Document:

exv10w1

 

EXHIBIT 10.1

SECOND AMENDMENT TO CREDIT AGREEMENT

     THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is entered into as of December
15, 2006 by and between TEKELEC, a California corporation (“Borrower”) and WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Bank”).

RECITALS

     WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that
certain Credit Agreement between Borrower and Bank dated as of December 15, 2004, as amended from
time to time (“Credit Agreement”).

     WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set
forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said
changes.

     NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows:

     1. Section 1.1(a) is hereby amended by deleting “December 15, 2006” as the last day on which
Bank will make advances under the Line of Credit, and by substituting for said date “December 15,
2007,” with such change to be effective upon the execution and delivery to Bank of a promissory
note dated as of December 15, 2006 (which promissory note shall replace and be deemed the Line of
Credit Note defined in and made pursuant to the Credit Agreement) and all other contracts,
instruments and documents required by Bank to evidence such change.

     2. The reference in Section 2.5 to “June 30, 2005” as the date of Borrower’s financial
statement is hereby amended to read “June 30, 2006.”

     3. The reference in Section 3.1(c) to “December 31, 2004” as the date of Borrower’s financial
statement is hereby amended to read “December 31, 2005.”

     4. Section 4.9(a) is hereby amended to read as follows:

     “(a) Tangible Net Worth, determined as of the end of each fiscal quarter, not
less than an amount equal to 80% of Borrower’s Tangible Net Worth as of September
30, 2006.”

     5. Except as specifically provided herein, all terms and conditions of the Credit Agreement
remain in full force and effect, without waiver or modification. All terms defined in the Credit
Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit
Agreement shall be read together, as one document.

     6. Borrower hereby remakes all representations and warranties contained in the Credit
Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as

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of the
date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any
condition, act or event which with the giving of notice or the passage of time or both would
constitute any such Event of Default.

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

	 	 	 	 	 	 	 
	 	 	 	 	WELLS FARGO BANK,
	TEKELEC	 	NATIONAL ASSOCIATION
	 
	 	 	 	 	 	 
	By:

	 	/s/ William H. Everett
	 	By:
	 	/s/ Paul K. Stimpfl
	 

	 	 
	 	 	 	 
	Title:

	 	Chief Financial Officer
	 	Title:
	 	Senior Vice President
	 

	 	 
	 	 	 	 

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REVOLVING LINE OF CREDIT NOTE

			
	$30,000,000.00
	 	Los Angeles, California

December 15, 2006

     FOR VALUE RECEIVED, the undersigned TEKELEC (“Borrower”) promises to pay to the order of WELLS
FARGO BANK, NATIONAL ASSOCIATION (“Bank”) at its office at 333 South Grand Avenue, Ste 1200, Los
Angeles, CA 90071, California, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the principal sum of
Thirty Million Dollars ($30,000,000.00), or so much thereof as may be advanced and be outstanding,
with interest thereon, to be computed on each advance from the date of its disbursement as set
forth herein.

DEFINITIONS:

     As used herein, the following terms shall have the meanings set forth after each, and any
other term defined in this Note shall have the meaning set forth at the place defined:

     (a) “Business Day” means any day except a Saturday, Sunday or any other day on which
commercial banks in California are authorized or required by law to close.

     (b) “Fixed Rate Term” means a period commencing on a Business Day and continuing for 1, 2 ,3
or 6 months, as designated by Borrower, during which all or a portion of the outstanding principal
balance of this Note bears interest determined in relation to LIBOR; provided however, that no
Fixed Rate Term may be selected for an advance in a principal amount less than $1,000,000.00; and
provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof.
If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term
shall be extended to the next succeeding Business Day.

     (c) “LIBOR” means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8
of 1%) and determined pursuant to the following formula:

	 	 	 	 	 	 	 
	 

	 	LIBOR =
	 	Base LIBOR
 

100%-LIBOR Reserve Percentage
	 	 

          (i) “Base LIBOR” means the rate per annum for United States dollar deposits quoted by Bank as
the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the
purpose of calculating effective rates of interest for loans making reference thereto, on the first
day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately
equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the
principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank
may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market
indicators of the Inter-Bank Market as Bank in its

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discretion deems appropriate including, but not
limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.

          (ii) “LIBOR Reserve Percentage” means the reserve percentage prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for “Eurocurrency Liabilities” (as
defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected
changes in such reserve percentage during the applicable Fixed Rate Term.

     (d) “Prime Rate” means at any time the rate of interest most recently announced within Bank at
its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank’s
base rates and serves as the basis upon which effective rates of interest are calculated for those
loans making reference thereto, and is evidenced by the recording thereof after its announcement in
such internal publication or publications as Bank may designate.

INTEREST:

     (a) Interest. The outstanding principal balance of this Note shall bear interest
(computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per
annum equal to the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum
determined by Bank to be three-tenths percent (0.30%) above LIBOR in effect on the first day of the
applicable Fixed Rate Term. When interest is determined in relation to the Prime Rate, each change
in the rate of interest hereunder shall become effective on the date each Prime Rate change is
announced within Bank. With respect to each LIBOR selection hereunder, Bank is hereby authorized
to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any
payments made thereon on Bank’s books and records (either manually or by electronic entry) and/or
on any schedule attached to this Note, which notations shall be prima facie evidence of the
accuracy of the information noted.

     (b) Selection of Interest Rate Options. At any time any portion of this Note bears
interest determined in relation to LIBOR, it may be continued by Borrower at the end of the Fixed
Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation
to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any
portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert
all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate
Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to
select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the
end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate
option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR
selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone
(or such other electronic method as Bank may permit) so long as, with respect to each LIBOR
selection, (A) if requested by Bank, Borrower provides to Bank written confirmation thereof not
later than three (3) Business Days after such notice is given, and (B) such notice is given to Bank
prior to 10:00 a.m. on the first day of the Fixed Rate Term, or at a later time during any Business
Day if Bank, at it’s sole option but without obligation to do so, accepts Borrower’s notice and
quotes a fixed rate to Borrower. If Borrower does not immediately accept a fixed rate when quoted
by Bank, the quoted rate shall

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expire and any subsequent LIBOR request from Borrower shall be
subject to a redetermination by Bank of the applicable fixed rate. If no specific designation of
interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate
Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the
principal amount to which such Fixed Rate Term applied.

     (c) Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand,
in addition to any other amounts due or to become due hereunder, any and all (i) withholdings,
interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed
by any domestic or foreign governmental authority and related in any manner to LIBOR, and (ii)
future, supplemental, emergency or other changes in the LIBOR Reserve Percentage, assessment rates
imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by
any domestic or foreign governmental authority or resulting from compliance by Bank with any
request or directive (whether or not having the force of law) from any central bank or other
governmental authority and related in any manner to LIBOR to the extent they are not included in
the calculation of LIBOR. In determining which of the foregoing are attributable to any LIBOR
option available to Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.

     (d) Payment of Interest. Interest accrued on this Note shall be payable in arrears on
the last day of each calendar quarter, commencing December 31, 2006.

     (e) Default Interest. From and after the maturity date of this Note, or such earlier
date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the
outstanding principal balance of this Note shall bear interest until paid in full at an increased
rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to two percent
(2.00%) above the rate of interest from time to time applicable to this Note.

BORROWING AND REPAYMENT:

     (a) Borrowing and Repayment. Borrower may from time to time during the term of this
Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of
the limitations, terms and conditions of this Note and of any document executed in connection with
or governing this Note; provided however, that the total outstanding borrowings under this Note
shall not at any time exceed the principal amount stated above. The unpaid principal balance of
this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less
the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of this Note shall be
due and payable in full on December 15, 2007.

     (b) Advances. Advances hereunder, to the total amount of the principal sum stated
above, may be made by the holder at the written request of Borrower, signed or purportedly signed
by any one (1) of such persons as Borrower’s Chief Financial Officer may from time to time
designate in writing as being authorized to request advances (“each, a “Designated Signer”). Bank
will not advance funds if a written request is signed or purportedly signed in the name of a person
who is not a Designated Signer. The holder shall have no obligation to determine whether the
signature purporting to be that of a Designated Signer is in fact the actual signature of a
Designated Person.

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     (c) Application of Payments. Each payment made on this Note shall be credited first,
to any interest then due and second, to the outstanding principal balance hereof. All payments
credited to principal shall be applied first, to the outstanding principal balance of this Note
which bears interest determined in relation to the Prime Rate, if any, and second, to the
outstanding principal balance of this Note which bears interest determined in relation to LIBOR,
with such payments applied to the oldest Fixed Rate Term first.

PREPAYMENT:

     (a) Prime Rate. Borrower may prepay principal on any portion of this Note which bears
interest determined in relation to the Prime Rate at any time, in any amount and without penalty.

     (b) LIBOR. Borrower may prepay principal on any portion of this Note which bears
interest determined in relation to LIBOR at any time and in the minimum amount of $500,000.00;
provided however, that if the outstanding principal balance of such portion of this Note is less
than said amount, the minimum prepayment amount shall be the entire outstanding principal balance
thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such
portion of this Note shall become due and payable at any time prior to the last day of the Fixed
Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately
upon demand a fee which is the sum of the discounted monthly differences for each month from the
month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows
for each such month:

	 	(i)	 	Determine the amount of interest which would have accrued each month
on the amount prepaid at the interest rate applicable to such amount had it remained
outstanding until the last day of the Fixed Rate Term applicable thereto.

	 	(ii)	 	Subtract from the amount determined in (i) above the amount of interest
which would have accrued for the same month on the amount prepaid for the remaining
term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans
made for such term and in a principal amount equal to the amount prepaid.

	 	(iii)	 	If the result obtained in (ii) for any month is greater than zero, discount
that difference by LIBOR used in (ii) above.

Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs,
expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs,
expenses and/or liabilities. Borrower, therefore, agrees to pay the above-described prepayment fee
and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses
and/or liabilities of Bank. If Borrower fails to pay any
prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until
paid at a rate per annum 2.00% above the Prime Rate in effect from time to time (computed on the
basis of a 360-day year,

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actual days elapsed). Each change in the rate of interest on any such
past due prepayment fee shall become effective on the date each Prime Rate change is announced
within Bank.

EVENTS OF DEFAULT:

     This Note is made pursuant to and is subject to the terms and conditions of that certain
Credit Agreement between Borrower and Bank dated as of December 15, 2004, as amended from time to
time (the “Credit Agreement”). Any default in the payment or performance of any obligation under
this Note, or any defined event of default under the Credit Agreement, shall constitute an “Event
of Default” under this Note.

MISCELLANEOUS:

     (a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note,
at the holder’s option, may declare all sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand, notice of nonperformance, notice of
protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall immediately cease
and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of
all payments, advances, charges, costs and expenses, including reasonable attorneys’ fees (to
include outside counsel fees and all allocated costs of the holder’s in-house counsel), expended or
incurred by the holder in connection with the enforcement of the holder’s rights and/or the
collection of any amounts which become due to the holder under this Note, and the prosecution or
defense of any action in any way related to this Note, including without limitation, any action for
declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding, contested matter or motion
brought by Bank or any other person) relating to any Borrower or any other person or entity.
Notwithstanding any provision in this Agreement to the contrary, in any action or dispute between
the parties arising out of or in any way connected with this Note or any of the other “Loan
Documents” (as defined in the Credit Agreement), the prevailing party in any such action or dispute
(whether by way of judgment, arbitration award, mediation, settlement or otherwise, and whether or
not suit is commenced) shall be entitled to collect from the other party the prevailing party’s
costs and expenses incurred in connection with such action or dispute, including, without
limitation, all litigation costs and reasonable attorneys’ fees.

     (b) Governing Law. This Note shall be governed by and construed in accordance with
the laws of the State of California.

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     This Note amends, replaces and supersedes the Revolving Line of Credit Note in the principal
amount of $30,000,000.00 dated as of December 15, 2005 executed by Borrower in favor of Bank.

     IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above.

TEKELEC

	 	 	 	 	 
	By:

	 	/s/ William H. Everett
	 	 
	 

	 	 	 	 
	Title:

	 	Chief Financial Officer	 	 
	 

	 	 	 	 

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Exhibit 10.1

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (“Agreement”) is made by and between Diamond Offshore Management
Company. (“Company”), and Lawrence R. Dickerson (“Executive”), and is dated as of December 15,
2006.

WITNESSETH:

     WHEREAS, Company desires to continue the employment of Executive and Executive desires to
remain in the employment of Company on the Effective Date, in each case on the terms and
conditions set forth herein;

     NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations
contained herein, Company and Executive agree as follows:

ARTICLE 1: EMPLOYMENT AND DUTIES

     1.1 Employment; Effective Date. Company agrees to continue the employment of Executive
and Executive desires to remain in the employment of Company beginning on October 1, 2006 (the
“Effective Date”) and continuing for the period of time set forth in Article 2 of this Agreement,
subject to the terms and conditions of this Agreement.

     1.2 Position. Company shall employ Executive in the position of President and Chief
Operating Officer (“Job Title”). In such capacity, Executive will, as reasonably requested by the
Board of Directors/President of Company from time to time, carry out the functions of his office
and furnish his best advice, information, judgment and knowledge with respect to the business of
the Company and its subsidiaries. During the term of his employment, Executive shall be furnished
with a private office and such other facilities and services as are commensurate with his position
with Company and adequate for the performance of his duties under this Agreement.

     1.3 Business Expenses. Executive is authorized to incur reasonable expenses for the
discharge of his duties hereunder and the promotion of Company’s business, including expenses for
entertainment, travel and related items. Company shall reimburse Executive for all such expenses
upon presentation by Executive from time to time of itemized accounts of expenditures incurred in
accordance with customary Company policies.

     1.4 Exclusivity of Employment. Executive agrees his position with the Company will be
his sole employment and he will use his best efforts to discharge his duties and responsibilities
in such capacity and to act subject to the direction of the Chief Executive Officer/President.
Part-time activities that do not interfere with Executive’s duties and responsibilities pursuant to
this Agreement shall not constitute employment. Participation by Executive as a member of a board
of directors not related to the Company in any way, or such similar participation, shall require
the consent of the President. During the Term of this Agreement, Executive shall not, directly or
knowingly indirectly, either as an Executive, officer, director, or in any other individual or
representative capacity, either for his own benefit or the benefit of any other person or entity
solicit, recruit, induce, entice, encourage or in any way cause any employee of Company (or an
affiliate) to terminate his/her employment with Company (or such affiliate). This Article is not

 

 

intended to limit the ability of Executive to terminate the employment of Company employees in
the course and scope of his position with Company.

ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT

     2.1 Term. Unless sooner terminated pursuant to other provisions hereof, Company
agrees to employ Executive for a thirty-six (36) month period beginning on the Effective Date and
concluding on September 30, 2009 (“Term”).

     2.2 Company’s Right to Terminate. Notwithstanding the provisions of paragraph 2.1,
Company shall have the right to terminate Executive’s employment under this Agreement at any time
for any of the following reasons:

(a) upon Executive’s death;

(b) upon Executive’s becoming unable to perform his duties hereunder due to sickness
or injury for a period of at least 180 consecutive days as a result of incapacity
due to mental or physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to Executive or
Executive’s legal representatives (a “Disability”);

(c) if Executive engages in conduct that constitutes: (i) a breach of his fiduciary
duty to Company or its shareholders; (ii) in carrying out his duties hereunder
engages in conduct that constitutes acts of fraud; (iii) in carrying out his duties
hereunder engages in conduct that constitutes gross neglect; (iv) in carrying out
his duties hereunder engages in conduct that constitutes gross misconduct resulting,
in any case, in economic harm to Company; or (v) upon the conviction of Executive
for a felony; and

(d) for any other reason whatsoever, in the sole discretion of Company.

     For purposes of this Agreement, a termination by Company under clause (c) above shall
constitute a termination by Company for “Cause.” Cause, however, shall not include bad judgment or
any act or omission believed by the Executive in good faith to have been in or not opposed to the
interest of Company (without intent by the Executive to gain, directly or indirectly, a profit to
which he was not legally entitled).

     2.3 Executive’s Right to Terminate. Notwithstanding the provisions of Article 2.1,
Executive shall have the right to terminate his employment under this Agreement at any time for any
of the following reasons:

(a) without Executive’s consent, a substantial and material diminishment of
Executive’s duties, responsibilities and status with the Company as described in
Article 1.2, above;

(b) a reduction in Executive’s Base Salary and/or Job Title;

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(c) the Company’s requiring Executive to relocate anywhere other than Houston,
Texas, except in the event Executive’s office is moved no more than 50 miles from
its present location, or, in the event Executive consents to such relocation out of
Houston, Texas, the failure by Company to pay or reimburse Executive for all
reasonable moving expenses incurred by Executive relating to a change of Executive’s
principal residence in connection with such relocation and to indemnify Executive
against any loss (defined as the difference between the actual bona fide sale price
of such residence and the fair market value of such residence as determined by a
member of the Society of Real Estate Appraisers designated by Executive and
satisfactory to Company) realized in the sale of Executive’s principal residence in
connection with any such change of residence; and

(d) for any other reason whatsoever, in the sole discretion of Executive.

     For purposes of this Agreement: (i) a termination of employment by Executive under clauses (a)
through (c) above shall constitute a termination of employment by Executive for “Good Reason;” and
(ii) a termination of employment by Executive under clause (d) above shall constitute a termination
of employment by Executive “without Good Reason”.

     2.4 Notice of Termination. Notwithstanding the provisions in Article 2.1 herein
relating to the Term of this Agreement, if Company or Executive desires to terminate Executive’s
employment hereunder at any time prior to expiration of the Term of employment as provided in
Article 2.1, it or he shall do so by giving a minimum of fifteen (15) days written notice to the
other party that it or he has elected to terminate Executive’s employment hereunder and stating the
effective date and reason for such termination, provided that no such action shall alter or amend
any other provisions hereof or rights arising hereunder. Executive must provide fifteen (15) days
notice of separation to be eligible for the benefits described in Article 4.1.

     2.5 Extension of Agreement. Following expiration of the Term of this Agreement, the
Term will be automatically extended for successive terms of one (1) year commencing on the
anniversary of the Effective Date.

ARTICLE 3: COMPENSATION AND BENEFITS

     3.1 Base Salary. During the Term, Executive shall receive an annual base salary equal
to $675,000 (“Base Salary”), subject to increases as the Chief Executive Officer/President of the
Company may, in their sole discretion, from time to time determine. Executive’s Base Salary shall
be paid in equal installments in accordance with Company’s standard practices and pay dates
regarding payment of compensation to executives and shall be subject to applicable withholding and
deductions.

     3.2 Executive Health and Welfare Benefits. Executive shall be entitled to participate
in Company’s insurance plans (medical, dental, life and disability), during the term of this
Agreement. Upon termination of Executive’s employment under Articles 2.2(a), 2.2(b), 2.2(d),
2.3(a), 2.3(b) or 2.3(c) and for the remaining Term under this Agreement but not less than two (2)

3

 

years thereafter, Company shall continue to provide Executive with insurance benefits (medical,
dental, life and disability) which Executive was receiving or entitled to receive at the time
of his termination of employment, with all costs paid by Company. Company, shall, however, issue
Executive a COBRA notice upon the termination of his employment. Such insurance benefits shall be
discontinued to the extent Executive is eligible to receive comparable coverage from a subsequent
employer and/or except to the extent that the subsequent employer’s plan does not cover the
preexisting medical conditions of the Executive or a previously covered member of the Executive’s
family.

     3.3 Other Benefits/Compensation. During the term of this Agreement, Executive shall
be entitled to participate in such employee benefit and compensation programs, plans and policies
as are maintained by Company and as may be established for employees of Company from time to time
on the same basis as other executive employees are entitled thereto. These include plans or
policies relating to funded and unfunded executive benefits, such as bonus compensation, vacation
time, leave time, retirement plans and stock plans. It is understood that the establishment,
termination or change in any such executive employee benefit program, plan or policy may be made by
the Company in the exercise of its sole discretion, from time to time, and any such termination or
change in such program, plan or policy will not constitute a modification to this Agreement so long
as Executive is permitted to participate in such program, plan or policy, as the case may be, as is
available to other executives. Upon termination of employment, without regard to the manner in
which the termination was brought about, Executive’s rights in such employee benefit and
compensation programs, plans or policies shall be governed solely by the terms of the program, plan
or policy itself unless otherwise stated to the contrary herein.

     3.4 Management Performance Bonus Program. Unless sooner terminated by operation of
this Agreement, the provisions of this article 3.4 shall apply during the initial-three year term
of this Agreement and terminate on September 30, 2009 (the “Bonus Term”).

     During the Bonus Term, Executive shall be eligible to participate in bonus plans made
available to executive employees of the Company in a position commensurate with Executive’s
position (“Bonus Plans”). Under the terms of the Company’s current Bonus Plans, Executive has an
opportunity to earn an annual cash bonus (“Bonus Amount”) measured against objective financial
performance criteria to be determined by the board of directors of Diamond Offshore Drilling, Inc.
(or a committee thereof), at its sole discretion. The desired but not guaranteed target Bonus
Amount is equal to a range between 60% and 65% of Executive’s Base Salary, and in no event shall
the Bonus Amount payable in any given year exceed 100% of Executive’s Base Salary. Any Bonus Amount
awarded to Executive under the Bonus Plans shall be paid in full each February.

     Except as otherwise provided for in this article 3.4, the provisions hereof shall not be
construed to, or actually, amend or modify the terms of any established Bonus Plan, which terms
shall control and govern any Bonus Amount awarded pursuant thereto.

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ARTICLE 4: EFFECT OF TERMINATION ON COMPENSATION

     4.1 By Company Without Cause, By Company as a Result of Executive’s Death or Disability,
or By Executive for Good Reason Prior to Expiration of Term. If Executive’s employment
hereunder shall terminate on a date (“Date of Termination”) (i) by Company without Cause prior to
the expiration of the Term (ii) as a result of Executive’s death or Disability prior to the
Expiration of the Term, or (iii) by Executive for Good Reason (and, giving Company no less than
fifteen (15) days notice) prior to the expiration of the Term, then, upon such termination, the
payments and benefits described below will be provided to Executive, or in the event of Executive’s
death, to his spouse (or his estate if he is not married or his spouse does not survive him):

(a) Within thirty (30) days after the Date of Termination, Company shall pay any
Accrued Obligations and/or any amounts owed but unpaid to Executive under any plan,
policy or program of Company as of the Date of Termination provided by, and in
accordance with the terms of, such plan, policy or program;

(b) Company shall pay Executive severance consisting of an amount equal to
Executive’s Base Salary (less lawful deductions, as set forth in Article 3.1) for
the remaining Term of this Agreement, or for twenty-four (24) months, whichever is
greater. The severance shall be payable not less frequently than in equal monthly
installments following termination or in the case of Executive’s death, the
severance shall be payable in a lump sum;

(c) Any unexercised and/or unvested stock option grant or equivalent (SARS paid in
stock) held by Executive upon termination of employment shall be fully vested on the
date of termination and be eligible for exercise as provided for in the applicable
plan document; and

(d) Company shall, at its sole expense as incurred, provide the Executive with
customary outplacement services commensurate with Executive’s position but in no
event shall the provision of such services exceed twelve (12) months or $25,000.

     4.2 By Executive Without Good Reason or By Company for Cause. If Executive’s
employment hereunder shall be terminated by Company for Cause or by Executive without Good Reason,
then within thirty (30) days of the Date of Termination Company shall pay any Accrued Obligations
and/or any amounts owed but unpaid to Executive under any plan, policy or program of Company as of
the Date of Termination provided by, and in accordance with the terms of, such plan, policy or
program. All compensation and benefits to Executive hereunder shall terminate contemporaneously
with the termination of such employment. Additionally, Company shall provide employee with a COBRA
notice and other legally required notices.

     4.3 Payment Obligations Absolute/Release of Claims. Except as set forth in the
following Article, Company’s obligation to pay Executive the amounts and to make the arrangements
provided in this Article 4 shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, any set-off, counterclaim,

5

 

recoupment, defense or other right which Company (including its subsidiaries and affiliates)
may have against him or anyone else. All amounts payable by Company shall be paid without notice or
demand. Executive shall not be obligated to seek other employment in mitigation of the amounts
payable or arrangements made under any provision of this Article 4, and the obtaining of any such
other employment (or the engagement in any endeavor as an independent contractor, sole proprietor,
partner, or joint venturer) shall in no event effect any reduction of Company’s obligations to make
(or cause to be made) the payments and arrangements required to be made under this Article 4.

     Executive acknowledges and agrees that the payments and benefits provided for in Article 4.1
constitute the exclusive remedy of Executive upon termination of employment for any reason.
Executive further agrees that, as a condition to receiving such payments and benefits, Executive
(or, if deceased or disabled, his estate or legal guardian) shall execute a complete and global
release of claims relating to or arising out of his employment with, and termination of employment
from, Company in a reasonable and customary form acceptable to Company. In the absence of
Executive’s execution and delivery to Company of such a release, Company shall have no obligation
to Executive to make any payment of the benefits as provided for in Article 4.1.

     4.4 Accrued Obligations. For purposes of this Agreement, “Accrued Obligations” shall
mean, as of the Date of Termination, the sum of (i) Executive’s Base Salary through the Date of
Termination to the extent not previously paid, (ii) except as otherwise previously requested by
Executive, the amount of any compensation accrued by Executive as of the Date of Termination to the
extent not previously paid, and (iii) any expense reimbursements and any other cash entitlements
accrued by Executive as of the Date of Termination to the extent not previously paid.

     4.5 Section 409A of the Internal Revenue Code. Notwithstanding any other provision of
this Agreement, if Internal Revenue Code Section 409A is applicable to this Agreement and Executive
is determined to be a “Specified Employee” for purposes of Section 409A, payments and benefits
under article 4.1 shall be paid no earlier than a date which is six months following Executive’s
Date of Termination. Any amounts that were otherwise scheduled to be paid during such six (6) month
period shall be paid in a lump sum upon expiration of such six (6) month period with all accrued
interest calculated from the Date of Termination until such lump sum payment and equal to the
average six (6) month U.S. Treasury Rate for the year. To the extent that the provision of any
other payments or benefits under this Agreement are governed by Section 409A, as amended, the
parties will work together in good faith to amend any provisions necessary for compliance or make
payments in a manner to avoid or minimize excise tax, penalties or interest as a result of the
provisions of Section 409A, while maintaining the basic financial provisions of this Agreement.

     4.6 Confidentiality and Nondisclosure. Executive agrees that he will not, at any
time during or after the Term, make use of or divulge to any other person, firm or corporation any
trade or business secret, process, method or means, or any other confidential information,
including personnel information, concerning the business policies of the Company, which he may have
learned in connection with his employment hereunder. For purposes of this Agreement, a

6

 

“trade or business secret, process, method or means, or any other confidential information,
including personnel information” shall mean and include information treated either as confidential
or as a trade secret by the Company. Executive’s obligation under this Article 4.6 shall not apply
to any information which (a) is known publicly; (b) is in the public domain or hereafter enters the
public domain without the fault of Executive; (c) is known to Executive prior to his receipt of
such information from the Company, as evidenced by written records of Executive; or (d) is
hereafter disclosed to Executive by a third party not under an obligation of confidence to Company.
Executive agrees not to remove from the premises of Company, except as an Executive of Company in
pursuit of the business of Company or except as specifically permitted in writing by Company, any
document or other object containing or reflecting any such confidential information. Executive
recognizes that all such documents and objects, whether developed by him or by someone else, will
be the sole and exclusive property of Company. Upon termination of his employment hereunder,
Executive shall forthwith deliver to Company all such confidential information, including without
limitation all lists of lessees, customers, correspondence, employees, accounts, records and any
other documents or property made or held by him or under his control in relation to the business or
affairs of Company, and no copy of any such confidential information shall be retained by him.

     4.7 Non-Solicitation of Employees/Former Employees. In the event this Agreement is
terminated or once Executive ceases to be an employee at any time for any reason, Executive agrees
that for a period of two (2) years after such termination, Executive shall not, directly or
knowingly indirectly, either as an executive, employer, independent contractor, consultant, agent,
principal, partner, stockholder, officer, director, or in any other individual or representative
capacity, either for his own benefit or the benefit of any other person or entity: (a) solicit,
recruit, induce, entice, encourage or in any way cause any officer, or manager reporting to such
officer, holding such position at the time Executive ceases to be an employee of Company and who is
or was an employee of Company (or affiliate) within the six (6) months prior to Executive’s
termination of employment with Company or thereafter to terminate his/her employment with Company
(or such affiliate); or (b) directly solicit for hire, directly entice for hire, hire, or directly
recruit any officer, or manager reporting to such officer, toolpusher, rig superintendent or
offshore installation manager (OIM) holding such position at the time Executive ceases to be an
employee of Company and who is or was an employee of Company within the six (6) months prior to
Executive’s termination of employment with Company or thereafter.

ARTICLE 5: MISCELLANEOUS

     5.1 Notices. For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly given when personally
delivered or three days after the date mailed by United States registered or certified mail, return
receipt requested, or by a nationally known overnight courier, in either case postage prepaid and
addressed as follows: If to Company, to its General Counsel and its President at its
corporate address of record. If to Executive, to the most recent home address on file with
Company, or to such other address as either party may furnish to the other in writing in accordance
herewith, except that notices of changes of address shall be effective only upon receipt.

7

 

     5.2 Applicable Law/Venue. This contract is entered into under, and shall be governed
for all purposes by, the laws of the State of Texas without reference to the principles of
conflicts of laws. Executive and Company agree that Harris County, Texas will be the exclusive
venue for any lawsuit or dispute between the parties relating to this Agreement, the relationship
between the parties and/or the termination thereof.

     5.3 No Waiver. No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or provision of this
Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time.

     5.4 Severability. If a court of competent jurisdiction determines that any provision
of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that
provision shall not affect the validity or enforceability of any other provision of this Agreement,
and all other provisions shall remain in full force and effect.

     5.5 Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be original, but all of which together will constitute one and the same
Agreement.

     5.6 Withholding of Taxes and Other Executive Deductions. Company may withhold from any
benefits and payments made pursuant to this Agreement all federal, state, city and other taxes as
may be required pursuant to any law or governmental regulation or ruling and all other normal
executive deductions made with respect to Company’s executives generally.

     5.7 Headings. The paragraph headings have been inserted for purposes of convenience
and shall not be used for interpretive purposes.

     5.8 Gender and Plurals. Wherever the context so requires, the masculine gender
includes the feminine or neuter, and the singular number includes the plural and conversely.

     5.9 Parent. All the benefits received by Company in this Agreement shall also inure
to the benefit of Diamond Offshore Drilling, Inc, parent of Company.

     5.10 Successors. This Agreement shall be binding upon and inure to the benefit of
Company and any successor of Company, including without limitation any person, association, or
entity which may hereafter acquire or succeed to all or substantially all of the business or assets
of Company by any means whether direct or indirect, by purchase, merger, consolidation, or
otherwise. Except as provided in the preceding sentence, this Agreement, and the rights and
obligations of the parties hereunder, are personal and neither this Agreement, nor any right,
benefit or obligation of either party hereto, shall be subject to voluntary or involuntary
assignment, alienation or transfer, whether by operation of law or otherwise, without the prior
written consent of the other party.

     5.11 Vested Rights/Reemployment. The term of this Agreement is co-extensive with the
Term of employment as set forth in Article 2.1. Termination shall not affect any right or
obligation of any party which is accrued or vested prior to or upon such termination or by its

8

 

terms continues following the termination of the Term, including without limitation Articles
4.6, 4.7, 5.1, and 5.2 of this Agreement. Executive further agrees that upon termination of his
employment by the Company, he shall not re-apply or otherwise seek employment with Company in the
future and that Company has no obligation to re-hire him.

     5.12 Entire Agreement; Conflict. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof and expressly supersedes all oral or written
agreements between the parties; except, this Agreement is not intended to modify, abrogate or
supersede any of the parties’ obligations as reflected in benefit or compensation plans, policies
or programs in which Executive participates as set forth in Article 3.3 herein. Any modification of
this Agreement shall be effective only if it is in writing and signed by the party to be charged.
In the event of any conflict between the terms of this Agreement and the terms of any policy, plan
or program of Company not heretofore specified, the terms of this Agreement shall govern.

     5.13 Specific Performance. Company and Executive, jointly and severally, acknowledge
that it would be impossible to calculate or ascertain accurately and definitively the damages
Company would sustain from a breach by Executive of the provisions of Articles 4.6 and 4.7 of this
Agreement and that no adequate remedy at law exists. Accordingly, in the event of a threatened
breach by Executive of said provisions, Company shall be entitled to an injunction restraining such
prohibited activity. Nothing herein, however, shall be construed as prohibiting Company from
pursuing any other remedies available to Company for such breach or threatened breach, including
recovery of damages from Executive.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth
above.

	 	 	 	 	 	 	 
	 	 	Diamond Offshore Management Company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ William C. Long	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	William C. Long	 	 
	 

	 	Title:
	 	Senior Vice President, General Counsel	 	 
	 

	 	 	 	and Secretary	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE:	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Lawrence R. Dickerson	 	 
	 	 	 	 	 

9

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