1

 
     Section 3. Amendment to Definition of Consolidated EBITDA. The definition of“Consolidated EBITDA” in Section 1 of the Credit Agreement is hereby amended in its entirety toread as follows:     Consolidated EBITDA means for any period, Borrower’s consolidatedearnings during such period from continuing operations, before provision forinterest expenses, income taxes, depreciation, depletion, amortization, gains andlosses on asset sales and other non-cash charges, plus payments received by Borrowerduring such period under Rate Management Transactions and less payments made byBorrower during such period under Rate Management Transactions.     Section 4. Amendment to Definition of Consolidated Funded Debt. Thedefinition of “Consolidated Funded Debt” in Section 1 of the Credit Agreement is hereby amended inits entirety to read as follows:     Consolidated Funded Debt means as of any date, Borrower’s totaloutstanding liabilities for borrowed money and other interest-bearing liabilities onsuch date, determined in each case on a consolidated basis in accordance with GAAP,plus an amount equal to the amount, if any, that Borrower’s accounts payable exceedBorrower’s accounts receivable (each as determined in accordance with GAAP), andless an amount equal to the value of Borrower’s Cash Equivalent Investments on suchdate.     Section 5. Amendment to Definition of LIBOR Margin. The definition of “LIBORMargin” in Section 1 of the Credit Agreement is hereby amended in its entirety to read as follows:     LIBOR Margin means:     (a) three percent (3.00%) per annum whenever the Borrowing Base Usage is equalto or greater than 75%; or     (b) two and three-quarters percent (2.75%) per annum whenever the BorrowingBase Usage is equal to or greater than 50% but less than 75%; or     (c) two and one-half percent (2.50%) per annum whenever the Borrowing BaseUsage is less than 50%.     Section 6. Addition of Affirmative Covenant. The Credit Agreement is herebyamended to include a new Section 12(z) reading as follows:     (z) Depository and Investment Accounts. Borrower will, and will causeeach Subsidiary to, maintain all of its certificates of deposit and demanddepository, money market and investment accounts with a Lender or with an Affiliateof a Lender, except (i) Borrower’s existing investment account with
2

 
RBC Wealth Management, a division of RBC Capital Markets Corporation, which shallnot have a balance at any time exceeding $3,000,000, and (ii) certificates ofdeposit or similar instruments to secure Borrower’s or a Subsidiary’s performance ofstatutory obligations, surety or appeal bonds, performance bonds or otherobligations of Borrower or a Subsidiary of a like nature incurred in the ordinarycourse of business not exceeding $500,000 in the aggregate.     Section 7. Amendment to Funded Debt Ratio Covenant. Section 13(c) of theCredit Agreement is hereby amended in its entirety to read as follows:     (c) Funded Debt Ratio. Borrower will not allow its ratio ofConsolidated Funded Debt to Consolidated EBITDA to exceed (i) 4.25 to 1.00 as ofDecember 31, 2008 or during the years 2009 and 2010, or (ii) 4.00 to 1.00 during theyear 2011 and thereafter during the term hereof. This ratio shall be calculated atthe end of each fiscal quarter of Borrower using the results of the twelve-monthperiod immediately preceding the end of each such fiscal quarter.     Section 8. Amendment to Remedies of Lenders. The last paragraph of Section 14of the Credit Agreement is hereby amended in its entirety to read as follows:     Upon the occurrence and during the continuance of any Event of Default, theLenders are hereby authorized at any time and from time to time, without notice tothe Borrower (any such notice being expressly waived by the Borrower), to set-offand apply any and all deposits (general or special, time or demand, provisional orfinal) and investment property at any time held and other indebtedness andobligations at any time owing by any of the Lenders or any Affiliate of any of theLenders to or for the credit or the account of Borrower against any and all of theindebtedness of the Borrower under the Notes and the Loan Documents, including thisAgreement, irrespective of whether or not the Lenders shall have made any demandunder the Loan Documents, including this Agreement or the Notes and although suchindebtedness may be unmatured. Any amount set-off by any of the Lenders shall beapplied against the indebtedness owed the Lenders by the Borrower pursuant to thisAgreement and the Notes. The Lenders agree promptly to notify the Borrower afterany such setoff and application, provided that the failure to give such notice shallnot affect the validity of such set-off and application. The rights of the Lendersunder this Section are in addition to other rights and remedies (including, withoutlimitation, other rights of set-off) which the Lenders may have.     Section 9. Representations and Warranties of Borrower. Borrower representsand warrants to Lenders as follows:          (a) The representations and warranties contained in Section 10 of the Credit Agreement aretrue and correct on and as of the date hereof as though made on and as of the date
3

 
hereof, except for those representations and warranties which address matters only as of aparticular date (which remain true and correct as of such date).          (b) No Event of Default or Default has occurred and is continuing under the Credit Agreement.          (c) The execution, delivery and performance by Borrower of this Second Amendment are withinBorrower’s corporate powers, have been duly authorized by all necessary action, require no actionby or in respect of, or filing with, any governmental body, agency or official and do not violateor constitute a default under any provisions of applicable law or any material agreement bindingupon Borrower or its Subsidiaries or result in the creation or imposition of any Lien upon any ofthe assets of Borrower or its Subsidiaries, except Permitted Liens.          (d) This Second Amendment constitutes the valid and binding obligation of Borrower enforceablein accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy,insolvency or similar laws affecting creditor’s rights generally, and (ii) the availability ofequitable remedies may be limited by equitable principles of general application.     Section 10. Conditions Precedent. Upon the satisfaction of each of thefollowing conditions, this Second Amendment shall be effective as of December 31, 2008: (a) Agent shall have received counterparts of this Second Amendmentduly executed by Borrower and Lenders;  (b) Agent shall have received any other documents, certificates andopinions in connection with this Second Amendment that may be requested byAgent, in form and substance satisfactory to Agent; and  (c) Borrower shall have paid to Agent for the ratable benefit ofLenders a facility fee in the amount of $575,000.     Section 11. Ratification of Credit Agreement and Other Loan Documents. Exceptas expressly amended hereby, the Credit Agreement and all of the other Loan Documents are and shallbe unchanged and all of the terms, provisions, covenants, conditions, schedules and exhibitsthereof shall remain and continue in full force and effect and are hereby ratified and confirmed byBorrower and Lenders as of the date of this Second Amendment as if the Credit Agreement and theother Loan Documents were executed by Borrower and the other parties thereto as of the date of thisSecond Amendment. The amendments contemplated hereby shall not limit or impair any Liens securingthe Loans, all of which are hereby ratified, affirmed and extended to secure the Loans as they maybe increased pursuant hereto.     Section 12. No Waiver. Neither the execution by Lenders of this SecondAmendment nor anything contained herein shall in anywise be construed or operate as a waiver byLenders of any Default or Event of Default (whether now existing or that may occur hereafter) or ofany of
4

 
Lenders’ or Agent’s rights under the Credit Agreement as amended hereby or under any of the otherLoan Documents.     Section 13. Miscellaneous.     13.1 Legal Expenses. Borrower hereby agrees to pay on demand all reasonable fees andexpenses of counsel to the Agent incurred by the Agent in connection with the preparation,negotiation and execution of this Second Amendment and all related documents.     13.2 Multiple Counterparts. This Second Amendment may be executed in a number ofidentical separate counterparts (including by facsimile transmission), each of which for allpurposes is to be deemed an original but all of which shall constitute, collectively, oneagreement. No party to this Second Amendment shall be bound hereby until a counterpart of thisSecond Amendment has been executed by all parties hereto.     13.3 Reference to Agreement. Each of the Loan Documents is hereby amended so that anyreference in the Loan Documents to the Credit Agreement shall mean a reference to the CreditAgreement as amended hereby.     13.4 Governing Law. This Second Amendment is being executed and delivered, and isintended to be performed, in Midland, Midland County, Texas, and the substantive laws of Texasshall govern the validity, construction, enforcement and interpretation of this Second Amendmentand all other documents and instruments referred to herein, unless otherwise specified therein.     13.5 Plural and Singular Forms. The definitions given to terms defined hereby shallbe equally applicable to both the singular and plural forms of such terms.     13.6 Final Agreement. THIS SECOND AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER LOANDOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCEOF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTENORAL AGREEMENTS BETWEEN THE PARTIES.**[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]**
5

 
     IN WITNESS THEREOF, Borrower and Lenders have caused this Second Amendment to be duly executedas of the day and year first above written.       **BORROWER:** **PARALLEL PETROLEUM CORPORATION,**    a Delaware corporation           By: /s/ Steven D. Foster             Steven D. Foster      Chief Financial Officer         **LENDERS:** **CITIBANK, N.A.**a national banking association,as Joint Lead Arranger and Administrative Agentand as a Lender           By: /s/ Frank K. Stowers             Frank K. Stowers      Vice President  [SIGNATURE PAGE TO SECOND AMENDMENT TO FOURTH