Document:

exv4w1

 

EXHIBIT 4.1

TESORO CORPORATION

AND

AMERICAN STOCK TRANSFER & TRUST COMPANY, as Rights Agent

 RIGHTS AGREEMENT

dated as of

NOVEMBER 20, 2007

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	 	 	 	 	 	 
	Section 1

	 	Certain Definitions
	 	 	1	 
	 
	 	 	 	 	 	 
	Section 2

	 	Appointment of Rights Agent
	 	 	9	 
	 
	 	 	 	 	 	 
	Section 3

	 	Issue of Right Certificates
	 	 	9	 
	 
	 	 	 	 	 	 
	Section 4

	 	Form of Right Certificates
	 	 	10	 
	 
	 	 	 	 	 	 
	Section 5

	 	Countersignature and Registration
	 	 	11	 
	 
	 	 	 	 	 	 
	Section 6

	 	Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates
	 	 	11	 
	 
	 	 	 	 	 	 
	Section 7

	 	Exercise of Rights: Purchase Price; Final Expiration Date of Rights
	 	 	12	 
	 
	 	 	 	 	 	 
	Section 8

	 	Cancellation and Destruction of Right Certificates
	 	 	13	 
	 
	 	 	 	 	 	 
	Section 9

	 	Reservation and Availability of Shares of Preferred Stock
	 	 	13	 
	 
	 	 	 	 	 	 
	Section 10

	 	Preferred Stock Record Date
	 	 	14	 
	 
	 	 	 	 	 	 
	Section 11

	 	Adjustment of Purchase Price, Number of Shares or Number of Rights
	 	 	15	 
	 
	 	 	 	 	 	 
	Section 12

	 	Certificate of Adjusted Purchase Price or Number of Shares
	 	 	22	 
	 
	 	 	 	 	 	 
	Section 13

	 	Consolidation, Merger or Sale or Transfer of Assets or Earning Power
	 	 	22	 
	 
	 	 	 	 	 	 
	Section 14

	 	Fractional Rights and Fractional Shares
	 	 	24	 
	 
	 	 	 	 	 	 
	Section 15

	 	Rights of Action
	 	 	26	 
	 
	 	 	 	 	 	 
	Section 16

	 	Agreement of Right Holders
	 	 	26	 
	 
	 	 	 	 	 	 
	Section 17

	 	Right Certificate Holder Not Deemed a Stockholder
	 	 	26	 
	 
	 	 	 	 	 	 
	Section 18

	 	Concerning the Rights Agent
	 	 	27	 
	 
	 	 	 	 	 	 
	Section 19

	 	Merger or Consolidation or Change of Name of Rights Agent
	 	 	27	 
	 
	 	 	 	 	 	 
	Section 20

	 	Duties of Rights Agent
	 	 	28	 
	 
	 	 	 	 	 	 
	Section 21

	 	Change of Rights Agent
	 	 	30	 
	 
	 	 	 	 	 	 
	Section 22

	 	Issuance of New Right Certificates
	 	 	31	 
	 
	 	 	 	 	 	 
	Section 23

	 	Redemption
	 	 	31	 

 

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	 	 	 	 	 	 
	Section 24

	 	Exchange
	 	 	33	 
	 
	 	 	 	 	 	 
	Section 25

	 	Notice of Certain Events
	 	 	34	 
	 
	 	 	 	 	 	 
	Section 26

	 	Notices
	 	 	35	 
	 
	 	 	 	 	 	 
	Section 27

	 	Supplements and Amendments
	 	 	35	 
	 
	 	 	 	 	 	 
	Section 28

	 	Successors
	 	 	36	 
	 
	 	 	 	 	 	 
	Section 29

	 	Benefits of this Agreement
	 	 	36	 
	 
	 	 	 	 	 	 
	Section 30

	 	Determinations and Actions by the Board of Directors of the Company
	 	 	36	 
	 
	 	 	 	 	 	 
	Section 31

	 	Annual Review by Independent Directors
	 	 	36	 
	 
	 	 	 	 	 	 
	Section 32

	 	Severability
	 	 	37	 
	 
	 	 	 	 	 	 
	Section 33

	 	Governing Law
	 	 	37	 
	 
	 	 	 	 	 	 
	Section 34

	 	Descriptive Headings; References
	 	 	37	 
	 
	 	 	 	 	 	 
	Section 35

	 	Counterparts
	 	 	37	 

Exhibit A

     Form of Certificate of Designations for Series B Junior Participating Preferred Stock

Exhibit B

     Form of Right Certificate

     Form of Assignment

     Form of Election to Purchase

Exhibit C

     Summary of Rights to Purchase Preferred Stock

 

 

RIGHTS AGREEMENT

     This Rights Agreement, dated as of November 20, 2007 (this “Agreement”), is between
TESORO CORPORATION, a Delaware corporation (the “Company”), and AMERICAN STOCK TRANSFER &
TRUST COMPANY, a New York corporation (the “Rights Agent”).

WITNESSETH:

     WHEREAS, the Board of Directors of the Company has authorized and declared a dividend
distribution of one preferred share purchase right (a “Right”) for each outstanding share
of Common Stock (as defined below) outstanding as of the close of business on December 3, 2007 (the
“Record Date”) and has authorized the issuance of one Right (subject to adjustment) in
respect of each share of Common Stock issued between the Record Date and the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter
defined) and under certain other circumstances, each Right representing the right to purchase one
one-thousandth (1/1,000th) of one share of Series B Junior Participating Preferred Stock of the
Company having the rights and preferences set forth in the form of Certificate of Designations
attached hereto as Exhibit A upon the terms and subject to the conditions hereinafter set
forth;

     NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth,
the parties hereby agree as follows:

     Section 1. Certain Definitions. For purposes of this Agreement, the following terms
have the meanings indicated:

     (a) “Acquiring Person” shall mean any Person who or that, together with all Affiliates
and Associates of such Person, shall be or become the Beneficial Owner of 20% or more of the shares
of Common Stock then outstanding, but shall not include any employee benefit plan of the Company or
of any subsidiary of the Company, or any entity organized, appointed or established pursuant to the
terms of any such plan, or the Company or any subsidiary of the Company. Notwithstanding the
foregoing, no Person shall become an “Acquiring Person” as the result of an acquisition of
Common Stock by the Company or any subsidiary of the Company that, by reducing the number of shares
outstanding, increases the proportionate number of shares Beneficially Owned by a Person to 20% or
more of the Common Stock then outstanding; provided, however, that if such Person
becomes the Beneficial Owner of 20% or more of the Common Stock then outstanding by reason of share
acquisitions by the Company and its subsidiaries and shall, after such share acquisitions by the
Company and its subsidiaries, become the Beneficial Owner of any additional Common Stock (other
than by reason of a stock dividend, stock split or other corporate action effected by the Company),
then such Person shall be deemed to be an “Acquiring Person,” subject to the following
sentence of this Section 1(a), unless upon consummation of the acquisition of such
additional Common Stock such Person does not beneficially own 20% or more of the Common Stock then
outstanding.

     Notwithstanding the foregoing, if (i) the Board of Directors of the Company determines in good
faith that a Person who otherwise would be an “Acquiring Person,” as defined pursuant

 

 

to the foregoing provisions of this Section 1(a), became the Beneficial Owner of a
number of shares of Common Stock such that such Person would otherwise be an Acquiring Person
inadvertently (including, without limitation, because (A) such Person was unaware that it
Beneficially Owned a percentage of Common Stock that would cause such Person to be an
“Acquiring Person” or (B) such Person was aware of the extent of its Beneficial Ownership
of Common Stock but had no actual knowledge of the consequences of such Beneficial Ownership under
this Agreement) and without any intention of changing or influencing control of the Company, then
such Person shall not be deemed to be an “Acquiring Person” or to have become an
“Acquiring Person,” for all purposes of this Agreement (such that, for the avoidance of
doubt, under such circumstances no Distribution Date shall be deemed to have occurred and no
adjustment pursuant to Section 11(a)(ii) or Section 13 shall be made in respect
thereof) unless such Person fails to divest itself as soon as practicable if the Company so
requests (as determined in good faith by the Board of Directors of the Company) of a sufficient
number of shares of Common Stock so that such Person would no longer qualify as an Acquiring
Person; provided, however, that if such Person, after such determination and
divestment, becomes the Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding by reason of becoming the Beneficial Owner of any additional shares of Common Stock,
then such Person shall be deemed to be an “Acquiring Person” unless a subsequent
determination and divestment is made; or (ii) as of the date of the first public announcement of
the adoption of this Agreement, any Person is the Beneficial Owner of 20% or more of the Common
Stock outstanding, such Person shall not be deemed to be or become an Acquiring Person unless and
until such Person shall, after the first public announcement of the adoption of this Agreement,
become the Beneficial Owner of additional shares of Common Stock (other than by reason of a stock
dividend, stock split or other corporate action effected by the Company) unless, upon becoming the
Beneficial Owner of such additional shares of Common Stock, such Person is not the Beneficial Owner
of 20% or more of the shares of Common Stock.

     (b) “Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date of this Agreement.

     (c) “Agreement” shall have the meaning set forth in the preamble hereto.

     (d) “Associate,” when used to indicate a relationship with any Person, shall mean
each, any and all of the following:

          (i) any firm, corporation, limited liability company, partnership, joint venture, bank, trust
or other entity of which such Person (A) is an officer or partner or (B) is, directly or
indirectly, the Beneficial Owner of 10% or more of any class of equity securities;
provided, however, that a firm, corporation, limited liability company,
partnership, joint venture, bank, trust or other entity described in clause (B) shall not be an
“Associate” of a Person if, and only for so long as, such Person (1) has reported
Beneficial Ownership of the equity securities of such firm, corporation, limited liability company,
partnership, joint venture, bank, trust or other entity on Schedule 13G under the Exchange Act and
is not required to report its ownership of such equity securities on Schedule 13D under the
Exchange Act, (2) satisfies the criteria set forth in both Rule 13d-1(b)(1)(i) and Rule
13d-1(b)(1)(ii) of the General Rules and Regulations under the Exchange Act, (3) is the Beneficial
Owner of less than 20% of the shares of Common Stock then

2

 

outstanding (including any such shares that are beneficially owned by such Person’s Affiliates
and Associates after giving effect to this proviso) and (4) has not reported and is not required to
report its ownership of Common Stock on Schedule 13D under the Exchange Act;

          (ii) any trust or other estate in which such Person has a substantial beneficial interest or
as to which such Person serves as trustee or in a similar fiduciary capacity; and

          (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same
home as such Person.

     (e) A Person shall be deemed the “Beneficial Owner” of and shall be deemed to
“beneficially own” any securities:

          (i) that such Person, or any of such Person’s Affiliates or Associates, beneficially owns,
directly or indirectly, within the meaning of Rule 13d-3 of the General Rules and Regulations under
the Exchange Act as in effect on the date of this Agreement;

          (ii) that such Person, or any of such Person’s Affiliates or Associates, has (A) the right to
acquire (whether such right is exercisable immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public offering of securities),
written or otherwise, or upon the exercise of conversion rights, exchange rights, rights (other
than the Rights), warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the “Beneficial Owner” of, or to “beneficially own,”
securities tendered pursuant to a tender or exchange offer made by such Person or any of such
Person’s Affiliates or Associates until such tendered securities are accepted for purchase or
exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding, written
or otherwise; provided, however, that a Person shall not be deemed the
“Beneficial Owner” of, or to “beneficially own,” any security under this clause (B)
if the agreement, arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the
Exchange Act and (2) is not then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or

          (iii) that are beneficially owned, directly or indirectly, by any other Person with which such
Person, or any of such Person’s Affiliates or Associates, has any agreement, arrangement or
understanding, whether or not in writing, for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy as described in the proviso to Section 1(e)(ii)(B)) or
disposing of any securities of the Company; provided, however, that nothing in this
Section 1(e) shall cause a Person engaged in business as an underwriter of securities to be
the “Beneficial Owner” of, or to “beneficially own,” any securities acquired
through such Person’s participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition, and then only if such securities
continue to be owned by such Person at the expiration of such forty-day period. Notwithstanding
anything in this definition of Beneficial Ownership to the contrary, the phrase “then
outstanding,” when used with reference to a Person’s Beneficial Ownership of securities of the
Company, shall mean the number of such securities

3

 

then issued and outstanding together with the number of such securities not then actually
issued and outstanding that such Person would be deemed to own beneficially hereunder.

     (f) “Business Day” shall mean any day other than a Saturday, Sunday, or a day on which
banking institutions in the State of Texas or the State of New York are authorized or obligated by
law or executive order to close.

     (g) “close of business” on any given date shall mean 5:00 p.m., San Antonio, Texas
time, on such date; provided, however, that if such date is not a Business Day it
shall mean 5:00 p.m., San Antonio, Texas time, on the next succeeding Business Day.

     (h) “Common Stock” shall mean the common stock,
$0.162/3 par value (or as such par value
may be changed from time to time), of the Company.

     (i) “Common Stock Equivalents” shall have the meaning set forth in Section
11(a)(iii).

     (j) “Company” shall have the meaning set forth in the preamble hereto.

     (k) “current market price per share” shall have the meaning set forth in Section
11(d).

     (l) “Current Value” shall have the meaning set forth in Section 11(a)(iii).

     (m) “Definitive Acquisition Agreement” shall mean any agreement entered into by the
Company that is conditioned on the approval by the holders of not less than a majority of the
outstanding shares of Common Shock at a meeting of stockholders with respect to (i) a merger,
consolidation, recapitalization, reorganization, share exchange, business combination or similar
transaction involving the Company or (ii) the acquisition in any manner, directly or indirectly, of
more than 50% of the consolidated total assets (including, without limitation, equity securities of
its subsidiaries) of the Company.

     (n) “Distribution Date” shall have the meaning set forth in Section 3(a).

     (o) “equivalent preferred stock” shall have the meaning set forth in Section
11(b).

     (p) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     (q) “Exchange Ratio” shall have the meaning set forth in Section 24(a).

     (r) “Final Expiration Date” shall have the meaning set forth in Section 7(a).

     (s) “Independent Directors” shall mean members of the Board of Directors of the
Company who are not officers, employees or Affiliates (or designees of Affiliates) of the Company.

     (t) “invalidation time” shall have the meaning set forth in Section 11(a)(ii).

     (u) “NASDAQ” shall mean the NASDAQ National Market System.

4

 

     (v) “Outside Meeting Date” shall have the meaning set forth in Section 23(b).

     (w) “Person” shall mean any individual, firm, corporation, limited liability company
or other entity, and shall include any successor (by merger or otherwise) of such entity.

     (x) “Preferred Stock” shall mean the Series B Junior Participating Preferred Stock of
the Company having the rights and preferences set forth in the form of Certificate of Designations
attached hereto as Exhibit A.

     (y) “Principal Party” shall have the meaning set forth in Section 13(b).

     (z) “Purchase Price” shall have the meaning set forth in Section 4.

     (aa) “Qualified Offer” shall mean an offer determined by a majority of the Independent
Directors to have each of the following characteristics:

          (i) a fully-financed, all-cash tender offer, or an exchange offer offering shares of common
stock of the offeror, or a combination thereof, in each such case for all of the outstanding shares
of Common Stock at the same per-share consideration;

          (ii) an offer that has commenced within the meaning of Rule 14d-2(a) under the Exchange Act;

          (iii) an offer whose per-share offer price is greater than the highest reported market price
for the Common Stock in the immediately preceding 24 months, with, in the case of an offer that
includes shares of common stock of the offeror, such per-share offer price being determined using
the lowest reported market price for common stock of the offeror during the five trading days
immediately preceding and the five trading days immediately following the commencement of such
offer within the meaning of Rule 14d-2(a) under the Exchange Act;

          (iv) an offer that, within twenty Business Days after the commencement date of the offer (or
within ten Business Days after any increase in the offer consideration), does not result in a
nationally recognized investment banking firm retained by the Board of Directors of the Company
rendering an opinion to the Board of Directors of the Company that the consideration being offered
to the stockholders of the Company is either unfair or inadequate;

          (v) if the offer includes shares of common stock of the offeror, an offer pursuant to which
(A) the offeror shall permit representatives of the Company (including a nationally-recognized
investment banking firm retained by the Board of Directors of the Company and legal counsel and an
accounting firm designated by the Company) to have access to such offeror’s books, records,
management, accountants and other appropriate outside advisors for the purposes of permitting such
representatives to conduct a due diligence review of the offeror in order to permit the Board of
Directors of the Company to evaluate the offer and make an informed decision and, if requested by
the Board of Directors of the Company, to permit such investment banking firm (relying as
appropriate on the advice of such legal counsel) to be able to render an opinion to the Board of
Directors of the Company with respect to whether the consideration being offered to the
stockholders of the Company is fair from a financial point of view and (B) within ten Business Days
after such representatives of the Company (including a

5

 

nationally-recognized investment banking firm retained by the Board of Directors of the
Company and legal counsel and an accounting firm designated by the Company) shall have notified the
Company and the offeror that it had completed such due diligence review to its satisfaction (or,
following completion of such due diligence review, within ten Business Days after any increase in
the consideration being offered), such investment banking firm does not render an opinion to the
Board of Directors of the Company that the consideration being offered to the stockholders of the
Company is either unfair or inadequate and such investment banking firm does not, after the
expiration of such ten Business Day period, render an opinion to the Board of Directors of the
Company that the consideration being offered to the stockholders of the Company has become either
unfair or inadequate based on a subsequent disclosure or discovery of a development or developments
that have had or are reasonably likely to have a material adverse effect on the value of the common
stock of the offeror;

          (vi) an offer that is subject to only the minimum tender condition described below in
Section 1(aa)(ix) and other customary terms and conditions, which conditions shall not
include any financing, funding or similar conditions or any requirements with respect to the
offeror or its agents being permitted any due diligence with respect to the books, records,
management, accountants or other outside advisors of the Company;

          (vii) an offer pursuant to which the Company has received an irrevocable written commitment of
the offeror that the offer will remain open for at least 120 Business Days and, if a Special
Meeting is duly requested in accordance with Section 23(b), for at least ten Business Days
after the date of the Special Meeting or, if no Special Meeting is held within ninety Business Days
following receipt of the Special Meeting Notice in accordance with Section 23(b), for at
least ten Business Days following such ninety Business Day period;

          (viii) an offer pursuant to which the Company has received an irrevocable written commitment
of the offeror that, in addition to the minimum time periods specified above in Section
1(aa)(vii), the offer, if it is otherwise to expire prior thereto, will be extended for at
least twenty Business Days after any increase in the consideration being offered or after any bona
fide alternative offer is commenced within the meaning of Rule 14d-2(a) under the Exchange Act;
provided, however, that such offer need not remain open, as a result of Section
1(aa)(vii) and this Section 1(aa)(viii), beyond (A) the time that any other offer
satisfying the criteria for a Qualified Offer is then required to be kept open under such
Section 1(aa)(vii) and this Section 1(aa)(viii) or (B) the expiration date, as such
date may be extended by public announcement (with prompt written notice to the Rights Agent) in
compliance with Rule 14e—1 under the Exchange Act, of any other tender offer for the Common Stock
with respect to which the Board of Directors of the Company has agreed to redeem the Rights
immediately prior to acceptance for payment of Common Stock thereunder (unless such other offer is
terminated prior to its expiration without any Common Stock having been purchased thereunder) or
(C) one Business Day after the stockholder vote with respect to approval of any Definitive
Acquisition Agreement has been officially determined and certified by the inspectors of elections;

          (ix) an offer that is conditioned on a minimum of at least two-thirds of the outstanding
shares of the Common Stock not held by the Person making such offer (and such Person’s Affiliates
and Associates) being tendered and not withdrawn as of the offer’s expiration date, which condition
shall not be waivable;

6

 

          (x) an offer pursuant to which the Company has received an irrevocable written commitment of
the offeror to consummate, as promptly as practicable upon successful completion of the offer, a
second step transaction whereby all shares of the Common Stock not tendered into the offer will be
acquired at the same consideration per share actually paid pursuant to the offer, subject to
stockholders’ statutory appraisal rights, if any;

          (xi) an offer pursuant to which the Company and its stockholders have received an irrevocable
written commitment of the offeror that no amendments will be made to the offer to reduce the
consideration being offered or to otherwise change the terms of the offer in a way that is adverse
to a tendering stockholder;

          (xii) an offer (other than an offer consisting solely of cash consideration) pursuant to which
the Company has received the written representation and certification of the offeror and, in their
individual capacities, the written representations and certifications of the offeror’s Chief
Executive Officer and Chief Financial Officer, that (A) all facts about the offeror that would be
material to making an investor’s decision to accept the offer have been fully and accurately
disclosed as of the date of the commencement of the offer within the meaning of Rule 14d-2(a) under
the Exchange Act, (B) all such new facts will be fully and accurately disclosed on a prompt basis
during the entire period during which the offer remains open, and (C) all required Exchange Act
reports will be filed by the offeror in a timely manner during such period; and

          (xiii) if the offer includes non-cash consideration, (A) the non-cash portion of the
consideration offered must consist solely of common stock of a Person that is a publicly-owned
United States corporation, (B) such common stock must be freely tradable and listed or admitted to
trading on either the New York Stock Exchange or NASDAQ, (C) no stockholder approval of the issuer
of such common stock is required to issue such common stock, or, if such approval required, such
approval has already been obtained, (D) no Person (including such Person’s Affiliates and
Associates) beneficially owns more than 15% of the voting stock of the issuer of such common stock
at the time of commencement of the offer or at any time during the term of the offer, (E) no other
class of voting stock of the issuer of such common stock is outstanding and (F) the issuer of such
common stock meets the registrant eligibility requirements for use of Form S-3 for registering
securities under the Securities Act, including the filing of all required Exchange Act reports in a
timely manner during the twelve calendar months prior to the date of commencement of such offer.

For the purposes of this definition of “Qualified Offer,” “fully financed” shall
mean that the offeror has sufficient funds for the offer and related expenses which shall be
evidenced by (1) firm, unqualified, written commitments from responsible financial institutions
having the necessary financial capacity, accepted by the offeror, to provide funds for such offer
subject only to customary terms and conditions, (2) cash or cash equivalents then available to the
offeror, set apart and maintained solely for the purpose of funding the offer with an irrevocable
written commitment being provided by the offeror to the Board of Directors of the Company to
maintain such availability until the offer is consummated or withdrawn or (3) a combination of the
foregoing; which evidence has been provided to the Company prior to, or upon, commencement of the
offer. If an offer becomes a Qualified Offer in accordance with this definition, but subsequently
ceases to be a Qualified Offer as a result of the failure at a later date to continue to satisfy
any of the requirements of this definition, such offer shall cease to be a Qualified Offer

7

 

and the provisions of Section 23(b) shall no longer be applicable to such offer, provided
that the actual redemption of the Rights pursuant to Section 23(b) shall not have already
occurred.

     (bb) “Record Date” shall have the meaning set forth in the recitals hereof.

     (cc) “Redemption Date” shall have the meaning set forth in Section 7(a).

     (dd) “Redemption Price” shall have the meaning set forth in Section 23(a).

     (ee) “Redemption Resolution” shall have the meaning set forth in Section 23(b).

     (ff) “Right” shall have the meaning set forth in the recitals hereof.

     (gg) “Right Certificate” shall have the meaning set forth in Section 3(a).

     (hh) “Rights Agent” shall have the meaning set forth in the preamble hereto.

     (ii) “Section 11(a)(ii) Trigger Date” shall have the meaning set forth in Section
11(a)(iii).

     (jj) “Securities Act” shall mean the Securities Act of 1933, as amended.

     (kk) “Security” shall have the meaning set forth in Section 11(d).

     (ll) “Senior Voting Stock” shall have the meaning set forth in Section 13(b).

     (mm) “Shares Acquisition Date” shall mean the first date of public announcement by the
Company or an Acquiring Person that an Acquiring Person has become an “Acquiring Person”
for purposes of this Agreement or such earlier date as a majority of the Board of Directors shall
become aware of the existence of an Acquiring Person.

     (nn) “Special Meeting” shall have the meaning set forth in Section 23(b).

     (oo) “Special Meeting Notice” shall have the meaning set forth in Section 23(b).

     (pp) “Special Meeting Period” shall have the meaning set forth in Section 23(b).

     (qq) “Spread” shall have the meaning set forth in Section 11(a)(iii).

     (rr) “subsidiary” of a Person shall mean any corporation or other entity of which a
majority of the voting power of the voting equity securities or equity interest is owned, directly
or indirectly, by such Person.

     (ss) “Substitution Period” shall have the meaning set forth in Section 11(a)(iii).

     (tt) “Summary of Rights” shall have the meaning set forth in Section 3(b).

     (uu) “Trading Day” shall have the meaning set forth in Section 11(d).

8

 

     Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent
to act as agent for the Company and the holders of the Rights (who, in accordance with Section
3, shall prior to the Distribution Date also be the holders of the Common Stock) in accordance
with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable,
upon ten days’ prior written notice to the Rights Agent. The Rights Agent shall have no duty to
supervise, and shall in no event be liable for, the acts or omissions of any such Co-Rights Agents.

     Section 3. Issue of Right Certificates.

     (a) Until the close of business on the tenth day after the Shares Acquisition Date (the
“Distribution Date”), (i) the Rights will be evidenced (subject to the provisions of
Section 3(b)) by the certificates for the Common Stock registered in the names of the
holders thereof (which certificates shall be deemed also to be Right Certificates) and not by
separate Right Certificates, and (ii) the right to receive Right Certificates will be transferable
only in connection with the transfer of the Common Stock. As soon as practicable after the
Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if so requested by written notice
and provided with a stockholder list and all other relevant information that the Rights Agent may
reasonably request, send), by first class, postage-prepaid mail, to each record holder of Common
Stock as of the close of business on the Distribution Date (other than an Acquiring Person or any
Affiliate or Associate of an Acquiring Person), at the address of such holder shown on the records
of the Company, a Right Certificate, in substantially the form of Exhibit B hereto (a
“Right Certificate”), evidencing one Right for each share of Common Stock so held. As of
and after the Distribution Date, the Rights will be evidenced solely by such Right Certificates.
The Company shall promptly notify the Rights Agent in writing upon the occurrence of the
Distribution Date. Until such notice is received by the Rights Agent, the Rights Agent may presume
conclusively for all purposes that the Distribution Date has not occurred.

     (b) On the Record Date or as soon as practicable thereafter, the Company will send a copy of a
Summary of Rights to Purchase Preferred Stock, in substantially the form attached hereto as
Exhibit C (the “Summary of Rights”), by first class, postage-prepaid mail or other
means used by the Company to deliver proxy statements to its stockholders, to each record holder of
Common Stock as of the close of business on the Record Date at the address of such holder shown on
the records of the Company. With respect to certificates for the Common Stock outstanding as of
the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates
registered in the names of the holders thereof together with a copy of the Summary of Rights.
Until the Distribution Date (or the earlier of the Redemption Date or the Final Expiration Date),
the surrender for transfer of any certificate for Common Stock outstanding on the Record Date, with
or without a copy of the Summary of Rights, shall also constitute the transfer of the Rights
associated with the Common Stock represented thereby.

     (c) Rights shall be issued in respect of all shares of Common Stock issued or disposed of
(including, without limitation, upon disposition of Common Stock out of treasury stock or issuance
or reissuance of Common Stock out of authorized but unissued shares) after the Record Date but
prior to the earliest of the Distribution Date, the Redemption Date and the Final

9

 

Expiration Date, or in certain circumstances provided in Section 22, after the
Distribution Date. Certificates issued for Common Stock (including, without limitation, upon
transfer of outstanding Common Stock, disposition of Common Stock out of treasury stock or issuance
or reissuance of Common Stock out of authorized but unissued shares) after the Record Date but
prior to the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date
shall have impressed on, printed on, written on or otherwise affixed to them the following legend:

This certificate also evidences and entitles the holder hereof to certain Rights as
set forth in the Rights Agreement between Tesoro Corporation and American Stock
Transfer & Trust Company, as Rights Agent, dated as of November 20, 2007, as the
same may be supplemented or amended from time to time (the “Rights
Agreement”), the terms of which are hereby incorporated herein by reference and
a copy of which is on file at the principal executive offices of Tesoro Corporation.
Under certain circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced by this
certificate. American Stock Transfer & Trust Company will mail to the holder of
this certificate a copy of the Rights Agreement without charge after receipt of a
written request therefor. Under certain circumstances, as set forth in the Rights
Agreement, Rights acquired or beneficially owned by any Person who becomes an
Acquiring Person or any Affiliate or Associate of an Acquiring Person (as such terms
are defined in the Rights Agreement) and their transferees will become null and void
and will not longer be transferable.

     With respect to such certificates containing the foregoing legend, until the Distribution
Date, the Rights associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any of such certificates
shall also constitute the transfer of the Rights associated with the Common Stock represented by
such certificates.

     In the event that the Company purchases or acquires any shares of Common Stock after the
Record Date but prior to the Distribution Date, any Rights associated with such shares of Common
Stock shall be deemed cancelled and retired so that the Company shall not be entitled to exercise
any Rights associated with the shares of Common Stock that are no longer outstanding.

     Notwithstanding this Section 3(c), the omission of a legend shall not affect the
enforceability of any part of this Agreement or the rights of any holder of the Rights.

     Section 4. Form of Right Certificates. The Right Certificates (and the forms of
election to purchase shares and of assignment to be printed on the reverse thereof) shall be
substantially the same as Exhibit B hereto and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the Company may deem
appropriate (but that do not affect the rights, duties or obligations of the Rights Agent as set
forth in this Agreement) and as are not inconsistent with the provisions of this Agreement, or as
may be required to comply with any applicable law or with any rule or regulation made

10

 

pursuant thereto or with any rule or regulation of any stock exchange or automated quotation
system on which the Rights may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 22, the Right Certificates, in each case, on their face shall entitle
the holders thereof to purchase such number of shares of the Preferred Stock as shall be set forth
therein at the price per share set forth therein (the “Purchase Price”), but the number of
such shares and the Purchase Price shall be subject to adjustment as provided herein.

     Section 5. Countersignature and Registration. The Right Certificates shall be
executed on behalf of the Company in the manner provided in the By-Laws of the Company for Common
Stock certificates. The Right Certificates shall be countersigned by the Rights Agent, either
manually or by facsimile signature, and shall not be valid for any purpose unless so countersigned.

     In case any officer of the Company who shall have signed any of the Right Certificates shall
cease to be such officer of the Company before countersignature by the Rights Agent and issuance
and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered with the same force and effect as though the person who
signed such Right Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the actual date of the
execution of such Right Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Agreement any such person was not such
an officer.

     Following the Distribution Date, and receipt by the Rights Agent of (i) written notice of the
Distribution Date pursuant to Section 3(a), and (ii) a stockholder list and all relevant
information reasonably requested by the Rights Agent pursuant to Section 3(a), the Rights
Agent will keep or cause to be kept, at its office designated for such purposes, books for
registration and transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the number of Rights
evidenced on its face by each of the Right Certificates and the date of each of the Right
Certificates.

     Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates. Subject to the provisions of Section
7(e) and Section 14, at any time after the close of business on the Distribution Date,
and prior to the close of business on the earlier of the Redemption Date and the Final Expiration
Date, any Right Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) or that have been exchanged
pursuant to Section 24) may be transferred, split up, combined or exchanged for another
Right Certificate or Right Certificates, entitling the registered holder to purchase a like number
of shares of the Preferred Stock as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Right Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent designated for such
purposes. Thereupon the Rights Agent shall countersign and deliver to the Person entitled thereto
a Right Certificate or Right Certificates, as the case may be, as so requested. As a condition to
such transfer, division, combination or exchange, the Company may require payment by the

11

 

surrendering holder of a sum sufficient to cover any tax or charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right Certificates. The Rights
Agent shall have no duty or obligation to take any action under any section of this Agreement that
requires the payment by a Rights holder of applicable taxes and/or charges unless and until it is
satisfied that all such taxes and/or charges have been paid.

     Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them
of the loss, theft, destruction or mutilation of a Right Certificate, and, in the case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the
Company’s request, reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right
Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor
to the Rights Agent for delivery to the registered owner in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.

     Section 7. Exercise of Rights: Purchase Price; Final Expiration Date of Rights.

     (a) The registered holder of any Right Certificate may exercise the Rights evidenced thereby
(except as otherwise provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the office of the Rights Agent designated for such
purposes together with payment of the Purchase Price for each one one-thousandth of one share of
the Preferred Stock as to which the Rights are exercised, at or prior to the earliest of (i) the
close of business on November 20, 2010 (the “Final Expiration Date”), or (ii) the time at
which the Rights are redeemed as provided in Section 23 (“Redemption Date”), or
(iii) the time at which such Rights are exchanged as provided for in Section 24.

     (b) The Purchase Price for each one one-thousandth of one share of the Preferred Stock
pursuant to the exercise of a Right shall initially be $200.00, shall be subject to adjustment from
time to time as provided in Section 11 and Section 13, and shall be payable in
lawful money of the United States of America in accordance with Section 7(c).

     (c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of
election to purchase duly executed, accompanied by payment of the Purchase Price for shares to be
purchased and an amount equal to any applicable tax or charge required to be paid by the holder of
such Right Certificate in accordance with Section 6 in cash, or by certified check or
cashier’s check payable to the order of the Company, the Rights Agent shall thereupon (i) (A)
promptly requisition from any transfer agent of the Preferred Stock of the Company, or make
available if the Rights Agent is the transfer agent of the Preferred Stock, certificates for the
number of shares of the Preferred Stock to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests, or (B) promptly requisition from
the depositary agent depositary receipts representing such number of one one-thousandths of a share
of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred
Stock represented by such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company hereby directs the depositary agent to comply with such request, (ii) when
appropriate, promptly requisition from the Company the amount of cash to be paid in lieu of
issuance of fractional shares in accordance with Section 14, (iii) after receipt of

12

 

such certificates or depositary receipts, promptly cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such name or names as
may be designated by such holder, and (iv) when appropriate, after receipt, promptly deliver such
cash to or upon the order of the registered holder of such Right Certificate.

     (d) In case the registered holder of any Right Certificate shall exercise less than all the
Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights
remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to such holder’s duly authorized assigns, subject to the provisions of Section
14.

     (e) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to the purported transfer
or exercise of Rights pursuant to Section 6 or this Section 7 unless the registered
holder shall have duly completed and executed the form of assignment or election to purchase on the
reverse side of the Right Certificate surrendered for such transfer or exercise and shall have
provided such additional evidence of the identity of the Beneficial Owner (or such former or
proposed Beneficial Owner) thereof or such Beneficial Owner’s Affiliates or Associates as the
Company or the Rights Agent shall reasonably request.

     Section 8. Cancellation and Destruction of Right Certificates. All Right Certificates
surrendered for the purpose of exercise, transfer, split up, combination, redemption or exchange
shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by
it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any
of the provisions of this Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right
Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The
Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the
written request of the Company, destroy such cancelled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.

     Section 9. Reservation and Availability of Shares of Preferred Stock. The Company
covenants and agrees that it will cause to be reserved and kept available out of its authorized and
unissued Preferred Stock, or its authorized and issued Preferred Stock held in its treasury, the
number of shares of the Preferred Stock that will be sufficient to permit the exercise in full of
all outstanding Rights in accordance with this Agreement.

     So long as the Preferred Stock (and, following the time that a Person becomes an Acquiring
Person, shares of Common Stock) issuable upon the exercise of Rights may be listed or admitted to
trading on any national securities exchange or automated quotation system, the Company shall use
its best efforts to cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted for trading on such exchange or automated
quotation system upon official notice of issuance upon such exercise.

     The Company covenants and agrees that it will take all such action as may be necessary to
ensure that all shares of the Preferred Stock (and, following the time that a Person becomes an
Acquiring Person, shares of Common Stock) delivered upon exercise of Rights shall, at the time

13

 

of delivery of the certificates for such (subject to payment of the Purchase Price), be duly
and validly authorized and issued and fully paid and nonassessable shares.

     The Company further covenants and agrees that it will pay when due and payable any and all
federal and state transfer taxes and charges that may be payable in respect of the issuance or
delivery of the Right Certificates or of any shares of the Preferred Stock upon the exercise of
Rights. The Company shall not, however, be required (a) to pay any tax or charge that may be
payable in respect of any transfer involved in the transfer or delivery of Right Certificates or
the issuance or delivery of certificates for the Preferred Stock in a name other than that of the
registered holder of the Right Certificate evidencing Rights surrendered for exercise or (b) to
issue or deliver any certificates for shares of the Preferred Stock upon the exercise of any Rights
until any such tax or charge shall have been paid (any such tax or charge being payable by the
holder of such Right Certificate at the time of surrender) or until it has been established to the
Company’s satisfaction that no such tax or charge is due.

     The Company shall, if legally required, (i) prepare and file, as soon as reasonably possible
following the Distribution Date, a registration statement under the Securities Act with respect to
the securities purchasable upon exercise of or exchangeable for the Rights on an appropriate form,
(ii) cause such registration statement to become effective as soon as reasonably possible after
such filing, and (iii) cause such registration statement to remain effective (with a prospectus at
all times meeting the requirements of the Securities Act) until no longer required to do so under
the Securities Act with respect to securities purchasable upon exercise of or exchangeable for the
Rights. The Company also shall take all such action as may be required or as is appropriate under
the securities or blue sky laws of such jurisdictions as may be necessary or appropriate with
respect to the securities purchasable upon the exercise of or exchangeable for the Rights. The
Company may temporarily suspend, for a period not to exceed 120 days following the Distribution
Date, the exercisability of the Rights in order to prepare and file such registration statement and
permit it to become effective. Upon any such suspension of exercisability of Rights referred to in
this paragraph, the Company shall issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect.

     Section 10. Preferred Stock Record Date. Each Person in whose name any certificate
for shares of the Preferred Stock is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the Preferred Stock represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing such Rights,
together with the form of election to purchase duly completed and executed, was duly surrendered
and payment of the Purchase Price (and any applicable taxes or charges) was made; provided,
however, that if the date of such surrender and payment is a date upon which the Preferred
Stock transfer books of the Company are closed, such Person shall be deemed to have become the
record holder of such shares on, and such certificate shall be dated, the next succeeding Business
Day on which the Preferred Stock transfer books of the Company are open. Prior to the exercise of
the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights
of a stockholder of the Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings
of the Company, except as provided herein.

14

 

     Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights. The
Purchase Price, the number and kind or class of shares of stock of the Company covered by each
Right and the number of Rights outstanding are subject to adjustment from time to time as provided
in this Section 11.

     (a) (i) In the event the Company shall at any time after the date of this Agreement (A)
declare a dividend on the Preferred Stock payable in Preferred Stock, (B) subdivide the outstanding
Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of shares of
Preferred Stock or (D) issue any shares of its capital stock in a reclassification of the Preferred
Stock (including any such reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), except as otherwise provided in this
Section 11(a), the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock that, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Stock transfer books of the Company
were open, the holder would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification; provided, however,
that in no event shall the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of Preferred Stock issuable upon exercise of one Right. If an
event occurs that would require an adjustment under both Section 11(a)(i) and Section
11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in addition
to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii).

          (ii) Subject to Section 24, in the event any Person becomes an Acquiring Person, each
holder of a Right shall thereafter have a right to receive, upon exercise thereof at a price equal
to the Purchase Price in effect immediately prior to such Person becoming an Acquiring Person
multiplied by the number of one one-thousandths of a share of Preferred Stock for which a Right is
then exercisable, in accordance with the terms of this Agreement and in lieu of shares of Preferred
Stock, such number of shares of Common Stock as shall equal the result obtained by (A) multiplying
such Purchase Price by the number of one one-thousandths of a share of Preferred Stock for which a
Right is then exercisable and dividing that product by (B) 50% of the current market price per
share of the Common Stock (determined pursuant to Section 11(d)) on the date of the
occurrence of such event; provided, however, that if the transaction that would
otherwise give rise to the adjustment is also subject to the provisions of Section 13, then
only the provisions of Section 13 shall apply and no adjustment shall be made pursuant to
this Section 11(a)(ii). In the event that any Person shall become an Acquiring Person and
the Rights shall then be outstanding, the Company shall not take any action that would eliminate or
diminish the benefits intended to be afforded by the Rights. Notwithstanding anything in this
Agreement to the contrary, however, from and after the time (the “invalidation time”) when
any Person first becomes an Acquiring Person, any Rights that are or were acquired or beneficially
owned by any Acquiring Person (or any Affiliate or Associate of any Acquiring Person), including,
without limitation, any such Rights when held by (1) a transferee of any Acquiring Person (or any
such Affiliate or Associate) who becomes a transferee after the invalidation time, (2) a transferee
of any Acquiring Person (or any such Affiliate or Associate) who became a transferee prior to or
concurrently with the invalidation time pursuant to either (x) a transfer from

15

 

the Acquiring Person to holders of its equity securities or to any Person with whom it has any
continuing agreement, arrangement or understanding, written or otherwise, regarding the transferred
Rights or (y) a transfer that the Board of Directors of the Company determines is part of a plan,
arrangement or understanding, written or otherwise, that has the purpose or effect of avoiding the
provisions of this Section 11(a)(ii), or (3) a subsequent transferee of any Person
described in the foregoing clauses (1) or (2), shall be void without any further action and any
holder of such Rights shall thereafter have no right to exercise such Rights under any provision of
this Agreement. The Company shall use all reasonable efforts to ensure that the provisions of this
Section 11(a)(ii) are complied with, but shall have no liability to any holder of Rights or
other Person as a result of its failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder. No Right Certificate shall be
issued pursuant to Section 3, Section 6 or Section 7(d) that represents
Rights beneficially owned by an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof; no Right Certificate shall be issued at
any time upon the transfer of any Rights to an Acquiring Person whose Rights would be void pursuant
to the preceding sentence or any Associate or Affiliate thereof or to any nominee of such Acquiring
Person, Associate or Affiliate; and any Right Certificate delivered to the Rights Agent for
transfer to an Acquiring Person or any Associate or Affiliate whose Rights would be void pursuant
to the provisions of this paragraph shall be cancelled.

          (iii) The Company may, at its option, substitute for a share of Common Stock issuable upon the
exercise of Rights in accordance with Section 11(a)(ii) a number of shares of Preferred
Stock or fraction thereof such that the current market price per share of one share of Preferred
Stock multiplied by such number or fraction is equal to the current market price per share of one
share of Common Stock. In the event that there shall not be sufficient shares of Common Stock
issued but not outstanding or authorized but unissued to permit the exercise in full of the Rights
in accordance with Section 11(a)(ii), the Board of Directors of the Company shall, with
respect to such deficiency, to the extent permitted by applicable law and any material agreements
then in effect to which the Company is a party, (A) determine the excess (such excess, the
“Spread”) of (1) the value of the shares of Common Stock issuable upon the exercise of a
Right in accordance with Section 11(a)(ii) (the “Current Value”) over (2) the
Purchase Price in effect immediately prior to such Person becoming an Acquiring Person and (B) with
respect to each Right (other than Rights that have become void pursuant to Section
11(a)(ii)), make adequate provision to substitute for the shares of Common Stock issuable in
accordance with Section 11(a)(ii) upon exercise of the Right and payment of the applicable
Purchase Price, (1) cash, (2) a reduction in such Purchase Price, (3) shares of Preferred Stock or
other equity securities of the Company (including, without limitation, shares or fractions of
shares of preferred stock that, by virtue of having dividend, voting and liquidation rights
substantially comparable to those of the shares of Common Stock, are deemed in good faith by the
Board of Directors of the Company to have substantially the same value as the shares of Common
Stock (such shares of Preferred Stock and shares or fractions of shares of preferred stock are
hereinafter referred to as “Common Stock Equivalents”)), (4) debt securities of the
Company, (5) other assets or (6) any combination of the foregoing, having a value that, when added
to the value of the shares of Common Stock issued upon exercise of such Right, shall have an
aggregate value equal to the Current Value (less the amount of any reduction in such Purchase
Price), where such aggregate value has been determined by the Board of Directors of the Company
upon the advice of a nationally recognized investment banking firm selected in good

16

 

faith by the Board of Directors of the Company; provided, however, that if the
Company shall not make adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the date on which any Person becomes an Acquiring Person (the date on
which any Person becomes an Acquiring Person being the “Section 11(a)(ii) Trigger Date”),
then the Company shall be obligated to deliver, to the extent permitted by applicable law and any
material agreements then in effect to which the Company is a party, upon the surrender for exercise
of a Right and without requiring payment of such Purchase Price, shares of Common Stock (to the
extent available), and then, if necessary, such number or fractions of shares of Preferred Stock
(to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate
value equal to the Spread. If, upon any Person becoming an Acquiring Person, the Board of
Directors of the Company shall determine in good faith that it is likely that sufficient additional
shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, then,
if the Board of Directors of the Company so elects, the thirty (30) day period set forth above may
be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii)
Trigger Date, in order that the Company may seek stockholder approval for the authorization of such
additional shares (such thirty (30) day period, as it may be extended, is herein called the
“Substitution Period”). To the extent that the Company determines that some action need be
taken pursuant to the second and/or third sentence of this Section 11(a)(iii), the Company
(x) shall provide, subject to Section 11(a)(ii) and the last sentence of this Section
11(a)(iii), that such action shall apply uniformly to all outstanding Rights and (y) may
suspend the exercisability of the Rights until the expiration of the Substitution Period in order
to seek any authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such second sentence and to determine the value thereof. In
the event of any such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public announcement at
such time as the suspension is no longer in effect. For purposes of this Section
11(a)(iii), the value of the shares of Common Stock shall be the current market price per share
(as determined pursuant to Section 11(d)) on the Section 11(a)(ii) Trigger Date and the per
share or fractional value of any Common Stock Equivalent shall be deemed to equal the current
market price per share of the Common Stock. The Board of Directors of the Company may, but shall
not be required to, establish procedures to allocate the right to receive shares of Common Stock
upon the exercise of the Rights among holders of Rights pursuant to this Section
11(a)(iii).

     (b) In case the Company shall fix a record date for the issuance of rights, options or
warrants to all holders of Preferred Stock entitling them (for a period expiring within 45 calendar
days after such record date) to subscribe for or purchase Preferred Stock (or shares having the
same rights, privileges and preferences as the Preferred Stock (“equivalent preferred
stock”)) or securities convertible into Preferred Stock or equivalent preferred stock at a
price per share of Preferred Stock or equivalent preferred stock (or having a conversion price per
share, if a security convertible into Preferred Stock or equivalent preferred stock) less than the
current market price per share of the Preferred Stock (as defined in Section 11(d)) on such
record date, the Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding on such record date
plus the number of shares of Preferred Stock that the aggregate offering price of the total number
of shares of Preferred Stock and/or equivalent preferred stock so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be offered) would purchase
at such

17

 

current market price and the denominator of which shall be the number of shares of Preferred
Stock outstanding on such record date plus the number of additional shares of Preferred Stock
and/or equivalent preferred stock to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible); provided,
however, that in no event shall the consideration to be paid upon the exercise of one Right
be less than the aggregate par value of the shares of Preferred Stock issuable upon exercise of one
Right. In case such subscription price may be paid in consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in a written
statement filed with the Rights Agent. Shares of Preferred Stock owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed; and in the event that
such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase
Price that would then be in effect if such record date had not been fixed.

     (c) In case the Company shall fix a record date for the making of a distribution to all
holders of Preferred Stock (including any such distribution made in connection with a consolidation
or merger in which the Company is the continuing corporation) of evidences of indebtedness or
assets (other than (i) a regular periodic cash dividend, the record date for which occurs at a time
when there is no Acquiring Person, or (ii) a regular periodic cash dividend, the record date for
which occurs at a time when there is an Acquiring Person, at a rate not in excess of 125% of the
rate of the last cash dividend theretofore paid or (iii) a dividend payable in Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)), the
Purchase Price to be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction, the numerator of
which shall be the current market price per share of the Preferred Stock (as defined in Section
11(d)) on such record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a written statement
filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one share of Preferred Stock
and the denominator of which shall be such current market price per share of the Preferred Stock;
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of Preferred Stock
issuable upon exercise of one Right. Such adjustments shall be made successively whenever such a
record date is fixed; and in the event that such distribution is not so made, the Purchase Price
shall again be adjusted to be the Purchase Price that would then be in effect if such record date
had not been fixed.

     (d) (i) For the purpose of any computation hereunder, the “current market price per
share” of any security (a “Security”) on any date shall be deemed to be the average of
the daily closing prices per share of such Security for the 30 consecutive Trading Days (as such
term is hereinafter defined) immediately prior to such date; provided, however,
that in the event that the current market price per share of the Security is determined during the
period following the announcement by the issuer of such Security of (A) a dividend or distribution
on such Security payable in shares of such Security or securities convertible into shares of such
Security, or (B) any subdivision, combination or reclassification of such Security, and prior to
the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or
the record date for such subdivision, combination or reclassification, then, and in each such case,
the current

18

 

market price per share shall be appropriately adjusted to take into account ex-dividend
trading. The closing price for each day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and ask prices, regular way, in
either case as reported in the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Security is listed or admitted to trading or, if the
Security is not listed or admitted to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low ask prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use, or, if on any such date the
Security is not quoted by such organization, the average of the closing bid and ask prices as
furnished by a professional market maker making a market in the Security selected by the Board of
Directors of the Company. The term “Trading Day” shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to trading is open for the
transaction of business or, if the Security is not listed or admitted to trading on any national
securities exchange, a Business Day.

          (ii) For the purpose of any computation hereunder, the “current market price per
share” of Preferred Stock shall be determined in the same manner as set forth above for Common
Stock in Section 11(d)(i). If the Preferred Stock is not publicly traded or if the current
market price per share of Preferred Stock cannot be determined in the manner provided above, the
“current market price per share” of Preferred Stock shall be conclusively deemed to be the
current market price per share of Common Stock (appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof), multiplied by one thousand.
If neither the Common Stock nor the Preferred Stock is publicly held or so listed or traded, the
“current market price per share” of Preferred Stock shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose determination shall be
described in a written statement filed with the Rights Agent.

     (e) No adjustment in the Purchase Price shall be required unless such adjustment would require
an increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments that by reason of this Section 11(e) are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All calculations under
this Section 11 shall be made to the nearest cent or to the nearest ten-thousandth of a
share of Common Stock or other share (other than Preferred Stock) or ten-millionth of a share of
Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than the
earlier of (A) three years from the date of the transaction that mandates such adjustment or (B)
the date of the expiration of the right to exercise any Rights.

     (f) If as a result of an adjustment made pursuant to Section 11(a), the holder of any
Right thereafter exercised shall become entitled to receive any shares of capital stock of the
Company or of any Principal Party other than shares of the Preferred Stock, thereafter the number
of such other shares so receivable upon exercise of any Right shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the shares contained in Section 11(a), Section 11(b), Section
11(c),

19

 

     Section 11(e), Section 11(h), Section 11(i) and Section 11(m),
and the provisions of Section 7, Section 9, Section 10, Section 13
and Section 14 with respect to the shares of the Preferred Stock shall apply on like terms
to any such other shares.

     (g) All Rights originally issued by the Company subsequent to any adjustment made to the
Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the
number of one one-thousandths of a share of the Preferred Stock purchasable from time to time
hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.

     (h) Unless the Company shall have exercised its election as provided in Section 11(i),
upon each adjustment of the Purchase Price as a result of the calculations made in Section
11(b) and Section 11(c), each Right outstanding immediately prior to the making of such
adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price per one
one-thousandth of a share of Preferred Stock, that number of one one-thousandths of a share of
Preferred Stock (calculated to the nearest ten-millionth) obtained by (i) multiplying (x) the
number of one one-thousandths of a share of Preferred Stock covered by a Right immediately prior to
this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.

     (i) The Company may elect on or after the date of any adjustment of the Purchase Price to
adjust the number of Rights, in substitution for any adjustment in the number of one
one-thousandths of a share of the Preferred Stock purchasable upon the exercise of a Right. Each
of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for
the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest ten-millionth)
obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase
Price by the Purchase Price in effect immediately after the adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of Rights (with
prompt written notice thereof to the Rights Agent), indicating the record date for the adjustment
to be made and, if known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least ten days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date Right Certificates
evidencing, subject to Section 14, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for the Right Certificates
held by such holders prior to the date of adjustment, and upon surrender thereof, if required by
the Company, new Right Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in the names of the
holders of record of Right Certificates on the record date specified in the public announcement.

20

 

     (j) Irrespective of any adjustment or change in the Purchase Price or the number of one
one-thousandths of a share of the Preferred Stock issuable upon the exercise of the Rights, the
Right Certificates theretofore and thereafter issued may continue to express the Purchase Price per
one one-thousandth of a share of Preferred Stock and the number of one one-thousandths of a share
that were expressed in the initial Right Certificates issued hereunder.

     (k) Before taking any action that would cause an adjustment reducing the Purchase Price below
one one-thousandth of the then par value, if any, of the shares of the Preferred Stock issuable
upon exercise of the Rights, the Company shall take any corporate action that may, in the opinion
of its counsel, be necessary in order that the Company may validly and legally issue fully paid and
nonassessable shares of such Preferred Stock at such adjusted Purchase Price.

     (l) In any case in which this Section 11 shall require that an adjustment in the
Purchase Price be made effective as of a record date for a specified event, the Company may elect
(with prompt written notice of such election to the Rights Agent) to defer until the occurrence of
such event the issuing to the holder of any Right exercised after such record date the shares of
Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such
exercise over and above the shares of the Preferred Stock and other capital stock or securities of
the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder’s right to receive such
additional shares upon the occurrence of the event requiring such adjustment.

     (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it, in its sole discretion, shall
determine to be advisable in order that any consolidation or subdivision of the Preferred Stock,
issuance wholly for cash of any shares of the Preferred Stock at less than the current market
price, issuance wholly for cash of any shares of the Preferred Stock or securities that by their
terms are convertible into or exchangeable for Preferred Stock, dividends on the Preferred Stock
payable in Preferred Stock or issuance of rights, options or warrants referred to hereinabove in
this Section 11, hereafter made by the Company to holders of its Preferred Stock shall not
be taxable to such stockholders.

     (n) In the event that at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare or pay any dividend on the Common Stock payable in
Common Stock or (ii) effect a subdivision, combination or consolidation of the Common Stock (by
reclassification or otherwise than by payment of dividends in Common Stock) into a greater or
lesser number of shares of Common Stock, then in any such case (A) the number of one
one-thousandths of a share of Preferred Stock purchasable after such event upon proper exercise of
each Right shall be determined by multiplying the number of one one- thousandths of a share of
Preferred Stock so purchasable immediately prior to such event by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately before such event and the
denominator of which is the number of shares of Common Stock outstanding immediately after such
event, and (B) each share of Common Stock outstanding immediately after such event shall have
issued with respect to it that number of Rights that each share of Common Stock outstanding
immediately prior to such event had issued

21

 

with respect to it. The adjustments provided for in this Section 11(n) shall be made
successively whenever such a dividend is declared or paid or such a subdivision, combination or
consolidation is effected. If an event occurs that would require an adjustment under Section
11(a)(ii) and this Section 11(n), the adjustments provided for in this Section
11(n) shall be in addition and prior to any adjustment required pursuant to Section
11(a)(ii).

     (o) The Company agrees that, after the Shares Acquisition Date, it will not, except as
permitted by Section 23, Section 24 or Section 27, take (or permit any
subsidiary to take) any action if, at the time such action is taken, it is reasonably foreseeable
that such action will diminish substantially or eliminate the benefits intended to be afforded by
the Rights.

     Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an
adjustment is made as provided in Section 11 and Section 13, the Company shall (a)
promptly prepare a certificate setting forth such adjustment and a brief written statement of the
facts accounting for such adjustment, (b) promptly file with the Rights Agent and with each
transfer agent for the Common Stock and the Preferred Stock a copy of such certificate and (c) mail
a brief summary thereof to each holder of a Right Certificate in accordance with Section
25. The Rights Agent shall be fully protected in relying on any such certificate and on any
adjustment or statement contained therein and shall have no duty or liability with respect to and
shall not be deemed to have knowledge of such adjustment or event unless and until it shall have
received such certificate.

     Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.

     (a) In the event that, following the time at which any Person becomes an Acquiring Person, (i)
the Company shall consolidate with, or merge with and into, any other Person, (ii) any Person shall
consolidate with or merge with and into the Company and the Company shall be the continuing or
surviving corporation of such merger and, in connection with such merger, all or part of the Common
Stock shall be changed into or exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property, or (iii) the Company shall sell or otherwise transfer (or
one or more of its subsidiaries shall sell or otherwise transfer), in one or more transactions,
assets or earning power aggregating more than 50% of the assets or earning power of the Company and
its subsidiaries (taken as a whole) to any other Person (other than the Company or one or more of
its wholly-owned subsidiaries), then, and in each such case, proper provision shall be made so that
(A) each holder of a Right (except as otherwise provided herein) shall thereafter have the right to
receive, upon the exercise thereof at the Purchase Price in effect immediately prior to such Person
becoming an Acquiring Person multiplied by the number of one one-thousandths of a share of
Preferred Stock for which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of shares of Preferred Stock, such number of shares of validly issued, fully
paid, non-assessable and freely tradable Senior Voting Stock (as hereinafter defined) of the
Principal Party (as hereinafter defined) (including the Company as successor thereto or as the
surviving corporation), unencumbered and not subject to any liens, encumbrances, rights of call or
first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying
such Purchase Price by the then number of one one-thousandths of share of Preferred Stock for which
a Right is then exercisable and dividing that product by (2) 50% of the current market price per
share of the Senior Voting Stock of such Principal Party (determined in the manner described in
Section 11(d)) on the date of

22

 

consummation of such consolidation, merger, sale or transfer; (B) the Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or
transfer, all the obligations and duties of the Company pursuant to this Agreement; (C) the term
“Company” shall thereafter be deemed to refer to such Principal Party, it being
specifically intended that the provisions of Section 11 shall apply to such Principal Party
following the occurrence of such consolidation, merger, sale or transfer; and (D) such Principal
Party shall take such steps (including, but not limited to, the reservation of a sufficient number
of shares of its Senior Voting Stock in accordance with Section 9, with each reference to
Preferred Stock in Section 9 being deemed to be a reference to the shares of its Senior
Voting Stock) in connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to
the shares of its Senior Voting Stock thereafter deliverable upon the exercise of the Rights.

     (b) “Principal Party” shall mean (i) in the case of any transaction described in
Section 13(a)(i) or Section 13(a)(ii), the Person that is the issuer of any
securities into which shares of Common Stock are converted in such merger or consolidation, and if
no securities are so issued, the Person that is the other party to the merger or consolidation; and
(ii) in the case of any transaction described in Section 13(a)(iii), the Person that is the
other party to such transaction or, if more than one, the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such transaction;
provided, however, that in any such case, if the Senior Voting Stock of such Person
is not at such time and has not been continuously over the preceding 12-month period registered
under Section 12 of the Exchange Act, then (A) if such Person is a direct or indirect subsidiary of
another Person the Senior Voting Stock of which is and has been so registered, the term
“Principal Party” shall refer to such other Person; or (B) if such Person is a subsidiary,
directly or indirectly, of more than one Person and the Senior Voting Stock of any two or more of
such Persons is and has been so registered, the term “Principal Party” shall refer to
whichever of such Persons is the issuer of the Senior Voting Stock having the greatest aggregate
market value of shares outstanding; or (C) if such Person is owned, directly or indirectly, by a
joint venture formed by two or more Persons that are not owned, directly or indirectly, by the same
Person, the rules set forth in clauses (A) and (B) above shall apply to each of the owners having
an interest in such joint venture as if such joint venture were a subsidiary of both or all of such
joint venturers and the Principal Party in each such chain shall bear the obligations set forth in
this Section 13 in the same ratio as their direct or indirect interests in such joint
venture bear to the total of such interests. “Senior Voting Stock” shall mean the capital
stock (or equity interest) of the Principal Party with the greatest voting power.

     (c) The Company shall not consummate any such consolidation, merger, sale or transfer unless
prior thereto the Company and such Principal Party or Parties shall have executed and delivered to
the Rights Agent a supplemental agreement providing for the terms set forth in Section
13(a) and Section 13(b) and further providing that, as soon as practicable after the
date of any consolidation, merger or sale or transfer of assets mentioned in Section 13(a),
the Principal Party or Parties will (i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities purchasable upon exercise of the
Rights on an appropriate form, will use its best efforts (A) to cause such registration statement
to become effective as soon as practicable after such filing, (B) to cause such registration
statement to remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the date of expiration of the Rights, and (C) to similarly comply with
applicable state

23

 

securities laws, and use its best efforts to list (or continue the listing of) the Rights and
the securities purchasable upon exercise of the Rights on a national securities exchange; and (ii)
will deliver to holders of the Rights historical financial statements for the Principal Party or
Parties and each of its Affiliates that comply in all respects with the requirements for
registration on Form 10 (or any successor form) under the Exchange Act.

     (d) If the Principal Party has a provision in any of its authorized securities or in its
certificate of incorporation or by-laws or other instrument governing its affairs, which provision
would have the effect of (i) causing such Principal Party to issue (other than to holders of Rights
pursuant to this Section 13), in connection with, or as a consequence of, the consummation
of a transaction referred to in this Section 13, shares of Senior Voting Stock or Senior
Voting Stock equivalents of such Principal Party at less than the then-current market price per
share thereof (determined pursuant to Section 11(d)) or securities exercisable for, or
convertible into, Senior Voting Stock or Senior Voting Stock equivalents of such Principal Party at
less than such then-current market price or (ii) providing for any special payment, tax or similar
provision in connection with the issuance of the Senior Voting Stock of such Principal Party
pursuant to the provisions of this Section 13, then, in such event, the Company hereby
covenants and agrees with each holder of Rights that it shall not consummate any such transaction
unless prior thereto the Company and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing that the provision in question of such Principal
Party shall have been canceled, waived or amended, or that the authorized securities shall be
redeemed, so that the applicable provision will have no effect in connection with, or as a
consequence of, the consummation of the proposed transaction.

     (e) The Company covenants and agrees that it shall not, at any time after a Person first
becomes an Acquiring Person, enter into any transaction of the kind referred to in this Section
13 if (x) at the time of such transaction there are any rights, warrants, instruments or
securities outstanding or any agreements or arrangements that, as a result of the consummation of
such transaction, would eliminate or substantially diminish the benefits intended to be afforded by
the Rights, (y) prior to, simultaneously with or immediately after such transaction, the
stockholders of the Person who constitutes, or would constitute, the Principal Party for purposes
of Section 13(b) shall have received a distribution of Rights previously owned by such
Person or any of its Affiliates or Associates or (z) the form or nature of organization of the
Principal Party would preclude or limit the exercisability of the Rights. The provisions of this
Section 13 shall similarly apply to successive mergers or consolidations or sales or other
transfers.

     Section 14. Fractional Rights and Fractional Shares.

     (a) The Company shall not be required to issue fractions of Rights or to distribute Right
Certificates that evidence fractional Rights. In lieu of such fractional Rights, there shall be
paid to the registered holders of the Right Certificates, with regard to which such fractional
Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current
market value of a whole Right. For the purposes of this Section 14(a), the current market
value of a whole Right shall be the closing price of the Rights for the Trading Day immediately
prior to the date on which such fractional Rights would have been otherwise issuable. The closing
price for any day shall be the last sale price, regular way, or, in case no such sale takes place
on such

24

 

day, the average of the closing bid and ask prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national securities exchange on
which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low ask prices in the over-the-counter market, as reported by NASDAQ or
such other system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and ask prices as furnished by a professional market
maker making a market in the Rights, selected by the Board of Directors of the Company. If on any
such date, no such market maker is making a market in the Rights, the fair market value of the
Rights on such date as determined in good faith by the Board of Directors of the Company shall be
used.

     (b) The Company shall not be required to issue fractions of shares of Preferred Stock (other
than fractions that are integral multiples of one one-thousandth of a share of Preferred Stock)
upon exercise or exchange of the Rights or to distribute certificates that evidence fractional
shares of Preferred Stock (other than fractions that are integral multiples of one one-thousandth
of a share of Preferred Stock). Fractions of shares of Preferred Stock in integral multiples of
one one-thousandth of a share of Preferred Stock may, at the election of the Company, be evidenced
by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary
selected by it, provided that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are entitled as
beneficial owners of shares of Preferred Stock. In lieu of fractional shares that are not integral
multiples of one one-thousandth of a share of Preferred Stock, the Company shall pay to the
registered holders of Right Certificates with regard to which such fractional shares would
otherwise be issuable an amount in cash equal to the same fraction of the current market value of a
whole share of Preferred Stock. For purposes of this Section 14(b), the current market
value of a whole share of Preferred Stock shall be the closing price of a share of Preferred Stock
(as determined pursuant to the second sentence of Section 11(d)(i)) for the Trading Day
immediately prior to the date of such exercise or exchange).

     (c) The Company shall not be required to issue fractions of shares of Common Stock upon
exercise or exchange of the Rights or to distribute certificates that evidence fractional shares of
Common Stock. In lieu of such fractional shares, the Company shall pay to the registered holders
of Right Certificates with regard to which such fractional shares would otherwise be issuable an
amount in cash equal to the same fraction of the current market value of a whole share of Common
Stock. For purposes of this Section 14(c), the current market value of a whole share of
Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to the
second sentence of Section 11(d)(i)) for the Trading Day immediately prior to the date of
such exercise or exchange).

     (d) The holder of a Right by the acceptance of the Right expressly waives such holder’s right
to receive any fractional Rights or any fractional shares upon exercise of a Right (except as above
provided).

25

 

     Section 15. Rights of Action. All rights of action in respect of this Agreement are
vested in the respective registered holders of the Right Certificates (and, prior to the
Distribution Date, the registered holders of the Common Stock); and any registered holder of any
Right Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution
Date, of the Common Stock), may, in such holder’s own behalf and for such holder’s own benefit,
enforce, and may institute and maintain any suit, action or proceeding against the Company to
enforce this Agreement, or otherwise act in respect of such holder’s right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such Right Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it
is specifically acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened violations of the obligations of any
Person subject to, this Agreement.

     Notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights
Agent shall have any liability to any holder of a Right or other Person as a result of the
Company’s or the Rights Agent’s inability to perform any of their respective obligations under this
Agreement by reason of any preliminary or permanent injunction or other order, judgment, decree or
ruling (whether interlocutory or final) issued by a court or by a governmental, regulatory,
self-regulatory or administrative agency or commission, or any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority, prohibiting or otherwise
restraining performance of such obligation.

     Section 16. Agreement of Right Holders. Every holder of a Right, by accepting the
same, consents and agrees with the Company and the Rights Agent and with every other holder of a
Right that:

     (a) prior to the Distribution Date, the Rights will be transferable only in connection with
the transfer of the Common Stock;

     (b) after the Distribution Date, the Right Certificates are transferable only on the registry
books of the Rights Agent if surrendered at the office of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer; and

     (c) the Company and the Rights Agent may deem and treat the Person in whose name the Right
Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Right Certificates or the associated Common Stock
certificates made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the
contrary.

     Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as such, of
any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the
holder of the Preferred Stock or any other securities of the Company that may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or

26

 

in any Right Certificate be construed to confer upon the holder of any Right Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or other actions
affecting stockholders (except as provided in Section 23, Section 24 or Section
25), or to receive dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with the provisions
hereof.

     Section 18. Concerning the Rights Agent. The Company agrees to pay to the Rights
Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on
demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements
incurred in the administration and execution of this Agreement and the exercise and performance of
its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it
harmless against, any loss, liability, or expense (including, without limitation, the reasonable
fees and expenses of legal counsel), incurred without gross negligence, bad faith or willful
misconduct on the part of the Rights Agent (which gross negligence, bad faith or willful misconduct
must be determined by a final, non-appealable order, judgment, decree or ruling of a court of
competent jurisdiction), for any action taken, suffered or omitted by the Rights Agent in
connection with the acceptance, administration and performance of its duties under this Agreement,
including the costs and expenses of defending against any claim of liability in the premises and
the enforcement of this indemnification. This indemnification shall survive the termination of
this Agreement, the exercise of or expiration of the Rights and the resignation, replacement or
removal of the Rights Agent.

     The Rights Agent shall be protected and shall incur no liability for or in respect of any
action taken, suffered or omitted by it in connection with its administration of this Agreement in
reliance upon any Right Certificate or certificate for the Preferred Stock or for other securities
of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement or other paper or document believed by
it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the
proper person or persons or otherwise upon the advice of counsel as set forth in Section
20.

     Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any Person
into which the Rights Agent or any successor Rights Agent may be merged or with which it may be
consolidated, or any Person resulting from any merger or consolidation to which the Rights Agent or
any successor Rights Agent shall be a party, or any Person succeeding to the appropriate business
of the Rights Agent or any successor Rights Agent shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further act on the part of any
of the parties hereto, provided that such Person would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right Certificates either in the
name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in

27

 

all such cases such Right Certificates shall have the full force provided in the Right
Certificates and in this Agreement.

     In case at any time the name of the Rights Agent shall be changed and at such time any of the
Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates so countersigned; and in case
at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed name; and in all
such cases such Right Certificates shall have the full force provided in the Right Certificates and
in this Agreement.

     Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and
obligations expressly imposed by this Agreement upon the following terms and conditions, by all of
which the Company and the holders of Right Certificates, by their acceptance thereof, shall be
bound:

     (a) The Rights Agent may consult with the legal counsel (who may be legal counsel for the
Company), and the advice or opinion of such counsel shall be full and complete authorization and
protection to the Rights Agent as to any action taken, suffered or omitted by it in accordance with
such advice or opinion.

     (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem
it necessary or desirable that any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by any one of the Chairman of the Board, the President, any Vice President,
the Treasurer or the Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full and complete authorization and protection to the Rights Agent for any
action taken, suffered or omitted by it under the provisions of this Agreement in reliance upon
such certificate.

     (c) The Rights Agent shall be liable hereunder for only its own gross negligence, bad faith or
willful misconduct (which gross negligence, bad faith or willful misconduct must be determined by a
final, non-appealable order, judgment, decree or ruling of a court of competent jurisdiction).
Anything to the contrary notwithstanding, in no event shall the Rights Agent be liable for special,
punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including
but not limited to lost profits), even if the Rights Agent has been advised of the likelihood of
such loss or damage. Any liability of the Rights Agent under this Agreement will be limited to the
aggregate amount of fees paid by the Company to the Rights Agent.

     (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or
recitals contained in this Agreement or in the Right Certificates (except its countersignature
thereof) or be required to verify the same, but all such statements and recitals are and shall be
deemed to have been made by the Company only.

     (e) The Rights Agent shall not be under any responsibility in respect of the validity of this
Agreement or the execution and delivery hereof (except the due execution hereof by the

28

 

Rights Agent) or in respect of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be
responsible for any change in the exercisability of Rights (including any Rights becoming void
pursuant to Section 11(a)(ii)) or any adjustment in the terms of the Rights (including the
manner, method or amount thereof) provided for in Section 3, Section 11,
Section 13, Section 23 or Section 24, or the ascertaining of the existence
of facts that would require any such change or adjustment (except with respect to the exercise of
Rights evidenced by Right Certificates after actual notice that such change or adjustment is
required); nor shall it by any act hereunder be deemed to make any representation or warranty as to
the authorization or reservation of any shares of the Preferred Stock to be issued pursuant to this
Agreement or any Right Certificate or as to whether any shares of the Preferred Stock will, when
issued, be validly authorized and issued, fully paid and nonassessable.

     (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be
performed, executed, acknowledged and delivered all such further and other acts, instruments and
assurances as may reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.

     (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to
the performance of its duties hereunder from the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Secretary or the Treasurer of the Company, and such
instructions shall be full authorization and protection to the Rights Agent and the Rights Agent
shall not be liable for or in respect of any action taken, suffered or omitted by it in accordance
with instructions of any such officer or for any delay in acting while waiting for those
instructions. The Rights Agent shall be fully authorized and protected in relying upon the most
recent instructions received by any such officer. Any application by the Rights Agent for written
instructions from the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken, suffered or omitted by the Rights Agent under this Agreement and the
date on and/or after which such action shall be taken or suffered or such omission shall be
effective. The Rights Agent shall not be liable for any action taken or suffered by, or omission
of, the Rights Agent in accordance with a proposal included in any such application on or after the
date specified in such application (which date shall not be less than five Business Days after the
date any officer of the Company actually receives such application, unless any such officer shall
have consented in writing to an earlier date) unless, prior to taking any such action (or the
effective date in the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken, suffered or
omitted.

     (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent
may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or contract with or lend
interested money to the Company or otherwise act as fully and freely as though it were not Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other Person.

29

 

     (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it
or perform any duty hereunder either itself or by or through its attorneys or agents, and the
Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, absent gross negligence, bad faith or willful misconduct in the selection
and continued employment thereof (which gross negligence, bad faith or willful misconduct must be
determined by a final, non-appealable order, judgment, decree or ruling of a court of competent
jurisdiction).

     (j) If, with respect to any Right Certificate surrendered to the Rights Agent for exercise or
transfer, the certificate attached to the form of assignment or form of election to purchase, as
the case may be, has either not been completed or indicates that the Rights are beneficially owned
by an Acquiring Person or an Affiliate or Associate thereof, the Rights Agent shall not take any
further action with respect to such requested exercise or transfer without first consulting with
the Company.

     (k) The Rights Agent shall have no responsibility to the Company, any holders of Rights or any
holders of shares of Preferred Stock or other securities for interest or earnings on any monies
held by the Rights Agent pursuant to this Agreement, except as otherwise specifically agreed in a
separate writing by the Company and the Rights Agent.

     (l) The Rights Agent shall not be required to take notice or be deemed to have notice of any
event or condition hereunder, including, but not limited to, a Distribution Date, a Redemption
Date, any adjustment of the Purchase Price, the existence of an Acquiring Person or any other event
or condition that may require action by the Rights Agent, unless the Rights Agent shall be
specifically notified in writing of such event or condition by the Company, and all notices or
other instruments required by this Agreement to be delivered to the Rights Agent must, in order to
be effective, be received by the Rights Agent as specified in Section 26, and in the
absence of such notice so delivered, the Rights Agent may conclusively assume no such event or
condition exists.

     Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent
may resign and be discharged from its duties under this Agreement upon 30 days’ notice in writing
mailed to the Company and to each transfer agent of the Common Stock and the Preferred Stock by
registered or certified mail, and to the holders of the Right Certificates by first class mail.
The Company may remove the Rights Agent or any successor Rights Agent upon 30 days’ notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Stock and the Preferred Stock by registered or certified mail, and to
the holders of the Right Certificates by first class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the
Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after
giving notice of such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit such holder’s Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court,

30

 

shall be a Person (or an Affiliate of such a Person) organized and doing business under the laws of
the United States or of the State of Texas or the State of New York (or of any other state of the
United States so long as such Person is authorized to do business as a banking institution in the
State of Texas or the State of New York), in good standing, having a principal office in the States
of Texas, that is authorized under such laws to exercise corporate trust powers or stock transfer
powers and is subject to supervision or examination by federal or state authority and that has at
the time of its appointment as Rights Agent a combined capital and surplus of at least $100
million. After appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor
Rights Agent any property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of
any such appointment, the Company shall file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Stock or Preferred Stock, and mail a notice thereof in
writing to the registered holders of the Right Certificates. Failure to give any notice provided
for in this Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.

     Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions
of this Agreement or of the Rights to the contrary, the Company, at its option, may issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement. In addition, in connection with the issuance or sale of Common Stock
following the Distribution Date and prior to the Expiration Date, the Company may, with respect to
shares of Common Stock so issued or sold pursuant to (a) the exercise of stock options, (b) under
any employee plan or arrangement, (c) the exercise, conversion or exchange of securities, notes or
debentures issued by the Company or (d) a contractual obligation of the Company, in each case
existing prior to the Distribution Date, issue Right Certificates representing the appropriate
number of Rights in connection with such issuance or sale.

     Section 23. Redemption.

     (a) The Board of Directors of the Company may, at its option, at any time prior to 5:00 p.m.,
San Antonio, Texas time, on the earlier of (i) the Shares Acquisition Date or (ii) the Final
Expiration Date, redeem all but not less than all of the then outstanding Rights at a redemption
price of $0.001 per Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price being hereinafter
referred to as the “Redemption Price”). The redemption of the Rights may be made effective
at such time, on such basis and with such conditions as the Board of Directors of the Company in
its sole discretion may establish. The Company may, at its option, pay the Redemption Price in
cash, shares of Common Stock (based on the current market price of the Common Stock at the time of
redemption as determined pursuant to Section 11(d)(i)) or any other form of consideration
deemed appropriate by the Board of Directors of the Company, or any combination thereof.

31

 

     (b) If the Company receives a Qualified Offer and the Board of Directors of the Company has
not redeemed the outstanding Rights or exempted such offer from the terms of this Agreement or
called a special meeting of stockholders for the purpose of voting on whether or not to exempt such
Qualified Offer from the terms of this Agreement, in each case by the end of the ninety Business
Days following the commencement of such Qualified Offer, and if the Company receives, not earlier
than ninety Business Days nor later than 120 Business Days following the commencement of such
Qualified Offer, a written notice complying with the terms of this Section 23(b) (the
“Special Meeting Notice”), properly executed by the holders of record (or their duly
authorized proxy) of ten percent (10%) or more of the shares of Common Stock then outstanding
(excluding shares of Common Stock beneficially owned by the Person making the Qualified Offer and
such Person’s Affiliates and Associates), directing the Board of Directors of the Company to submit
to a vote of stockholders at a special meeting of the stockholders of the Company (a “Special
Meeting”) a resolution authorizing the redemption of all, but not less than all, of the then
outstanding Rights at the Redemption Price (the “Redemption Resolution”), then the Board of
Directors of the Company shall take such actions as are necessary or desirable to cause the
Redemption Resolution to be submitted to a vote of stockholders within ninety Business Days
following receipt by the Company of the Special Meeting Notice (the “Special Meeting
Period”), including by including a proposal relating to adoption of the Redemption Resolution
in the proxy materials of the Company for the Special Meeting; provided, however,
that if the Company, at any time during the Special Meeting Period and prior to a vote on the
Redemption Resolution, enters into a Definitive Acquisition Agreement, the Special Meeting Period
may be extended (and any Special Meeting called in connection therewith may be cancelled) if the
Redemption Resolution will be separately submitted to a vote at the same meeting as the Definitive
Acquisition Agreement. For purposes of a Special Meeting Notice, the record date for determining
eligible holders of record of the Common Stock shall be the ninetieth Business Day following the
commencement of a Qualified Offer. Any Special Meeting Notice must be delivered to the Secretary
of the Company at the principal executive offices of the Company and must set forth, as to the
stockholders of record executing such Special Meeting Notice, (i) the name and address of such
stockholders, as they appear on the Company’s books and records, (ii) the number of shares of
Common Stock that are owned of record by each of such stockholders and (iii) in the case of Common
Stock that is owned beneficially by another Person, an executed certification by the holder of
record that such holder has executed such Special Meeting Notice only after obtaining instructions
to do so from such beneficial owner. Subject to the requirements of applicable law, the Board of
Directors of the Company may take a position in favor of or opposed to the adoption of the
Redemption Resolution, or no position with respect to the Redemption Resolution, as it determines
to be appropriate in the exercise of its fiduciary duties. In the event that (A) no Person has
become an Acquiring Person prior to the effective date of redemption referred to below in this
sentence, (B) the Qualified Offer continues to be a Qualified Offer prior to the last day of the
Special Meeting Period (the “Outside Meeting Date”) and (C) either (1) the Special Meeting
is not held on or prior to the ninetieth Business Day following receipt of the Special Meeting
Notice or (2) at the Special Meeting at which a quorum is present, the holders of a majority of the
shares of Common Stock outstanding as of the record date for the Special Meeting selected by the
Board of Directors of the Company (excluding shares of Common Stock beneficially owned by the
Person making the Qualified Offer and such Person’s Affiliates and Associates), shall vote in favor
of the Redemption Resolution, then all of the Rights shall be deemed redeemed at the Redemption
Price by such

32

 

failure to hold the Special Meeting or as a result of the adoption of the Redemption
Resolution by the stockholders of the Company (or the Board of Directors of the Company shall take
such other action as may be necessary to prevent the existence of the Rights from interfering with
the consummation of the Qualified Offer), such redemption to be effective, as the case may be, (x)
as of the close of business on the Outside Meeting Date if a Special Meeting is not held on or
prior to such date or (y) if a Special Meeting is held on or prior to the Outside Meeting Date, as
of the date on which the results of the vote adopting the Redemption Resolution at the Special
Meeting are certified as official by the appointed inspectors of election for the Special Meeting.

     (c) Immediately upon the action of the Board of Directors of the Company ordering the
redemption of the Rights pursuant to Section 23(a) or the effectiveness of a redemption of
the Rights pursuant to Section 23(b), in either case, without any further action and
without any notice, the right to exercise the Rights will terminate and each Right will thereafter
represent only the right to receive the Redemption Price. The Company shall promptly give public
notice of any such redemption and, within ten days after such action causing a redemption of the
Rights pursuant to Section 23(a) or Section 23(b), the Company shall mail a notice
of redemption to all the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Stock. Any notice that is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the notice. Each such
notice of redemption will state the method by which the payment of the Redemption Price will be
made. Notwithstanding the foregoing, the failure to give, or any defect in, any notice required to
be made or given pursuant to this Section 23(c) shall not affect the validity of the
redemption of the Rights.

     (d) Neither the Company nor any of its Affiliates or Associates may redeem, acquire or
purchase for value any Rights at any time in any manner other than that specifically set forth in
this Section 23 or in Section 24, and other than in connection with the repurchase
of Common Stock prior to the Distribution Date.

     Section 24. Exchange.

     (a) The Board of Directors of the Company may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the provisions of Section
11(a)(ii)) for shares of Common Stock at an exchange ratio of one share of Common Stock per
Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred to as the
“Exchange Ratio”). Notwithstanding the foregoing, the Board of Directors of the Company
shall not be empowered to effect such exchange at any time after any Acquiring Person, together
with all Affiliates and Associates of such Acquiring Person, becomes the Beneficial Owner of 50% or
more of the voting power of the shares of Common Stock then outstanding. From and after the
occurrence of an event specified in Section 13(a), any Rights that theretofore have not
been exchanged pursuant to this Section 24(a) shall thereafter be only exercisable in
accordance with Section 13 and may not be exchanged pursuant to this Section 24(a).
The exchange of the Rights by the Board of Directors of the Company may be made

33

 

effective at such time, on such basis and with such conditions as the Board of Directors of
the Company in its sole discretion may establish.

     (b) Immediately upon the effectiveness of the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to Section 24(a) and without any further
action and without any notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of shares of Common Stock
equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; provided, however,
that the failure to give, or any defect in, such notice shall not affect the validity of such
exchange. The Company promptly shall mail a notice of any such exchange by first class mail to all
of the holders of such Rights at their last addresses as they appear upon the registry books of the
Rights Agent. Any notice that is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will state the method
by which the exchange of Common Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights that will be exchanged. Any partial exchange shall be effected pro
rata based on the number of Rights (other than Rights that have become void pursuant to the
provisions of Section 11(a)(ii)) held by each holder of Rights.

     (c) The Company may, at its option, substitute for a share of Common Stock issuable upon the
exchange of Rights in accordance with Section 24(a) a number of shares of Preferred Stock
or fraction thereof such that the current market price per share of one share of Preferred Stock
multiplied by such number or fraction is equal to the current market price per share of one share
of Common Stock.

     Section 25. Notice of Certain Events. In case the Company shall propose at any time
following the Distribution Date (a) to pay any dividend payable in stock of any class to the
holders of its Preferred Stock or to make any other distribution to the holders of its Preferred
Stock (other than a regular periodic cash dividend at a rate not in excess of 125% of the rate of
the last cash dividend theretofore paid), (b) to offer to the holders of its Preferred Stock rights
or warrants to subscribe for or to purchase any additional shares of the Preferred Stock or shares
of stock of any class or any other securities, rights or options, (c) to effect any
reclassification of its Preferred Stock (other than a reclassification involving only the
subdivision of outstanding Preferred Stock), (d) to effect any consolidation or merger into or
with, or to effect any sale or other transfer (or to permit one or more of its subsidiaries to
effect any sale or other transfer), in one or more transactions, of more than 50% of the assets or
earning power of the Company and its subsidiaries (taken as a whole) to, any other Person, (e) to
effect the liquidation, dissolution or winding up of the Company or (f) to declare or pay any
dividend on the shares of Common Stock payable in shares of Common Stock or to effect a
subdivision, combination or consolidation of the shares of Common Stock (by reclassification or
otherwise than by payment of dividends in shares of Common Stock), then, in each such case, the
Company shall give to each holder of a Right Certificate, in accordance with Section 26, a
notice of such proposed action, which shall specify the record date for the purposes of such stock
dividend, distribution of rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and
the date of participation therein by the holders of the Common Stock and/or the Preferred Stock, if
any such date is to be fixed, and such notice shall be so given in the case of any action covered
by clause (a) or (b) above at least ten days

34

 

prior to the record date for determining holders of the Preferred Stock for purposes of such
action, and in the case of any such other action, at least ten days prior to the date of the taking
of such proposed action or the date of participation therein by the holders of the Common Stock
and/or the Preferred Stock, whichever shall be the earlier. In case the event set forth in
Section 11(a)(ii) shall occur, then the Company shall as soon as practicable thereafter
give to each holder of a Right, in accordance with Section 26, a notice of the occurrence
of such event, which shall specify the event and the consequences of the event to holders of Rights
under Section 11(a)(ii).

     Section 26. Notices. Notices or demands authorized by this Agreement to be given or
made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be
sufficiently given or made if sent by first class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:

Tesoro Corporation

300 Concord Plaza Drive

San Antonio, Texas 78216-6999

Attention: Secretary

     Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the
Rights Agent shall be sufficiently given or made if sent by first class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as follows:

American Stock Transfer & Trust Company

6201 15th Avenue

Brooklyn, NY 11219

Attention: Office of General Counsel

     Notices or demands authorized by this Agreement to be given or made by the Company or the
Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by
first class mail, postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Company.

     Section 27. Supplements and Amendments. Except as otherwise provided in this
Section 27, for so long as the Rights are then redeemable, the Company may from time to
time in its sole and absolute discretion, and the Rights Agent shall if the Company so directs,
supplement or amend any provision of this Agreement in any respect without the approval of any
holders of the Rights. At any time when the Rights are no longer redeemable, except as otherwise
provided in this Section 27, the Company may, and the Rights Agent shall, if the Company so
directs, supplement or amend this Agreement without the approval of any holders of Rights in order
to (a) cure any ambiguity, (b) correct or supplement any provision contained herein that may be
defective or inconsistent with any other provisions herein, (c) shorten or lengthen any time period
hereunder or (d) change or supplement the provisions hereunder in any manner that the Company may
deem necessary or desirable; provided, however, that at any time when the Rights
are no longer redeemable, this Agreement shall not be supplemented or amended in any manner that
would adversely affect the interests of the holders of Right Certificates as such, cause this
Agreement to become amendable other than in accordance with

35

 

this Section 27 or cause the Rights to again become redeemable. Upon the delivery of
a certificate from an appropriate officer of the Company that states that the proposed supplement
or amendment is in compliance with the terms of this Section 27, the Rights Agent shall
execute such supplement or amendment; provided that any supplement or amendment that does not amend
Section 18, Section 19, Section 20, Section 21 or this Section
27 in a manner adverse to the Rights Agent shall become effective immediately upon execution by
the Company, whether or not also executed by the Rights Agent.

     Notwithstanding anything contained in this Agreement to the contrary, the Rights Agent may,
but shall not be obligated to, enter into any supplement or amendment that affects the Rights
Agent’s own rights, duties, obligations or immunities under this Agreement.

     Section 28. Successors. All the covenants and provisions of this Agreement by or for
the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.

     Section 29. Benefits of this Agreement. Nothing in this Agreement shall be construed
to give to any Person other than the Company, the Rights Agent and the registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders of the Common
Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders
of the Right Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock).

     Section 30. Determinations and Actions by the Board of Directors of the Company. The
Board of Directors of the Company shall have the exclusive power and authority to administer this
Agreement and to exercise the rights and powers specifically granted to the Board of Directors of
the Company or to the Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (a) interpret the provisions of
this Agreement and (b) make all determinations deemed necessary or advisable for the administration
of this Agreement (including, without limitation, a determination to redeem or not redeem the
Rights, to exchange or not exchange the Rights, or to amend this Agreement). All such actions,
calculations, interpretations and determinations (including, for purposes of clause (y) below, all
omissions with respect to the foregoing) that are done or made by the Board of Directors of the
Company in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent,
the holders of the Rights, as such, and all other Persons and (y) not subject the Board of
Directors of the Company to any liability to the holders of the Rights or any other Person.

     Section 31. Annual Review by Independent Directors. A committee of Independent
Directors (the “Committee”), which shall be the Corporate Governance Committee of the Board
of Directors of the Company (or any successor committee) as long as the members of such committee
meet such requirements, shall review and evaluate this Agreement at least annually in order to
consider whether the maintenance of this Agreement continues to be in the best interests of the
Company and the stockholders of the Company. Following each such review, the Committee shall
communicate its conclusions to the full Board of Directors of the Company, including any
recommendation in light thereof as to whether this Agreement should be modified

36

 

or the Rights should be redeemed. The Committee, when considering whether this Agreement
should be modified or the Rights should be redeemed, shall have the power and authority (a) to set
their own agenda, (b) to retain, at the expense of the Company, its choice of legal counsel,
investment bankers and other advisors and (c) to review all information of the Company and to
consider any and all factors it deems relevant to an evaluation of whether this Agreement should be
modified or the Rights should be redeemed.

     Section 32. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

     Section 33. Governing Law. This Agreement and each Right Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes
shall be governed by and construed in accordance with the laws of such state applicable to
contracts to be made and performed entirely within such state.

     Section 34. Descriptive Headings; References. Descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof. Except as otherwise specifically
provided, any reference to any section or exhibit will be deemed to refer to such section of or
exhibit to this Agreement.

     Section 35. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to be an original, and
all such counterparts shall together constitute but one and the same instrument.

{Remainder of Page Left Intentionally Blank}

37

 

     IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to be duly executed
and their respective seals to be hereunto affixed and attested, all as of the day and year first
above written.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Attest:	 	 	 	 	 	 	 	TESORO CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:	 	/s/ Otto C. Schwethelm  	 	By:	 	/s/ Charles S. Parrish	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	Otto C. Schwethelm
	 	 	 	 	 	Name:
	 	Charles S. Parrish	 	 
	 

	 	Title:
	 	Vice President,
	 	 	 	 	 	Title:
	 	 Senior Vice President, General	 	 
	 

	 	 	 	Chief Financial Officer
	 	 	 	 	 	 	 	Counsel and Secretary	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	AMERICAN STOCK TRANSFER & 
   TRUST COMPANY	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	By:	 	/s/ Herb Lemmer	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	Name:
	 	Herb Lemmer	 	 
	 

	 	 	 	 	 	 	 	 	 	Title:
	 	Vice President	 	 

38

 

Exhibit A

Form of Certificate of Designations for Series B Junior Participating Preferred Stock

CERTIFICATE OF DESIGNATIONS

of

SERIES B JUNIOR PARTICIPATING PREFERRED STOCK

of

TESORO CORPORATION

 

Pursuant to Section 151 of the

General Corporation Law of the State of Delaware

 

     The undersigned, Charles S. Parrish, DOES HEREBY CERTIFY that:

          (A) he is the duly elected Senior Vice President and Secretary of Tesoro Corporation, a
Delaware corporation (the “Corporation”);

          (B) the Restated Certificate of Incorporation of the Corporation authorizes the Corporation to
issue five million (5,000,000) shares of Preferred Stock, and authorizes the Board of Directors of
the Corporation to (1) provide for the issuance of the Preferred Stock from time to time in one or
more series, each of said series to be distinctly designated and all shares of any one series to be
alike in every particular and (2) fix or alter the number of shares constituting each series and
the designation thereof, and the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the redemption price or prices
and the liquidation preferences of each such series; and

          (C) the Board of Directors of the Corporation adopted the following resolution on November 20,
2007, at a special meeting of the Board of Directors of the Corporation, and such resolution has
not been rescinded or amended and is in full force and effect as of the date hereof:

     RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of
Directors (the “Board”) of Tesoro Corporation, a Delaware corporation (the
“Corporation”), by the provisions of the Restated Certificate of Incorporation of the
Corporation (as amended from time to time, the “Certificate of Incorporation”), there
hereby is created, out of the five million (5,000,000) shares of Preferred Stock, no par value (the
“Preferred Stock”), authorized in Article IV of the Certificate of Incorporation, a series
of Preferred Stock of the Corporation consisting of One Million Two Hundred-Fifty Thousand
(1,250,000) shares, having the

 

 

following designations, preferences, relative, participating, optional and other special
rights, voting powers, qualifications, limitations and restrictions:

SERIES B JUNIOR PARTICIPATING PREFERRED STOCK

	I.	 	Designation and Amount. The shares of such series shall be designated as “Series B Junior
Participating Preferred Stock” (the “Series B Preferred Stock”) and the number of
shares constituting such series shall be One Million Two Hundred-Fifty Thousand (1,250,000).
Such number of shares may be increased or decreased by resolution of the Board of Directors,
provided that no decrease shall reduce the number of shares of Series B Preferred Stock to a
number less than that of the shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon the conversion
of any outstanding securities issued by the Corporation convertible into Series B Preferred
Stock.
	 
	II.	 	Dividends and Distributions.

	 	(A)	 	Subject to the prior and superior rights of the holders of any shares of any
series of Preferred Stock ranking prior and superior to the shares of Series B Preferred
Stock and with respect to dividends, the holders of shares of Series B Preferred Stock,
in preference to the holders of Common Stock, par value $0.162/3 per share (or as such par
value may be changed from time to time), of the Corporation (the “Common Stock”)
and of any other junior stock, shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of January, April, July and October in each
year (each such date being referred to herein as a “Quarterly Dividend Payment
Date”), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series B Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (i) $1.00 or (ii) subject to
the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a share of
Series B Preferred Stock. In the event the Corporation shall at any time on or after
the Distribution Date (as such term is defined in the Rights Agreement dated as of
November 20, 2007 between the Corporation and American Stock Transfer & Trust Company,
as Rights Agent, as such agreement may be amended from time to time) declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common Stock)
into a greater or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series B Preferred Stock were entitled immediately
prior to such event under clause (ii) of the preceding sentence shall be

2

 

	 	 	 	adjusted by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding immediately
prior to such event.

	 	(B)	 	The Corporation shall declare a dividend or distribution on the Series B
Preferred Stock as provided in paragraph (A) of this Section immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend payable
in shares of Common Stock); provided that, in the event no dividend or distribution
shall have been declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $1.00 per share on the Series B Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
	 
	 	(C)	 	Dividends shall begin to accrue and be cumulative on outstanding shares of Series
B Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of
issue of such shares of Series B Preferred Stock, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of shares of Series B Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on the shares of Series B Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such shares
at the time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series B Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record date shall be not
more than 60 days prior to the date fixed for the payment thereof.

	III.	 	Voting Rights. The holders of shares of Series B Preferred Stock shall have the following
voting rights:

	 	(A)	 	Subject to the provision for adjustment hereinafter set forth, each share of
Series B Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters
submitted to a vote of the stockholders of the Corporation. In the event the
Corporation shall at any time on or after the Distribution Date declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common Stock)
into a greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series B Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such number by
a fraction the numerator of which is the number of

3

 

	 	 	 	shares of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately prior
to such event.

	 	(B)	 	Except as otherwise provided herein, in the Certificate of Incorporation, in any
other Certificate of Designations creating a series of Preferred Stock, or by law, the
holders of shares of Series B Preferred Stock and the holders of shares of Common Stock
and any other capital stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.
	 
	 	(C)	 	Except as set forth herein, holders of Series B Preferred Stock shall have no
special voting rights and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth herein) for taking any
corporate action.

IV. Certain Restrictions.

	 	(A)	 	Whenever quarterly dividends or other dividends or distributions payable on the
Series B Preferred Stock as provided in Section II are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on shares
of Series B Preferred Stock outstanding shall have been paid in full, the Corporation
shall not:

	 	(i)	 	declare or pay dividends on or make any other distributions on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Stock;
	 
	 	(ii)	 	declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred Stock, except dividends
paid ratably on the Series B Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
	 
	 	(iii)	 	redeem or purchase or otherwise acquire for consideration shares of
any stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series B Preferred Stock, provided that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any such junior stock
in exchange for shares of any stock of the Corporation ranking junior (either as
to dividends or upon dissolution, liquidation or winding up) to the Series B
Preferred Stock; or
	 
	 	(iv)	 	redeem or purchase or otherwise acquire for consideration any shares
of Series B Preferred Stock, or any shares of stock ranking on a parity with the
Series B Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all holders
of such shares upon such terms as the Board of Directors, after consideration of
the

4

 

	 	 	 	respective annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.

	 	(B)	 	The Corporation shall not permit any subsidiary of the Corporation to purchase or
otherwise acquire for consideration any shares of stock of the Corporation unless the
Corporation could, under paragraph (A) of this Section IV, purchase or otherwise acquire
such shares at such time and in such manner.

	V.	 	Reacquired Shares. Any shares of Series B Preferred Stock purchased or otherwise acquired by
the Corporation in any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations creating a series of
Preferred Stock or any similar stock or as otherwise required by law.

	VI.	 	Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of
the Corporation, no distribution shall be made:

	 	(A)	 	to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preferred Stock unless, prior
thereto, the holders of shares of Series B Preferred Stock shall have received $1,000.00
per share, plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, provided that the holders
of shares of Series B Preferred Stock shall be entitled to receive an aggregate amount
per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount to be distributed per share to holders of Common Stock, or
	 
	 	(B)	 	to the holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred Stock, except
distributions made ratably on the Series B Preferred Stock and all other such parity
stock in proportion to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up.

In the event the Corporation shall at any time declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the aggregate amount to which holders of shares of Series B
Preferred Stock were entitled immediately prior to such event under the proviso in clause (A)
of the preceding sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

5

 

	VII.	 	Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or
any other property, then in any such case the shares of Series B Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to
1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at
any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment
of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such
case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series B
Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
	 
	VIII.	 	No Redemption. The shares of Series B Preferred Stock shall not be redeemable.
	 
	IX.	 	Rank. The Series B Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets,
junior to all other series of the Preferred Stock, whether designated or issued before or after the date of this
Certificate of Designations, unless the terms of any such series shall provide otherwise.
	 
	X.	 	Fractional Shares. The Series B Preferred Stock may be issued in fractions of a share that
shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting
rights, receive dividends, participate in distributions and have the benefit of all other
rights of holders of the Series B Preferred Stock.
	 
	XI.	 	Amendment. The Certificate of Incorporation shall not be amended in any manner that would
materially alter or change the powers, preferences or special rights of the Series B Preferred
Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds
of the outstanding shares of Series B Preferred Stock, voting together as a single series.

{Remainder of Page Left Intentionally Blank}

6

 

     IN WITNESS WHEREOF,
Corporation has caused this Certificate of Designations of Series B Junior Participating Preferred Stock of Tesoro
Corporation to be signed by its Senior Vice President and Secretary on this 20th day of November, 2007.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Attest:	 	 	 	 	 	TESORO CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:	 		 	By:	 		 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	Otto C. Schwethelm
	 	 	 	 	 	Name:
	 	Charles S. Parrish	 	 
	 

	 	Title:
	 	Vice President,
	 	 	 	 	 	Title:
	 	Senior Vice President, General	 	 
	 

	 	 	 	Chief Financial Officer
	 	 	 	 	 	 	 	Counsel and Secretary	 	 

7

 

Exhibit B

Form of Right Certificate

			
	 	 	 
	Certificate No. R-          
	 	                               Rights

NOT EXERCISABLE AFTER NOVEMBER 20, 2010 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS.
THE RIGHTS ARE SUBJECT, AT THE OPTION OF THE COMPANY, TO REDEMPTION AT $0.001 PER
RIGHT OR TO EXCHANGE, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY
ACQUIRING PERSONS (AS DEFINED IN SECTION 1 OF THE RIGHTS AGREEMENT) OR ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID.

Right Certificate

TESORO CORPORATION

     This certifies that                      or registered assigns, is the registered owner of the
number of Rights set forth above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement dated as of November 20, 2007 (the “Rights
Agreement”) between TESORO CORPORATION, a Delaware corporation (the “Company”), and
American Stock Transfer & Trust Company, a New York corporation (the “Rights Agent”), to
purchase from the Company at any time after the Distribution Date (as such term is defined in the
Rights Agreement) and prior to the close of business (as such term is defined in the Rights
Agreement) on November 20, 2010 at the office of the Rights Agent, or its successors as Rights
Agent, designated for such purposes, one one-thousandth of one fully paid and non-assessable share
of the Series B Junior Participating Preferred Stock (the “Preferred Stock”) of the
Company, at a purchase price of $200.00 per one one-thousandth of one share (the “Purchase
Price”), upon presentation and surrender of this Right Certificate with the Form of Election to
Purchase duly executed. The number of Rights evidenced by this Right Certificate (and the number
of one one-thousandths of a share of Preferred Stock that may be purchased upon exercise thereof)
set forth above, and the Purchase Price per share set forth above, are the number and Purchase
Price as of November 20, 2007, based on the shares of the Preferred Stock of the Company as
constituted at such date.

     As provided in the Rights Agreement, the Purchase Price, the number and kind or class of
shares of stock of the Company that may be purchased upon the exercise of the Rights evidenced by
this Right Certificate are subject to modification and adjustment upon the happening of certain
events.

1

 

     This Right Certificate is subject to all of the terms, provisions and conditions of the Rights
Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and
made a part hereof and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights
Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are
on file at the principal executive offices of the Company and the office of the Rights Agent.

     This Right Certificate, with or without other Right Certificates, upon surrender at the office
of the Rights Agent designated for such purposes, may be exchanged for another Right Certificate or
Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of the Preferred Stock as the Rights evidenced by the Right Certificate
or Right Certificates surrendered shall have entitled such holder to purchase.

     If this Right Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Right Certificate or Right Certificates for the number of whole
Rights not exercised.

     Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate
may, but are not required to, be (i) redeemed by the Company at its option at a redemption price of
$0.001 per Right or (ii) exchanged by the Company in whole or in part for shares of Preferred Stock
or Common Stock, par value $0.162/3 per share, of the Company.

     No fractional shares of the Preferred Stock will be issued upon the exercise of any Right or
Rights evidenced hereby (other than fractions that are integral multiples of one one-thousandth of
one share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary
receipts), but in lieu thereof a cash payment will be made as provided in the Rights Agreement.

     No holder of this Right Certificate shall be entitled to vote or receive dividends or be
deemed for any purpose the holder of the Preferred Stock or of any other securities of the Company
that may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate
action, or to receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided
in the Rights Agreement.

     This Right Certificate shall not be valid or obligatory for any purpose until it shall have
been countersigned by the Rights Agent.

2

 

     WITNESS the facsimile signature of the proper officers of the Company and its corporate seal.

Dated as of                     , 20     .

	 	 	 	 	 	 	 	 	 	 	 
	Attest:	 	 	 	TESORO CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	 	 	 	 	Name:	 	 
	 

	 	Title:
	 	 	 	 	 	Title:	 	 

	 	 	 	 	 
	Countersigned:

AMERICAN STOCK TRANSFER & TRUST COMPANY

 	 	 
	By:  	 	 	 
	 	Authorized Signature 	 	 
	 

3

 

[Form of Reverse Side of Right Certificate]

FORM OF ASSIGNMENT

(To be executed by the registered holder if such holder desires to transfer the Right Certificate)

					
	 	 	 	 	 
	     FOR VALUE RECEIVED
	 	 	 	hereby
	 
	 	 	 	 

			
	 	 	 
	sells, assigns and transfers unto	 	 
	 
	 	 

 
(Please print name and address of transferee)

this Right Certificate, together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint                                          Attorney, to transfer the within Right
Certificate on the books of the within-named Company, with full power of substitution.

     Dated:                           , 20     

	 	 	 	 	 
	 	 	 
	 	 
 	 
	 	Signature 	 
	 

(Signature must conform in all respects to the name of holder as written upon the face

of this Right Certificate, without alteration or enlargement or any change whatsoever.)

Signature Guaranteed:

     Signatures must be guaranteed by an “eligible guarantor institution” as defined in Rule
17Ad-15 promulgated under the Securities Exchange Act of 1934, as amended.

 
(to be completed if applicable)

     The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not
beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the
Rights Agreement).

	 	 	 	 	 
	 	 	 
	 	 
 	 
	 	Signature 	 
	 	 	 
	 

4

 

FORM OF ELECTION TO PURCHASE

(To be executed by the registered holder if such holder desires to exercise the Right Certificate)

TO: TESORO CORPORATION

     The undersigned hereby irrevocably elects to exercise                                          Rights
represented by this Right Certificate to purchase the shares of the Preferred Stock issuable upon
the exercise of such Rights and requests that certificates for such shares be issued in the name
of:

			
	 	 	 
	[Please insert social security or other identifying number]	 	 
	 
	 	 

 
(Please print name and address)

If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new
Right Certificate for the balance remaining of such Rights shall be registered in the name of and
delivered to:

			
	 	 	 
	[Please insert social security or other identifying number]	 	 
	 
	 	 

 
 (Please print name and address)

     Dated:                           , 20     

	 	 	 	 	 
	 	 	 
	 	 
 	 
	 	Signature 	 
	 

(Signature must conform in all respects to the name of holder as written upon the face

of this Right Certificate, without alteration or enlargement or any change whatsoever.)

Signature Guaranteed:

     Signatures must be guaranteed by an “eligible guarantor institution” as defined in Rule
17Ad-15 promulgated under the Securities Exchange Act of 1934, as amended.

 
(to be completed if applicable)

     The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not
beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the
Rights Agreement).

	 	 	 	 	 
	 	 	 
	 	 
 	 
	 	Signature 	 
	 	 	 
	 

5

 

Exhibit C

TESORO CORPORATION

SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK

     On November 20, 2007, the Board of Directors of TESORO CORPORATION (the “Company”)
declared a dividend distribution of one preferred stock purchase right (a “Right”) for each
outstanding share of common stock, $0.162/3 par value, of the Company (the “Common Stock”).
The distribution is payable on December 3, 2007 to the stockholders of record on December 3, 2007
(the “Record Date”). Each Right entitles the registered holder to purchase from the
Company one one-thousandth of a share of the Company’s Series B Junior Participating Preferred
Stock (the “Preferred Stock”) at a price of $200.00 per one one-thousandth of a share of
Preferred Stock (the “Purchase Price”), subject to adjustment. The description and terms
of the Rights are set forth in a Rights Agreement dated November 20, 2007 (the “Rights
Agreement”), between the Company and American Stock Transfer & Trust Company, as Rights Agent
(the “Rights Agent”).

     A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as
an Exhibit to a Registration Statement on Form 8-A dated November 21, 2007. Copies of the Rights
Agreement are available free of charge from the Rights Agent, American Stock Transfer & Trust
Company. The following summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is hereby incorporated herein
by reference.

     Until the close of business on the Distribution Date, the Rights will be evidenced, with
respect to any of the Common Stock certificates outstanding as of the Record Date, by such Common
Stock certificate with a copy of this Summary of Rights. The “Distribution Date” will be
the tenth day following a public announcement that a person or group of affiliated or associated
persons (an “Acquiring Person”) has acquired beneficial ownership of 20% or more of the
outstanding shares of the Common Stock (the “Shares Acquisition Date”).

     The Rights Agreement provides that, until the Distribution Date (or earlier redemption or
expiration of the Rights), the Rights will be transferable only in connection with the transfer of
the Common Stock. Until the Distribution Date (or earlier redemption or expiration of the Rights),
new Common Stock certificates issued after the Record Date, upon transfer or new issuance of the
Common Stock, will contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer
of any of the Common Stock certificates outstanding as of the Record Date, even without a copy of
this Summary of Rights, will also constitute the transfer of the Rights associated with the Common
Stock represented by such certificate. As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights (“Right Certificates”) will be mailed to
holders of record of the Common Stock as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.

1

 

     The Rights are not exercisable until the Distribution Date. The Rights will expire on
November 20, 2010 (the “Final Expiration Date”) unless the Final Expiration Date is
extended or unless earlier redeemed or exchanged by the Company, in each case as described below.

     Each share of Preferred Stock purchasable upon exercise of the Rights will have a preferential
quarterly dividend rate equal to the greater of $1.00 per share or 1,000 times the dividend
declared on one share of the Common Stock. In the event of liquidation, the holders of the
Preferred Stock will receive a preferential liquidation payment of $1,000 per share, but will be
entitled to receive an aggregate liquidation payment equal to 1,000 times the payment made on one
share of Common Stock.

     Each share of Preferred Stock will have 1,000 votes voting together with the Common Stock.
Finally, in the event of any merger, consolidation or other transaction in which shares of Common
Stock are exchanged, each share of Preferred Stock will be entitled to receive 1,000 times the
amount received per one share of Common Stock. The Rights are protected by customary anti-dilution
provisions. Because of the nature of the Preferred Stock dividend, liquidation and voting rights,
the value of the one one-thousandth interest in a share of Preferred Stock purchasable upon
exercise of each Right should approximate the value of one share of Common Stock.

     The Purchase Price payable, and the number of shares of the Preferred Stock or other
securities or property issuable, upon exercise of the Rights are subject to adjustment from time to
time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of the Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of
certain rights or warrants to subscribe for shares of the Preferred Stock or convertible securities
at less than the current market price of the Preferred Stock or (iii) upon the distribution to
holders of the Preferred Stock of evidences of indebtedness or assets (excluding regular periodic
cash dividends out of earnings or retained earnings at a rate not in excess of 125% of the rate of
the last cash dividend theretofore paid or dividends payable in the Preferred Stock) or of
subscription rights or warrants (other than those referred to above).

     The number of outstanding Rights and the number of one one-thousandths of a share of Preferred
Stock issuable upon exercise of each Right are also subject to adjustment in the event of a stock
split of the Common Stock or a stock dividend on the Common Stock payable in shares of Common Stock
or subdivisions, consolidations or combinations as of the Common Stock occurring, in any such case,
prior to the Distribution Date.

     In the event that the Company is acquired in a merger or other business combination
transaction or 50% or more of its assets or earning power are sold after a person or group has
become an Acquiring Person, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the Purchase Price, that number
of shares of the senior voting stock of the acquiring company that at the time of such transaction
would have a market value of two times the Purchase Price. In the event that any person or group
of affiliated or associated persons becomes an Acquiring Person, proper provision will be made so
that each holder of a Right, other than Rights that were or are beneficially owned by the Acquiring
Person (which will thereafter be void), will thereafter have the right to receive upon

2

 

exercise that number of shares of the Common Stock having a market value of two times the
Purchase Price.

     With certain exceptions, no adjustment in the Purchase Price will be required until cumulative
adjustments require an adjustment of at least 1% in such Purchase Price. No fractional shares of
Preferred Stock will be issued (other than fractions that are integral multiples of one
one-thousandth of a share of Preferred Stock, which may, at the election of the Company, be
evidenced by depositary receipts) and, in lieu thereof, an adjustment in cash will be made based on
the market price of the Preferred Stock on the last trading date prior to the date of exercise.

     At any time after any person or group becomes an Acquiring Person and prior to the acquisition
by such person or group of 50% or more of the outstanding shares of Common Stock, the Board of
Directors of the Company may exchange the Rights (other than Rights owned by such person or group
that will have become void) in whole or in part, at an exchange ratio of one share of Common Stock
(or, if there is an insufficient number of issued but not outstanding or authorized but unissued
shares of Common Stock to permit such exchange, then one one-thousandth of a Preferred Share) per
Right (subject to adjustment).

     At any time prior to 5:00 p.m. San Antonio, Texas time on the earlier of (i) the Shares
Acquisition Date and (ii) the Final Expiration Date, the Board of Directors of the Company may
redeem the Rights in whole, but not in part, at a price of $0.001 per Right (the “Redemption
Price”). In addition, if a Qualified Offer (as described below) is made, the record holders of
10% of the outstanding shares of Common Stock may direct the Board of Directors of the Company to
call a special meeting of stockholders to consider a resolution authorizing a redemption of all
Rights. If the special meeting is not held within 90 business days of being called or if, at the
special meeting, the holders of a majority of the shares of Common Stock outstanding (other than
shares held by the offeror and its affiliated and associated persons) vote in favor of the
redemption of the Rights, then the Board will redeem the Rights or take such other action as may be
necessary to prevent the Rights from interfering with the consummation of the Qualified Offer.

     A Qualified Offer is an offer determined by the Board of Directors of the Company to be a
fully-financed offer for all outstanding shares of Common Stock at a per share offer price greater
than the highest reported market price for the Common Stock in the immediately preceding 24 months
that the Board of Directors of the Company, upon the advice of a nationally recognized investment
banking firm, does not deem to be either unfair or inadequate. A Qualified Offer is conditioned
upon a minimum of at least two-thirds of the outstanding shares of Common Stock not held by the
offeror (and its affiliated and associated persons) being tendered and not withdrawn, with a
commitment to acquire all shares of Common Stock not tendered for the same consideration. If the
Qualified Offer includes non-cash consideration, such consideration must consist solely of
freely-tradeable common stock of a publicly traded company, and the board and its representatives
must be given access to conduct a due diligence review of the offeror to determine whether the
consideration is fair and adequate. A Qualified Offer must also remain open for at least 120
business days following commencement.

3

 

     Immediately upon the action of the Board of Directors of the Company to redeem or exchange the
Rights, the Company shall make announcement thereof, and upon such action, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to receive the
Redemption Price, or the shares of Common Stock or Preferred Stock exchangeable for the Rights, as
applicable.

     Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder
of the Company, including, without limitation, the right to vote or to receive dividends.

     A committee of independent directors of the Company will review and evaluate the Rights
Agreement at least annually in order to consider whether the maintenance of the Rights Agreement
continues to be in the best interests of the Company and its stockholders. Following each such review, the committee shall communicate its
conclusions to the full Board of Directors, including any recommendation in light thereof as to
whether the Rights Agreement should be modified or the Rights should be redeemed.

4exv10w1

 

Exhibit 10.1

CONTRIBUTION, CONVEYANCE

AND ASSUMPTION AGREEMENT

     THIS CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT, dated as of November 15, 2007, is
entered into by and among Quest Resource Corporation, a Nevada corporation (“QRC”), Quest
Energy Partners, L.P., a Delaware limited liability partnership (“MLP”), Quest Energy GP,
LLC, a Delaware limited liability company (“GP”), Quest Cherokee, LLC, a Delaware limited
liability company (the “Operating Company”), Quest Oil & Gas, LLC, a Kansas limited
liability company wholly-owned by QRC (“Quest O&G”), and Quest Energy Service, LLC, a
Kansas limited liability company wholly-owned by QRC (“Energy Service”). The parties to
this agreement are collectively referred to herein as the “Parties.”

RECITALS

     WHEREAS, QRC and GP have formed MLP, pursuant to the Delaware Revised Uniform Limited
Partnership Act (the “Delaware LP Act”), for the purpose of engaging in any business
activity that is approved by GP and that lawfully may be conducted by a limited partnership
organized pursuant to the Delaware LP Act;

     WHEREAS, in order to accomplish the objectives and purposes in the preceding recital, the
following actions have been taken prior to the date hereof:

	 	1.	 	QRC formed GP, under the terms of the Delaware Limited Liability Company Act,
and contributed $1,000 in exchange for all of the membership interests in GP.
	 
	 	2.	 	QRC and GP formed MLP, under the terms of the Delaware LP Act, to which QRC
contributed $980 in exchange for a 98% limited partner interest in MLP, and GP
contributed $20 in exchange for a 2% general partner interest in MLP.
	 
	 	3.	 	STP Cherokee, LLC, an Oklahoma limited liability company wholly-owned by QRC
and which owned a 37.26% membership interest in the Operating Company, merged with and
into QRC, with QRC as the surviving entity in such merger.
	 
	 	4.	 	J-W Gas Gathering, L.L.C., a Kansas limited liability company, the sole member
of which was Producers Service, LLC, a Kansas limited liability company
(“Producers”), the sole member of which was Ponderosa Gas Pipeline Company,
LLC, a Kansas limited liability company wholly-owned by QRC (“Ponderosa”), and
which owned an 8.82% membership interest in the Operating Company, was merged with and
into Producers, with Producers as the surviving entity in such merger.
	 
	 	5.	 	Producers, which owned a 0.71% membership interest in the Operating Company
prior to the merger described above, was merged with and into Ponderosa, with Ponderosa
as the surviving entity in such merger.

 

 

	 	6.	 	Ponderosa, which owned a 3.35% membership interest in the Operating Company
prior to the mergers described above, was merged with and into QRC, with QRC as the
surviving entity in such merger.
	 
	 	7.	 	Operating Company conveyed all of the Retained Assets to Quest O&G.

     WHEREAS, concurrently with the consummation of the transactions contemplated hereby, each of
the following matters shall occur:

	 	1.	 	Each of Energy Service and Quest O&G will convey its entire membership
interests in the Operating Company, which owns the E&P Assets, to QRC, after which QRC
will own all of the membership interests in the Operating Company.
	 
	 	2.	 	QRC will convey a membership interest in the Operating Company to GP with a
value equal to 2% of the equity value of MLP on the closing date of the Offering (the
“Interest”) as an additional capital contribution.
	 
	 	3.	 	GP will convey the Interest in the Operating Company to MLP in exchange for (a)
a continuation of its 2% general partner interest (which is equal to 431,827 General
Partner Units) in MLP and (b) the issuance of IDRs in MLP.
	 
	 	4.	 	QRC will convey to MLP its remaining membership interest in the Operating
Company in exchange for (a) 3,201,521 Common Units in the MLP and (b) 8,857,981
Subordinated Units in the MLP.
	 
	 	5.	 	Existing lenders under the Credit Facilities will assign such facilities to a
new group of lenders (the “New Lenders”).
	 
	 	6.	 	QRC, the Operating Company and the New Lenders will amend and restate the
Credit Facilities into an Amended and Restated Credit Agreement (the “Amended
Credit Agreement”) that will include a $250.0 million revolving credit facility.
MLP will be a guarantor under the Amended Credit Agreement.
	 
	 	7.	 	QRC will enter into a new $50.0 million credit facility (the “QRC Credit
Agreement”).
	 
	 	8.	 	The public, through the Underwriters, will purchase 9,100,000 Common Units from
MLP in the Offering, representing a 42.1% limited partner interest in MLP, for $163.8
million in cash, less the net amount of $11.1 million payable to the Underwriters after
taking into account the Underwriters’ discount and a structuring fee payable to
Wachovia Capital Markets, LLC.
	 
	 	9.	 	MLP will use the net proceeds the Offering to (a) pay transaction expenses
related to the transactions contemplated by this Agreement and the Offering (exclusive
of the Underwriters’ discount and structuring fee) and (b) contribute the remaining net
proceeds of the Offering to the Operating Company, which will use the net proceeds to
repay a portion of the indebtedness under the Amended Credit Agreement.

2

 

	 	10.	 	QRC will borrow an amount under the QRC Credit Agreement to repay a portion of
the outstanding indebtedness under the Amended Credit Agreement to reduce the principal
amount of indebtedness under the Amended Credit Agreement to $75.0 million, at which
time QRC will be released as an obligor under the Amended Credit Agreement.
	 
	 	11.	 	To the extent that the Underwriters exercise their over-allotment option to
purchase up to 1,365,000 Common Units (the “Over-Allotment Option”), MLP will
use the net proceeds therefrom to redeem from QRC the number of Common Units equal to
the number of Common Units issued upon the exercise of the Over-Allotment Option.
	 
	 	12.	 	The organizational documents of the Parties will be amended and restated to the
extent necessary to reflect the applicable matters set forth above and as contained in
this Agreement.

     NOW, THEREFORE, in consideration of their mutual undertakings and agreements hereunder, the
Parties undertake and agree as follows:

ARTICLE I

DEFINITIONS

     SECTION 1.01. The following capitalized terms shall have the meanings given below.

	 	(a)	 	“Affiliate” has the meaning assigned to such term in the Partnership
Agreement.
	 
	 	(b)	 	“Agreement” means this Contribution, Conveyance and Assumption
Agreement.
	 
	 	(c)	 	“Amended Credit Agreement” has the meaning assigned to such term in the
Recitals.
	 
	 	(d)	 	“Assets” has the meaning assigned to such term in Section 4.01(a) of
this Agreement.
	 
	 	(e)	 	“Common Unit” has the meaning assigned to such term in the Partnership
Agreement.
	 
	 	(f)	 	“Credit Facilities” means each of the following (i) that certain
Amended and Restated Senior Credit Agreement, dated as of February 7, 2006, by and
among QRC, the Operating Company, Guggenheim Corporate Funding, LLC, and the lenders
party thereto, as amended by that certain Amendment No. 1 to Amended and Restated
Senior Credit Agreement, dated as of June 9, 2006, as further amended by that certain
Waiver and Amendment No. 2, dated as of December 22, 2006, and as further amended by
that certain Waiver and Amendment No. 3, dated as of April 25, 2007; (ii) that certain
Amended and Restated Second Lien Term Loan Agreement, dated as of June 9, 2006, by and
among the Operating Company, QRC, Guggenheim Corporate Funding, LLC, and the lenders
party

3

 

	 	 	 	thereto, as amended by that certain Waiver and Amendment No. 1, dated as of
December 22, 2006, and as further amended by that certain Waiver and Amendment
No. 2, dated as of April 25, 2007; and (iii) that certain Third Lien Term Loan
Agreement, dated as of June 9, 2006, by and among the Operating Company, QRC,
Guggenheim Corporate Funding, and the lenders party thereto, as amended by that
certain Waiver and Amendment No. 1, dated as of December 22, 2006, and as further
amended by that certain Waiver and Amendment No. 2, dated as of April 25, 2007.
	 
	 	(g)	 	“Delaware LP Act” has the meaning assigned to such term in the
Recitals.
	 
	 	(h)	 	“E&P Assets” means all of the gas and oil properties in the Cherokee
Basin, a 13-county region in southeastern Kansas and northeastern Oklahoma, and related
assets owned by the Operating Company as of the Effective Time, and 100% of the
outstanding membership interests of Quest Cherokee Oilfield Service, LLC.
	 
	 	(i)	 	“Effective Time” means 12:01 a.m. Central Time on November 15, 2007.
	 
	 	(j)	 	“Energy Service” has the meaning assigned to such term in the opening
paragraph of this Agreement.
	 
	 	(k)	 	“GP” has the meaning assigned to such term in the opening paragraph of
this Agreement.
	 
	 	(l)	 	“General Partner Unit” has the meaning assigned to such term in the
Partnership Agreement.
	 
	 	(m)	 	“IDR” means “Incentive Distribution Right” as such term is
defined in the Partnership Agreement.
	 
	 	(n)	 	“Indemnified Party” means either the Operating Company and MLP or QRC
and its Affiliates (other than members of the Partnership Group), as the case may be,
in their capacities as parties entitled to indemnification in accordance with
Article III hereof.
	 
	 	(o)	 	“Indemnifying Party” means either the Operating Company and MLP or QRC,
as the case may be, in their capacity as the parties from whom indemnification may be
required in accordance with Article III hereof.
	 
	 	(p)	 	“Interest” has the meaning assigned to such term in the Recitals.
	 
	 	(q)	 	“Losses” means any losses, damages, liabilities, claims, demands,
causes of action, judgments, settlements, fines, penalties, costs and expenses
(including, without limitation, court costs and reasonable attorney’s and experts’
fees) of any and every kind or character.
	 
	 	(r)	 	“MLP” has the meaning assigned to such term in the opening paragraph of
this Agreement.

4

 

	 	(s)	 	“New Lenders” has the meaning assigned to such term in the Recitals.
	 
	 	(t)	 	“Offering” means the offering by the MLP of Common Units to the public
in an underwritten public offering.
	 
	 	(u)	 	“Operating Company” has the meaning assigned to such term in the
opening paragraph of this Agreement.
	 
	 	(v)	 	“Over-Allotment Option” has the meaning assigned to such term in the
Recitals.
	 
	 	(w)	 	“Parties” has the meaning assigned to such term in the opening
paragraph of this Agreement.
	 
	 	(x)	 	“Partnership Agreement” means the Amended and Restated Agreement of
Limited Partnership of Quest Energy Partners, L.P. dated as of the date hereof.
	 
	 	(y)	 	“Partnership Group” has the same meaning assigned to such term in the
Partnership Agreement.
	 
	 	(z)	 	“Ponderosa” has the meaning assigned to such term in the Recitals.
	 
	 	(aa)	 	“Producers” has the meaning assigned to such term in the Recitals.
	 
	 	(bb)	 	“QRC” has the meaning assigned to such term in the opening paragraph of
this Agreement.
	 
	 	(cc)	 	“QRC Credit Agreement” has the meaning assigned to such term in the
Recitals.
	 
	 	(dd)	 	“Quest O&G” has the meaning assigned to such term in the opening
paragraph of this Agreement.
	 
	 	(ee)	 	“Registration Statement” means the registration statement on Form S-1
(file number 333-144716) filed by MLP relating to the Offering.
	 
	 	(ff)	 	“Retained Assets” means any assets owned by the Operating Company other
than E&P Assets, including without limitation undeveloped property located in the
States of Texas, New Mexico and Pennsylvania and related assets.
	 
	 	(gg)	 	“Subordinated Unit” has the meaning assigned to such term in the
Partnership Agreement.
	 
	 	(hh)	 	“Underwriters” means Wachovia Capital Markets, LLC, RBC Capital Markets
Corporation, Friedman, Billings, Ramsey & Co., Inc., Oppenheimer & Co. Inc., Stifel,
Nicolaus & Company, Incorporated and Wells Fargo Securities, LLC.

5

 

ARTICLE II

CONTRIBUTIONS, ACKNOWLEDGMENTS AND DISTRIBUTIONS

     SECTION 2.01. Merger of QRC Subsidiaries. The Parties acknowledge that (a) STP
Cherokee, LLC merged with and into QRC and pursuant thereto the surviving entity was QRC, a Nevada
corporation, (b) J-W Gas Gathering, L.L.C. merged with and into Ponderosa and pursuant thereto the
surviving entity was Ponderosa, a Kansas limited liability company, (c) Producers merged with and
into Ponderosa and pursuant thereto the surviving entity was Ponderosa, a Kansas limited liability
company, and (d) Ponderosa merged with and into QRC and pursuant thereto the surviving entity was
QRC, a Nevada corporation.

     SECTION 2.02. Assignment of Credit Facilities to New Lenders. The Parties
acknowledge the assignment of the Credit Facilities to the New Lenders.

     SECTION 2.03. Amendment and Restatement of Credit Facilities. The Parties
acknowledge the amendment and restatement of the Credit Facilities into the Amended Credit
Agreement. MLP further acknowledges that it is a guarantor pursuant to the Amended Credit
Agreement. QRC will be released as an obligor under such Amended Credit Agreement pursuant to
Section 2.04 below.

     SECTION 2.04. Refinancing by QRC. The Parties acknowledge that QRC will enter into
the QRC Credit Agreement. Proceeds of $16.5 million under the QRC Credit Agreement will be used by
QRC to repay a portion of the outstanding indebtedness under the Amended Credit Agreement, at which
time QRC will be released as an obligor under the Amended Credit Agreement.

     SECTION 2.05. Distribution of the Operating Company Interest by Energy Service to
QRC. Energy Service hereby grants, distributes, bargains, conveys, assigns, transfers, sets
over and delivers to QRC, its successors and assigns, for its and their own use forever, all of
Energy Service’s right, title and interest in and to Energy Service’s entire membership interest in
the Operating Company, and QRC hereby accepts such membership interest.

     SECTION 2.06. Distribution of the Operating Company Interest by Quest O&G to QRC.
Quest O&G hereby grants, distributes, bargains, conveys, assigns, transfers, sets over and delivers
to QRC, its successors and assigns, for its and their own use forever, all of Quest O&G’s right,
title and interest in and to Quest O&G’s entire membership interest in the Operating Company, and
QRC hereby accepts such membership interest.

     SECTION 2.07. Distribution of the Retained Assets by the Operating Company to QRC.
The Operating Company hereby grants, distributes, bargains, conveys, assigns, transfers, sets over
and delivers to Quest O&G, its successors and assigns, for its and their own use forever, all of
the Operating Company’s right, title and interest in and to the Retained Assets, and Quest O&G
hereby accepts such assets.

     SECTION 2.08. Contribution of the Operating Company Interest by QRC to GP. QRC
hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to GP,
its

6

 

successors and assigns, for its and their own use forever, all of QRC’s right, title and
interest in and to the Interest in the Operating Company, as a capital contribution, and GP hereby
accepts such Interest as a contribution to the capital of GP.

     SECTION 2.09. Contribution of the Operating Company Interest by GP to MLP. GP hereby
grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to MLP, its
successors and assigns, for its and their own use forever, all of GP’s right, title and interest in
and to the Interest in the Operating Company, as a capital contribution, in exchange for 431,827
General Partner Units representing a 2% general partner interest in MLP and the issuance of the
Incentive Distribution Rights, and MLP hereby accepts the Interest as a contribution to the capital
of MLP.

     SECTION 2.10. Contribution of the Operating Company Interest by QRC to MLP. QRC
hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to MLP,
its successors and assigns, for its and their own use forever, all of QRC’s right, title and
interest in and to its remaining membership interest in the Operating Company, as a capital
contribution, in exchange for 3,201,521 Common Units, representing a 14.8% limited partner interest
in MLP, and 8,857,981 Subordinated Units, representing a 41.0% limited partner interest in MLP, and
MLP hereby accepts such membership interest as a contribution to the capital of MLP.

     SECTION 2.11. Public Cash Contribution. The Parties acknowledge a capital
contribution by the public through the Underwriters to MLP of $163.8 million in cash ($152.7
million net to MLP after taking into account the Underwriters’ discount and the structuring fee
payable to Wachovia Capital Markets, LLC) in exchange for 9,100,000 Common Units representing a
42.1% limited partner interest in MLP.

     SECTION 2.12. Payment of Transaction Expenses by MLP; Cash Contribution by MLP. The
Parties acknowledge (a) the payment by MLP, in connection with the Offering and the transactions
contemplated hereby, of transaction expenses in the amount of approximately $1.5 million (exclusive
of the Underwriters’ discount and the structuring fee) and (b) the contribution by MLP of the net
proceeds of the Offering of approximately $151.2 million to the Operating Company. MLP agrees to
cause the Operating Company to use the funds pursuant to clause (b) above to repay a portion of its
indebtedness outstanding under the Amended Credit Agreement.

     SECTION 2.13. Over-Allotment Option. The Parties acknowledge that in the event the
Underwriters exercise their Over-Allotment Option, MLP will use the net proceeds therefrom to
redeem from QRC the number of Common Units equal to the number of Common Units issued upon the
exercise of the Over-Allotment Option.

ARTICLE III

INDEMNIFICATION

     SECTION 3.01. Indemnification by the Operating Company. Subject to Section 3.03
below, the Operating Company and MLP shall indemnify, defend and hold harmless QRC and its
Affiliates (other than members of the Partnership Group) from and against all Losses suffered or
incurred by QRC or such Affiliates by reason of or arising out of the legal proceedings set forth
on Exhibit A hereto and any and all claims or legal proceedings arising out of or relating to

7

 

substantially the same facts and circumstances as those which are the subject, in whole or in
part, of any such legal proceedings.

     SECTION 3.02. Indemnification by QRC. Subject to Section 3.03 below, QRC and its
Affiliates (other than members of the Partnership Group) shall indemnify, defend and hold harmless
the Operating Company or MLP from and against all Losses suffered or incurred by the Operating
Company or MLP by reason of or arising out of the legal proceeding set forth on Exhibit B hereto
and any and all claims or legal proceedings arising out of or relating to substantially the same
facts and circumstances as those which are the subject, in whole or in part, of such legal
proceeding.

     SECTION 3.03. Indemnification Procedures.

     (a) The Indemnified Party agrees that promptly after it becomes aware of facts giving
rise to a claim for indemnification under this Article III other than as to the existence of
the legal proceedings listed in Exhibits A and B, it will provide notice thereof in writing
to the Indemnifying Party, specifying the nature of and specific basis for such claim;
provided, however, that the Indemnified Party shall be under no obligation to provide notice
pursuant to this Section 3.03 in the event that the Indemnifying Party is a named
co-defendant in the litigation giving rise to the Indemnified Party’s right to
indemnification in accordance with this Article III.

     (b) The Indemnifying Party shall have the right to control all aspects of the defense
of (and any counterclaims with respect to) any claims brought against the Indemnified Party
that are covered by the indemnification under this Article III, including, without
limitation, the selection of counsel, determination of whether to appeal any decision of any
court and the settling of any such matter or any issues relating thereto; provided, however,
that no such settlement shall be entered into without the consent of the Indemnified Party
unless it includes a full release of the Indemnified Party from such matter or issues, as
the case may be, and does not include the admission of fault, culpability or a failure to
act, by or on behalf of such Indemnified Party.

     (c) The Indemnified Party agrees to cooperate fully with the Indemnifying Party, with
respect to all aspects of the defense of any claims covered by the indemnification under
this Article III, including, as applicable and without limitation, the prompt furnishing to
the Indemnifying Party of any correspondence or other notice relating thereto that the
Indemnified Party may receive, permitting the name of the Indemnified Party to be utilized
in connection with such defense, the making available to the Indemnifying Party of any
files, records or other information of the Indemnified Party that the Indemnifying Party
considers relevant to such defense and the making available to the Indemnifying Party of any
employees of the Indemnified Party; provided, however, that in connection therewith the
Indemnifying Party agrees to use reasonable efforts to minimize the impact thereof on the
operations of the Indemnified Party and further agrees to maintain the confidentiality of
all files, records or other information furnished by the Indemnified Party pursuant to this
Section 3.03. In no event shall the obligation of the Indemnified Party to cooperate with
the Indemnifying Party as set forth in the immediately preceding sentence be construed as
imposing upon the Indemnified Party an obligation to hire and pay for counsel in connection
with the defense of any claims

8

 

covered by the indemnification set forth in this Article III; provided, however, that
the Indemnified Party may, at its own option, cost and expense, hire and pay for counsel in
connection with any such defense. The Indemnifying Party agrees to keep any such counsel
hired by the Indemnified Party informed as to the status of any such defense, but the
Indemnifying Party shall have the right to retain sole control over such defense.

     (d) In determining the amount of any Losses for which the Indemnified Party is entitled
to indemnification under this Agreement, the gross amount of the indemnification will be
reduced by (i) any insurance proceeds realized by the Indemnified Party, and such
correlative insurance benefit shall be net of any incremental insurance premium that becomes
due and payable by the Indemnified Party as a result of such claim and (ii) all amounts
recovered by the Indemnified Party under contractual indemnities from third Persons less the
costs incurred by the Indemnified Party in obtaining such recovery.

ARTICLE IV

TITLE MATTERS

     SECTION 4.01. Encumbrances.

     (a) Except to the extent provided in any other document executed in connection with
this Agreement or the Offering, the contribution and conveyance (by operation of law or
otherwise) of the membership interests in the Operating Company (including the E&P Assets
owned by or transferred to the Operating Company) (collectively, the “Assets”)
pursuant to this Agreement are made expressly subject to all recorded and unrecorded liens
(other than consensual liens), encumbrances, agreements, defects, restrictions, adverse
claims and all laws, rules, regulations, ordinances, judgments and orders of governmental
authorities or tribunals having or asserting jurisdictions over the Assets and operations
conducted thereon or in connection therewith, in each case to the extent the same are valid
and enforceable and affect the Assets, including all matters that a current survey or visual
inspection of the Assets would reflect.

     (b) To the extent that certain jurisdictions in which the Assets are located may
require that documents be recorded in order to evidence the transfers of title reflected in
this Agreement, then the provisions set forth in Section 4.01(a) immediately above shall
also be applicable to the conveyances under such documents.

     SECTION 4.02. Disclaimer of Warranties; Subrogation; Waiver of Bulk Sales Laws.

     (a) EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN
CONNECTION WITH THIS AGREEMENT OR THE OFFERING, INCLUDING, WITHOUT LIMITATION, THE OMNIBUS
AGREEMENT, THE PARTIES ACKNOWLEDGE AND AGREE THAT NONE OF THE PARTIES HAS MADE, DOES NOT
MAKE, AND EACH SUCH PARTY SPECIFICALLY NEGATES AND DISCLAIMS, ANY REPRESENTATIONS,
WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF

9

 

ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS, IMPLIED OR STATUTORY, ORAL OR
WRITTEN, PAST OR PRESENT, REGARDING (A) THE VALUE, NATURE, QUALITY OR CONDITION OF THE
ASSETS OR THE RETAINED ASSETS INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL, GEOLOGY OR
ENVIRONMENTAL CONDITION OF THE ASSETS OR THE RETAINED ASSETS GENERALLY, INCLUDING THE
PRESENCE OR LACK OF HAZARDOUS SUBSTANCES OR OTHER MATTERS ON THE ASSETS OR THE RETAINED
ASSETS, (B) THE INCOME TO BE DERIVED FROM THE ASSETS OR THE RETAINED ASSETS, (C) THE
SUITABILITY OF THE ASSETS OR THE RETAINED ASSETS FOR ANY AND ALL ACTIVITIES AND USES THAT
MAY BE CONDUCTED THEREON, (D) THE COMPLIANCE OF OR BY THE ASSETS OR THE RETAINED ASSETS OR
THEIR OPERATION WITH ANY LAWS (INCLUDING WITHOUT LIMITATION ANY ZONING, ENVIRONMENTAL
PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATIONS, ORDERS OR REQUIREMENTS) OR (E)
THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OF THE ASSETS OR THE RETAINED ASSETS. EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER
DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE OFFERING, INCLUDING,
WITHOUT LIMITATION, THE OMNIBUS AGREEMENT, THE PARTIES ACKNOWLEDGE AND AGREE THAT EACH HAS
HAD THE OPPORTUNITY TO INSPECT THE ASSETS OR THE RETAINED ASSETS, AND EACH IS RELYING SOLELY
ON ITS OWN INVESTIGATION OF THE ASSETS OR THE RETAINED ASSETS AND NOT ON ANY INFORMATION
PROVIDED OR TO BE PROVIDED BY ANY OF THE PARTIES. EXCEPT TO THE EXTENT PROVIDED IN ANY
OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE OFFERING,
INCLUDING, WITHOUT LIMITATION, THE OMNIBUS AGREEMENT, NONE OF THE PARTIES IS LIABLE OR BOUND
IN ANY MANNER BY ANY VERBAL OR WRITTEN STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING
TO THE ASSETS OR THE RETAINED ASSETS FURNISHED BY ANY AGENT, EMPLOYEE, SERVANT OR THIRD
PARTY. EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN
CONNECTION WITH THIS AGREEMENT OR THE OFFERING, INCLUDING, WITHOUT LIMITATION, THE OMNIBUS
AGREEMENT, EACH OF THE PARTIES ACKNOWLEDGES THAT TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE
CONTRIBUTION OF THE ASSETS OR THE RETAINED ASSETS AS PROVIDED FOR HEREIN IS MADE IN AN “AS
IS”, “WHERE IS” CONDITION WITH ALL FAULTS, AND THE ASSETS OR THE RETAINED ASSETS ARE
CONTRIBUTED AND CONVEYED SUBJECT TO ALL OF THE MATTERS CONTAINED IN THIS SECTION. THIS
SECTION SHALL SURVIVE SUCH CONTRIBUTION AND CONVEYANCE OR THE TERMINATION OF THIS AGREEMENT.
THE PROVISIONS OF THIS SECTION HAVE BEEN NEGOTIATED BY THE PARTIES AFTER DUE CONSIDERATION
AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY REPRESENTATIONS OR
WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, WITH

10

 

RESPECT TO THE ASSETS THAT MAY ARISE PURSUANT TO ANY LAW NOW OR HEREAFTER IN EFFECT, OR
OTHERWISE, EXCEPT AS SET FORTH IN THIS AGREEMENT OR ANY OTHER DOCUMENT EXECUTED OR DELIVERED
IN CONNECTION WITH THIS AGREEMENT OR THE OFFERING INCLUDING, WITHOUT LIMITATION, THE OMNIBUS
AGREEMENT.

     (b) The contribution and transfers of the Assets and Retained Assets made under this
Agreement are made with full rights of substitution and subrogation of the respective
parties receiving such transfers and contributions, and all persons claiming by, through and
under such parties, to the extent assignable, in and to all covenants and warranties by the
predecessors-in-title of the parties contributing or transferring the Assets or the Retained
Assets, as the case may be, and with full subrogation of all rights accruing under
applicable statutes of limitation and all rights of action of warranty against all former
owners of the Assets and Retained Assets, as the case may be.

     (c) Each of the Parties agrees that the disclaimers contained in this Section 4.02 are
“conspicuous” disclaimers. Any covenants implied by statute or law by the use of the words
“grant,” “convey,” “bargain,” “sell,” “assign,” “transfer,” “deliver” or “set over” or any
of them or any other words used in this Agreement or any exhibits hereto are hereby
expressly disclaimed, waived or negated.

     (d) Each of the Parties hereby waives compliance with any applicable bulk sales law or
any similar law in any applicable jurisdiction in respect of the transactions contemplated
by this Agreement.

ARTICLE V

FURTHER ASSURANCES

     SECTION 5.01. Further Assurances. From time to time after the Effective Time, and
without any further consideration, the Parties agree to execute, acknowledge and deliver all such
additional deeds, assignments, bills of sale, conveyances, instruments, notices, releases,
acquittances and other documents, and will do all such other acts and things, all in accordance
with applicable law, as may be necessary or appropriate (a) more fully to assure that the
applicable Parties own all of the properties, rights, titles, interests, estates, remedies, powers
and privileges granted by this Agreement, or which are intended to be so granted, or (b) more fully
and effectively to vest in the applicable Parties and their respective successors and assigns
beneficial and record title to the interests contributed and assigned by this Agreement or intended
so to be and to more fully and effectively carry out the purposes and intent of this Agreement.

     SECTION 5.02. Other Assurances. From time to time after the Effective Time, and
without any further consideration, each of the Parties shall execute, acknowledge and deliver all
such additional instruments, notices and other documents, and will do all such other acts and
things, all in accordance with applicable law, as may be necessary or appropriate to more fully and
effectively carry out the purposes and intent of this Agreement. Without limiting the generality
of the foregoing, the Parties acknowledge that the Parties have used their good faith efforts to
attempt to identify all of the assets being contributed to MLP as required in connection with the
Offering. However, it is possible that assets intended to be contributed to MLP were not

11

 

identified and therefore are not included in the Assets. It is the express intent of the
Parties that MLP own all assets necessary to operate the assets that are identified in this
Agreement and in the Registration Statement. To the extent any assets were not identified but are
necessary to the operation of assets that were identified, then the intent of the Parties is that
all such unidentified assets are intended to be conveyed to the appropriate members of the
Partnership Group. To the extent such assets are identified at a later date, the Parties shall
take the appropriate actions required in order to convey all such assets to the appropriate members
of the Partnership Group. Likewise, to the extent that assets are identified at a later date that
were not intended by the Parties to be conveyed as reflected in this Agreement, the Parties shall
take the appropriate actions required in order to convey all such assets to the appropriate party.
For the avoidance of doubt, the provisions of this Section shall apply to the Retained Assets as
well as the Assets.

ARTICLE VI

EFFECTIVE TIME

     Notwithstanding anything contained in this Agreement to the contrary, none of the provisions
of Article II or Article III of this Agreement shall be operative or have any effect until the
Effective Time, at which time all the provisions of Article II or Article III of this Agreement
shall be effective and operative in accordance with Section 7.01 and this Article VI, without
further action by any Party.

ARTICLE VII

MISCELLANEOUS

     SECTION 7.01. Order of Completion of Transactions. Except for the transactions
provided for in Section 2.01, which have been completed prior to the date hereof, the transactions
provided for in Article II of this Agreement shall be completed on the date hereof in the order set
forth therein.

     SECTION 7.02. Costs. MLP shall pay all expenses, fees and costs, including but not
limited to, all sales, use and similar taxes arising out of the contributions, conveyances and
deliveries to be made hereunder and shall pay all documentary, filing, recording, transfer, deed,
and conveyance taxes and fees required in connection therewith. In addition, MLP shall be
responsible for all costs, liabilities and expenses (including court costs and reasonable
attorneys’ fees) incurred in connection with the implementation of any conveyance or delivery
pursuant to Article V of this Agreement.

     SECTION 7.03. Headings; References; Interpretation. All Article and Section headings
in this Agreement are for convenience only and shall not be deemed to control or affect the meaning
or construction of any of the provisions hereof. The words “hereof,” “herein” and “hereunder” and
words of similar import, when used in this Agreement, shall refer to this Agreement as a whole,
including, without limitation, all Schedules and Exhibits attached hereto, and not to any
particular provision of this Agreement. All references herein to Articles, Sections, Schedules and
Exhibits shall, unless the context requires a different construction, be deemed to be references to
the Articles and Sections of this Agreement and the Schedules and Exhibits attached hereto, and all
such Schedules and Exhibits attached hereto are hereby incorporated herein and made a part hereof
for all purposes. All personal pronouns used in this Agreement,

12

 

whether used in the masculine, feminine or neuter gender, shall include all other genders, and
the singular shall include the plural and vice versa. The use herein of the word “including”
following any general statement, term or matter shall not be construed to limit such statement,
term or matter to the specific items or matters set forth immediately following such word or to
similar items or matters, whether or not non-limiting language (such as “without limitation”, “but
not limited to”, or words of similar import) is used with reference thereto, but rather shall be
deemed to refer to all other items or matters that could reasonably fall within the broadest
possible scope of such general statement, term or matter.

     SECTION 7.04. Successors and Assigns. No Party shall have the right to assign its
rights or obligations under this Agreement without the prior written consent of all of the other
Parties. The Agreement shall be binding upon and inure to the benefit of the Parties and their
respective successors and assigns.

     SECTION 7.05. Third Party Rights. The provisions of this Agreement are intended to
bind the Parties as to each other and are not intended to and do not create rights in any other
person or confer upon any other person any benefits, rights or remedies and no other person is or
is intended to be a third party beneficiary of any of the provisions of this Agreement.

     SECTION 7.06. Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one agreement binding on the Parties.

     SECTION 7.07. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Kansas applicable to contracts made and to be performed
wholly within such state without giving effect to conflict of law principles thereof.

     SECTION 7.08. Severability. If any of the provisions of this Agreement are held by
any court of competent jurisdiction to contravene, or to be invalid under, the laws of any
political body having jurisdiction over the subject matter hereof, such contravention or invalidity
shall not invalidate the entire Agreement. Instead, this Agreement shall be construed as if it did
not contain the particular provision or provisions held to be invalid and an equitable adjustment
shall be made and necessary provision added so as to give effect to the intention of the Parties as
expressed in this Agreement at the time of execution of this Agreement.

     SECTION 7.09. Amendment or Modification. This Agreement may be amended or modified
from time to time only by the written agreement of all the Parties. Each such instrument shall be
reduced to writing and shall be designated on its face as an Amendment to this Agreement.

     SECTION 7.10 Notice. All notices or requests or consents provided for or permitted
to be given pursuant to this Agreement must be in writing and must be given by depositing same in
the United States mail, addressed to the Person to be notified, postpaid and registered or
certified with return receipt requested or by delivering such notice in person or by fax to such
Party. Notice given by personal delivery or mail shall be effective upon actual receipt. Notice
given by fax shall be effective upon actual receipt if received during the recipient’s normal
business hours, or at the beginning of the recipient’s next business day after receipt if not
received during the recipient’s normal business hours. All notices to be sent to a Party pursuant
to this Agreement shall be sent to or made at the address set forth below or at such other address
as such Party may provide to the other Parties in the manner provided in this Section 7.10.

13

 

	 	(a)	 	For notices to QRC, Energy Services or Quest O&G:
	 
	 	 	 	Quest Resource Corporation

Oklahoma Tower

210 Park Avenue, Suite 2750

Oklahoma City, Oklahoma 73102

Attn: Chief Executive Officer
	 
	 	(b)	 	For notices to the GP, MLP or Operating Company:
	 
	 	 	 	Quest Energy Partners, L.P.

c/o Quest Energy GP, LLC

Oklahoma Tower

210 Park Avenue, Suite 2750

Oklahoma City, Oklahoma 73102

Attn: Chief Executive Officer

     SECTION 7.10. Integration. This Agreement and the instruments referenced herein
supersede all previous understandings or agreements among the Parties, whether oral or written,
with respect to their subject matter. This document and such instruments contain the entire
understanding of the Parties with respect to the subject matter hereof and thereof. No
understanding, representation, promise or agreement, whether oral or written, is intended to be or
shall be included in or form part of this Agreement unless it is contained in a written amendment
hereto executed by the Parties after the date of this Agreement.

     SECTION 7.11. Deed; Bill of Sale; Assignment. To the extent required and permitted
by applicable law, this Agreement shall also constitute a “deed,” “bill of sale” or “assignment” of
the assets and interests referenced herein.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

14

 

     IN WITNESS WHEREOF, this Agreement has been duly executed by the Parties as of the date first
above written.

	 	 	 	 	 	 	 
	 	 	QUEST RESOURCE CORPORATION	 	 
	 
	 	 	 	 	 	 
	 
	 	/s/ Jerry D. Cash	 	 
	 	 	 	 	 
	 

	 	Name:
	 	Jerry D. Cash	 	 
	 

	 	Title:
	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	QUEST ENERGY PARTNERS, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	Quest Energy GP, LLC, its general
partner	 	 
	 
	 	 	 	 	 	 
	 
	 	/s/ Jerry D. Cash	 	 
	 	 	 	 	 
	 

	 	Name:
	 	Jerry D. Cash	 	 
	 

	 	Title:
	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	QUEST ENERGY GP, LLC	 	 
	 
	 	 	 	 	 	 
	 
	 	/s/ Jerry D. Cash	 	 
	 	 	 	 	 
	 

	 	Name:
	 	Jerry D. Cash	 	 
	 

	 	Title:
	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	QUEST CHEROKEE, LLC	 	 
	 
	 	 	 	 	 	 
	 
	 	/s/ Jerry D. Cash	 	 
	 	 	 	 	 
	 

	 	Name:
	 	Jerry D. Cash	 	 
	 

	 	Title:
	 	Manager	 	 

15

 

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	QUEST ENERGY SERVICE, LLC	 	 
	 
	 	 	 	 	 	 
	 
	 	/s/ Jerry D. Cash	 	 
	 	 	 	 	 
	 

	 	Name:
	 	 Jerry D. Cash	 	 
	 

	 	Title:
	 	 Chief Executive Officer and President	 	 
	 
	 	 	 	 	 	 
	 	 	QUEST OIL & GAS, LLC	 	 
	 
	 	 	 	 	 	 
	 
	 	/s/ Jerry D. Cash	 	 
	 	 	 	 	 
	 

	 	Name:
	 	 Jerry D. Cash	 	 
	 

	 	Title:
	 	 Chief Executive Officer and President	 	 

16

 

EXHIBIT A

[State of Kansas]

1. Central Natural Resources, Inc. v. Quest Cherokee, LLC, Bluestem Pipeline, LLC, et al.,
Case No. 04-C-100-PA, Labette County District Court

2. Central Natural Resources, Inc. v. Quest Cherokee, LLC, Case No. CJ-06-07, Craig County,
Oklahoma District Court

3. Labette Energy, LLC v STP Cherokee and Quest Cherokee, LLC, Case No. 05 CV 41, Labette
County District Court

4. Endeavor Energy Resources, L.P., et al. v. Quest Cherokee LLC, Case No. 05-CV-39
Montgomery County District Court

5. Roger Dean Daniels v. Quest Cherokee LLC, Case No.06-CV-61, Montgomery County District
Court

6. Quest Cherokee, LLC v. Hinkles & Admiral Bay, Case No. 2006-CV-74, Labette County
District Court

7. Robert King, Trustee of Orville B. King and Juanita G. King Trust v. Quest Cherokee,
LLC, Case No. 06-CV-86, Labette County District Court

8. Russell Freeman, d/b/a Continental Energy v. Quest Oil & Gas Corporation, Quest Cherokee,
LLC, et al., Case No. 2006-CV-28, Chautauqua County District Court

9. Carol R. Knisely, et al. vs. Quest Cherokee, LLC, Case No. 07-CV-58I, Montgomery County
District Court

10. In the Matter to Show Cause on the Commission’s Own Motion Issued to Quest Cherokee,
LLC, KCC Docket No. 07-CONS-155-CSHO

 

 

11. In the Matter of the Complaint of Roger Daniels against Quest Cherokee, LLC, KCC Docket
No. 07-CONS-207-CMSC

12. Lakeview Golf Course, LLC v. Quest Cherokee, LLC, Case No. 07-CV-75I, Montgomery County
District Court

13. Thomas R. Erbe and Janet L. Erbe v. Quest Cherokee, LLC, Case No. 07-CV-32, Wilson
County District Court

14. Lawrence Lee Ranes and Marianne Ranes v, Quest Cherokee, LLC, Case No. 07-CV-86I,
Montgomery County District Court

15. Charles J. Fink and Rebecca A. Fink v. Quest Cherokee, LLC, Case No. 07-CV-73I,
Montgomery County District Court

16. Hugo Spieker, et al. v. Quest Cherokee, LLC, Case No. 07-1225-MLB, U.S. District Court,
District of Kansas

17. Well Refined Drilling Co. v. Quest Cherokee, LLC, Case No. 2007 CV 91, Neosho County
District Court

18. Housel v. Quest Cherokee, LLC, Case No. 06-CV-26-I, Montgomery County District Court

19. Scott Tomlinson, et al. v. Quest Cherokee, LLC, Case No. 2007 CV 45, Wilson County
District Court

20. Well Refined Drilling Co. v. Quest Cherokee, LLC, et al., Case No. 2007 CV 47, Wilson
County District Court

[State of Oklahoma]

18

 

21. Hill v. Quest Resource Corporation, et al., Case No. CJ-2003-30, Craig County District
Court

22. Kirkpatrick v. STP, Inc., STP Cherokee, Inc. and Bluestem Pipeline, LLC, Case No.
CJ-2005-143, Craig County District Court

19

 

EXHIBIT B

[State of Kansas]

1. J.D. and Vickie Friess v. Quest Cherokee, L.L.C., Bluestem Pipeline, LLC, et al., Case
No. 06-CV-58, Labette County District Court

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