling
tools, tubular drill string components, drilling tool and production string
inspection products and services and machine shop services. The rotating
drilling heads are rented and sold to the end users for use in air drilling
areas and in underbalanced drilling areas. The downhole tools are sold and
rented to the end users and include stabilizers to centralize the drill string
and reamers to maintain a uniform hole diameter. The tubular products,
manufactured under the Drilco/Grant product group, include (i) drill collars to
provide drilling weight to the bit, (ii) Hevi-Wate(TM ) drill pipe to provide
stress transition between drill collars and conventional drill pipe or to
provide drilling weight to the bit in horizontal drilling, (iii) connecting subs
to attach string members of differing diameters and connections and (iv) kellys
to rotate the drill string on conventional drilling rigs.

The A-Z/Servco, Smith Red Baron and Smith Tri-Tech product groups provide
downhole remedial re-entry and fishing tools and services for use in connection
with the drill string for specialized drilling and workover operations. Products
include the patented Reamaster(TM) and Underream-While-Drilling System(TM) which
allow two operations to be performed simultaneously. The product group also
includes the patented Millmaster(TM) Performance Milling System, the patented
Packstock(TM), Anchorstock(TM) Performance Window Cutting System and the newly
developed Trackmaster(TM). These products provide a sidetrack or section milling
operation to remove a section of casing permitting the well to be re-drilled
using the existing casing slot. In addition, the product groups provide hole
opening and underreaming services to enlarge the wellbore to allow for annular
area for proper cementing of the casing or for gravel pack displacement; packer
milling to

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remove production packers; conventional milling to remove wellbore obstructions;
mechanical, hydraulic and explosive pipe cutting to remove casing during a well
abandonment; and fishing services to remove wellbore obstructions during
workover operations, including coil tubing operations.

The Lindsey Completion Systems group manufactures, markets and services
pocket slip liner hanger systems, liner hangers and accessory completion
equipment used in the completion of a wellbore.

SMITH DIAMOND TECHNOLOGY

Smith Diamond Technology designs, manufactures and markets shear drill bits
featuring cutters made of polycrystalline diamond or natural diamond. The
Company manufactures polycrystalline diamond and cubic boron nitride at its
MegaDiamond and Supradiamant subsidiaries. These ultrahard materials are used in
the Company's three-cone and diamond drill bits and in other specialized cutting
tools. MegaDiamond developed and uses patented processes for applying diamonds
to a curved surface with multiple transition layers. Smith is the only oilfield
equipment manufacturer that develops, manufactures and markets its own synthetic
diamond materials, which provide the Company a cost and technological advantage.
In addition, the Company's in-house diamond research, engineering and
manufacturing capabilities enhance the Company's ability to develop the
application of diamond technology across other Smith product lines and into
several non-energy cutting tool markets. Diamond enhanced products last longer
and increase penetration rates, which decreases overall drilling costs in
certain formations. The Company believes that its ability to develop specialized
diamond inserts for specific applications has and continues to provide new
business opportunities such as Diamond Enhanced Insert roller cone bits and
Impax(TM) hammer bits as well as non-energy cutting tool applications.

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<PAGE> 22

DESCRIPTION OF NOTES

The Notes will be issued pursuant to an Indenture to be dated as of
, 1997 (the "Indenture") between the Company and The Bank of New
York, as trustee (the "Trustee"), a copy of the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summaries of certain provisions of the Notes and the Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, the Notes and the Indenture, including the definitions therein
of certain capitalized terms used but not defined herein. The Indenture provides
for the issuance from time to time of unsecured debentures, notes (including the
Notes offered hereby) or other evidences of indebtedness by the Company
("Securities") in an unlimited amount. Additional Securities may be issued under
the Indenture from time to time. Numerical references in parentheses below are
to sections in the Indenture.

GENERAL

Each Note will mature on September , 2007 and will bear interest at the
rate per annum stated on the cover page hereof from September , 1997 payable
semiannually on and of each year, commencing ,
1998, to the person in whose name the Note is registered at the close of
business on the or preceding such interest payment date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The aggregate principal amount of the Notes that may be issued will be
limited to $150,000,000. Principal and interest will be payable at the offices
of the Trustee and the Paying Agent in the event the Notes do not remain in
book-entry form. In addition, in the event the Notes do not remain in book-entry
form, at the option of the Company, payment of interest will be made by check
mailed to the address of the person entitled thereto as it appears in the
register of the Notes (the "Note Register") maintained by the registrar. In the
event the Notes do not remain in book-entry form, the Notes will be transferable
and exchangeable at the office of the registrar and any co-registrar and will be
issued in fully registered form, without coupons, in denominations of $1,000 and
any whole multiple thereof. The Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection with certain
transfers and exchanges.

RANKING

The Notes will be senior unsecured obligations of the Company and will rank
pari passu in right of payment with the Company's obligations under all existing
and future senior unsecured indebtedness of the Company (including indebtedness
incurred under the Company's bank credit facilities) and senior in right of
payment to all existing and future indebtedness of the Company that is, by its
terms, expressly subordinated to the Notes. See "Risk Factors -- Holding Company
Structure and Subordination of Notes".

REDEMPTION

The Notes are not redeemable at any time prior to maturity.

CERTAIN COVENANTS OF THE COMPANY

The Indenture governing the Notes does not contain any restrictions on the
payment of dividends or any financial covenants. The Indenture does not contain
provisions which would afford holders of the Notes protection in the event of a
transfer of assets to a subsidiary and incurrence of unsecured debt by such
subsidiary, or in the event of a decline in the Company's credit quality
resulting from highly leveraged or other similar transactions involving the
Company.

The following covenants apply to all series of Securities, including the
Notes.

Limitation on Indebtedness Secured by a Lien. The Indenture provides that
neither the Company nor any Subsidiary will create, assume, guarantee or suffer
to exist any Indebtedness secured by any lien, pledge, mortgage, security
interest, conditional sale or other title retention agreement or other similar
encumbrance ("Lien") on any Principal Property of the Company or a Subsidiary
unless the Company secures or causes such Subsidiary to secure the Securities
equally and ratably with, or prior to, such secured Indebtedness. This
restriction will not apply to Indebtedness secured by (i) Liens on any Principal
Property of any Person which

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<PAGE> 23

existed prior to the time (A) such Person becomes a Subsidiary, (B) such Person
merges into or consolidates with a Subsidiary of the Company or (C) a Subsidiary
of the Company merges into or consolidates with such Person in a transaction in
which such Person becomes a Subsidiary of the Company, provided that such Liens
were not created in anticipation of or in connection with any transaction
described in clauses (A), (B) or (C) above; (ii) Liens in favor of the Company
or a Subsidiary; (iii) Liens on any Principal Property of the Company or a
Subsidiary in favor of the United States of America or any state or political
subdivision thereof, or in favor of any other country or any political
subdivision thereof, to secure payment pursuant to any contract or statute or to
secure any Indebtedness incurred for the purpose of financing all or part of the
purchase price or the cost of construction or improvement of the Principal
Property subject to such Liens; (iv) Liens on any Principal Property
subsequently acquired by the Company or any Subsidiary, contemporaneously with
such acquisition or within 180 days thereafter, to secure or provide for the
payment of any part of the purchase price, construction or improvement of such
Principal Property, or Liens assumed by the Company or any Subsidiary upon any
Principal Property subsequently acquired by the Company or any Subsidiary which
were existing at the time of such acquisition, provided that the amount of any
Indebtedness secured by any such Lien created or assumed does not exceed the
cost to the Company or Subsidiary, as the case may be, of the Principal Property
covered by such Lien; (v) Liens existing on the date of issuance of the Notes;
(vi) Liens representing the extension, renewal or refunding of any Lien referred
to in the foregoing clauses (i) through (v), inclusive, so long as such Lien
does not extend to any other Principal Property and the Indebtedness so secured
by any such Lien is not increased; (vii) Liens for taxes and governmental
charges not yet due or which are being contested in good faith; (viii) pledges
or deposits in connection with workers' compensation, unemployment insurance and
other social security legislation and deposits securing liability to insurance
carriers under insurance or self-insurance arrangements; and (ix) any other
Lien, other than Liens referred to in the foregoing clauses (i) through (viii),
inclusive, so long as the aggregate of all Indebtedness secured by Liens
pursuant to this clause (ix) and the aggregate Value of the Sale and Lease-Back
Transactions in existence at that time (not including those in connection with
which the Company has voluntarily retired funded Indebtedness as provided in the
Indenture) does not exceed 10% of Consolidated Net Tangible Assets. (Section
10.7).

Limitation on Sale and Lease-Back Transactions. The Indenture provides
that neither the Company nor any Subsidiary will enter into any Sale and
Lease-Back Transaction with respect to any Principal Property unless either (i)
the Company or such Subsidiary would be entitled, pursuant to the foregoing
covenant relating to "Limitation on Indebtedness Secured by a Lien", to create,
assume, guarantee or suffer Indebtedness in a principal amount equal to or
exceeding the Value of such Sale and Lease-Back Transaction secured by a Lien on
the property to be leased without equally and ratably securing the Securities or
(ii) the Company or such Subsidiary, within 120 days after the effective date of
such transaction, applies an amount equal to the greater of (x) the net proceeds
of the sale of the property subject to the Sale and Lease-Back Transaction and
(y) the Value of such Sale and Lease-Back Transaction, to the voluntary
retirement of the Securities or other Senior Indebtedness of the Company or such
Subsidiary. (Section 10.8).

Certain Definitions. "Consolidated Net Tangible Assets" is defined in the
Indenture to mean total consolidated assets of the Company and its Subsidiaries,
less (i) current liabilities of the Company and its Subsidiaries, and (ii) the
net book amount of all intangible assets of the Company and its Subsidiaries.

"Capital Stock" is defined in the Indenture to mean any and all shares,
interests, participations or other equivalents in the equity interest (however
designated) in any Person and any rights (other than debt securities convertible
into an equity interest), warrants or options to subscribe for or to acquire an
equity interest in such Person.

"Indebtedness" is defined in the Indenture to mean (i) long-term
liabilities representing borrowed money or purchase money obligations as shown
on the liability side of a balance sheet (other than liabilities evidenced by
obligations under leases), (ii) indebtedness secured by any Lien existing on
property owned subject to such Lien, whether or not such secured indebtedness
has been assumed and (iii) contingent obligations in respect of, or to purchase
or otherwise acquire, any such indebtedness of others described in the foregoing
clauses (i) or (ii) above, including guarantees and endorsements (other than for
purposes of collection in the ordinary course of business of any such
indebtedness).

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<PAGE> 24

"Person" is defined in the Indenture to mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust, limited
liability company, unincorporated organization or any other entity.

"Principal Property" is defined in the Indenture to mean any manufacturing
plant, processing plant or any mining facility or property owned or leased by
the Company or any Subsidiary, any Capital Stock or Indebtedness of a Subsidiary
or any other property or right owned by or granted to the Company or any
Subsidiary and used or held for use in any of the principal businesses conducted
by the Company or any Subsidiary, except for any such property or right which,
in the opinion of the Board of Directors of the Company as set forth in a Board
Resolution adopted in good faith, is not material to the total business
conducted by the Company and its Subsidiaries considered as one enterprise.

"Sale and Lease-Back Transaction" is defined in the Indenture to mean the
leasing by the Company or a Subsidiary for a period of more than three years of
any Principal Property which has been sold or is to be sold or transferred by
the Company or any such Subsidiary to any party (other than the Company or a
Subsidiary).

"Significant Subsidiary" is defined in the Indenture to mean any Subsidiary
(i) which, as of the close of the fiscal year of the Company immediately
preceding the date of determination, contributed more than 10% of the
consolidated net operating revenues of the Company and its Consolidated
Subsidiaries for such year or (ii) the total assets of which as of the close of
such immediately preceding fiscal year exceeded 10% of the Consolidated Net
Tangible Assets of the Company and its Consolidated Subsidiaries.

"Subsidiary" is defined in the Indenture to mean (a) a corporation, a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
any Person, by one or more subsidiaries of such Person or by such Person and one
or more subsidiaries of such Person, (b) a partnership in which such Person or a
subsidiary of such Person is, at the date of determination, a general or limited
partner of such partnership, but only if such Person or its subsidiary is
entitled to receive more than 50% of the assets of such partnership upon its
dissolution, or (c) any other Person (other than a corporation or partnership)
in which such Person, directly or indirectly, at the date of determination
thereof, has (i) at least a majority ownership interest or (ii) the power to
elect or direct the election of a majority of the directors or other governing
body of such Person.

"Value" is defined in the Indenture to mean, with respect to any particular
Sale and Lease-Back Transaction, as of any particular time, the amount equal to
the greater of (i) the net proceeds of the sale or transfer of the property
leased pursuant to such Sale and Lease-Back Transaction and (ii) the fair value
in the opinion of the Board of Directors of the Company of such property at the
time of the Company's entering into such Sale and Lease-Back Transaction,
subject to adjustment at any particular time for the length of the remaining
initial lease term.

"Voting Stock" means all classes of Capital Stock of a Person then
outstanding normally entitled to vote in elections of directors or Persons
performing similar functions, whether at all times or only so long as no senior
class of stock has such voting power by reason of any contingency.

CONSOLIDATION, MERGER AND SALE OF ASSETS

The Indenture provides that the Company may not consolidate with or merge
into any other corporation, or convey, transfer or lease its properties and
assets substantially as an entirety to any other party, unless, among other
things, (i) the corporation formed by such consolidation or into which the
Company is merged or the party which acquires by conveyance or transfer, or
which leases the properties and assets of the Company substantially as an
entirety, is organized and existing under the laws of the United States, any
State thereof or the District of Columbia and expressly assumes the Company's
obligations on the Securities and under the Indenture by means of an indenture
supplemental to the Indenture; and (ii) immediately after giving effect to such
transaction no Event of Default, and no event which, after notice or lapse of
time, or both, would become an Event of Default, shall have occurred and be
continuing. (Section 8.1).

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<PAGE> 25

EVENTS OF DEFAULT

An Event of Default is defined in the Indenture to mean (i) default for 30
days in the payment of any interest upon the Securities; (ii) default in the
payment of the principal of or premium, if any, on the Securities when due
either at maturity or upon acceleration, redemption or otherwise; (iii) default
by the Company in the performance of any other of the covenants or warranties in
the Indenture applicable to the Company which shall not have been remedied for a
period of 60 days after notice of default; and (iv) certain events of
bankruptcy, insolvency or reorganization of the Company or any Significant
Subsidiary. Within 90 days after the occurrence of any default under the
Indenture, the Trustee is required to notify the Holders of the Securities of
any default unless, in the case of any default other than a default in the
payment of principal of or premium, if any, or interest on any Securities, a
trust committee of the Board of Directors or Responsible Officers of the Trustee
in good faith considers it in the interest of the Holders of the Securities not
to do so. (Section 5.1).

The Indenture provides that if an Event of Default, other than an Event of
Default as described in clause (iv) in the above paragraph shall have occurred
and be continuing, either the Trustee or the Holders of at least 25% in
aggregate principal amount of the Securities then outstanding may declare the
entire principal and accrued interest of the Securities to be due and payable
immediately. If an Event of Default described in clause (iv) in the above
paragraph occurs, the principal amount shall automatically, and without any
declaration or other action on the part of the Trustee or any Holder, become
immediately due and payable. Any time after acceleration with respect to the
Securities has been made, but before a judgment or decree for the payment of
money based on such acceleration has been obtained by the Trustee, the Holders
of a majority in principal amount of the Outstanding Securities, may, under
certain circumstances, rescind and annul such acceleration. The Holders of a
majority in principal amount of the Outstanding Securities may waive any past
defaults under the Indenture with respect to the Securities, except defaults in
payment of principal of or premium, if any (other than by a declaration of
acceleration), or interest on the Securities or provisions that may not be
modified or amended without the consent of the Holders of all Outstanding
Securities.

The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of its covenants and agreements under the
Indenture.

Subject to certain conditions set forth in the Indenture, the Holders of a
majority in principal amount of the then Outstanding Securities shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee under the Indenture in respect of the Securities. No Holder of any
Securities shall have any right to cause the Trustee to institute any
proceedings, judicial or otherwise, with respect to the Indenture or any remedy
thereunder unless, among other things, the Holder or Holders of Securities shall
have offered to the Trustee reasonable indemnity against costs, expenses and
liabilities relating to such proceedings.

The Indenture provides that, in determining whether the Holders of the
requisite aggregate principal amount of the Outstanding Securities have given,
made or taken any request, demand, authorization, direction, notice, consent,
waiver or other action thereunder as of any date, Securities owned by the
Company or any Affiliate of the Company shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent, waiver or other action, only Securities which the Trustee knows
to be so owned shall be so disregarded. Securities so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not the Company or any Affiliate of the
Company.

MODIFICATION OF THE INDENTURE

The Indenture provides that the Company and the Trustee may, without the
consent of the Holders, modify or amend the Indenture in order to (i) evidence
the succession of another corporation to the Company and the assumption by any
such successor corporation of the covenants of the Company in the Indenture and
in the Securities; (ii) add to the covenants, agreements and obligations of the
Company for the benefit of the Holders of the Securities; (iii) add any
additional Events of Default to the Indenture; (iv) add to or change

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<PAGE> 26

any of the provisions of the Indenture necessary to permit the issuance of the
Securities in bearer form, registrable as to principal, and with or without
interest coupons; (v) evidence and provide for the acceptance of appointment
under the Indenture by a successor Trustee; or (vi) cure any ambiguity, or
correct or supplement any provision of the Indenture which may be inconsistent
with any other provision of the Indenture, provided such action does not
adversely affect the interest of the Holders of the Securities. (Section 9.1).

Modification or amendment of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Securities, except that no such modification or amendment may,
without the consent of the Holders of all then Outstanding Securities, (i)
change the due date of the principal of, or any installment of principal of or
interest on, any Securities; (ii) reduce the principal amount of, or any
installment of principal or interest or rate of interest on, or any premiums
payable on redemption of, any Securities; (iii) reduce the principal amount of
any Securities payable upon acceleration of the maturity thereof; (iv) change
the place or the currency of payment of principal of, or any premium or interest
on, any Securities; (v) impair the right to institute suit for the enforcement
of any payment on or with respect to any Securities on or after the due date
thereof; (vi) reduce the percentage in principal amount of Securities then
Outstanding, the consent of whose Holders is required for modification or
amendment of the Indenture or for waiver of compliance with certain provisions
of the Indenture or for waiver of certain defaults; or (vii) modify certain
provisions of the Indenture regarding the amendment or modification of, or
waiver with respect to, any provision of the Indenture or the Securities.
(Section 9.2).

DISCHARGE OF THE INDENTURE

The Indenture shall, upon the written request or order of the Company,
cease to be of further effect (except as to any surviving rights of registration
of transfer or exchange of Securities therein expressly provided for), when (i)
either (A) all Securities theretofore authenticated and delivered (other than
(1) Securities which have been destroyed, lost or stolen and which have been
replaced or paid and (2) Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid or discharged from such trust) have been delivered to the Trustee for
cancellation or (B) all such Securities not theretofore delivered to the Trustee
for cancellation (1) have become due and payable, (2) will become due and
payable at their stated maturity within one year, and the Company in the case of
(A)(1) or (2) above, has deposited or caused to be deposited with the Trustee an
amount in Dollars sufficient to pay and discharge the entire indebtedness on
such Securities not theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to the date of such deposit (in the
case of Securities which have become due and payable) or to the stated maturity
date, as the case may be; (ii) the Company has paid or caused to be paid all
other sums payable under the Indenture by the Company; and (iii) the Company has
delivered to the Trustee an officers' certificate and an Opinion of Counsel,
each stating that all conditions precedent provided for in the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with. (Section 4.1).

DEFEASANCE AND COVENANT DEFEASANCE

Defeasance and Discharge. The Indenture provides that the Company will be
discharged from all its obligations with respect to the Securities (except for
certain obligations to exchange or register the transfer of the Securities, to
replace stolen, lost or mutilated Securities, to maintain paying agencies and to
hold moneys for payment in trust) upon the deposit in trust for the benefit of
the Holders of the Securities of money or U.S. Government Obligations, or both,
which, through the payment of principal and interest in respect thereof in
accordance with their terms, will provide money in an amount sufficient to pay
any installment of principal of and any premium and interest on the Securities
on the respective Stated Maturities in accordance with the terms of the
Indenture and the Securities. Such defeasance or discharge may occur only if,
among other things, the Company has delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the Securities will not recognize gain
or loss for federal income tax purposes as a result of such deposit, defeasance
and discharge, and will be subject to federal income tax on the same amount, in
the same manner and at the

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<PAGE> 27

same times as would have been the case if such deposit, defeasance and discharge
had not occurred, accompanied by a ruling to the effect received from or
published by the Internal Revenue Service.

Defeasance of Certain Covenants. The Indenture provides that the Company
may omit to comply with certain restrictive covenants described under the
captions "Certain Covenants of the Company -- Limitation on Indebtedness Secured
by a Lien" and "Certain Covenants of the Company -- Limitation on Sale and
Lease-Back Transactions" above, and that such omission will be deemed not to be
or result in an Event of Default in each case with respect to each series of
Securities. In order to do so, the Company will be required to deposit, in trust
for the benefit of the Holders of the Securities, money or U.S. Government
Obligations, or both, which through the payment of principal and interest in
respect thereof in accordance with their terms, will provide money in an amount
sufficient to pay any installment of the principal of and any premium and
interest on the Securities on the respective Stated Maturities in accordance
with the terms of the Indenture and the Securities. The Company will also be
required, among other things, to deliver to the Trustee an Opinion of Counsel to
the effect that Holders of the Securities will not recognize gain or loss for
federal income tax purposes as a result of such deposit and defeasance of
certain obligations and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred. In the event the Company exercises
this option with respect to the Securities and the Securities are declared due
and payable because of the occurrence of any Event of Default, the amount of
money and U.S. Government Obligations so deposited in trust will be sufficient
to pay amounts due on the Securities at the time of their Stated Maturity but
may not be sufficient to pay amounts due on the Securities upon any acceleration
resulting from such Event of Default. In such case, the Company will remain
liable for such payments.

THE TRUSTEE

The Bank of New York will be the Trustee under the Indenture. Its address
is 101 Barclay Street, New York, New York 10286. The Company has also appointed
the Trustee as the initial registrar and as the initial Paying Agent under the
Indenture.

The Indenture will contain certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. In the event the Trustee acquires any
conflicting interest (as defined in the Trust Indenture Act of 1939), however,
it must eliminate such conflict or resign.

GOVERNING LAW

The Indenture and the Notes will be governed by, and construed in
accordance with, the internal laws of the State of New York, without regard to
conflicts of laws principles thereof.

BOOK-ENTRY, DELIVERY AND FORM

The Notes to be sold as set forth herein will be issued in the form of a
fully registered Global Certificate (the "Global Certificate"). The Global
Certificate will be deposited on the date of the closing of the sale of the
Notes offered hereby (the "Closing Date") with, or on behalf of, The Depository
Trust Company (the "Depositary") and registered in the name of its nominee (such
nominee being referred to herein as the "Global Certificate Holder") or will
remain in the custody of the Trustee pursuant to a FAST Balance Certificate
Agreement or similar agreement between the Depositary and the Trustee.

Except as set forth below, the Global Certificate may be transferred, in
whole and not in part, only to another nominee of the Depositary or to a
successor of the Depositary or its nominee.

The Depositary has advised the Company and the Underwriters as follows: It
is a limited-purpose trust company which was created to hold securities for its
participating organizations (the "Participants") and to facilitate the clearance
and settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other

26
<PAGE> 28

organizations. Access to the Depositary's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("indirect participants"). Persons who are not Participants may
beneficially own securities held by the Depositary only through Participants or
indirect participants.

The Depositary has also advised that pursuant to procedures established by
it (i) upon the issuance by the Company of the Notes, the Depositary will credit
the accounts of Participants designated by the Underwriters with the principal
amount of the Notes purchased by the Underwriters, and (ii) ownership of
beneficial interests in the Global Certificate will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary (with respect to Participants' interests), the Participants and
the indirect participants. The laws of some states require that certain persons
take physical delivery in definitive form of securities which they own.
Consequently, the ability to transfer beneficial interests in the Global
Certificate is limited to such extent.

All payments on the Global Certificate registered in the name of the
Depositary's nominee will be made by the Company through the Paying Agent to the
Depositary's nominee as the registered owner of the Global Certificate. Under
the terms of the Indenture, the Company and the Trustee will treat the persons
in whose names the Notes are registered as the owners of such Notes for the
purpose of receiving payments of principal and interest on such Notes and for
all other purposes whatsoever. Therefore, neither the Company, the Trustee nor
the Paying Agent has any direct responsibility or liability for the payment of
principal or interest on the Notes to owners of beneficial interests in the
Global Certificate. The Depositary has advised the Company and the Trustee that
its present practice is, upon receipt of any payment of principal or interest,
to credit immediately the accounts of the Participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interests in the Global Certificate as shown on the records of the Depositary.
Payments by Participants and indirect participants to owners of beneficial
interests in the Global Certificate will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers in bearer form or registered in "street name" and will be
the responsibility of such Participants or indirect participants.

The Company will issue Notes in definitive form in exchange for the Global
Certificate if, and only if, either (1) the Depositary is at any time unwilling
or unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, (2) an Event of Default has occurred and is
continuing and the Trustee has received a request from the Depositary to issue
Notes in definitive form in lieu of all or a portion of the Global Certificate
(in which case the Company shall deliver Notes in definitive form within 30 days
of such request), or (3) the Company determines not to have the Notes
represented by a Global Certificate. In any such instance, an owner of a
beneficial interest in the Global Certificate will be entitled to have Notes
equal in principal amount to such beneficial interest registered in its name and
will be entitled to physical delivery of such Notes in definitive form. Notes so
issued in definitive form will be issued in denominations of $1,000 and integral
whole multiples thereof and will be issued in registered form only, without
coupons.

So long as the Global Certificate Holder is the registered owner of the
Global Certificate, the Global Certificate Holder will be considered the sole
Holder under the Indenture of any Notes evidenced by the Global Certificates.
Beneficial owners of Notes evidenced by the Global Certificate will not be
considered the owners or Holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records of the
Depositary or for maintaining, supervising or reviewing any records of the
Depositary relating to the Notes.

27
<PAGE> 29

UNDERWRITERS

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
have severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective principal amounts of the Notes set forth after their
names below:

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF NOTES
---- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated........................... $
ABN AMRO Chicago Corporation................................
Chase Securities Inc........................................
------------
$150,000,000
============
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Notes offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
Notes if any are taken.

The Underwriters initially propose to offer part of the Notes directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
% of the principal amount of the Notes. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of % of the principal
amount of the Notes to certain other dealers. After the initial public offering
of the Notes, the public offering price and other selling terms may from time to
time be varied by the Underwriters.

The Company does not intend to apply for listing of the Notes on a national
securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Notes as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes and any such market making may be discontinued at any time at the
sole discretion of the Underwriters. Accordingly, no assurance can be given as
to the liquidity of, or trading markets for, the Notes.

In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Notes. Specifically, the Underwriters may over-allot in connection with the
offering, creating a short position in the Notes for their own account. In
addition, to cover over-allotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, the Notes in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Notes in the Offering, if the
syndicate repurchases previously distributed Notes in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Notes above
independent market levels. The Underwriters are not required to engage in these
activities and may end any of these activities at any time.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.

The Underwriters have engaged in transactions with and performed various
investment banking and other services for the Company in the past, and may do so
from time to time in the future.

Affiliates of certain of the Underwriters lend to, and engage in general
financing and banking transactions with, the Company and its affiliates and will
receive a portion of the repayment to be made by the Company under its bank
credit facilities with the proceeds of the Offering. See "Use of Proceeds".
Because more than 10 percent of the net proceeds of the Offering, not including
the underwriting commissions, will be paid to affiliates of Underwriters who are
members of the National Association of Security Dealers, Inc. (the "NASD"), the
Offering is being conducted pursuant to Rule 2710(c)(8) of the NASD's Conduct
Rules.

28
<PAGE> 30

LEGAL MATTERS

The validity of the Notes offered hereby will be passed upon for the
Company by Neal S. Sutton, Senior Vice President, General Counsel and Secretary
of the Company, and by Gardere Wynne Sewell & Riggs, L.L.P., counsel for the
Company. Certain legal matters will be passed upon for the Underwriters by
Andrews & Kurth L.L.P.

EXPERTS

The consolidated financial statements of the Company at December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are incorporated by reference in this Prospectus in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.

29
<PAGE> 31

SMITH INTERNATIONAL LOGO
<PAGE> 32

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table indicates the expenses to be incurred in connection
with the offering described in this Registration Statement. All expenses are
estimated except the Securities and Exchange Commission registration fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 45,455
Rating agency fees.......................................... 180,000
Trustee's fees and expenses................................. 10,000
Blue sky fees (including counsel fees)...................... 3,000
Accounting fees............................................. 40,000
Legal services and expenses................................. 100,000
Printing and engraving fees................................. 75,000
Miscellaneous............................................... 71,545
--------
Total............................................. $525,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Section 145 of the Delaware General Corporation Law (the "DGCL"), the
Company, as a Delaware corporation, has the power, under specified
circumstances, to indemnify its directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason that they were or are such
directors, officers, employees or agents, against expenses and liabilities
incurred in any such action, suit or proceeding so long as they acted in good
faith and in a manner that they reasonably believed to be in, or not opposed to,
the best interests of such corporation, and with respect to any criminal action,
that they had no reasonable cause to believe their conduct was unlawful. With
respect to suits by or in the right of such corporation, however,
indemnification is generally limited to attorneys' fees and other expenses and
is not available if such person is adjudged to be liable to such corporation
unless the court determines that indemnification is appropriate. A Delaware
corporation also has the power to purchase and maintain insurance for such
persons. The Restated Certificate of Incorporation of the Company and the
Restated Bylaws of the Company permit indemnification in accordance with the
DGCL. Reference is made to the Restated Certificate of Incorporation and the
Restated Bylaws of the Company.

Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provisions may not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 (relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital stock) of the DGCL or
(iv) for any transaction from which the director derived an improper personal
benefit. The Company's Restated Certificate of Incorporation contains such a
provision.

The above discussion of the Company's Restated Certificate of Incorporation
and Restated Bylaws and of Sections 102(b)(7) and 145 of the DGCL is not
intended to be exhaustive and is qualified in its entirety by such Restated
Certificate of Incorporation, Restated Bylaws and statutes.

II-1
<PAGE> 33

ITEM 16. EXHIBITS.

The following is a list of all exhibits filed as a part of this
Registration Statement on Form S-3:

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
1.1 -- Form of proposed Underwriting Agreement.
4.1 -- Form of proposed Indenture, between Smith International,
Inc. and The Bank of New York, as Trustee.
4.2* -- Form of proposed Notes.
5.1 -- Opinion of Neal S. Sutton, Esq. as to legality of the
securities registered hereby.
5.2 -- Opinion of Gardere Wynne Sewell & Riggs, L.L.P. as to
legality of the securities registered hereby.
12.1 -- Computation of Ratio of Earnings to Fixed Charges of the
Company.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Neal S. Sutton (set forth in the opinion filed
as Exhibit 5.1).
23.3 -- Consent of Gardere Wynne Sewell & Riggs, L.L.P. (set
forth in the opinion filed as Exhibit 5.2).
24 -- Powers of attorney (set forth on the signature page
hereof).
25.1 -- Statement of Eligibility of Trustee on Form T-1.
</TABLE>

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

* To be filed by amendment.

ITEM 17. UNDERTAKINGS.

(b) FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY
REFERENCE. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(e) INCORPORATED ANNUAL AND QUARTERLY REPORTS. The undersigned Registrant
hereby undertakes to deliver or cause to be delivered with the prospectus, to
each person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X is not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim
financial information.

(h) REQUEST FOR ACCELERATION OF EFFECTIVE DATE. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

II-2
<PAGE> 34

(i) REGISTRATION STATEMENT PERMITTED BY RULE 430A. The undersigned
Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 35

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on the 21st day of August,
1997.

SMITH INTERNATIONAL, INC.

By: /s/ DOUGLAS L. ROCK
------------------------------------
Douglas L. Rock,
Chief Executive Officer, President
and
Chief Operating Officer

POWER OF ATTORNEY

Each of the undersigned hereby constitutes and appoints Neal S. Sutton and
John J. Kennedy, and each of them, either one of whom may act without joinder of
the other, his true and lawful attorneys-in-fact, with full power to execute in
his name, place and stead, in any and all capacities this Registration
Statement, together with any and all amendments (including any and all pre- and
post-effective amendments thereto) to such Registration Statement and to file
the same, with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact, and each of them, full power and authority to do and perform
each and every act and thing requested to be done, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact, and each of them, or the substitute or substitutes
of either of them, shall lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ DOUGLAS L. ROCK Chief Executive Officer, August 21, 1997
- ----------------------------------------------------- President and Chief Operating
Douglas L. Rock Officer (Principal Executive
Officer)

/s/ LOREN K. CARROLL Executive Vice President and August 21, 1997
- ----------------------------------------------------- Director
Loren K. Carroll

/s/ JOHN J. KENNEDY Senior Vice President and Chief August 21, 1997
- ----------------------------------------------------- Financial Officer (Principal
John J. Kennedy Financial and Accounting
Officer)

/s/ BENJAMIN F. BAILAR Director August 21, 1997
- -----------------------------------------------------
Benjamin F. Bailar

/s/ G. CLYDE BUCK Director August 21, 1997
- -----------------------------------------------------
G. Clyde Buck

/s/ JAMES R. GIBBS Director August 21, 1997
- -----------------------------------------------------
James R. Gibbs

/s/ JERRY W. NEELY Director August 21, 1997
- -----------------------------------------------------
Jerry W. Neely

/s/ H. MOAK ROLLINS Director August 21, 1997
- -----------------------------------------------------
H. Moak Rollins
</TABLE>

II-4
<PAGE> 36

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of proposed Underwriting Agreement.
4.1 -- Form of proposed Indenture, between Smith International,
Inc. and The Bank of New York, as Trustee.
4.2* -- Form of proposed Notes.
5.1 -- Opinion of Neal S. Sutton, Esq. as to legality of the
securities registered hereby.
5.2 -- Opinion of Gardere Wynne Sewell & Riggs, L.L.P. as to
legality of the securities registered hereby.
12.1 -- Computation of Ratio of Earnings to Fixed Charges of the
Company.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Neal S. Sutton (set forth in the opinion filed
as Exhibit 5.1).
23.3 -- Consent of Gardere Wynne Sewell & Riggs, L.L.P. (set
forth in the opinion filed as Exhibit 5.2).
24 -- Powers of attorney (set forth on the signature page
hereof).
25.1 -- Statement of Eligibility of Trustee on Form T-1.
</TABLE>

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

* To be filed by amendment.

<PAGE> 1
EXHIBIT 1.1

DRAFT
8/8/97

$150,000,000

SMITH INTERNATIONAL, INC.

% SENIOR NOTES DUE 2007

UNDERWRITING AGREEMENT
<PAGE> 2
_________________, 1997

Morgan Stanley & Co. Incorporated
Chase Securities, Inc.
ABN AMRO Chicago Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036

Dear Sirs and Mesdames:

Smith International, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "Underwriters") $150,000,000 principal amount of its
_______% Senior Notes due _______________, 2007 (the "Securities") to be issued
pursuant to the provisions of an Indenture dated as of __________, 1997 (the
"Indenture") between the Company and The Bank of New York, as Trustee (the
"Trustee").

The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, including a prospectus,
relating to the Securities. The registration statement as amended at the time
it becomes effective, including the information incorporated therein by
reference and the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Securities is hereinafter referred to as the
"Prospectus."

1. REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to and agrees with each of the Underwriters that:

(a) The Registration Statement has become effective; no
stop order suspending the effectiveness of the Registration Statement
is in effect, and no proceedings for such purpose are pending before
or threatened by the Commission.

(b) (i) Each part of the Registration Statement, when such
part became effective, did not contain and each such part, as amended
or supplemented, if applicable, will not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects

<PAGE> 3
with the Securities Act and the applicable rules and regulations of
the Commission thereunder and (iii) the Prospectus does not contain
and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this Section 1(b) do
not apply (A) to statements or omissions in the Registration Statement
or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein or (B) to that part of the Registration
Statement that constitutes the Statement of Eligibility (Form T-1)
under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), of the Trustee.

(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.

(d) Each subsidiary of the Company has been duly
incorporated or organized, is validly existing as a corporation,
limited liability company, partnership or other similar entity in good
standing under the laws of the jurisdiction of its incorporation, has
the corporate or other power and authority to own its property and to
conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.

(e) This Agreement has been duly authorized, executed and
delivered by the Company.

(f) The Indenture has been duly qualified under the Trust
Indenture Act and has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement of the Company,
enforceable in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability.

-2-
<PAGE> 4
(g) The Securities have been duly authorized and, when
executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Underwriters in
accordance with the terms of this Agreement, will be entitled to the
benefits of the Indenture and will be valid and binding obligations of
the Company, enforceable in accordance with their terms except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration, if any, and the availability of equitable remedies may
be limited by equitable principles of general applicability.

(h) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement,
the Indenture and the Securities will not contravene any provision of
applicable law or the certificate of incorporation or by-laws of the
Company or any agreement or other instrument binding upon the Company
or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Company or any subsidiary, and no consent, approval, authorization or
order of, or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations under
this Agreement, the Indenture or the Securities, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Securities.

(i) There has not occurred any material adverse change,
or any development involving a prospective material adverse change, in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).

(j) There are no legal or governmental proceedings
pending or threatened to which the Company or any of its subsidiaries
is a party or to which any of the properties of the Company or any of
its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.

(k) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities
Act and the applicable rules and regulations of the Commission
thereunder.

-3-
<PAGE> 5
(l) The Company is not an "investment company" or an
entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.

(m) The Company and its subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii) have
received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.

(n) In the ordinary course of its business, the Company
conducts a periodic review of the effect of Environmental Laws on the
business, operations and properties of the Company and its
subsidiaries, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities
and any potential liabilities to third parties). On the basis of such
review, the Company has reasonably concluded that such associated
costs and liabilities would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as
a whole.

(o) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.

2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby
agrees to sell to the several Underwriters, and each Underwriter, upon the
basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, agrees, severally and not jointly, to
purchase from the Company the respective principal amounts of Securities set
forth in Schedule I hereto opposite its name at _____% of their principal
amount (the "Purchase Price") plus accrued interest, if any, from ___________,
1997 to the date of payment and delivery.

3. TERMS OF PUBLIC OFFERING. The Company is advised by
you that the Underwriters propose to make a public offering of their respective
portions of the Securities as soon after the Registration Statement and this
Agreement have become

-4-
<PAGE> 6
effective as in your judgment is advisable. The Company is further advised by
you that the Securities are to be offered to the public initially at ____% of
their principal amount (the "Public Offering Price") plus accrued interest, if
any, from __________________, 1997 to the date of payment and delivery and to
certain dealers selected by you at a price that represents a concession not in
excess of ____% of their principal amount under the Public Offering Price, and
that any Underwriter may allow, and such dealers may reallow, a concession, not
in excess of ____% of their principal amount, to any Underwriter or to certain
other dealers.

4. PAYMENT AND DELIVERY. Payment for the Securities
shall be made by certified or official bank check or checks payable to the
order of the Company in New York Clearing House funds at the office Andrews &
Kurth L.L.P., 600 Travis Street, Suite 4200, Houston, Texas 77002 at 10:00
A.M., local time, on ____________, 1997, or at such other time on the same or
such other date, not later than _________, 1997, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to
as the "Closing Date."

Payment for the Securities shall be made against delivery to
you for the respective accounts of the several Underwriters of the one or more
global certificates representing the Securities registered in the name of Cede
& Co. with any transfer taxes payable in connection with the transfer of the
Securities to the Underwriters duly paid.

5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Company to sell the Securities to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the Securities
are subject to the condition that the Registration Statement shall have become
effective not later than ________ [a.m./p.m.] (New York time) on the date
hereof.

The several obligations of the Underwriters are subject to the
following further conditions:

(a) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date:

(i) there shall not have occurred any
downgrading, nor shall any notice have been given of any
intended or potential downgrading or of any review for a
possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule
436(g)(2) under the Securities Act; and

(ii) there shall not have occurred any change, or
any development involving a prospective change, in the
condition, financial or otherwise, or in the earnings,
business or operations of the Company and its

-5-
<PAGE> 7
subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your
judgment, impracticable to market the Securities on the terms
and in the manner contemplated in the Prospectus.

(b) The Underwriters shall have received on the Closing
Date a certificate, dated the Closing Date and signed by an executive
officer of the Company, to the effect set forth in clause (a)(i) above
and to the effect that the representations and warranties of the
Company contained in this Agreement are true and correct as of the
Closing Date and that the Company has complied with all of the
agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.

The officer signing and delivering such certificate
may rely upon the best of his or her knowledge as to proceedings threatened.

(c) The Underwriters shall have received on the Closing
Date an opinion of Neal S. Sutton, Senior Vice President and General
Counsel of the Company, dated the Closing Date, to the effect that:

(i) the Company has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole;

(ii) each subsidiary of the Company has been duly
incorporated or organized, is validly existing as a
corporation, limited liability company, partnership or other
similar entity in good standing under the laws of the
jurisdiction of its incorporation, has the corporate or other
power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified
to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole;

(iii) each of this Agreement and the Indenture has
been duly authorized, executed and delivered by the Company;

-6-
<PAGE> 8
(iv) the Indenture has been duly qualified under
the Trust Indenture Act and has been duly authorized, executed
and delivered by the Company and is a valid and binding
agreement of the Company, enforceable in accordance with its
terms except as (a) the enforceability thereof may be limited
by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (b) rights of acceleration and the
availability of equitable remedies may be limited by equitable
principles of general applicability;

(v) the Securities have been duly authorized for
issuance by the Company and, when executed and authenticated
in accordance with the provisions of the Indenture and
delivered to and paid for by the Underwriters in accordance
with the terms of this Agreement, will be entitled to the
benefits of the Indenture and will be valid and binding
obligations of the Company, enforceable in accordance with
their terms except as (a) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (b) rights of acceleration, if
any, and the availability of equitable remedies may be limited
by equitable principles of general applicability;

(vi) the execution and delivery by the Company of,
and the performance by the Company of its obligations under,
this Agreement, the Securities and the Indenture will not
contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or, to the best of
such counsel's knowledge, any agreement or other instrument
binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a
whole, or, to the best of such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary,
and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is
required for the performance by the Company of its obligations
under this Agreement, the Securities and the Indenture, except
such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of
the Securities;

(vii) the statements (A) in the Prospectus under
the captions "Description of Notes" and "Underwriters", (B) in
the Prospectus (as incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996) under the caption "Legal Proceedings" and
(C) in the Registration Statement in Item 15, in each case
insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly
present the information

-7-
<PAGE> 9
called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to
therein;

(viii) after due inquiry, such counsel does not know
of any legal or governmental proceedings pending or threatened
to which the Company or any of its subsidiaries is a party or
to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in
the Registration Statement or the Prospectus and are not so
described or of any statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described
or filed as required;

(ix) the Company is not an "investment company" or
an entity "controlled" by an "investment company," as such
terms are defined in the Investment Company Act of 1940, as
amended;

(x) the Company (A) is in compliance with any and
all applicable Environmental Laws, (B) has received all
permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business and (C)
is in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance
with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a material adverse
effect on the Company; and

(xi) such counsel (A) is of the opinion that the
Registration Statement and Prospectus (except for financial
statements and schedules included therein as to which such
counsel need not express any opinion) comply as to form in all
material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, (B) has no
reason to believe that (except for financial statements and
schedules as to which such counsel need not express any belief
and except for that part of the Registration Statement that
constitutes the Form T-1 heretofore referred to) the
Registration Statement and the prospectus included therein at
the time the Registration Statement became effective contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no
reason to believe that (except for financial statements and
schedules as to which such counsel need not express any
belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

-8-
<PAGE> 10
(d) The Underwriters shall have received on the Closing
Date an opinion of Gardere & Wynne L.L.P., outside counsel to the
Company, dated the Closing Date, to the effect that:

(i) the Indenture has been duly qualified under
the Trust Indenture Act and has been duly authorized, executed
and delivered by the Company and is a valid and binding
agreement of the Company, enforceable in accordance with its
terms except as (a) the enforceability thereof may be limited
by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (b) rights of acceleration and the
availability of equitable remedies may be limited by equitable
principles of general applicability;

(ii) the Securities have been duly authorized for
issuance by the Company and, when executed and authenticated
in accordance with the provisions of the Indenture and
delivered to and paid for by the Underwriters in accordance
with the terms of this Agreement, will be entitled to the
benefits of the Indenture and will be valid and binding
obligations of the Company, enforceable in accordance with
their terms except as (a) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (b) rights of acceleration, if
any, and the availability of equitable remedies may be limited
by equitable principles of general applicability; and

(iii) such counsel (A) is of the opinion that the
Registration Statement and Prospectus (except for financial
statements and schedules included therein as to which such
counsel need not express any opinion) comply as to form in all
material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, (B) has no
reason to believe that (except for financial statements and
schedules as to which such counsel need not express any belief
and except for that part of the Registration Statement that
constitutes the Form T-1 heretofore referred to) the
Registration Statement and the prospectus included therein at
the time the Registration Statement became effective contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no
reason to believe that (except for financial statements and
schedules as to which such counsel need not express any
belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

(e) The Underwriters shall have received on the Closing
Date an opinion of Andrews & Kurth L.L.P., counsel for the
Underwriters, dated the

-9-
<PAGE> 11
Closing Date, covering the matters referred to in subparagraphs (iii),
(iv), (v), (vii) (but only as to the statements in the Prospectus
under "Description of Securities" and "Underwriters") and (xi) of
paragraph (c) above.

With respect to the matters referenced to in subparagraph (xi)
of paragraph (c) above, Neal S. Sutton, Gardere & Wynne L.L.P. and
Andrews & Kurth L.L.P. may state that their respective opinions and
beliefs are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or
supplements thereto and review and discussion of the contents thereof,
but are without independent check or verification, except as
specified.

The opinions of Gardere & Wynee L.L.P. described in paragraph
(d) above shall be rendered to the Underwriters at the request of the
Company and shall so state therein.

(f) The Underwriters shall have received, on each of the
date hereof and the Closing Date, a letter dated the date hereof or
the Closing Date, as the case may be, in form and substance
satisfactory to the Underwriters, from Arthur Andersen LLP,
independent public accountants, containing statements and information
of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus.

6. COVENANTS OF THE COMPANY. In further consideration
of the agreements of the Underwriters herein contained, the Company covenants
with each Underwriter as follows:

(a) To furnish to you, without charge, four signed copies
of the Registration Statement (including exhibits thereto) and for
delivery to each other Underwriter a conformed copy of the
Registration Statement (without exhibits thereto) and, during the
period mentioned in paragraph (c) below, as many copies of the
Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.

(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such
proposed amendment or supplement and not to file any such proposed
amendment or supplement to which you reasonably object.

(c) If, during such period after the first date of the
public offering of the Securities as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the

-10-
<PAGE> 12
light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses you will furnish to the
Company) to which Securities may have been sold by you on behalf of
the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in
the Prospectus as so amended or supplemented will not, in the light of
the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.

(d) To endeavor to qualify the Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions as
you shall reasonably request.

(e) To make generally available to the Company's security
holders and to you as soon as practicable an earning statement
covering the twelve-month period ending [September 30,] 1998 that
satisfies the provisions of Section 11(a) of the Securities Act and
the rules and regulations of the Commission thereunder.

(f) During the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell,
contract to sell or otherwise dispose of any debt securities of the
Company or warrants to purchase debt securities of the Company
substantially similar to the Securities (other than (i) the Securities
and (ii) commercial paper issued in the ordinary course of business),
without the prior written consent of Morgan Stanley & Co.
Incorporated.

(g) To pay all expenses incident to the performance of
its obligations under this Agreement, including: (i) the preparation
and filing of the Registration Statement and the Prospectus and all
amendments and supplements thereto; (ii) the preparation, issuance and
delivery of the Securities; (iii) the fees and disbursements of the
Company's counsel and accountants and of the Trustee and its counsel;
(iv) the qualification of the Securities under state securities or
Blue Sky laws in accordance with the provisions of Section 6(d),
including filing fees and the fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the
preparation of any Blue Sky or Legal Investment Memoranda; (v) the
printing and delivery to the Underwriters in quantities as hereinabove
stated of copies of the Registration Statement and all amendments
thereto and of each preliminary prospectus and the Prospectus and any
amendments or supplements thereto; (vi) the printing and delivery to
the Underwriters of copies of any Blue Sky or Legal Investment
Memoranda; (vii) any fees charged by rating agencies for the rating of
the Securities; (viii) the filing fees and expenses, if any, incurred
with respect to any filing with the National Association of Securities
Dealers, Inc. made

-11-
<PAGE> 13
in connection with the offering of the Securities; and (ix) any
expenses incurred by the Company in connection with a "road show"
presentation to potential investors.

7. INDEMNITY AND CONTRIBUTION. (a) The Company agrees
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by any Underwriter or any such controlling person in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.

(b) Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its
officers who sign the Registration Statement and each person, if any,
who controls the Company within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to such
Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or
supplements thereto.

(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to either paragraph (a) or (b)
of this Section 7, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought
(the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the

-12-
<PAGE> 14
indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including
any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in
writing by Morgan Stanley & Co. Incorporated, in the case of parties
indemnified pursuant to paragraph (a) above and by the Company, in the
case of parties indemnified pursuant to paragraph (b) above. The
indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with
such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement
of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that
are the subject matter of such proceeding.

(d) To the extent the indemnification provided for in
paragraph (a) or (b) of this Section 7 is unavailable to an indemnified
party or insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party under
such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Securities or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters
on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the
other hand in connection

-13-
<PAGE> 15
with the offering of the Securities shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the
Securities (before deducting expenses) received by the Company and the
total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover of
the Prospectus, bear to the aggregate Public Offering Price of the
Securities. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute
pursuant to this Section 7 are several in proportion to the respective
principal amounts of Securities they have purchased hereunder, and not
joint.

(e) The Company and the Underwriters agree that it would
not be just or equitable if contribution pursuant to this Section 7
were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in paragraph (d) of this Section 7. The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section
7, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 7 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.

(f) The indemnity and contribution provisions contained
in this Section 7 and the representations, warranties and other
statements of the Company contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter or
by or on behalf of the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for
any of the Securities.

-14-
<PAGE> 16
8. TERMINATION. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after the execution
and delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse and (b) in
the case of any of the events specified in clauses (a)(i) through (iv), such
event, singly or together with any other such event, makes it, in your
judgment, impracticable to market the Securities on the terms and in the manner
contemplated in the Prospectus.

9. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This
Agreement shall become effective upon the execution and delivery hereof by the
parties hereto.

If, on the Closing Date, any one or more of the Underwriters
shall fail or refuse to purchase Securities that it has or they have agreed to
purchase hereunder on such date, and the aggregate principal amount of
Securities which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase is not more than one-tenth of the aggregate principal
amount of the Securities to be purchased on such date, the other Underwriters
shall be obligated severally in the proportions that the principal amount of
Securities set forth opposite their respective names in Schedule I bears to the
principal amount of Securities set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify,
to purchase the Securities which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase on such date; provided that in no
event shall the principal amount of Securities that any Underwriter has agreed
to purchase pursuant to this Agreement be increased pursuant to this Section 9
by an amount in excess of one-ninth of such principal amount of Securities
without the written consent of such Underwriter. If, on the Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Securities and the
aggregate principal amount of Securities with respect to which such default
occurs is more than one-tenth of the aggregate principal amount of Securities
to be purchased on such date, and arrangements satisfactory to you and the
Company for the purchase of such Securities are not made within 36 hours after
such default, this Agreement shall terminate without liability on the part of
any non-defaulting Underwriter or the Company. In any such case either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.

-15-
<PAGE> 17
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform its obligations under
this Agreement, the Company will reimburse the Underwriters or such
Underwriters as have so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the fees and disbursements
of their counsel) reasonably incurred by such Underwriters in connection with
this Agreement or the offering contemplated hereunder.

10. COUNTERPARTS. This Agreement may be signed in two or
more counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.

11. APPLICABLE LAW. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York.

-16-
<PAGE> 18
12. HEADINGS. The headings of the sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed a part of this Agreement.

Very truly yours,

SMITH INTERNATIONAL, INC.

By:
---------------------------

Accepted as of the date hereof
Morgan Stanley & Co. Incorporated

Acting severally on behalf
of itself and the several
Underwriters named herein.

By: Morgan Stanley & Co.
Incorporated

By:
------------------------------
Name:
Title:

-17-
<PAGE> 19

SCHEDULE I

<TABLE>
<CAPTION>
Principal Amount
of Securities
Underwriter To Be Purchased
- ----------- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $
Chase Securities Inc.
ABN AMRO Chicago Corporation

Total: $
================
</TABLE>

-18-

<PAGE> 1
EXHIBIT 4.1

SMITH INTERNATIONAL, INC.

AND

THE BANK OF NEW YORK

TRUSTEE

FORM OF INDENTURE

DATED AS OF SEPTEMBER ____, 1997

<PAGE> 2
Reconciliation and tie between Trust Indenture Act of 1939 and
Indenture dated as of September ___, 1997 between Smith International, Inc. and
The Bank of New York.

<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
--------------- -----------------
<S> <C>
Section 310
(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8, 6.10

Section 311
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13

Section 312
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1, 7.2(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2(c)

Section 313
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3(a), 7.3(b)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3(b)

Section 314
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2

Section 315
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2, 7.3(a)(6)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1(b)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1(c)
(d)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1(a), 6.1(c)
(d)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1(c)(2)
(d)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1(c)(3)
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.14

Section 316
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2, 5.12
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2, 5.13
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4(d)

Section 317
(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3

Section 318
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7
</TABLE>

NOTE: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE> 4
TABLE OF CONTENTS

<TABLE>
<S> <C>
ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 1.3 Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 1.4 Acts of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 1.5 Notices, Etc., to Trustee and Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 1.6 Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 1.7 Conflict with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 1.8 Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 1.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 1.10 Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 1.11 Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 1.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 1.13 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 1.14 Incorporators, Stockholders, Officers and Directors Exempt from Individual Liability . . . 11

ARTICLE II SECURITY FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.1 Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.2 Form of Trustee's Certificate of Authentication . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.3 Securities Issuable in the Form of a Global Security . . . . . . . . . . . . . . . . . . . 12

ARTICLE III THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.1 Amount Unlimited; Issuable in Series . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.2 Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.3 Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.4 Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.5 Registration, Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.6 Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.7 Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.8 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.9 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.10 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.11 Currency of Payments in Respect of Securities . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.12 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.13 CUSIP Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

ARTICLE IV SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.1 Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.2 Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE V REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 5.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . . . . . 26
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . . 27
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
SECTION 5.4 Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . . . . . . 29
SECTION 5.6 Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.7 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest . . . . . . . . . 30
SECTION 5.9 Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.10 Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.11 Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.12 Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.13 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.14 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.15 Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.16 Duty to Accelerate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

ARTICLE VI THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.1 Certain Duties and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.2 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.3 Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.4 Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . . . . . . 35
SECTION 6.5 May Hold Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 6.6 Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 6.7 Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.8 Disqualification; Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.9 Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.10 Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.11 Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . 39
SECTION 6.13 Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.14 Appointment of Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.1 Company to Furnish Trustee Names and Addresses of Holders . . . . . . . . . . . . . . . . . 41
SECTION 7.2 Preservation of Information; Communications to Holders . . . . . . . . . . . . . . . . . . 42
SECTION 7.3 Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.4 Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 8.1 Company May Consolidate, Etc., Only on Certain Terms . . . . . . . . . . . . . . . . . . . 44
SECTION 8.2 Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

ARTICLE IX SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 9.1 Supplemental Indentures without Consent of Holders . . . . . . . . . . . . . . . . . . . . 44
SECTION 9.2 Supplemental Indentures with Consent of Holders . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.3 Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.4 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>

(ii)
<PAGE> 6
<TABLE>
<S> <C>
SECTION 9.5 Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9.6 Reference in Securities to Supplemental Indentures . . . . . . . . . . . . . . . . . . . . 47

ARTICLE X COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.1 Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.2 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.3 Money for Securities Payments To Be Held in Trust . . . . . . . . . . . . . . . . . . . . . 48
SECTION 10.4 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.5 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.6 Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.7 Limitation on Indebtedness Secured by a Lien . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.8 Limitation on Sale and Lease-Back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 10.9 Statement as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 10.10 Waiver of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 10.11 Calculation of Original Issue Discount. . . . . . . . . . . . . . . . . . . . . . . . . . . 52

ARTICLE XI REDEMPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.1 Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.2 Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.3 Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.4 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.5 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 11.6 Securities Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 11.7 Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

ARTICLE XII SINKING FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 12.1 Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 12.2 Satisfaction of Sinking Fund Payments with Securities . . . . . . . . . . . . . . . . . . . 55
SECTION 12.3 Redemption of Securities for Sinking Fund . . . . . . . . . . . . . . . . . . . . . . . . . 55

ARTICLE XIII DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 13.1 Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 13.2 Defeasance upon Deposit of Moneys or U.S. Government Obligations . . . . . . . . . . . . . 56
SECTION 13.3 Deposited Moneys and U.S. Government Obligations to Be Held in Trust; Miscellaneous
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 13.4 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 13.5 Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>

NOTE: This Table of Contents shall not, for any purpose, be deemed to be a
part of the Indenture.

(iii)
<PAGE> 7
INDENTURE

THIS INDENTURE, is dated as of September ___, 1997, between Smith
International, Inc., a Delaware corporation (herein called the "Company"), and
The Bank of New York, a New York banking corporation, as Trustee (herein called
the "Trustee").

RECITALS:

The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein collectively
called the "Securities" or, in the singular, a "Security"), to be issued in one
or more series as in this Indenture provided.

All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

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

ARTICLE I

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 1.1 Definitions.

For all purposes of this Indenture and any indenture supplemental
hereto, except as otherwise expressly provided or unless the context otherwise
requires:

(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;

(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein as of the date of this Indenture;

(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted at the date of such computation in the United States; and

(4) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.

Certain terms, used principally in Article Six, are defined in that
Article.

"Act," when used with respect to any Holder, has the meaning specified
in Section 1.4.
<PAGE> 8
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

"Authenticating Agent" means, with respect to the Securities of any
series, any Person authorized by the Trustee pursuant to Section 6.14 to act on
behalf of the Trustee to authenticate the Securities of such series.

"Board of Directors" means either the board of directors of the
Company or a duly authorized committee of such board.

"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the City of Houston,
State of Texas or the City of New York, State of New York, are authorized or
obligated by law or regulation to close.

"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities convertible into an
equity interest), warrants or options to subscribe for or to acquire an equity
interest in such Person.

"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934,
or, if at any time after the execution of this instrument such Commission is
not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.

"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.

"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President,
or a Vice President, and by its Treasurer, an Assistant Treasurer, its
Controller, an Assistant Controller, its Secretary or an Assistant Secretary,
and delivered to the Trustee.

"Consolidated Subsidiary" means at any date any Subsidiary the
accounts of which are consolidated with those of the Company as of such date
for public financial reporting purposes.

"Consolidated Net Tangible Assets" has the meaning specified in
Section 10.7.

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<PAGE> 9
"Corporate Trust Office" means the principal office of the Trustee in
New York, New York at which at any particular time its corporate trust business
shall be administered, which office at the date of execution of this Indenture
is located at 101 Barclay Street, Floor 21 West, New York, New York 10286.

"Corporation" includes corporations, associations, business trusts,
joint-stock companies, limited liability companies, joint ventures, general
partnerships and limited partnerships.

"Currency" means Dollars or Foreign Currency.

"Depository" means unless otherwise specified by the Company pursuant
to either Sections 2.3 or 3.1, with respect to Securities of any series
issuable or issued as a Global Security, The Depository Trust Company, New
York, New York, or any successor thereto registered under the Securities
Exchange Act of 1934, as amended, or other applicable statute or regulation.

"Discharged" has the meaning specified in Section 13.2.

"Dollar" or "$" means the currency of the United States that at the
time of payment is legal tender for the payment of public and private debts.

"ECU" means the European Currency Unit as defined and revised from
time to time by the Council of the European Communities.

"European Communities" means the European Economic Community, the
European Coal and Steel Community and the European Atomic Energy Community.

"Event of Default" has the meaning specified in Section 5.1.

"Fixed Rate Security" means a Security which provides for the payment
of interest at a fixed rate.

"Floating Rate Security" means a Security which provides for the
payment of interest at a variable rate determined periodically by reference to
an interest rate index specified pursuant to Section 3.1.

"Foreign Currency" means a currency issued by the government of any
country other than the United States or a composite currency the value of which
is determined by reference to the values of the currencies of any group of
countries.

"Funded Debt" has the meaning specified in Section 10.8.

"Global Security" means a Security issued to evidence all or a part of
any series of Securities which is executed by the Company and authenticated and
delivered by the Trustee to the Depository or pursuant to the Depository's
instruction, all in accordance with this Indenture and pursuant to a Company
Order, which shall be registered as to principal and interest in the name of
the Depository or its nominee.

"Holder" means a Person in whose name a Security is registered in the
Security Register.

"Indebtedness" has the meaning specified in Section 10.7.

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<PAGE> 10
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and shall include the terms of particular series of Securities established as
contemplated by Section 3.1.

"Lien" has the meaning specified in Section 10.7.

"Maturity," when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal or, in the
case of an Original Issue Discount Security, the principal amount payable upon
a declaration of acceleration pursuant to Section 5.2, becomes due and payable
as therein or herein provided, whether at the Stated Maturity or by declaration
of acceleration, call for redemption or otherwise.

"Officers' Certificate" means a certificate signed by the Chairman of
the Board and Chief Executive Officer, the President, or a Vice President, and
by the Treasurer, an Assistant Treasurer, the Controller, an Assistant
Controller, the Secretary or an Assistant Secretary, of the Company, and
delivered to the Trustee.

"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee.

"Original Issue Discount" shall have the same meaning as such term is
given in Section 1273 of the Internal Revenue Code of 1986, as amended, or any
successor provision thereto.

"Original Issue Discount Security" means any Security which provides
for an amount less than the principal amount thereof to be due and payable upon
the declaration of acceleration of the Maturity thereof pursuant to Section
5.2.

"Outstanding," when used with respect to Securities or any series of
Securities, means, as of the date of determination, all Securities or all
Securities of such series, as the case may be, theretofore authenticated and
delivered under this Indenture, except:

(i) Securities theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;

(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for
the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has
been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made; and

(iii) Securities which have been paid pursuant to Section 3.6 or in
exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other
than any such Securities in respect of which there shall have
been presented to the Trustee proof satisfactory to it that
such Securities are held by a bona fide purchaser in whose
hands such Securities are valid obligations of the Company;
provided, however,

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<PAGE> 11
that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given,
made or taken any request, demand, authorization, direction,
notice, consent, waiver or other action hereunder as of any
date, (a) the principal amount of an Original Issue Discount
Security which shall be deemed to be Outstanding shall be the
amount of the principal thereof which would be due and payable
as of such date upon acceleration of the Maturity thereof to
such date pursuant to Section 5.2, (b) if, as of such date,
the principal amount payable at the Stated Maturity of a
Security is not determinable, then the principal amount of
such Security which shall be deemed to be Outstanding shall be
the amount as specified or determined as contemplated by
Section 3.1, (c) the principal amount of a Security
denominated in one or more foreign currencies or currency
units which shall be deemed to be Outstanding shall be the
Dollar equivalent, determined as of such date in the manner
provided as contemplated by Section 3.1, of the principal
amount of such Security, (or, in the case of a Security
described in Clause (a) or (b) above, of the amount determined
as provided in such Clause), and (d) Securities owned by the
Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obliger shall be
disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction,
notice, consent, waiver or other action, only Securities which
a Responsible Officer of the Trustee actually knows to be so
owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and
that the pledgee is not the Company or any other obliger upon
the Securities or any Affiliate of the Company or of such
other obligor.

"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.

"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or association, joint-stock company, trust, limited liability company,
unincorporated organization or any other entity.

"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security, and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.

"Principal Property" means any manufacturing plant, processing plant
or any mining facility or property owned or leased by the Company or any
Subsidiary, any Capital Stock or Indebtedness of a Subsidiary or any other
property or right owned by or granted to the Company or any Subsidiary and used
or held for use in any of the principal businesses conducted by the Company or
any Subsidiary, except for any such property or right which, in the opinion of
the Board of Directors of the Company, as set forth in a Board Resolution
adopted in good faith, is not of material importance to the total business
conducted by the Company and its Subsidiaries considered as one enterprise.

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<PAGE> 12
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.

"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.

"Responsible Officer," when used with respect to the Trustee, means
any vice president, any assistant vice president, any assistant secretary, any
assistant treasurer, any trust officer or assistant trust officer or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter
is referred because of his knowledge of and familiarity with the particular
subject.

"Sale and Lease-Back Transaction" has the meaning specified in Section
10.8.

"Securities" or "Security" has the meaning stated in the first recital
of this Indenture and more particularly means any Securities or Security
authenticated and delivered under this Indenture.

"Security Register" has the meaning specified in Section 3.5.

"Significant Subsidiary" has the meaning specified in Section 5.1.

"Stated Maturity," when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which an amount equal to the principal of
such Security or an installment of principal thereof or interest thereon is due
and payable.

"Subsidiary" of a Person means (i) a corporation a majority of whose
Voting Stock is at the time, directly or indirectly, owned by such Person, by
one or more subsidiaries of such Person or by such Person and one or more
subsidiaries of such Person, (ii) a partnership in which such Person or a
subsidiary of such Person is, at the date of determination, a general or
limited partner of such partnership, but only if such Person or its subsidiary
is entitled to receive more than 50% of the assets of such partnership upon its
dissolution, or (iii) any other Person (other than a corporation or
partnership) in which such Person, directly or indirectly, at the date of
determination thereof, has (a) at least a majority ownership interest or (b)
the power to elect or direct the election of a majority of the directors or
other governing body of such Person.

"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
with respect to one or more series of Securities pursuant to the applicable
provisions of this Indenture, and thereafter "Trustee" shall mean and include
each Person who is then a Trustee hereunder, and if at any time there is more
than one such Person, "Trustee" shall mean and include each such Person, and
"Trustee," as used with respect to the Securities of any series, shall mean the
Trustee with respect to Securities of that series.

"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed, except as provided
in Section 9.5.

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<PAGE> 13
"United States" means the United States of America (including the
District of Columbia), its territories, its possessions and other areas subject
to its jurisdiction.

"United States Alien" means any person who, for United States Federal
income tax purposes, is a foreign corporation, a nonresident alien individual,
a nonresident fiduciary of a foreign estate or trust, or a foreign partnership
one or more members of which is, for United States Federal income tax purposes,
a foreign corporation, a nonresident alien individual or a nonresident alien
fiduciary of a foreign estate or trust.

"U.S. Government Obligations" has the meaning specified in Section
13.2.

"Value" has the meaning set forth in Section 10.8.

"Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president."

SECTION 1.2 Compliance Certificates and Opinions.

Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate
or opinion need be furnished.

Every certificate (other than any Officers' Certificate delivered
pursuant to Section 10.9) or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;

(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;

(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and

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<PAGE> 14
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.

SECTION 1.3 Form of Documents Delivered to Trustee.

In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.

Any certificate or opinion of an officer or opinion of counsel may be
based, insofar as it relates to any accounting matters, upon a certificate or
opinion of, or representations by, an accountant or firm of accountants in the
employ of the Company, unless such officer or counsel, as the case may be,
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such accounting matters are
erroneous. Any certificate or opinion of any independent firm of public
accountants filed with and directed to the Trustee shall contain a statement
that such firm is independent.

Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

SECTION 1.4 Acts of Holders.

(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given
or taken by a specified percentage of Holders of one or more series
then Outstanding may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such specified
percentage of Holders in person or by an agent duly appointed in
writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments is
or are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose
of this Indenture and

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<PAGE> 15
(subject to Section 6.1) conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.

(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of
such execution or by a certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that
the individual signing such instrument or writing acknowledged to him
the execution thereof. Where such execution is by a signer acting in
a capacity other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority.
The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.

(d) The Company may fix a record date for the purpose of
determining the identity of the Holders entitled to participate in any
Act authorized or permitted under this Indenture, which record date
shall be the later of (i) 10 days prior to the first solicitation of
the written instruments required for such Act or (ii) the date of the
most recent list of Holders furnished to the Trustee prior to such
solicitation pursuant to Section 7.1. If such a record date is fixed,
the Persons who were the Holders of the Securities of the affected
series at the close of business on such record date (or their duly
authorized proxies) shall be the only Persons entitled to execute
written instruments with respect to such Act, or to revoke any written
instrument previously delivered, whether or not such Persons shall
continue to be Holders of the Securities of such series after such
record date. No such written instrument shall be valid or effective
for more than 150 days after such record date.

(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind
every future Holder of the same Security and the Holder of every
Security issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon
such Security.

SECTION 1.5 Notices, Etc., to Trustee and Company.

Any request, demand, authorization, direction, notice, consent, waiver
or other Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,

(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Trustee at its Corporate Trust Office, Attention:
Corporate Trust Trustee Administration, or

(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the Company
addressed to the attention of its Secretary at 16740 Hardy Street, Houston,
Texas 77032, or at any other address previously furnished in writing to the
Trustee by the Company.

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<PAGE> 16
Any such Act or other document shall be in the English language.

SECTION 1.6 Notice to Holders; Waiver.

Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for
the giving of such notice provided, however, that, in any case, any notice to
Holders of Floating Rate Securities regarding the determination of a periodic
rate of interest, if such notice is required pursuant to Section 3.1, shall be
sufficiently given if given in the manner specified pursuant to Section 3.1.
In any case where notice to Holders is given by mail, neither the failure to
mail such notice, nor any defect in any notice so mailed, to any particular
Holder shall affect the sufficiency of such notice with respect to other
Holders. Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken
in reliance upon such waiver.

In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.

SECTION 1.7 Conflict with Trust Indenture Act.

If any provision hereof limits, qualifies or conflicts with the duties
imposed by the Trust Indenture Act, the imposed duties shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provisions shall
be deemed to apply to this Indenture as so modified or excluded, as the case
may be.

SECTION 1.8 Effect of Headings and Table of Contents.

The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.

SECTION 1.9 Successors and Assigns.

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

SECTION 1.10 Separability Clause.

In case any provision in this Indenture or in the Securities 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.

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<PAGE> 17
SECTION 1.11 Benefits of Indenture.

Nothing in this Indenture or in the Securities, 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 Indenture.

SECTION 1.12 Governing Law.

This Indenture and the Securities shall be governed by and construed
in accordance with the internal laws of the State of New York except as may be
otherwise required by mandatory provisions of law, without regard to conflicts
of laws principles thereof.

SECTION 1.13 Legal Holidays.

Unless otherwise specified pursuant to Section 3.1, in any case where
the due date of interest on or principal of any Security or the date fixed for
redemption of any Security shall not be a Business Day then (notwithstanding
any other provision of this Indenture or of the Securities) payment of interest
or principal (and premium, if any) need not be made on such date, but may be
made on the next succeeding Business Day with the same force and effect as if
made on such due date or Redemption Date; provided that no interest shall
accrue for the period from and after such prior date.

SECTION 1.14 Incorporators, Stockholders, Officers and Directors Exempt
from Individual Liability.

No recourse under or upon any obligation, covenant or agreement
contained in this Indenture, or in any Security, or because of any indebtedness
evidenced thereby, shall be had against any incorporator, as such, or against
any past, present or future stockholder, officer or director, as such, of the
Company or of any successor, either directly or through the Company or any
successor, under any rule of law, statute or constitutional provision or by the
enforcement of any assessment or by any legal or equitable proceeding or
otherwise, all such liability being expressly waived and released by the
acceptance of the Securities by the Holders thereof and as part of the
consideration for the issue of the Securities.

ARTICLE II

SECURITY FORMS

SECTION 2.1 Forms Generally.

The Securities of each series shall be in substantially the form or
forms (including global form) as shall be established by or pursuant to a Board
Resolution or in one or more indentures supplemental hereto, in each case with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture, and may have such letters, numbers
or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with any law or with any rules made
pursuant thereto or with any rules of any securities exchange or all as may,
consistently herewith, be determined by the officers executing such Securities
to be necessary or appropriate, as evidenced by their execution of the
Securities. If the form of Securities of any series is established by action
taken

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<PAGE> 18
pursuant to a Board Resolution, a copy of an appropriate record of such action
together with a true and correct copy of the form of the Securities of such
series approved by or pursuant to such Board Resolution shall be certified by
the Secretary or an Assistant Secretary of the Company and delivered to the
Trustee at or prior to the delivery of the Company Order contemplated by
Section 3.3 for the authentication and delivery of such Securities.

The definitive Securities shall be printed, lithographed, or engraved
on steel engraved borders, or word processed or may be produced in any other
manner, provided, that such method is permitted by the rules of any securities
exchange on which such securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.

SECTION 2.2 Form of Trustee's Certificate of Authentication.

The Trustee's certificate of authentication on all Securities shall be
in substantially the following form:

"This is one of the Securities of the series designated pursuant to
the within-mentioned Indenture.

THE BANK OF NEW YORK, as Trustee

By:
--------------------------------------
Authorized Signatory

THE BANK OF NEW YORK, as Trustee

By:
--------------------------------------
As Authenticating Agent

By:
--------------------------------------
Authorized Signatory"

SECTION 2.3 Securities Issuable in the Form of a Global Security.

(a) If the Company shall establish pursuant to Section 3.1 that
the Securities of a particular series are to be issued in whole or in
part in the form of one or more Global Securities, then the Company
shall execute and the Trustee shall, in accordance with Section 3.3
and the Company Order delivered to the Trustee thereunder,
authenticate and make available for delivery, such Global Security or
Securities, which (i) shall represent, and shall be denominated in an
amount

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<PAGE> 19
equal to the aggregate principal amount of, the Outstanding Securities
of such series to be represented by such Global Security or
Securities, (ii) shall be registered in the name of the Depository for
such Global Security or Securities or its nominee, (iii) shall be
delivered by the Trustee to the Depository or pursuant to the
Depository's instruction and (iv) shall bear a legend substantially to
the following effect: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE
MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN
THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT
BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO
TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN
THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.

(b) Notwithstanding any other provision of this Section 2.3 or of
Section 3.5, unless otherwise provided in the Global Security, a
Global Security may be transferred, in whole but not in part and in
the manner provided in Section 3.5, only to the Depository or another
nominee of the Depository for such Global Security, or to a successor
Depository for such Global Security selected or approved by the
Company or to a nominee of such successor Depository. Except as
provided below, owners solely of beneficial interests in a Global
Security shall not be entitled to receive physical delivery of the
Securities represented by such Global Security and will not be
considered the Holders thereof for any purpose under the Indenture.

(c)(i) If at any time the Depository for a Global Security notifies
the Company that it is unwilling or unable to continue as
Depository for such Global Security or if at any time the
Depository for the Securities for such series shall no longer
be eligible or in good standing under the Securities Exchange
Act of 1934, as amended, or other applicable statute or
regulation, the Company shall appoint a successor Depository
with respect to such Global Security. If a successor
Depository for such Global Security is not appointed by the
Company within 90 days after the Company receives such notice
or becomes aware of such ineligibility, the Company's election
pursuant to Section 3.1(16) shall no longer be effective with
respect to such Global Security and the Company will execute,
and the Trustee, upon receipt of a Company Order for the
authentication and delivery of individual Securities of such
series in exchange for such Global Security, will authenticate
and make available for delivery individual Securities of such
series of like tenor and terms in definitive form in an
aggregate principal amount equal to the principal amount of
the Global Security in exchange for such Global Security.

(ii) The Company may at any time and in its sole discretion
determine that the Securities of any series issued or issuable
in the form of one or more Global Securities shall no longer
be represented by such Global Security or Securities. In such
event the Company will execute, and the Trustee, upon receipt
of a Company Order for the authentication and delivery of
individual Securities of such series in exchange in whole or
in part for such Global Security, will authenticate and make
available for delivery individual Securities of such series of
like tenor and terms in definitive form in an aggregate
principal amount equal to the principal amount of such Global
Security or Securities representing such series in exchange
for such Global Securities or Securities.

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(iii) A Global Security will also be exchangeable if there shall
have occurred and is continuing an Event of Default or an
event which, with the giving of notice or lapse of time or
both, would constitute an Event of Default with respect to the
Securities of such series represented by such Global Security
and the Trustee has received a request from the Depositary to
issue Securities in definitive form in lieu of all or a
portion of the Global Security. In such event the Company
will execute within 30 days of such request, and the Trustee,
upon receipt of a Company Order for the authentication and
delivery of individual Securities of such series in exchange
in whole or in part for such Global Security, will promptly
authenticate and make available for delivery individual
Securities of such series of like tenor and terms in
definitive form in an aggregate principal amount equal to the
principal amount of such Global Security or Securities
representing such series in exchange for such Global
Securities or Securities.

(iv) If specified by the Company pursuant to Section 3.1 with
respect to Securities issued or issuable in the form of a
Global Security, the Depository for such Global Security may
surrender such Global Security in exchange in whole or in part
for individual Securities of such series of like tenor and
terms in definitive form on such terms as are acceptable to
the Company and such Depository. Thereupon the Company shall
execute, and the Trustee shall authenticate and make available
for delivery, without service charge, (1) to each Person
specified by such Depository a new Security or Securities of
the same series of like tenor and terms and of any authorized
denominations as requested by such Person or the Depository in
aggregate principal amount equal to and in exchange for such
Person's beneficial interest in the Global Security; and (2)
to such Depository a new Global Security of like tenor and
terms and in a denomination equal to the difference, if any,
between the principal amount of the surrendered Global
Security and the aggregate principal amount of Securities
delivered to Holders thereof.

(v) Upon issuance, all Securities with identical terms and held by
the Depository on behalf of its participants will be
represented by one Global Security and be deposited with the
Depository and registered in the name of a nominee of the
Depository. The Company may request the Trustee at any time
to consolidate two or more outstanding Global Securities
having identical terms and for which interest has been paid to
the same date.

(vi) In any exchange provided for in any of the preceding five
paragraphs, the Company will execute and the Trustee will
authenticate and make available for delivery individual fully
registered Securities in authorized denominations, provided
that the definitive Securities so issued in exchange for a
Global Security shall be in denominations of $1,000 and any
aggregate principal amount and tenor as the portion of such
Global Security to be exchanged, and provided further that,
unless the Company agrees otherwise, Securities in
certificated registered form will be issued in exchange for a
Global Security, or any portion thereof, only if such
Securities in certificated registered form were requested by
written notice to the Trustee or the securities registrar by
or on behalf of a person who is beneficial owner of an
interest thereof given through the Holder hereof. Except as
provided above, owners of beneficial interest in a Global
Security will not be entitled to receive physical delivery of
Securities in certificated registered form and will not be
considered the Holders thereof for any purpose under the
Indenture. No service charge

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shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge
payable in connection therewith. Upon the exchange of a
Global Security for individual Securities, such Global
Security shall be cancelled by the Trustee. Securities issued
in exchange for a Global Security pursuant to this Section 2.3
shall be registered in such names and in such authorized
denominations as the Depository for such Global Security,
pursuant to the instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The
Trustee shall make such Securities available for delivery to
the persons in whose names such Securities are so registered.

(vii) Members in and participants of the Depository shall have no
rights under the Indenture with respect to any Global Security
held on their behalf by a Depository, and such Depository may
be treated by the Company, the trustee and any agent of the
Company or the Trustee as the owner of such Global Security
for all purposes whatsoever.

(d) Any Company Order delivered pursuant to Section 3.3 by the
Company with respect to the authentication, exchange, endorsement or
delivery or redelivery of a Global Security shall be in writing,
signed by any one of the officers enumerated under the definition of
"Company Order" contained in Section 1.1 or by any officer authorized
by a previously delivered Company Order, but need not comply with
Section 1.2 and need not be accompanied by an Opinion of Counsel.

ARTICLE III

THE SECURITIES

SECTION 3.1 Amount Unlimited; Issuable in Series.

The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.

The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and set forth in an Officers'
Certificate, or established in one or more indentures supplemental hereto,
prior to the initial issuance of Securities of any series:

(1) the title of the Securities of the series (which shall
distinguish the Securities of the series from all other Securities);

(2) any limit upon the aggregate principal amount of the
Securities of the series which may be authenticated and delivered under this
Indenture (except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Sections 2.3, 3.4, 3.5, 3.6, 9.6 or 11.7 and except for
Securities which, pursuant to Section 3.3, are deemed never to have been
authenticated and delivered);

(3) the date or dates on which or periods during which the
Securities of the series may be issued and the date or dates on which or the
range of dates within which the principal of (and premium, if any, on) the
Securities of the series are or may be payable;

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(4) the rate or rates or the methods of determination thereof at
which the Securities of the series shall bear interest, if any, the date or
dates from which such interest shall accrue and the dates on which such
interest shall be payable and the record date for the interest payable on any
such interest date;

(5) the place or places, if any, in addition to the City of New
York, where, subject to Section 10.2, the principal of (and premium, if any)
and interest on Securities of the series shall be payable, any Securities of
the series may be surrendered for registration of transfer, Securities of the
series may be surrendered for exchange and notices and demands to or upon the
Company in respect of the Securities of the series and this Indenture may be
served;

(6) the period or periods within which or the dates on which, the
price or prices at which and the terms and conditions upon which Securities of
the series may be redeemed, in whole or in part, at the option of the Company
and/or the method by which such period or periods, dates, price or prices and
terms and conditions shall be determined;

(7) the obligation, if any, of the Company to redeem, purchase or
repay Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof and the period or periods
within which, the price or prices at which and the terms and conditions upon
which Securities of the series shall be redeemed or purchased or repaid, in
whole or in part, pursuant to such obligation and/or the method by which such
period or periods, price or prices or terms and conditions shall be determined;

(8) provisions, if any, for the defeasance of Securities of the
series;

(9) if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which Securities of the series shall be
issuable;

(10) if other than the principal amount thereof, the portion of the
principal amount of Securities of the series which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 5.2 or
the method by which such portion shall be determined;

(11) if other than Dollars, the Foreign Currency in which
Securities of the series shall be denominated, or in which payment of the
principal of (and premium, if any) and interest on the Securities of the series
may be made or the method by which such Foreign Currency shall be determined;

(12) if the principal of (and premium, if any) or interest on
Securities of the series are to be payable, at the election of the Company or a
Holder thereof, in a Currency other than that in which the Securities are
denominated or stated to be payable without such election, the periods within
which and the terms and conditions upon which, such election may be made and
the time and the manner of determining the exchange rate between the Currency
in which the Securities are denominated or payable without such election and
the Currency in which the Securities are to be paid if such election is made;

(13) if the amount of payments of principal of (and premium, if
any) or interest on the Securities of the series may be determined with
reference to an index including, but not limited to, an index based on a
Currency or Currencies other than that in which the Securities are payable, or
any other type of index, the manner in which such amounts shall be determined;

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<PAGE> 23
(14) if the Securities of the series are denominated or payable in
a Foreign Currency, any other terms concerning the payment of principal of
(premium, if any) or any interest on such Securities (including the Currency or
Currencies of payment thereof);

(15) any additions to or changes in the Events of Default or
covenants provided for with respect to Securities of the series or any Events
of Default or covenants herein specified which shall not be applicable to the
Securities of the series;

(16) whether the Securities of the series shall be issued in whole
or in part in the form of a Global Security or Securities; the terms and
conditions, if any, upon which such Global Security or Securities may be
exchanged in whole or in part for other individual Securities or for other
Global Securities; and the Depository for such Global Security or Securities;

(17) whether the Securities of the series are to be issuable in
definitive form (whether upon original issuance or upon exchange of a Temporary
Security of the series) only upon receipt of certain certificates or other
documents or satisfaction of other conditions, and, if so, the form and terms
of such certificates, documents or conditions;

(18) if the Company will pay additional amounts on any of the
Securities and coupons, if any, of the series to any Holder who is a United
States Alien (including any modification in the definition of such term), in
respect of any tax, assessment or governmental charge withheld or deducted,
under what circumstances and with what procedures and documentation the Company
will pay such additional amounts, whether such additional amount will be
treated as interest or principal pursuant to this Indenture, and whether the
Company will have the option to redeem such Securities rather than pay
additional amounts (and the terms of any such option);

(19) any terms applicable to Original Issue Discount, if any,
including the rate or rates at which such Original Issue Discount, if any,
shall accrue; and

(20) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).

All Securities of any one series shall be substantially identical
except as to denomination and except as may otherwise be provided in or
pursuant to such Board Resolution and set forth in such Officers' Certificate
or in any such indenture supplemental hereto. All Securities of any series
need not be issued at the same time and may be issued from time to time,
consistent with the terms of this Indenture, if so provided by or pursuant to
such Board Resolution and set forth in such Officers' Certificate or in any
such indenture supplemental hereto.

At the option of the Company, interest on the Securities of any series
that bears interest may be paid by mailing a check to the address of the person
entitled thereto as such address shall appear in the Security Register.

If any of the terms of the series are established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such action
shall be certified by the Secretary or an Assistant Secretary

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of the Company and delivered to the Trustee at or prior to the delivery of the
Officers' Certificate setting forth the terms of the series.

SECTION 3.2 Denominations.

The Securities of each series shall be issuable in registered form
without coupons in such denominations as shall be specified as contemplated by
Section 3.1. In the absence of any such provisions with respect to the
Securities of any series, the Securities of such series shall be issuable in
denominations of $1,000 and any integral multiple thereof and shall be payable
only in Dollars.

SECTION 3.3 Execution, Authentication, Delivery and Dating.

The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its President, or one of its Vice Presidents, under its
corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers, and the
corporate seal, on the Securities may be manual or facsimile.

Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.

At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series executed by
the Company to the Trustee for authentication, together with a Company Order
for the authentication and delivery of such Securities, and the Trustee in
accordance with the Company Order and subject to the provisions hereof shall
authenticate and make available for delivery such Securities. If the form or
terms of the Securities of the series have been established in or pursuant to
one or more Board Resolutions as permitted by Sections 2.1 and 3.1, in
authenticating such Securities, and accepting the additional responsibilities
under this Indenture in relation to such Securities, the Trustee shall be
entitled to receive, and (subject to Section 6.1) shall be fully protected in
relying upon, an Opinion of Counsel stating that:

(1) all instruments furnished by the Company to the Trustee in
connection with the authentication and delivery of such Securities conform to
the requirements of this Indenture and constitute sufficient authority
hereunder for the Trustee to authenticate and make available for delivery such
Securities;

(2) the form of such Securities has been established in conformity
with the provisions of this Indenture;

(3) the terms of such Securities have been established in
conformity with the provisions of this Indenture;

(4) in the event that the form or terms of such Securities have
been established in a supplemental indenture, the execution and delivery of
such supplemental indenture have been duly authorized by all necessary
corporate action of the Company, such supplemental indenture has been duly

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<PAGE> 25
executed and delivered by the Company and, assuming due authorization,
execution and delivery by the Trustee, is a valid and binding obligation
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law);

(5) the execution and delivery of such Securities have been duly
authorized by all necessary corporate action of the Company and such Securities
have been duly executed by the Company and, assuming due authentication by the
Trustee and delivery by the Company, are the valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
entitled to the benefit of the Indenture, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law); and

(6) the amount of Outstanding Securities of such series, together
with the amount of such Securities, does not exceed any limit established under
the terms of this Indenture on the amount of Securities of such series that may
be authenticated and delivered.

In the event that all Securities of a series are not issued at the
same time, the Trustee shall authenticate and deliver the Securities of such
series executed and delivered by the Company for original issuance upon receipt
of an order of the Company (which need not comply with Section 1.2 hereof),
signed by an officer or employee of the Company identified to the Trustee in an
Officers' Certificate, if the Trustee has previously received the Company Order
and Opinion of Counsel referred to in the third paragraph of this Section 3.3
with respect to the issuance of any Securities of such series.

The Trustee shall not be required to authenticate such Securities if
the issue of such Securities pursuant to this Indenture will affect the
Trustee's own rights, duties or immunities under the Securities and this
Indenture or otherwise in a manner which is not reasonably acceptable to the
Trustee.

Each Security shall be dated the date of its authentication.

No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder and is entitled to
the benefits of this Indenture.

SECTION 3.4 Temporary Securities.

Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company Order the Trustee shall authenticate and
make available for delivery temporary Securities which are printed,
lithographed, typewritten, mimeographed, word processed or otherwise produced,
in any authorized denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution of
such Securities.

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If temporary Securities of any series are issued, the Company will
cause definitive Securities of that series to be prepared without unreasonable
delay. After the preparation of definitive Securities of such series, the
temporary Securities of such series shall be exchangeable for definitive
Securities of such series upon surrender of the temporary Securities of such
series at the office or agency of the Company for that series, without charge
to the Holder. Upon surrender for cancellation of any one or more temporary
Securities of any series the Company shall execute and the Trustee shall
authenticate and make available for delivery in exchange therefor a like
principal amount of definitive Securities of the same series of authorized
denominations. Until so exchanged the temporary Securities of any series shall
in all respects be entitled to the same benefits under this Indenture as
definitive Securities of such series.

SECTION 3.5 Registration, Registration of Transfer and Exchange.

The Company or the Trustee shall keep a register (the "Security
Register") in which, subject to such reasonable regulations as the Company or
the Trustee may prescribe, the Company or the Trustee shall provide for the
registration of Securities and of transfers of Securities.

Upon surrender for registration of transfer of any Security of any
series at the office or agency designated by the Company for that series, the
Company shall execute, and the Trustee shall authenticate and make available
for delivery, in the name of the designated transferee or transferees, one or
more new Securities of the same series, of any authorized denominations and of
a like aggregate principal amount.

At the option of the Holder, subject to Section 2.3, Securities of any
series may be exchanged for other Securities of the same series, of any
authorized denominations and of a like aggregate principal amount, upon
surrender of the Securities to be exchanged at such office or agency. Whenever
any Securities are so surrendered for exchange, the Company shall execute, and
the Trustee shall authenticate and make available for delivery, the Securities
which the Holder making the exchange is entitled to receive.

All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.

Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company or any registrar with respect to such series of
Securities, duly executed by the Holder thereof or his attorney duly authorized
in writing.

No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company or the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 3.4, 9.6 or 11.7 not
involving any transfer.

The Company shall not be required (i) to issue, register the transfer
of or exchange Securities of any series during a period beginning at the
opening of business 15 days before the day of the mailing of a notice of
redemption of Securities of that series selected for redemption under Section
11.3 and ending at the close of business on the day of such mailing, or (ii) to
register the transfer of or exchange any

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Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.

None of the Company, the Trustee, any Paying Agent or the securities
registrar will have any responsibility or liability for any aspect of the
Depository's records relating to or payment made on account of beneficial
ownership interests in a Global Security or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.

SECTION 3.6 Mutilated, Destroyed, Lost and Stolen Securities.

If any mutilated Security is surrendered to the Company or to the
Trustee, the Company shall execute and the Trustee shall authenticate and make
available for delivery in exchange therefor a new Security of the same series
and of like tenor and principal amount and bearing a number not
contemporaneously outstanding.

If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Security and (ii) such security or indemnity as may be required by them to save
each of them and any agent of either of them harmless, then, in the absence of
actual notice to the Company or the Trustee that such Security has been
acquired by a bona fide purchaser, the Company shall execute and upon the
Company's request the Trustee shall authenticate and make available for
delivery, in lieu of any such destroyed, lost or stolen Security, a new
Security of the same series and of like tenor and principal amount and bearing
a number not contemporaneously outstanding.

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

Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.

Every new Security of any series issued pursuant to this Section in
lieu of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall
be entitled to all the benefits of this Indenture equally and proportionately
with any and all other Securities of that series duly issued hereunder.

The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.

SECTION 3.7 Payment of Interest; Interest Rights Preserved.

Interest on any Security which is payable, and is punctually paid or
duly provided for, on any interest payment date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the record date (as hereinafter defined) for such
interest notwithstanding the cancellation of such Security upon the
registration of transfer or exchange subsequent to the record date and prior to
such interest payment date; provided, however, that if and to the extent that

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the Company shall default in the payment of the interest due on such interest
payment date, such defaulted interest shall be paid to the Persons in whose
names outstanding Securities are registered at the close of business on a
subsequent record date established by notice given by mail by and on behalf of
the Company to the Holders of Securities not less than 15 days preceding such
subsequent record date, such record date to be not less than 10 days preceding
the date of payment of such defaulted interest. The term "record date" as used
in this Section 3.7 with respect to any regular interest payment date shall
mean such day preceding such interest payment date as may have been established
as the record date with respect to an interest payment date for Securities of
such series in a Board Resolution or in one or more indentures supplemental
hereto in accordance with Section 3.1 hereof. The Company may also make
payment of any defaulted interest in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange if, after
notice given by the Company to the Trustee of the proposed payment pursuant to
this sentence, such manner of payment shall be deemed practicable by the
Trustee.

SECTION 3.8 Persons Deemed Owners.

Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of (and premium, if
any) and (subject to Section 3.7) interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.

SECTION 3.9 Cancellation.

All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it; provided, however, that if surrendered
to any Authenticating Agent, such Securities shall be promptly cancelled by
such Authenticating Agent and forwarded to the Trustee. The Company may at any
time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in
any manner whatsoever, and all Securities so delivered shall be promptly
cancelled by the Trustee. No Securities shall be authenticated in lieu of or
in exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of as directed by a Company Order; provided that the
Trustee shall not be required to destroy such cancelled Securities or to
dispose of such cancelled Securities in a manner deemed impracticable by the
Trustee.

SECTION 3.10 Computation of Interest.

Except as otherwise specified as contemplated by Section 3.1 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360 day year of twelve 30-day months.

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SECTION 3.11 Currency of Payments in Respect of Securities.

(a) Except as otherwise specified pursuant to Section 3.1, payment
of the principal of (and premium, if any) and interest on Securities
of any series will be made in Dollars.

(b) For purposes of any provision of the Indenture where the
Holders of Outstanding Securities may perform an Act which requires
that a specified percentage of the Outstanding Securities of all
series perform such Act and for purposes of any decision or
determination by the Trustee of amounts due and unpaid for the
principal (and premium, if any) and interest on the Securities of all
series in respect of which moneys are to be disbursed ratably, the
principal of (and premium, if any) and interest on the Outstanding
Securities denominated in a Foreign Currency will be the amount in
Dollars based upon exchange rates determined as specified pursuant to
Section 3.1 for Securities of such series, as of the date for
determining whether the Holders entitled to perform such Act have
performed it, or as of the date of such decision or determination by
the Trustee, as the case may be.

SECTION 3.12 Judgments.

The Company may provide pursuant to Section 3.1 for Securities of any
series that the obligation, if any, of the Company to pay the principal of (and
premium, if any) and interest on the Securities of any series in a Foreign
Currency or Dollars (the "Designated Currency") as may be specified pursuant to
Section 3.1 is of the essence and thereby agree that, to the fullest extent
possible under applicable law, judgments in respect of such Securities shall be
given in the Designated Currency. In such event, the obligation of the Company
to make payments in the Designated Currency of the principal of (and premium,
if any) and interest on such Securities shall, notwithstanding any payment in
any other Currency (whether pursuant to a judgment or otherwise), be discharged
only to the extent of the amount of the Designated Currency that the Holder
receiving such payment may, in accordance with normal banking procedures,
purchase with the sum paid in such other Currency (after any premiums and cost
of exchange) on the Business Day in the country of issue of the Designated
Currency immediately following the day on which such Holder receives such
payment. If the amount in the Designated Currency that may be so purchased for
any reason falls short of the amount originally due, the Company shall pay such
additional amounts as may be necessary to compensate for such shortfall, and
any obligation of the Company not discharged by such payment shall be due as a
separate and independent obligation and, until discharged as provided herein,
shall continue in full force and effect.

SECTION 3.13 CUSIP Numbers.

The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be
affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the "CUSIP" numbers.

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ARTICLE IV

SATISFACTION AND DISCHARGE

SECTION 4.1 Satisfaction and Discharge of Indenture.

This Indenture, with respect to the Securities of any series (if all
series issued under this Indenture are not to be affected), shall upon Company
Request cease to be of further effect (except as to any surviving rights of
registration of transfer or exchange of Securities herein expressly provided
for), and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when

(1) either

(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section
3.6 and (ii) Securities for whose payment money has
theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 10.3) have
been delivered to the Trustee for cancellation; or

(B) all such Securities not theretofore delivered to the Trustee
for
cancellation

(i) have become due and payable, or

(ii) will become due and payable at their stated maturity
within one year, or

(iii) if the Securities of such series are denominated and
payable only in Dollars (except as provided pursuant
to Section 3.1) and such Securities are to be called
for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the
expense, of the Company, and the Company, in the case
of (i), (ii) or (iii) above, has deposited or caused
to be deposited with the Trustee as trust funds in
trust for the purpose an amount in Dollars (except as
provided pursuant to Section 3.1) sufficient to pay
and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee
for cancellation, for principal (and premium, if any)
and interest to the date of such deposit (in the case
of Securities which have become due and payable) or
to the stated maturity or Redemption Date, as the
case may be;

(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and

(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with.

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In the event there are Securities of two or more series hereunder, the Trustee
shall be required to execute an instrument acknowledging satisfaction and
discharge of this Indenture only if requested to do so with respect to
Securities of all series as to which it is Trustee and if the other conditions
thereto are met. In the event there are two or more Trustees hereunder, then
the effectiveness of any such instrument shall be conditioned upon receipt of
such instruments from all Trustees hereunder.

Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7, the obligations of
the Company to any Authenticating Agent under Section 6.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 4.2 and the last
paragraph of Section 10.3 shall survive.

SECTION 4.2 Application of Trust Money.

Subject to the provisions of the last paragraph of Section 10.3, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.

ARTICLE V

REMEDIES

SECTION 5.1 Events of Default.

"Event of Default," wherever used herein with respect to Securities of
any series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body), unless it is either inapplicable to a particular series of
Securities or it is specifically deleted or modified in or pursuant to the
terms of such series or in the form of Security of such series:

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

(2) default in the payment of the principal of (or premium, if
any, on) any Security of that series when due and payable as therein or herein
provided whether at its maturity or upon acceleration, redemption or otherwise;
or

(3) default in the deposit of any sinking fund payment, when and
as due by the terms of a Security of that series; or

(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or warranty a
default in whose performance or whose breach is elsewhere

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in this Section 5.1 specifically dealt with or which has expressly been
included in this Indenture solely for the benefit of series of Securities other
than that series), and continuance of such default or breach for a period of 60
days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in principal amount of the Outstanding Securities of that series a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder; or

(5) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect or (B) a decree or order adjudging the Company or any
Significant Subsidiary a bankrupt or insolvent, or approving as properly filed
a petition seeking reorganization, arrangement, adjustment or composition of or
in respect of the Company or any Significant Subsidiary under any applicable
Federal or State law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or a
Significant Subsidiary or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and in
effect for a period of 90 consecutive days; or

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

(7) any other Event of Default provided with respect to Securities
of that series.

For purposes of this Section 5.1 the term "Significant Subsidiary"
shall mean any Subsidiary (i) which, as of the close of the fiscal year of the
Company immediately preceding the date of any determination hereunder,
contributed more than 10% of the consolidated net operating revenues of the
Company and its Consolidated Subsidiaries, or (ii) the total net tangible
assets of which as of the close of such immediately preceding fiscal year
exceeded 10% of the Consolidated Net Tangible Assets of the Company and its
Consolidated Subsidiaries.

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SECTION 5.2 Acceleration of Maturity; Rescission and Annulment.

If an Event of Default with respect to Securities of any series at the
time Outstanding (other than an Event of Default specified in Section 5.01(5)
or (6)), occurs and is continuing, then in every such case, unless the
principal of all of the Securities of such series shall have already become due
and payable, the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Securities of that series may declare the principal
amount (or, in the case of certain Securities which provide for less than the
entire principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof pursuant to this Section 5.2, such portion
of the principal amount as may be specified in the terms of that series of
Securities) and the interest accrued thereon of all of the Securities of that
series to be due and payable immediately, by a notice in writing to the Company
(and to the Trustee if given by Holders), and upon any such declaration such
principal amount (or specified amount) and interest accrued thereon shall
become immediately due and payable. If an Event of Default specified in
Section 5.01(5) or (6) occurs and is continuing, the principal amount (or
portion thereof) of all the Securities of that series shall become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders.

At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in
this Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if

(1) the Company has paid or deposited with the Trustee a sum in
the Currency in which such Securities are denominated (except as otherwise
provided pursuant to Section 3.1) sufficient to pay

(A) all overdue interest on all Securities of that series,

(B) the principal of (and premium, if any, on) any Securities of
that series which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
or rates prescribed therefor in such Securities,

(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate or rates prescribed
therefor in such Securities, and

(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel; and

(2) all Events of Default with respect to Securities of that
series, other than the nonpayment of the principal of Securities of that series
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 5.13.

No such rescission shall affect any subsequent default or impair any right
consequent thereon.

For all purposes under this Indenture, if a portion of the principal
of any Original Issue Discount Securities shall have been accelerated and
declared due and payable pursuant to the provisions hereof, then,

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from and after such declaration, unless such declaration shall have been
rescinded and annulled, the principal amount of such Original Issue Discount
Securities shall be deemed, for all purposes hereunder, to be such portion of
the principal thereof as shall be due and payable as a result of such
declaration; and payment of the portion of the principal thereof as shall have
become due and payable as a result of such declaration, together with interest,
if any, thereon and all other amounts owing thereunder, shall constitute
payment in full of such Original Issue Discount Securities.

SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee.

The Company covenants that if:

(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days;

(2) default is made in the payment of the principal of (or
premium, if any, on) any Security when due and payable whether at its maturity
or upon acceleration, redemption or otherwise; or

(3) default is made in the deposit of any sinking fund payment
when and as due by the terms of any Security,

then the Company will, upon demand of the Trustee, pay to it, for the benefit
of the Holders of such Securities, the whole amount then due and payable on
such Securities for principal (and premium, if any) and interest, interest on
any overdue principal (and premium, if any) and, to the extent that payment of
such interest shall be legally enforceable, interest on any overdue interest,
at the rate or rates prescribed therefor in such Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.

If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obliger upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.

If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such series
by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.

SECTION 5.4 Trustee May File Proofs of Claim.

In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relative to the Company, or any other obligor upon
the Securities or the property of the Company, or of such other obligor or
their

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creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise:

(1) to file and prove a claim for the whole amount of principal
(and premium, if any) and interest owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding, and

(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the Holders,
to pay to the Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 6.7.

Subject to the provisions of Article Eight of this Indenture, nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.

SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities.

All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.

In any proceeding brought by the Trustee (and also in any proceeding
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all the
Holders of the Securities in respect to which action was taken, and it shall
not be necessary to make any Holders of such Securities parties to any such
proceedings.

SECTION 5.6 Application of Money Collected.

Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of

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principal (or premium, if any) or interest, upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:

FIRST: To the payment of all amounts due the Trustee under Section
6.7;

SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due and
payable on such Securities for principal (and premium, if any) and interest,
respectively; and

THIRD: To the payment of any surplus then remaining to the Company,
or to such other Person as shall be entitled to receive it.

SECTION 5.7 Limitation on Suits.

No Holder of any Security of any series shall have any right to
institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a custodian, liquidator, assignee,
sequestrator, receiver, trustee, or other similar official, or for any other
remedy hereunder, unless:

(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default with respect to the Securities of that series;

(2) the Holders of not less than 25% in aggregate principal amount
of the Outstanding Securities of that series shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;

(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred by the
Trustee in compliance with such request;

(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and

(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;

it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other such
Holder or Holders of any other series, or to obtain or to seek to obtain
priority or preference over any other such Holders or to enforce any right
under this Indenture, except in the manner herein provided and for the equal
and ratable benefit of all such Holders.

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SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium
and Interest.

Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 3.7) interest on such Security on the due dates expressed in such
Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.

SECTION 5.9 Restoration of Rights and Remedies.

If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders
shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.

SECTION 5.10 Rights and Remedies Cumulative.

Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 3.6, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.

SECTION 5.11 Delay or Omission Not Waiver.

No delay or omission of the Trustee or of any Holder of any Securities
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article to the
Trustee or to the Holders may be exercised from time to time, and as often as
may be deemed expedient, by the Trustee or by the Holders, as the case may be.

SECTION 5.12 Control by Holders.

The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such series, provided that

(1) such direction shall not be in conflict with any rule of law
or with this Indenture,

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(2) the Trustee shall have determined that the action so directed
would not be unjustly prejudicial to the Holders of any Securities of any
series with respect to which the Trustee is the Trustee not taking part in such
direction,

(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and

(4) the Trustee shall be indemnified as hereinafter provided.

SECTION 5.13 Waiver of Past Defaults.

The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default

(1) in the payment of the principal of (or premium, if any) or
interest on any Security of such series, or

(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.

Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.

SECTION 5.14 Undertaking for Costs.

All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may
in its discretion assess reasonable costs, including reasonable attorneys' fees
and expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section shall not apply to any suit instituted by
the Trustee, to any suit instituted by any Holder, or group of Holders, holding
in the aggregate more than 10% in principal amount of the Outstanding
Securities of any series, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of (or premium, if any) or interest
on any Security on or after the due dates expressed in such Security (or, in
the case of redemption, on or after the Redemption Date).

SECTION 5.15 Waiver of Stay or Extension Laws.

The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby

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expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the exercise of any power herein granted to
the Trustee, but will suffer and permit the exercise of every such power as
though no such law had been enacted.

SECTION 5.16 Duty to Accelerate.

The Trustee shall be under no duty to accelerate the debt hereunder or
to institute any proceedings unless it knows or in the exercise of reasonable
diligence should have known of the existence of an Event of Default hereunder.

ARTICLE VI

THE TRUSTEE

SECTION 6.1 Certain Duties and Responsibilities.

(a) Except during the continuance of an Event of Default with
respect to Securities of any series,

(1) the Trustee undertakes to perform, with respect to
Securities of such series, such duties and only such
duties as are specifically set forth in this
Indenture, and no implied covenants or obligations
shall be read into this Indenture against the
Trustee; and

(2) in the absence of bad faith on its part, the Trustee
may, with respect to Securities of such series,
conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of
this Indenture; but in the case of any such
certificates or opinions which by any provisions
hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they
conform to the requirements of this Indenture (but
need not confirm or investigate the accuracy of
mathematical calculations or other facts stated
therein).

(b) In case an Event of Default with respect to Securities of any
series has occurred and is continuing, the Trustee shall
exercise, with respect to Securities of such series, such of
the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in
the conduct of his own affairs.

(c) No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct,
except that

(1) this Subsection shall not be construed to limit the
effect of Subsection (a) of this Section;

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(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer,
unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;

(3) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good
faith in accordance with the direction of the Holders
of a majority in principal amount of the Outstanding
Securities of any series pursuant to the provisions
of Section 5.12 relating to the time, method and
place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this
Indenture with respect to the Securities of such
series; and

(4) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of
any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.

(d) Whether or not therein expressly so provided, every provision
of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.

SECTION 6.2 Notice of Defaults.

Within 90 days after the occurrence of any default hereunder with
respect to the Securities of any series, the Trustee shall transmit by mail to
all Holders of Securities of such series, as their names and addresses appear
in the Security Register, notice of such default hereunder known to the
Trustee, unless such default shall have been cured or waived; provided,
however, that, except in the case of a default in the payment of the principal
of (or premium, if any) or interest on any Security of such series or in the
payment of any sinking fund installment with respect to Securities of such
series, the Trustee shall be protected in withholding such notice if and so
long as a trust committee of directors or Responsible Officers of the Trustee
in good faith determine that the withholding of such notice is in the interest
of the Holders of Securities of such series; and provided, further, that in the
case of any default of the character specified in Section 5.1(4) with respect
to the Securities of such series, no such notice to Holders shall be given
until at least 30 days after the occurrence thereof. For the purpose of this
Section, the term "default" means any event which is, or after notice or lapse
of time or both would become, an Event of Default with respect to Securities of
such series.

SECTION 6.3 Certain Rights of Trustee.

Subject to the provisions of Section 6.1:

(1) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;

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(2) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors shall be sufficiently evidenced by a Board
Resolution;

(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;

(4) before the Trustee acts or refrains from acting, the Trustee
may consult with counsel of its selection and advice of such counsel or any
Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon;

(5) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;

(6) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such matters of fact as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled
to examine the books, records and premises of the Company, personally or by
agent or attorney at the sole cost of the Company and shall incur no liability
of any kind by reason of such inquiry or investigation;

(7) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;

(8) except for (i) a default under Sections 5.1 (1), (2) or (3)
hereof or (ii) any other event of which the Trustee has "actual knowledge" and
which event, with the giving of notice or the passage of time or both, would
constitute an Event of Default under this Indenture, the Trustee shall not be
deemed to have notice of any default or Event of Default with respect to
Securities of any series at the time Outstanding unless specifically notified
in writing of such event by the Company or the Holders of not less than 25% in
principal amount of the Outstanding Securities of that series; as used herein,
the term "actual knowledge" means the actual fact or state of knowing, without
any duty to make any investigation with regard thereto; and

(9) the Trustee shall not be liable for any action taken, suffered
or omitted to be taken by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Indenture.

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SECTION 6.4 Not Responsible for Recitals or Issuance of Securities.

The recitals contained herein and in the Securities, except the
Trustee's certificate of authentication, shall be taken as the statements of
the Company, and the Trustee or any Authenticating Agent assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities. The
Trustee or any Authenticating Agent shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.

SECTION 6.5 May Hold Securities.

The Trustee, any Authenticating Agent, any Paying Agent or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Securities and, subject to Sections 6.8 and 6.13, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Authenticating Agent, Paying Agent or such agent.

SECTION 6.6 Money Held in Trust.

Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law and except as otherwise
provided herein. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed in writing with the
Company.

SECTION 6.7 Compensation and Reimbursement.

The Company agrees:

(1) to pay to the Trustee from time to time such compensation in
Dollars as shall be agreed in writing from time to time between the Company and
the Trustee for all services rendered by it hereunder (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);

(2) except as otherwise expressly provided herein, to reimburse
the Trustee in Dollars upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith;
and

(3) to indemnify each of the Trustee and any predecessor Trustee
for, and to hold it harmless against, any and all loss, liability, damage,
claim or expense, including taxes (other than taxes based on the income of the
Trustee), incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder.

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The Trustee shall have a lien prior to the Securities as to all
property and funds held by it hereunder for any amount owing it or any
predecessor Trustee pursuant to this Section 6.7, except with respect to funds
held in trust for the benefit of the Holders of particular Securities.

When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 5.1(5) or Section 5.1(6), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.

The provisions of this Section 6.7 shall survive the termination of
this Indenture.

SECTION 6.8 Disqualification; Conflicting Interests.

If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture. To the extent
permitted by such Act, the Trustee shall not be deemed to have a conflicting
interest by virtue of being a trustee under this Indenture with respect to
Securities of more than one series.

SECTION 6.9 Corporate Trustee Required; Eligibility.

There shall at all times be a Trustee hereunder with respect to each
series of Securities which shall be eligible to serve in such capacity under
the Trust Indenture Act and having a combined capital and surplus (with its
direct parent) of at least $100,000,000 and subject to supervision or
examination by Federal or state authority. If such corporation or other Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such corporation or other
Person shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published. Neither the Company nor any
Person directly or indirectly controlling, controlled by or under common
control with the Company shall serve as Trustee. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
6.9, it shall resign immediately in the manner and with the effect hereinafter
specified in this Article.

SECTION 6.10 Resignation and Removal; Appointment of Successor.

(a) No resignation or removal of the Trustee and no appointment of
a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor
Trustee in accordance with the applicable requirements of
Section 6.11.

(b) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice
thereof to the Company. If the instrument of acceptance by a
successor Trustee required by Section 6.11 shall not have been
delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may
petition, at the expense of the Company, any court of
competent jurisdiction for the appointment of a successor
Trustee with respect to such series.

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(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority
in principal amount of the Outstanding Securities of such
series, delivered to the Trustee and to the Company. If the
instrument of acceptance by a successor Trustee required by
Section 6.11 shall not have been delivered to the Trustee
within 30 days after such removal, the retiring Trustee may
petition, at the expense of the Company, any court of
competent jurisdiction for the appointment of a successor
Trustee with respect to such series.

(d) If at any time:

(1) the Trustee shall fail to comply with Section 6.8
after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a
Security of the series as to which the Trustee has a
conflicting interest for at least six months, or

(2) the Trustee shall cease to be eligible under Section
6.9 and shall fail to resign after written request
therefor by the Company or by any such Holder, or

(3) the Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent or a receiver of
the Trustee or of its property shall be appointed or
any public officer shall take charge or control of
the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or
liquidation,

then, in any such case, (i) the Company by a Board Resolution
may remove the Trustee with respect to all Securities, or (ii)
subject to Section 5.14, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of
himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with
respect to all Securities and the appointment of a successor
Trustee or Trustees.

(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee
for any cause, with respect to the Securities of one or more
series, the Company, by a Board Resolution, shall promptly
appoint a successor Trustee or Trustees with respect to the
Securities of that or those series (it being understood that
any such successor Trustee may be appointed with respect to
the Securities of one or more or all of such series and that
at any time there shall be only one Trustee with respect to
the Securities of any particular series) and shall comply with
the applicable requirements of Section 6.11. If, within one
year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee with respect
to the Securities of any series shall be appointed by Act of
the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Company
and the retiring Trustee, the successor Trustee so appointed
shall, forthwith upon its acceptance of such appointment in
accordance with the applicable requirements of Section 6.11,
become the successor Trustee with respect to the Securities of
such series and to that extent supersede the successor Trustee
appointed by the Company. If no successor Trustee with
respect to the Securities of any series shall have been so
appointed by the Company or the Holders

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of Securities of such series and accepted appointment in the
manner required by Section 6.11, any Holder who has been a
bona fide Holder of a Security of such series for at least six
months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the
Securities of such series.

(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any
series and each appointment of a successor Trustee with
respect to the Securities of any series by mailing written
notice of such event by first-class mail, postage prepaid, to
all Holders of Securities of such series as their names and
addresses appear in the Security Register. Each notice shall
include the name of the successor Trustee with respect to the
Securities of such series and the address of its Corporate
Trust Office.

SECTION 6.11 Acceptance of Appointment by Successor.

(a) In case of the appointment hereunder of a successor Trustee
with respect to all Securities, every such successor Trustee
so appointed shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of
the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on the request of the Company or
the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers
and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder.

(b) In case of the appointment hereunder of a successor Trustee
with respect to the Securities of one or more (but not all)
series, the Company, the retiring Trustee and each successor
Trustee with respect to the Securities of one or more series
shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment
and which (1) shall contain such provisions as shall be
necessary or desirable to transfer and confirm to, and to vest
in, each successor Trustee all the rights, powers, trusts and
duties of the retiring Trustee with respect to the Securities
of that or those series to which the appointment of such
successor Trustee relates, (2) if the retiring Trustee is not
retiring with respect to all Securities, shall contain such
provisions as shall be deemed necessary or desirable to
confirm that all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or
those series as to which the retiring Trustee is not retiring
shall continue to be vested in the retiring Trustee, and (3)
shall add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one
Trustee, it being understood that nothing herein or in such
supplemental indenture shall constitute such Trustees
co-trustees of the same trust, that each such Trustee shall be
trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such
Trustee and that no Trustee shall be responsible for any act
or failure to act on the part of any other Trustee hereunder;
and upon the execution and delivery of such

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supplemental indenture the resignation or removal of the
retiring Trustee shall become effective to the extent provided
therein, such retiring Trustee shall with respect to the
Securities of that or those series to which the appointment of
such successor Trustee relates have no further responsibility
for the exercise of rights and powers or for the performance
of the duties and obligations vested in the Trustee under this
Indenture, and each such successor Trustee, without any
further act, deed or conveyance, shall become vested with all
the rights, powers, trusts and duties of the retiring Trustee
with respect to the Securities of that or those series to
which the appointment of such successor Trustee relates; but,
on request of the Company or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to
such Successor Trustee, to the extent contemplated by such
supplemental indenture, the property and money held by such
retiring Trustee hereunder with respect to the Securities of
that or those series to which the appointment of such
successor Trustee relates.

(c) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such
rights, powers and trusts referred to in paragraph (a) or (b)
of this Section, as the case may be.

(d) No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be
qualified and eligible under this Article.

SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business.

Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion, or consolidation to such authenticating Trustee may
adopt such authentication and deliver the Securities so authenticated with the
same effect as if such successor Trustee had itself authenticated such
Securities.

SECTION 6.13 Preferential Collection of Claims Against Company.

If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).

SECTION 6.14 Appointment of Authenticating Agent.

At any time when any of the Securities remain Outstanding, the Trustee
may appoint an Authenticating Agent or Agents with respect to one or more
series of Securities which shall be authorized to act on behalf of the Trustee
to authenticate Securities of such series issued upon exchange, registration of
transfer or partial redemption thereof or pursuant to Section 3.6, and
Securities so authenticated shall

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be entitled to the benefits of this Indenture and shall be valid and obligatory
for all purposes as if authenticated by the Trustee hereunder. Whenever
reference is made in this Indenture to the authentication and delivery of
Securities by the Trustee or the Trustee's certificate of authentication, such
reference shall be deemed to include authentication and delivery by an
Authenticating Agent and a certificate of authentication executed by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as Authenticating
Agent, having (together with its direct parent) a combined capital and surplus
of not less than $100,000,000 and subject to supervision or examination by
Federal or State authority. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section 6.14,
the combined capital and surplus of such Authenticating Agent shall be deemed
to be its combined capital and surplus as set forth in its most recent report
of condition so published. If at any time an Authenticating Agent shall cease
to be eligible in accordance with the provisions of this Section 6.14, such
Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section 6.14.

Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all the
corporate agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section 6.14, without the execution or filing of
any paper or any further act on the part of the Trustee or Authenticating
Agent.

An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.14, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall mail
written notice of such appointment by first-class mail, postage prepaid, to all
Holders of Securities of the series with respect to which such Authenticating
Agent will serve, as their names and addresses appear in the Security Register.
Any successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section 6.14.

The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section 6.14.

The provisions of Sections 3.8, 6.4 and 6.5 shall be applicable to
each Authenticating Agent.

Pursuant to each appointment made under this Section 6.14, the
Securities of each series covered by such appointment may have endorsed
thereon, in addition to the Trustee's certificate of authentication, an
alternative certificate of authentication in the following form:

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

THE BANK OF NEW YORK, AS TRUSTEE

By:
--------------------------------------
As Authenticating Agent

By:
--------------------------------------
Authorized Signatory"

ARTICLE VII

HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY

SECTION 7.1 Company to Furnish Trustee Names and Addresses of Holders.

The Company will furnish or cause to be furnished to the Trustee:

(1) semi-annually, not more than 15 days after each record date
with respect to a regular interest payment date for each series of Securities,
a list, in such form as the Trustee may reasonably require, containing all the
information in the possession and control of the Company or of its paying
agents regarding the names and addresses of the Holders of such series as of
such record date; provided, however, that if Securities of any series shall
have more than two regular interest payment dates in each calendar year or
shall not bear interest, then such list with respect to such series of
Securities will be furnished to the Trustee semi-annually on such dates as may
be agreeable to the Trustee; and

(2) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the time
such list is furnished; except that if the Trustee is the sole registrar with
respect to any series of Securities, no such list need be furnished with
respect to such series.

SECTION 7.2 Preservation of Information; Communications to Holders.

(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders
contained in the most recent list furnished to the Trustee as
provided in Section 7.1 and the names and addresses of Holders
received by the Trustee in its capacity as sole Security
Registrar, if so acting. The Trustee may destroy any list
furnished to it as provided in Section 7.1 upon receipt of a
new list so furnished.

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(b) If three or more Holders (herein referred to as "applicants")
apply in writing to the Trustee, and furnish to the Trustee
reasonable proof that each such applicant has owned a Security
for a period of at least six months preceding the date of such
application, and such application states that the applicants
desire to communicate with other Holders with respect to their
rights under this Indenture or under the Securities and is
accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then
the Trustee shall, within five business days after the receipt
of such application, at its election, either

(1) afford such applicants access to the information
preserved at the time by the Trustee in accordance
with Section 7.2(a), or

(2) inform such applicants as to the approximate number
of Holders whose names and addresses appear in the
information preserved at the time by the Trustee in
accordance with Section 7.2(a), and as to the
approximate cost of mailing to such Holders the form
of proxy or other communication, if any, specified in
such application.

If the Trustee shall elect not to afford such
applicants access to such information, the Trustee shall, upon
the written request of such applicants, mail to each Holder
whose name and address appears in the information preserved at
the time by the Trustee in accordance with Section 7.2(a) a
copy of the form of proxy or other communication which is
specified in such request, with reasonable promptness after a
tender to the Trustee of the material to be mailed and of
payment, or provision for the payment, of the reasonable
expenses of mailing, unless within five days after such tender
the Trustee shall mail to such applicants and file with the
Commission, together with a copy of the material to be mailed,
a written statement to the effect that, in the opinion of the
Trustee, such mailing would be contrary to the best interest
of the Holders or would be in violation of applicable law.
Such written statement shall specify the basis of such
opinion. If the Commission, after opportunity for a hearing
upon the objections specified in the written statement so
filed, shall enter an order refusing to sustain any of such
objections or if, after the entry of an order sustaining one
or more of such objections, the Commission shall find, after
notice and opportunity for hearing, that all the objections so
sustained have been met and shall enter an order so declaring,
the Trustee shall mail copies of such material to all such
Holders with reasonable promptness after the entry of such
order and the renewal of such tender; otherwise the Trustee
shall be relieved of any obligation or duty to such applicants
respecting their application.

(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the
Company nor the Trustee nor any agent of either of them shall
be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in
accordance with Section 7.2(b), regardless of the source from
which such information was derived, and that the Trustee shall
not be held accountable by reason of mailing any material
pursuant to a request made under Section 7.2(b).

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SECTION 7.3 Reports by Trustee.

(a) The Trustee shall transmit to Holders such reports concerning
the Trustee and its actions under this Indenture as may be
required pursuant to the Trust Indenture Act at the times and
in the manner provided pursuant thereto. If required by
Section 313(a) of the Trust Indenture Act, the Trustee shall,
within 60 days after each May 15 following the date of this
Indenture deliver to Holders a brief report, dated as of such
May 15, which complies with the provisions of such Section
313(a).

(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each
stock exchange upon which any Securities are listed, with the
Commission and with the Company. The Company will promptly
notify the Trustee when any Securities are listed (or
delisted) on any stock exchange.

SECTION 7.4 Reports by Company.

(a) The Company shall file with the Trustee and the Commission,
and transmit to Holders, such information, documents and other
reports, and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant thereto; provided that any such
information, documents or reports required to be filed with
the Commission pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, shall be filed
with the Trustee within 15 days after the same is so required
to be filed with the Commission.

(b) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's
receipt of such shall not constitute constructive notice of
any information contained therein or determinable from
information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which
the Trustee is entitled to rely exclusively on Officers'
Certificates).

ARTICLE VIII

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

SECTION 8.1 Company May Consolidate, Etc., Only on Certain Terms.

The Company shall not consolidate with or merge into any other
corporation or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, unless:

(1) the corporation formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer, or
which leases, the properties and assets of the Company substantially as an
entirety shall be a corporation organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
shall expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of (and premium, if any) and interest on all
the Securities

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and the due and punctual performance and observance of every covenant and
obligation of the Company under this Indenture to be performed or observed;

(2) immediately after giving effect to such transaction, no Event
of Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing; and

(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and supplemental indenture comply with
this Article and that all conditions precedent herein provided for relating to
such transaction have been complied with.

SECTION 8.2 Successor Corporation Substituted.

Upon any consolidation of the Company with or merger of the Company
into any other corporation or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety in accordance
with Section 8.1, the successor corporation formed by such consolidation or
into which the Company is merged or to which such conveyance, transfer or lease
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor corporation had been named as the Company herein, and thereafter,
except in the case of a lease of its properties and assets substantially as an
entirety, the predecessor corporation shall be relieved of all obligations and
covenants under this Indenture and the Securities.

ARTICLE IX

SUPPLEMENTAL INDENTURES

SECTION 9.1 Supplemental Indentures without Consent of Holders.

Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:

(1) to evidence the succession of another corporation to the
Company and the assumption by any such successor of the covenants of the
Company herein and in the Securities; or

(2) to add to the covenants, agreements and obligations of the
Company for the benefit of the Holders of all or any series of Securities (and
if such covenants are to be for the benefit of less than all series of
Securities, stating that such covenants are expressly being included solely for
the benefit of such series) or to surrender any right or power herein conferred
upon the Company; or

(3) to add any additional Events of Default (and if such Events of
Default are to be applicable to less than all series, stating such Events of
Default are expressly being included solely to be applicable to such series);
or

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(4) to add to or change any of the provisions of this Indenture to
such extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable as to principal, and with or without
interest coupons; or

(5) to add to, change or eliminate any of the provisions of this
Indenture, in respect of one or more series of Securities, provided that any
such addition, change or elimination (A) shall neither (i) apply to any
Security of any series created prior to the execution of such supplemental
indenture and entitled to the benefit of such provision nor (ii) modify the
rights of the Holder of any such Security with respect to such provision or (B)
shall become effective only when there is no such Security Outstanding; or

(6) to establish the form or terms of Securities of any series as
permitted by Sections 2.1 and 3.1; or

(7) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or more
series and to add to or change any of the provisions of this Indenture as shall
be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section
6.11(b); or

(8) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to make
any other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this
Indenture, provided such action shall not adversely affect the interest of the
Holders of Securities of any series in any respect.

SECTION 9.2. Supplemental Indentures with Consent of Holders.

With the consent of the Holders of at least a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee
may enter into an indenture or indentures supplemental hereto for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities of such series under this Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,

(1) change the due date of the principal of, or any installment of
principal of or interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon redemption
thereof, or reduce the amount of the principal of any Security that would be
due and payable upon a declaration of the maturity thereof pursuant to Section
5.2, or change the place of payment where, or the coin or Currency in which,
any Security or any premium or the interest thereon is denominated or payable
(or, in the case of certain Securities which provide for less than the entire
principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof pursuant to Section 5.2, reduce the amount
of principal payable upon such a declaration of acceleration of the maturity
thereof), or impair the right to institute suit for the enforcement of any such
payment on or after the due date thereof (or, in the case of redemption, on or
after the Redemption Date), or

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(2) reduce the percentage of the principal amount of the
Outstanding Securities of any series, the consent of whose Holders is required
for any such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences) provided for in
this Indenture, or

(3) modify any of the provisions of this Section, Section 5.13 or
Section 10.10, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each Outstanding Security affected thereby.

A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture which has expressly been included solely for
the benefit of one or more particular series of Securities, or which modifies
the rights of the Holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under
this Indenture of the Holders of Securities of any other series.

It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.

SECTION 9.3 Execution of Supplemental Indentures.

In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 6.1) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.

SECTION 9.4 Effect of Supplemental Indentures.

Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.

SECTION 9.5 Conformity with Trust Indenture Act.

Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.

SECTION 9.6 Reference in Securities to Supplemental Indentures.

Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article may, and shall
if required by the Trustee, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Company
shall so determine, new Securities of any series so modified as to conform, in
the opinion of the Trustee

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and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.

ARTICLE X

COVENANTS

SECTION 10.1 Payment of Principal, Premium and Interest.

The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities of that series in accordance with the
terms of the Securities and this Indenture.

SECTION 10.2 Maintenance of Office or Agency.

The Company will maintain in the City of New York, for any series of
Securities, an office or agency where Securities of that series may be
presented or surrendered for payment, where Securities of that series may be
surrendered for registration of transfer or exchange and where notices to and
demands upon the Company in respect of the Securities of that series and this
Indenture may be served. Unless otherwise designated by the Company in a
written notice to the Trustee, such office or agency for all purposes shall be
the Corporate Trust Office of the Trustee. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be
made or served at the Corporate Trust Office of the Trustee in the City of New
York, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.

SECTION 10.3 Money for Securities Payments To Be Held in Trust.

If the Company shall at any time act as its own Paying Agent with
respect to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities of that
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.

Whenever the Company shall have one or more Paying Agents for any
series of Securities, it will, prior to each due date of the principal of (and
premium, if any) or interest on any Securities of that series, deposit with a
Paying Agent a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such
Paying Agent is the Trustee) the Paying Agent will promptly notify the Trustee
of the Company's action or failure so to act.

The Company will cause each Paying Agent for any series of Securities
other than the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will:

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(1) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on Securities of that series in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;

(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities of that series) in the making of any payment
of principal (and premium, if any) or interest on the Securities of that
series; and

(3) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.

The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.

Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Security of any series and remaining unclaimed for two
years after such principal (and premium, if any) or interest has become due and
payable shall be paid to the Company on Company Request, or (if then held by
the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, the City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.

SECTION 10.4 Corporate Existence.

Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and that of each Subsidiary and the rights (charter and statutory)
and franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries
considered as a whole.

SECTION 10.5 Maintenance of Properties.

The Company will cause all properties used or useful in the conduct of
its business or the business of any Subsidiary to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements,

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betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
operation and maintenance of any of such properties, or disposing of any of
them, if such discontinuance or disposal is, in the judgment of the Board of
Directors, desirable in the conduct of its business or the business of any
Subsidiary and not disadvantageous in any respect to the Holders.

SECTION 10.6 Payment of Taxes and Other Claims.

The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all material taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiary
or upon the income, profits or property of the Company or any Subsidiary, and
(2) all lawful claims for labor, materials and supplies which, if unpaid, might
by law become a lien upon the property of the Company or any Subsidiary;
provided, however, that the Company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and the Company shall have set aside on its books
adequate reserves with respect thereto (segregated to the extent required by
generally accepted accounting principles).

SECTION 10.7 Limitation on Indebtedness Secured by a Lien.

So long as the Securities of any series shall remain outstanding, the
Company covenants and agrees that neither it nor any Subsidiary will create,
assume, guarantee or suffer to exist any Indebtedness secured by a Lien on any
Principal Property unless the Company secures or causes such Subsidiary to
secure the Securities of that series equally and ratably with, or prior to,
such secured Indebtedness; provided, however, that this restriction shall not
apply to Indebtedness secured by:

(a) Liens on any Principal Property of any Person which existed
prior to the time (i) such Person becomes a Subsidiary of the
Company, (ii) such Person merges into or consolidates with a
Subsidiary of the Company or (iii) a Subsidiary of the Company
merges into or consolidates with such Person in a transaction
in which such Person becomes a Subsidiary of the Company,
provided that such Liens were not created in anticipation of or
in connection with any transaction described in clauses (i),
(ii) or (iii) above,

(b) Liens in favor of the Company or a Subsidiary of the Company,

(c) Liens on property of the Company or a Subsidiary of the
Company in favor of the United States of America or any State
or political subdivision thereof, or in favor of any other
country or any political subdivision thereof, to secure
payment pursuant to any contract or statute or to secure any
Indebtedness incurred for the purpose of financing all or any
part of the purchase price or the cost of the construction or
improvement of the property subject to such Liens,

(d) Liens on any property hereafter acquired by the Company or any
Subsidiary of the Company, contemporaneously with such
acquisition or within 180 days thereafter, to secure or
provide for the payment of any part of the purchase price,
construction or

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improvement of such property, or Liens assumed by the Company
or any such Subsidiary upon any property hereafter acquired by
the Company or any such Subsidiary which were existing at the
time of such acquisition, provided that the amount of any
Indebtedness secured by any such Lien created or assumed shall
not exceed the cost to the Company or such Subsidiary, as the
case may be, of the property covered by such Lien,

(e) Liens on the property of the Company or a Subsidiary of the
Company which are in existence on the date of issuance of the
first series of Securities under this Indenture,

(f) any extension, renewal or refunding (or successive extension,
renewal or refunding), in whole or in part, of any Lien
referred to in the foregoing clauses (a) through (e),
inclusive, or of any Indebtedness secured thereby,

(g) Liens for taxes and governmental charges not yet due or which
are being contested in good faith,

(h) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation
and deposits securing liability to insurance carriers under
insurance or self insurance arrangements, and

(i) any other Lien, other than Liens referred to in the foregoing
clauses (a) through (h), inclusive, so long as the aggregate
of all Indebtedness secured by Liens pursuant to this clause
(k) and the aggregate Value of the Sale and Lease-Back
Transactions in existence at such time (not including Sale and
Lease-Back Transactions as to which the Company has complied
with Section 10.8(b)) does not exceed 10% of Consolidated Net
Tangible Assets.

For purposes of this Section 10.7 and Section 10.8 the following terms
shall have the following meanings:

(1) "Indebtedness" means (i) all items which in accordance with
generally accepted accounting principles would be included in determining
long-term liabilities representing borrowed money or purchase money obligations
as shown on the liability side of a balance sheet (other than liabilities
evidenced by obligations under leases), (ii) to the extent not included in
clause (i) above, indebtedness secured by any Lien existing on property owned
subject to such Lien whether or not the indebtedness secured thereby shall have
been assumed, and (iii) to the extent not included in clauses (i) or (ii)
above, contingent obligations in respect of, or to purchase or otherwise
acquire, any indebtedness of others of the character described in clauses (i)
and (ii) above including, but not limited to, guarantees and endorsements
(other than for purposes of collection in the ordinary course of business of
any such indebtedness);

(2) "Lien" means and includes any lien, pledge, mortgage, security
interest, conditional sale or other title retention agreement or other similar
encumbrance;

(3) "Consolidated Net Tangible Assets" means total consolidated
assets of the Company and its Subsidiaries, less (i) current liabilities of the
Company and its Subsidiaries, and (ii) the net book amount of all intangible
assets of the Company and its Subsidiaries.

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SECTION 10.8 Limitation on Sale and Lease-Back.

The Company covenants and agrees that neither it nor any Subsidiary of
the Company will enter into any arrangement with any Person (other than the
Company or such Subsidiary), or to which any Person is a party, providing for
the leasing to the Company, or such Subsidiary, for a period, including
renewals, of more than three years of any Principal Property which has been or
is to be sold or transferred by the Company or such Subsidiary and which has
been in full operations for more than 120 days prior to such sale or transfer
to such Person or to any other Person (other than the Company or such
Subsidiary) to which funds have been or are to be advanced by such Person on
the security of such leased property (in this Article Ten called a "Sale and
Lease-Back Transaction") unless either:

(a) The Company or such Subsidiary would be entitled to create,
assume, guarantee or suffer Indebtedness secured by a Lien
under any provision of clauses (a) through (e) of Section 10.7
or, pursuant to the provisions of Section 10.7, to incur
Indebtedness in a principal amount equal to or exceeding the
Value of such Sale and Lease-Back Transaction, secured by a
Lien on the property to be leased, without equally and ratably
securing the Securities; or

(b) The Company or such Subsidiary within 120 days after the
effective date of such Sale and Lease-Back Transaction
(whether made by the Company or a Subsidiary of the Company),
applies to the voluntary retirement of Indebtedness of the
Company (which may include Securities, provided that any
series of Securities may only be redeemed in accordance with
the terms of such series) maturing by the terms thereof more
than one year after the original creation thereof and ranking
at least pari passu with the Securities (hereinafter in this
Section called "Funded Debt") an amount equal to the greater
of (i) the net proceeds of the sale of the property subject to
the Sale and Lease-Back Transaction and (ii) the Value of such
Sale and Lease-Back Transaction, less the principal amount of
Securities delivered within 120 days after the effective date
of such arrangement, to the Trustee for retirement and
cancellation and the principal amount of other Funded Debt
voluntarily retired by the Company within such 120 day period,
excluding retirements of Securities and other Funded Debt as a
result of conversions or pursuant to mandatory sinking fund or
prepayment provisions or by payment at maturity.

For purposes of Section 10.7 and this Section 10.8, the term "Value"
shall mean, with respect to a Sale and Lease-Back Transaction, as of any
particular time, the amount equal to the greater of (1) the net proceeds of the
sale or transfer of the property leased pursuant to such Sale and Lease-Back
Transaction or (2) the fair value in the opinion of the Board of Directors of
such property at the time of entering into such Sale and Lease-Back
Transaction, in either case divided first by the number of full years of the
terms of the lease and then multiplied by the number of the full years of such
term remaining at the time of determination, without regard to any renewal or
extension options contained in the lease.

SECTION 10.9 Statement as to Compliance; Notice of Default.

(a) The Company will deliver to the Trustee, within 120 days after
the end of each fiscal year, an Officers' Certificate
(executed by at least the principal executive officer, the
principal financial officer or the principal accounting
officer of the Company) stating whether or not

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to the best knowledge of the signers thereof the Company is in
default in the performance and observance of any of the
Company's covenants and agreements contained in this Indenture
(without regard to grace periods or notice requirements) and
if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may
have knowledge.

(b) The Company shall deliver to the Trustee, as soon as possible
and in any event within five days after the Company becomes
aware of the occurrence of any Event of Default or an event
which, with notice or the lapse of time or both, would
constitute an Event of Default, an Officers' Certificate
setting forth the details of such Event of Default or default
and the action which the Company proposes to take with respect
thereto.

SECTION 10.10 Waiver of Certain Covenants.

The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Sections 10.4 to 10.8, inclusive,
with respect to the Securities of any series if before or after the time for
such compliance the Holders of a majority in principal amount of the
Outstanding Securities of such series shall, by Act of such Holders, either
waive such compliance in such instances or generally waive compliance with such
term, provision or condition, but no such waiver shall extend to or affect such
term, provision or condition except to the extent so expressly waived, and
until such waiver shall become effective, the obligations of the Company and
the duties of the Trustee in respect of any such term, provision or condition
shall remain in full force and effect.

SECTION 10.11 Calculation of Original Issue Discount.

The Company shall file with the Trustee promptly at the end of each
calendar year (i) a written notice specifying the amount of original issue
discount (including daily rates and accrual periods) accrued on Outstanding
Securities as of the end of such year and (ii) such other specific information
relating to such original issue discount as may then be relevant under the
Internal Revenue Code of 1986, as amended from time to time

ARTICLE XI

REDEMPTION OF SECURITIES

SECTION 11.1 Applicability of Article.

Securities of any series which are redeemable before their stated
maturity shall be redeemable in accordance with their terms and (except as
otherwise specified as contemplated by Section 3.1 for Securities of any
series) in accordance with this Article.

SECTION 11.2 Election to Redeem; Notice to Trustee.

In case of any redemption at the election of the Company of the
Securities of any series, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter

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notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Securities of such series to be
redeemed. In the case of any redemption of Securities prior to the expiration
of any restriction on such redemption provided in the terms of such Securities
or elsewhere in this Indenture, the Company shall furnish the Trustee with an
Officers' Certificate evidencing compliance with such restriction.

SECTION 11.3 Selection by Trustee of Securities to Be Redeemed.

If less than all the Securities of any series are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to the minimum authorized denominations for
Securities of that series or any integral multiple thereof) of the principal
amount of Securities of such series of a denomination larger than the minimum
authorized denomination for Securities of that series. The Trustee shall
promptly notify the Company in writing of the Securities selected for
redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed. For all purposes of this
Indenture, unless the context otherwise requires, all provisions relating to
the redemption of Securities shall relate, in the case of any Securities
redeemed or to be redeemed only in part, to the portion of the principal amount
of such Securities which has been or is to be redeemed.

SECTION 11.4 Notice of Redemption.

Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at his address appearing in
the Security Register.

All notices of redemption shall identify the Securities to be redeemed
(including CUSIP numbers) and shall state:

(1) the Redemption Date;

(2) the Redemption Price;

(3) if less than all the Outstanding Securities of any series are
to be redeemed, the identification (and, in the case of partial redemption, the
principal amounts) of the particular Securities to be redeemed;

(4) that on the Redemption Date the Redemption Price will become
due and payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date;

(5) the place or places where such Securities are to be
surrendered for payment of the Redemption Price; and

(6) that the redemption is for a sinking fund, if such is the
case.

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Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.

SECTION 11.5 Deposit of Redemption Price.

On or prior to 10:00 a.m. New York City time on any Redemption Date,
the Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.3) an amount of money sufficient to pay the Redemption
Price of, and (except if the Redemption Date shall be the date for an
installment of interest) accrued interest on, all the Securities which are to
be redeemed on that date.

SECTION 11.6 Securities Payable on Redemption Date.

Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security
shall be paid by the Company at the Redemption Price, together with accrued
interest to the Redemption Date; provided, however, that installments of
interest whose due date is on or prior to the Redemption Date shall be payable
to the Holders of such Securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant record date with
respect to such installments of interest according to their terms and the
provisions of Section 3.7. If any Security called for redemption shall not be
so paid upon surrender thereof for redemption, the principal (and premium, if
any) shall, until paid, bear interest from the Redemption Date at the rate
prescribed therefor in the Security.

SECTION 11.7 Securities Redeemed in Part.

Any Security which is to be redeemed only in part shall be surrendered
at a specified place of payment therefor (with, if the Company or the Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and make available for delivery to
the Holder of such Security without service charge, a new Security or
Securities of the same series, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.

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ARTICLE XII

SINKING FUNDS

SECTION 12.1 Applicability of Article.

The provisions of this Article shall be applicable to any sinking fund
for the retirement of Securities of a series except as otherwise specified as
contemplated by Section 3.1 for Securities of such series.

The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series is herein referred to as a "mandatory sinking
fund payment," and any payment in excess of such minimum amount provided for by
the terms of Securities of any series is herein referred to as an "optional
sinking fund payment." If provided for by the terms of Securities of any
series, the cash amount of any sinking fund payment may be subject to reduction
as provided in Section 12.2. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of
Securities of such series.

SECTION 12.2 Satisfaction of Sinking Fund Payments with Securities.

The Company (1) may deliver Outstanding Securities of a series (other
than any previously called for redemption) and (2) may apply as a credit
Securities of a series which have been redeemed either at the election of the
Company pursuant to the terms of such Securities or through the application of
permitted optional sinking fund payments pursuant to the terms of such
Securities, in each case in satisfaction of all or any part of any sinking fund
payment with respect to the Securities of such series required to be made
pursuant to the terms of such Securities as provided for by the terms of such
series; provided that such Securities have not been previously so credited.
Such Securities shall be received and credited for such purpose by the Trustee
at the Redemption Price specified in such Securities for redemption through
operation of the sinking fund and the amount of such sinking fund payment shall
be reduced accordingly.

SECTION 12.3 Redemption of Securities for Sinking Fund.

Not less than 60 days prior to each sinking fund payment date for any
series of Securities (unless a shorter period shall be satisfactory to the
Trustee), the Company will deliver to the Trustee an Officers' Certificate
specifying the amount of the next ensuing sinking fund payment for that series
pursuant to the terms of the series, the portion thereof, if any, which is to
be satisfied by payment of cash in the Currency in which the Securities of such
series are denominated (except as provided pursuant to Section 3.1) and the
portion thereof, if any, which is to be satisfied by delivering and crediting
Securities of that series pursuant to Section 12.2 and, prior to or
concurrently with the delivery of such Officers' Certificate, will also deliver
to the Trustee any Securities to be so delivered. Not less than 45 days before
each sinking fund payment date the Trustee shall select the Securities to be
redeemed upon such sinking fund payment date in the manner specified in Section
11.3 and cause notice of the redemption thereof to be given in the name of and
at the expense of the Company in the manner provided in Section 11.4. Such
notice having been duly given, the redemption of such Securities shall be made
upon the terms and in the manner stated in Sections 11.6 and 11.7.

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ARTICLE XIII

DEFEASANCE

SECTION 13.1 Applicability of Article.

If pursuant to Section 3.1 provision is made for the defeasance of
Securities of a series, and if the Securities of such series are denominated
and payable only in Dollars (except as provided pursuant to Section 3.1) then
the provisions of this Article shall be applicable except as otherwise
specified as contemplated by Section 3.1 for Securities of such series.
Defeasance provisions, if any, for Securities denominated in a Foreign Currency
may be specified pursuant to Section 3.1.

SECTION 13.2 Defeasance upon Deposit of Moneys or U.S. Government
Obligations.

At the Company's option, either (a) the Company shall be deemed to
have been Discharged (as defined below) from its obligations with respect to
Securities of any series on the 91st day after the applicable conditions set
forth below have been satisfied ("Defeasance") or (b) the Company shall cease
to be under any obligation to comply with any term, provision or condition set
forth in Section 10.4, Section 10.5, Section 10.6, Section 10.7 and Section
10.8 with respect to Securities of any series (and, if so specified pursuant to
Section 3.1, any other restrictive covenant added for the benefit of such
series) ("Covenant Defeasance") at any time after the applicable conditions set
forth below have been satisfied:

(1) The Company shall have deposited or caused to be deposited
irrevocably with the Trustee as trust funds in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of the
Securities of such series (i) money in an amount, or (ii) U.S. Government
Obligations (as defined below) which through the payment of interest and
principal in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, money in an amount, or
(iii) a combination of (i) and (ii), sufficient in the opinion (with respect to
(ii) and (iii)) of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge each installment of principal (including any
mandatory sinking fund payments) of, and interest on, the Outstanding
Securities of such series on the respective Stated Maturities thereof.

(2) If the Securities of such series are then listed on the New
York Stock Exchange or any other securities exchange, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the Company's
exercise of its option under this Section would not cause such Securities to be
delisted.

(3) No Event of Default or event (including such deposit) which,
with notice or lapse of time, or both, would become an Event of Default with
respect to the Securities of such series shall have occurred and be continuing
on the date of such deposit or, with regard to any such event specified in
Sections 5.1(5) and (6), at any time on or prior to the 90th day after the date
of such deposit (it being understood that this condition shall not be deemed
satisfied until after such 90th day).

(4) The Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that Holders of the Securities of such series will not
recognize income, gain or loss for Federal income tax

-57-
<PAGE> 64
purposes as a result of the Company's exercise of its option under this Section
and will be subject to Federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such option had not
been exercised, and, in the case of the Securities of such series being
Discharged, accompanied by a ruling to that effect received from or published
by the Internal Revenue Service.

(5) Such Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the Trust
Indenture Act (assuming all Securities are in default within the meaning of
such Act).

(6) Such Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a Default under, any other agreement or
instrument to which the Company is a party or by which it is bound.

(7) Such Defeasance or Covenant Defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act unless such trust shall be registered
under such Act or exempt from registration thereunder.

(8) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.

"Discharged" means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by, and obligations
under, the Securities of such series and to have satisfied all the obligations
under this Indenture relating to the Securities of such series (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except (A) the rights of Holders of Securities of such
series to receive payment of the principal of and the interest on such
Securities when such payments are due, (B) the Company's obligations with
respect to the Securities of such series under Sections 3.5, 3.6, 10.2 and
13.3, (C) the rights, powers, trusts, duties and immunities of the Trustee
hereunder, and (D) this Article.

"U.S. Government Obligations" means securities that are (i)
direct obligations of the United States of America or the payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which in either case
under clauses (i) or (ii) are not callable or redeemable at the option of the
issuer thereof, and shall also include a depository receipt issued by a bank or
trust company as custodian with respect to any such U.S. Government Obligation
or a specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.

-58-
<PAGE> 65
SECTION 13.3 Deposited Moneys and U.S. Government Obligations to Be Held in
Trust; Miscellaneous Provisions.

All moneys and U.S. Government Obligations deposited with the Trustee
pursuant to Section 13.2 in respect of Securities of a series shall be held in
trust and applied by it, in accordance with the provisions of such Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities, of all sums due and to become due
thereon for principal (premium, if any) and interest, if any, but such money
need not be segregated from other funds except to the extent required by law.

The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 13.2 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of Outstanding Securities.

SECTION 13.4 Reinstatement.

If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article with respect to any Securities by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, then the obligations under this
Indenture and such Securities from which the Company has been discharged or
released pursuant to Section 13.2 shall be revived and reinstated as though no
deposit had occurred pursuant to this Article with respect to such Securities,
until such time as the Trustee or Paying Agency is permitted to apply all money
held in trust pursuant to Section 13.3 with respect to such Securities in
accordance with this Article; provided, however, that if the Company makes any
payment of principal of or any premium or interest on any such Security
following such reinstatement of its obligations, the Company shall be
subrogated to the rights (if any) of the Holders of such Securities to receive
such payment from the money so held in trust.

SECTION 13.5 Repayment to Company.

The Trustee and any Paying Agent shall promptly pay or return to the
Company upon Company Request any money or U.S. Government Obligations held by
them at any time that are not required for the payment of the principal of
(premium, if any) and interest on the Securities of any series for which money
or U.S. Government Obligations have been deposited pursuant to Section 13.2.

The provisions of the last paragraph of Section 10.3 shall apply to
any money held by the Trustee or any Paying Agent under this Article that
remains unclaimed for two years after the Maturity of any series of Securities
for which money or U.S. Government obligations have been deposited pursuant to
Section 13.2.

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

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

-59-
<PAGE> 66
SMITH INTERNATIONAL, INC.

By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------

THE BANK OF NEW YORK, TRUSTEE

By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------

-60-

<PAGE> 1

EXHIBIT 5.1

SMITH INTERNATIONAL, INC.
16740 Hardy Street
P.O. Box 60068
Houston, Texas 77205

August 21, 1997

Smith International, Inc.
16740 Hardy Street
P.O. Box 60068
Houston, Texas 77205

Re: Registration Statement on Form S-3; $150,000,000 aggregate
principal amount of Senior Notes due 2007

Ladies and Gentlemen:

In connection with the Registration Statement on Form S-3 (the
"Registration Statement") filed with the Securities and Exchange Commission (the
"Commission") in connection with the registration of $150,000,000 aggregate
principal amount of Senior Notes due 2007 (the "Securities") by Smith
International, Inc., a Delaware corporation (the "Company"), under the
Securities Act of 1933, as amended (the "Act"), you have requested my opinion
with respect to the matters set forth below.

In my capacity as Senior Vice President and General Counsel of the
Company in connection with such registration, I am familiar with the proceedings
taken and proposed to be taken by the Company in connection with the
authorization and issuance of the Securities, and for the purposes of this
opinion, have assumed such proceedings will be timely completed in the manner
presently proposed. In addition, I, or members of my staff, have made such
legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to my satisfaction of
such documents, corporate records and instruments, as I have deemed necessary
or appropriate for purposes of this opinion.

In my examination, I have assumed the genuineness of all signatures,
the authenticity of all documents submitted to me as originals, and the
conformity to authentic original documents of all documents submitted to me as
copies.

Capitalized terms used herein without definition have the meanings
ascribed to them in the Registration Statement.

<PAGE> 2

Subject to the foregoing and the other matters set forth herein, it is
my opinion that the Securities have been duly authorized by all necessary
corporate action of the Company.

The foregoing opinion is limited to the Federal laws of the United
States, the laws of the State of Texas and the General Corporation Law of the
State of Delaware, and I am expressing no opinion as to the applicability or
effect of the laws of any other jurisdiction.

I consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to me contained under the heading
"Legal Matters."

Very truly yours,

/s/ NEAL S. SUTTON
---------------------------------------
Neal S. Sutton
Senior Vice President - Administration,
General Counsel and Secretary

<PAGE> 1

EXHIBIT 5.2
GARDERE WYNNE SEWELL & RIGGS, L.L.P.
THREE ALLEN CENTER
333 CLAY, SUITE 800
HOUSTON, TEXAS 77002

August 21, 1997

Smith International, Inc.
16740 Hardy Street
P.O. Box 60068
Houston, Texas 77205

Re: Registration Statement on Form S-3; $150,000,000 aggregate
principal amount of Senior Notes due 2007

Ladies and Gentlemen:

We have served as counsel for Smith International, Inc., a Delaware corporation
(the "Company"), in connection with the Registration Statement on Form S-3 (the
"Registration Statement") filed with the Securities and Exchange Commission
(the "Commission") in connection with the registration of $150,000,000
aggregate principal amount of Senior Notes due 2007 (the "Securities") under
the Securities Act of 1933, as amended (the "Act").

In our capacity as your counsel in connection with such registration, we are
familiar with the proceedings taken and proposed to be taken by the Company in
connection with the authorization and issuance of the Securities, and for the
purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. We have also assumed for purposes
of this opinion that each of the Securities and the Indenture has been duly
authorized by all necessary corporate action by the Company. In addition, we
have made such legal and factual examinations and inquiries, including an
examination of originals or copies certified or otherwise identified to our
satisfaction of such documents, corporate records and instruments, as we have
deemed necessary or appropriate for purposes of this opinion.

In our examination, we have assumed the genuiness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.

We are opining herein as to the effect on the subject transaction only of the
internal laws of the State of New York and the General Corporation Law of the
State of Delaware, and we express no opinion with respect to the applicability
thereto, or the effect thereon, of the laws of any other jurisdiction or as to
any matters of municipal law or the laws of any other local agencies within the
State of New York or the State of Delaware.

Capitalized terms used herein without definition have the meanings given to
them in the Registration Statement.

<PAGE> 2
Subject to the foregoing and the other matters set forth herein, it is our
opinion that when the Registration Statement has become effective under the Act,
the Indenture has been executed and delivered, the Form T-1 Statement of
Eligibility and Qualification of a Corporation Designed to Act as Trustee under
the Trust Indenture Act of 1939 has been duly executed and filed with the
Commission, the terms of the Securities and their issuance and sale have been
duly established in conformity with the Indenture as not to violate any
applicable law or result in a default under or a breach of any agreement or
instrument binding upon the Company and so as to comply with any requirement or
restriction imposed by any court or governmental body having jurisdiction over
the Company, and the Securities have been duly executed and authenticated in
accordance with the Indenture and issued and sold as contemplated in the
Registration Statement, the Securities will constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their terms.

The opinion rendered in the preceding paragraph relating to the enforceability
of the Securities is subject to the following exceptions, limitations and
qualifications: (i) the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfers or other similar laws now or hereafter in
effect relating to or affecting the rights and remedies of creditors; (ii) the
effect of general principles of equity, whether enforcement is considered in a
proceeding in equity or law, and the discretion of the court before which any
proceeding therefor may be brought; and (iii) the unenforceability under certain
circumstances under law or court decisions of provisions providing for the
indemnification of or contribution to a party with respect to a liability where
such indemnification or contribution is contrary to public policy.

To the extent that the obligations of the Company under the Indenture may be
dependent upon such matters, we assume for purposes of this opinion that the
Trustee is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization; that the Trustee is duly qualified to
engage in the activities contemplated by the Indenture; that the Indenture has
been duly authorized, executed and delivered by the Trustee and constitutes the
legal, valid and binding obligation of the Trustee, enforceable against the
Trustee in accordance with its terms; that the Trustee is in compliance,
generally and with respect to acting as a trustee under the Indenture, with all
applicable laws and regulations; and that the Trustee has the requisite
organizational and legal power and authority to perform its obligations under
the Indenture.

<PAGE> 3
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained under the heading "Legal
Matters." Our consent, however, is not an admission that we come within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.

Very truly yours,

GARDERE WYNNE SEWELL & RIGGS, L.L.P.

By: /s/ DAVID JUNGMAN
------------------------------------
David Jungman, Partner

<PAGE> 1
EXHIBIT 12.1
SMITH INTERNATIONAL, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS EXCEPT RATIOS)

Six Months Six Months
Ended Ended Year Ended December 31,
June 30, June 30, -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest on debt and amortization
of premiums, discounts and capitalized
expenses related to indebtedness $12,698 $7,747 $ 18,883 $14,543 $10,480 $ 6,334 $10,961
Interest element of rentals (1) 991 745 1,490 1,393 1,264 1,145 1,037
Preferred stock dividend requirements -- -- -- -- -- 868 1,740
------- ------- -------- ------- ------- ------- -------
Total Fixed Charges $13,689 $ 8,492 $ 20,373 $15,936 $11,744 $ 8,347 $13,738
======= ======= ======== ======= ======= ======= =======

EARNINGS AVAILABLE TO COVER FIXED CHARGE:

Net income (loss) from continuing
operations $45,042 $27,929 $ 64,444 $45,592 $35,879 $(3,995) $ 1,164

Add back:

Minority interests of majority owned
subsidiaries 18,737 9,858 24,833 15,809 8,838 -- --
Provision (benefit) for income taxes 22,069 10,794 26,798 12,609 6,815 468 (1,007)

Fixed charges 13,689 8,492 20,373 15,936 11,744 $ 8,347 13,738
------- ------- -------- ------- ------- ------- -------

TOTAL EARNINGS AVAILABLE TO COVER FIXED
CHARGES $99,537 $57,073 $136,448 $89,946 $63,276 $ 4,820 $13,895
======= ======= ======== ======= ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES 7.27 6.72 6.70 5.64 5.39 n/a (2) 1.01
======= ======= ======== ======= ======= ======= =======
AMOUNT BY WHICH EARNINGS WERE INADEQUATE
TO COVER FIXED CHARGES $ 3,527
=======
</TABLE>
____________________
(1) Amounts represent the portion of rental expense estimated to represent
a reasonable approximation of the interest component.
(2) Excluding the effect of a $19.9 million litigation settlement charge,
the 1993 ratio of earnings to fixed charges for the Company was 2.96.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-3 of our report dated
February 3, 1997 included in Smith International, Inc.'s Form 10-K for the year
ended December 31, 1996 and to all references to our Firm included in this
registration statement.

/S/ ARTHUR ANDERSEN LLP

Houston, Texas
August 20, 1997

<PAGE> 1
EXHIBIT 25.1
================================================================================

FORM T-1

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2)

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

THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)

New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)

48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip Code)

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

SMITH INTERNATIONAL, INC.
(Exact name of obligor as specified in its charter)

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

Delaware 95-3822631
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)

16740 Hardy Street
P.O. Box 60068 77205
Houston, Texas (Zip Code)
(Address of principal executive offices)

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

____% Senior Notes due 2007
(Title of the indenture securities)

================================================================================

<PAGE> 2
1. General information. Furnish the following information as to the
Trustee:

(a) Name and address of each examining or supervising authority to
which it is subject.

<TABLE>

- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y
12203

Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045

Federal Deposit Insurance Corporation Washington, D.C. 20429

New York Clearing House Association New York, New York 10005
</TABLE>

(b) Whether it is authorized to exercise corporate trust powers.

Yes.

2. Affiliations with Obligor.

If the obligor is an affiliate of the trustee, describe each such
affiliation.

None.

16. List of Exhibits.

Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17
C.F.R. 229.10(d).

1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)

4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)

6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)

7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.

<PAGE> 3
SIGNATURE

Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in the City of New York and
State of New York, on the 15th day of August, 1997.

THE BANK OF NEW YORK

By: /s/ WALTER N. GITLIN
------------------------
Name: Walter N. Gitlin
Title: Vice President

<PAGE> 4
EXHIBIT 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business March 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.

<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin . . . . . . $ 8,249,820
Interest-bearing balances . . . . . . . . . . . . . . . . . . . 1,031,026
Securities:
Held-to-maturity securities . . . . . . . . . . . . . . . . . . 1,118,463
Available-for-sale securities . . . . . . . . . . . . . . . . . 3,005,838
Federal funds sold and Securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . 3,100,281
Loans and lease financing receivables:
Loans and leases, net of unearned income . . . . . .32,895,077
LESS: Allowance for loan and lease losses . . . . . . 633,877
LESS: Allocated transfer risk reserve . . . . . . . . . . 429
Loans and leases, net of unearned income, allowance,
and reserve . . . . . . . . . . . . . . . . . . . . . . . 32,260,771
Assets held in trading accounts . . . . . . . . . . . . . . . . . . 1,715,214
Premises and fixed assets (including capitalized leases) . . . . . 684,704
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . 21,738
Investments in unconsolidated subsidiaries and associated
companies . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,761
Customers' liability to this bank on acceptances
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 1,152,899
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . 683,503
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,526,113
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $54,746,131
===========

LIABILITIES
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . . $25,614,961
Noninterest-bearing . . . . . . . . . . . . . . . .10,584,652
Interest-bearing . . . . . . . . . . . . . . . . . .15,050,309
In foreign offices, Edge and Agreement
subsidiaries, and IBFs . . . . . . . . . . . . . . .15,103,615
Noninterest-bearing . . . . . . . . . . . . . . . . . . 560,944
Interest-bearing . . . . . . . . . . . . . . . . . . . .14,542,671
Federal funds purchased and Securities sold under
agreements
to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . 2,093,286
Demand notes issued to the U.S. Treasury . . . . . . . . . . . . . 239,354
Trading liabilities . . . . . . . . . . . . . . . . . . . . . . . . 1,399,064
Other borrowed money:
With remaining maturity of one year or less . . . . . . . . . 2,075,092
With remaining maturity of more than one year . . . . . . . . 20,679
Bank's liability on acceptances executed and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 1,160,012
Subordinated notes and debentures . . . . . . . . . . . . . . . . . 1,014,400
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,840,245
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $50,560,708
===========
</TABLE>

<PAGE> 5
<TABLE>
<S> <C>
EQUITY CAPITAL
Common stock . . . . . . . . . . . . . . . . . . . . . . . . 942,284
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . 731,319
Undivided profits and capital reserves . . . . . . . . . . . 2,544,303
Net unrealized holding gains (losses) on
available-for-sale securities . . (19,449)
Cumulative foreign currency translation adjustments . . . . . (13,034)
-----------
Total equity capital . . . . . . . . . . . . . . . . . . . . 4,185,423

Total liabilities and equity capital . . . . . . . . . . . . $54,746,131
===========
</TABLE>

I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.

Robert E. Keilman

We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Alan R. Griffith )
J. Carter Bacot ) Directors
Thomas A. Renyl )